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09.08.2008

August 03, 2008 (the date of publication in Russian)

Andrey Kobyakov

FINANCES AS THIEVERY. Part 3

To revive business culture, combat financial piracy

Part 1: (http://www.rpmonitor.ru/en/en/detail.php?ID=10494)

Part 2: (http://www.rpmonitor.ru/en/en/detail.php?ID=10495)

WESTERNIZATION OF EUROPE

The role of the global epicenter of deregulation, as well as obtrusion of increasingly immoral and predatory style of business is played, undoubtedly, by the United States. Generally, America's lifestyle dates back to the gangster era, glorified today on the TV screen. However, this lifestyle has long become a commodity for export – not only to the Third World but to the Old World, for which this ideology had been essentially inorganic.

Though some of these features of lifestyle had been adopted by the European community, they used to be restricted with a diverse complex of cultural standards and ethical counterweights. The specific system of Europe's social institutions, to a certain extent, originated from the commitment to withstand destructive tendencies embedded in the cult of unbridled liberty. In business, this system involved principles of trade ethics, corporate culture, and social partnership. All this is today under the threat of destruction.

A decade ago, the attempt of hostile overtake of Thyssen by smaller rival Krupp caused a scandal Ц especially when it was found out that the effort involved two major financial giants, Deutsche Bank and Dresdner Bank. Both of them were Thyssen's shareholders, represented in the company's board. Their playing on Krupp's side looked especially disgusting, as they were supposed to assert the interests of this company and not of its rival.

At that time, Thyssen's leadership accused Krupp of "applying Wild West methods". This reproach was shared by many political and business figures of Germany, where hostile overtake was then a rare occasion. Employees of both companies expressed protest as well.

The scandal received such a broad publicity that Johannes Rau, then Minister-President of Northern Rhine-Westphalia and a person with high moral authority in Germany, had to perform as a mediator. Only after his intervention, the two sides agreed to solve the problem in a European manner.

Corporate piracy also emerged at that time in France, the central role played here by Francois Pinault.

In France, the definition of "old capital", applied to banking families with a background of centuries, sounds especially honorific. Aristocracy is supposed to pursue adequate methods of business behavior, corresponding with rules of the game, sanctified with the national tradition. These methods are not adopted by some players from the aggressive "young capital".

A son of a provincial woodward, Pinault once gave up school studies to start business. He gained his fortune from prompt purchase and resale of underrated companies. In this practice, he deliberately selected only the most valuable assets of industrial companies. Overtaking a company, Pinault subsequently resold this "cream", pouring out the unneeded "milk". The factories he did not regard as attractive were closed, their equipment sold out and the personnel laid off. Meanwhile, Pinault used incomes from these operations to purchase diversified assets run by holding companies. Every year, his empire overtook larger companies estimated already in dozens of billions.

Two decades earlier, this behavior would arouse broad indignation. Today, only a few politicians and trade union activists criticize "financial piracy". This reflects a significant shift in the French business culture, which does not any longer regard foul blows as anything unacceptable. This shift is enthusiastically described by mass media as an evidence of emergence of an "Anglo-Saxon France".

The shift affected also the behavioral patterns of top managers. In Europe, success used to be proven not with the amount of income but with the increase of turnover. However, the swift development of the European stock market drove the public interest towards the dynamic of quotations, figures of income, and dividends. The game was played by American rules.

Schemes of salaries, as well as remuneration of top management, were similarly borrowed from the United States. The manner of paying bonuses (or offering share options) to top financial managers in case of growth of quotations has penetrated into the business style of Europe.

The described practice is today criticized in the United States, especially since the collapse of Enron. It is well known that the offered options are frequently used by the top management for unlawful increase of their salaries that sometimes reach astronomic dimensions. However, this is not the only implication of this practice.

When a company reinvests its income in improvement of production and extensive scientific research, short-term indices of gross income per share, or capital income, may display a short-term decline. But when top managers are focused on these very indices, they get disinterested in capital investments. Thus, the schemes adopted from the United States in fact undermine the impetus for capital investments. Meanwhile, underinvestment may cause a range of dire consequences.

In addition, the privileged character of remuneration schemes that does not involve most of the personnel discourages the workers. According to a recent international research in the personnel's attitude to labor, it was found out that British workers are especially disappointed with the style of company management.

Westernization of European business is a certainty. On the one hand, the dynamic of the American model is useful for the inert Europe. On the other hand, the moral of Social Darwinism, inherent in this model ("the strongest survives"), generates conditions favoring only big private business. In this way, the traditionally multilayered character of European economy, in which small and medium business used to serve as a stabilizing social element, is eroded. The very basis of public accord Ц the compromise between labor and capital, gained by decades of experience Ц is undermined. Consequently, the European social-democratic model of the state of common benefit is going to cease existing.

 

THE APOSTLES OF ECONOMIC IMMORALITY

Aggressive overtakes of property, more and more aggressive assaults on stock are becoming "normal" in the well-to-do Europe that avoided social cataclysms for decades. The extremely aggressive "business culture", emerging in 1990s in Yeltsin's Russia that chose a diametrical alternative to the "obsolete and rotten" socialist principles, contributes to new social polarization. In the conditions of moral dismay and erosion of landmarks of national orientation, Russian business ethics could acquire nothing but features of economic outrage. The combination of deregulation in the West and the habits of economic outrage in Russia has become a really explosive mixture for undermining the traditional basis of the international economic system.

Even speculator George Soros in his articles characterized a business system that emerged in Russia as "robber capitalism", with absolutely improper ethical foundations. However, this judgment made by such a person is per se a grotesque since the situation has certain shade of black humor. In this case I can not but repeat the remark once made by The Washington Post's commentator; the remark was addressed to Soros (though on a different occasion): "With all due respect, would Mr. Soros, please, shut up".

After gaining multi-billion dollars fortune on financial speculations with distinct smell of markets manipulation, after capitalizing from gangster assaults not just on companies but on financial systems of sovereign nations, George Soros made himself a name of a "noble philanthropist" by donating part of the robbed money for "support of science and civil society" Ц in fact, just for bribing convenient politicians and liberal intelligentsia in the countries he robbed.

A banal card-sharper, though at a global financial scale, Mr. Soros has become a guru, a model example for following, personifying the cult of individual financial success. He sets the scope of the"professional standard" and promotes specific " life success" philosophy. His career and writings become a matrix supposed to reproduce Ц and already reproducing Ц behavioral patterns of "new Soroses" or "Soros cubs" ready to "conquer financial seas" and "colonize financial space", with predatory instincts and cynical covetousness unrestricted with any principles.

TV commentators and biographers, glorifying this pattern of behavior, are in fact canonizing new apostles of his sable Majesty. This pantheon includes, beside Soros, also Michael Milken, Mark Rich, Julian Robertson, Francois Pinault, along with their predecessors like the families of Rothschild, Rockefeller, Carnegie, Warburg and Morgan. Attempts to criticize them can hardly be noticed on the background of the delightful adoration of the crowd based both on envy and desire to "be like them". "They were immoral Ц but successful; they were lucky Ц and I can be lucky as well if I do the same". This horrible logic, as a natural result of impunity of crime and conciliation with evil is per se an exemplary symptom of an advanced malign disease of the society.

 

NOT AMPUTATION, BUT INTENSIVE THERAPY

Unlike a number of radically intended experts, I am far from believing that in the world of today, it is expedient to "get rid of" loan interest and financial markets. That is not what I propose. The idea is different: it is necessary to impose strict control on financial operations and willfully regulate the rate of return of private entities in this sphere; where it is possible to prevent emergence of such entities and use state-run financial institutions to substitute them; to introduce participation in profits from investment projects instead of simple collection of interest. It is absolutely essential to restrict the real global power of financial institutions, to use all the available means for establishing priority of national sovereignty and social objectives over selfish interests of such institutions.

It is necessary to coordinate a global offensive of healthy forces of the world on the so-called "creative financial engineering" that conceals new sophisticated forms of financial piracy, fraud and swindle. The mankind requires real, not just verbal achievements in this struggle. Cosmetic improvements of the superstructure of the global financial system, like "improvement of transparency" and similar casuistic exercises are not sufficient. The system needs not a mere decorative repair with PR- and "better image" goals but a capital and cardinal reconstruction Ц on universal and generally accepted principles of moral, justice, constructive endeavour, reasoned progress, and common good.


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