Learning From the Enron Moment
By E. J. Dionne Jr., The Washington Post, Friday, January 18, 2002
"If men were angels," James Madison wrote in No. 51 of the Federalist Papers, "no government would be necessary."
It is one of the most celebrated quotations in American history, and yet it takes some large event every generation or so to remind us how right Madison was. The Enron Moment is a great catastrophe, especially for the thousands of workers bilked out of their life savings. But it is also an opportunity to sweep aside the sanctimonious cant upon which a generation's worth of political arguments were built.
Are markets always self-regulating? No.
Is deregulation always the answer? No.
Are capitalists always well-behaved and public-spirited? No.
Can we ignore the effect of our campaign money system on politicians? No.
Can we be indifferent to the undue influence that certain big companies have on our government? No.
Can rank-and-file employees do without the protections of law against the abuses of more powerful actors in the marketplace? No.
In the boom years, many chose to forget the simple genius of the American proposition. It is rooted in what economist John Kenneth Galbraith saw as a system of "countervailing power." We put limits on government because we don't want it to dominate our lives. But, in turn, we rely on government to check concentrations of private power. Americans have always been suspicious of excessive power residing anywhere -- in government or in parts of the marketplace.
It's true, of course, that Enron went down and that this will be seen by some as the marketplace doing its excellent work of "self-policing." But don't try to sell this view to Enron employees or investors who relied on the "self-policing" of private accounting firms and thought Enron's numbers were on the level.
Smart capitalists have always understood that the system works only if there are strong rules to guarantee honest information and to check corporate misbehavior. As Madison might have put it, if capitalists were angels, we could deregulate everything. But capitalists are no more angelic than anyone else.
Some members of Congress will thus have to answer for their success in blocking the efforts of Arthur Levitt, the former chairman of the Securities and Exchange Commission, to impose rational restrictions on accounting firms. Levitt -- boy, does he look good now -- thought it a mistake for firms to do both auditing and consulting work for the same client. Levitt also has argued recently that publicly traded companies need to include genuinely independent members on their corporate boards of directors. Otherwise, no one on the inside is keeping the big boys honest.
And speaking of transparency, the public needs to know more than it does about how corporations such as Enron influence government policy. That's why Vice President Cheney should disclose all the details about his consultations in formulating the administration's energy plan.
Full disclosure by the energy task force was once a Democratic cause championed by Rep. Henry Waxman of California. Now, many Republicans know the administration will only deepen public suspicions if it keeps holding back. "It is just basic information that should be provided and isn't all that big a deal," says Rep. Christopher Shays, a Connecticut Republican, "except for the fact that the administration doesn't want to share it, which makes it a big deal."
And those who oppose trying to limit the influence of money on politics should consider Attorney General John Ashcroft's decision to recuse himself from the Enron case because he had received campaign contributions connected to Enron. The Justice Department explained the recusal in a nicely inclusive phrase, referring to "the totality of the circumstances of the relationship between Enron and the attorney general."
If we're worried about how contributions might affect -- or be seen to affect -- Ashcroft's behavior as attorney general, shouldn't we also be worried about how contributions (or is it "the totality of the circumstances"?) might affect the behavior of members of Congress? Should there really be such a huge difference between the standards we'd impose on John Ashcroft, attorney general, as opposed to John Aschroft, United States senator?
What, finally, will President Bush do about the Enron Moment? The question here goes beyond the usual scandal investigations: Has this financial catastrophe changed any of the president's views on the energy industry and how it should be regulated, or on corporate abuses and how they can be prevented? The real scandal would be to allow the Enron Moment to pass without its teaching us that Madison was right all along.
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