Redirecting a managerial class

Posted: Jun 29, 2002 12:00 AM
I know a distinguished social pathologist who is wondering, at this juncture, whether there is a new component in the economic picture in America. Something is certainly new, given the near-daily advent of a fresh company detected in evasion and worse.

The free-market models give us: entrepreneurs, stockholders, accountants, federal watchdogs, bankruptcies -- and jails. The mix of those elements is supposed to encourage thrift, investment, merchandising, and profits -- to the stockholders and to the buying public.

What appears to the inquirer as unique in today's situation is a body of actors who disengage from the accepted disciplines and do so with apparent impunity. The big question today is: Are these individual miscreants, or do we have an operating class beyond the reach of the law, on the order of the profession of prostitution?

We have here the second wave of apparently deracinated evildoers in the course of a single year. The first was the priests, who, in outrageous defiance of primary obligations of their profession, abuse children, no less. Abusing stockholders is perhaps less iniquitous. But this set of miscreants are giving reasons why they did as they did, high exercises in self-exculpatory art.

When an official of WorldCom reports that he could see nothing wrong, let alone unusual, about classifying moneys dispensed as capitalized expenditures when in fact they were moneys spent in doing business, the question arises: Can that man see anything as wrong? And if so, does he emerge as simply one criminal practitioner, or is he a member of a class newly acceptable in American business?

There has been speculation over two generations about who actually controls business enterprise. James Burnham, in l940, argued the thesis of the Managerial Revolution. It isn't the stockholders who run things; it is the people they nominate to serve in management, people they almost immediately lose control of, he argued. This is so because keeping up with what they do, let alone supervising what they do, is a practical impossibility.

Stockholders are left with the power to remove, which can be likened to the power of Congress to impeach. They have the advantage of a hypothetical watchdog, requiring the execution of certain formalities, like a company's annual reports. What was envisioned as supplementing stockholders' rights was the concept of the public's rights. A WorldCom CEO who dissimulates damages his stockholders, but hurts also a public that, taking heed of what happened at WorldCom Inc., hesitates to back other ventures, slowing down the dynamic of capitalism and inducing skepticism about the very idea of private enterprise.

Congress is busy trying to come up with revised systems of auditing. The most prominent reform being discussed is outlawing the accounting firm that acts in a second capacity as company consultant. That idea would seem to be commendable, though the practice of it could be hard on the smaller of the 16,000 publicly traded companies that would now have to add an entire service echelon to the cost of doing business.

What is needed quickly and extensively is: punishment.

In the late l930s, no less a figure than a former president of the New York Stock Exchange went to jail for the misuse of funds. This is not a call to the denial of due process, but a call to the legitimate use of public punishment as a retributive act.

In the public-school lore of Great Britain there is the story of the senior boy nailed for public indecorum and had up for a flogging. He pleads, in deference to his seniority, to be punished outside the view of voyeuristic fellow students. Permission denied, on the grounds that the public humiliation was an essential part of the punishment.

Richard Whitney was sent to jail in l938. We need his successors to go to jail in 2002. The alternative is to sit by, supine in the gestation of a managerial class that violates the very idea of a capitalist class bound by laws and practices which make it a proud part of a free economy, whose leaders in large enterprises have done their best to discredit.

This is a very real public issue and inevitably will separate many Republicans from many Democrats. The possibilities open to demagogues are great. But the Republicans would do eternal disservice to their responsibilities if they failed to take action against the great post-Marxian challenge to capitalism.