By JEFF MACKLER
American capitalism was stunned by yet another catastrophe on June 26 when MCI WorldCom, the nation’s second largest long-distance carrier, admitted that it had doctored its books to hide massive losses
The humbled behemoth, whose stock is now virtually worthless, admits that $3.8 billion in funds it did not have were added to its cash flow account.
As with Enron, and again with the assistance of Arthur Anderson’s accounting firm, a massive minus was turned into a multi-billion-dollar plus on WorldCom’s books. The idea was to prettify the figures in order to stabilize WorldCom’s rapidly declining stock prices.
Even before the “accounting error” was “discovered,” MCI WorldCom knew the jig was up. It was the subject of a federal accounting investigation; it was hard pressed to refinance its $30 billion debt, and its credit rating was reduced to junk bond status.
To stem the tide and reverse its declining stock price (from $62 in 1999 to 26 cents per share today), the crippled corporation, now on the verge of bankruptcy, reported profits of $1.4 billion last year and first quarter profits of $130 million in 2002. WorldCom now admits it lost money in both periods but has declined to state precise figures.
WorldCom executives announced that 17,000 additional workers would be fired, as they tried to salvage the company’s remaining capital for the ruling-class few who are still in charge. Meanwhile, their banking creditors are rushing to court to prevent WorldCom’s executives from running away with the loans they granted before being privy to the impending collapse
The scope of the WorldCom disaster has frightened even the most conservative of observers. WorldCom’s value in June 1999 was listed at $115.3 billion. It is now worth less than $1 billion.
WorldCom is not alone in the world of major corporate fraud and failure. The nation’s sixth largest cable television operator, Adelphia Communications, virtually simultaneously joined the parade of major multi-billion-dollar operations that are headed for the bankruptcy courts.
Adelphia’s problems began when it was revealed that it had loaned at undisclosed terms at least $3.1 billion to the company’s major shareholders, the Rigas family.
Meanwhile, the Xerox Corporation admitted it had “misstated” its earnings for previous years-to the tune of $6.4 billion. Top executives for drug store giant Rite Aid have been indicted for an accounting fraud that inflated the company’s earnings by $1.6 billion.
Even homemaking expert Martha Stewart, head of a company with billions of dollars in assets, was embroiled in scandal for “insider” stock-trading.
MCI WorldCom follows in the footsteps of other bankrupt corporations, like Enron and World Crossing, whose top executives resorted to every means necessary, including fraud and theft, to compete in the ruthless capitalist market place, where profit and profit rates are under tremendous pressure.
Profit, under capitalism, is a product of the exploitation of workers. But the absolute necessity of introducing labor-replacing machinery to remain competitive, while temporarily resulting in improved bottom lines, has in the long run led to one corporate meltdown after another.
For a while, those who led the pack in the utilization of sophisticated machines to replace workers were able to take advantage of their less automated corporate competitors.
But as the race for profits proceeds, the lesser players are themselves compelled to follow suit, or even surpass their adversaries by utilizing even more sophisticated technologies. Those who cannot keep up are either absorbed by the survivors or are driven out of business.
In the end, the result is predictable; millions are fired and industry after industry is consolidated into a few surviving mega-corporations. These in turn face increasing competition from their giant counterparts in Europe and Asia.
World capitalism has now reached a point where all its major sectors are in crisis-with the Japanese-led trading bloc, the U.S./Canada alliance, and the European Economic Community facing simultaneous recessions. The world is glutted with overproduced commodities manufactured in state-of-the-art factories, which are now considered “obsolete” and must be closed.
The massive layoffs and super-machines that initially gave the leading players the ability to sell products far above their real value are now generalized in most major industries. But as the sole source of profit, workers’ labor power, is more and more eliminated from the workplace, profits have plumetted.
Marx’s well-established axiom of capitalist production that “labor creates all value” is far from a political slogan without real content. Today, it is the common currency of debate among the elite themselves. They must pull out all the stops to reduce the value of labor-and have proceeded to do so.
They have superexploited the labor of the peoples of the world-from Mexico, where wages in the maquiladora industry are paid at $3 per day, to Guatemala, where the daily rate is $1.37, to China, where the capitalist-oriented Stalinist bureaucracy arranges for the sale of its people for 42 cents per day.
The dollar tumbles
The crisis of capitalism is reflected in virtually every indicie of economic growth-or better, economic decline. Manufacturing profits have been in rapid decline. The stock market has registered losses in excess of the figures reported immediately after the Sept. 11 disaster, when trillions were lost in a matter of days.
Since January, the dollar has lost 10 percent of its value as measured against the world’s major currencies. The trade deficit, the difference between the value of U.S. imports and exports as measured by goods and services, has reached the worst levels in U.S. history. The April figures show the deficit at $39.9 billion.
A broader measure of the nation’s international standing, the “current accounts balance,” which adds to the trade deficit figures data on investment flows in and out of the country, also registered an all-time negative figure, $112.5 billion for the first quarter, according to the Commerce Dept. This figure, in significant part, reflects the fact that international capital invested in the U.S. stock market has been withdrawn in record amounts.
While the U.S. stock market has declined some 8 percent this year, its European counterparts have registered even larger declines, in the range of 11 to 15 percent. But when the 10 percent decline in the value of the dollar is added to the U.S. stock market losses, it’s no longer profitable to try to make a buck by speculating in U.S. stocks.
Foreign capital is beginning to flee, especially when analysts are predicting, according to The New York Times, that the dollar’s “downturn has become pronounced enough that many economists judge it to be at the start of a correction that could continue for some time” (emphasis added).
The correction, of course, is necessitated by the dismal profit profile of U.S. corporations. The dollar was stable only when it was backed by what other capitalists considered to be a stable U.S. economy, with steady and demonstrable profits. With the opposite prospect now in play, the value of the ephemeral dollar has been brought into question as never before.
No one knows the dollar’s real value; it is no longer pegged to a reliable standard such as gold.
“One outcome of the declining value of the dollar,” according to the June 21 Times, “is a cycle in which a growing account deficit spurs an exodus by nervous foreign investors, pushing up inflation and interest rates and putting the already weak economy into a stall.”
Indeed, the Commerce Department reports that at an annually adjusted basis, foreign investment in the U.S. stock market has declined from $400 billion last year to an estimated $260 billion this year, a 35 percent decline. And this is just the beginning of the “correction.”
Fudging the unemployment rate
To the horror of the ruling rich, nothing is stable these days. Even the hopeful statistics generated by the University of Michigan’s consumer confidence measuring institute have been called into question, as experts in the field argue, with some validity, that the data is, and has always been, worthless.
A new language has been adopted by the staff writers in the nation’s business pages. When the monthly loss of jobs falls below the 400,000 mark, as it did in May, the figure is touted as as a sign of economic recovery based on the thesis that the figure last month was higher. This reasoning is akin to a fool who hails his fortunes by proclaiming that the theft from his house this month was less than it was the previous month.
The job statisticians have been schooled for decades to under-report the rate of unemployment. The government’s rates are based solely on the number of workers receiving unemployment insurance, approximately 6 percent of the eligible workforce. But when workers who are still jobless exceed the standard 26 weeks of unemployment insurance and no longer receive payments, they are no longer considered unemployed.
If the estimated number of workers in this category is figured into the calculation, the present unemployment rate would be more than double the 6 percent formally reported. Those workers who are employed in part-time jobs or who have worked for at least one quarter are also excluded from the statistics.
The myth of America’s economic invincibility has been subjected to mounting, regular, and largely unexpected shocks that have shaken the confidence of even the elites who had come to count on the veracity of corporate financial reports and fundamental stability to guide their actions.
The rest of the population, the vast working-class majority, is learning by bitter experience that nothing can be taken for granted-from their jobs and pensions to their right to organize to fight to defend their own interests.
The time is approaching when capitalism’s victims will return to the road of struggle to protect and advance their interests. They are rapidly learning that these interests have nothing in common with the preservation of capitalism.