BAD TIMING is only one of several problems afflicting George W. Bush's Waco
Economic Summit. The economy is just not cooperating with his upbeat message.
A second major industry, airlines, is now joining the telecommunications collapse
as evidence that the economy faces more than a crisis of investor confidence.
The Federal Reserve has been keeping the economy afloat with interest rate cuts,
but despite economic weakness, it declined yesterday to cut rates further. Last
week, the Commerce Department quietly and sheepishly released revised statistics
showing that the recession of 2001 was more serious and prolonged than originally
The Waco event needs to be understood mainly as theater. The same cynical producers
who recruited African-American tokens to integrate the 2000 Republican National
Convention unearthed a handful of ''ordinary'' Americans to come to Waco mainly
for their value as props. But, for the most part, Bush's summiteers are the usual
suspects who have brought the economy to its current pass. Serious critics of
corporate corruption were not welcome.
Imagine a genuine economic summit, with a wide range of dissenting views. It
might ask: How do we restore honesty and transparency to the governance of corporations?
The legislation that Bush recently signed (after it became clear that it was unstoppable)
is only the beginning.
For example, a Wall Street Journal investigation recently reported that insiders
in the telecom industry sold about $18 billion of stock in companies that they
were touting to the public, just as these companies were about to tank. This was
all perfectly legal. The options game, also entirely legal, is likewise rigged
in favor of insiders and is a virtual invitation for corporate executives to manipulate
share prices. Aren't there enough ordinary incentives for successful entrepreneurs
to get rich without gimmicks to cheat investors? If Bush were serious, he would
appoint a blue ribbon group of critics to devise fundamental reforms.
A true summit on the economy also might explore just where deregulation went
so badly awry. The now disgraced accounting profession, the nearly bankrupt telecom
industry, and the sputtering airlines have one thing in common. All were deregulated
in the name of the holy free market.
In the case of accountants (who contributed tens of millions of dollars to
both parties), the deregulation was implicit. Whenever SEC chairman Arthur Levitt
tried to crack down on accounting abuses, leading legislators of both parties
simply threatened the SEC's budget.
In the case of phone companies and airlines, the deregulation was explicit
bipartisan policy. But the experiment failed. For these are industries where one
airline seat or one dial tone is pretty much like another, and true competition
turns ruinous. Too many companies invest in too much capacity, and then nobody
can turn a profit.
The airlines and phone companies compensate for the lost revenue by gouging
consumers whenever the opportunity arises. But evidently the gouging is not sufficient
to keep them profitable. US Airways, with choice monopoly routes and dominance
of several key hubs, still could not make a living. The third scandal-ridden industry,
electric power, is another case where deregulation invited abuses and only raised
prices. Hard as it is to grasp, regulation of such industries is necessary to
protect both consumers and shareholders.
A real economic summit might look closely at another sector that profoundly
affects real people - health care - where both parties are pursuing only the most
partial of reforms. Inadequate prescription drug covers for seniors-only and a
watered down patients' rights bill are subjects fierce of partisan debate while
the big issue - universal coverage - is simply off the table.
What is the connection between these ignored issues and the faltering economy?
The connection is wasted resources. The telecom bubble attracted $2 trillion of
investment capital that went to no useful purpose. The corporate abuses, options
scams, needless mergers and acquisitions all enriched insiders, but added little
economic value. The economy cannot afford this waste.
HMOs spend a small fortune trying to avoid insuring patients who might get
sick, while hospitals and doctors spend billions trying to collect money owed
them by HMOs. A universal system would waste less money, which could be redirected
to patient care. Bush's Economic Summit is a political version of Tom Stoppard's
play, ''Rosencrantz and Guildenstern are Dead,'' where trivial characters and
issues usurp the audience's attention, while the important themes are tantalizingly
For a day, the summit may provide some diversion and entertainment. But the
real problems affecting the real economy lie beyond the ingenuity of creative
Robert Kuttner is co-editor of The American Prospect. His column appears
regularly in the Globe.
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