Enron's Global Crusade
The mandarins of corporate capital continued to preach the gospel of free markets and economic globalization at the World Economic Forum in New York, but a more traditional preacher reminded them that the burgeoning Enron scandal ought to give the shapers of the new world economic order pause. "There's a big question mark over capitalism today," the Rev. George Carey, Archbishop of Canterbury, informed the assembled CEOs and political hangers-on. "It's one word and it's 'Enron.' And what is that challenge? Capitalism has to act within boundaries."
Much of the US media and all but a few members of Congress continue to fixate on the domestic debacles--from lost pensions to lax regulations--that the collapse of Enron has exposed. But the Archbishop's invocation served as a reminder that the Enron scandal is not merely an American affair. The rise and fall of Enron is very much the story of a model global corporation gone awry. It is also an apt illustration of the consequences of the rush to embrace a corporate-sponsored template for economic liberalization: from multilateral free-trade pacts that supersede domestic regulations to privatization, deregulation, International Monetary Fund-ordered "structural adjustments" of national economies and the corrupting interplay of corporate campaign contributions and policy-making that is no longer just a US phenomenon.
Enron's business model, which until recently was taught in business schools around the world, did not respect boundaries. Its global reach, powered by as much as $2.4 billion in loans backed by US taxpayers and aided by barrier-breaking "reforms" pushed by the World Trade Organization, made the Houston-based corporation not merely the seventh-largest in the United States but the sixteenth-largest in the world. Before its empire began to unravel last fall, Enron was regularly featured on Global Finance magazine's annual list of the "world's best global companies." Enron was a globalizer on a grand scale, its grubby big hands stretching from Houston to London to Bombay to Maputo to La Paz. Forget about trying to chart the maze of Enron's 874 "offshore partnerships"; the corporation bragged quite openly about "business units" (Enron Americas, Enron Europe, Enron Australia, Enron South America, Enron Japan, to name but a few) that traded in the world's natural gas, crude oil, metals, plastics, fertilizers, forest products, lumber, steel and, ominously, the weather. The shorthand description of Enron in most US media reports continues to refer to the corporation as a "Texas energy giant." But that does not begin to describe the conglomerate that, in addition to being the planet's largest energy trader, had a hand in virtually every economic sector--in every country--that a corporate jet could reach. If, as Global Reach authors Richard Barnet and Ronald Muller predicted a quarter-century ago, "the men who run the global corporations are the first in history with the organization, technology, money and ideology to make a credible try at managing the world as an integrated unit," then Enron throughout the 1990s tried harder. However, the company was not always credible--let alone credit-worthy.
"Enron is the model for globalization, a model for how the whole neoliberal ideology forms a business model. Here is a company that is huge in America, huge in Canada, it's all over Europe, all over India, all over South America, all over the world," says Darren Puscas, a researcher with Canada's Polaris Institute, which began last year to study the company's campaign to promote privatization and deregulation of public services in developing countries. "Enron is a scandal in the United States now. But it has been a scandal in other countries for a long time."
Even for serious readers of the US financial press, it may come as a surprise that Fortune's "most innovative company in America" is one of the most controversial companies in the world. Only in reports on human rights and environmental abuses produced by groups like Human Rights Watch, Amnesty International, CorpWatch, Multinational Monitor and Friends of the Earth could Americans get a hint until recently that Global Finance's "best company" award winner did not achieve that honor for being a good corporate citizen.
In Geneva, where the WTO is headquartered, Enron is known as a sharp-elbowed advocate for liberalizing rules governing the trade in "services," a move that anticorporate campaigners say is designed to open the way for the privatization and deregulation of health, education, energy, water, welfare and postal services. In India Enron is known as a partner in the decade-long, still incomplete development of a $2.9 billion power plant project so controversial that it spawned a nationwide protest movement and upset the balance of political power in the region surrounding the facility [see Arundhati Roy, "Shall We Leave It to the Experts?" February 18]. In Britain Enron lobbied successfully for energy-policy shifts and, with approvals from Tony Blair's Labour government, recently took ownership of a huge privatized water utility, Wessex Water--moves that are now under intense scrutiny by that country's media and political opposition. In Germany Enron swept in with schemes to corner newly deregulated electricity markets. In Mozambique, with the aid of a friendly US ambassador, Enron grabbed control of an oil pipeline project from a government under pressure from the International Monetary Fund to forge public-private partnerships. In Argentina it brought high-level political pressure down on successive governments until, finally, Enron was granted approval to construct a natural gas pipeline from that country to Chile. The pressure included a 1988 call to a Cabinet minister from George W. Bush, the son of the then-Vice President of the United States [see David Corn, "Enron and the Bushes," February 4].
The lines of connection between the Bush family, the Bush campaign and Enron may explain why the White House's spin machine is struggling to wedge the Enron collapse story into a "business scandal" box that would conveniently exempt the political class from the stain. True, Enron is a business story: How could the biggest bankruptcy in US business history be otherwise? But it's also a political story: Enron gave $6 million in political contributions over a decade, and its CEO, the largest career contributor to George W. Bush's campaigns, has been exposed as having exploited his connections to name Bush Administration regulators, to shape its energy policies and to block moves to regulate the offshore tax havens Enron exploited.
And Enron's domestic activities are only a part of the story. To limit discussion of Enron to them is to miss the most dramatic lessons of this burgeoning scandal. "If you want to know where economic globalization along the lines cheered on by the WTO, the IMF, the World Bank, George W. Bush and Tony Blair is headed, look at Enron. Globalization has created an international no man's land where businesses survive by engaging in financial practices that no responsible nation-state would permit," says Tony Benn, Britain's former minister of industry. "When you allow corporations to write their own rules in the global marketplace, which is what has essentially been the case in recent years, you will see unimaginable abuses."
Enron was big on writing the rules. Before its collapse, it held a place on the board of the National Foreign Trade Council, which worked with the WTO to forge trade policy. It sponsored the 1999 World Services Congress in Atlanta, where, Polaris Institute researchers say, the services industry set its agenda for a new round of WTO negotiations. Along with its accounting firm, Arthur Andersen, Enron was at the center of the shadowy US Coalition of Service Industries' campaign to negotiate General Agreement on Trade in Services (GATS) schemes that remove restrictions on international commerce involving services. The GATS negotiations, which have been going on for two years under the aegis of the WTO, were described at the World Economic Forum by former Clinton Administration Treasury Department official Stuart Eizenstat as a move to "allow [Arthur] Andersen to export its accounting services to the world."
Eizenstat's attempt at humor was actually a blunt statement of reality. The first rules for a profession developed by the WTO as part of the GATS negotiations were for the accounting sector--and the rules were indeed shaped with a big assist from Arthur Andersen. So what might appropriately be dubbed "Enron accounting" is already in the process of going global.
The loosening of rules governing sectors of the global economy in which Enron was involved was a long-term corporate priority. During the go-go years of business expansion in the 1990s, the company scoured the planet in search of opportunities in countries that were embracing--sometimes willingly, often under pressure from the World Bank and the International Monetary Fund--"market-oriented reforms." These public-policy shifts allowed multinational corporations to buy formerly public utilities and capitalize on the lifting of traditional regulations--moves that opened the door to aggressive global corporations like Enron. Forged in the last years of Ronald Reagan's presidency by an ambitious former Pentagon economist named Ken Lay, Enron was a corporation designed to shape and then master the new economy of the post-cold war era. Lay preached what Britain's Independent newspaper described as a "deregulation-happy philosophy" with such passion that The Economist would eventually describe Enron as "an evangelical cult" in which Lay was the messiah.
Enron's crusading globalism extended the corporation's operations into virtually every sector of every economy worth owning a piece of, using all the tricks in the corporate globalizer's handbook. "The thing that you have to understand about Enron is this: They have taken advantage of every opportunity globalization has presented them. They have been in the forefront of pushing deregulation and privatization, pushing for access to markets around the world, using pressure from the US government to open trade," says the Polaris Institute's Puscas.
Once borders opened, once privatized industries were put up for sale and once sectors of economies were deregulated, Enron moved aggressively to gain advantage. Business Week explained that for companies like Enron, "the approach to globalization then was brutally simple: get in fast, strike megadeals with top officials, and watch the profits roll in." Initially, it seemed, the model was working. Enron was often credited with putting new technologies to work in the service of its rapid expansion. But as much as the corporation benefited from the rise of the Internet, a case can be made that its bottom line gained at least as much from the opening of markets around the planet to swashbuckling corporate adventurers, who brought Texas-style business practice to Australia, Brazil and Croatia. Between 1998 and 2001 Enron's foreign revenues increased from 7 percent to 23 percent of the company's total revenues--adding $22.9 billion in 2001 to the coffers of a company that, it turns out, needed every cent it could get its hands on. Enron executives embraced the gospel of globalization with a fervor that portrayed free trade, deregulation, privatization and other planks in the neoliberal platform as the necessary and inevitable face of progress. "We are on the side of the angels," declared former Enron CEO Jeffrey Skilling. "People want to have open, competitive markets."
That is a debatable point. When officials in the Indian state of Maharashtra took advantage of a recent relaxation of India's restrictions on foreign investment to invite a joint venture led by Enron to build a power plant south of Bombay, nearby villagers were certainly not clamoring for the "open, competitive markets" Enron was offering. They worried that the Dabhol power-plant project would destroy their livelihoods and their environment. When they launched a movement to stop it, leading activists were dragged from their homes and beaten by Enron-paid "police" in what Human Rights Watch describes as "serious, sometimes brutal human rights violations carried out on behalf of the state's and the company's interests." "Enron is now being widely accused of arrogance and lack of transparency, but the people of Dabhol have known that all along," says Arvind Ganesan, who directs the group's business and human rights program. "Enron was complicit in human rights abuse in India for several years."
Enron's tough line with the locals caused complaints from Brazil to Mozambique. And despite the near-euphoric reporting on Enron in the US press during the 1990s, its projects drew skeptical responses from an institution not famous for saying no to multinational corporations: the World Bank. Enron came to the bank for financing of its Indian project, only to be told it was "not economically viable." That would have stopped the unpopular initiative were it not for Enron's connections with two deep-pockets lenders: the US Overseas Private Investment Corporation and the Export-Import Bank. The taxpayer-funded OPIC granted a $100 million loan guarantee for the Dabhol project early on; and at a critical stage in the plant's troubled construction, the taxpayer-funded Ex-Im Bank provided Enron with almost $300 million in loan guarantees for the project.
In all, according to research compiled by Friends of the Earth, OPIC and the Ex-Im Bank loaned Enron $2.4 billion for its international projects. Even after twenty-five members of Congress signed a letter asking OPIC not to finance an Enron pipeline that cut through tropical forests in Brazil, the corporation still got the loan guarantees. Now that Enron is bankrupt, US taxpayers could find themselves swallowing the debt. With its joint-venture partners, General Electric and Bechtel, Enron has filed claims for $200 million in compensation for losses in India. OPIC officials say the energy giant's bankruptcy could leave US taxpayers liable for as much as $1 billion.
"The Enron scandal exposes the reality that both the Ex-Im Bank and OPIC are financing precisely the wrong sort of corporate behavior at home and abroad," says Representative Bernie Sanders. "They are providing corporate welfare to companies that harm workers in the United States and harm communities and the environment overseas--as the Indian power-plant case illustrates. This really is one of the most distressing examples of how our government promotes the sort of globalization that does no one any good."
No matter what sort of globalization is being debated, Enron has for a decade sought to bend the discourse to its advantage. The company was a leading corporate advocate for Congressional ratification of NAFTA in 1993 and the General Agreement on Tariffs and Trade in 1994, as well as proposals to normalize trade relations with China and to grant Presidents Clinton and Bush fast-track authority to secretly negotiate a Free Trade Area of the Americas. When Houston-area House member Craig Washington rejected the corporate pressure and voted against NAFTA, Enron chief Ken Lay helped recruit a 1994 Democratic primary foe, Sheila Jackson Lee, led Enron employees in contributing $24,000 to Jackson Lee's campaign and helped her collect $600,000 from Houston's business community and other givers. Jackson Lee's spending overwhelmed Washington, who was defeated.
Enron's determination to tip the balance within the Democratic Party on trade issues extended to its generous funding of the New Democrat Network, which advances the pro-free trade line of Senator Joe Lieberman, a key Enron investigator on Capitol Hill. While Enron's contributions to 186 House members and 71 senators increased its influence in Congress, the company is broadly seen as having gotten the biggest bang for its campaign bucks in presidential races. Close ties to the George Herbert Walker Bush, Bill Clinton and George W. Bush administrations--with their parallel ideologies on global trade and economic issues--proved a tremendous boon for Enron as the corporation went global. Former President Bush's close personal connections to former Argentine President Carlos Menem are cited in that country as the explanation for why the Enron pipeline project was approved by Menem in 1989, before economic feasibility studies were completed. The Clinton Administration threatened to cancel development aid to Mozambique if the country did not accept the plan to have Enron construct a pipeline to South Africa. "Their diplomats, especially [US embassy deputy chief] Mike McKinley, pressured me to sign a deal that was not good for Mozambique," says former natural resources minister John Kachamila. "[McKinley] was not a neutral diplomat. It was as if he was working for Enron."
The description of that obscure US diplomat in Maputo could easily be applied to the current Vice President of the United States. The Bush Administration is doing everything in its power to cloak details of Dick Cheney's meetings with Enron executives. But there is no question that the energy task force chaired by Cheney altered its report to recommend that "the President direct the Secretaries of State and Energy to work with India's Ministry of Petroleum and Natural Gas to help India maximize its domestic oil and gas production." Americans might question what Indian natural gas production has to do with US energy policy. Noting that Enron is seeking to force the Maharashtra State Electricity Board to pay it $64 million as part of a buyout deal, Representative Henry Waxman explains that the recommendation "benefited Enron by formally enlisting two Cabinet secretaries in Enron's conflict with the Indian government." It wasn't the only benefit Enron got. An e-mail sent by a National Security Council aide indicates that Cheney raised the issue of the Enron dispute in a meeting last June with Sonia Gandhi, widow of former Prime Minister Rajiv Gandhi and leader of India's opposition Congress Party. Additional e-mails obtained by the New York Daily News indicate that the State and Treasury departments pushed Enron's agenda with their Indian counterparts, as did successive ambassadors to India.
Enron didn't merely use the US government as an agent for its global ambitions; it invested directly. Ralf Schaefer, spokesman for a German competitor, RWE Trading, says that in its international dealings Enron often prevailed because it "knew what to do on the political side and what to do on the economic side." It spent $51,000 sponsoring events for Britain's Labour Party, including a dinner attended by Prime Minister Blair--whose government angered traditional constituencies in Britain's coal-mining regions by backing Enron's request to lift a moratorium on new gas-fired power stations. Blair aides denied a "cash for access" deal but were undermined when former Enron Europe chair Ralph Hodge said it was "custom and practice" to sponsor events to cozy up to political leaders. Elsewhere Enron's behavior was more blatant; it acknowledges spending $20 million on "educational gifts" in India.
If such behavior now has Enron squirming, Bernie Sanders thinks this one corporation's crisis could bring an end to the use of US-backed loan guarantees to finance the sort of corporate globalization that harms US and foreign workers. He is preparing a letter to the chairman of the monetary policy and trade subcommittee, on which he sits, calling for a hearing on the Ex-Im Bank's dealings with Enron. "The Enron debacle gives us a chance to shed light on a whole host of policy failures," says Sanders. "Clearly, Enron is not the only company that should not have received loans backed by US tax dollars. These were difficult issues to get people to pay attention to before, but now there's an opening."
Noting that US law bars foreign corporations and their domestic subsidiaries from contributing to US political campaigns, Colgate University sociology professor Adam Weinberg, a co-founder of the reform group Democracy Matters, asks, "At what point does a firm like Enron cease to be a US firm?" Weinberg contends that the inability to regulate donations by corporations with substantial international interests provides an important new argument for campaign finance reforms more sweeping than those contained in the proposed McCain-Feingold bill.
Surely, these responses to the scandal are welcome. But it's not enough to see Enron, or even its political patrons, called to account here and abroad. The billion-dollar question is whether the lessons of the Enron debacle will lead to a rethinking of the wild ride into the uncharted territory of the global economy, where the rules are written not by regulators but by the corporations that profit from deregulation. "There has to be a concerted effort to understand Enron not as an example of one company that has gone bad but as an example of what happens in a bad system," says Tony Benn. "Globalization as it is being implemented by the corporations provides no protection against future Enrons. It is a recipe for more Enrons, more scandals, more sleaze."