The recent string of U.S. business failures coupled with revelations of massive fraud carried out by the nation's corporate elite, has shaken confidence among investors across the globe. As WorldCom filed for the largest bankruptcy in U.S. history, the American stock market plummeted. Ten days after President Bush went to Wall Street to outline his administration's response to the corporate crime wave, the Dow Jones Average had fallen 16 percent. In fact, the U.S. stock market, in recent days, has seen its worst performance since the crash of 1987.

Many analysts believe that the recent U.S. recession was made less severe by continued consumer spending. But there is widespread concern that the economy could take a precipitous dive if the public, frightened by the instability of the markets, decides to stop buying. Consumer confidence is bound to become even more uncertain after disclosures that Citigroup and JP Morgan Chase had made a secret deal with Enron -- before the energy giant's collapse -- that allowed the company to evade accounting regulations concealing its financial condition.

Between The Lines' Scott Harris spoke with Doug Dowd, professor of economics and author of the book, "Understanding Capitalism," who examines the downward spiral of the stock market and what it may mean for the U.S. and global economy.

Doug Dowd: The SEC (U.S. Securities and Exchange Commission), which I think everyone now knows about, was created in 1934 as a direct response to the kind of corruption, speculative and gambling behavior that was going on in the usually staid banking community in the 1920s. The SEC, along with the Glass-Steagall Act -- which is a congressional piece of legislation that made it illegal for banks to do the kinds of things they had been doing in the 1920s which made the banks part of a fragile structure -- all has gone by the boards. It's been repealed in effect, going back into the 1980s under President Reagan.

The SEC has been, in effect, a window dressing operation. It has been understaffed, underpaid; people working in it have been basically unable to do a decent job either in terms of their competence or their funding. That was a deliberate set of processes which was also initiated about 25 years ago, and certainly got worse under Reagan.

The people who had the competence so to speak, to do the kind of detective work on financial statements and so on, went to work instead for the kind of accounting companies that could pay wages for them to cover up this sort of stuff. They went to work for Arthur Anderson and so on.

So what happens is that the biggest financial and industrial companies were able to just begin to "live it up," as they were doing in the 1920s except on an extraordinary larger scale, permeating a much, much broader economy. Because the economy is now different, we have these multinational, transnational conglomerate kinds of corporations in which one company now is in 5 or 6, or 50 or 60 different kinds of activities overlapping with industry, trade and agriculture and every other thing you can think of.

So now these big companies, when something goes wrong with them, like with Enron, Tyco or Global Crossing or whatever company we might be talking about, (we have) a kind of big spider web now instead of a rope or a string as it used to be. And it has real consequences, not just financial and stock market consequences.

So the stock market is in some sense a warning bell that is going off in the night. And the corruption that has preceded the really sharp contraction of the stock market is something that is endemic to the system now; it isn't something that is happening here or there, it is something that became natural, normal and doable with impunity in the 1990s.

Between The Lines: Are you concerned that we may very well be on the precipice of a great depression or some kind of deflationary collapse of the U.S. economy or world economy?

Doug Dowd: One of the things that it's always wise to try to tell yourself is that history doesn't repeat itself. It can't, because the world changes in between any two periods, especially if they're ones that are as far apart as the 1920s and the present.

We're in some sense, a society that has been able to barricade ourselves through governmental programs of one sort or another since the 1930s, so that the risks of deep, deep ditches into which we can fall have been somewhat, I think, modified. But the ditch into which we can fall, and I think will, is deep enough to become a major tragedy I think, and very dangerous.

I would especially say this so long as the Bush administration is in power, because the kind of people that they have and who are the economic voices of that administration including Federal Reserve Chairman Alan Greenspan, U.S. Treasury Secretary Paul O'Neill and White House Assistant for Economic Affairs Larry Lindsey have their minds back in the 1920s. I'm not trying to exaggerate when I say that. They are not only anti-Keynesians, they're pre-Keynesians in terms of their capacity to understand and their inclination to do the right things as distinct from doing nothing, or doing the wrong things.

Between The Lines: In this moment in history when there are a lot of people now who are suspect of the U.S. business model, which has been exposed to be corrupt at the top in many cases, is there an opportunity to reverse the march toward deregulation that we've seen since the Reagan years? What kind of reforms would you be in favor of while there is so much public scrutiny of the U.S. business model?

Doug Dowd: I think the disillusionment with the stock market will become a disillusionment with the economy and a disillusionment with the kind of people we have in our government, whether it's state, local or federal government. But it will take two, three or four years for that to manifest itself in different policies, different people and so on.

What we can do, must do and might do is that the people will begin to see that we can have a much healthier economy and a much healthier society if instead of talking about how much money people can accumulate -- instead of that, we can begin to see what kind of good jobs all of us would have if we began to see to it that governmental policy on the state, local and federal levels was designed to meet basic needs. The needs that everyone has for health, education, the possibly of a decent job, equal opportunity and things like that, where in many cases governmental funds are necessary and in many cases it's just different attitudes that are necessary.

But it's a time of great possibility, it's also a time of great fears -- just as the 1930's were a time of great possibility, but ended up being pretty much a total disaster.

"Understanding Capitalism" by Doug Dowd is published by Pluto Press. "Capitalism and Its Economics: A Critical History" by Doug Dowd is published by Pluto Press

Visit Doug Dowd's Web site at www.dougdowd.org

Related links: The Left Business Observer The Left Business Observer

"Corporate Predators" columns by Russell Mokhiber and Robert Weissman at www.corporatepredators.org

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Scott Harris is the executive producer of Between The Lines. This interview excerpt was featured on the award-winning, syndicated weekly radio newsmagazine, www.btlonline.org for the week ending Aug. 2, 2002
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