David R. Henderson  

Robert Bradley on Enron

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My previous Econlib article, "Enron: The Perils of Interventionism," described how capitalism's most trenchant critics turned the rise and fall of this once iconic corporation into "Exhibit A" against laissez-faire. Other critics, though, understanding that America's regulated economy leaves no company completely to its own devices, offered a more sophisticated case against capitalism. They linked Enron's downfall to the free-market side of the mixed economy--and to government's failure to properly control that side. New York Times business reporter David Leonhardt, for example, wrote that beginning with the Reagan administration, "the federal government has given companies fairly free rein, allowing them to operate with less and less regulation. Enron's collapse may well halt that trend." Still other analyses have blamed the company's frauds and fall on an elusive corporate ethos that is alleged to be capitalist in spirit.

Both claims are incorrect. Enron, far from being a creature of the free market, was the quintessential mixed-economy firm, using its crony connections to gain financial backing from government and using its mastery of regulatory minutiae to create the appearance of profitability. Moreover, Enron's employees demonstrated an ethos, not of capitalist creators, but of postmodern Potemkins that capitalism's leading philosophers have warned against for centuries.


This is from Robert L. Bradley, Jr., "Political Enron: Its Behavior and Spirit," April 7, 2014. It is one of the two Econlib Feature Articles for April.

The whole thing is well backed up and illuminating.


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COMMENTS (4 to date)

Enron was also trying to dine out on First Mover Advantage; give away your products early, then feast on the network effects to the exclusion of any viable competitors.

Didn't quite work out as well as the theory predicted.

Rob Bradley writes:

Good point, Patrick.

Sometimes second movers reap the spoils. I think there is a book on this ....

Bedarz Iliaci writes:

Don't all corporations take advantage of the crony capitalism when they can and lobby for favored treatment? Wasn't this noted by Adam Smith himself?

Was Enron different in this regard than Tesla, Boeing and companies that reap benefit from farm bill and sugar tariff?

And what is this about capitalist ethos? Surely the corporation exists to make money, whatever be its private ethos . I do not understand how the ethos of Enron (whatever it may be) vitiates against the spirit of capitalism and entrepreneurship.

Enron was just a company that failed. Why try to derive morals from this one incident. Aren't free markets suppose to have company failures?

I think there is a book on this ....

There is indeed, unfortunately it didn't sell well; Re-Thinking the Network Economy.

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