US must face harsh realities

Bye bye American pie

Will Hutton

The US faces a grave economic crisis. The confidence in the balance sheets and reported profitability of American companies has been shattered by an orgy of unprecedented corporate fraud, plunder and malfeasance that has demanded the connivance of its most reputable accounting firms, business leaders and banks. Only weeks ago news broke of the biggest ever accounting fraud in history at WorldCom, to be followed days later of an epic accounting swindle at Xerox.

Before them has been a string of others, with Enron the most famous collapse of all. The integrity of the entire system for channelling savings into investment is now in question, as is that of corporate America, just as America's debts to foreigners and its own consumers indebtedness have reached unsustainable levels. The country has been living beyond its means and inventing value when none existed. No one can predict with certainty how this will unravel, although the faltering of American consumer confidence and the sell-off of the dollar are already pointers. The dollar is threatening to inherit the sobriquet of 'toilet currency' once borne by the euro.

The US can and eventually will recover, but only when it comes to terms with the harshest of realities. That it does not possess a uniquely enterprising economic and financial model. That the scandals now hitting the headlines are not a case of one or two bad apples, but reveal systemic weaknesses in its financial system and methods of corporate governance which need root-and- branch reform. That American business ethics are abysmally low and require the toughest of policing. And that the US, like other economies that have pursued unsustainable and foolhardy policies, must go through a period of painful and difficult adjustment.

This is not just a case of companies fudging a billion here or there, as President Bush said in his folksy statement, and hoping nobody notices, a problem, as he characterises it, of individual ethics rather than systemic deformation. Rather, this is where America's business culture has led, legitimised by the conservative ideological barrage, now a generation old, which has transformed American public discourse. Everything should and must be pro-market, pro-business and pro-shareholder, a policy platform lubricated by colossal infusions of corporate cash into America's money-dominated political system.

Congresswoman Marcy Kaptur, for example, described the abysmally lax 1996 Telecoms Act - deregulating the telecoms industry and the precondition for the current scandals in the industry, lobbied for ferociously by WorldCom in order to unleash market forces - as 'living proof of what unlimited money can do to buy influence in the Congress of the United States'. The truth is that American business has bought the American executive and legislature alike.

It is this that makes crafting the right reaction to the crisis so hard. The Bush administration has become so attached to the conservative revolution and its attendant free-market fundamentalism that the change in thinking it must now make threatens to be beyond them, even if its corporate paymasters would allow it.

The need is to reregulate