Enron: a cautionary TNC tale

The spectacular collapse and bankruptcy of Enron, the giant energy transnational corporation (TNC), affords the world a rare and fascinating glimpse into the inner workings and convoluted machinations of a typical TNC. It elucidates the operation of political influence and its contribution to the inveterate corruption that resides in the upper echelons of US politics; its predatory nature, both domestically and globally, in its violations of human and labour rights and the environment; the subversion of democracy; and the reach of its tentacles into the inner sanctums of international agencies (especially the WTO) with the resultant catastrophic effects on the Third World. This is simultaneously a powerful indictment of neo-liberal globalization.

At conception in 1985 Enron was a modest regional natural gas pipeline company based in Houston. It was lovingly nurtured by its midwife and chairman, Kenneth Lay, soon blossoming into the seventh largest corporation in America, worth $80b – effectively twice the size of Boeing, Texaco or Hewlett-Packard – and the world’s largest energy trading corporation, which has diversified into a huge range of products from pulp to petrochemicals and services from transportation to electronic commerce, with astonishing global reach.

Its sudden implosion became the biggest bankruptcy in history and resulted in 6,000 job losses and tens of thousands of Enron employees losing their life savings because they were precluded from selling their shares while the executive directors enriched themselves to the tune of $1b by selling theirs well ahead of the crash.

It appears that Enron’s accountants had shifted billions of dollars of debt off its balance sheets and into a plethora of offshore financial partnerships (one third in the Cayman Islands) to hide its astronomical losses, while duping starry-eyed credit-rating agencies, bankers, regulators and politicians. The stampeding panic of investors and the pull-out of Dynegy at the last minute from the rescue merger following these revelations, as well as the knocking of $1.2b off shareholder equity, precipitated the catastrophic meltdown with share prices dropping from $90 to 36 cents. The list of creditors stretches to a record 54 pages including heavyweights like Citigroup and JP Morgan.

But what are the factors responsible for its phenomenal and exponential growth?

Like most of the top TNCs Enron had developed political influence and manipulation to a fine art, but Ken Lay, its CEO, had taken “influence-peddling” to celestial heights. Lay’s and Enron’s generous campaign contributions to the Bush family commenced during Bush senior’s Texas governorship and has been progressively escalating. Between 1997 and 2000 the corporation had splashed out $10.2m on Washington politicians. According to the Centre for Responsive Politics, Enron has lavished $5.8m on federal elections over the last 12 years, of which 73% went to the Republicans. Bush II has the dubious distinction of being the “biggest single beneficiary of Enron’s largesse and a staunch opponent of campaign finance reform.” Enron contributed at least $736,000 to Bush’s political career and $300,000 for the inaugural party, while the combined contributions to Bush from all the energy corporations amounted to a whopping $2.9m. Enron has distributed campaign finance to three quarters of the Senate and almost half of the House.

This corporate generosity was rewarded with equally munificent political favours: Bush senior appointed Lay to the President’s Export Council between 1991 and 1993. In 1999 Bush II, who was then Texas governor, deregulated and privatized the electricity markets and promulgated laws protecting businesses from lawsuits. He then continued these aggressive liberalization policies into his presidency, the effect of which being a phenomenal increase in the price of electricity and other energy commodities. His obdurate refusal to assist California during the energy crisis cost Californians $50b and earned Enron billions of dollars because, as an alleged member of the energy cartel, they severely curtailed the supply of electricity by shutting down plants to push up prices (the price of power had rose tenfold during 2000). Meanwhile Enron was allowed to pick the federal regulators and to occupy an important seat on Cheney’s energy task force, playing a crucial role in developing the Administration’s energy policy, while Lay became Bush’s top energy advisor and a key player on the Energy Advisory panel.

The Clinton administration assisted Enron to win contracts in India and Indonesia and to obtain subsidies for power plants in China, Philippines and Turkey. In 1995 Mozambique was pressurized with threats of withdrawal of development aid to grant Enron, rather than Sasol, the South African state petroleum processing company, permission to construct a gas pipeline to South Africa. The US Commodity Futures Trading Commission (CFTC) acceded to a request from Enron in 1992 to exempt energy derivative contracts from federal government oversight as well as from fraud laws. The futures market subsequently became a major source of this corporation’s profits. Other examples of political favors include the $200m political risk insurance that Enron received in 1996 from the OPIC federal agency for the Dabhol offshore oil and gas project in Maharashtra, India, and the biggest corporate tax breaks and amnesties in a generation pushed through by Bush. This largesse was, of course, financed by the ordinary taxpayer.

Another element in this sordid tale of corruption in high places is the number of Administration officials who have moved onto Enron’s payroll: Wendy Gramm, wife of Texas Republican Senator Phil Gramm, resigned from her position as chair of the CFTC to join Enron’s board of directors after she had fought tirelessly to exempt energy swaps from federal oversight and eventually succeeded  – exactly what Enron required. Other prominent officials who followed suit include Secretary of State James Baker; Commerce Secretary Robert Mosbacker; Thomas Kelly, director of Pentagon operations; Charles Walker, former US deputy Treasury Secretary and Frank Wisner, former US Ambassador to India. They were rewarded handsomely for their corporate loyalty, no doubt engendering uncontrollable salivation in the colleagues they left behind. And a final eyebrow-raising revelation is that of Marc Racicot, who was a registered lobbyist for Enron and national chairman of the Republican Party.

The converse is the number of Enron staff who have migrated into government, including Robert Zoellick, the US trade representative who had served on Enron’s advisory council; Lawrence Lindsay who was a paid consultant to Enron and served on its board before becoming Bush’s top economic advisor; and Thomas White, who was an Enron executive for 10 years prior to his position as Secretary of the Navy.

Like any TNC worth its salt, Enron had bribed and bullied its way all over the globe, assailing human rights, democracy and the environment. A typical example is its Dabhol power plant in Maharashtra. This is the biggest electricity generating plant in the world and India’s largest single foreign investment at a cost of $2.8b. Enron won this lucrative contract because of the extreme pressure exerted by the US Ambassador and international agencies on the Indian government, in addition to the spying of the CIA on Enron’s competitors and the bidding process. The corporation realized enormous profits because the State Electricity Board was contractually obligated to purchase Enron power at several times the cost of domestically generated power.

Amnesty International and Human Rights Watch (HRW) have leveled charges of “serious, sometimes brutal human rights violations carried out on behalf of the state’s and the company’s interests.” This transpired when villagers protested peacefully against the Dabhol project’s lack of transparency, human impact, threat to their livelihoods and environmental damage. There were mass “arbitrary detentions and excessive use of force” and protestors were “beaten with lathis (canes) or otherwise assaulted by the police, in some cases sustaining severe injuries.” There was widespread use of ‘preventive detention’ to arrest protestors in anticipation of protests and systematic harassment of protest leaders and environmental activists. HRW found that Enron was directly paying police salaries.

There are many examples of environmental abuses perpetrated by this TNC: These stretch back to the special concessions from Governor Bush allowing the Enron Methanol plant in Pasadena, Texas, to “pollute without a permit, as well as giving the company immunity from prosecution.” This ‘grandfather clause’ of the Texas Clean Air Act allows plants built before 1971 to pollute with impunity. Bush extended this clause which now waives permit requirements for plants that volunteer to cut emissions. Little wonder that Texas has regularly ranked as the most polluted state. Around the world Enron has also been implicated in environmental assaults, e.g. the Enron/Shell pipeline between Brazil and Bolivia has opened up the “pristine Amazon forests to unsustainable development” and brought “serious environmental and social problems” to indigenous communities.

The other arena where Enron posed a dire global threat was the WTO, especially in the General Agreement on Trade in Services (GATS) negotiations. Since it had grown rapidly into a global multi-sector service corporation, the greed for further expansion necessitated a vicious fight for favourable and legally enforceable GATS rules to ensure deregulation and privatization of services in all countries. Enron therefore “positioned itself to be a leading player in the major big business lobby machines driving the GATS negotiations.” This had been facilitated by the corporation having ensconced itself as a premier member of the US Coalition of Service Industries which is a key player in the WTO. And having manoeuvred itself onto the National Trade Council, Enron had been instrumental in Bush being granted fast-track authority over all trade negotiations – a potent symbiotic relationship. Its agenda of deregulating the energy industry in the US had been resoundingly successful and it had every intention of using this as a model to push through new draconian rules in the WTO. Enron’s huge financial muscle and intimate relations with the Bush Administration had made it one of the most powerful forces in the GATS negotiations. It was a “prime example of how TNCs not only influence, but actually determine, global trade rules.”

These rules are not aimed merely at eliminating any governmental ‘barriers’ to cross-border trade in services, e.g. labour laws, consumer and environmental protection, subsidies and licensing standards. The aim of Enron and the other TNCs was to expand the scope of the rules to liberalise all public services, including water, healthcare and education. These are basic necessities which governments must provide, especially for the poor who cannot afford them, and should not left to the dictates and vagaries of the markets. Governments will also be prevented from pursuing national development strategies to benefit their citizens. And the coup de grace is that these commitments made by governments will effectively be irreversible. This will impact disastrously on governments’ abilities to provide essential social services for its citizens, especially in the Third World, with inevitable social breakdown – the currently evolving scenario.

A final but crucial factor responsible for the astonishing performance of the company is the psychology of its executive tier. Enron systematically headhunted the most outstanding young minds and, in what probably amounted to corporate brainwashing, fashioned a generation of monomaniacal, fanatically competitive, workaholic and heartless young executives who lived in awe and fear of their guru, Jeff Skilling, president and chief operating officer, who was diabolically brilliant at instilling (skilling?) this fundamentalist fervour. These men fanned out across the globe, consequently committing the excesses enumerated above. But in the final analysis, Enron was merely sowing the seeds of its own destruction.

It is unrealistic to hope that many TNCs will suffer a similar demise and one should accept that the mythological Washington Consensus model might not yet have been dealt a mortal blow. But the free-market fundamentalist mantra of frenetic deregulation and privatization, which has been browbeating the Third World through the agencies of the Bretton Woods twins and the WTO, is beginning for the first time to sound rather effete, even in conservative circles, and will soon suffer a malignant crisis of legitimacy.

This is the moment for the anti-globalization movement to go onto the offensive with redoubled zeal and commitment, while the monsters are temporarily incapacitated!