View From Australia
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Ethics Key to US troubles
By John Beveridge / Melbourne Herald Sun.......... 06feb03
A BREAKDOWN in US business ethics is likely to keep its stock market and economy subdued, a top business leader believes.
Australian Stock Exchange chairman Maurice Newman said yesterday that he was far from convinced the US bear market was over or the economy would recover quickly. "Sentiment has been too bullish during the decline and, on any historical basis, price earning multiples are still way too high," Mr Newman told the Committee for Economic Development of Australia."While we will undoubtedly see good bear market rallies, it may be years before Wall St finally reaches attractive valuations and returns."
Mr Newman said US households and governments were burdened with debt, companies were struggling to finance employee health and pension costs and earnings were flat. The US was choking on more than $US30 trillion ($51 trillion) of debt.
Despite low interest rates, the stock market was faltering after three negative years and companies were only improving their results through the one-off measures of slashing costs and cutting staff.
"America is living on borrowed money and borrowed time," Mr Newman said.
He said collapses, corruption and greed had shown that a mercenary, self indulgent culture was not enough to hold society together.
It also showed the superiority of Australia's market regulations compared with the US rules-based system.
"Its imperfections granted, Australia's principles-based system, with its emphasis on codes of conduct for boards and management and peer group pressure on behaviour has demonstrably produced superior outcomes," he said.
Another negative that had not worked through the system was the destruction of wealth through the meltdown of the US market since 2000.
Mr Newman said that only at the start of the Great Depression from 1928 to 1932 had there been a greater nominal destruction of wealth. As a percentage of GDP, today's meltdown was even greater.
Mr Newman said Australia was well placed to weather a downturn because it was flexible and had policy options in adjusting to external shocks.
"Australia is likely to be seen as a small but safe harbour," Mr Newman said.
The economy was the strongest in the OECD and the stock market was the world's best performer last year when adjusted for currency.
The excesses of US executive pay and accounting practices and, to a lesser degree in Australia, showed the danger of greed overtake morality.
"Integrity should not be for sale at any price, our way of life depends on it," he said. |
