James Galbraith on Enron

["Ian Murray" <seamus2001@xxxxxxxxx>]

[Yes, please..............]


Published on Friday, January 25, 2002 in the Long Island, NY
Newsday
Enron May Spark Revolt of Professionals
by James K. Galbraith

NOWADAYS there are three classes in America: working people at the
bottom, professionals above them, a tiny elite at the top.
Democrats represent the professionals, Republicans represent the
CEOs. No one, much, speaks for working people, who must rely on the
sympathy of leading Democrats for most of the little they get.

Our politics accordingly mirrors corporate life, with an opposition
out of "Dilbert," grumpy but ineffective. Thus, after the 2000
election, Democrats abandoned the black voters of Florida, who were
disenfranchised by the tens of thousands. In the tax-bill looting
that followed in Congress, there was just enough grease for the
upper middle to buy its silence. Meanwhile, raids on job safety, on
the public schools, on unions, and the attempt to demolish Social
Security fell on the lower orders. In each case, the aim was elite
enrichment, amid the indifference of the professional class.

Enron could change that. In details complex, the scandal is
essentially simple. A handful of rich people, closely tied to the
Texas Republican Party led by Gov. George W. Bush and Sen. Phil
Gramm, decided to become richer still. Their grand strategy
included deregulation of energy, deregulation of derivatives (an
arcane financial device), corrupt accounting practices, overseas
tax scams, U.S. diplomatic pressure (delivered in 2001 by Dick
Cheney himself, on India, where Enron had sold a white elephant
power plant). And then, as the game unwound, they sold their own
stock while freezing employee pension accounts. In the end, the
gang made off with more than a billion dollars, that we know of.

Enron's real business was politics. Energy deregulation helped
create the web of commodities in which Enron traded. Derivatives
deregulation (courtesy of Gramm and Rep. Richard Armey) shielded
that market from review. Consulting contracts to the auditors
bought complicity; payments from auditors to politicians fended off
the Securities and Exchange Commission. Enron paid for favors
promptly: $100,000 to the Democrats in 1997 to push the Indians
around, $25,000 to Texas Gov. Rick Perry one day after Enron's
Mexico chief got to run the Public Utilities Commission in Texas.
Wendy Gramm, who chaired Enron's audit committee, got nearly $2
million. We still don't know exactly what Enron contributed, in
intellectual terms, to Cheney's energy policy, or to Treasury
Secretary Paul O'Neill's defense of overseas tax shelters. But it
paid well for it: over time, the big boss George Bush got more than
$600,000 in Enron cash. That we know of.

Enron reveals, for the first time, just how rot at the top can cut
against professional interests. Those were not only small fry, but
modest millionaires in some cases, who lost their 401(k)s. A
professional's pension can't be replaced. And there is nothing a
hardworking middle manager fears more than to end up on Social
Security like ordinary folk. Administration officials proudly
refused to intervene on Enron's behalf once bankruptcy loomed. But
here's the catch: They weren't asked to. By then, their friends had
already cashed out. Saving the professionals, or the company, was
not on the agenda.

White House economist Lawrence Lindsey (who'd gotten $50,000 as an
Enron adviser in 2000) reviewed the great bankruptcy's risks to the
economy at large. He concluded they were small; he may not be
wrong. Most of the direct damage landed on a few thousand people in
Houston.

But we shouldn't be entirely sure. Corporate America runs on the
collaboration of professionals with the elites. In big and small
ways, managers, accountants, lawyers and engineers make the system
work. In each firm, they have to trust that the big boys are not
stealing from them. Through their pension funds, they control vast
sums that they must also entrust back to corporate America -
through the stock market. Before 1988, the professionals of Japan
also felt that by working and saving, borrowing and investing,
everyone would get rich. The crash of that year taught otherwise.
The Japanese middle classes felt betrayed, because they were
betrayed. Their money, what was left of it, went back under the
mattress, where it remains. Japan has not recovered in 14 years.

Suppose that American professionals come to feel the same way? The
economist Thorstein Veblen, back in the days of Teapot Dome, wrote
that the revolution here would not be led by workers. Rather,
revolution could only come to America in the hands of technicians,
"the General Staff of the industrial system," a normally contented
class, "harmless and docile," in ordinary times. The technicians
however, held the real power. And they might, someday, realize that
the absentee landlords, the Vested Interests, as he called them and
their political lackeys, serve no productive function.

Enron just might start a chain of events that could, in time, prove
Veblen right.

James K. Galbraith, a professor at the University of Texas at
Austin, is the author, most recently, of "Inequality and Industrial
Change: A Global View."