The collapse of Enron has cast revealing light not just on the venality of business leaders, auditors and politicians but on the contours of deregulated ‘Anglo-Saxon’ capitalism as it has emerged from the stock-market bubble. It has highlighted, too, the vulnerability of the broad layers whose pensions are tied up in the savings regime so integral to the neoliberal economy. The debacle has affected not only Enron’s employees but tens of millions of holders of 401(k) and defined-benefit retirement schemes. The greed of the Houston-based directors, and their willingness to cash in huge stock options as the company went down, was matched by many senior executives elsewhere—perfectly illustrating that the capital which they and other major shareholders dispose of possesses different rights and qualities to the savings of their employees. The impotence of Enron’s workers, and of all those whose pensions were tied up in the company’s shares and bonds, was part of the normal working of today’s savings regime.

Enron’s demise was significant not just because of its size—other concerns failing at the same time, such as K-Mart or LTV, had more employees and pensioners—but because it had represented the cutting-edge of neoliberal corporate strategy, living proof that financialization and deregulation were the wave of the future. It was this that made a tireless booster of neoliberalism such as Paul Krugman so proud to be on the company’s payroll (see below). Enron was far more interested in maximizing trading opportunities than in the unexciting business of producing electricity. Its momentum came not from productive investment, innovation or even skill in arbitrage, but from financial engineering. By 2001, however, the profits it was making even on its trading activities were being squeezed by rivals—the result, perhaps, of having been first in the business. Its relentless pressure for deregulation reflected a wish to escape competition by opening up new pastures.

Text from Paul Krugman's 'Fortune', May 1999, entitled 'the ascent of e-man'. Text reads: The retreat of business bureaucracy in the face of the market was brought home to me recently when I joined the advisory board at Enron—a com- pany formed in the 80s by the merger of two pipeline operators. In the old days energy companies tried to be as vertically integrated as possible: to own the hydrocarbons in the ground, the gas pump, and everything in between. And Enron does own gas fields, pipelines, and utilities. But it is not, and does not try to be, vertically integrated. It buys and sells gas both at the wellhead and the destination, leases pipeline (and electri- cal-transmission) capacity both to and from other companies, buys and sells electricity, and in general acts more like a broker and market maker than a traditional corporation. It's sort of like the diference between your father's bank, which took money from its regular depositors and lent it out to its regular customers, and Goldman Sachs. Sure enough, the compa- ny's pride and joy is a room filled with hundreds of casually dressed men and women staring at computer screens and barking into telephones, where cubic feet and megawatts are traded and packaged as if they were financial derivatives. (Instead of CNBC, though, the television screens on the floor show the Weather Channel.) The whole scene looks as if it had been constructed to illustrate the end of the corporation as we knew it. What happened to the man in the gray flannel suit? No doubt he was partly a victim of sex (er, I mean gender) and drugs and rock & roll- that is, of social change. He was also a victim of information technology, which ended up deconstructing instead of reinforcing the corporation. But probably the biggest force has been a change in ideology, the shift to pro-market policies. It's not that government has vanished from the marketplace. It's still a good guess that, in a completely unregulated phone market, long-distance companies would buy up local-access com- panies and deny their customers the right to connect to rivals, and that the evil empire or at least monopoly capitalism-would rise again. However, what we have instead in a growing number of markets-phones, gas, elec- tricity today, probably computer operating-systems and high-speed Net access tomorrow-is a combination of deregulation that lets new com- petitors enter and 'common carrier' regulation that prevents middlemen from playing favorites, making freewheeling markets possible. Who would have thunk it? The millennial economy turns out to look more like Adam Smith's vision-or better yet, that of the Victorian economist Alfred Marshall-than the corporatist future predicted by gen- erations of corporate pundits. Get those old textbooks out of the attic: they're more relevant than ever.

Formed from a 1987 merger between Houston Natural Gas and Internorth, two natural-gas pipeline companies, Enron lobbied for and profited from the 1990s deregulation of gas and electricity prices, transforming itself from power provider to energy broker in an operation that stretched across four continents. By the end of the decade Enron dominated the energy ‘spot’ and futures markets, as well as offering over 3,000 other futures and derivatives contracts on everything from fibre-optic cable capacity to the weather. In July 2001 Fortune ranked it as the seventh largest US corporation by turnover, based on reported revenues for the previous year. After the new technology boom failed, Enron’s stock continued to rise on the basis of its apparently strong revenues and profitability. It now appeared to combine the best of ‘old’ and ‘new’: not a dot.com start-up but a company that owned tangible assets—pipelines, power stations, reservoirs and the like—as well as enjoying vast revenues from its trading business.

It was Enron’s extensive political connexions, meshed with those of its auditors-cum-consultants Arthur Andersen, that ensured the smooth passage of a series of deregulations throughout the 1990s. Kenneth Lay, the company’s chairman, famously distributed largesse to politicians of all parties. In January 1993, during the dying days of the first Bush administration, Commodity Futures Trading Commission chief Wendy Gramm, wife of Senator Phil Gramm, pushed through at Enron’s request the rule change that explicitly excluded energy derivative contracts and interest-rate ‘swaps’ from government supervision, opening the way for the company to speculate freely in energy futures. Ms Gramm was given a seat on Enron’s board. Under the Clinton administration, donations of nearly $2 million to Democrat causes won the company over $1 billion in subsidized loans. Lay—who played golf with the President and slept in the Lincoln Bedroom—was hailed by Clinton at a White House function in May 1996 as a good ‘corporate citizen’ on the basis of his company’s enlightened personnel policies, which included profit-sharing of Enron stock and generous health and pension benefits.footnote1 On 12 November 1999 Clinton signed into law the Gramm–Leach–Bliley Act, the culmination of the financial deregulation process, repealing the Glass–Steagall Act of 1933.

George W. Bush, in turn, received half a million dollars in campaign contributions. Senior members of his administration, including his economic adviser and Army Secretary, were also on Enron’s payroll. In the wake of the 2000 California energy crisis, Bush set up a task force on energy policy with the Vice President at its head. Cheney—with the President’s endorsement—is currently refusing to turn over documents about his engagement with Enron, but other sources have revealed that company officials met with the task force on six different occasions, and played a key role in shaping its conclusions. (Sample: ‘Direct the Energy Secretary to work with the FERC [Federal Energy Regulation Committee] to relieve transmission constraints by the use of incentive rate-making proposals’.) Kenneth Lay supplied a list of nominees to serve on the FERC, two of which were duly appointed, one of them as chair.footnote2

When the US Congress came to investigate the company’s collapse it transpired that, of the 248 members of Congress who sat on the eleven House or Senate committees involved in the inquiry, no fewer than 212 had been in receipt of money from either Enron or Arthur Andersen.footnote3 The latter, too, had lobbied energetically and successfully in both Washington and London to block legislation that would have forbidden auditors to earn consultancy fees from their clients—with help from, among many others, Senator Joseph Lieberman. In the UK, Arthur Andersen composed a highly positive report on New Labour’s cherished Private Finance Initiative for the Treasury and subsequently received a large contract for a government-sponsored PFI to break up the London underground system (a project strongly opposed by the capital’s elected mayor).

These two companies were held in the highest official esteem not despite, but because of, their skilful practice of crony capitalism. Together they helped make the political weather. Why then, when Enron filed for bankruptcy in December 2001, was no attempt made to organize a bail-out similar to that mounted for Long Term Capital Management in 1998?