Enron and the Politics of Influence
[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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