This paper illustrates the rise and fall of one company during the economic boom and busts that marked in the 1990s and early 2000s. We argue that the cultural mindset influenced by the neoliberal framework, supported opportunities that allowed companies to mislead the public. Widespread corporate losses and earning management helped fuel records, Enron and WorldCom events were not isolated events. During 1990-1996 the average yearly number of companies restating financial statements was 49, but between 1997 and 2002 the average jumped to 174 restatements per year (Moriarty and Livingston, 2001; US General Accounting Office, 2002). Why was there such an increase in the amount of apparent deception from corporate America? We suggest that the deception was a byproduct of increased profit-focused demands born out of the neoliberal framework. We illustrate this belief by focusing on one company, Lucent Technologies, Inc. We describe the events that took place at Lucent and show how these events were supported and exacerbated by the neoliberal framework.
The purpose of this paper is to show how the neoliberal framework with its cultural influences during the 1990s supported events, including deregulation and CEO compensation, which led Lucent down the path of misrepresentation and the subsequent need for financial restatement. We begin in section two by describing the neoliberal framework, corporate hegemony, and the 1990s culture. In section three, we focus on the case of Lucent. First, we briefly reviewed the history of telecommunication industry and Lucent Technologies. Second, we focus on the influence of deregulation act on telecommunication industry and Lucent. Third, we discuss how executives' equity based compensation is related to earnings management and what strategies Lucent's management used to protect their own interests. In section four, we provide our summary and some concluding remarks.
2.1. Neoliberalism: definitions, origins, and brief history
The term "neoliberalism" is used to describe a political-economic philosophy that over-emphasizes the importance of free market, rejects any government intervention, and advocates deregulation. Harvey (2005) defined neoliberalism as "a theory of political economic practice that proposes that human wellbeing can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property rights, free markets, and free trade." (p2). Martines and Garcia (2000) notes neoliberalism includes five main points. First of all, neoliberalists advocate completely freeing enterprise from any bonds imposed by governments. Government should offer total freedom to enterprise in moving capital, goods, and services. Neoliberalists believe that unregulated market is the best way to increase economic growth and thus, every body gets benefits. Second of all, in the name of reducing the role of government, neoliberalists suggest cutting public expenditure for social services and thus, reducing the social safety for low-income people. Third of all, neoliberalists advocate reducing governmental regulation-deregulation since it may diminish profit margins. Fourth, in the name of improving efficiency, neoliberalists advocate selling state-owned enterprises to private investors. Fifth, neoliberalists advocate replacing the concept of "the public good" or "community" with "individual responsibility." If an individual lacks education, heath insurance, and/or social security, this person should find his/her solution himself/herself. If this person fails, society should blame this person as being "lazy."
Neoliberalism roots in liberalism. Liberalists believe that the market is the best way to distribute wealth. They reject the idea of redistribution of wealth by other means. They reject any design or plan for society. This anti-utopianism became increasingly important in liberal philosophy and it anticipated the idea of deregulation in later neoliberalism. They claim that market should determine important aspects of society and entrepreneurs should control the economy. The philosophy of liberalism has been incorporated into the culture of western liberal-democratic societies. Liberalism's notion of "free market polices" reflects the thought of Social Darwinism. Social Dawinism justifies cutting social programs because it is not society's fault if someone is weak or poorly educated (George 1999).
Neoliberalism derives from the ideas of liberalism. But it walks way too far. Neoliberals not only believe that government should not intervene with the market at all, but also attempt to turn the entire society into a market where every action of every being is a transaction. George (1999), a neoliberalism critic, notes the notion of neoliberalism may be traced back to 50 years ago, just after the end of World War II. In 1945 or 1959, in the Western countries, everyone was a Keynesian, a social democrat. But, the major claims of neoliberalism such as the super power of market and deregulation were rejected by the spirit of that time (George, 1999). After World War II, the Welfare State and the New Deal that had been interrupted by the war were put back in place. Marshall Plan went through to restore European economy. At this time, the winds of neoliberalism started to blow. Karl Polany published his masterwork, The Great Transformation in 1944, to critique the market-based society. Polany critique that allowing the market mechanism to be the sole power to direct/control people's behavior should not happen after World War II (George, 1999).
Neoliberalists made the triumph of neoliberalism. As early as1950s, a group of economists, known as "the Chicago boys," had been attached with the neoliberal theories, advocated by Friedrich Von Hayek and Milton Friedman and colleagues at the University of Chicago (Harvey, 2005). Neoliberalists created a huge international network to develop and push their neoliberalism ideas and doctrine. Their ideas and doctrine were endorsed by Margaret Thatcher in Britain, Ronald Reagan in the United States, and Deng Xiaoping in China (Harvey 2005; Merino 2005). Margaret was a social Darwinist and the central value of her doctrine is the notion of competition. She advocated competition between individuals, nations, and firms. Efficiency is the only basis for resources allocation. Reagan's government promotes "free market" competition and deregulation. The World Trade Organization (WTO), the successor to the General Agreement on Tariffs and Trade (GATT), and World Bank also promotes "free market" competition (Harvey, 2005; Merino, 2005). Neoliberal doctrine was throughout the world in the mid-1970s. Deng Xiaoping promoted the liberalization of a communist-ruled economy in China in late 1970s and 1980s (Harvey, 2005).
2.2. Corporate Hegemony
Merino (2005) defines hegemony "as a state of being where all sectors of society appear to be in harmony with those in power and control (p3)." Corporate hegemony results when economic interests dominate each institution in the society (Dugger, 1980). Dugger (1980) posits there are six major clusters of institutions in the U.S.: economic, educational, kinship, political, military and religious institutions. He suggests each institution should be independent, but with the domination of the corporation in U.S. society, Dugger (1980) concludes these institutions serve corporate ends since pursuing maximum economic profit becomes the sole basis of all decision making (Dugger, 1980).
Neoliberalism fosters corporate hegemony (George, 1999; Merino, 2005). When neoliberals occupy people's heads, economic interests become the sole motive. People will do whatever they can to maximize their own interest even if their actions hurt the other's and the society's interests. George (1999) outlined the strategies used by neoliberals shown as below:
"If you can occupy peoples' heads, their hearts and their hands will follow ... the ideological and promotional work of the right has been absolutely brilliant. They have spent hundreds of millions of dollars, but the result has been worth every penny to them because they have made neo-liberalism seem as if it were the natural and normal condition of humankind. No matter how many disasters of all kinds the neo-liberal system has visibly created, no matter what financial crises it may engender, no matter how many losers and outcasts it may create, it is still made to seem inevitable, like an act of God, the only possible economic and social order available to us." (cited by Merino 2005).
Corporate hegemony generates corporate super power (Merino 2005). A corporation exercises its power by campaign donations and lobbying (Citizen Works, 2003). In the 2000 election cycle, businesses donated $1.2 billion to congressional campaigns. Corporate donations made up about 75 percent of the money that candidates received. In the most recent election, the candidate who raised the most money won 94 percent of …