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The Politicization of Business Prudence

My recent editorial in Investor’s Business Daily, “What Happened to Business Prudence?”, offers examples of politically correct and politically derived business practices in order to show how such “profit” opportunities can be bad for both shareholders and the broader economy.

Mortgage-lending regulation is certainly the (sub)prime example in regard to the present financial crisis–coupled with the Fed’s easy-money policy, which sparked an artificial boom. But my essay also brings attention to  the most politically motivated company in the history of the energy industry–Enron. In its prime, this company was considered “innovative” and “progressive” on energy and environmental issues such as renewables and climate-change.

But Ken Lay’s company never turned a profit with its half-owned Solarex Corp. and with Enron Wind Corp. CO2 trading never got off the ground. Enron Energy Services, an company to which firms could supposedly outsource their energy-management, lived off accounting tricks and was dismantled soon after the parent’s bankruptcy. The Left environmentalists’ favorite company imploded, but not before the company’s lobby machine had done its part to saddle Texas consumers with a renewable-energy quota. This law now accrues to the benefit of the purchaser of Enron Wind, General Electric.

My essay, which introduces some themes from my new book, Capitalism at Work, concludes as follows:

A new legal relationship between government and the economy is required — free-market capitalism in place of political capitalism. With this, should come a new understanding of the proper philosophy of entrepreneurial capitalism — tough-love prudence in place of the amorphous doctrine of “corporate social responsibility.”

2 comments

1 Ed Reid { 02.08.09 at 3:28 pm }

Enron, in my experience, dealt with some customers in ways which were ethically questionable, at best. Enron also encouraged some customers to enter into contracts the terms of which the customers could not reasonably be expected to observe. While I sympathize with many Enron employees who lost their positions when the company failed, Enron was a company which deserved to fail.

2 quanticle { 02.21.09 at 1:14 pm }

Enron also encouraged some customers to enter into contracts the terms of which the customers could not reasonably be expected to observe.

Isn’t it the customer’s responsibility to ensure that the contract they were signing was one that they could meet? If they had doubts about whether they could honor the contract, they should not have signed. After all, its not like these customers were individual persons who could be tricked with legalese into signing contracts they could not fully understand. They were other corporations, with lawyers of their own.

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