MIA: History: ETOL: Newspapers & Periodicals: International Socialist Review: Issue 22

International Socialist Review, March–April 2002

Todd Chretien

How do you spell croney
capitalism? E-N-R-O-N


From International Socialist Review, Issue 22, March–April 2002.
Downloaded with thanks from the ISR Archive.
Marked up by Einde O’Callaghan for the ETOL.


ENRON CEO Kenneth Lay’s wife Linda gave a teary-eyed interview on NBC on January 29. Sounding like a modern-day Marie Antoinette, Lay said of herself and her husband that they were “fighting for liquidity.” She added, “We don’t want to go bankrupt. Other than the home we live in, everything we own is for sale. There’s nothing left. Everything we had was mostly in Enron stock.”1

Lay didn’t mention that the home she and her husband live in is a multimillion-dollar mansion. Nor did she mention that the couple got $42 million in cash for selling Enron stock last year, or that they are sitting on 341,000 shares of Compaq stock (worth around $8 million). She also failed to mention that the pending sales of the couple’s other four homes should bring in another $15 million, and if things get really tight, they could sell some of their luxury automobiles and their boats.2

But while the Lays are busy counting their millions, thousands of ordinary employees really did lose everything. On December 4, Enron declared bankruptcy and fired more than 4,000 workers. As Pratap Chatterjee reported:

In Houston, security guards patrolled the Enron buildings, watching employees as if there were potential thieves as they emptied their desks. Workers flooded into the streets in front, many crying and hugging one another as police on horseback shouted at them to disperse.3

One former Enron employee wrote to the Houston Chronicle,

My group was told nothing yesterday, other than to gather personal belongings and leave. On November 30, we were given the right to move Enron’s matching funds for our retirement savings plans from Enron stock to another fund. [Enron executives had frozen employee access to their retirement accounts while the stock price collapsed.] My personal account amounted to $46.01. Another friend, with almost 20 years service, had $102. This is absurd, sad, and I think, criminal.4

With eight congressional committees launching investigations into the Enron debacle, it is possible that a handful of top Enron executives, despite invoking the Fifth Amendment before Congress, will play scapegoat and spend a few months in a minimum-security facility. But the real scandal isn’t that Enron broke the law; it is that Enron only did what other major corporations do as a matter of courseóand that almost all of it was, and is, perfectly legal.

A CBS poll in late January revealed that 83 percent of Americans are concerned about the Enron scandalóand that 61 percent agreed that big business has too much influence on the Bush administration.5 The Enron scandal is the biggest blow to the ideology of the free market in the U.S. in decades, with international repercussions. Enron presents a crucial opportunity for opponents of capitalism to engage large numbers of people in a debate about why we need to fight corporate greed. The Enron debacle shouldn’t be seen as an instance of a renegade corporation gone awry, but as a lesson in how the “free market” system normally functions.

Enron and the myth of the free market

The neoliberal orthodoxy that became so popular in the 1980s and 1990s is, simply put, that all impediments to unbridled private greed and unregulated free markets must be done away withóbe they governmental taxes on corporations to fund social programs, labor unions, or safety and environmental regulations. The only areas of government spending exempt from the list are military and police budgets, as they are seen as necessary to protect U.S. corporate power abroad and to deal with the ramifications of a shredded social safety net at home.

President Ronald Reagan championed these ideas, but by the 1990s, Republicans and Democrats alike subscribed to the mantra: privatization, deregulation, austerity. This new orthodoxy removed even the most feeble controls from business, dramatically reduced workers’ living standards, and made the 1990s boom possible. By the end of the 1990s, the frenzy of privatization had even reached into public schools and prisons, and a bipartisan consensus was growing to at least partially privatize the most successful antipoverty program in the nation’s history, namely, Social Security. Enron became both architect and beneficiary of this new dogma.

When Enron reached number seven on the Fortune 500 list in 2000, the nation’s leading business schools heaped praise on the company. Christopher A. Bartlett, a Harvard Business School professor, proclaimed, “Skilling and Lay have created a hotbed of entrepreneurial activity and an engine of growth.”6 The Economist magazine reported that Enron top executives believed in free markets and the profit motive as fervently as an “evangelical cult” with Lay playing “messiah.” Skilling explained Enron’s growth as a kind of capitalist manifest destiny: “We are on the side of angels. People want to have open, competitive markets. They want fair competition. It’s the American way.”7 However, behind the rhetoric, Enron chiefs always relied more heavily on stuffing handfuls of cash into well-connected pockets than on the so-called hidden hand of the market.

Lay founded Enron in 1985 by merging two small natural gas pipelines. As the elimination of government oversight and price caps (otherwise known as “deregulation”) took hold in the gas industry in the mid- to late 1980s, Lay quickly figured out that more money could be made by manipulating markets than by delivering natural gas. As one Enron executive told the New York Times, Enron’s goal was to create a “regulatory black hole” to suit its “core management philosophy, which was to be the first mover into a market and to make money in the initial chaos and lack of transparency.”8 In plain English, this meant paying off politicians to privatize and deregulate critical energy services, then using their highly placed connections to run around looting before the public caught on.9

Enron became one of the most important motor forces behind expanding energy deregulation, from gas to electricity. The best example of this is in California. There, Texas-based companies Enron and Dynegy, as well as California-based utilities such as PG&E and private generators such as Calpine, showered the California legislature with cash in order to win a unanimous vote for deregulation in 1996. Then, starting in 2000, as price caps were lifted, they conspired to drive up the cost of electricity from $7.43 billion in 1999, to $27.97 billion in 2000.10 They stuck ratepayers with the bill and shared the $20 billion among themselves.

Largely on the basis of the prospect of rapidly expanding nationwide deregulation of the energy industry, Enron’s annual net income grew from around $100 million to around $1 billion, while its stock price rose from $21.50 to $90 per share between 1997 and August 2000.11 This massive boom in Enron’s stock price not only made hundreds of its executives rich, but it also allowed them to borrow tens of billions of dollars in additional loans. The loans were used to expand into the fiber-optics, steel, and advertising industries, as well as to launch an overseas energy empire.

Enron was not alone during these heady days. For a time, the stock values of Yahoo and Priceline rose above that of General Motors, and the Nasdaq topped 5,000. Any company that added “dot com” to its name was virtually guaranteed millions in venture capital, and any suggestion that the miracle economy might falter was dismissed as baseless pessimism. Karl Marx long ago pointed out that this “irrational exuberance” was characteristic of the system just before a bust. To a large degree, this late-boom frenzy explains why no one noticedóor, more to the point, why no one caredóthat Enron’s chief financial officer (CFO), Andrew Fastow, had created 3,500 paper companies to hide Enron’s debt. After all, everyone was doing it. For his troubles, Fastow won CFO Magazine’s 1999 Excellence Award for Capital Structure Management.12

Borrowing billions against inflated Enron stock only worked as long as stock prices remained at atmospheric levels. But when the recession began last spring, nervous bankers started to call in loans, only to discover that there was nothing there. Yet, now that the autopsy is underway, we should keep in mind that what we are looking at is not simply the rot of Enron’s innards, but a window into the guts of American capitalism. Less governmental interference with the workings of the free market was supposed to lead to a more competitive, diverse marketplace, where consumers would benefit because more companies would fight for our dollars by cutting prices. In reality, every industry that has been deregulated, from airlines to telecommunications, has experienced a massive concentration of power into the hands of just a few companies. Far from benefiting consumers, this process has allowed corporate cartels to eliminate competition and increase prices.

As the Dow and Nasdaq bubbles burst and nearly 2 million workers lost their jobs in the recession, the luster on the free-market orthodoxy began to dull. But how had corporations succeeded for so long in pushing through policies that hurt the large majority of ordinary Americans? From the HMOization of health care to the California energy rip-off, why had the politicians been so willing to go along? Enron provides a case study in how corporations dominate politics today.

Did Bush make Enron? Or did Enron make Bush?

Rarely has one company been so closely associated with an administration. Ken Lay and other Enron executives have donated $2 million to George W. Bush’s political campaigns since 1993, hosted his inaugural parties, and let him use corporate jets for campaign travel. Lawrence B. Lindsey, Bush’s top economic adviser, earned $50,000 in consulting fees from Enron in 2000. Bush’s top campaign strategist, Karl Rove, sold off between $100,000 and $250,000 in Enron stock in 2001. Robert Zoellick, U.S. trade representative, served on Enron’s advisory council, and Thomas White, Bush’s secretary of the army, made his living as an Enron executive for 10 years before he moved to Washington.13 Attorney General John Ashcroft has had such a cozy relationship with Enron over the years that he recused himself from the investigation. And, of course, there is the relationship between Ken Lay and Vice President Dick Cheney. Lay was the only energy executive to meet privately with Cheney as Cheney drafted Bush’s national energy policy.14 The Bush administration is so reluctant to reveal the content of those meetings that the nonpartisan General Accounting Office has had to file a lawsuit in federal court to demand that Cheney hand over the minutes.

So what has been Enron’s return on all of these “investments” in George W.? Bush has gone to bat repeatedly for Enron over the years. In 1997, Lay asked Bush, then Texas governor, to contact every member of the Texas congressional delegation to urge them to support export credit agencies that underwrote insurance for Enron’s overseas investments. In the following year, Enron received $400 million in credit and risk insurance from the government for its operations in India and Bolivia. Back home in Texas, the Enron Methanol Company in Pasadena received a special concession from Bush to allow it to continue operations in violation of the 1971 Texas Clean Air Act, spewing out 13 times the legal limit of nitrogen oxide.15

The biggest fish in the sea was the plan to deregulate the whole $220 billion U.S. electrical industry in a bill sponsored by Representative Joe Barton (R-Texas). The deregulation bill would have introduced the California fiasco to the nation as a whole and been the most lucrative target for Enron yet. By November, the bill had gained the support of Democrats on the House Energy and Commerce Committee, and it came close to moving to the floor for debate. Had Enron survived another six months, it might have been able to save itself by looting the entire U.S. electrical industry. Fortunately for us, Enron’s collapse nixed national deregulation for the immediate future. As ranking Democrat on the House committee, Rich Boucher (under)stated, “The Enron corporate collapse creates another level of uncertainty.”16

So Bush’s main corporate backer and close personal friend Ken Lay lied through his teeth to skim profits from deregulated industries across the globe and used large chunks of that money to fund the president-select’s rise to power. All the while, Bush cleared the regulatory path for Lay as Texas governor, and, along with Cheney, he was poised to enact energy policy that would be a bonanza for Enron. As Crossfire host Bill Press noted, “Enron makes Whitewater look like peanuts.”17

Enron-gate: Why won’t the Democrats hang Bush?

Now Bush and Cheney claim that they can hardly remember Ken Lay. So if the Republicans impeached Clinton for lying about having sex, why aren’t the Democrats trying to get rid of the unelected Bush for turning over Alaska to “Kenny Boy”? There are two explanations. First, the terrorist attacks on September 11 have buoyed Bush’s presidency, and few Demo-crats dare challenge the conventional wisdom that national unity behind the “war on terror” is paramount. Partially, this stems from the Democratic leadership’s cowardly nature. They would rather keep quiet than risk criticizing a popular president. More importantly, however, the Democrats unanimously and genuinely support Bush’s war and are every bit as much committed to defending U.S. corporate interests abroad as the Republicans are.

The second reason that the Democrats are not trying to impeach Bush is that they would risk drawing attention to themselves in the process. While all Republican senators received a total of $508,894 dollars from Enron between 1998 and 2001, all but four Democratic senators received a total of $651,948 over the same period. And while seven of the top ten Enron-endowed senators (including Phil Gramm and Kay Bailey Hutchison, who cashed in at more than $101,000 apiece) are Republicans, six of the top ten Enron-endowed representatives are Democrats.18

Besides Democratic hands in the Enron cookie jar, the bankruptcy of telecommunications giant Global Crossing is starting to look a lot like a Democratic Enron. As the Washington Post explains, in 1998, President Bill Clinton’s close personal friend and Democratic National Committee Chairman Terry McAuliffe

turned his $100,000 investment in Global Crossing into a $17.9 million profit. “I bought stock, and I sold stock. That’s capitalism, and if you don’t like it, leave the country and move to China.”

Then, in 1999, Mr. [Gary] Winnick [CEO of Global Crossing] found himself playing golf with Mr. Clinton. Mr. Winnick soon pledged $1 million to Mr. Clinton’s presidential library, while his company chipped in more than $1 million in soft money to the Democratic Party during the 1999ñ2000 election cycle. (As Global Crossing’s stock price was plunging toward 7 cents, the firm tossed more than $400,000 in soft money to the Democrats in 2001 before laying off 2,000 workers last month and canceling their health insurance.)

In return, Global Crossing was awarded a $400 million Pentagon contract last spring.Ö Meanwhile, the value of Global Crossing continued its plunge, falling from a market capitalization peak of nearly $60 billion, when Mr. McAuliffe bailed, to virtually nothing by last month. On Jan. 28, Global Crossing declared bankruptcy. But not before Mr. Mc-
Auliffe’s benefactor, Mr. Winnick, pocketed $734 million for himself by selling stock that is now worthless.

Six days before Global Crossing went down the tubes, Mr. McAuliffe declare[d], “Enron is a metaphor for the Bush administration. The wealthiest people took their money off the table.” You would think he was talking about his own dealings with Global Crossing.19

If Bush comes out of the Enron hearings unscathed, it will not be because he is innocent, but rather because the Democrats are equally guilty. As 2000 Green Party presidential candidate Ralph Nader put it:

The prospect of reform is eviscerated because of both parties’ sticky hands. That is what is so disgusting. The Democrats can’t really go after this scandal because so many of them look like hypocrites. They took as much money as they could get from Enron, and they keep raising money from corporate PACs.20

Global Enron

Just as Enron took advantage of deregulation to make a killing in the U.S., Enron took advantage of neoliberal free-trade policies abroad. Over the past 15 years, the Bush family has used its political clout to win support for Enron contracts in Kuwait, the Philippines, Argentina, and Mozambique. All of these episodes have turned out badly for the host countries.21 But perhaps the most outrageous example of Enron’s international extortion policies can be found in India, as author/activist Arundhati Roy makes clear:

The Power Purchase Agreement between Enron and the Congress Party ruled state government of Maharashtra for a 740-megawatt power plant was signed in 1993. Enron had made no secret of the fact that in order to secure the deal, it paid out millions of dollars to “educate” the politicians and bureaucrats involved in the deal. It constitutes the largest contract ever signed in the history of India.

Today, everything that critics of the project predicted has come true with an eerie vengeance. The power that the Enron plant produces is twice as expensive as its nearest competitor and seven times as expensive as the cheapest electricity available in Maharashtra. In May 2000 the Maharashtra Electricity Regulatory Committee (MERC) ruled that no power should be bought from Enron. This was based on a calculation that it would be cheaper to just pay Enron the mandatory fixed charges for the maintenance and administration of the plant that it is contractually obliged to pay than to actually buy any of its exorbitant power. The fixed charges alone work out to around $220 million a year for Phase I of the project. Phase II will be nearly twice the amount.

Two hundred and twenty million dollars a year for the next 20 years. In January 2001 the Maharashtra government announced that it did not have the money to pay Enron’s bills. But Enron had friends in high places. U.S. government officials warned India about vitiating the “investment climate” and running the risk of frightening away future investors. In other words: Allow us to rob you blind, or else we’ll go away.22

Enron’s dealings in India show how U.S. imperialism works. So-called free trade, far from putting all countries on a level playing field, amounts to the U.S. government directly and indirectly, through its control of the International Monetary Fund, the World Bank, and the World Trade Organization, using its economic clout and overwhelming military superiority to pry markets open across the globe. The economies of whole countries are ruined for the benefit of a handful of stockholders and gigantic U.S. corporations. The U.S. government shows itself to be a political and military extension of these giant companies.

Can the system be fixed?

“Enron is our engine for reform,” Ralph Nader says.

Enron is the supermarket of corporate crime for our time. It has embarrassed the hell out of the business community. It has raised questions about accounting practices. Investor confidence is severely shaken. The investment bankers are quaking. The lobbyists are scared.23

Of course, Nader is right. But the question is, What kind of reform? The most popular proposals floating around Washington are to bar accounting firms from serving as both auditors and accountants for the same company, to require 401(k) accounts to diversify their holdings or permit employees to do so themselves, and to refine how corporations are allowed to fund political campaigns. On the more substantial side, the push to privatize Social Security and deregulate the U.S. electricity industry has been slowed down for now.

Dave Zweifel summed up widespread, mainstream support for these types of reforms as follows:

There have been several periods of economic strife [in U.S. history], each followed by reform movements that succeeded in enacting some regulations to protect the innocent. It was Franklin D. Roosevelt, after all, who saved capitalism from itself following the Wall Street crash of 1929 and the Great Depression that followed. Capitalism does work, of course, but only if governments of, by and for the people provide safeguards for the people.24

There are several problems with approaching the question of reform this way. First of all, it is simply not true that Roosevelt’s New Deal programs ended the Depression. The Second World War actually pulled the U.S. economy out of the Depression. Moreover, the most important reforms won during the Depression (Social Security, unemployment insurance, union rights, steps toward civil rights) were not part of Roosevelt’s original program. Rather, they were the products of mass struggles, which often haz to confront police forces controlled by politicians and bosses that were just as likely to be Democrats as Republicans.

Any real change to come out of the Enron collapse will come from on-the-ground organizing touched off by the crisis. We may well see some minor reforms coming from Congress in the weeks and months ahead, as politicians righteously pose with bits of legislation in their hands. Most of this will be to give the appearance of things changing for the benefit of the polls, and a little will be done to streamline the rules that capitalists apply to each other to ensure the smooth running of the system (accounting practices, lending guidelines, etc.).

But the real question is not whether “capitalism does work” as Zweifel suggests, but rather how it works and for whom. Even when not mired in recession, capitalism is based on profound inequality. While the Lays squeeze by in their “reduced” circumstances, the United Nations estimates that 35,000 children worldwide die every day due to starvation or disease related to poverty. These disparities are perfectly legal and acceptable, so long as the vast majority of the world’s population puts up with them. We should not simply point out the criminal excesses of the Enron gang. We should argue that the system itself is criminal and must be replaced by socialism, a system based on meeting human needs.

* * *


1 Lois Romano, “What did he know?” Washington Post, January 29, 2002.

2 David Greising, “Now Lay is ‘Poor Ken’? That’s rich,” Chicago Tribune, January 30, 2002.

3 Pratap Chatterjee, “Enron: Pulling the plug on the global power broker,” CorpWatch, December 13, 2001, available online at www.corpwatch.org.

4 Chatterjee, “Enron: Pulling the plug.”

5 “Poll: Enron fallout rising,” CBSNews.com, January 26, 2002.

6 Wendy Zellner and Stephanie Anderson Forest, with Emily Thornton, Peter Coy, Heather Timmons, Louis Lavelle, and David Henry, “The fall of Enron,” Business Week, December 17, 2001, pp. 30–36.

7 Chatterjee, “Enron: Pulling the plug.”

8 Quoted in Molly Ivins, “Tossing out Enron’s dirty laundry,” Sacramento Bee, December 6, 2001.

9 Chatterjee, “Enron: Pulling the plug.”

10 Jessie Muldoon and Todd Chretien, “California’s energy crisis: Power to the people?” International Socialist Review, February–March 2001, p. 30.

11 Zellner, et al., “Fall of Enron.”

12 Zellner, et al., “Fall of Enron.”

13 Bill Press, “Enron makes Whitewater look like peanuts,” Tribune Media Services, December 12, 2001.

14 Andrew Gumbel, “The scandal that has left the credibility of American politics in shreds,” The Independent (UK), January 25, 2002; Robert Scheer, “Connect the Enron dots to Bush,” Los Angeles Times, December 11, 2001.

15 Chatterjee, “Enron: Pulling the plug.”

16 Chris Baltimore, “U.S. House panel shelves electricity bill amid Enron worries,” Reuters, December 17, 2001.

17 Press, “Enron makes Whitewater look like peanuts.”

18 Andrew Wheat, “System failure: Deregulation, political corruption, corporate fraud and the Enron debacle,” Multinational Monitor, JanuaryñFebruary 2002, p. 43.

19 “McAuliffe’s pot of gold,” Washington Times, editorial, February 14, 2002.

20 John Nichols, “Enron? Nader is glad you asked,” The Nation, February 25, 2002.

21 Larry Chin, “Enron: Ultimate agent of the American empire,” Online Journal, February 1, 2002.

22 Arundhati Roy, “Shall we leave it to the experts?” The Nation, February 18, 2002.

23 John Nichols, “Enron? Nader is glad you asked.”

24 Dave Zweifel, “Enron proves capitalism needs regulation,” Madison Capital Times, February 15, 2002.

Last updated on 11 August 2022