Dishonest Capitalism Won't Go Unpunished

Innovation can't offset the damage and waste caused by corruption

Business Week 05/23/05
author: Robert Kuttner
(Copyright 2005 McGraw-Hill, Inc.)

Here is a puzzle. The U.S. economy squandered trillions as a result of the 1990s stock market bubble and Wall Street conflict-of-interest scandals. In optical fiber alone, investors laid out tens of billions of dollars that will never return a penny, gulled by misleading corporate balance sheets and demand projections. Deeper systemic corruption, such as stock analysts feathering their own nests, harmed both the efficient allocation of capital and investor confidence.

But in causing lasting damage, these affronts to honest capitalism seem to be the dog that didn't bark. Corporate profits and gross domestic product growth have done nicely since 2002. If the economy is entering a cyclical downturn, the causes are more likely a weak dollar and high oil prices. For those who believe in transparent capitalism, it's even more disconcerting that Germany and France, which got through the 1990s with no comparable scandals, clearly trail the U.S.

So, is transparency overrated?
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Dishonesty and bad debt can do lasting damage. The 1930s, like the 1990s, were years of heroic technological innovation, but inventions such as television could not be commercialized because the economy was becalmed.

Taking this thought elsewhere, if the economy tanks, nothing will save us. These criminals can do lasting damage, especially to the everyday worker bees like myself, and in the process destroy our way of life. The law of unintended consequences...