Commentary: And the Enron Award Goes to...Enron
At its peak, Enron Corp.'s name was everywhere. Enron Field, renamed a couple of months ago, was home to the Houston Astros baseball team. There was the Enron professor of economics. And let's not forget the Enron Prize for Distinguished Public Service, given to such well-known honorees as now-Secretary of State Colin Powell and Federal Reserve Chairman Alan Greenspan.
Now, I'd like to propose an annual award that will simply be called the Enron. The award--and the accompanying trophy, a gold statuette of Enron ex-Chairman Kenneth L. Lay--will go to the company whose actions did the most to undermine capitalism and free markets in the preceding year. In its inaugural year, the Enron Award, to be nicknamed the "Kenny Boy," will go, of course, to Enron.
Clearly, Enron richly deserves the honor. Since last fall, a continual stream of revelations about Enron's deceptive financial reporting has played a decisive role in making investors wary of corporate accounting and the stock market in general. Moreover, many Americans started questioning the safety of their retirement savings after Enron's workers took devastating losses in their 401(k) plans--the result, in part, of Enron not allowing them to sell the company stock that Lay and other executives had encouraged them to buy.
Now comes the latest outrage: documented evidence that shows the company really did help create the California power crisis in 2000 and 2001. By manipulating the electricity market, Enron was able to boost prices and profits artificially, even as Lay was blaming regulators for the crisis.
Enron consistently acted in ways that struck directly at the heart of the New Economy. The New Economy depends on innovation and markets, rather than the status quo and government regulation. Growth rests on investors, workers, and customers being willing to take financial and technological risks. Investors have to be willing to put their money into stocks, to fund cutting-edge investment. Workers have to be willing to accept flexible pay as part of their compensation. And customers have to trust that deregulated companies are not taking advantage of them.
In effect, there has to be an implicit moral contract to make the New Economy work--and what Enron did was violate that moral contract. Not only did the company's executives manipulate markets, they misled the public and their own employees over and over again--not just about the electricity markets, but about the company's debt and the prospects for the company's stock as well. It's very hard for anyone to justify taking risks when they feel they are being lied to, cheated, and deprived of essential information.
Those actions alone were damaging enough. But the sheer hypocrisy of Enron executives like Ken Lay and Jeff Skilling--who were almost evangelical about the virtues of the markets--has also added to the cynicism now widely felt toward Corporate America. As a result, Americans will be understandably less willing to accept similar claims in the future.
That's especially true when it comes to power deregulation. Persuading consumers to forgo the protection of government and put their trust in the marketplace can be trying in the best of circumstances. It becomes far more difficult when internal Enron memos show convincingly that the company manipulated prices.
The strategies detailed in the memos are a blueprint for ripping off California ratepayers through maneuvers with such code names as "Death Star" and "Get Shorty." One memo, for example, prepared by an attorney working for Enron, says the company was paid by the state of California to relieve congestion on California's transmission lines "without actually moving any energy or relieving any congestion."
Deregulation proponents fear that Enron's alleged wrongdoing will kill the political support for free markets. Pointing to the transmission grid that includes Pennsylvania, New Jersey, and Maryland, Lawrence J. Makovich, senior director at Cambridge Energy Research Associates, says that deregulated power markets can work well. But he worries that news of Enron's actions will lead people to say regulation is "the lesser of two evils."
There are certainly other worthy contenders for the 2002 Kenny Boy award: Arthur Andersen, Global Crossing, and Qwest all get honorable mentions. So does Merrill Lynch & Co. for its analysts' behavior. But this year, make no mistake, Enron wins hands down.
By Michael J. Mandel
With Wendy Zellner in Dallas