News and Features
It has come to this: The investigation of Enron as a political scandal appears for now to depend on Senator Joseph Lieberman, an Enron Democrat who bagged Enron campaign contributions and who worked hard to block accounting reforms. Lieberman's committee agreed to issue subpoenas seeking information that could shed light on Enron contacts with the White House, but the question is, How hard is he willing to push?
For months the White House and the Republicans have put out the message that Enron is nothing but a business scandal, a strategy that seems to have paid off, judging by the dwindling media coverage. But the lack of coverage doesn't mean that the political aspects of Enron have been thoroughly probed. Far from it.
In a letter to Dan Burton, the Republican chairman of the House Government Reform Committee, Henry Waxman, the senior Democrat on the panel, noted many episodes that warrant scrutiny. Among them: Enron-friendly appointments to the Federal Energy Regulatory Commission; Vice President Cheney's timely condemning of electricity price caps during the California energy crisis (see John Nichols on page 14); meetings between Enron execs and Clinton officials; and Congressional passage in 2000 of legislation exempting energy derivative contracts from federal oversight. Army Secretary Thomas White, who previously headed an Enron venture that engaged in fraudulent accounting practices, failed to disclose all his financial ties to the company. And just-released documents from the Energy Department, forced out by public-interest-group lawsuits, show that Energy Secretary Spencer Abraham met with dozens of business representatives and Bush contributors--and no consumer or conservation groups--while he was developing the Bush energy plan. But Burton, to no one's surprise, turned down Waxman's proposed investigation, and other House Republicans, again no surprise, have been more eager to jump on Enron's and Arthur Andersen's funny numbers than on those firms' political connections.
In the Senate, the Democrats have not shown much taste for this kind of probe either, at least until recently. On March 21 Lieberman announced that the Governmental Affairs Committee, which he chairs, is issuing twenty-nine subpoenas seeking information on contacts between the companies and the federal government. The subpoenas--addressed to Enron, Arthur Andersen and twenty-seven past and present members of Enron's board--request materials regarding Enron's communications with the White House and eight federal agencies, starting in January 1992. Lieberman also said his committee will send letters (not subpoenas) to the White House and the US Archivist asking for similar information. Those subpoenaed have until April 12 to respond. Lieberman's staff is quick to note that his investigation targets Enron, not the White House. And the subpoenas and letters are limited in their scope: They do not ask for Enron files on its efforts to develop political muscle. But the subpoenas and letters could produce information on how the Bush and Clinton administrations responded to Enron's attempts to gain political influence.
The Enron mess offers a view into a world where policy is increasingly shaped by money. Few members of Congress, of either party, want to run down that rabbit hole. But Enron is a political scandal, and those who want it investigated should press Lieberman to chase this bunny as far as it goes.
A probe of the company's White House ties should begin at his door.
In early March, the Bush Administration adopted a policy that the steel industry as well as the United Steelworkers of America (USWA) have long been agitating for--tariffs on steel imports. The official reason is to give the industry some "breathing space," so it can restructure while shielded from foreign competition. It's more likely that Bush wants to carry some important industrial states in 2004.
Thanks to NAFTA, Canada and Mexico are exempted, as are some poorer countries. Imports from elsewhere will face initial duties ranging from 8 percent to 30 percent, though the levels will decline over the next three years as they are gradually phased out. This is less than what labor and management wanted, but it's still striking coming from a professed free-trader. The Clinton Administration never did anything remotely like it--and if it had, Wall Street, which was unfazed by the Bush announcement, would have panicked about the protectionist threat.
Loud complaints did come from abroad, though. Even British Prime Minister Tony Blair, usually found waving the Stars and Stripes with hysterical glee, denounced the move as "unacceptable and wrong." He urged the industry to restructure rather than hide behind trade barriers--exactly the prescription the United States usually gives other countries (with similar indifference to displaced workers). Blair was joined by politicians, businesspeople, unions and pundits around the world--and by Bush's own frequently indiscreet Treasury Secretary, Paul O'Neill, who told the Council on Foreign Relations that the tariffs would cost more jobs in steel-using industries than they could save in steel.
Indeed the industry is in dire shape. It's lost 35,000 jobs in the past two years. Sixteen producers are operating in bankruptcy. Steel employed 1.5 percent of US workers in 1950, 0.6 percent in 1980 and 0.2 percent in 2000, versus 0.1 percent today. It's hard to believe three years of protection can reverse that long slide.
Clearly the Administration structured its tariffs with an eye on the political map. The kinds of steel offered maximum protection happen to be produced in the electoral battlegrounds of Ohio, Pennsylvania and West Virginia. There's a political pattern to the victims too: Turkey, an important factor in the likely war on Iraq, was spared. Brazil, key to any future hemispheric free-trade agreement, got off relatively lightly, as did Russia, key to many things. The most affected producers are in South Korea, Japan, China, Taiwan and the European Union. Most have filed complaints with the World Trade Organization. The EU is also threatening to retaliate against US steel and textiles, which could limit Bush's political gain in steel country and alienate the textile-intensive South.
Defenders of the tariffs--from US Steel to the union-friendly Economic Policy Institute--argue that everyone subsidizes and protects its steel industry except us. As a result, the US steel industry is getting killed. So the tariffs are necessary to defend it.
Not everyone agrees with this picture of America as victimized innocent. According to the EU's count, the United States has imposed more than 150 measures over the years to protect steel. More than subsidized foreign competition, the US steel industry is suffering from the high value of the dollar, recession, global overcapacity and high pension and healthcare costs.
The United States could have filed a complaint with the WTO, but it would have had a hard time proving its case. Another multilateral route was available too--negotiations to reduce world steel capacity by some 12 percent are well under way. But the Administration and its supporters claim that having the tariffs will strengthen Washington's negotiating hand.
The USWA seems to have no idea of how offensive foreign workers find Bush's big stick policy. Most of the affected countries have higher unemployment rates than ours. The EU, Japan and Latin America haven't seen a boom in decades, and Asia is still recovering from its 1997 financial crisis. Gary Hubbard of the Steelworkers' Washington office conceded that the EU and Japanese unions were annoyed but wasn't sure whether the USWA had consulted at all with its counterparts abroad (no one had ever asked the question before). So much for solidarity.
It's nice to imagine another world, where we protect workers, not their jobs. If we had a good system of income support, retraining, job placement and job creation, we wouldn't have to disemploy foreign workers to fight what's probably a losing battle to save jobs here. Sweden has long had such an active labor market policy, as it's called. Workers wouldn't have to fear innovation if they knew they wouldn't end up on the sidewalk. But that's not the way the world works these days. It's all about market solutions--except when George W. Bush is cruising for votes.
Those who place the blame on executive greed may be missing the larger point.
They helped set the stage for the current scandals.
Arriving in San Francisco after a ten-hour drive through a snowstorm, Lucas Benitez sounds earnest and exhausted.
"Debacle in Kwangju." Were Washington's cables read as a green light for
the 1980 Korean massacre? (1996)
"Stiglitz Roars Back" (2001)
Bush Sr. and others open doors for the Carlyle Group.
On February 21 the California Public Employees Retirement System stunned financial markets in Asia when it said it would withdraw its $450 million investments in publicly traded companies in Indonesia, Thailand, the Philippines and Malaysia to comply with new investment guidelines on human rights, labor standards and other political factors.
But the new guidelines don't apply to the fund's substantial investments in private equity markets, including its $475 million stake in the Carlyle Group--nor does CalPERS, the nation's largest public pension fund, see any reason why it should. "I don't have any moral reservations at all" about Carlyle, said Michael Flaherman, chairman of the investment committee of CalPERS.
The $151 billion CalPERS retirement fund, the largest such fund in the world, is invested on behalf of California's 1.2 million state workers and includes $35 billion invested overseas. The fund's relationship with Carlyle began in 1996; over the next four years it invested $330 million in two Carlyle funds, including $75 million in Carlyle Asia Partners. The relationship deepened last spring when CalPERS invested $175 million to buy a 5.5 percent stake in Carlyle. The relationship--so close that CalPERS owns the elegant office building in Washington, DC, where Carlyle's headquarters are located--is far more important to Carlyle than it is to CalPERS, industry analysts said. "CalPERS is called an anchor investor," explained David Snow, editor of PrivateEquityCentral.net, an industry newsletter. "When Carlyle goes to other investors, they can say CalPERS is in."
Carlyle's experience with CalPERS has apparently whetted its appetite for labor pension money. According to an official close to Carlyle, the bank is raising money for a $750 million fund to invest in "worker-friendly companies." Of that total, Carlyle hopes to attract at least $250 million in labor pension money, the official said. Questions about pension fund investments in private equity have become more relevant since the collapse of Enron, with which CalPERS had extensive private business partnerships. Several unions, including the Service Employees International Union (SEIU), strongly opposed the partnerships as well as CalPERS investments in Enron stocks and bonds. Those concerns included Enron's support for energy privatization, its employment of former government officials to lobby for privatization and its sordid human rights record in India. (CalPERS made $133 million from one Enron partnership and may see a gain on another; it lost $105 million on its stock and bond holdings.)
Within the labor movement, CalPERS is highly respected for its cooperation in challenging managers and corporations suspected of violating human rights or abusing workers. In 1999 CalPERS supported two union-backed candidates for the board of Maxxam during a bitter strike by the United Steelworkers of America (USWA). Two years ago CalPERS joined the AFL-CIO in an investors' boycott when the Chinese government and Goldman Sachs took Petrochina, a state-owned oil company, public. The fund's new standards for public investments in emerging markets are the culmination of more than two years of sometimes fierce internal debate. CalPERS investment managers must now consider a wide range of non-economic factors, including a country's political stability, financial transparency and record on labor standards, workers' rights and building democracy. Based on a review by Wilshire Associates, the CalPERS pension consultant, thirteen emerging markets, including Turkey, South Korea and South Africa, passed the test, compared with four that failed. The fund had already banned its managers from investing in publicly traded companies in China and India. "CalPERS is taking more steps in this direction than any pension fund we know about," said Damon Silvers, the AFL-CIO's associate general counsel who focuses on investment strategy.
In December Carlyle sent its three founding partners to Sacramento to brief the CalPERS investment board. One, David Rubenstein, made passing reference to the budding media interest in Carlyle, noting that Carlyle's activities are "visible and under increasing scrutiny." To protect the Carlyle and CalPERS names, he assured the board that Carlyle is "following the highest ethical standards" by "avoiding investments in industries including tobacco, gambling and firearms."
But Carlyle's deep involvement with the military-industrial complex and its ties to the Bush Administration continue to raise questions. Both the SEIU and the Communications Workers of America are collecting information on Carlyle to provide to their pension trustees.
Down the road, Carlyle's investments in Asian companies facing downsizing, manufacturers in China and military conglomerates in Turkey could present serious dilemmas. It's not hard to find contradictions: Carlyle already has investments in China, which is on the CalPERS blacklist for public stock markets, and it is gearing up for more. Liu Hong-Ru, a former official with China's central bank who sits on Carlyle's Asian Advisory Board, is a senior adviser to Petrochina, the company whose public offering CalPERS boycotted in 2000. Until last year, Carlyle was the official adviser to Saudi Arabia's offset program, which allows buyers of US military hardware to use their purchasing power to pressure companies to transfer technology and jobs to their economies. "In effect, Carlyle was telling another country how to leverage their purchases of military equipment in ways that create the most jobs in that country, not this country," said Randy Barber, an expert on offsets at the Center for Economic Organizing in Washington.
Some trade unionists also know from experience that private equity funds aren't the best judge of what constitutes a worker-friendly environment. In 1998 several unions involved with CalPERS were shocked to learn that CalPERS was a partner with a private restructuring fund for Asia run by New York financier Wilbur Ross that played a key role in the suppression of a strike in South Korea. The strike led to the imprisonment of forty Korean trade unionists.
Investors in Carlyle's equity funds include state pension plans in Delaware, Florida, Louisiana, Michigan, New York and Texas, as well as in Los Angeles County. Others are the Ohio Workers Compensation Bureau and Union Labor Life Insurance, a union-run insurance company. According to industry newsletters, union pension funds with significant holdings in private equity markets include SEIU, the USWA, the Hotel and Restaurant Employees, the United Food and Commercial Workers, and the Union of Needletrades, Industrial and Textile Employees.
The Houston company was part of the biggest "big idea" of the past decade.