Enron: the end of capitalism as we've known it


                By MADELEINE BUNTING
                Tuesday 29 January 2002

                It's hard to overstate the enormity of the impact of Enron's implosion. The
                biggest corporate collapse in US history is now dragging politicians,
                banks, accounting firms, other corporations, pension funds, investment
                analysts, the reputations of so-called business experts and millions of
                investors into an astonishing vortex where they risk losing billions of
                dollars and some of the most trusted reputations in corporate America.

                It claimed its first death last week - a multi-millionaire former Enron
                executive was found dead in his Mercedes beside an "explosive" suicide
                note. John Baxter was facing a class action from former Enron employees
                whose share certificates, once worth millions, are now being traded on
                the Internet as souvenirs of the catastrophe. Baxter stood to lose his
                Mercedes, his Enron mansion, and everything.

                With at least 10 investigations beginning work on Enron, we have
                glimpsed only a fraction of what will be the repercussions of this
                corporate disaster. The main focus of interest so far has been the stench
                of political corruption: can anything be pinned on the Bush
                administration? For the first time in history, the US Congress is suing the
                White House to find out the exact details of the cosy relationship
                between "Kenny boy" (Kenneth Lay, chief executive of Enron) and
                Vice-President Dick Cheney, which produced $US326million
                ($A630million) for the Republican party over three years.

                Enron provides a textbook case of how corporate power subverts the
                political process in whatever country it operates, through donations to
                political parties combined with intensive lobbying. It's mucky stuff, and
                heads will roll, but it's also a very familiar theme. What makes Enron such
                an extraordinary story is that it spells the end not just to some nasty
                pork-barrel politics but to an ideologically driven, vicious corporate model
                that was rippling from its Houston base across the globe.

                This vision of a Darwinian dog-eat-dog market drove Enron's political
                campaign for privatisation and deregulation. Its pitch rested on a
                near-fundamentalist faith in the self-regulating efficiency of the market;
                true believers claimed there were simply no limits to its application. To
                Enron's legion of admirers on Wall Street, in the Harvard Business School
                and elsewhere, it epitomised the free-market philosophy that emerged in
                the US and shaped the Thatcher-Reagan era before being exported to the
                developing world under the aegis of World Bank and IMF deregulation
                and privatisation programs ever since.

                The anti-corporate movement's struggle to assert that the world is not
                for sale - and certainly not to the casino gambler types of Enron - has had
                a massive shot in the arm from Enron's demise. Plenty will drive that point
                home at the World Economic Forum in New York this week. Just how
                much of that free-market fundamentalism, if any, will survive Enron will be
                a key theme. The tide began to turn against deregulated free markets
                after the Californian blackouts, in which Enron played a notorious role.
                Now it's in full flood. Re-regulation is back on the agenda and in the US its
                remit will run from accounting procedures, power supplies and all other
                public utilities to pension provision.

                Let's be optimistic and predict that Enron will come to be seen as the
                high-water mark of the state's retreat before deregulated corporate
                power. There are plenty of Ohio teachers who have lost their pensions to
                drum home the point, not to mention Enron pensioners now dependent
                on social security. But these hard-luck stories are just one part of a
                spectacle of unprecedented corporate humiliation: egg on famous faces
                all round the US. The list is long of management experts, business school
                professors, journalists and Wall Street analysts who fell over themselves
                to lavish praise on the radicalism and innovatory brilliance of Enron. These
                are allegedly some of the cleverest people in the US, and almost all were
                duped by the emperor's new clothes.

                Only a year ago, Fortune magazine, which ranked Enron as the most
                innovatory company in the US for six consecutive years, admitted that it
                was "largely impenetrable" to outsiders and it was impossible to answer
                even a basic question such as how it made its money. Fortune brushed
                aside its reservations, blithely concluding that "in the end it boils down to
                a question of faith".

                Most intriguingly, Enron fooled the vast majority of its employees. Alleged
                whistleblowers came very late in the day. It boasted of hiring the
                brightest MBAs in America - 250 a year. It generated a corporate culture
                that was intensely competitive (10per cent were weeded out every year in
                a "rank and yank" performance review process). A turbo-charged
                workaholism left no room for dissent or even doubt. One former executive
                likened Enron to the Taliban.

                Enron prided itself on the daredevil entrepreneurial freedom it cultivated
                among its youthful employees who could rise at dizzying speed. Andrew
                Fastow, architect of the off-balance-sheet debts, was 36 when he was
                made chief financial officer.

                Enron became the example par excellence of how, in the late '90s, US
                corporate culture hijacked and inverted '60s radicalism. Business guru
                Gary Hamel praised Enron's "activists" who saw themselves as
                "revolutionaries". They lived the rule of "creative destruction" in which all
                conventional assumptions were to be challenged. In their adverts, they
                had the cheek to liken themselves to Gandhi and Martin Luther King. It
                bred a culture of breathtaking arrogance that Enron could do the
                impossible.

                The most astonishing piece of the puzzle is why the Enron "activists" were
                believed by everyone even when their balance sheet was no longer
                understood. In part, it was presumably greed as the share price soared
                1700per cent in 16 years. In part, it is down to the bizarre millennial fever
                of the late '90s, which bamboozled many into believing that the Internet
                had revolutionised all business and that nothing was going to be the
                same again. As such, Enron was the biggest of the dot-bomb explosions.

                With any luck, Enron has finished off a pernicious ideology that markets
                with minimal regulation are an effective way to organise and deliver the
                public interest and that they develop organically the self-correcting
                mechanisms to ensure its smooth functioning. Instead, we have
                witnessed how market capitalism can throw up an astonishing charade of
                greed, ambition, stupidity of even the cleverest, and irrationality. 

                - GUARDIAN

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