The Great Divide
The New York Times
January 29, 2002
By PAUL KRUGMAN
It was a shocking event. With
incredible speed, our
perception of the world and of
ourselves changed. It seemed that
before we had lived in a kind of
blind innocence, with no sense of
the real dangers that lurked. Now
we had experienced a rude
awakening, which changed
everything.
No, I'm not talking about Sept. 11; I'm talking about the
Enron scandal.
One of the great clichés of the last few months was that
Sept. 11 changed everything. I never believed that. An
event changes everything only if it changes the way you
see yourself. And the terrorist attack couldn't do that,
because we were victims rather than perpetrators. Sept.
11 told us a lot about Wahhabism, but not much about
Americanism.
The Enron scandal, on the other hand, clearly was about
us. It told us things about ourselves that we probably
should have known, but had managed not to see. I predict
that in the years ahead Enron, not Sept. 11, will come to
be seen as the greater turning point in U.S. society.
Quite a few people have belittled the significance of the
Enron affair - not just Treasury Secretary Paul O'Neill,
with his unfortunate remark about how "companies come
and companies go," but commentators who don't think a
failed business is that much of a story. Think of it this
way: The business of most Americans is business, and
Enron already ranks as one of the biggest business
scandals in history. There have been other big, admired
companies that failed; there have been other companies
that turned out to be largely fraudulent. But I can't think
of another case in which the most admired company
turned out to be a fraud.
So even if the story turns out just to be about Enron, it
has been an object lesson in how appearances can
deceive. And I don't think this is just a story about one
company.
Before Enron collapsed, the economic story of the last few
years seemed more of a comedy than a tragedy. Yes, many
people lost money, but they did so because they were
foolish - they bought stock because they believed New
Age economic drivel, or because they thought William
Shatner made great ads.
Now the story looks vastly darker. People didn't deceive
themselves; they were deceived.
It's true that Enron got a lot of mileage out of the same
kind of new- economy jargon that fed the dot-com bubble
- for example, former C.E.O. Jeffrey Skilling liked to say
that the company was "virtually integrated."
But despite the high-tech veneer, the structure appeared
solid: Enron wasn't a profitless dot-com, run by crazy kids.
It seemed to be a company with a proven track record. Its
executives seemed to be smart but solid, personable men.
It seemed to be a company with a great work ethos, a
sense of mutual loyalty. Then it came apart at the seems.
So now what? At the moment, demands for reform are
scattershot and confused. Some people want new rules for
401(k) plans; some want new rules for accountants; some
want campaign finance reform; some want a return to
regulation. These seem like unrelated agendas, but I
think they have a common theme: They're all about
ending an era of laxity, in which nobody asked hard
questions as long as everything looked O.K. That era is
now over.
The political speculation right now focuses on who will
take the blame for what happened. I admit it: that's a very
interesting question. But I suspect that for those who are
not directly implicated - and most politicians won't be -
what will matter is not what they did but what they do. Do
they act as if they get it - that they understand that the
old laxity is no longer acceptable?
Clearly, Dick Cheney doesn't get it: He thinks, after all
that has happened, that we should just trust his
assurance that energy companies did not distort his
energy plan. Clearly, Harvey Pitt , chairman of the
Securities and Exchange Commission, doesn't get it: I
don't pretend to understand the institutional issues in
accounting reform, but everyone I know who does regards
his supposed reform plan as ludicrous. Clearly, Marc
Racicot doesn't get it: He thinks that we should just trust
him when he says that he won't lobby as chairman of the
Republican National Committee, even though his former
lobbying firm will pay his salary.
Does Tom Daschle get it? Will George W. Bush get it? The
answers to those questions may well decide their, and the
country's, political future. Enron, I predict, will turn out to
have changed everything.
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