MORE THAN HANDCUFFS

The sometimes perverse incentives for huge corporate profits, part of the economic-system package the United States held up for the benefit of the rest of the world in the 1990s, are in trouble in ways that become more apparent by the day. Enron was only the beginning. Consider these other recent disclosures:

Top executives and directors of America’s biggest businesses pocketed $3.3 billion in the three years before their companies went belly up, destroying hundreds of billions of stockholders’ value, more billions in employee savings, and nearly 100,000 jobs. This according to a study by the London-based Financial Times of the 25 largest U.S. companies to go bust in the past eight months. Kenneth Lay, as Enron’s chief executive officer, took in $247 million in the three years before Enron went bankrupt. Gary Winnick of Global Crossing grossed $512 before his company failed.

For all their millions, life is not totally rosy for these ex-CEOs. Mr. Lay and his wife have opened a resale shop called Jus’ Stuff to sell some of their belongings and are having trouble unloading one of their plush homes. They need the money to pay off loans and for present and future lawyers’ fees.

A New York Times feature writer, Alex Kuczynski, chronicled items including a $6,000 shower curtain Tyco International paid for its former CEO, L. Dennis Kozlowski, for his Fifth Avenue apartment, also at Tyco expense. She concluded that this “Mogul Style” was not old-time conspicuous consumption but a new “contemptuous consumption,” aimed not at impressing the world at large but simply outdoing and belittling other CEOs.

When such organs as the Financial Times and The Wall Street Journal and The New York Times report details like this about fallen business titans and their excesses that have given American capitalism a bad name, it is clear that the system needs basic repairs. One measure of the trouble is the widening gap between rich and poor. In 1973, the average major-company CEO made 45 times the average pay of the workers, according to a New Yorker article by John Cassidy. The pay ratio jumped to 140 times by 1991, and it now has reached 500.

Congress has been ordering reforms here and there, including a modest tightening of accounting rules and a law requiring CEOs to verify statements in their financial reports. Federal and state prosecutors seem to be out ahead of the Justice Department in going after corporate fraud. Stockholder lawsuits furnish another powerful lever to expose flaws in the system.

But sending a few CEOs in handcuffs off to short terms in a white-collar prison is far from sufficient. The system needs a fundamental tightening of regulation, comparable to the Securities Act of 1933 and the creation of the Securities and Exchange Commission in 1934. With the fad of deregulation, the country has reverted toward the raw capitalism that has brought corruption and gangsterism to Russia and China. New rules and procedures can once again harness the energy of the market economy and restore its effectiveness and reputation.