“There is nothing we can do about globalisation,” said Tony Blair some years ago. Then the great easy-to-foresee disasters began. There was Enron, there was Lehman Brothers, there was Nothern Rock, Royal Bank of Scotland… and round the world enterprises failing, sometimes being rescued reluctantly by their national governments, sometimes not. Too big to fail is the lame excuse made in some places. Both Tony Blair and this second statement are wrong. So let us look at the causes and then what can be done.
The causes are easy to describe historically. When the second world war ended much of the world was ruined economical. Britain has lost much of her empire on which the country had feasted for so long and was about to lose more. The Attlee socialist government, although it still benefitted from its colonies and protectorates, brought in a regime of austerity that was fair and gave Great Britain enough of the necessities of life to ensure that all classes survived not too badly, although the affluent were infuriated both by the heavy taxation and the deliberate breaking-down of class barriers. Germany was put on its feet again by the enlightened Marshall Plan, designed to ensure that it did not return to the vindictive post-first world war penalties that led to the anger and despair that brought in the Nazis, The United States recovered from the last depression by means of Roosevelt’s Keynsian policies and wartime rearmament and had a boom. Communism gave China, Eastern Europe and much of the rest of the world an iron rule of law and bureaucracy, while the rest of the world, other than a few well-organised nations, struggled on with the usual habitual miseries and poverty. World shortages caused by years of world war meant that manufacturing had an opportunity to come back. On the whole business then did well by good management.
In Britain, most industry was fairly paternalistic and not may companies were that big. Growth came from increased production and rising wages. But then the clever accountants got busy, realising that because careful management tended to put much of the profit in to reserves rather than increased dividends, a bid to buy the shares often paid for itself out of the reserves. From the middle fifties there was a frenzy of takeovers, enabling shareholders to make capital profits out of the speculative buying of shares and this was followed by the purchase of enterprises of every description in other countries, often, but not always, made possible by bank loans that became ever bigger. By the last twenty years of the twentieth century, in spite of occasional downturns in the market, globalisation had arrived, giant corporations having bought very diverse companies everywhere in the world while putting themselves ever deeper in debt to the banks that became ever less watchful, as it was believed that values would go on increasing forever. Needless to say, it became impossible for the directors of the giant international corporations to have much idea of what was going on in the network of companies owning other companies, sometimes half way round the world, where they could not even understand the languages spoken. The opportunities for fraud, theft, deception, ways of peeling off revenue into one’s own little private enterprise without being discovered, were enormous. Auditors had a vested interest in not looking too closely, because they were getting enomorous fees and inducements to keep things going. The arrival of credit cards meant that soon individuals could also live on credit, regardless of a day of reckoning that many thought would never come.
One early collapse, in 1970, that became the typical of things to come was Bernie Cornfeld’s Investors Overseas Services and its step-child The Fund of Funds. Cornfeld made money by persuading American soldiers in post-war Europe to invest in a mutual fund that then invested in other companies, and by super-salesmanship this grew rapidly so that he was buying up companies himself and starting new ones. This showed an enormous capital value until a whistle-blower realised that there were no profits, only new money from new investors coming in from which dividends and directors’ renumerations were paid.
Bernard Madoff (former chairman of US stock exchange NASDAQ) was recently given life imprisonment for doing virtually the same thing using similar methods, with this difference, that Cornfeld was not a knowing crook, but a dreaming salesman deceived by his own success and lack of understanding of simple accounting.
All over the world, globalised companies are being revealed to be big shells that are emptied out by concealed losses, deliberate theft, incompetence and executive greed. There is no way that corporate directors spending their enormous salaries and bonuses on luxuries, houses, yachts, private aircrafts and their time on golf courses, holidays and social occasions, can ever have much knowledge of what they control. Only companies small enough for the management to know exactly what it is doing, what the results really are, and with the expertise to plan properly for the future can deserve, or hope, to survive. Growth, where it is possible, should be supplying a demand, not by acquistion.
Only determined legislation, carefully thought out, by people with better abilities and minds than those we have in power at present, can do this. There should be a ban on takeovers except where it makes logical sense, not for reasons of power or greed. Where a necessary industry fails, especially where public services are concerned, it should be nationalised with the intention to keep it so. There should be a ban on all acquistion of enterprises in other countries, working both ways, so that everything is locally owned, either privately or by the state. This does not mean an end to capitalism, but an end of monopoly, illogical verticle ownership and globalisation. Otherwise, in the climate of today with revolution and popular violent demonstration always not far away in the background, social order will break down. This is not a recession. It is the beginning of a deep depression that may never disappear but may turn to gradual improvement and a bearable general standard of living on a modest scale that will still allow education and health care to continue, with a high cultural presence. Luxuries based on greed must cease. Food, shelter and mental stimulation, created by equal hard work, by a willingness to share and by a sensible one-to-fifteen incomes policy: all this can be achieved by law. Soon we shall be ready for it.