The myths of deregulation

Bill Murchison
Posted: Jan 22, 2002 12:00 AM
Sniff, sniff. What's that odor? Got it -- the stale smell of energy regulation. Where could it be coming from? From all around, I'd say. The Enron catastrophe has messed up the lives of most who worked for Enron, and threatens to taint careers at firms that served Enron, such as Arthur Andersen and Vinson & Elkins. But not the least disquieting effect is what you might call the guilt by association now going around in the policy realm. A deadly syllogism is under construction -- not finished yet, but you can hear the bang of the hammer and buzz of the saw. The syllogism goes thus: Enron went spectacularly and disastrously bust. Enron promoted energy deregulation. Energy deregulation could make us all go bust. Oh, yeah? One could say, with just the same tremulous conviction, that the stock market brought Enron down, so let's hire the Taliban economics minister (in obvious need of employment) to overhaul Wall Street. A couple of decades ago, for the information of those too young to recall the joys of endless waits in gasoline lines, the gradual abandonment of federal controls on energy prices worked on our economy like a tonic. Producers, recovering the right to make a fair (instead of a government-determined) profit, got back to the business of finding and producing energy. Away went the gasoline lines; down went prices. Total deregulation of energy never arrived, being too sensitive a political matter. Nevertheless, the evidence that diminished government control drove down prices and led ultimately to a deregulatory model that one might not have foreseen -- deregulation of electricity, to the point that electricity buying and swapping among providers seemed the bright new dawn. California's experiment in electricity deregulation soured last summer largely because the legislature wanted too much control. No doubt some Californians feel gratified by Enron's fall. It would appear you shouldn't be allowed, as was Enron, under the new rules, to merchandise electricity like wool socks or tofu. Some months ago, Vice President Cheney headed a task force shaping energy proposals for the Bush administration. Among the voices heard: Enron's. Aha! What were Ken Lay and the others saying -- deregulate, deregulate? Liberal Democrats want to find out. Naturally, the great bulk of the advice centered on the loosening, not the tightening, of government mandates. No marketplace-minded administration like Bush's was likely to sit long, with politely folded hands, listening to calls for sterner government controls on energy prices or for the thwarting of new drilling initiatives. Enron's recommendations went into the pot along with many others. Save one Lay proposal that was not deregulation-minded at all: U.S. adherence to the Kyoto global warming treaty. Such an initiative, if pursued seriously, would commit this country to lower industrial production and curbs on the use of automobiles. Said the administration: Nope. The odor of energy re-regulation is far from stifling yet -- more a matter for political pontification than for anything else, regulation having proved over and over its incapacity for increasing access to the regulated product. But one question nags: Will Enron's bankruptcy, and the consequent collapse of its 401(k) plan, heavily funded with Enron stock, lead to tighter controls on how companies in general may structure their 401(k)'s? We have to hope not. Government can and must guarantee insofar as possible the basic integrity of business relationships. But the prudence of those relationships? How would you go about that? In business, risk attracts. What attracts, energizes. What energizes, succeeds -- if not always, then mostly. A low risk 401(k) system -- with minimal participation in the employer's stock -- doesn't sound like bait for the ambitious and zealous, eager to push envelopes and make things pop. A minimum-risk, low-achievement society is what the regulatory mentality always produces. We could build such a society, of course. There would be just one problem: It wouldn't be America.