Enron and the Politics of Influence

Ray Evans

[A slightly edited version of this article was published in The Australian on 25 January 2002]

One could be forgiven for thinking from reading the Australian press in recent weeks that the collapse of US gas and energy trader Enron was simply due to crony capitalism. One reporter even suggested that a free-marketeer (Enron CEO Kenneth Lay) sought political help from long-time mates in the Bush Administration to avoid bankruptcy. The real story about Enron is much more interesting.

Rent-seeking in Washington is a highly developed art-form and when really humungous amounts of money are involved, it is always the case that a Baptist-bootlegger coalition has been put together to get the necessary legislation through Congress.

The expressive term 'Baptist-bootlegger' derives from the days of prohibition. Under prohibition bootleggers and those who transported and supplied illegal alcohol made fortunes. One such entrepreneur was Joseph Kennedy whose second son, John, became US President in 1961. It was in the interests of the bootleggers and their associates to maintain prohibition, but their capacity to engage openly in politics was circumscribed. However, they had allies in the Baptists (and other teetotalists), who believed that alcohol was a deadly threat to the social order, and had worked for decades to get prohibition onto the statute books. The Baptists provided the political cover and the bootleggers pocketed the proceeds.

The two groups maintained a great social distance from each other. The middle man in the coalition was a politician who would receive the bootleggers on Sunday morning, and accept campaign donations, and reassure the Baptists, at a convenient weekday appointment, that he was firm for prohibition.

Enron was at the centre of an awesome Baptist-bootlegger coalition, but there is no shortage of evidence of the connections which the company and its CEO, Kenneth Lay, had with their Baptist allies. The rents which Enron energetically sought, were truly gargantuan, but could only be realized if the Kyoto Protocol became established as part of US and international law. Ken Lay saw Enron as not only making billions from sales of the natural gas which was to displace coal as the preferred fuel under the Kyoto commitments, but he realised that as an international and domestic trader in carbon credits, Enron could realise hitherto unimagined wealth. Such credits, of course, would only become bankable pieces of paper if governments, particularly the US Government, established and policed a global policy of de-carbonisation under which a global tax on carbon was to be enforced.

So as the movement to establish the Kyoto Protocol developed momentum, Ken Lay built up alliances with the green movement, his contemporary Baptists allies. On December 12, 1997, just a day or so after the Kyoto meeting had concluded, an internal Enron memo asserted that the Kyoto Protocol 'will do more to promote Enron's business than almost any other regulatory initiative outside of restructuring the energy and natural gas industries in Europe and the United States'. It described the Protocol's endorsement of international trade in CO2 credits as 'another victory for us' adding 'this agreement will be good for Enron stock'. The memo claimed that Enron had 'excellent credentials with many green interests' including Greenpeace. These groups, in turn, were described as referring to Enron 'in glowing terms'.

The organisation which has done more to build and sustain the Baptist-bootlegger coalition which continues to push for US ratification of Kyoto, or an equivalent de-carbonisation programme for the US, is the Pew Centre on Global Climate Change, headed by Eileen Clausen, a frequent visitor to Australia. Eileen Clausen was Assistant Secretary of State under President Clinton with responsibility for International Environment Affairs. When she realised that the US Senate had set its face (in July 97) against the Kyoto Protocol, she resigned her post within the State Department to build a coalition which would, in the long term, reverse that position. Enron was a founding member of her Business Environment Leadership Council. However, Enron's name no longer appears in the membership list.

As the US presidential campaign of 2000 worked its way through the primaries, the conventions, and the TV debates, the polls were, increasingly, indicating a Republican victory. It was only during the last two weeks, when the story of a youthful drink-driving indiscretion by George W broke, that the Democratic nominee, VP Al Gore, made some headway. Everyone knows that a few hundred votes in Florida tipped the election to Dubya, but few people are aware that West Virginia, normally a Democrat stronghold, went for Bush and did so because the coal industry in that state decided to back Bush because he would not endorse Kyoto. Without West Virginia, the vote in Florida would have made no difference.

Given the situation which Ken Lee found himself during 2000, cultivating the Republicans was the obvious strategy. He had Kyoto partisans inside the Republican tent. Indeed, the Republican policy platform contained within it a proposal to regulate CO2 emissions from US power stations, just as Enron had been arguing within the Clinton White House for years.

The new Bush cabinet met for the first time in late January 2001, and Treasury Secretary Paul O'Neill put on the table a paper calling for carbon dioxide regulation and limitation. In so doing, he precipitated a major row within the new Administration. Only now is it emerging that a key figure in persuading O'Neill to step outside his portfolio brief and carry the environmentalist flag, was Timothy Wirth, former Under-secretary of State for Global Affairs under President Clinton, and close confidant of Kenneth Lay, CEO of Enron.

The investigation into the collapse of Enron will reveal much more about the intricacies of the Baptist-bootlegger coalition which was promoting the Kyoto cause within the Republican Party and within US business circles. President Bush will be sleeping soundly these nights, secure in the knowledge he made the right call in declaring that the US would not be ratifying the Kyoto Protocol. When the decision had to be made, Enron's influence counted for nothing.

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