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Crash of the cult

Enron tolls the bell for deregulation

Leader
The Guardian, Friday 30 November 2001 11.38 GMT

Until a few weeks ago, a huge banner was strung across the headquarters of Enron in
Houston, emblazoned "The world's leading company". There were plenty who endorsed
the claim and the corporate culture of ambition, arrogance and rapid money-making
which lay behind it. Enron's revenue growth had been spectacular, from $7.6bn in 1986
to $101bn in 2000. The accolades from analysts, management consultants and internet
gurus poured in: as recently as last June, the Economist praised Enron for creating what
might be the "most successful internet venture of any company in any industry
anywhere". But, the banner was recently taken down and in one of the biggest corporate
collapses in US history, Enron's shares fell 85% on Wednesday (and more yesterday).
The corporation is now expected to file for bankruptcy in the next few days. But this is
more than a spectacular corporate saga, it also represents comeuppance for a form of
aggressive capitalism and political manipulation which earned Enron many enemies.

A combination of borrowing heavily and concealing it in "off-balance sheet" deals,

meant that the crisis only became apparent a month ago. The repercussions are now
beginning to emerge as the company's "aggressive accounting" - as the Wall Street
Journal put it - is unravelled, and major lenders such as JP Morgan Chase are likely to
be vulnerable. Not to mention the damage to thousands of Enron employees' pensions,
and the holdings of many investors in the US, who saw it as one of the surest bets of the
dot.com mania. But the energy markets have not been as shaken as was first feared
possible a month ago.

Losers apart, there will be many dancing on Enron's grave. In the US, it had attracted a
degree of notoriety for its part in the bungled privatisation of California's electricity,
which led to black-outs earlier this year. But it was in the developing world that Enron
had a near unparalleled reputation for corporate irresponsibility. It has been the only
company to warrant an entire Amnesty International report, a chilling catalogue of
human rights abuses from India to Latin America. The anti-corporate movement
accused Enron of subverting the political process of virtually every country in which it
operated to advance its interests. Enron was in the thick of one of India's biggest
corruption scandals in which huge sums were paid to politicians in the privatisation of
electricity firms.

Such deals abroad relied on close co-operation from friends back home in Washington,
and once again Enron lavishly paid into election campaign funds, most notably of
George W Bush. Key political figures were signed up as lobbyists and advisers. All the
political manoeuvring served the company's ideological vision of the primacy of free
markets, deregulation and privatisation. Enron was described as an "evangelical cult"
for the fervent advocacy of this vision by Enron founder and chairman, Kenneth Lay - a
vision from which he personally profited by millions. The fact that the finance director is
also now being investigated for possible irregularities suggests a culture of hubris and
greed at the company's core. For the anti-corporate movement, Enron is a major scalp
(though exposure of its wrongdoings was not the cause of the collapse). More
importantly, it is a reproof to stock traders who continued to boost Enron's shares long
after they had lost their understanding of its balance sheet. And it trounces for ever the
idea that public utilities can be subject to light regulation amid such speculative
profiteering.

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