Adam Ash

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Monday, May 29, 2006

Enron ain't over, kids

1. Enron Conservatism Lives On -- by Robert L. Borosage

Last week, a hometown jury in Houston, Texas, found Enron’s masters of the universe—Ken Lay and Jeffrey Skilling—guilty of fraud, conspiracy and insider trading. They’re headed from the boardroom to the prison cell. The verdict stands not only as a judgment on them, but on the Enron conservatism that set the stage for their crimes.

Lay and Skilling’s defense was that they didn’t do anything wrong. They didn’t know about the internal corruptions. And the financial dealings—the cooking of the books—was simply a normal business practice in the new go-go economy.

They are right about that. Enron, at its height the seventh largest company in the US, was celebrated as the model corporation of the new global information economy. It scorned the old ways of doing business—owning pipelines, pumping gas. It did deals, created markets, bought and sold across the globe. Skilling was hailed as the paragon of the modern manager.

And what they did—cooking the books, plundering the company, misleading employees and investors—was too often business as usual. It wasn’t just Lay and Skilling, it was Ebbers, Koslowski, Rigas, Arthur Andersen, Martha Stewart. Five years after the Bush administration reluctantly set up its corporate fraud tax force, there have been 1,063 convictions, including 167 corporate presidents and CEOs and 36 chief financial officers. Literally thousands of companies have “restated” their profits in the wake of new laws that hold executives responsible for the accuracy of their reporting. As Steve Pearlstein of The Washington Post writes , “there aren’t enough jail cells in Christendom to hold all the corporate executives who engaged in 'earnings management' during the late 1990s.”

It was business as usual and it was also illegal and immoral. The jury that found Law and Skilling guilty was an all-American jury—an elementary school principal, a school teacher, a payroll manager, a small business owner, a human resources manager, two engineers. They liked the defense attorneys. They were cautious about holding the government to its case. But in the end, they applied basic American common sense and morality to the actions of Lay and Skilling.

How could they say they didn’t know, Freddy Delgado, the elementary school teacher wanted to know. Parents hold me responsible for the safety of their children. “I am responsible if a child gets lost. To say that you didn’t know what was going on in your company is not the right thing.”

We’re accountable, said Carolyn Kuchera, a payroll manager. Those with full-time jobs did them at night “when we were so tired we hardly knew who we were. We were responsible… And I think those (Enron) employees were entitled to the same thing.”

They were outraged that Lay was selling his Enron stock while assuring employees the company was in great shape. That was a question of “the character of the person,” said Delgado. “I thought it was an absolute disgrace,” said another juror.

The right thing. Accountability. Responsibility. Basic character. The jurors did not let the charming defense attorney nor the complexity of the case distort their common sense of decency.

The question is whether that judgment on Enron’s piranhas will ever be applied to the Enron conservatives that created the conditions for their crimes. It is worth remembering the “cult of the CEO” touted by conservatives over the last decades. Free them from government regulation, curb trial lawyers, break labor unions, give them financial incentives to make profits, and they will generate growth, jobs, innovation, profits. So the Gingrich Congress—with lots of help from New Democrats—passed laws insulating executives, accountants and lawyers from accountability while making civil suits by small investors more difficult. Short-term stock options were protected in law, and allowed to be carried essentially off the books.

CEOs got a multimillion dollar incentive to cook the books, to plunder their companies in order to meet short term profit goals—“earnings management” was the euphemism. Too few resisted the temptation.

Lay and Skilling may go to jail, but Enron conservatives still rule in Washington. They still protect short-term stock options. They still seek to insulate executives from civil liability. They still drive deregulation and celebrate an economy in which CEO salaries are soaring, while wages are stagnant and Americans are spending more than they earn. They still dismiss the corporate crimes as a problem of a few bad apples. The good jurors in Houston did their civic duty in the courtroom. Now the question is whether the rest of us will have the same good sense when it comes to holding our own leaders accountable for the crimes and destruction that they have abetted.

2. The Enron Model of Irresponsible Capitalism -- by William Pfaff

The Enron verdicts are one more blow to a new American model of capitalism already heavily criticized for its gross abuse of common-sense moral values.

The American economist Robert Lekachman has written (in the admirable "Harper Dictionary of Modern Thought") that "the ideology of capitalism makes an implicit assertion that inequalities of income and wealth measure, however roughly, the economic contributions of the men and women who embark their energies and resources in the productive process."

The new American economic and corporate model grotesquely departs from such a moral foundation, doing so in a way that suggests damaging ultimate consequences for society.

The usual defense of billion-dollar rewards for executives, for example, is the nihilistic one that the market settles business morality. That is, you get away with what you can.

The theoretical argument is that such rewards for managers are a necessary element in a modern system where creating value for investors generates prosperity for everyone. Wealth "trickles down." The rising tide lifts everyone.

This today is untrue. The globalized corporation identifies labor as usually its largest production cost, and its easiest cost to cut. This means that management regards itself as obliged to restrict to the maximum the "trickling down" of value to workers.

The system of values now governing the American corporation rejects the principle, honored in postwar America and Europe, that business should serve the interests of workers and community (by paying taxes) as well as those of investors and managers.

This new value system is enforced by investor groups and endorsed by business schools, government and most of the economic community, although the idea that companies "are mere collections of assets to be handled with the purpose of maximizing shareholder returns" is criticized by some (in this case, the investor Warren Buffet).

Raw-material and energy costs are hard for corporations to cut. The cost that is vulnerable is the cost of labor. Real wages and benefits can be reduced, and if necessary, the existing labor force replaced.

In the past, this was difficult or impossible because labor was immobile, often in limited supply, and sometimes organized and politically powerful.

For the globalized corporation, the problem of labor costs is simplicity itself. You delocalize, outsource or transfer production offshore to the cheapest labor force available.

In this way, the greatest part of the value created in the corporation is taken away from the domestic labor force and awarded to stockholders and managers.

The overseas worker benefits, up to a point, and only so long as the outsourcing corporation does not relocate to another, cheaper source of labor.

The rest of the gained value trickles (or surges) upward to stockholders and managers. The one thing value no longer does is trickle down to domestic labor.

This nonetheless is celebrated as a progressive step, since the poor country supplying the new labor benefits; the American (or other) consumer benefits because the price of the product falls; and the original labor force is advised to retrain itself so as to obtain new and more sophisticated, high-value jobs in technologically innovative startup industries.

I will not bother to write about how simplistic this argument is. I want to make a point about the structural consequences of the new corporate model's exclusion of labor from receiving its fair share of the corporate value-creation to which it contributes.

The first is that this undermines the domestic market and economy. Henry Ford, after inventing modern industry with the assembly line, invented modern capitalist society by raising his workers' wages in 1914 to an unprecedented $5 a day.

He said that his business depended on his workers being able to buy the cars they were manufacturing. The modern industrial economy has rested on that principle - until now.

The domestic workers whose jobs are exported under the new corporate model cease to be consumers. The new U.S. federal reserve chairman, Ben Bernanke, concedes that "a growing portion of the population feels they are not sharing in the benefits" that American industry and trade produce.

The relative decline in the family income of workers during the years of deregulation and globalization has become notorious, to the point that workers in such champions of the new economy as Wal-Mart often depend on federal food stamps to live, and use hospital emergency rooms for basic medical care. No trickle-down there.

A corporate model that deliberately renounces responsibility for the well-being of its workforce hollows out the domestic consumer market and exports value by subsidizing what eventually will become its own competition.

China (and its counterparts) will not indefinitely allow transfer of most of the profits of its manufacturing industry to America. It is demanding much wider technology transfer.

The American economy cannot expect to prosper indefinitely without actually manufacturing or creating anything itself, other than investment value. The obvious eventual result of outsourcing production is the export of America's industry.

3. Enron's Good Fight -- by Paul Rogat Loeb

"We fought the good fight," Jeff Skilling said, standing strong after he and "Kenny Boy" Lay were convicted of defrauding Enron stockholders. But what an odd choice of words. I suppose Joachim von Ribbentrop and Attila the Hun could say the same thing, but fighting to stay out of jail is a small imperial dream. Skilling and Lay did authorize blitzkrieg-worthy raids on West Coast utilities, where Enron traders bragged about stealing from "grandma Millie," and jamming their $250 a megawatt hour power "right up her ass." And Enron did conquer the venerable Portland General utility, then leave it a hollow shell-I met a woman who'd lost her entire retirement. So maybe those were the fights Skilling referred to. But these opponents barely put up a struggle.

Maybe Skilling was talking about political battles. Enron lobbied through the laws that opened California up to utility deregulation, then gouged the state's utilities for every possible cent, and sent them to edge of bankruptcy. If low-income rate-payers couldn't afford the costs or social needs went unmet because of the need for bailouts, that was someone else's problem. Enron also served as George W. Bush's single largest donor, even lending him their private plane to campaign in, and their accounting firm, Arthur Andersen and their law firm, Vinson & Elkins, were close behind. In return, Bush appoint the man Ken Lay recommended to head the Federal Energy Regulatory Commission, replacing an earlier chairman who'd begun to question Enron's financing schemes. When California officials pleaded for price caps in the face of skyrocketing manipulated prices, the FERC and Bush enabled Enron to make hundreds of millions of dollars more by refusing to help.

Enron also fought the good fight internationally. As described by Indian novelist Arundhati Roy, Enron overcame massive popular opposition to build a power plant in the State of Maharashtra, contributing endless dollars to local officials until they finally agreed, and locking the province into a $30 billion contract. When the plant went on line, the electricity, as predicted by the critics, was so costly that the government decided it was cheaper not to buy it, but to pay the mandatory fixed charges of $220 million a year to produce nothing.

I don't claim to know the soul of Skilling or Lay, or to understand how as America was still mourning 9/11, these men who had more money then most of us could ever imagine, rationalized pulling their stock out of the company while destroying the futures of tens of thousands of employees and stockholders. Enron was strong, Lay told his employees, at the time. If they all persisted and stood together, he said, they'd prevail. So he advised them not to sell what they had, but in fact to buy more, even as he dumped millions of dollars of his own stock. Enron's employees then watched helplessly as their future melted away.

"We fought the good fight," gives us a clue to how Skilling and Lay could do this, as does Lay's sanctimonious talk of how "God, in fact, is in control and indeed he does work all things for good for those who love the Lord."

It was all a grand game, like the games played by all those who wheel and deal in the destiny of other people's lives. Lay and Skilling needed no heroes. They made themselves their own Gods and worshipped their own soaring ascent. The actual people whose worlds were shattered by Enron's legacy were invisible and expendable.

(Paul Rogat Loeb is the author of " The Impossible Will Take a Little While: A Citizen's Guide to Hope in a Time of Fear," named the #3 political book of 2004 by the History Channel and the American Book Association, and winner of the Nautilus Award for best social change book of the year. His previous books include " Soul of a Citizen: Living With Conviction in a Cynical Time." See . To get his articles directly email with the subject line: subscribe paulloeb-articles)


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