Enron is Example of Failed Economic Model of Capitalism Print
Commentary/Politics - Editorials
Tuesday, 05 February 2002 18:00
As the Enron travesty unfolds, promising to be the most diabolical and heinous corporate scandal in America’s history, perhaps citizens are beginning to awaken to the corporate terror being perpetrated upon us (is it any less terrifying to have your life’s savings, the resources you planned to live out your life with, wiped out by the very people you believed were protecting it?). Enron’s business dealings demonstrate the harm that occurs when corporate agendas merge with those of government.

Corporate interests should primarily focus on the good of the one, so to speak, while government interests should reflect the good of the many. This way, a balance is maintained that allows capitalism to flourish.

Capitalism is a sound economic system when applied correctly. Basically, demand generates supply based on available resources. When resources are scarce, supply is limited, and if demand is high, then prices increase, eliminating buyers along the way. Conversely, if supply is great, but demand is low, then prices drop, allowing more buyers into the market. Capitalism allows for market equilibrium between consumer and supplier, in which supply meets demand at a price that is both affordable to the consumer and profitable for the supplier—as long as there are no unfair advantages.

Unfair advantages occur when elected officials and policymakers ignore the welfare of the many in favor of the interests of the few. Such is the case with Enron. Documents show that Enron all but dictated the nation’s energy policy, allowing energy companies to increase prices of natural gas with no cap, even while supply was severely restricted. Under normal conditions, where competition exists and alternative energy sources are available, the spike in prices would eventually cease to be absorbed by consumers because they would eventually buy elsewhere as prices became too high. In the case of natural gas suppliers, these conditions did not exist. There are a handful of producers (considered an oligopoly because of the enormous obstacles for other suppliers to enter into the industry to provide competition) who allegedly colluded to restrict supply, but with deregulation and no price caps, were able to methodically raise natural gas prices, thereby leaving consumers at this industry’s mercy. The country finally started complaining loud enough and the gouging stopped. This is just one example of the greed that prevails when corporations unduly influence our legislators. And it is the tip of the iceberg in terms of Enron’s disruptive business practices.

Exxon, BPI, and Conoco experienced record profits in 2000 and 2001. Americans were told that prices rose so dramatically because there was a shortage in the oil supply due to a lack of refineries. Motorists paid the increased prices without too much of a decline in demand because the shortage didn’t last long enough to cause consumers to shift their buying habits. Because gasoline is an infrastructure-type need, much like natural gas, consumers are deeply dependent on gasoline for transportation with few alternatives. The result was gigantic profits for the oil companies.

If there were truly a shortage, the spike in gasoline prices would create enough profit, providing the resources to build additional refineries to meet demand, which would in turn bring prices closer to equilibrium. This did not happen, however. Why not? Because the shortage was fabricated, it was not a natural function of the capitalistic model. Additional refineries would only glut the market because the oil shortage was fictional. Our policy makers set the stage to allow for these short-term pricing practices, creating windfalls for a handful of corporations at the enormous expense of the consumer, as well as the taxpayer.

This analysis is simplified for the purpose of summary, but it illustrates private and public collusion. Without regulation of monopolies and oligopolies, the capitalistic model fails. When demand no longer dictates supply, and vise versa, and a handful of companies provide a product that is in high demand because it is necessarily critical to basic functioning, such as oil, electricity, water, crops, etc., then there are no restrictions on greed. If the supplier controls price exclusive of demand, and demand is automatic, then gouging is inevitable. Consumers experienced this last winter with natural gas prices.

When policy gives unfair advantage to companies, such as subsidies in some cases, or favoritism by legislators in influencing contracts, or policy that ignores costs to the end-users, to name a few means to undermine capitalism, then the economy experiences the economic shifts that benefit the very wealthy, while denigrating the rest of the nation. This is not capitalism. It is greed. Governmental economic policy and law should reflect the interests of each and every American. The adversarial-type relationship that exists between a vigilant government and an appropriately self-promoting corporate America is healthy. Swinging too wide or too narrow is when things break down. Too much government is equally undesirable. Balance exists when economic models such as capitalism are adhered to to the best of our collective knowledge and ability. When our legislators cease to use this economic, ethical, and moral compass in establishing such policy, then everything is at risk—our freedom most especially. Democracy and our republic cannot be sustained as history has proven again and again.

Hopefully, the Enron scandal will serve as a wake-up call for Americans to start getting civically involved. I believe Americans care deeply about these issues, but feel powerless to effect change. Nothing could be further from the truth. In fact, there are forces at work, most especially the media, deliberately influencing Americans away from empowerment toward a herd mentality. Each citizen must start at the grass-roots level, at home in his or her own community. First and foremost, hold your elected officials accountable. Don’t be shy—share your suggestions, opinions, and ideas with local policymakers. Ask questions and demand answers about issues that both affect and interest you. These actions reflect your civic duty. Above all vote. Your single vote matters in ways you can’t even fathom.

Residents of the Quad Cities can begin getting involved by attending the various public forums this weekend to give input on two important downtown projects—the River Music History Center and the Sky Bridge across River Drive. For schedule and locations of forums, see cover story on page 7. This is a great opportunity to get involved in the rebuilding of our community. In other words, show up or shut up. Fair enough?