Editorial

Capitalism With a Conscience?

The steady stream of revelations of corporate fraud, beginning with the Enron fiasco, has plunged North American stock markets back into the decline which began two years ago. In a desperate effort to restore investor confidence in corporate stocks, U.S. President George W. Bush gave a speech on July 9 to several hundred top corporate executives, in which he threatened tough action against corporate wrong-doers and called for a return to ethics in business, for "capitalism with a conscience". The response of the stock markets to Bush's "historic" speech was to drop at an even faster rate, threatening to precipitate an economic depression of 1930s proportions.

Of course, there is a bizarre touch to Bush calling for corporate ethics when many of his closest business and political associates have been implicated in fraudulent activities, including Vice-President Cheney. Bush, himself, was charged with insider trading in 1991 and has made millions on the basis of the shady practices he condemned in his July 9 speech. However, this is reduced to a humorous footnote by the sheer ludicrousness of Bush's demand that capitalism should operate with ethics and a conscience.

No economic system can go against its own fundamental laws and survive. The fundamental law of capitalism is the law of maximum profits. This law has been recognized since the days of Adam Smith, the founder of modern economics. Smith went so far as to state that since, by its very nature, capitalism was devoid of ethics and conscience, state regulations were required to protect the public good. Bush and his cronies, like all good neo-liberals, have spent their lives dismantling any regulations on capitalism, arguing that "the hidden hand of the market" would ensure that the public good would be protected.

During the 1990s the U.S. stock markets experienced a boom of historic proportions. There are a number of reasons why such a boom occurred, but the main ingredient lacking was any corresponding boom in the actual economy. In a sense, the stock markets were converted into a gigantic "pyramid scheme", in which the new money pouring in was used to pay fantastic profits to the previous players. However, like all such schemes, when the supply of new money dries up, or even slows down, the whole pyramid collapses like a house of cards.

Bush and others are trying to pretend that the shady accounting practices that were used to inflate company profits are a recent and closely guarded secret. However, nothing could be further from the truth. While amateur investors may have been unaware of these practices, the professionals were not, and books were written denouncing such practices or extolling their virtues. As long as these practices resulted in maximum profits to investors, any and all warnings were ignored. But now that profits are plummetting, "indignent" investors are demanding blood.

Of course, it is possible to construct an economic system which is governed by the needs of the society, but that system cannot be capitalism. There is no possible way to reconcile the demands of individual capitalists for maximum profits with the right of ordinary people for a secure and adequate livelihood. That goal can only be achieved by eliminating capitalism and replacing it with an economic system democratically controlled by those who actually produce all of society's wealth.