Capitalism's Limits: The Lessons of Enron and Other Crises. (Ways & Means)
Pope, Carl, Sierra
More noted as an economist, John Kenneth Galbraith is also a prophet. In 1966, Galbraith told my college class that once leadership passed to those who had not lived through the Depression, the safeguards installed in its wake would be dismantled. Scandal, crisis, and economic collapses were sure to follow. "Democratic capitalism," Galbraith said, "has institutional flaws but only personal memories."
Just as Galbraith predicted, since the early 1980s we have weakened regulators' power over markets, deregulated electricity, de-emphasized enforcement of environmental standards, and diminished the authority of state public utility commissions. Enormous economic dislocation has followed. Among the most recent results were price gouging in California, the collapse of Enron, and the resignation of the EPA's chief of enforcement.
Those unwilling to concede that the corruption is pervasive generally blame rogue buccaneers at a handful of companies. "I really think the public does not share the judgment that there is somehow some political malfeasance here," White House Press Secretary Ari Fleischer suggested hopefully. Treasury Secretary Paul O'Neill even held up the Enron collapse as "part of the genius of capitalism."
But in an essay in the Nation, corporate critic William Greider fully grasped the Galbraith lesson: "Enron makes visible a more profound scandal--the failure of market orthodoxy itself," he wrote. "The rot in America's financial system is structural and systemic. It consists of lying, cheating, and stealing on a grand scale."
Greider's analysis was echoed by no less an authority than Paul Volcker, former head of the Federal Reserve Board. "The crisis in the accounting and auditing professions is not a matter of the failure of a single company," Volcker warned Congress. "You've got a problem with attitude here which goes to the heart of the accounting firms themselves."
The putrefaction in the financial world extends to government as well. Just ask Eric Schaeffer, the widely respected chief of enforcement for the EPA who served since 1990 under both Democratic and Republican administrations. Schaeffer resigned in February, lamenting that he was "fighting a White House that seems determined to weaken the rules we are trying to enforce."
We've proven Galbraith right; we've forgotten the lesson of the Great Depression: Capitalism needs limits. This is not a new idea. It goes back to James Madison's concept of checks and balances and the bedrock assumption of the Constitution that no single faction or interest could be trusted to remain honest. Even though Madison could not have conceived of the modern multinational corporation, that same assumption applies.
The recent fervor for deregulation overcame decades of caution with a quasi-religious faith that the marketplace can police itself. …