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[A-List] Enron: regulatory crisis (fwd)
by Andre Gunder Frank
06 February 2002 18:23 UTC
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                    ANDRE  GUNDER  FRANK
Department of History                      Home
University of Nebraska Lincoln [UNL]       4440 North 7th Street 
612 Oldfather                              Apt. 107 
P.O. Box 880327                            Lincoln, NE 68521 USA
Lincoln, NE 68588-0327                     Tel: 1-402-742 7931
Tel: 1-402-472 3251=direct 2414=Dpt        Fax: 1-402-742 7932 
Fax: 1-402-472 8839
E-Mail: franka@fiu.edu          Web Page: csf.colorado.edu/agfrank/

---------- Forwarded message ----------
Date: Wed, 6 Feb 2002 15:59:26 +0200
From: Keaney Michael <Michael.Keaney@mbs.fi>
Reply-To: a-list@lists.econ.utah.edu
To: "A-List (E-mail)" <a-list@lists.econ.utah.edu>
Subject: [A-List] Enron: regulatory crisis

Enron: A Powerful Blow to Market Fundamentalists 
Business Week; New York; February 4, 2002; Robert Kuttner

The deepening Enron Corp. scandal should hose away an entire world view
about how capitalism is supposed to work. But will the
right lessons be drawn? As a political scandal, Enron threatens the Bush
Administration. No corporation was closer to the Bush
family and its Republican allies. No corporation was more political in
gaming the system to get the rules written in its favor. The
White House damage-control machinery contends that if the President did
not try to rescue Enron on the way down, his hands are
clean. The real scandal, of course, is how the GOP and its broader world
view helped Enron rig the rules on the way up.

The deeper scandal here is ideological. Enron epitomized an entire
philosophy about the supposed self-cleansing nature of markets.
Republicans are the more devout practitioners of this ideology, but both
parties are implicated.

Enron, as a trading enterprise, claimed to be the quintessence of a pure
free market. In practice, it was up to its ears in cronyism,
influence-peddling, rigging the rules to favor insiders, and undermining
the transparency on which efficient markets depend.
Transparency, in turn, demands regulation in the public interest.

There is no getting around the need for regulation, since capitalism
itself requires rules that govern everything from rights to
financial and intellectual property to constraints on opportunistic
practices that undermine the efficiency of a market system. If you
think capitalism can operate in the absence of vigorous, competent, and
public-minded government, look at Moscow or Buenos
Aires. And government requires politics not corrupted by bribery. For it
is democratic politics that elects the officials who make
and enforce efficient rules--or don't.

But for three decades now, the dominant strain of economics from the
University of Chicago has been teaching gullible
undergraduates and journalists that there is no such thing as the public
interest. Efficient outcomes are just the aggregation of
selfish private interests, and government's main job is to get out of
the way. Well, after Enron, these theorists should learn some
other useful trade.

Even conservatives who reject other forms of government intervention
grudgingly concede the need for a Securities & Exchange
Commission. Entrepreneurs and traders are not saints. Deregulation is no
cure-all, because decisions about which rules to waive
are every bit as politicized as the decisions to regulate. We've seen
the corruption of deregulation in every imperfect-market realm
from electricity to banking to copyright law to airlines, hospitals, and
telecom. None of these is an absolutely efficient free market;
each one requires rules. And in all of these realms, whether they are
regulated or deregulated, corporations seek to game the
system and rig the rules.

But Enron took the prize. It not only cooked its books. It used its
extensive political influence to cook the regulatory system itself.
When a public-minded chairman of the Federal Energy Regulatory
Commission stood in Enron's way, Chairman Kenneth L. Lay
paid a call and the offender disappeared. Wendy Gramm went from being
head of the Commodity Futures Trading Corp. under
Bush I to the Enron board. Her husband, Senator Phil Gramm (R-Tex.),
helpfully ensured legislation allowing Enron to evade
policing either from the CFTC or the SEC.

At the SEC, Arthur Levitt spent eight years trying to toughen regulation
so that corporations would keep honest books and auditors
would not also be retained as business strategists and spin-doctors. For
this public service to capitalism, Levitt was widely vilified.
His successor, Harvey Pitt, came directly from lobbying for the
accounting firms who were against Levitt's proposed rules.

The difference between the Enron scandal and the superficially similar
Long-Term Capital Management affair is that LTCM
essentially operated beneath everyone's radar. Enron, by contrast,
worked to take out the radar stations. The Houston company
systematically used its ample political connections to rig the rules--on
trading, audits, disclosure, and the mechanics of energy
markets. The other difference is that LTCM's dupes were ostensibly
sophisticated consenting adults. In the Enron case, a lot of
innocent people got badly hurt.

None of this is new--only the particulars are different. The last time
we learned the broad lesson that capitalism is not
self-regulating, it took a Great Depression that was followed by a
reformist Democratic Administration. This time, there are no
catastrophic wider effects (yet), and the incumbent Republican
Administration still champions the ideology of laissez-faire and the
politics of cronyism. But Enron is to the menace of market
fundamentalism what September 11 was to the peril of global terror--a
very costly wake-up call. Our political leaders should pay as much
attention to this assault on the very heart of capitalism as they
paid to the other one.

Michael Keaney
Mercuria Business School
Martinlaaksontie 36
01620 Vantaa


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