January 15, 2002
Crony Capitalism, U.S.A.
By PAUL KRUGMAN
F our years ago, as Asia struggled with an economic crisis, many
observers blamed "crony capitalism." Wealthy businessmen in Asia
didn't bother to tell investors the truth about their assets, their
liabilities or their profits; the aura of invincibility that came from
their political connections was enough. Only when a financial crisis
came along did people take a hard look at their businesses, which
promptly collapsed.
Does this sound familiar?
On the face of it, the sudden political storm over Enron is puzzling.
After all, the Bush administration didn't save the company from
bankruptcy. But then why did the administration dissemble so long
about its contacts with Enron? Why did George W. Bush make the absurd
claim that Enron's C.E.O., Kenneth Lay, opposed him in his first run
for governor, and that the two men got to know each other only after
that race? And why does the press act as if there may be a major
scandal brewing?
Because the administration fears, and the press suspects, that the
latest revelations in the Enron affair will raise the lid on crony
capitalism, American style.
Cronyism is hardly novel in America; the Clinton administration took
us to the edge of a trade war on behalf of Chiquita bananas, a major
campaign contributor. But the Bush administration, with its sense of
entitlement, seems unconcerned by even the most blatant conflicts of
interest like the plan of Marc Racicot, the new chairman of the
Republican National Committee, to continue drawing a seven-figure
salary as a lobbyist. (He now says he won't lobby but he will still
receive that salary.)
The real questions about Enron's relationship with the administration
involve what happened before the energy trader hit the skids. That's
when Mr. Lay allegedly told the head of the Federal Energy Regulatory
Commission that he should be more cooperative if he wanted to keep his
job. (He wasn't, and he didn't.) And it's when Enron helped Dick
Cheney devise an energy plan that certainly looks as if it was written
by and for the companies that advised his task force. Mr. Cheney, in
clear defiance of the law, has refused to release any information
about his task force's deliberations; what is he hiding?
And while Enron has imploded, other energy companies retain the
administration's ear. Just days before the latest Enron revelations,
the administration signaled its intention to weaken pollution rules on
power plants; late last week it announced its decision to proceed with
a controversial plan to store radioactive waste in Nevada. Each of
these decisions was worth billions to companies with very strong
connections to Mr. Bush. CBSMarketWatch.com declared, in its story
about the nuclear waste decision, that "one group of major
energy-business political donors just hit the jackpot."
Notice the source of that quote. In recent months, while political
reporters have been busy waving the flag, business reporters have
taken the lead in telling us what's really going on. And they seem
disgusted by what they see. It was CBSMarketWatch's executive editor,
not some whining political commentator, who warned that "a small group
of business leaders exert enormous clout over Bush and his team in
getting the rules changed to their benefit."
And the business magazine Red Herring has published the biggest exposé
to date of the secretive Carlyle Group, an investment company whose
story sounds like the plot of a bad TV series. Carlyle specializes in
buying down-and-out defense contractors, then reselling them when
their fortunes miraculously improve after they receive new government
business. Among the company's employees is former President George H.
W. Bush. Among the group's investors, until late October, was the bin
Laden family of Saudi Arabia.
Another administration would have regarded the elder Bush's role at
Carlyle as unseemly; this administration apparently does not. And
Defense Secretary Donald Rumsfeld recently gave his old college
wrestling partner Frank Carlucci, head of Carlyle, a very nice gift:
Mr. Rumsfeld decided to proceed with the much-criticized Crusader
artillery system, which even the Pentagon wanted to cancel. The result
was another turnaround for a Carlyle-owned company.
Sad to say, none of this is clearly illegal it just stinks to high
heaven. That's why the Bush administration will try to keep the Enron
story narrowly focused on one company during its death throes. Just
remember that the real story is much bigger.
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