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Fraud:
the fifth factor
Early
masters of economics named four factors of production: land, labour,
capital and enterprise. The rule remains gospel truth. There were
attempts to amend the list. Some saw need for only two: Land and
Labour.
To
them capital and enterprise were residual labour. Capital being
stored savings (of labour) and enterprise is labour by definition.
The logic was unassailable but few took heed.
Tradition
held the field with capital on the throne. For analytical ease,
capital was split into its constant and variable components. And a
flow and fund approach made the equations less rigid. That was all.
Now
times have changed. Recent events raised the question whether fraud
is an indispensable catalyst of business. If so, it should rank with
other factors of production. The steady drip of scandals from the
corporate world, especially US, the Mecca of modern economy, leaves
everyone confused.
Minus
the slew of frauds, one is tempted to conclude that the
extraordinary boom of the nineties was only an illusion and no
reality. The leading lights of corporate world are now belly-up.
Being charged with deceptive accounting, insider trading and
self-dealing.
As
a rule, they reported more sales and profits than actuals. The
much-hyped options are seen as legalised fraud. Expensed, they would
have sponged out an average 12 per cent of the corporate profits.
The
famed Securities and Exchange Commission (SEC) is after the
culprits. Set up in the wake of 1929 crash, SEC has always been too
weak to do the job of a beat cop. Now it is short of cash. With an
annual budget of $438 million and 2900 employees it can’t do much.
If it is so bad at SEC, expect worse from elsewhere.
SEC
lists more than one enforcement action a day. But it must check up
on 17,000 publically traded corporations, 34,000 investment
port-folios, 8000 brokers and no less than 7500 financial advisors.
Apocalypse will be on when it is all over.
Almost
every corporate is suspect. Even so, the basic US model for wealth
creation is not done away with. It still is one of the most
creative, enterprising and productive systems. Needing strong
corrective touches here and there.
But
the ruckus had a major casualty: The hype that free market, having
unlimited potential, can do no wrong. Though not for the first time,
there is proof that the words ‘open’ and ‘free’ are not
interchangeable. Open means transparent. Free for freedom or fraud?
Once again in focus are the perils of allowing the ‘state’ to
wither away.
Lenin
needs a re-look. For it is clear that imperialism, as he defined, is
not the highest stage of capitalism. That pride of place goes to
fraud. |
