No-one is surprised any more to hear bad news from the US, at any rate where the economy is concerned. Nevertheless, the failure of WorldCom has been something out of the ordinary. It is not just the scale of the bankruptcy. Six months ago the crash of Enron was a sensation, while now a company three times the size has collapsed.
It is not even the fact that the fall of WorldCom has been followed by an avalanche of stock market prices throughout the world. Nor is it the fact that it is now possible to compile a long list of US transnational corporations which, if they have not shared in the fate of WorldCom and Enron, have at any rate been doomed to suffer hard times. The real thing is that a turning point has been reached in public opinion.
The masses are calling for blood, while politicians and even business entrepreneurs are demanding that the company chiefs who have been caught embezzling should be thrown into prison. It is all too obvious, however, that acts of retribution will no longer solve the problem. The bloodthirsty appeals are merely a reflection of a popular mood of mistrust in corporations, of anger at the elites, and of a lack of confidence in the economic system.
To the overwhelming majority of Russians, the news that comes from the stock exchange is still something abstract. Unlike the situation in the US, in Russia the stock market is in no sense the heart of the capitalist system. For good or ill, the Russian economic crisis of 1998 seriously undermined the position of finance capital. The strength of the Russian oligarchs is not in the share prices of their basic assets, but in the rich deposits of oil, gas and mineral ores which they have no intention of sharing with anyone. The price of oil in London and Amsterdam concerns them far more than the prices on the stock markets of New York and Moscow. Even if the stocks involved are their own.
While sipping green tea, Russian prime ministerial adviser Mikhail Delyagin explained to me: â€œAll this is too remote from us. Do I need to know how many hairs there are in Godâ€™s beard? Even if heâ€™s bald, I wonâ€™t live to see him!â€
The affairs of God, however, cannot be a matter of indifference to mere mortals, and everyone will be affected in one way or another by what happens in America.
In Russia, where the remnants of a social security system still exist, few people understand how dangerous a stock market crash is for the US middle class. Pensions have suffered along with the share prices. People who agreed to accept modest salaries in exchange for stock options felt the blow even earlier.
The American system forced substantial numbers of ordinary citizens, without the slightest bent for entrepreneurship, to turn themselves into petty capitalists, since the pension and insurance funds were using their savings to play the market. Now, through no fault of their own, these people have lost out. The few months of stock market crisis have swallowed almost the entire growth experienced by the pension funds over the past four or five years. Collapsing along with the myth of providing stimulus to the best has been the myth of the advantages of the US pension system.
This has been happening at the very moment when European countries, starting with Germany and ending with Russia, have joined in declaring their intention to reconstruct their pension systems in line with the American model. The European concept of state welfare, of the â€œsocial pensionâ€, and of solidarity between generations has been declared to be ineffective, to have outlived its time, and to be incapable of stimulating personal achievement.
It is not only pensions and savings that are in free fall. The myths of neoliberalism are collapsing. Only recently the American contributory pension system was being held up as a model compared to the â€œossifiedâ€ European set-up, under which people counted on state welfare and solidarity between generations.
It seems only yesterday that people were pointing to the US example and explaining to us that the market rewarded the dynamic and innovative, while punishing the inefficient. For years on end we were told that the Asian and Russian crises were the result exclusively of local conditions, and that nothing of the kind could happen in the US. Not only Asian and Russian entrepreneurs, but also Finns and Germans were lectured on the advantages of US corporate culture, based on transparency and accountability. Everyone else was told to reconstruct themselves on the model of Enron, WorldCom and Xerox. These were among the very companies cited!
The problem, in reality, is not to do with the differences between the US economy and those of Europe, Asia or Russia. The problem is that the US has become a symbol for everyone in Western Europe, Asia and Russia who has been engaged in transforming their own country in accordance with the ideology of the â€œfree marketâ€. The believers in â€œAmerican successâ€ have included not only right-wingers, but also social democrats. The crisis of 2002 revealed unexpectedly that after freeing themselves from â€œunnecessaryâ€ state tutelage, US corporations did not increase their output, but instead set about robbing consumers and small shareholders. The free market economy gave rise to a bacchanalia of embezzlement and crooked accounting that veterans of the Soviet state planning apparatus might have envied.
Naturally, it does not follow from this that everything has been flourishing in Western Europe, not to speak of Russia. The point is different: the US no longer appears as an ideological model. The New York stock exchange and the Chicago school of economics became the Mecca of neoliberalism. Now the apologists for the free market are experiencing what orthodox communists went through following the death of Stalin, and then once again after the collapse of the USSR. The god has failed.
For many years people were told that the system rewarded those who worked more and worked better. Putting their savings into pension funds, the members of the US middle class have discovered that the longer and more zealously you worked, the more you have now lost.
Throughout the 1990s the dynamic US economy was counterposed to the â€œinertâ€ European one, burdened with â€œredundantâ€ state regulation and â€œexcessiveâ€ social welfare. It was not only right-wingers who argued along these lines, but also European social democrats. Now people are discovering to their surprise that after freeing themselves from â€œexcessiveâ€ state tutelage, US corporations have not increased their output, but have set about plundering their customers and small shareholders, while the free market economy has given rise to a bacchanalia of embezzlement and crooked accounting that a veteran of the Soviet state planning apparatus might envy.
Naturally, it does not follow from this that everything in Western Europe is flourishing (it is better not even to mention Russia in this context). The point is different: the US has ceased to look like an attractive model.
Yet only recently, American corporate culture was being touted as a model for the entire world. Representatives of the World Bank, the International Monetary Fund and the World Trade Organisation were explaining that the crisis in Asia and the default in Russia stemmed from the local business culture, which unlike the one in America was corrupt, opaque and bureaucratised. As a matter of urgency, the US business culture needed to be implanted in Russians and Asians. The Asian and Russian oligarchs are now entitled to feel a certain malicious delight.
Taking pleasure in the misfortunes of your neighbours is, of course, not only evil but also senseless. Sooner or later, these misfortunes will alight on you. Russian shares have started following American ones down for the simple reason that it is impossible to stand aside from a world crisis.
The collapse of the neoliberal model is becoming a historical fact. But this is only the beginning of a long series of economic and social disorders, of political conflicts and perhaps armed ones as well. Robbed of its savings, the enraged middle class will demand changes. Imposing exemplary punishments on top managers is the least satisfactory solution of all â€“ it will change nothing in the economic system, while raising the intensity of repression in society.
The WorldCom and Enron chiefs do not evoke the slightest sympathy, but they were playing a game whose rules were in line with the generally accepted economic philosophy of winning at any cost, of using any means to boost share prices. Punishing the guilty without altering the rules of the game means repeating the well-known experience of the struggle against corruption in the Soviet Union in the early 1980s.
However many store directors were jailed, the thievery did not stop. Meanwhile, the corporate managers are not Soviet directors. The sums they deal with are of a quite different order, and the controls on them are far less. The outraged middle class might embrace radical slogans, but there are no guarantees that the affronted layers of the population will not provide a mass base for fascism. So far, there is no new Roosevelt on the horizon. Fortunately, there is no new Hitler either.