Krugman: Crony Capitalism, U.S.A.

Michael Pollak mpollak at panix.com
Tue Jan 15 21:39:47 PST 2002


[Krugman seems to be suggesting that Enron could be trouble for the administration even if it's all legal, simply because it will highlight something the public is already prone to think they are guilty of, namely whoring for corporate interests. They might well sputter that so's everyone, and we newshounds might cynically agree. And yet it might catch tinder all the same because the public is more predisposed to think of republicans as in the rich man's pocket. (Where they tend to think of Democrats more as morally and characterologically lacking. Even when they have both faults.) Perhaps. A fellow can hop.e]

January 15, 2002

Crony Capitalism, U.S.A.

By PAUL KRUGMAN

F our years ago, as Asia struggled with an economic crisis, many

observers blamed "crony capitalism." Wealthy businessmen in Asia

didn't bother to tell investors the truth about their assets, their

liabilities or their profits; the aura of invincibility that came from

their political connections was enough. Only when a financial crisis

came along did people take a hard look at their businesses, which

promptly collapsed.

Does this sound familiar?

On the face of it, the sudden political storm over Enron is puzzling.

After all, the Bush administration didn't save the company from

bankruptcy. But then why did the administration dissemble so long

about its contacts with Enron? Why did George W. Bush make the absurd

claim that Enron's C.E.O., Kenneth Lay, opposed him in his first run

for governor, and that the two men got to know each other only after

that race? And why does the press act as if there may be a major

scandal brewing?

Because the administration fears, and the press suspects, that the

latest revelations in the Enron affair will raise the lid on crony

capitalism, American style.

Cronyism is hardly novel in America; the Clinton administration took

us to the edge of a trade war on behalf of Chiquita bananas, a major

campaign contributor. But the Bush administration, with its sense of

entitlement, seems unconcerned by even the most blatant conflicts of

interest like the plan of Marc Racicot, the new chairman of the

Republican National Committee, to continue drawing a seven-figure

salary as a lobbyist. (He now says he won't lobby but he will still

receive that salary.)

The real questions about Enron's relationship with the administration

involve what happened before the energy trader hit the skids. That's

when Mr. Lay allegedly told the head of the Federal Energy Regulatory

Commission that he should be more cooperative if he wanted to keep his

job. (He wasn't, and he didn't.) And it's when Enron helped Dick

Cheney devise an energy plan that certainly looks as if it was written

by and for the companies that advised his task force. Mr. Cheney, in

clear defiance of the law, has refused to release any information

about his task force's deliberations; what is he hiding?

And while Enron has imploded, other energy companies retain the

administration's ear. Just days before the latest Enron revelations,

the administration signaled its intention to weaken pollution rules on

power plants; late last week it announced its decision to proceed with

a controversial plan to store radioactive waste in Nevada. Each of

these decisions was worth billions to companies with very strong

connections to Mr. Bush. CBSMarketWatch.com declared, in its story

about the nuclear waste decision, that "one group of major

energy-business political donors just hit the jackpot."

Notice the source of that quote. In recent months, while political

reporters have been busy waving the flag, business reporters have

taken the lead in telling us what's really going on. And they seem

disgusted by what they see. It was CBSMarketWatch's executive editor,

not some whining political commentator, who warned that "a small group

of business leaders exert enormous clout over Bush and his team in

getting the rules changed to their benefit."

And the business magazine Red Herring has published the biggest exposé

to date of the secretive Carlyle Group, an investment company whose

story sounds like the plot of a bad TV series. Carlyle specializes in

buying down-and-out defense contractors, then reselling them when

their fortunes miraculously improve after they receive new government

business. Among the company's employees is former President George H.

W. Bush. Among the group's investors, until late October, was the bin

Laden family of Saudi Arabia.

Another administration would have regarded the elder Bush's role at

Carlyle as unseemly; this administration apparently does not. And

Defense Secretary Donald Rumsfeld recently gave his old college

wrestling partner Frank Carlucci, head of Carlyle, a very nice gift:

Mr. Rumsfeld decided to proceed with the much-criticized Crusader

artillery system, which even the Pentagon wanted to cancel. The result

was another turnaround for a Carlyle-owned company.

Sad to say, none of this is clearly illegal it just stinks to high

heaven. That's why the Bush administration will try to keep the Enron

story narrowly focused on one company during its death throes. Just

remember that the real story is much bigger.

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