Into the Market Abyss
Faith-Based Capitalism’s Plunge
Wise to Gordon Gekko's racket long before Gekko was cool
Ten years ago Bill Clinton announced that he was ending welfare as we knew it. Five years ago George W. Bush could have commemorated the occasion in a Wall Street speech by proposing to end capitalism as we know it—the brand of capitalism that was wrecking more lives and families than welfare ever did, the brand whose cheats have been more obscene, more numerous and more criminal than “welfare queens” ever were, the brand that turned corporate directors into crooked dealers and shareholders into their willing addicts so long as the fix was in.
But the presidency is itself one of those brands, and George W. Bush only its most recent logo. Bush did not go to Wall Street to end anything. He went there to profess his “faith” in the system, faith generally being this president’s solution to anything challenging when B-52s won’t do. Five years later, as stocks crash again and shareholders wail, nothing has changed.
Faith-based capitalism is what got us into this circle of hell in the first place. At some point in the late 1980s the market stopped being a bet and became a religion. The crash of 1987 probably did it, when that single-day 22 percent drop of the Dow, which should have screamed recession, turned instead into a slingshot to another bull market.
Big investors realized they could do on Wall Street what Wal-Mart does on Main Street: Muscle in, use deep pockets to ride out losses, then clean up when the little guys are wiped out. Losses become the necessary seed for fatter shareholder profits.
Building companies was OK. “Creating wealth” was better. Computers and SUVs aside, the American economy of the 1990s made nothing new. But it commodified the notion of wealth by turning stocks into a product with its own value-added wonders. There’s a difference between the trading price of a share and its inherent value, of course. In the 1980s, the two began to diverge, slowly at first, exuberantly by the late 1990s, inflated by the NASDAQ’s tech stocks. Those were the so-called dot-coms, which took the equation of the valueless product to its logical conclusion: There was no need for a product to back up the stock any more. The concept was the stock. And the Initial Public Offering craze was to the 1990s what junk bonds were to the 1980s—helium to a stock bubble as ephemeral as cyberspace.
But everyone played to the shareholder, dot-com or not. Superstar CEOs like General Electric’s Jack Welch became the new deities, because they knew how to dismantle their companies while making their share price glow. By the early 1990s, as journalist Doug Henwood put it in a speech deconstructing the so-called New Economy, “it was clear that the quickest way to add 5 points to your stock price was to lay off 50,000 workers.” By the late 1990s there wasn’t much left to lay off, but the stock price had to keep going up. Enron and WorldCom showed the way by inventing profits and calling it accounting. It was brilliant, and for a few years it worked very well. On faith.
Faith, that is, in the infallibility of the market no matter how self-fulfilling its promises. The infallibility doctrine is nothing new. Like all such doctrines, its validity is somewhere between superstition and quackery, which is why we have regulations to temper it. Or used to. The Reagan administration spent the 1980s eviscerating the market of the checks and balances put in place during the New Deal. What Reagan couldn’t do because of a Democratic Congress, the Republican Congress of the mid-1990s finished up. GOP Rep. Ron Paul, a market faithful, summed up his party’s view of government regulators: “These little men filled with envy are capable of producing nothing and are motivated by their own inadequacies and desires to wield authority against men of talent.”
It turns out the CEOs were the little men producing nothing.
Speaking to Wall Street five years ago, CEO Bush made it seem as if a few bad companies were ruining the image of American business, but that the machine itself was sound. Speaking of Wall Street on July 9, as the Dow was losing almost 400 points, he repeated almost the very same words: “The fundamentals of our economy are strong.” For a fundamentalist , maybe, although in a sense, he’s right. The soundness of the economy as a whole is not yet at stake. The slide may trigger a recession but it is essentially a massive correction of those invented excesses demanded by the shareholder ethic of the 1990s and the Bush years. The losses seem overwhelming only because the gains had been. Five years ago newspapers were featuring sob stories about millionaire retirees whose portfolios are tanking. Now they’re featuring stories about “working-class millionaires.” But don’t sob too much. In large part those were the gamblers of the last two decades, converts to Wall Street’s no-fault religion.
True, the proportion of Americans owning stock grew beyond 50 percent in the 1990s, creating the illusion of a democratized market. But the opposite happened. Just as a $70,000 home with two mortgages isn’t the same as a mansion in Bel Air, investing 6 percent of one’s $35,000 salary in a 401(k) isn’t the same as sitting on a cruise liner’s worth of stock options. Wall Street’s jocks have confused the two to make market populism more believable—to keep the small-timers’ money coming, and to shade the fact that, as economist Lester Thu row points out, 86 percent of the market’s surge from 1996 to 2000 profited the wealthiest 10 percent of the population. Populist fancies aside, Wall Street has always been of, by and for corporations.
It may (it should) be hard to sympathize with gamblers watching their portfolios shrivel. But where was the sympathy for the millions of workers who got “downsized” in the name of shareholder value along the way? Where has the sympathy been for the tens of millions of workers cobbling together subsistence jobs to make ends meet while their very own blue chip companies distill gold from their labor? Where will the sympathy be when the mucked up economy and the government’s newfound deficits justify further negligence of 40 million uninsured and the stingiest social safety net of any Western democracy?
Where Bush had it most wrong was in assuming that the mechanics of American capitalism remain as sound as its current model. Yet that’s the assumption undergirding most analyses of the downturn. “The basis of our market system is that, by maximizing profits, firms also maximize the collective good,” reads a 2002 editorial in the Washington Post. It is the same old fib that corporations have been repackaging as creed (“what’s good for GM is good for America”) since Alexander Hamilton mistook business for the third branch of government. It may very well have been so before the invention of the words “conglomerate” and “lobbyist.” It isn’t so now.
When corporations gang up to defeat initiatives to improve health care, child care, dirty air and poisoned rivers, when they litigate their way out of workers’ safety, workers’ compensation and family leave, when they bust up unions, plunder public lands, decimate small-time competitors and innovators and monopolize public discourse about it all, then turn around and loophole their way to a billion tax breaks, worm any remaining taxable profits to off-shore accounts and lock in a slew of subsidies—when corporations manage all that and still find time to complain about being overtaxed, over-regulated and besieged, then no, the bit about maximizing the collective good just doesn’t hold up.
Nor does Bush’s bit about faith. FDR’s New Deal capitalism actually worked for that collective good. Wall Street’s Big Deal capitalism has become nasty, brutish and shortsighted. It isn’t a system to have faith in. It’s a system to rein in and balance with a conscience. The market has none. Government’s conscience may be corrupt. But better that than corporate dervishes unbound.
[This piece was originally written, in somewhat different form, during the mild market crash of July 2002. Plus ça change…]