The Enron Blame Game

January 29, 2002 • Commentary

While it’s still unclear exactly what caused the implosion at Enron Corp., one thing is perfectly clear: Ideological playwrights are jumping the gun to cast Enron in the starring role for their pet political morality plays. The most ludicrous role being cast for the corporation, however, is that of “jungle‐​capitalist‐​price‐​gouger‐​getting‐​its‐​comeuppance” — the role written for Enron by California Gov. Gray Davis & Company.

First of all, the obvious question arises: If Enron were such an effective price‐​gouger and ruthless economic pirate, how is it that the company went belly‐​up less than a year away from the scene of the crime? The awkwardness of the question almost certainly explains Davis’s bizarre accusation that the company’s own merciless behavior brought it down.

Since corporate ruthlessness usually reflects the vigor with which a company pursues profits, it would appear that Enron was actually not ruthless enough. For instance, records pried from the governor’s office by legal action reveal that during last year’s crisis Enron was charging less for electricity than the market average and significantly less than Davis’s own L.A. Department of Water & Power, under the direction of the governor’s “electricity czar,” David Freeman.

Even were Enron overcharging, it was scarcely a major player in California’s market. According to the governor’s office, Enron only supplied about 4 percent of the state’s electricity needs. Davis’s relentless campaign to lay all or even some of California’s electricity troubles at Enron’s doorstep is ludicrous on its face.

Moreover, few remember that Enron was accepting IOUs from the power companies and the state of California rather than demanding cash upon delivery at the height of the crisis. But trusting the state to make good on its promises to pay was an example of the corporate heart ruling the head. According to energy economist Phil Verleger, the state of California ended up stiffing Enron for millions of dollars, a (dare we say “ruthless”?) maneuver that certainly didn’t help Enron stay out of bankruptcy.

Second, the attempt to lay this debacle at the door of California’s “anarchic capitalism, in which there are no rules and no referees” (in the words of California State Sen. Steve Pearce who — get this! — was the politician who wrote, sponsored, and helped pass this alleged anarchic capitalist system in the first place), is so ridiculous that it’s hard to believe that it can be made with a straight face. We’d be happy to recount all the means by which regulatory oversight actually increased — not decreased — with the passage of California’s alleged “deregulation,” but space literally will not permit it.

Suffice it to say that, as industry consultant Charles Cicchetti put it upon the launch of the California experiment, “two things should be obvious. First, none of this should be called deregulation. Second, it is difficult to see how any of these myriad regulatory schemes, unless altered significantly but perhaps not fundamentally, will lower prices.”

Thus, while it’s still unclear whether California’s regulatory environment had anything to do with the bankruptcy, that regulatory environment was anything but the “Wild West” alleged by Democratic spinners.

The related campaign to tie the president’s energy plan to the machinations of Enron is also hard to swallow. While it’s certain that CEO Ken Lay’s voice counted for, say, more than ours during last year’s deliberations, nowhere in the administration’s energy plan was one of Enron’s highest priorities — the mandatory imposition of what the company erroneously called “electricity deregulation” on every state of the Union. Enron’s agenda, in fact, was regulatory, not deregulatory. They lobbied for dramatic restrictions on greenhouse gas emissions, heavy subsidies for renewable energy, and a host of interventions in the electricity market. Regardless, the constant attempt to argue motives (why the administration did this or that — were they bought? — are they corrupt?) rather than actual policy (is it a good idea to do this or that?), is one of the most disingenuous ploys in Washington, a ploy which is a smear by any other name.

None of this is to say that we are big fans of the Enron policy agenda or the president’s energy plan. We aren’t. But the intellectual gymnastics by which some are trying to tag the company as the font of all troubles and a poster boy of laissez faire is beyond irksome. The smoke has yet to clear from the economic wreckage. Let’s wait and see what an investigation of those curious books finds before lessons are drawn.

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