James K. Galbraith
Enron and the Next Revolution
“It is true, so long as no change of base is made, what is confidently to be looked for is a régime of continued and increasing shame and confusion, hardship and dissension, unemployment and privation, waste and insecurity of person and property–such as the rule of the Vested Interests in business has already made increasingly familiar to all the civilized peoples.”
Nowadays there are three classes in America: working people at the bottom, professionals above them, a tiny elite at the top. Democrats represent the professionals, Republicans represent the CEOs. No one, much, speaks for working people, who must rely on the occasional sympathy of leading Democrats for most of the little they get.
Our politics accordingly mirror corporate life, with an opposition out of Dilbert, grumpy but ineffective. Thus, after the 2000 election Democrats abandoned the black voters of Florida, disenfranchised by tens of thousands. In the tax-bill looting that followed, there was just enough grease for the upper middle to buy their silence. Meanwhile raids on work safety, on the public schools, on unions, and the attempt to demolish Social Security fell on the lower orders. In each case, the aim was elite enrichment, amid the indifference of the professional class.
Enron could change that. In details complex, the scandal is essentially simple. A handful of rich men, closely tied to the Texas Republican Party led by George Bush and Phil Gramm, decided to become richer still. Their grand strategy included deregulation of energy, deregulation of derivatives, corrupt accounting practices, overseas tax scams, U.S. diplomatic pressure (delivered by Dick Cheney himself, on India, where Enron had sold a white elephant power plant). And then, as the game unwound, they sold their own stock while freezing employee pension accounts. In the end the gang made off with over a billion dollars, that we know of.
Enron’s real business was politics. Energy deregulation (written in Cali-fornia especially to the taste of hucksters) helped create the web of commodities in which Enron traded. Deri-vatives deregulation (courtesy of Gramm and Richard Armey) shielded that market from review. Consulting contracts to the auditors bought complicity; payments from auditors to politicians fended off the SEC. Enron paid for favors promptly: $100,000 to the Democrats in 1997 to push the Indians around, $25,000 to Texas Governor Perry one day after Enron’s Mexico chief got to run the Public Utilities Commission in Texas. Wendy Gramm, who moved smoothly from the Commodity Futures Trading Commission to chair Enron’s audit committee, got nearly two million. We still don’t know exactly what Enron contributed, in intellectual terms, to Cheney’s energy policy, or to Paul O’Neill’s defense of overseas tax shelters. But they paid well for it: Over time, the big boss George Bush got over $600,000 in Enron cash. That we know of.
Enron reveals, for the first time, just how rot at the top can cut against professional interests. Those were not only small fry, but modest millionaires in some cases, who lost their 401(k)s. A professional’s pension can’t be replaced. And there is nothing a hardworking middle manager fears more, than to end up on Social Security like ordinary folk.
The Administration proudly refused to intervene on Enron’s behalf once bankruptcy loomed. But here’s the catch. They weren’t asked to. Their friends had already cashed out by then. Saving the professionals, or the company, was not on anyone’s agenda.
White House economist Larry Lindsey (an Enron consultant, $50,000) reviewed the risks of the great bankruptcy to the economy at large. He concluded these were small; he may not be wrong. Most of the direct damage landed on a few thousand people in Houston.
But we shouldn’t be entirely sure. Modern corporate America runs on the collaboration of professionals with the elites. In big and small ways, managers, accountants, lawyers and engineers make the system work. In each firm, they have to trust that the big boys are not stealing from them. And they control–through their pension funds–vast sums which they must also entrust back to corporate America, through the stock market.
Before1988, the professionals of Japan also felt that by working and saving, borrowing and investing, everyone would get rich. The crash of that year taught otherwise. The Japanese middle classes felt betrayed, because they were betrayed. Their money, what was left of it, went back under the mattress, where it remains. Japan has not recovered in fourteen years.
Now suppose that American professionals come to feel the same way? The economist Thorstein Veblen, back in the days of Teapot Dome, wrote that the revolution here would not be led by workers. Rather, revolution could only come to America in the hands of technicians, “the General Staff of the industrial system,” a normally contented class, “harmless and docile,” in ordinary times. The technicians however, held the real power. And they might, someday, realize that the absentee landlords, the Vested Interests, and their political lackeys, serve no productive function.
Enron just might start a chain of events that could, in time, prove Veblen right.
James K. Galbraith’s latest book is Inequality and Industrial Change: A Global View. This article first appeared in Newsday.