It's been the worst six months for the capitalist system of production for profit in 30 years, if you measure it by the movement of the world's stock markets. In the six months to June 30, the US stock market had its biggest fall since 1970, down 14%. The hi-tech stock index, the Nasdaq, fell 27% and the index for the eight biggest European markets fell by an average 18%.
And it's not surprising why. In the last six months, we have seen the world's biggest ever bankruptcy, when Enron, the global energy conglomerate went bust, leaving $70 billion of debts. Then we had the world's biggest write-off of corporate debt when AOL Time Warner, the media company wrote off losses of $60 billion in one three-month period. Then we had the biggest example of illegal tax evasion when the chief executive of Tyco was found to have made illegal payments to all and sundry (including himself) without declaring them for tax. Apparently, Dennis Kozlowski spent about $8 billion in 700 purchases not included in the company accounts.
And last week, to top it all, capitalist investors suffered the worst corporate fraud in history, when the telecom company WorldCom announced that its finance director had fiddled the books to boost profits that weren't there by nearly $4 billion. WorldCom now faces bankruptcy, and one that will beat Enron, at $90 billion.
No wonder investors are wondering which company and which scandal will be next and are selling their stocks. It won't be long. Already, it has been revealed that the world's biggest company, General Electric, has been "massaging" its profits figures by transferring income from the employee pension fund. That's put the pension fund into deficit by billions of dollars, but made GE's profits report look much better than it really is. The same fiddle is being carried out by big companies like Cisco, Disney and others in Europe. Last week, Xerox, the old photocopier company, announced that it was revising its profits figures for the last five years, reducing them by $6 billion. In other words, what it told investors before was just untrue.
It's not just in the US. In France, the Vivendi Universal announced the biggest loss in French history, while the new right-wing French government has hinted today that it might be forced to renationalise France Telecom to clear its debts rather than let the stock price collapse any more. There's the reality of big business. Leave companies to make as much profits as they can without any regulation or control - but if they start losing money for their shareholders, get the taxpayer (the workers) to bail them out with subsidies and sackings.
The chief executives of these crooked companies will mostly escape the consequences of their thievery. Scott Sullivan, the financial director of WorldCom continues to have built a £2 million waterfront mansion in Florida. Sullivan's Mediterranean-style estate has an hourglass-shaped swimming pool. But time is not yet tolling for him. Enron finance officer Andrew Fastow has construction crews working daily on his £1 million mansion in Houston. Martha Stewart, head of the home decorating company, is under investigation for "insider trading" (selling shares because of information not available before public announcements that drive the price down). Stewart continues with her renovation of a 153-acre farm at the cost of $15 million. Global Crossing chairman Gary Winnick is spending $15 million on his Bel Air mansion in Los Angeles although his company has gone bankrupt with thousands out of a job.
And of course, it is the workers in these corporations run by corrupt crooks that take the hit. Enron's tens of thousands of workers around the world are out of a job and their pensions are worthless. WorldCom management immediately announced 17,000 redundancies, a quarter of the workforce. And GE has been cutting jobs at a regular pace.
What does this huge con tell us? It proves the lie and the myth propagated by the prophets of capitalism that organising a system of production based on making profits is the best, cleanest and most efficient way of meeting the needs of 6 billion human beings. What could be more damning that to show that, not only does the profit system fail to provide jobs, homes and decent living conditions for most people, it can't even make a profit!
The boom of the late 1990s was based on the foundations of sand, or to be more exact on the illusion of the New Economy of the hi-tech and the internet. Trillions of dollars were invested in whiz kids with some wacky idea and a small company, or in building thousands of miles of fibre optic cable and satellite systems. But when the profits did not materialise and the whiz kids used up all the money, we ended up with ITV Digital, World Crossing, Enron and now WorldCom. It was a complete World Con. Corporate executives lived off the fat of the boom. But when the tide ebbed, the nasty rocks of failure, corruption and thievery were revealed.
Now the big corporations, particularly those in the New Economy of telecommunications and computers, are wildly over-invested. They cannot sell nearly enough to cover the cost of past investments. As the former head of General Electric, the leader of the company during its great rise, Jack Welch, commented last week: "Nobody is feeling bullish. There's lots of capacity, global capacity out there. Everyone has too much capacity. There's not a lot of reason to invest."
Exactly! Profits are down. There is already too much capital, so the result will be no investment and a further deflation of demand for capital goods. That means more redundancies and slowing of income growth and consumer spending. It won't matter that interest rates are at record lows. There is no point in borrowing money if there is nothing to invest in or no production to increase.
For the moment, most people in the US, UK and around the more developed capitalist world are relying on the value of the homes they live in to keep them feeling prosperous. House prices are soaring at a 20% rate in the UK. But this is another bubble set to burst, probably next year as the world economy slips back. The hi-tech, dot.com bubble burst in 2000, the stock market bubble burst in 2001 and the dollar bubble burst this year. Next year it will be property.
The talk continues that the world economy will recover, that the profit system will revive. But the evidence is thin. Profits are now forecast to rise only 3% in this current quarter and that is a forecast by the optimists. Profitability is still 40% below its peak in 1997. There is little sign of any recovery in business investment. Only the US and European governments are spending more, but in the case of Bush it's on armaments and "home security" in the great War on Terror.
There will be more WorldComs to come.