WHAT does the latest corporate scam tell us about modern capitalism, apart from the fact that in three days, Volkswagen, the biggest car manufacturer in the world, saw 34pc wiped off its share price? As this once proud symbol of German engineering excellence was brought to its knees after being caught trying to cheat environmental regulators and its American customers, many are trying to fathom why the company resorted to such underhand methods, given its dominant position in the market.

Well, they don’t have to look very far: witness the banks, petroleum companies and pharmaceutical firms that have been handed out huge fines for various misdemeanours over the last few years. From fixing Libor rates to manipulating currency exchange rates, bankers have been caught with their fingers in the till time and again. And each time they are fined, their bosses repeat the mantra that they were unaware of the actions of their staff, but would make sure these malpractices were never repeated. And so it goes until the next time they get caught.

When VW’s chief executive, Martin Winterkorn, resigned soon after admitting his company had indeed installed a “defeat device” in its 11 million diesel cars to fool pollution detectors in California, he also insisted that he knew nothing about this devious practice. But if the CEO was ignorant about this widespread deceit, he should be sacked for incompetence. And given the vast number of cars involved manufactured in factories around the world, it is difficult to imagine that local managers installed the software at their own initiative.

Similarly, the heads of huge global banks have maintained their innocence about multi-billion dollar scams carried out by their underlings. And yet, if they hadn’t been caught, they would have continued earning big bonuses. It is this culture of sailing close to the wind in the search of ever-larger profits that is eating away at the belly of the capitalist beast. Increasingly, corporations reward their senior executives with company shares, so these overpaid people have a stake in boosting the value of their holdings. All too often they do this by breaking the law in the expectation they won’t get caught. In effect, the scandals major banks have been involved in makes the defunct BCCI seem like a child caught stealing sweets.

Many companies, especially tech outfits, now no longer pay dividends, and consider the appreciation in share prices adequate return for their investors. The profits are piled up for expansion and for buying other companies. Thus, Apple today is sitting on a cash pile of $200 billion, and other dotcom firms have large war chests as well.

According to a McKinsey report cited by The Economist, corporate profits have nearly tripled between 1980-2013, from 7.6pc of global GDP to 10pc. In the same period, executive pay packages and bonuses have skyrocketed, while workers’ salaries have stagnated. This increasing inequality is fuelling resentment and rage among growing numbers in industrial countries, leading to the rising popularity of left-wing politicians who rail against this injustice. Jeremy Corbyn in the UK and Bernie Sanders in the United States are harbingers of the anti-capitalist politics that is emerging today.

Indeed, there is a growing backlash against mainstream politicians who suck up to multinationals, and are seen as complicit in the collapse of the financial markets in 2008 that led to mass unemployment in many countries. Stories about major multinationals like Amazon that make massive profits in the UK, but evade taxes by showing sales in Ireland, infuriate those who pay their dues to the exchequer.

While greed has always been the driving force behind the capitalist ethos, it was once tempered by strict government regulations, and by a pride in a company’s reputation. Staff tended to stay with a company for years, and investors were paid steady, regular annual dividends. This traditional model seems to be breaking down as the emphasis now is on higher profits and bonuses.

As far as workers are concerned, their bargaining position has been eroded by the weakening of unions, and the inexorable rise of automation. More and more jobs are being replaced with computers and robots, and workers, fearing redundancies, are reluctant to demand a bigger slice of the corporate pie.

And yet they can see the growing opulence of the lifestyle led by their bosses. Judging by the steady rise in the number of billionaires, there is no evidence that giant corporations are doing badly: it’s just that their directors refuse to share their growing profits with their workers.

Thus, when George Osborne, the UK chancellor, announced the government’s intention to raise the minimum wage in the last budget, there were cries of alarm from employers. They warned darkly that this would lead to a fall in overall employment as jobs would be axed to control costs. And yet, when senior executives give themselves eye-watering raises in salaries and obscene bonuses, this does not lead to any loss of top jobs.

But this level of corporate greed isn’t new: the nineteenth century gave us the term ‘robber barons’ to describe rapacious capitalists who exploited workers ruthlessly. In fact, there has always been tension between the owners of capital and the suppliers of labour, leading to repeated clashes in which the state invariably supports the bosses. It was only after the labour shortages caused by the carnage of the two world wars that workers were able to win better working conditions and wages for themselves.

And yet, the global workforce has expanded by 1.2 billion since 1980. In large part, this has been made possible by the rise of the Chinese economy; but without doubt, hundreds of millions have been raised out of poverty. Nevertheless, the new capitalist model is being questioned by many in industrialised countries. If those in charge cannot provide solutions, we may witness some wrenching changes.

Twitter: @irfan_husain

Published in Dawn, September 28th , 2015

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