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| 2003
News and Press Releases |
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HEADLINE ARCHIVED:
'THE AMERICAN WAY' IS A WORK IN PROGRESS
By: David Wessel
The Wall Street Journal, November 13, 2003
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EXCERPT: NOT SO LONG AGO the U.S. boasted that we did three things so well that others should copy us: We knew how to run elections. We knew how to run companies. And we knew how to run financial markets. Hmm. First came the marred 2000 presidential election, then corporate and accounting scandals, and now disturbing discoveries about mutual funds and the New York Stock Exchange. Sam Gejdenson, a former Democratic congressman, has monitored elections in Azerbaijan, Cambodia, Georgia, Peru and Ukraine for the National Endowment for Democracy. "We're always a little embarrassed about Florida, and always a little embarrassed that the Supreme Court didn't allow all the votes to be counted," he says. His reply to foreign critics: "I generally invite them to observe our elections. It would be helpful." A strength of the American economic and political system, though, is that it tends to be self-correcting. Something goes wrong. Shrieks of outrage follow. And then things change, usually for the better. SO HOW IS the correction phase coming along? On balloting, it's awfully slow. State and local governments are short on money to replace old, unreliable voting equipment. Public attention has shifted to other crises. On the business front, the correction is continuing: Congress moved swiftly to tighten oversight of accountants and bolster he independence of corporate directors. Federal prosecutors and the Securities and Exchange Commission are pursuing corporate crooks. New York Attorney General Eliot Spitzer is making sure that they don't miss anything. Mutual-fund giant Vanguard Group declares it will no longer automatically back corporate management, an acknowledgment that institutional investors failed to do their job, too. "While parts of the U.S. system failed under the exceptional strain of the 1990s' boom market, the damage was limited because the overall system" -- including the government, the press and the public -- "reacted quickly to address the problems," economists Bengt Holmstrom of MIT and Steven Kaplan of the University of Chicago argue in a recent essay. They insist the U.S. corporate-governance system isn't truly broken. The evidence: The economy and stock market have performed better in recent years than any other on earth. "How can we have done marvelously if the system is fundamentally flawed?" Mr. Holmstrom asks. If the bulk of American executives were stealing from shareholders and financial markets were rigged, they reason, then capital would flow to the wrong places and productivity wouldn't be surging. These economists worry about an overreaction. They fear new rules designed to avoid more scandals will yield excessive rigidity and that welcome changes of the past couple of decades, such as linking corporate pay to stock prices, will be discarded. That risk is worth pondering. Do too much, and managers will be so preoccupied with complying with new rules and avoiding lawsuits that they won't take business risks vital to economic growth.
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