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Economic deregulation is a good thing, as it releases 'creative market forces', which induce the necessary transparency in the economy. Such is the neo-liberal credo. The Enron scandal shows just what a fallacy this is.

by Peter Niggli

When East Asia's currencies collapsed in 1997, the Western governments blamed it on crony capitalism in the countries concerned. Business people with good contacts in government had concealed their real financial situation from investors and used their political connections to portray a false picture of security. This was an elegant way of saying that the financial crisis was rooted in corrupt cronyism, to which developing countries were particularly susceptible.

This January, US star economist Paul Krugman wrote in the New York Times that the bankruptcy of the Enron Corporation, the seventh largest US firm, would raise the lid on crony capitalism, American style.

'Cronyism' made in USA

Enron used creative accounting practices to dress up profits and conceal losses. When the managers saw disaster looming, they sold off their shares at a profit. Those footing the bill were the employees, their pension fund and all investors without insider connections.

Before the bankruptcy, the firm had been politically 'connected' on all sides. Enron made huge contributions to Bush Jr's election campaign. Eighty-five per cent of Congress members received Enron funds. The corporation favoured the Republicans, but also backed the laissez-faire wing of the Democratic Party. Last year Enron contributed decisively to writing the Bush Government's national energy plan and placed its own people in key positions in the administration.

The corporation thrived in an ideological climate that demonised any government interference in the economy and endeavoured to release the 'market's creative forces' through deregulation. Market forces, it was believed, would better discipline delinquent players than any authority.

'Transparency' was the main catchword. Private players would act on the basis of truthful information from banks and brokers who managed their money. Independent supervisory boards and audit firms would control the enterprise, whilst regulatory authorities stipulated comprehensive financial reporting.

Greater 'transparency' was also the mantra for interminable and lacklustre efforts of the International Monetary Fund (IMF) after 1997 to create a 'new financial architecture' that would render the deregulated international financial system less crisis prone.

'Market creates transparency' - a stale joke

In the wake of the Enron scandal, all of this sounds like a sick joke. Evidently, Enron had in recent years left no stone unturned in circumventing those bodies that were to create transparency or in ensnaring and neutralising their players. The US Congress also gave sterling assistance. It toned down corporate financial reporting requirements, created laws to shield managers from investor lawsuits, and in areas that were sensitive for Enron it removed minimum requirements for financial transactions.

Enron was proud to be a global player, and saw globalisation as a blessing for itself and for all humanity. The company advocated 'self-regulation' on national markets - which was why it breached that last remaining regulation in the USA.

At the international level, however, it called for comprehensive regulations to circumvent irrigating requirements in Europe and in the developing countries.

Enron lobbied first and foremost for the WTO General Agrement on Trade in Services (GATS), which promised to fulfil this purpose in the medium term. Where WTO legal codification of international laissez-faire did not go far enough, the US Government lent a helping hand. Mozambique is a case in point, where Enron obtained the concession for a pipeline to South Africa only after (then US President) Clinton threatened to cut off all assistance.

WHO, to lackey

For years now, transnational corporations like Enron have wanted the WTO to secure for them full access to national markets and to prohibit 'anti-free market' legal stipulations and regulations of individual governments as 'obstacles to trade'. This is the purpose of the agreement on investment and competition, which they have been trying to push through since 1996.

The Fifth WTO Ministerial Conference set for next year should bring that breakthrough.

For the time being, the corporations' cronies in Western governments are content to introduce the appropriate passages in the final resolutions of this year's two major UN Conferences (Financing for Development and Rio+10).

In contrast, at the Rio+10 conference this autumn, NGOs from all over the world will be lobbying for a comprehensive agreement regulating the obligations of transnational corporations - so as to put an end to crony capitalism and bring the 'Enrons' back into the political economy.

- Third World Network Features

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