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Small businesses everywhere must rapidly adapt to a world where their services and products are discussed openly and critically on the web by customers, more or less al the time. Local listings now offer customer ratings on all types of business, from the local plumber to the bakery and bank. Discomforting for some, the enforced visibility and criticism on the web is proving for others a liberation, and sales advantage. The evidence is mounting that of two otherwise identical businesses, the one that responds quickly and positively, and above all transparently, to customer complaints on will rapidly gain the better on-line ratings, with obvious consequences for their likely sales.
A new phenomenon is emerging on the internet, which one commentator has called the "Panopticon" The original Panopticon was an imaginary prison, designed by Jeremy Bentham, where all parts of the prison were visible from one central point, without the prisoners knowing that they were under observation at any particular moment. But the Panopticon of the internet is not for the purposes of monitoring the incarcerated, or of observation by one over many, but more of "all watching all As our lives are lived increasingly on-line, so are our traces apparent. More and more it is possible to locate, identify and examine people from their on-line presence.
There are obvious privacy concerns here, which we have yet properly to contend with. It is a new and disquieting world when a trainee teacher can be denied a college de because she has posted a photo of herself, drunk, on MySpac And we should remain concerned that the internet itself does not fall under the control of a few and unaccountable agencies (as will be di But at the same time there is also the potential for a new form of collective security. Already, it is possible easily to access the human- rights and environmental records of major companies ane website allows you to research all the components, and the labou history embodied in them, of even complex products like comput- ers or TVs It is easy to see how this scrutiny will spread more widely. Already, employers google prospective employees to scruti- nise their on-line history. Prospective lovers do the same. The Panopticon is already reality.
on-line transparency and criticism may help improve the services offered by competing local plumbers. It's harder to see how it may work for the securities industry, a world that is not only secretive but also so complex that many of the most sophisticated financiers (George Soros for instance) freely admit that they do not fully understand the financial instruments now available. Here, we return to Harry Markopolos. Madoff,
After conducting his own investigation of Madoff, and concluding that something very fishy was going on, Markopolos sought to inform the SEC which, as we now know, failed to follow up his suspicions. This he was permitred to do by law. Markopolos was not however permitted to publicise his concerns, for to do so would have immediately made him vulnerable to punitive lawsuits by Madoff. Indeed, Markopolos testified that the failure of the SEC to investigate his complaints made him fear for his safety. In his testimony, he repeatedly talks about the risks to him and his team of investigating Madoff Markopolos tried to interest the Wall Street Journal in the story, but apparently the journalist concerned was never given the go-ahead to publish by editors, no doubt also fear- ful of lawsuits. The net effect therefore of the laws existing at the time of the Madoff fraud was not to inform and protect investors, but to protect Madoff.
Perhaps it is naive to expect ordinary investors to enjoy the expertise to scrutinise investment funds like Madoff's, even if one might expect them to exercise more diligence than that demon- strated by Madoffs unwise and unfortunate investors, It is not unrealistic however to envisage a system whereby disinterested experts might offer advice on the wisdom of investing in certain funds. Looking at the way e-commerce is developing on the web this might consist of several connected elements: a ratings system for buyers anonymously to rate their investment "experience independent sites which offer disinterested advice on various investment alternatives, and, finally, investors might form groups like cooperatives such as that which hired Harry Markopolos to conduct more partial research on their behalf.
Above all, the web shows that it is transparency that wins busi nesses custom. Ergo, those that eschew it or actively reject it, as Madoff did should pay the penalty in lost business, Madoff himself has argued that his claimed "black box" investment strategy the series of computerised algorithms to decide equity trades was unintelligible to most of Wall Street, let alone ordinary investors, claiming that many other hedge funds are similarly opaque to outside scrutiny: "Does anyone know how, s Renaissance really makes its returns?" Madoff asks in an interview with the Financial Times, referring to the wildly successful hedge fund
Perhaps he is right. However, what is beyond dispute is that from 1992 onwards Madoff, by his own admission, conducted no trades at all and faked the documents pretending that they had taken place. This fraud should have been easy to detect, with only the most cursory scrutiny, if the market were more transparent: it should be straightforward to corroborate the trades with the coun- r-parties, those who supposedly bought and sold Madoffs equity holdings. In other words, transparency does not need to reveal the secret investment strategies of successful funds, but it can and simply-reveal other telltale signs of fraud like Madoffs. Unlike his faked investment strategy, Madoff s fraud was devastatingly simple There is perhaps a final and subtle lesson to be learned from this miserable episode. It is clear both from victims and Madoff himself that the wealth and power of big Wall Street players, ng Madoff, was a deterrent against scrutiny and investigation intimidating those who sought to question, including the sEC, From many accounts of the scam, Wall Street appears as layered hierarchy governed not by the SEC but by an exclusive club powerful financiers, whom Madoff sought and succeeded to join This club was bound by a wary but mutual trust, including many question each other's affairs too closely. Madoff JPMorgan, major Wall Street figures and banks, including what was going on. Once Madoff joined the club, and hobnobbed he was all but untouchable. Madoff himself is far with its members, from alone in suggesting that t SEC concentrates mostly on minor infractions, and fails to go after the big banks and institu- tions, arguing that recent "reform" legislation has done nothing to correct the problem .
This analysis suggests that a more fundamental levelling is necessary to avoid such crimes and indeed dramatic global crises like the credit crunch in future. Clearly, it is a mistake to believe that alone the punishment of Madoff is sufficient to address the deep and systemic danger and risk to us all- that his crime, like the 08 financial collapse, has uncovered. We have been culturally condi- tioned to accept that the prosecution of the occasional Madoff somehow proves the effectiveness of law and the intrinsic justice in the system; in fact, the story unearthed by his case proves the oppo site: the system is revealed as fundamentally iniquitous and persistently vulnerable to crime and violent instability. The gross inequality of contemporary society permits a culture of unaccount- ability and, sometimes, criminality amongst the richest and most powerful. The most extreme results of this imbalance are scandals like Madoffbut also, with the credit crunch, economic volatiity that destroys millions of jobs and endangers the entire global economy.
Methods to address this inequality will be discussed later Money and power are of course hard to assail as sources of influence and secrecy. But what can be changed is the attitude of those outside the private circle. We should no longer be intimi- dated. One clear lesson of the Madoff scandal is the requirement for individual investors themselves to use greater care and scrutiny: to exercise, in short, their own agency rather than submitting their choices to the care of others. Everyone has the right to question. is a right that cannot be taken for granted but must be cont This ually asserted, by one and by all. The rrore that each of us demands it, the easier it will be for all of us
The exercise of collective and individual scrutiny, disinterested analysis shared publicly, insistent questioning: none of elements would necessarily suffice alone to deter or prevent future Madoffs. But together they would create a lattice of checks and balances whose collective effect would be to force greater transpar- ency within and scrutiny ofa notoriously closed, clubby and corrupt industry: a result that decades of government supervision and legis- lation have signally failed to achieve.
That lattice would not have a fixed structure, and it would likely change over time in e to changes in the industry it was moni not have the reassuring bricks-and-mortar institutional presence, and claim to expertise and authority, of a bod like the Securities and Exchange Commission itself a comforting name, at least prior to Madoff. The lattice may not be imposed by legislation, and its origin may be in a state of affairs some might call absence of rules -yet its result would be not the disor- der usually associated with that word, but its opposite.
For two days in 2004, there was anarchy in Kosovo. The "authori ties" in this case the local police, UN and NATO peacekeepers lost control. This was never publicly admitted. The candid admi sions of failure in repor