Posted on 1-April-2009
"Government has coddled, accepted and ignored white collar crime for too long...It is time the nation woke up and realized that it is not the armed robbers or drug dealers who cause the most harm; it's the white collar criminals living in the most expensive homes who have the most impressive résumés who harm us the most. They steal our pensions, bankrupt our companies and destroy thousands of jobs, ruining countless lives."
Harry Markopoulos in House of Representatives Finance Committee hearing on Bernard Madoff affair
In the USA, when, in the dying days of the Bush administration, the CEO's of General Motors, Chrysler and Ford flew into Washington DC in their three personal jet aircraft for Congressional hearings on their request for financial rescue packages for their companies from the government, they caused strong enough public outrage for members of the Congress to echo that feeling in language that occasionally verged on the ungentlemanly. Since then other stories about luxurious outings at company expense, ostensibly for business meetings of one kind or another, or other kinds of extravagance by senior executives of other failed or failing companies kept on life sustenance by the US federal government have become commonplace. The latest "outrage" was the payment by the insurance company, AIG, which is being kept afloat with, until now, upwards of 170 billion dollars of federal government money, of bonuses amounting to about 150 million dollars to 73 of its executives. In public perception, these people who were responsible for the failures which necessitated financial aid from the government deserved no bonuses which were after all intended to reward success in increasing the company's profits. Likewise, in public perception, the present financial crisis in the USA, is the doing of the managers of major US financial institutions who have not shown any visible signs of contrition. Barack Obama sought to calm public anger against heads of the financial and manufacturing companies asking for government aid mainly by himself giving them numerous tongue lashings for their irresponsibility. In the case of AIG bonuses, the Congress wishes to tax away between 70 and 90% of the money paid to the executives. These are laudable instances, champions of democracy would say, of a government or of people's representatives being responsive to popular feelings.
But reality may be a little more complicated than that. Even as Barack Obama was echoing popular feeling against the executives of failed or failing financial institutions, sections of US media were warning against letting populism shape plans for rescuing and restructuring the US financial system. When anger against the generous compensation of company executives burst out, and when questions arose about why the administration and the Congress had done nothing to prevent the payment of such compensation in the case of companies receiving government money, there was a brief moment when people at the Congress said that provisions about curbing these compensations were dropped from the law authorising payment of further amounts of bail out money to banks and financial institutions at the behest of the Treasury. When news broke out about how the Securities and Exchange Commission had ignored warnings given by Harry Markopoulos since 2005 about possible wrong doing by Bernard Madoff, The New York Times published an article about the cozy relationships between SEC officials and the very Wall Street firms whose activities they were meant to keep an eye on, listing a number of people who after a stint at the SEC had taken highly remunerative employment at the Wall Street. Another report listed the number of politicians including the two leading candidates at last year's presidential elections who had received generous campaign contributions from the AIG among others. Then there is the case of Tom Daschle. It is difficult to say which of the two was more embarrassing for Barack Obama: Daschle's failure to pay income tax or his having enriched himself considerably working as an unofficial lobbyist for a number of business houses after the end of his Senate career. The list of those Treasury Secretaries of the USA who have had close relations with or even worked for Wall Street firms at different times of their careers must be long. The fact is that in normal times in the liberal capitalist democracy of the USA the political establishment and business leadership live in close interlocked relationships with each other so that the political establishment is not only often blind to the excesses of the business establishment but also its first instinct is to protect the interests of the business establishment. If at times, as at present, politicians speak critically of leaders of business, it is because mindful of their standing with the electorate, they feel the need to assuage public feelings. As if not to be left behind their American cousins, British government ministers and members of parliament have been competing with each other in their condemnation of the generous pension package for Sir Fred Goodwin, the former CEO of the Royal Bank of Scotland, having done nothing to prevent it earlier.
Blindness, in a liberal capitalist system, of the government to the functioning of businesses, particularly when times are good can often mean overlooking misdeeds. Bernard Madoff, now adjudged a criminal in the USA, was an extremely important and powerful figure on Wall Street. Having been Chairman of NASDAQ Stock Exchange among others, having also been a contributor to campaign war chests of the two main political parties of the USA, he was almost part of the establishment. There have been other such figures at other times and at other places: Conrad Black, Robert Maxwell, B. Ramalinga Raju of Satyam Computers, India, to name just a few. There may be many others like them who have not been caught. Having arrived in Bangkok five months into the Thai financial crisis which started in July 1997, I missed meeting an Indian who had been considered a financial whiz kid when the times were good but in the years after 1997 he was a fugitive from Thai law, fighting in Canadian courts against extradition back to Thailand. A prominent Thai politician among others to whom he had been close and who in the years of financial crisis thought this man had cheated him said once that he proved the truth of the Thai adage that when you came across an Indian and a serpent you should kill the Indian first! I was reminded of the story of this Indian when I first saw images of Bernard Madoff being pushed and shoved by angry people on a street in New York.
The still brand new President of the USA speaks daily of the pain of ordinary Americans caught in the current economic crisis. It is too early to decide which of his policies will end being genuinely for the good of the populus and which prove to be mere window dressing. At least one part of his bank and financial sector restructuring plan--the part dealing with the government offering guarantees to those private investors willing to buy toxic assets of financial institutions--has been described by one economist as amounting to government subsidising private buyers of these assets. Those who, like me, live in the largest democracy of the world are quite inured to politicians speaking about working for the benefit of the poor man or the common man. In 1971, Indira Gandhi talked of removing poverty and won at the election of that year with a landslide. Not much progress happened in the elimination of poverty. Many private entrepreneurs, a number of carpetbaggers and assorted operators took advantage of her "socialist" policies and enriched themselves by manipulating the system of governmental controls. Her younger son rose to power and private unaccounted wealth and her regime slid into two years of dictatorship. About three decades later, her political party led by her daughter in law fought another election promising to work for the common man and won enough seats in the federal parliament to form the core of the ruling coalition. In the five years since that election, some people have become very wealthy but the gap between the poor and the rich has widened and very little progress has been towards solving any of the major socio-economic problems of the country. With elections two weeks away Indira Gandhi's party and all the others are once again promising to work for the benefit of the common man. In the oldest democracy of the world, the current economic crisis is making politicians talk of the problems of the common man, or of the main street. In the largest democracy such talk has been there for a long time.
Tomorrow, on 2nd April 2009, leaders of twenty countries of the world will meet in England to discuss ways of dealing with the current world-wide economic and financial crisis. There will be street demonstrations in London expressing opposition to the way world economies are managed today. There has already been one demonstration earlier. There have been two large demonstrations in Paris in the last few months. Barack Obama has been trying to tamp down public anger by adopting the idiom of those who are angry. India has small or big protests of all kinds all the time. Most of those who will meet in England tomorrow are heads of democratic countries. Yet it is extremely doubtful that if they at all agree on any set of concrete collective measures, they will be swayed by popular sentiment expressed in diverse ways in their diverse countries; they will rather try to be as business-friendly as possible. In fact in many democracies popular protests tend to be viewed as useful safety valves and not necessarily as guides to policy. Thus democratic governments engaged in war are more often than not able to ignore anti-war protests.
One of the oldest divisions in human societies is that between the rulers and the ruled. This division has been there through all the social, political, economic and technological changes. In modern times it may no longer be possible for a king to claim to rule by divine right and even the worst of corrupt dictators may find it necessary to invoke popular support for his rule. But the theoretical ascendency of popular support as the legitimising principle of government has not by itself been enough to bring governments closer to the people and more responsive to their needs. There are hardly any democratic elections anywhere which are not manipulated to some degree--the method of manipulation may differ from place to place. And nearly all rulers everywhere sooner or later fall into the trap of thinking they know better than the people what is good for them. A government that has fallen into such a trap ignores popular feelings--dictators suppress them and democratically elected leaders try to fool the people. Sadly most governments respond to popular pressures only when their expression threatens to cross a threshold of violence and disorder. There is hardly any democratic freedom that has been won except those that have been extracted by the people from their reluctant rules. I think it was Thomas Jefferson who lauded the virtues of a little rebellion once in twenty years, for rebellions are the most effective way in which the mass of ordinary humanity can make itself be taken into reckoning.