The monopoly media says that the US economy is on the path to recovery. Growth rate is picking up. Yet, on the day when the WorldCom fraud got exposed, stock markets in the US and Europe fell to their lowest in three years—a fall of 3 to 4%. It was well below the rate during the Sept. 11 crash. In fact, the US and European stock exchanges have been in decline for more than two years now. On July 2, 2002 the Nasdaq index fell to its lowest since June 10, 1997, while the Dow Jones index fell to 9,041. Billions of euros were also wiped off European markets.

The magnitude of the corporate crimes recently exposed in the US, show two things. First, that there is little to chose between US big business and the underworld mafia. Second, that, by 1999 itself the US economy was in decline, but fraudulent accounting showed huge profits, pushing stock prices artificially up.

The frauds coming to light are not those of some insignificant companies, but the very stalwarts of US big business. They include the powerful investment banker, Merill Lynch; the world second largest long-distance telephone company, World Com; the third largest drug-maker, Merck and Co.; and that icon of the 1990s business community, General Electric; amongst others.

Anatomy of the Fraud

These companies boosted book profits by billions of dollars through manipulation of the accounts. This was achieved either by hiding expenses, or reducing the expenses by showing them as capital expenditure, or by including ‘income’ that was never earned. In this way profits were magnified.

This gave gigantic profits to the CEOs (chiefs of companies) and top executives, who earned millions through manipulating the stock markets (called insider trading) and through stock options.

Insider trading (which is illegal) involves buying and selling shares on the basis of inside information. So, far example, just before public declaration of the boosted up profits, the top executives would purchase its own company shares at the low rate, and once the profits are declared and share prices rise, they would sell, making huge profits. Even now, on the eve of the exposure of these frauds, the CEOs unloaded their entire shares, saving themselves from any loss. It was the small investors who were hit. Insider trading could be compared to match-fixing in cricket. And amidst all the Bush tough talk against corporate crime, it has come to light that he himself was involved in insider trading in 1989.

Stock options are shares legally gifted to CEO and others linked to the success of the company — i.e. the better the company’s performance (measured by the rise in share prices) the larger are the number of shares given to the CEO. So, by artificially pushing up share prices, they were able to corner a large number of shares through stock options; that too, at inflated rates.

So we see that during the 1990s these chiefs of big business earned huge amounts of money, not only through unheard of hikes in salaries and enormous perks, but also through insider trading and stock options. The media played up these crooks as heroes, turning them into icons of the globalisation era. Some of the major rags of US money-power, like ‘Times’ and ‘Newsweek’, would regularly have the CEO, on their cover-page—gloating and wallowing in their ‘brilliance’ at money-making. Some, like Bill Gates, achieved film-star like status!

US Corporate Crime

The list reads like a Who’s Who of US big business.

After the Enron bankruptcy it is now World Com. In the three years from 1999 to 2001 it overstated profits by as much as $ 4.25 billion by recording day-to-day expenses as capital expenditure. Now, it has to restate profits for 2002, and since it is already facing losses, it is likely to file for bankruptcy on its $35 billion debt [It owes VSNL $500 million (i.e. $1/2 billion)]. During the stock boom of the 1990s World Com. was a hot favourite and its stock market success even surpassed that of Enron. Before the US stock market started to sag in 2001, WorldCom’s market capitalisation had soared to $ 180 billion—nearly three times that of Enron at its peak. Today, its shares are mere scraps of paper.

If the Enron bankruptcy was the largest in corporate history, the WorldCom. fraud was the biggest accounts manipulation (charge against earnings) in business history. Yet, these two are the mere tip of the iceberg of US corporate muck. Let us take a brief book at the filth below.

General Electric has seen its share prices decline by 25% in 2002, because investors suspect that it too, has for years resorted to accounting tricks in order to show spectacular profits. The US’s largest retailing company, K-Mart, has had to lower its recorded profits after admitting to incorrect accounting methods. Xerox Corporation admitted to having over-stated revenue by $ 2 billion. Merrill Lynch paid a $ 100 million fine after a probe found that its equity research division had been deliberately pushing the shares of a company, for which it was also an investment banker. Global Crossing, another telecom major, created fictitious trade to generate income and profits. The chairman and other top directors of Tyco International spent vast amounts of money on luxury housing for themselves and other peers, just before declaring losses. The company Adelphia is facing a probe: up to $ 3.1 billion in off-balance-sheet loans, some of which was used to cover the assets of the founder of the company and his family. Lucent Technologies and Perengnine Systems have been found to have been "adjusting" ficsal revenues and are being forced to restate their incomes and profits for the past few years. Dukes Energy has admitted "round-trip" or "wash" trades, which added over $ 1 billion to its revenues over three years—since 1999. Dynergy, the company that earlier offered to rescue Enron just before its collapse, is being investigated for using partnerships in deals, to inflate cash-flow charges. Computer Associates awarded themselves more than a billion dollars (which they then sold) only days before issuing a profit-warning that set the share prices down. The founder and CEO of Imclove Systems was found to have sold a large number of shares held by his family friends just before the cancer drug, which was its sole product, was denied approval by the US Food and During Administration.

The list is unending, and new frauds keep coming to light, the latest being Merck and Reliant Resources. Merck reported more than $ 12 billion in revenue which it did not earn, during the three-year period 1999 to 2001. Reliant Resource (a company like Enron dealing in electricity) inflated revenue by over $ 7.8 billion, also in the three years from 1999 to 2001.

The disease has also hit Europe, when the French media giant, Vivaldi Universal was shown to have tried to inflate its 2001 accounts to the tune of 1.5 billion euros. Vevadli lost 90% of its share value in a single day. It too is on the verge of bankruptcy.

From these examples it is obvious that the chiefs of companies are nothing but a mafia. But in American law, for a petty shop-lifting theft you can face many years in imprisonment, but for such robberies of billions of dollars there is hardly any criminal action. Besides, it is clear that the rot in the US economy, began in 1999 itself, but was hidden from public view by fraudulently hiked up profits.

US Unilateralism & Growing Contention

The present ‘growth’ in the US economy is only artificially created and is not based on the strength of the economy. The huge tax rebates and the massive increases in defence and internal security expenditure, is what has resulted in the temporary growth. In fact, the crisis is deep and the growth is unsustainable.

The depth of this crisis is reflected in the fact that a dozen major telecom companies have filed for bankruptcy in the last year. A study has shown that 30 to 40% of office space in the Silicon Valley has been lying unoccupied — the cloud over the valley has not lifted since the dotcom bust early last year. If anything it has deepened further as major players in the IT sector have been cutting their capital spending through 2002. Thousands more jobs are in the process of being axed. Another bad omen is that for the first time in years the value of the dollar has been falling. In fact, George Soros, the man who has made billions on dollar speculation, has warned that the dollar could fall by about a third, and that a long bear market in the dollar had just begun.

Finally, to picture the grim situation, foreign direct investments (FDI) in the OECD countries in 2001 fell by a massive 56% — i.e. more than halved — from $1,274 billion in 2000 to $566 billion in 2001.

With the crisis growing in the world economy the imperialists are getting more desperate for markets, which is resulting in increasing tensions between the two major powers — the US and Europe. With the US dominating the world militarily it is adopting unilateralist measures around the world, ignoring even their allies. For all their talk of ‘free trade’ it is these imperialist powers, particularly the US, that are resorting to increasing protectionist measures, while demanding that the other countries, particularly the third-world countries, reduce their trade barriers. Besides, with this crisis growing, not only are trade wars hotting up, but also in the political and military spheres US unilateralism is taking precedence over imperialist coordination.

Within just the last two months the US has taken two major protectionist steps on such major issues as steel and agricultural commodities.

On steel not only did the government grant a huge subsidy of $30 billion to it, it also imposed import tariffs varying from 8% to 30%. What particularly angered the EU was that on the $4 billion steel exported to the USA the tariff imposed on a large part was at the highest 30% rate. On agricultural commodities there was a gigantic increase in US subsidies by as much as 80% amounting to a huge $175 billion — i.e. over and above the already existing high subsidies. With these subsidies, the world agricultural commodities market, already flooded with cheap American products, will be further flooded. This will not only push out EU products but will kill the agrarian commodity markets of the backward countries. India, for example, is already exporting its wheat at rates lower than what is fixed for its BPL (below poverty line) population; with this subsidy and the dumping of US wheat, the prices will fall still further.

In yet another protectionist step the US has set high duties on the import of Canadian soft-wood lumber — one of Canada’s major exports. Canada has challenged this step at the WTO, but the Americans could not care.

With the US adopting increasing protectionist measures to safeguard its industries in the face of increasing competition and deepening crisis, the EU has is continuing its retaliatory measures. Trade wars between the two which were first focused around bananas, beef, airplanes, etc. has now reached such basic commodities as steel and agricultural products.

On steel the EU retaliated by declaring a tariff of euros 378 million on imports from the US, including steel, textiles and fruit juice. These are to come into effect from August if Washington does not offer compensation for the increased steel tariffs.

On the US agricultural subsidies, the EU foreign policy chief, Javier Solana, said that the new agricultural policy of the US has created the "most profound" division between Europe and the US, worse that disputes over steel tariffs, the Kyoto environmental treaty or the ICC (International Criminal Court).

The growing contention in the sphere of trade is getting reflected in both the political as well as the military sphere, where US unilateralism is fast replacing US-EU cooperation. Even its closest ally, Britain, is off and on, raising their voice against US policy. This has been reflected in nearly all contentious international issues like the US-Soviet Anti-Ballistic Missile Treaty, the Kyoto Protocol, the agreement on biological warfare and even such mundane issues as the Convention of the Rights of the Child. Even on attitudes towards various countries the contention is increasingly visible, like the EU’s strong support to Arafat in Palestine and Castro’s Cuba, on Iraq and Iran, towards the Colombia Plan and the ousting of the Chavez government in Latin America, and on numerous other issues throughout the world. To take just some examples.

In May this year, the US aggressively attacked the resolution at the UN summit on the Rights of the Child. The 1989 Convention on the Rights of the Child has been ratified by 191 countries — i.e. all except Somalia and the US. The Clinton administration signed the Convention, but never submitted it for senate ratification due to some petty grounds, like the issue of abortion, rights of the parents, etc.

More recently, on the same date that the ICC came into being, the US exercised its veto in the UN Security Council against extending the peacekeeping mission in Bosnia. Here too the US stood alone in the 15-member Security Council. The US was demanding exemption for soldiers, civilians and officials in peacekeeping missions from foreign persecution in the ICC, as a condition for extending the peacekeeping mission in Bosnia. The ICC is purported to have been formed to curb all forms of crimes against humanity, from genocides to war-related atrocities. It can take individuals (but not a country) to court. It is not surprising that the US fears even this mild control, when it is getting more notorious for its actions all over the world — like the recent bombing of a wedding party in Afghanistan killing hundreds, or for that matter the massacres in Iraq. In its opposition to the ICC it has gone to the extent of referring to it as a "rogue court". In explanation it says that immunity to its peacekeeping forces is critical "because American civilians and troops stand exposed to frivolous and politically motivated prosecutions". The Bush administration is adamant on blanket immunity, not any half-measures or ‘guarantees’. Such arrogance was further reflected in a Congressional Committee decision, which has voted authorization for the President to use force to rescue any American held by the ICC and to bar weapons aid to countries that ratify the Court Treaty (already done by 74 countries).

If we turn to the growing Israeli/US aggressiveness over Palestine, we find the EU taking a soft approach on the issue. In fact, at the peak of the "oust Arafat" campaign in May, the EU foreign policy chief, Solana, undertook a diplomatic initiative to meet him — raising a hysterical howl from the Israeli/US camp.

Ever since Sept.11, increasing US unilateralism is to be seen in the military sphere as well. Though this was growing even earlier, it took a leap after the so-called declaration of war on ‘terrorism’. Including Afghanistan, as also elsewhere in the world, the US has poured cold water on the EU’s military support, looking to them only for peacekeeping jobs and for funding rehabilitation programmes. This is not surprising, as in their new drive for seizing markets, the US would like to keep its main contender at arm’s length, so that it can have a head-start. So for example, in Afghanistan it would not like to share the spoils over the vast oil and gas reserves in Central Asia and the pipeline routes with the Europeans. Quite naturally it kept the military initiative with itself!!

So, to conclude, we find that the real crisis in the imperialist economy is deeper than what is seen on the surface, hidden by fraudulent accounting and media manipulation. This crisis is leading to an ever increasing fierceness for grabbing markets for the TNC of their respective countries. With the US as a declining economic giant, but with enormous military might, increasing US unilateralism and growing contention with the EU is inevitable.