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 Why a Business Scandal Became a National Spectacle

By: Richard W. Stevenson
 The New York Times, February 17, 2002

The Enron scandal, which began with transactions complex enough to make an accountant's eyes glaze over, has by now morphed into something more: an American-style cultural spectacle, complete with Congressional hearings, movie rights and memorabilia available on E-Bay.

But Enron is more than fodder for radio talk shows and late-night comedy routines. Its collapse was unsettling in a way that seized and continues to hold the nation's attention.

Ultimately, say analysts and commentators from a variety of disciplines, the public fascination with Enron expresses an anxiety over whether the trust people place in their employers, political leaders, and even capitalism as it is currently practiced, is misplaced.

Other relatively recent high-profile cases of financial malfeasance, like Michael R. Milken's manipulation of junk bonds or the failure of Lincoln Savings & Loan under Charles H. Keating Jr., generated headlines and plenty of commentary, but there was never a sense that the average person cared that much, beyond the soap-operatic pleasure of following the doings of the rich and unscrupulous.

Enron's demise, however, is the first morality play of the post-boom era.

"One of the reasons scandals have become so important in our societies today is because they impinge upon the forms of trust which underpin social relations and institutions," said John B. Thompson, who teaches sociology at Cambridge University and is the author of "Political Scandal: Power and Visibility in the Media Age."

"The Enron scandal makes them realize how fragile this trust is, and how much they stand to lose if and when this trust is betrayed," Mr. Thompson said. "And unlike the savings and loan scandal, which was difficult for ordinary people to understand and relate to personally, the Enron scandal can be easily translated into the language of the greed of corporate bosses and the losses suffered by ordinary individuals."

In the most general sense, the Enron debacle is about whether we as employees, investors, consumers and voters were suckered into buying a boom-time vision of new business paradigms, one-way stock prices and pain-free choices — only to find, after the economy turned, that much of the promise was a fantasy, if not a fraud.

"It's a case where the rich guy took the upside and stuffed the poor guy with the downside," said Paul McCulley, chief economist at Pimco, an investment firm. "And it exposed genuine economic uncertainty among people: if it could happen there, then maybe some of the other supposed icons of capitalism were not as robust and enduring as people had thought."

Enron, Mr. McCulley said, is a reminder that market-based economies are inherently volatile — something many people had forgotten after a 10-year business expansion, the longest on record.

Indeed, part of what gives the story of Enron its power is the timing. The end of the 1990's boom could be dated as far back as March 2000, when the Nasdaq began its tumble and many dot-coms were exposed as empty vessels. But with few other signs of deterioration, the nation remained at least partly in denial through that year and into last year.

The consensus through last summer was that the expansion had slowed but not expired and that its bounty — most notably the huge projected federal budget surplus — remained intact.

After Sept. 11, confidence and optimism waned. And then, as if to confirm that an era had ended, the nation's seventh-largest company, one that had reinvented itself using the tools of the moment — technology, faith in markets, canny lobbying and an ability to exploit deregulation to create new businesses — went poof.

"If the crash of Enron had happened at the peak of the business cycle, it would not have had the same effect on the psyche," said Laura Tyson, dean of the London Business School. "It was 2001 before people accepted that the business cycle was not dead. This happened at the mo- ment of acceptance, and it's become emblematic."

The saga was distinguished by two other factors as well. More than anything, it had victims, lots of them, average people who woke up one day to find that their jobs and retirement savings had disappeared. And that sent shivers down the spines of the new investor class, the millions of working people who had begun buying stocks through mutual funds and 401(k) plans during the previous decade.

Worse, the guys in the executive suite seemed to make out just fine, suggesting that the real legacy of the 90's boom was that the rich got richer, while everyone else was left holding the bag.

Intensifying business competition and the brutal judgments of global financial markets "created a sense that capitalism in the United States was becoming more of an affair that benefits just a few at the expense of the masses," said James W. Paulsen, chief investment officer at Wells Capital Management.

There was some justification for that feeling. True, most people did well during the long expansion. Unemployment fell to three- decade lows, helping to bring many people into the world of work for the first time and making an early success of the new limits on welfare. Incomes rose; household wealth shot up.

In fact, Enron aside, much of what was good about the boom appears to have been for real, including the application of technology in a way that has made the economy fundamentally more efficient and productive.

But a relative few did much better than everyone else. Income inequality widened through the late 1990's, if not beyond.

And now that evidence of fraud has been added to a sense of inequity, there has been a populist-style reaction that is already reworking the businessman-as-hero image of the 1990's back into the more familiar one of businessman-as-villain.

"What we saw was that besides the fact that people at the top get a very large reward for innovation and risk taking, they sometimes cheat," said Alice M. Rivlin, a former vice chairman of the Federal Reserve. "The relationship between these two problems is that people at the bottom get more and more disaffected."

During the presidential campaign in 2000, Al Gore tried, with only mixed success, to cast himself as a populist running against the powerful. With Enron to point to, Democrats are trying again to paint President Bush and the Republicans as tools of big business.

They do not seem, as yet, to be having a lot of success, no doubt in part because of Mr. Bush's spectacular wartime popularity. Conservatives have warned that reading too much into Enron's demise could stifle innovation and growth.

Market forces may have been slow to react, conservatives say, but they ultimately dealt with Enron more harshly than any judge, regulatory agency or Congressional committee could have, cutting off the company's access to capital and effectively executing it.

Still, it is possible that Enron's downfall could lead to a reexamination of what kind of capitalism the country is most comfortable with. The swing toward unfettered market-based capitalism after the collapse of the Soviet Union could give way to a push toward some modest regulation and more government scrutiny of some markets.

"The issue of unfettered capitalism and the distribution of the fruits of unfettered capitalism are the two dominant themes developing here," said Mr. McCulley. "We may be swinging back toward a system that is trying to blend the upside of capitalism and at the same time truncate a little bit its less favorable consequences."

Whether that happens depends to some degree on whether there are other Enrons out there. But if nothing else, we can probably look forward to "Enron: The Movie."

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