Enron is Business as Usual

By Jonathan Wallace jw@bway.net

In 19th century French novels, such as those of Balzac and Flaubert, everyone commits adultery with impunity, and yet a few people are punished, even destroyed, for doing so. The only difference between them and the people who get away with it is that the latter have "cover"; they commit their crimes and sins within the structure of a society which makes an agreement with them: "Do what I ask, be discreet, don't overdo it, don't get out on a limb for any reason, and we will take care of you." The people who are destroyed have one thing in common: they all get themselves into a position where society no longer can protect them--or no longer wants to.

The cheating at Enron is the modern equivalent. It is easy to imagine the private but intense annoyance of the Enron executives, who are thinking like old-time Gallic adulterers: "This isn't fair. Everyone's doing it. So I did it a little more imaginatively, with a little more flair. No-one told me I could lose everything as a result." But they failed to read the fine print on the social contract.

Nothing about the Enron scandals is particularly new except how aggressive the book-cooking was. Companies have engaged in the creative structuring of their financial statements since there were companies. Accounting firms have fallen into the consulting/auditing trap for many years. Papers have been shredded before and employee pension plans have been decimated.

Still, Enron makes a good case study--a neat litle summary, all the threads united in one story--of how business subverts itself while also subverting democracy. As I wrote here in 1997:

[A] really healthy business should be a partnership among four constituencies: the owners, the employees, the clients and the general public.... If we began the business day with a philosophy that we are all inextricably woven together, that all are ends and not means, and that nothing is essentially good for the shareholders unless it is good for all four groups, we can make money while creating value--financial and intangible--for other people.

I looked at the dark side in another essay a year earlier, in which I described democracy and capitalism as a bull and a lion pulling a sled together. They are unlikely to pull together effectively even before one decides to eat the other.

[O]nly democracy encourages us to take [the optimistic, long term] view. Capitalism takes the opposite tack. Capitalism is inherently pessimistic or nihilistic. It is always, "things are about to fall apart, so let me take mine now," or "I will take mine, and the rest will take care of themselves."

Capitalism's enshrined selfishness only has full freedom of action if it can block the democratic process from getting in the way. The mechanism it uses to accomplish this is called campaign finance. Enron contributed to everyone--to President Bush, to Al Gore, to almost every senator now responsible for investigating the company's downfall, to 212 members of the House of Representatives. The spectacle of people recusing themselves from Enron investigations, from Attorney General John Ashcroft on down, is a quite remarkable one. Of course, congresspeople unabashedly tangle themselves in conflicts that legal officials must avoid. If everyone who had touched Enron money recused themselves, there would be almost no-one left to carry on the business of government. So we have the sordid spectacle of a purchased government investigating a scandal in which it is deeply implicated.

These kinds of spectacles will recur for so long as we live by the easy morality of old-fashioned French adultery rules. If we lived our government and our businesses with a better heart, if we endorsed truth and the long term view in both and honored the four constituencies of every business, we could do a much better job. And so long as we do not have better values, we will have thieves in office and in offices. The law can do little to change the human heart in any event. It does even less when enforced so selectively that its victims can validly complain that they thought they were just doing the same as everyone else. What we are seeing is not a legal or accounting problem, but a values problem, and it can only be cured by a major intervention at that level. That is easy medicine to prescribe, but hard to swallow; but then it is only hard to swallow because we are so attached to the disease.