the commentaries and opinions of various people on the collapse
of Enron was a salutary lesson to me in how prejudice and ignorance
so easily taints one’s conclusions about the world around them.
To wit, I am referring to those critics of capitalism who are gleefully
telling us how the loss of Enron jobs and retirement funds is a
proof of the failure of the capitalist system. Or, as they often
try to drum into us, capitalism equals greed equals capitalism.
I think reality check time has arrived and we ought to remind ourselves
of a basic but simple fact concerning the human condition. This
saga is not a proof of the failure of the capitalist system; it
is a proof of the failure of the human tendency to greed. As US
treasury secretary Paul O’Neill said, the collapse of energy giant
Enron is “part of the genius of capitalism." You take a risk and
you may reap greater rewards or you lose your shirt. If you can’t
stand the heat in the kitchen, you get to keep the shirt but don’t
expect the cashmere coat to wear on top.
am not focussing here on the dubious practises of the executives
and accountants related to Enron, we’ll leave them to the judicial
processes of the land. I want to simply comment that those who demand
that the government bail out the 401K pension holders are wrong.
look at those pension funds reveals they were top heavy in Enron
shares. Sixty two percent of an employee fund could consist of Enron
shares. Enron matched individual contributions with equivalent company
shares, individuals had full control over their investment decisions
and many choose to top up further with their own shares purchased
at discount prices. They choose to ride the trend of a grossly over-inflated
stock as the price soared to over $85 and “irrational exuberance”
had its hypnotic way. Personal funds ballooned into six and seven
figure numbers as many spied afar off the promised land of financial
salvation. A very familiar story, a very human story.
those who retired and moved their pensions to safer funds near the
bubble top, we say “Good timing, well done. You took the risk and
won." To those who are left with depleted funds we say, “You took
a risk and failed, please consider diversifying your investments
next time." To those thirty-somethings who have time to recoup their
losses, the loss may seem big but it is not a mountain. They have
to accept part of the responsibility of putting the precious eggs
of retirement into one basket. Society advances by learning from
its mistakes, so ought individuals to act.
accepted the good times as Enron provided free gymnasiums, taxi
rides, theatre tickets and first-rate benefits (see this link).
As one employee said: “If you hadn’t earned $1m within four or five
years, then you weren’t trying hard enough,." Now they have to accept
the bad times also.
one grain of hope they may consider is to sue Enron for depriving
them of the individual liberty of selling their shares when the
bad news became apparent. Enron did not allow this and that is criminal.
Enron allowed their executives to cash their shares in but that
is because they essentially are Enron.
what is greed? Is it an expectation of more than you are entitled
too? That is pretty unquantifiable. It is more like an expectation
that becomes so all-consuming that all rational analysis is left
at the front door. It is an expectation that is self-perpetuating
and self-authenticating and leads one to conclude that such and
such an investment cannot fail. It did and rational analysis made
a dramatic and sudden comeback. I expect a lot of these people will
stay in low risk investments for a long time.
was capitalism in all this? That is easy. Capitalism espied Enron
from afar and unsheathed its blood-stained sword – for it is a sword
that always runs red as it tests and probes those who challenge
its universal law. The questioning blade pierced the armour of Enron
and his blood mingled with that of a hundred Nasdaqites. Enron staggered
and fell dying upon the heap of bankrupt and economic apostates
whilst Capitalism smelt the putrefying stench of cooked books and
thundered off in the direction of Andersen Accountants.
is greed so readily linked to capitalism? The answer to that is
simple, greed seeks those places where it can best satiate itself
and is optimistic that wealth can be found and produced. Capitalism
in combination with free market access maximises the efficiency
of wealth creation and greed knows this else it would not congregate
around it. The trouble with the critics is that they cannot see
capitalism for the various clients that enthusiastically congregate
around it. They equate the parasite with the host and do err greatly.
Cleanse the land of the illegal parasites and the beauty of capitalism
will shine all the more perfectly.
lies the genius of capitalism. The most awesome and probing tool
of wealth creation known to man.
Watson [send him
mail] writes from Edinburgh, Scotland.