Corporate social responsibility and energy: Lessons from Enron

Dr. Robert L. Bradley, Jr. ("Why Renewable Energy Is Not Cheap and Not Green") wrote this compeling document for the Institute for Study of Economics and the Environment at Lindenwood University following his lecture last fall. Outsiders viewing Enron’s collapse blamed it on unregulated markets and free-market capitalism. But, Bradley says Enron fell mainly because it was a “politically dependent” firm, not a truly “free-market” company. The list of Enron political initiatives to promote a marketing strategy of “sustainable development” includes: 1) support for the Clinton/Gore 1993 proposal for a Btu tax; 2) aggressive investment in solar power in 1994; 3) the purchase of Zond Corporation in 1996 to start the U.S. wind industry; 4) spearheading of the nation’s most strict renewable energy mandate in Texas in 1999 and 5) unsuccessful lobbying of the Bush/Cheney administration to regulate carbon dioxide emissions. Bradley includes a never-before-published memo from Enron’s man-on-the-scene at the Kyoto climate change meetings. Writing from Kyoto, Enron’s representative predicted: “If implemented [the Kyoto Protocol] will do more to promote Enron’s business than will almost any other regulatory initiative outside of restructuring of the ‘electricity’ and natural gas industries in Europe and the United States….

"If there is one thing I have been impressed with over the last decades, it is that when the environmental community defines a number one priority, something happens. Not always something good-but something."
-- Dr. Kenneth L. Lay, Chairman, Enron Corporation, June 1997


Capitalism took the fall for Enron. Yet it is largely forgotten that this company had been a favorite of the environmental Left and an advocate/practitioner of the trendy notion of corporate social responsibility (CSR). Nonetheless, when the company collapsed in December 2001, Enron and its once-iconic chairman Ken Lay suddenly became Exhibit A against the teachings of Adam Smith, Ayn Rand, Milton Friedman, and other proponents of self-interest and voluntary exchange.

"The ideal of the unregulated market is flawed," proclaimed business ethicist Marjorie Kelly in her Enron interpretation, "and it's time we said goodbye to the invisible hand."2 Princeton economist Paul Krugman predicted in the New York Times that the demise of Enron-an event that was bigger than 9-11 in his view-would sour society against free-market capitalism.

Robert Kuttner took the argument a step further in Business Week:

For three decades now, the dominant strain of economics from the University of Chicago has been teaching gullible undergraduates and journalists that there is no such thing as the public interest. Efficient outcomes are just the aggregation of selfish private interests, and government's main job is to get out of the way. Well, after Enron, these theorists should learn some other useful trade.

These critics got it backwards. Enron was not a free-market company but a politically dependent one, the type of enterprise that capitalist intellectuals had warned against time and again. Ken Lay was not a nuts-and-bolts business executive trained in engineering, accounting, or finance, as are most market-oriented CEOs.

Lay was a Ph.D. economist with years in government (the last two stops as a regulator) whose niche became running public-utility regulated assets. In his 17 years at Enron, Lay milked the political system to benefit a variety of his profit centers, including energy trading. His efforts were enabled by mandatory access to competitor transmission systems ("infrastructure socialism," as two analysts put it ), and taxpayer-backed loans for international infrastructure development. The scale and scope of Enron's political activities, in fact, is unprecedented.

On the environmental front, Enron practiced sustainable development by sounding the alarm over man-made greenhouse-gas emissions beginning in 1988.

The firm:
• Supported Clinton/Gore's 1993 proposal for a Btu tax,
• Aggressively invested in solar power in 1994,
• Jump-started the U.S. wind industry with the purchase of Zond Corporation in 1996,
• Spearheaded the effort behind what became the nation's most strict renewable energy mandate (in Texas in 1999), and
• Lobbied the Bush/Cheney administration (unsuccessfully) to regulate carbon dioxide (CO2) emissions.

Enron received a climate-protection award from the Environmental Protection Agency (EPA) and a corporate-conscience award from the Council on Economic Priorities for its efforts. The company advanced the interventionist agenda of the President's Council on Sustainable Development; the Business Council for Sustainable Energy; the Pew Center on Global Climate Change; and the Heinz Center for Science, Economics, and the Environment, as well as sponsoring Earth Day events in Texas, California, and Oregon. Ken Lay's Enron was pointing the way to a sustainable-energy future-or so it was thought.

And then there were the regulatory reforms that Enron could not land. In the 1980s, Lay's company failed to persuade lawmakers to enact a sizable oil tariff to reduce interfuel competition to the company's natural gas operations. Enron also fell short in its 13-year drive to persuade the federal government to regulate greenhouse-gas emissions, particularly CO2, an intervention which promised profit opportunities in a variety of the company's divisions. Still, as an ex-Greenpeace official observed, Enron was "the company most responsible for sparking off the greenhouse civil war in the hydrocarbon business."

Editor's note: Full document can be accessed by clicking on the link(s) below.

Source: http://www.politicalcapital...

APR 13 2008
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