Posted on 7-2-2002
Enron
Upside Now Down
From the Editors at prospect.org
The Enron scandal should ring down the curtain on a whole philosophy
of
free-market capitalism and a whole style of government-corporate
cronyism.
It should launch a national movement to leash the corrupt power
of money in
politics so that legislators and regulators can serve the public
interest.
We have been here before, most recently when the Great Depression
discredited the speculative excess invited by laissez-faire.
One generation
earlier, in the Progressive Era, financial panics and robber
baron abuses
led to demands for reform (which resulted in a 1907 law prohibiting
corporate campaign contributions). In both these periods, a
politically
aroused citizenry elected progressives who in turn enacted profound
changes
in the ground rules of capitalism. But these changes remained
politically
secure only as long as the power of voters offset the power
of money.
A new reform era in this first decade of the new century will
be tougher to
achieve. Enron may display all the elements of what's wrong
when
laissez-faire ideology meets the purchase of political influence.
But
despite the dot-com bust and the Enron collapse, we are not
in a new Great
Depression. The Enron story line is numbingly complex. The nation's
attention is still focused on the hazards of terrorism. And
although this
is a quintessentially Republican scandal from the ideology to
the cronyism,
leading Democrats are implicated just enough to blur both the
partisan and
the ideological implications.
Nonetheless, even the most craven Democrats sense the potential
for a
political windfall. The mainstream press is on the case; and
dominant
political orders have, in such instances, been known to unravel
very fast.
Who would have thought in November 1972, when George McGovern
lost 49
states, that Richard Nixon would resign in disgrace just 21
months later?
So Enron could bring a new age of reform a little closer—if
the bipartisan
power of money to block reform can be neutralized.
What is this scandal really about? At one level, it is old-fashioned
influence peddling. By buying politicians, a favored corporation
promoting
a new kind of scam simply purchased immunity from regulatory
oversight.
Enron is not a unique case, but it is the emblem of how the
entire system
is corrupted by the power of political money.
Over and over again, Enron got the regulators to change the
rules so that
it could hide what it was doing, win special tax breaks, or
manipulate
markets in its favor. The ideology of deregulation provided
cover for the
cronyism. When Wendy Gramm, as chief commodities regulator under
Bush I,
slipped in a midnight rule-change after the 1992 election to
exempt Enron's
trades from oversight, it was consistent with the prevailing
ideology. She
was rewarded with a seat on the Enron board and hundreds of
thousands of
dollars in income. When Enron needed another favor in 2000,
her husband,
Senator Phil Gramm of Texas, got yet another regulation waived.
Who needed
regulators, anyway?
Well, capitalism, it turns out. Chicago economics, the ideology
underpinning the opportunism, holds that capitalism is self-correcting.
Regulation, by contrast, is said to be both inefficient and
politically
tainted. But in the Enron era, both assumptions have been proved
wrong.
Corporations don't support a brand of deregulation that allows
consumers,
Chicago-fashion, to efficiently hold producers accountable (that
would
require a form of regulation). What they support is a deregulation
that
allows opportunistic forays, favoritism for insiders, and quick
killings.
Enron also demonstrates that deregulation is at least as politically
corruptible as regulation.
So at a second level, the scandal is an impeachment of laissez-faire
as a
principle for running an economy. Indeed, the more we learn
about Enron,
the more we discover that all of the parts of the market system
that
supposedly provide self-correction were in on the deal.
Accountants are supposed to attest to the honesty of corporate
books, on
behalf of shareholders and prospective investors. But Enron's
accountants
were involved in the scam. Banks are supposed to monitor corporations
to
which they lend money, as part of their fiduciary duty to depositors.
But
Enron's bankers got a piece of the action, too. Corporate managers
are
supposed to be the agents of shareholders, but Enron's executives
literally
granted themselves waivers from the company's own conflict-of-interest
rules in order to facilitate their self-dealing. Stock analysts
are
supposed to serve customers, but they are rewarded to tout stocks,
not to
ask skeptical questions. Elected officials are supposedly the
check on
regulators; but whenever regulation got in the way, Enron just
used its
political connections to get the regulations waived. The idea
that market
forces can temper market manipulation is naive. By the time
markets realize
that a Ken Lay is a fraud and a scoundrel, the money is gone.
Is Enron atypical? It may have been the most brazen offender,
but the most
trusted names of American capitalism — Andersen, Morgan, Citigroup
— also
are implicated in this scandal. And while Enron may have been
greedier and
stupider than others, this kind of behavior has become all too
common in
deals large and small. Enron parallels the savings-and-loan
debacle of the
1980s. Politicians of both parties, flush with S&L campaign
contributions
and soothed by the song of deregulation, changed the rules so
that staid
S&Ls could become for-profit entrepreneurs free to speculate
with other
people's savings. Taxpayers had to bail out the several hundred
billion
dollars' worth of losses.
Nor is this scandal just about the excesses of financial deregulation.
Across the economy, some regulatory reform was sensible. But
the brand of
deregulation we actually got—in industries as diverse as banking,
energy,
entertainment, and pharmaceuticals—was hopelessly corrupted
by the ability
of the affected industries to buy themselves an inside track
with
legislators of both parties.
And here lies the deepest scandal of all. Though the odor of
Enron, like
its political affiliation and ideology, is distinctly Republican,
the
company had both parties on the take. As our cover illustrates,
a
no-holds-barred investigation would require much of Congress
to recuse
itself. Fifty-one of 56 members of the House Energy and Commerce
Committee,
which is leading the investigation, have taken money from Enron
or Arthur
Andersen; likewise 49 of the 70 members of the House Financial
Services
Committee.
This is not to say that anyone who ever took a nickel from a
self-interested contributor is hopelessly corrupted—only that
there is a
systemic bias in favor of organized corporate money crowding
out democracy.
Indeed, Enron was just the 76th largest corporate campaign contributor,
dwarfed by even bigger corporations. The ranking members of
every major
congressional committee are recipients of largess from industries
that they
regulate. Four telephone conglomerates together gave more than
$1 million
to members of House Energy and Commerce. Real-estate interests
and
commercial banks gave over $2 million each to members of House
Financial
Services. [For more on this, see "Devil in the Details" on page
nine.]
There is such a thing as the public interest, but the current
system of
campaign finance turns politicians of both parties into servants
of private
corporate interests. Republicans are more explicitly so than
Democrats, but
the New Democrats play the corporate-interest game essentially
as
Republicans do—leaving the Democrats' role as tribune of the
people blunted
and their message blurred. On the one hand, Bill Clinton could
appoint and
defend a genuine public-minded regulator like Arthur Levitt
of the
Securities and Exchange Commission. On the other, when Levitt
got serious
about actually regulating corporate and accounting abuses, it
was not just
Republicans who warned him to desist, but also New Democrats
with close
ties to industry, including Senators Chris Dodd, Robert Torricelli,
and
Joseph Lieberman (the same Joe Lieberman now leading the Senate's
investigation of Enron). More than a select committee or special
counsel,
we need a citizens' movement for reform.
One looks in vain today for a serious movement for corporate
accountability. Those who champion "reform" of corporate governance
focus
on shareholder rights—and this means big institutional investors
bent on
maximizing share value; it doesn't mean more effective public
regulation on
behalf of the rights of other corporate stakeholders such as
employees and
small investors. That trail went cold in the 1980s.
Indeed, if you try to find the remnant of a politically and
technically
serious movement to hold corporations accountable, the trail
leads back to
early Ralph Nader. Twenty years later, citizen Nader was ill
advised to run
a presidential race that very likely tipped the election from
Al Gore to
George W. Bush, but he was surely right about the need to scrutinize
corporate behavior as well as its political influence in both
parties.
Unfortunately, we get that scrutiny all too rarely from politicians
who are
constantly on the prowl for campaign cash.
Money talks. The only force that can talk louder is an activated
citizenry.
If we want a democratic politics that serves the broad public,
we have to
change the system of campaign finance. That means not just the
Shays-Meehan
bill, but a radical push to limit the influence of money in
politics; it
means not just indignation at Enron and some tighter monitoring
of
accountants, but a reversal of the ideology and corrupt practice
of
deregulation. The common imperative for all of these reforms
is an informed
and mobilized public, who can elect public-minded officials
and reclaim our
democracy.
|