Was the GOP responsible for Enron's collapse?

Posted: Mar 26, 2002 12:00 AM
One of the reasons why Enron got so much play in the media is that it fit neatly into a standard template for reporters covering the story. It went something like this: Big businesses hate government regulation because it prevents them from making large profits. Enron is a big business that gave campaign contributions to the Republican Party. Therefore, Republicans were responsible for its collapse because they oppose government regulation. As simplistic as this is, it is clear that virtually all press coverage of Enron, at least in the beginning, followed this script. It doesn't seem to have occurred to most reporters that Republicans might support free-market policies simply because they think they are the right ones to follow. Thus, when Republicans resisted imposition of price controls on energy last summer, the media implied that this was only because Enron gave them campaign funds. The idea that Republicans might oppose price controls because of their unbroken record of failure was never seriously considered by most reporters covering Enron. Another fallacy of the media template is the idea that big businesses like free markets. Of course, nothing could be further from the truth, as Enron's own behavior amply demonstrates. Sure, businesses like the free market just fine when they gain from it, but they abandon all pretense of consistency the instant they think they will be hurt by it or would benefit from government regulation. Indeed, historically, it has been Big Business, not consumers or progressives, who have been primarily responsible for creating most government regulatory agencies. At first glance, it may seem odd that businesses would support regulation. But it actually helps them a great deal in many different ways. For one thing, regulation acts as a kind of overhead cost. Hence, the bigger the business, the larger the sales base it has over which to spread the regulatory cost. This makes it harder for small businesses with a smaller sales base to compete with them. Moreover, federal regulation is often preferable to state regulation. Having one regulatory standard is easier for businesses than 50 different state standards. And because federal regulation usually preempts state regulation, businesses can often reduce their regulatory burden by having the federal government set a lower standard than states might set. Regulation can also create business for many companies, which will then fight any effort to reform it no matter how wrongheaded. For example, environmental regulation has created a large industry devoted to manufacturing pollution-control equipment. And of course there are multitudes of law and lobbying firms that exist solely to help business navigate the thicket of federal regulation. They are not shy, either, about using their political connections to fight efforts to reform the regulations that provide them with a good living. Interestingly, it was a Marxist historian named Gabriel Kolko who first proved that Big Business was responsible for most of the reform legislation of the Progressive Era. In "The Triumph of Conservatism," published in 1963, Kolko showed how regulation benefited Big Business by reducing competition. The classic example is how the railroads supported creation of the Interstate Commerce Commission to limit entry into that business. Later, the Civil Aeronautics Board played exactly the same role in the airline industry. Indeed, virtually all regulatory agencies have had the effect of limiting entry and competition in the industries they oversee. The Federal Communications Commission makes it very hard to get into the radio, television or telecommunications business. The Food and Drug Administration helps ensure that the pharmaceutical industry will always be dominated by a few large firms, since only they can afford the enormous cost of testing drugs before they can be sold. The list goes on. Thus, the great free market economist George Stigler once observed, "As a rule, regulation is acquired by the industry and is operated primarily for its benefit." A new report from the Institute for Policy Studies, a left-wing think tank, shows how Enron heavily lobbied the Clinton administration for loan guarantees and regulations that would increase its profits. According to the report, some 21 different agencies put more than $7 billion into Enron's pockets during the Clinton years. It has also been reported in The New York Times that it was the Clinton administration which gave Enron approval to set up the offshore partnerships that hid its vast debt from the outside accountants and shareholders. Most Republicans really do have an ideological opposition to government regulation and subsidies, making them unhelpful for the needs of companies like Enron. Democrats, of course, have no such concerns because they are the party of big government. This explains why it was the Clinton administration, not Republicans in Congress, that really served Enron's interests. *** Reference: "Enron's Pawns: How Public Institutions Bankrolled Enron's Globalization Game," Institute for Policy Studies (March 22, 2002), available at www.ips-dc.org. COPYRIGHT 2002 CREATORS SYNDICATE, INC.