10 Lessons from the Corporate Collapse

Judging from George W. Bush's "Wacko" economic forum, the fragile economy needs more tax cuts for the rich, more unfettered markets, more personal virtue -- and then everything will be all right. Give the Bush-Harken-Enron-Cheney-Halliburton team an A+ for consistency, but failing marks on all other counts. There are many lessons to be learned from the collapse of the bubble economy and the scandals of corporate financial skullduggery, but the White House hasn't learned any of them. Here are 10 for starters.

1. There is no new economy.

Remember endless growth? The Dow 30,000? Well, business cycles may vary in their details, but they go hand-in-hand with capitalism, and ultimately companies must make real profits if the system is going to work. "Irrational exuberance," as economists Robert Shiller and Charles Kindleberger most famously explained, is endemic to capitalism. And as Nobel Prize-winner Joseph Stiglitz's work emphasizes, inevitable distortions and inadequacies of information create irrationality.

Despite novel conditions created by computer and telecommunications technologies, and by the expanded global markets, real-world capitalism remains an amalgamation of a narrow concept of rationality (based on the most efficient -- that is, most profitable -- use of capital) and some fundamental irrationalities. Left on its own, the market is not a perfectly self-regulating mechanism for universal good, but a limited, useful machine that can easily veer off on a destructive course.

2. The crisis is not the result of a few bad apples.

The entire barrel is rotten. In this case, the barrel is the framework of rules and regulations for business. Not every executive is a fraud or cheat, but if the system permits cooking the books, defrauding investors, overcompensating executives, rigging prices, polluting the environment, breaking unions and abusing workers, then it puts pressure on every business to move in those directions. The failures of the much-vaunted U.S. model of deregulated cowboy capitalism were already evident in growing inequality and insecurity and a declining quality of life. Now even much of the positive side -- growth, profits, new businesses, productivity, soaring stock markets -- has been called into question as an accounting chimera. It's time to question the whole model -- lock, stock and barrel.

3. Banish the cult of the invincible CEO.

The excesses of managers have helped destroy many corporations, millions of good jobs and the retirement security of tens of millions. CEOs have treated their posts as a license to loot their own corporations, workers and even investors. The problem is not just bad accounting, but no accountability. Every corporation needs at least a majority of independent directors (as well as directors selected directly by employees). Protection is also needed against self-serving actions (like CEO-appointed compensation committees and golden parachutes), greater power for shareholders, and guarantees of the right of all employees to organize. Ultimately, corporations must answer not just to their executives, or even their shareholders, but to society as a whole.

4. Regulation is good.

Indeed, regulation is necessary, both for the survival of the system and, more important, to make the system fairly deliver the goods. First, the financial system should serve the needs of the broader economy, not create speculative bubbles. Over the past two decades, old regulations of finance were dismantled -- like the separation of investment and commercial banking. The Federal Reserve failed to rein in the exuberance (as tougher requirements on lending for stock speculation might have done). Financial "innovations" sprang up without any control (like the special purpose entities used by Enron or a vast world of financial derivatives). And crony capitalism flourished.