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Paul Volcker is the former chairman of the U.S. Federal Reserve Bank. He is presently chairman of the International Accounting Standards Board.

By Paul Volcker

NEW YORK -- A decade ago, the United States was still celebrating victory in the Cold War and a booming economy led by high technology. It was admired across the world, even envied. Ideologically, there was a broad acceptance of the American vision of democratic capitalism and open markets.

Today we are faced with the uncertainties of winding down a war, threatened by terrorists we don? understand, apparently deserted by long-standing allies and suspicious of international institutions, such as the United Nations, that were largely our own creation.

After the victory against Iraq, the big challenge now is what to do with the peace. To restore America? role in the world involves more than military ascendancy. If we are going to enhance and sustain the values of democracy and a peaceful world, we must first get our own institutions in order, not only by the long-overdue reform of inefficient federal government but in the business world.

It is no secret that corporate governance is in turmoil. It has been less than two years since the saga of the Enron and Arthur Andersen accounting scandals unfolded so dramatically. Some saw these as isolated aberrations from the standards of American corporate management and auditing.

But events soon enough proved that Enron and Andersen were only symptoms of a more general problem. WorldCom, Tyco, Global Crossing, Xerox, Qwest, ImClone, security analysts and almost all the prestigious Wall Street investment and accounting firms -- all revealed conflicts of interest or dishonest trading or accounting. Who knows what will come tomorrow?

To me, these are all submerged icebergs endangering the flow of investment in the commercial ocean.

Unfortunately, I sense a feeling of denial out there. This seems to be the motto in too many executive suites: ?Just keep your head down and -- especially with the war in Iraq and other distractions -- it will all blow over?

To be sure, there is a danger of overkill by government regulation that can make the situation worse. Be careful: The risks of undue rigidity and insensitivity to the needs of the marketplace from a political reaction are very real. But it would be a great mistake not to face up to the fact that there is a serious problem that requires a serious response.

Plainly, business as usual is not good enough. The temptation to push the envelope of ethical practices and professional standards has simply been too pervasive, both in the United States and abroad.

We have, in fact, set out our accounting and auditing practices as a model for all the world. We have emphasized full and honest disclosure and transparency of transactions as essential foundations for successful financial markets. We sing the praises of the rule of law and the need to avoid cronyism and personal favoritism. All of that is true.

But when our practices fall so obviously below what we preach, then we simply give ammunition to those opposed to open markets and globalization of finance and to those who would question the legitimacy of democratic capitalism itself.

(c) 2003, Town Hall/Global Economic Viewpoint. Distributed by Tribune Media Services International.
For immediate release (Distributed 4/23/03)