The Triumph of Morality

Overpowering forces of globalization, technology and commerce are reshaping societies and our way of life. They are rendering national borders obsolete and government policies and regulations ineffective. Whether it is communications technology breaking closed societies or global financial markets rejecting national budgets, these economic mega-trends are bending political and social systems to their will. This is surely the age of commerce.

But, there is a more potent force: morality. Though not always evident, it is capable of overriding the allure and power of commerce. We are seeing a vivid demonstration of this right now, as the once impenetrable Swiss banking system yields to its suasion. The cause is restitution for victims of the Holocaust and their relatives, who placed assets in Switzerland for safekeeping from the Nazis, or whose assets were stolen by the Nazis and deposited there, never to be seen again. An overwhelming wave of worldwide outrage has forced these banks to suspend their iron laws of secrecy to disgorge the sad names of those whose accounts were illegally retained.

The immediate significance is threefold. First, the truth about Swiss treatment of these stolen assets has finally emerged after more than 50 years of silence. This, in turn, has illuminated the real dimensions of the Nazi-Swiss axis: The carefully built image of a tiny defenseless nation cowering before the ferocious Third Reich is a fiction.

In reality, the Swiss were apparently pleased to receive these assets and had no intention of returning them. They knew much of the fortune flowing directly from Hitler was stolen from German Jews and from those of other nations. And they knew amounts deposited for safekeeping by fearful German citizens were expected to be recovered later. To have kept these assets for decades is odious and indefensible.

Second, the whole story has yet to be told. The amounts the Swiss have just disclosed are too small to be credible. Last week, the Swiss Banking Assn. released a list of 1,756 names and $42 million in Swiss bank accounts belonging to them. But $42 million of value in 1997 represents less than $5 million of original value when deposited in the early 1940s. It is inconceivable that so few German citizens deposited so little.

Unfortunately, we don’t know if the real story can ever be extracted from these banks. Their attitude has been worse than uncooperative. The most telling incident, several months ago, saw a lowly guard at Union Bank of Switzerland intercept documents intended for shredding and turn them over to Jewish organizations. He was promptly fired, but the documents contained irreplaceable information on stolen assets. How much shredding had already occurred is unknown.

What we do know is that the Swiss insisted for years that they returned the last of their wartime deposits in 1962. Then, two years ago, under pressure from the World Jewish Congress and others, they announced they had unearthed 775 accounts containing $32 million. Now, another 1,000 accounts have somehow been discovered, containing millions more. This is not a record that inspires confidence. Indeed, a special committee of the Israeli Parliament believes there are still thousands of undisclosed accounts involving billions of dollars. It is evident that pressure must continue.

The third implication concerns future Swiss cooperation on money laundering and the efforts of law-enforcement authorities to trace it. These hidden assets represent just the most outrageous money-laundering case of this century. But it is far from being the only time that criminal regimes used Switzerland as a haven. For generations, Swiss bank-secrecy laws made that country the favored repository for expropriated assets. Until recently, those laws created an iron curtain. But the outrage over plunder by such despots as Mobutu Sese Seko of Zaire and Ferdinand E. Marcos of the Philippines caused the Swiss to grudgingly begin to cooperate.

This disclosure of Holocaust victims’ accounts represents the biggest break by the banks with their past. Many hope this will be the beginning of real cooperation between the Swiss banking system and foreign law-enforcement authorities. But only if the special pressure of morality continues, will we see any such reforms.

How did this triumph of morality actually happen? Why is it so rare?

That Switzerland, after more than 50 years of denials, acknowledged the dimensions of the Holocaust claims is a tribute to the many investigators who never gave up their quest. And it is a tribute, as well, to the worldwide outrage they kindled. The World Jewish Congress, particularly its chairman, Edgar Bronfman Sr., pursued an indefatigable campaign. The same is true of the Simon Weisenthal Center and other such groups.

In addition to their direct efforts with the Swiss, they persuaded the Clinton administration to produce its “Nazi gold” report of two months ago, which heightened pressure by severely criticizing Switzerland’s laundering of Nazi plunder. In addition, they inspired the crucial investigatory commission headed by former Federal Reserve Chairman Paul A. Volcker. It was just as Volcker’s group was dispatching swarms of auditors into the Swiss banks that the latest list of Holocaust accounts was released.

The capitulation of the Swiss banks in the face of this moral outrage is a rare event in a world so dominated by commerce and the power that flows from it. European nations invariably ignore the criminal behavior of Iran and Iraq in their rush for business contracts. The human-rights abuses of the Chinese are winked at by those dazzled by their huge markets. There are countless other examples.

The reality is that government, political and citizen influences are being eclipsed by the relentless tide of globalization and technology. Indeed, the power of governments to regulate commerce and finance is diminishing.

Large corporations no longer belong to one nation. Their operations span so many countries that the effects of one set of regulatory policies is small. Almost no local political problem, save, perhaps in the United States, can change the course of such corporations.

This immunity is bolstered by an unprecedented mobility. Global producers rapidly shift production from one site to another to capitalize on favorable labor or regulatory regimes. For example, the largest German industrial corporations, rejecting high social and labor costs, are moving production to Eastern Europe and Asia. They have become corporate citizens of the world, not Germany--and their power has grown proportionately.

Only 25 years ago, there were no such truly global businesses. In our case, the U.S. was such a large market that most American businesses weren’t interested in other regions. Perhaps the best example was the U.S. auto industry--the Big Three dominated this largest market and showed little interest in foreign business. But that era of the national corporation is long gone. Unless local policies are to their liking, such mega-firms move on.

In the realm of finance, such autonomy is even more pronounced. Trillions of dollars sweep across the globe electronically, and at incomprehensible speed. Increasingly, it is capital markets that determine the success or failure of a nation’s economic policy. Losing their confidence can mean the collapse of a currency and the entire underlying economy. We saw this in Britain and Mexico and are seeing it in parts of Southeast Asia now.

The power of global capital flows today is breathtaking. More powerful than almost any government and certainly more than any regulator. And these markets are anonymous. You cannot sit down to reason with them. Moreover, there is little or no time to react to them. Billions of dollars can flood in or out of a nation’s accounts in less than a day. If they flow the wrong way, the interest rate or other results are nearly instantaneous.

In the United States, the capital markets, the embodiment of commerce, are kings. When corporations close plants and dismiss thousands of workers, markets roar their approval and chief executives are lionized. Corporations that experience legal difficulties, even severe ones, announce a write-off and the matter is forgotten. Even Washington’s fiscal policies are tailored to curry favor with these markets.

Again, the ascent of such overpowering financial markets is relatively recent. It is the amazing advances in information technology that have fueled it. Computer-based trading has become the rule in most markets today. Trades can be executed at any moment from any corner of the globe and on identical terms.

Many of the largest banks no longer care about individual customers, but derive the bulk of their profits from trading activities. As such, they are less regulated than ever and less susceptible to political or public pressures of any kind. If they want to finance the Salinas clan, they will. If they don’t want to finance the Czech Republic, they won’t. Public policies or opinion have little to do with it.

This is why this cracking open of the Swiss banking system is so remarkable. Most observers viewed Switzerland as an impregnable fortress, beyond the reach of outside law enforcement and certainly beyond the reach of Western opinion. And as the power of global finance accelerated, the likelihood of bending that system was assumed to diminish.

But every now and then, the power of morality and moral outrage sweeps away everything in its path. That is what is happening in Switzerland. It is a moment to be cheered and savored because, in this commercial age, it is the exception.