Who owns the government of the United States? The answer should be simple: the people do. After all, the root of 'democracy' is 'demos,' the Greek for common people. As America's greatest president, Abraham Lincoln, said on a momentous occasion, the nation had a government "of the people, by the people, for the people."
But in the United States today, the answer to that question is not so simple. Money, more than ideas or ideology, determines elections in America. Most of the money in American politics comes from wealthy donors and large corporations, who make large 'contributions' to candidates of both major political parties and to the parties themselves. When these people pay for something, they expect something back. What they get is something called 'access.'
Since the start of Mr George W. Bush's career in politics, the largest donor to his electoral campaigns has been a man named Kenneth Lay. "Kenny Boy" is how Mr Bush often referred to his friend, indicating the warm and intimate relation between the two. Recently, though, Mr Bush does not return Kenny Boy's phone calls. In fact, he would rather not acknowledge that he knows Mr Lay. The reason? The company of which Mr Lay was president, Enron, has just crashed in the largest and most spectacular bankruptcy in American history.
News about the collapse of Enron dominates the American media. It sometimes seems as if Enron is a centipede with a multitude of legs: every day another shoe or two drops, dominating the evening news. Here is a summary of the major events.
Until last summer, Enron was a high-flying corporation, generating cash and new business at every turn. Originally a gas pipeline company, it metamorphosed into the world's largest trader in gas, electricity, water, and all sorts of post-modern commodities such as bandwidth. But when in October Enron was forced to disclose that, well, its bookkeeping had been too creative, its soaring profits were suddenly wiped out by losses and charges it had failed to record properly. Investors began to have second thoughts about Enron, whose stock, having reached a high of 98 dollars a share, plummeted.
Suddenly Enron found itself in a huge credit crunch, and the corporation imploded. It turned out that many Enron executives had sold tens of millions of dollars of their stock while the public went on buying shares in the company, assured by these same executives that all was well. Worse, Enron executives had authorized a change in the company's pension plan that froze workers' retirement funds in Enron stock as the price nose-dived. While executives sold their stock, the workers woke up to find that their pension plan was worthless.
Enron's accounting firm, Arthur Anderson Inc., had difficulty explaining how it gave a clean bill of health to a company that later revealed it had all sorts of hidden losses. In a stunning development, it was revealed that after the civil investigation of the accounting process was announced, Anderson had shredded documents and erased computer files about the accounting at Enron.
Meanwhile, Mrs Wendy Gramm, the woman who, as a former chief government regulator of the energy business, deregulated electrical power so that Enron could speculate in electricity, turned out to have joined the corporate board of Enron shortly after she resigned her government position. Her husband, Mr Phil Gramm, was an enormously influential Republican senator. He received $97,000 in campaign donations from Enron in the past dozen years.
The Republican Party, which had the responsibility in the recent past of passing legislation that would ease Enron's path into the shady side of business, received $1.2 million in the 2000 election. The Democratic Party, which under President Clinton had supervised the laws and policies that Enron often wanted changed so that it could flourish, received $500,000. Mr Bush received $113,800 from Enron.
It is quite clear that there were three levels of failure in the American system: corporate, fiscal, and political.
The corporate level involves the sudden and spectacular failure of a deeply corrupt Enron. Enron's undoing can partially be attributed to its continued hunger for expansion into new areas. It strove to become the world's largest trading market for every sort of commodity, and it outreached itself. Many of the markets it established did not work. But the greatest contributors to the demise of Enron were its corrupt practices.
Its vaunted cash flow came from spurious accounting. It would sell a subsidiary that was losing money to another company - a shell company which Enron set up, owned and financed. That way, the losses were erased from Enron's balance sheet, and in their place was a 'cash inflow' from the shell company Enron had created. (The balance sheets never indicated that Enron had lent this money to the shell company in the first place, that it was repaying itself and counting the repayment as income.)
Equally corrupt was Enron's practice of booking the entirety of energy transactions as capitalization, rather than the amount of money Enron made from the sale. To understand the magnitude of its dishonesty, consider how outrageous it would be if a bank decided to book every deposit in its keeping as profit, rather than as a fiscal obligation to its depositors.
Why did Enron's management engage in such dishonest and ultimately disastrous practices? Because a certain stratum of American culture is money-mad, and the stock market rewards companies whose revenue seems to grow rapidly. A corporate culture which values results and not ethics created the matrix in which Lay and his confreres could build up an elaborate Ponzi scheme and be admired for doing so.
(It is worth noting that Americans as a whole have significantly different values than the corporate managerial class. Although there are indeed ordinary citizens who want to get rich quick, the huge majority of Americans work enormously hard for their money. Americans, by a significant degree, labour longer hours with less vacation than workers in any other developed nation. They struggle to send their children to college, to pay their medical bills, to care for their aging parents.)
On a second level, the Enron affair is a fiscal failure. How could the accountants not see the fraud and corrupt management, which made Enron a house built of cards? That, after all, is the job of accounting firms: to make sure that management's figures are accurate and trustworthy. But Anderson was making as much money from consulting for Enron as it was for auditing its books, for a total of $52 million in fees last year. So the consultants said, "Here is a tricky way in which you can make your balance sheet look better."
There is now a quiet crisis on Wall Street. If one of the Big Five - the small group of five accounting firms who vet the books of all major American corporations - was so spectacularly obtuse and corrupt about Enron's books, who knows what the true fiscal condition of any corporation might be? If the knowledge on which stock investments are made is hollow, then investors will take their money elsewhere: into commodities, real estate, and government bonds.
There are no direct links - yet - between the contributions and the course of Enron's remarkable rise and equally remarkable fall. What we know is that Enron fed lots of money into the political system, and the political system responded by providing a lot of the things that Enron wanted. Electricity was deregulated, transmission lines reorganized, and supervision eliminated.
When Enron did not like the chairman of the Federal Energy Regulatory Commission (FERC) that supervised much of its business, Mr Lay told him to change his views or he would lose his position. (Shortly after, when his term expired, he was not reappointed.) Thereafter, Mr Lay proposed a short list of members for the FERC to President Bush. Two of his choices for the FERC were appointed after Mr Lay recommended them to Vice-President Dick Cheney; one of them, Mr Pat Wood, is the current chairman of the commission.
Mr Clinton's secretary of commerce, Mr Ron Brown, helped initiate the disastrous Dabhol power project, in which Enron saddled India's Maharashtra state with unneeded electricity and usurious rates. Mr Cheney met secretly with Enron last spring, taking their private recommendations as a major shaping force in the nation's energy policy and acceding to their request that he pressurize India to go forward with Dabhol. The American Congress has just brought suit against the vice-president, a signal event in American history, to compel him to reveal who was at those secret meetings and what was discussed in them.
Without bribery American-style, through political donations, many of the laws and regulations that helped Enron grow from a small natural gas pipeline company to an American behemoth might never have been passed. In 1992, Congress passed and the president signed the Energy Policy Act. That legislation opened electric utility companies' wires to electricity traders such as Enron.
Campaign finance reform, stalled by the Republican House of Representatives and the Republican president, now has a chance of passage in the wake of the Enron fiasco. This reform will go a small way, though not nearly far enough, to get big money out of politics and to return the American government to the hands of the people.
In the interim, what America is undergoing is the largest political scandal in its history, a scandal which holds a mirror up to American society. In that mirror, the nation sees corporations gone berserk, dishonest fiscal procedures, and a government tainted by money and special interests.