WORLDCOM is the latest American company to rock world stock markets with its false accounting. Apparently at least one of its directors couldn’t tell the difference between expenses and profit. This scandal follows on from those at Enron, Tyco, Adelphia, Global Crossing, Qwest and of course Andersen Accounting who were supposed to assure us of the probity of such companies!
Jean Walker
What all these infamous cases have in common is the huge capacity for greed of fat-cat shareholders on a feeding frenzy. WorldCom is facing bankruptcy after over-stating its profits by $3.8 billion. “Confusing” expenses and profits enabled the company to look much healthier than it was.
This in turn led to the share price remaining high, thereby boosting the major shareholders’ personal fortunes. WorldCom now has at least $30 billion of debt, including $167 million of an unpaid loan to the former chief executive officer (CEO) to allow him to buy company stock when its price was at its highest.
The case of Enron is now well-known. This company, once the seventh biggest in America, collapsed in December 2001. It cooked the books for years so that it never paid a penny in income tax. Profits were overstated enabling Kenneth Lay, the former chairman and friend of President Bush, to have a take-home pay of $152 million, before bonuses were added.
At the same time, rank and file workers for the company were barred from cashing in the share options they were given as part of their pay package. When the share price crashed, these workers’ savings were wiped out.
Gary Winnick, friend of former US President Bill Clinton and CEO of a digital communications company Global Crossing, did even better for himself. Before filing for bankruptcy of the company in January 2002 because of company debts of $12 billion, Winnick cashed in shares to the tune of $734 million.
Former Tyco executive Kozlowski has more artistic tastes. Kozlowski avoided $1 million sales tax on a number of original paintings which he bought to adorn his Manhattan apartment. This brought to light grossly inflated declared profits and hidden debts within the company.
Since the beginning of the year, Tyco has lost over $90 billion and is now in the process of selling off or closing down many of the subsidiary companies. Maybe Kozlowski couldn’t afford the sales tax? After all he only ‘earned’ $332 million including bonuses and stock options between 1999 and 2001.
Job losses
THESE FAT-CAT shareholders seem to have combined personal incomes of more than the GDP of many small countries but these scandals have deeper implications. All round the world ordinary workers are paying the price for this corporate greed.
Even worse, they are paying several times over. The job losses are mounting. Enron have shed nearly 18,000 jobs since Christmas, WorldCom have already announced 17,000 job losses and Tyco are rapidly selling subsidiary companies.
In Tyco’s plant in Swindon, electronics workers have been given no information other than to “keep their heads down” and keep working.
A skilled shop-floor worker for Tyco in Swindon gets £17,000 a year basic pay, as compared to Kozlowski’s average of $100 million a year, and the workers are not expecting their bonuses this year. There is also great concern about the value (or lack of value) in the company pension scheme.
The security of tens of thousands of workers is looking precarious because of the large proportions of pension schemes gambled on the stock exchange. The CIO-AFL (America’s equivalent of the TUC) has $200 million of workers pensions invested in WorldCom alone.
Most pension and life assurance companies gamble investors’ money on the stock market as a matter of routine. All these funds are vulnerable because the value of shares is falling across the board, not just in the scandal-hit companies.
This is compounded by a flight of capital from the US economy following the collapse of so many large companies. This is slowing down the US economy and hence the world economy. Recession will see workers paying the price yet again in job losses, wiping out of savings and their pensions becoming worthless.
Press reports over recent weeks suggest that the companies caught so far are just the tip of the iceberg. It’s not a case of a few “rotten apples” spoiling things for everyone. It’s a sign of the sheer rottenness of the capitalist system.
President Bush and his administration are screaming ‘outrage’. Something must be done to protect investors they say. But these are only mealy-mouthed words. The Republican Party is blocking moves in the US Senate to make it illegal for the same company that prepares accounts to be the auditors as well.
This minor measure may have made sure Enron and WorldCom were found out a little earlier, but it would not have prevented the gluttonous feeding frenzy of so many greedy individuals and corporations.
Workers’ control
IT IS very unlikely that any meaningful reforms of the system, even action to root out the worst excesses, will be forthcoming from the US government. Capitalist governments rarely bite the hand that feeds them.
Two-thirds of the members of Congress have either been employed by Enron or Enron have paid their campaign expenses. Several dozen members of the Bush administration are in a similar position.
The picture in Britain is hardly less sleazy. Public services are decimated in order to give blank cheques to private companies to build our schools and hospitals.
The PFI – PPP schemes are a cosy arrangement where the government gives huge sums of taxpayers’ money to big business for 25 or 30 years at a time, in return for the building of schools and hospitals that could have been built far cheaper using public finance.
What’s the connection with Enron, WorldCom etc.? Government in Britain and the US seems to exist to benefit big business and fat-cat shareholders at the expense of the working class. The system is rotten to the core and a few reforms will not remove the stench of greed and corruption.
The only way for workers to benefit from the fruits of their labour, instead of paying for the extravagant lifestyles of shareholders is if they collectively own the companies they work for. All large companies need to be nationalised and democratically controlled by the working class.
Only a socialist system based on need and not greed will ensure that the few do not get super-rich at the expense of the many. In the year 2000, chief executives of large companies earned 458 times as much as their shop-floor workers. The differential is probably even greater now.
Nothing short of a socialist plan of production will ensure a guaranteed income for all and rid us of the parasite fat-cat shareholders that fatten themselves at our expense and destroy our planet in the name of profit.
The Socialist Party will fight for reform and for a decent minimum wage, for the prosecution of thieves like Kozlowski and Winnick and for nationalisation under working-class control of all major companies and all those found to be trading fraudulently.
Most importantly we continue campaigning for a mass party of the working class – a party that is socialist in content and will represent the workers’ interests, rather than the interests of those that exploit us.
