Letter from America

By Ashford, Nigel | Review - Institute of Public Affairs, March 2002 | Go to article overview

Letter from America


Ashford, Nigel, Review - Institute of Public Affairs


Enroning Capitalism

The collapse of Enron, the seventh largest company in America, is the biggest story in the US media after the war against terrorism. Unsurprisingly, critics of a capitalist society have tried to portray Enron, and especially its CEO Ken Lay, as the posterboy of a rampant, laissez-faire capitalism that needs to be regulated. They argue that more controls over companies are needed, that campaign finance reform is required to remove the influence of such companies, and that the privatization of the Social Security system would be dangerous. The real message of the Enron affair is the direct opposite: namely, that capitalism works.

Enron was not the free-wheeling, capitalist enterprise portrayed by the media. It sought to use political power to engineer the market in its favour, a classic example of what public choice economists call `rent-- seeking'. It tried to rig the so-called 'deregulation' of the energy markets by advocating the banning of electricity utilities from the generation market, price controls on access to transmission grids, and control of the electricity distribution systems by government officials. Rarely mentioned in the media is the fact that Enron was an active supporter (and thereby a quiet contributor to the Green movement) of the US's signing the Kyoto agreement on global warming, in order to cripple coal as a competitor. The Bush Administration wisely refused to sign the declaration that would have devastated the US economy. (See IPA Review, June 2001.) Enron was more successful in obtaining $1.5 billion in subsidies for investments abroad from the Clinton Administration.

Congress is likely to pass campaign finance reform that would restrict soft-money donations to political parties and increase the amount of hard money that can be donated to candidates. (See IPA Review, March 2000.) Previous attempts to pass the legislation had only just failed. The perceived scandal of Enron was the decisive factor in getting the bill through the House this time. Yet the media failed to note that almost all Enron donations to campaigns were in the form of hard money, which was increased by current legislation, and not soft money, which will be banned. This law would have done nothing to have changed Enron's contributions strategy. …

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