"Greed is good. Greed is right. Greed works. Greed in all its forms captures the essence of the new law of evolution in corporate America."
No, these are not the words of the CEO of Enron or WorldCom. These are the words of Gordon Gekko, a fictional character, in director Oliver Stone`s 1980s expos'e of American corporate life, "Wall Street".
In light of the current scandals in corporate America, the words are somewhat prophetic. While the character was eventually vilified for his lack of morality, Hollywood`s portrayal in many ways epitomised the dreams of people all around the globe - rags to enormous riches in as short a space of time as possible.
These scandals have rocked the core of the capitalist system and perhaps that is exactly what`s needed.
So how bad is it?
Firstly, let`s examine how serious the crisis is.
The great depression between 1929 and 1932 saw the Dow Jones dipping by a staggering 89%, so the current 26% drop in the Dow index, since its peak in January 2000, is modest.
In SA, the investment community does not favour the entrepreneur and certainly not the technology developer.
Tony Farah, executive chairman, Spescom
In the 1980s, Japan, with its technology, work ethic and perceived focused management style, was the powerhouse of world capitalism. Time exposed the flaws in the Japanese formula and between December 1989 and July 1992 the Nikkei 225 fell by 69%.
The technology markets then became the arena whereby millionaires were made overnight, but that bubble also burst and the Nasdaq has to date not recovered from the bloodbath that saw it drop by 74% from its heyday.
So while the losses cannot be compared to those of the 1920s, the repercussions of US corporate scandals are reverberating globally.
World recession follows on the heels of US economic downturns. Equally, US markets set the pace of recovery.
The pace of recovery may be further impacted by the long-term caution of embittered investors.
New legislation and corporate governance guidelines may go a long way to producing more transparent accounting and general business practices but will do little to strike at the heart of the problem.
Hopefully, the most important outcome to recent events may be to force a rethink of business objectives, which, with specific regard to listed companies, are almost entirely focused on growth and investment returns - herein may reside the deepest fissure in the capitalist system.
Who is to blame?
Capitalism and its flaws cannot be held totally responsible for corruption and fraud. Culpability for these acts unquestionably lies with the management of a corporation.
But the broader aspects of the rationale behind the very existence of business are ignored in favour of an all-encompassing focus on the vagaries of share-price performance and short-term investor gain. Investment analysts hold grave responsibility in this respect.
The human aspect is neglected. It must be remembered that in the free enterprise system, companies provide jobs and in many ways become a veritable home for people, offering a pathway for upliftment and building a foundation for the future.
Companies can be a source of national pride. Modern economies dictate that development in many countries hinges on a nation`s technology.
Therefore, free enterprise and a nurturing climate for entrepreneurs is the basis of capitalism and not greed.
In the US, the entrepreneurial spirit is prized and cultivated. If a venture fails, the next endeavour is still given support due to a culture that values the attempt, which if successful, will provide returns for the investor, jobs and national economic benefits.
But in SA, the investment community does not favour the entrepreneur and certainly not the technology developer. The local attitude may even be described as punitive towards technology development companies.
What is the solution?
In 1992, Bill Clinton quipped that "the rich got the gold mine and the middle class got the shaft".
From the investor`s viewpoint this may be an accurate portrayal of life on the stock exchange in the late 1990s and early 21st century. But it must be remembered that the investment return is only a tiny aspect of a sad corporate tale that includes job losses through forced retrenchments and possibly even long-term national damage due to a short-sighted take on growth.
Financial analysts need to re-evaluate investment objectives and attempt to appreciate long-term national, human and investor benefits.
(Statistics reference: FT Weekend)
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