Enron Needed a Level Playing Field
While it is no perversion of language to describe Enron’s collapse as a scandal, it is difficult, if not impossible, to identify any political dimension to the scandal or any course of action elected officials can take to ameliorate the situation.
With a criminal investigation and numerous class-action civil suits underway, congressional investigations will do little more than earn headlines and provide a platform for political mudslinging and irresponsible charges.
Thus far, the most oft-repeated accusation is that something must be amiss because Enron was one of President Bush’s top campaign contributors, and Enron officials met with Vice President Dick Cheney and other White House staff to help formulate the administration’s energy policy.
There is also speculation that Enron Chief Executive Kenneth Lay asked for federal assistance to avert bankruptcy. Whether or not this is the case, his company’s subsequent implosion makes it clear what the answer was.
Yet campaign finance crusaders and administration opponents argue that whether Enron was offered a bailout is immaterial because Enron had access to the “corridors of power.”
Virtually every misdeed alleged to have been committed by the firm could be attributed to this access–and probably will be in the coming weeks.
As unseemly as they may appear, Enron’s political contributions to Bush, as well as its millions in soft money donations to both political parties since 1992, are relatively modest considering the industry in which the company operates.
Ninety-three percent of Enron’s business is–or was–energy trading: connecting energy producers to utilities, and natural gas suppliers to generators.
While natural gas pipelines and extraction have been deregulated, the rest of the industry, for the most part, has not. Thus Enron’s core business was dependent on competitive energy markets and the deregulation of electricity generation.
Some may characterize Enron’s attempts to open energy markets from government monopolies–which have gouged consumers for decades–as “buying influence.” And the free-market advocates may disagree with some of the policy initiatives Enron pursued, such as federal financing for overseas energy ventures and open access to electrical transmission facilities.
Yet there is no question that Enron’s fortunes were inexorably linked to consumer choice and the end of pervasive electricity monopolies.
The electricity monopolies Enron challenged were among the most profitable businesses in the nation, thanks to their cozy relationship with politicians. A National Assn. of Regulatory Utility Commissioners report in 1993 found that electricity utilities outperformed the S&P 400 more than 87% of the time.
Yet the cash flow of monopoly utilities was not the product of free-market exchange but the result of negotiations between the corporations and political bodies.
Far beyond buying influence, the political maneuvering of Enron’s energy industry antecedents actually determined their revenue, costs and profit.
Knowing that competitive markets would eliminate this free ride, electric utilities fought–and continue to fight–deregulation tooth and nail.
In most states where deregulation has occurred, including California, the incumbent utilities have succeeded in manipulating the laws to guard against unfettered competition.
It should surprise no one that a business trying to open these regulatory fiefdoms to competition must fight for its interests in the public policy arena and, in the process, help to finance some campaigns.
Ironically, some accuse the Bush administration of acting improperly because it did not extend a federally backed line of credit to Enron.
Such action would not only have been scandalous but would have been inimical to the free market, which demands that risk be borne privately.
It is perfectly fitting that Enron was denied precisely the type of government franchise that it worked to eliminate.
As long as the government artificially structures markets and rewards political patronage with regulatory services, political contributions and influence peddling will remain an essential feature of American business.
Limits or even an outright ban on campaign contributions will do nothing more than cap the price businesses may pay for these government services.
Serious reformers would be better served to target the disease, not its symptoms.
Jason M. Thomas is a staff economist at Citizens for a Sound Economy Foundation, a nonprofit advocacy organization headquartered in Washington, D.C.