People's Democracy

FICKLE CAPITAL? Or the sort of capital that simply vanishes from the books one fine day? Enron is one company that should be familiar with the phenomenon. What was once the seventh largest company in the USA in revenue terms, filed for bankruptcy protection on December 2. The international press is terming it the largest corporate bankruptcy in US history, but it may also turn out to be the biggest scam in US history, once the American Justice Department, four Congressional Committees and the Labour Department hand in their verdict.

These numerous investigating agencies are examining whether Enron executives misled investors by rigging revenue figures and understating debts through use of many undisclosed partnerships. The Labour department is also looking at how Enron handled its employees’ retirement benefit plans. Basically, all this is a very polished way of saying that investigations are to look at how and to what extent Enron’s top bosses did any and everything to make sure that the share price of Enron did not weaken and profits were made at the very top. Never mind the company’s or other employees’ long term welfare or interests.

In November, a month before declaring itself bankrupt, Enron disclosed that it had overstated its earnings by $ 567 million, since 1997. On the day that they chose to declare insolvency, the myth at the stock market also crashed. The share price fell from ninety dollars a share to one dollar a share. Enron employees were devastated and not initially allowed to sell shares in their plans. Enron plans to sell up to six billion dollars worth of its assets to pay off its debt.

Enron’s executives were "able to convince investors, bankers, analysts, accountants, debt-rating agencies and even Enron’s own employees, that its promise was real, its financial results genuine and its growth never-ending. Never mind the way it accounted for trades, as is common in energy trading companies, "made its revenues appear to be far larger than the economic reality of its business" [The New York Times, Online edition, January 14, 2002].

Basically, what this draws attention to is the way profit is "created", especially when it doesn’t exist, and all possible parties, analysts, company watchers are investors, and join in a make-believe plot and construct success stories. It's only when the bubble is unsustainable that it all comes crashing down, carrying with it the fortunes, pension money or savings of those with meagre or very little to fall back upon. The crash however, happens well after the fat cats have bolted with the loot, as well as secured their reputations.

What is even more illuminating in this case is the way the political elite has been shown to be a party to the scam -

US President George Bush is said to have received five hundred thousand dollars for various campaigns from the corporation [The Washington Post, in Enron’s Fall, January 15, 2002];

Kenneth Lay, the Enron Chairman, was also one of the 474 people George Bush named in January last year, to advise his presidential team.

Vice-president Dick Cheney’s aides met Enron officials at least six times last year [by their own admission], and continued to advise the President’s team on "energy matters" !

There are serious reservations being expressed in the US about the steps the Cabinet there should have taken to protect Enron’s shareholders and employees. President Bush, [exactly like vice –president Cheney] once headed an energy production company, and the president is said to have "personal and political ties" with Enron [The Washington Post, January 14, 2002].

What this story serves to illustrate is how deep and wide the rot is. Enron may have chosen by sleight of hand, to rig up share prices [a very familiar story in India], to benefit a few, and virtually "invent" a reputation of being a solid and formidable name. While this is horrifying enough, what actually is appalling is the way in which everybody is involved, and would go all the way to cover up for it.

Perhaps the worst apologists for this are right here, in our own country, who refuse to even report the story as it should be reported. Whilst the story makes its way regularly to the front pages of all international dailies, our papers refuse to report it anywhere except on page eight, or even nine, in the possible hope that no one will find out; still more in the hope that the mess that Enron is will not be an issue, or worse, become a symbol of the corporate racketeering the late nineties had witnessed. These people had made Enron such a pious symbol of India’s own [misplaced and mismanaged] economic liberalisation in the nineties, that it would be too dangerous for them to recognise that there was room for doubt, and plenty of doubt at that, when our very own local deal with Enron was struck in Maharashtra.

The liberalisation mantra has been chanted so frequently, that nobody even wants to acknowledge that something is seriously wrong. One is not is urging these people to pay attention to the high tariff costs that Enron had proposed for its Dabhol venture, or even the controversial counter-guarantee offered to them. But in the present environment, aren’t our `analysts’ seriously behind the times in not even recognising the blots on the sleeves of the mightiest symbols of the `free market’?