Enron Was No Friend To Free Markets
by Jerry Taylor (From the WSJ - Jan. 21, 2002)
cato.org
Jerry Taylor is the director of natural resource studies at the Cato Institute.
While it's still unclear exactly what caused the implosion at Enron, ideological playwrights are already busily casting the company in the starring role for their pet political morality plays. The most common scripts being written have cast Enron CEO Ken Lay as Adam Smith on steroids and the corporation itself as the avatar of irresponsible, run-amuck capitalism.
Those of us who've been involved in the energy debates of the 1990s know different. Enron was less the 21st-century incarnation of Robber Baronry than it was the latter-day inheritors of the mantle worn by Archer-Daniels Midland, the corporation that would hardly exist were it not for government favor and regulatory help.
Enron is most famously known for pioneering wholesale electricity and natural gas trading. Since ending the legally protected franchises that utilities had on those services was a prerequisite for Enron's strategy, the company lobbied aggressively for competition and "consumer choice" for gas and electricity services.
But while donning the garb of Ronald Reagan on the one hand, the company was donning the mantle of Ralph Nader when it came to the transmission and distribution side of the energy business. Enron, you see, was worried that the incumbent utilities would either under-price the non-utility competitors that Enron wanted on their trading floors or, alternatively, would charge such high prices for access to their transmission systems that non-utility gas and electricity providers would be unable to effectively compete for business.
So Enron insisted that electric utilities be forced by law to get out of the generation business, that strict price controls be set for the rates charged for access to the various transmission grids, and that the day-to-day operation of the electricity distribution systems be handed over to state officials who were directed to govern those systems at the behest of the system's "stakeholders" (read: Enron and friends). So Reaganite competition, according to Enron, required new micromanagerial rules about industrial organization and the de-facto nationalization of the transmission systems by officials who'd have to answer to Enron.
Many times over the past decade I found myself in meetings or on conference panels with Enron officials. On each and every occasion, the "jungle capitalists" from Houston were apoplectic over arguments that the grid should be deregulated like the wholesale power markets. They also ranted against the idea that companies should be able to charge whatever they wished for access to their property, that the grids should be left in private hands, or that government cannot know a priori how best to organize private enterprises and should thus refrain from imposing arrangements on the market.
While most legislators got a full dose of Enron's regulatory agenda, some were hearing from the company that, well, grid owners should be left alone to do as they wanted. Those legislators, however, came from regions where Enron had managed to buy the transmission systems in question before the debate was settled. So officials from Texas, Louisiana, and various parts of South America in charge of the gas pipelines that Enron had bought were hearing one story while the rest of the political world was hearing another.
That pattern of regulatory opportunism extended virtually everywhere, but perhaps no more so than on the environmental front. Enron, for instance, managed to pick up several near-bankrupt wind and solar power companies over the years and treated them like political lottery tickets. Wherever Enron went, pious campaigns for the virtues of renewable energy subsidies (in effect, subsidies for Enron) were sure to follow.
Likewise, Enron saw spectacular business opportunities in the trading of greenhouse gas emission permits and accordingly argued for aggressive action to address global warming. And given that natural gas would be less disadvantaged by carbon emission controls than would competitor fuels like coal and oil, Enron was more than happy to link hands with nearly every environmental activist that crossed its path to undertake war against America's carbon-based energy economy.
Whether it was de facto support of the Kyoto Protocol, the outspoken embrace of Clinton's proposed BTU tax (which would give Enron a competitive advantage in the marketplace), or the occasional attempt to secure a tax on oil imports (necessary back in the 1980s to save one of its pipelines in Florida), Enron was more than happy to hammer energy consumers with the power of government to fatten its own bottom line.
While Enron was adept in putting together these coalitions to expand the regulatory state, it was no slouch at more conventional raids on the public treasury. Since 1996, for instance, Enron managed to bag $450 million to underwrite its investments in India, Brazil, and Guatemala through the auspices of the taxpayer-financed Overseas Private Investment Corporation. Another $135 million was liberated from the Export-Import Bank over that same period to underwrite Enron's investments in Venezuela. There was virtually nothing that the corporation did that wasn't worth a handout from the taxpayers, according to Enron lobbyists.
On balance, Enron was an enemy, not an ally, of free markets. Enron was more interested in rigging the marketplace with rules and regulations to advantage itself at the expense of competitors and consumers than in making money the old fashioned way -- by earning it honestly from their customers through voluntary trade. Indeed, Enron would probably still be a small-time pipeline company were it not for the statist conceit that consumers are better off under the regulatory boot of government than with the invisible hand of the marketplace. There's a morality play here all right, but it's the opposite from that being readied for a political theater near you. |
