Richard Scrushy walked scot fee from the near collapse of Health South, while Dennis Kozlowski of Tyco, Bernie Ebbers of WorldCom and John Rigas of Adelphia have received or will receive prison sentences of well over a decade for their crimes. 1990’s Business’s combination of lack of ethical scruples, excessive rewards and excessive penalties for failure somewhat randomly imposed remind me of a pervious historic environment: the Chicago of Al Capone. Was Scarface Al a key to the 1920’s prosperity?

The analogy has more depth to it than at first appears, when you look at the history of organized crime in the 1920s and before. Before 1920, organized crime leaders such as Arnold Rothstein concentrated largely on illegal gambling, and were close to the big city political machines. They were not however particularly violent – Arnold was known as “The Big Bankroll” rather than anything more sinister. Nobody died as a result of the 1919 Black Sox scandal, a classic example of an organized crime gambling operation that went wrong (there is some evidence in David Pietrusza’s fine biography of Rothstein that previous attempts to “throw” the World Series had been more successful – one can look with suspicion at the Chicago White Sox win of 1917 against the New York Giants, to whom Rothstein was close, and at the Philadelphia A’s 1914 loss to the underdog Boston Braves, where Boston gambler “Sport” Sullivan may have worked with Rothstein.)

In 1920, things changed, with the passage of the Volstead Act banning the consumption of alcohol, which created an immense new underworld business in bootlegging. The money available to organized crime increased exponentially, as did its negative interactions with the forces of law and order. Rothstein himself was “rubbed out” in 1928; his successors were more violent men such as Chicago’s Al Capone. The iconic organized crime activity of the decade was not a gambling scheme, but the St. Valentine’s Day massacre of 1929.

The deterioration in the behavior of organized crime from semi-respectability and political connections to outright gangland violence was almost entirely due to the greater rewards available in the 1920s from illicit activity. In both gambling and bootlegging, a façade of respectability was desirable, so that fashionable clients would patronize the gambling den or speakeasy. In the prohibition era however respectability became impossible; the lure of huge illicit wealth drew in new players. The new players, attracted by increased rewards for success and undeterred by the lethal penalties for failure were utterly ruthless men, lacking their predecessors’ inhibitions about using large scale violence to grow and protect their business empire. The Big Bankroll was replaced by Scarface Al.

A somewhat similar development appears to have affected U.S. business in the early 1990s. Before 1990, rewards available to top management were limited – the average CEO made around 40 times the pay of the average worker in 1980 – and business methods were consequently somewhat restrained. Except for the inevitable small substratum of outright crooks, there were few prosecutions for malfeasance, and the jail sentences handed down to corporate malefactors were modest – normally in practice no more than a year or two, in a country club jail.

This changed around 1990, for a number of reasons. After the leveraged buyout craze of the 1980s, new “poison pill” defenses against takeovers were enacted under Delaware law, making management more secure in its position, and giving it greater power vis a vis shareholders. The trial and conviction of Drexel’s junk bond king Michael Milken for the first time brought a sentence of 10 years, much longer than the norm, for an executive who had been highly innovative but who at all times regarded his business activities as legitimate (Milken, too, had at the peak of the market in 1987 made the unheard of sum of $550 million – he was truly an innovator in many ways, both positive and negative.) Then in the early 1990s two legislative changes caused takeoff: the 1993 Budget disallowed the corporate tax deduction for salaries over $1 million while in 1994-95 the U.S. Senate led by Joseph Lieberman (D.-CT) strong-armed the Financial Accounting Standards Board into wimping out on stock option expensing.

The result of these changes was an explosion of top management remuneration. In the tech sector, management started awarding themselves stock options packages that removed as much as 4-5 percent of the company from shareholders each year. Outside the tech sector, management employed “compensation consultants” who benchmarked top management’s remuneration against its stock-option-enhanced tech sector competitors, and allowed it to spiral towards the stratosphere.

Not all the managers rewarded by this means were gunslingers, far from it. Two notably dozy Treasury Secretaries, Paul O’Neill, formerly Chief Executive Office of Alcoa and the current incumbent John Snow, formerly CEO of the railroad conglomerate CSX, were rewarded for mediocre corporate performance by hugely inflated compensation. Equally “Neutron Jack” Welch of GE, Michael Eisner of Disney and Robert Grasso of the New York Stock Exchange, all hugely compensated, are unlikely to be indicted, since they appear to have done nothing illegal.

The GE case, however illustrates as well as Tyco or Adelphia what went wrong with U.S. top management. Welch was CEO of GE for almost 20 years, during which he was lauded to the skies by the media for his take-no-prisoners approach to management. In reality, while he may well have been more ruthless than his predecessor Reginald Jones, his results were no better; GE’s earnings per share increased no more rapidly during Welch’s predominantly boom-years tenure of 1982-2001 than they did during Jones’ recession-years tenure of 1974-82.

Some of Welch’s decisions, too, went seriously wrong. The 1986 acquisition of the medium sized investment bank Kidder Peabody, and the successive insertion therein as CEO of a tool and die manufacturer (Silas Cathcart, former CEO of Illinois Tool) and a management consultant (Mike Carpenter) produced disaster over the next 8 years, culminating in the $300 million bond trading scam by gunslinger trader Joseph Jett and the closing of the business. Furthermore, Welch pushed GE heavily into second-tier financial services operations, which make money when interest rates are low but are likely to suffer huge losses when rates finally rise, and engaged in some highly questionable accounting practices, notably on pensions, to achieve the less than stellar financial results he did.

Needless to say, Welch was paid as if he had really been the genius manager that his publicists claimed him to be.

After 1990, management remuneration soared through the roof, just as did gangster remuneration in the 1920s. Since 2000 it has become clear that the penalties for failure have also spiraled, if not quite to the level of machine gun battles on the streets of Chicago. John Rigas of Adelphia Communications received a 15 year jail sentence for self-enrichment that appears to an outside viewer little more egregious than that of Welch or Grasso. Dennis Kozlowski of Tyco faces a maximum sentence of 25 years largely for buying overpriced shower curtains – Tyco itself continues to flourish. Bernie Ebbers bankrupted his company, and is expected to receive a double digit sentence July 13. Only Richard Scrushy of Health South got off; in his case prosecutors are apparently regretting holding the trial in his home town of Birmingham Alabama, where jurors knew his record of philanthropies and Church activities, and believed his story. Most extraordinarily, the Dynegy executive Jamie Olis, an obscure second-level officer of a company that avoided bankruptcy in the fallout from the Enron scandal, received a jail sentence of no less than 24 years.

With top management remuneration having soared to more than 10 times its former level in terms of the average worker’s pay, and prison sentences having extended themselves to about 10 times the length considered normal 20 years ago, it is little surprise that top management ethical malfeasance appears also to have soared to about 10 times its pre-1990 level. No longer can business partners rely on U.S. management to play the game like gentlemen; instead they play it as if on the streets of 1920’s Chicago. Reported earnings continue to rise, but their quality continues to deteriorate, and the impending collapse will be all the greater. Top managers’ wealth expands exponentially, but no more so than the wealth of their lawyers, who face far less risk of a stiff jail sentence. Shareholders meanwhile are putting their money where it appears to be safer: in residential real estate.

Simple economics tells you what is wrong with this; if risk is vastly increased, normal risk aversion drives ordinarily prudent managers out of business, and increases the costs of economic activity for everyone. In a downturn, wealth will be destroyed, and Congress on the part of the public will no doubt enact a terrible revenge on the managerial class and through them on the economy as a whole for all that has gone before.

Arnold Rothstein could have told them: it doesn’t PAY to be too greedy!

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

This article originally appeared on United Press International.