“… this book is a worthwhile read to anyone interested in the rise and fall of Enron, but distinguishes itself especially to those who have an interest in political philosophy…. [T]he book is a natural fit for economists and those interested in energy finance and market regulation.” – Travis Roach, below
It was a pleasure to read, however belatedly, Travis Roach’s review of my book Enron Ascending: The Forgotten Years, 1984–1996. (His review is reprinted below.) Roach, a professor of economics at the University of Central Oklahoma, correctly lays out the structure of the book: the stages by which bureaucrat-turned-businessman Ken Lay converted intrastate Houston Natural Gas into global Enron; how Enron became a natural gas powerhouse focused on government-enabled commodity trading; how the company came to be ruled by the asset-light visions of Jeffrey Skilling; and how finally Enron turned from profit-making to profit-modeling (financial illusionism) to rank seventh on the Fortune 500.
I have a few corrections and few quibbles with Roach’s review. First, Jeff Skilling was never CFO of Enron, as Roach says, and one must understand that being “CFO,” a staff position, would have been totally alien to Skilling’s visionary personality. He began as the CEO of a commodities trading division at Enron. As the book ends, he becomes COO of the whole company. A few months before Enron’s collapse, he became its CEO. This misstatement matters even more because the greatest villain behind Enron’s collapse was in fact its CFO. His name was Andy Fastow, not Jeff Skilling.
Second, it is true (as Roach says) that the pursuit of international partnerships with foreign governments had much to do with Enron’s failure. But it is highly misleading to cite deals with Russia and China, which were trivial, and not to mention the debacle in India (Dabhol), which was huge.
Third, Roach speaks of “the strange coupling of Enron and Greenpeace and their effort to develop solar electricity in Crete.” My whole effort, here and throughout the book, was to make the point to readers that there was nothing at all strange about this lovefest between Enron and the environmentalists. They were ideological cousins, born of the same postmodernist approach to reality.
Lastly, I have a dispute with Roach in regard to economic principles, and it is central to my whole Enron series. Roach says:
We need merely to recognize that the pursuit of government contracts, and any expenditures on lobbying to change the policy process to procure such a contract, are, in my opinion, consistent with a capitalist mindset because they are just another form of one company seeking to gain an edge on others participating in the market.”
I have heard this many times before, particularly from libertarians. Michael C. Munger said as much in Independent Review, in his 2019 article “The Road to Crony Capitalism.” Milton Friedman said as much in his 1977 speech defending corporate executives who seek tariffs.
These libertarians say, in effect, business is about getting as much money as one can, in any way that is legal. Throughout my whole series of Enron books, I have rejected that assertion by developing the concept contra-capitalism.
After reading the great advocates of capitalism—from Adam Smith, to Samuel Smiles, to Herbert Spencer, to William Graham Sumner, to Ayn Rand, and many more—I concluded that there exists a capitalist orthopraxy. To be a true capitalist, one must behave in the right way. And that way is grounded in the concept of the earned. Corporate business under capitalism is about earning as much money as one can by production and trade.
By contrast, I define “contra-capitalism” as “a syndrome of business behavior by a participant in a predominantly capitalistic system that, though legally permitted under classical liberal law, runs contrary to the major moral norms of capitalistic business behavior as set forth by the central ethical tradition of capitalism.” Such behavior includes rent-seeking and lobbying for special favors; hype and hustle; and refusing to see the world as it is, which I have called “subjectivism” and “perceptionism.”
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Enron Ascending: The Forgotten Years 1984–1996, Robert Bradley, Jr. (Wiley-Scrivener, 2018) 816 pages, ISBN 978-1118549575.
Enron Ascending is the third volume of a planned four in Bradley’s Political Capitalism Tetralogy. Previous books in the series are Capitalism at Work: Business, Government, and Energy and Edison to Enron: Energy Markets and Political Strategies. The planned Contra-Capitalism: Enron and the Post-Enron World rounds out the quartet.
Enron Ascending is a thorough and compelling accounting of the inner workings of one of America’s most infamous corporations—Enron—during its rise to prominence as it transformed from Houston Natural Gas into Enron. Bradley enjoys an insider’s view, having spent 16 years at Enron, eventually as the corporate director for public policy analysis. In addition to recounting the corporate trajectory, the book captures the diametrically opposed political views and practices of CEO Ken Lay, for whom Bradley wrote speeches. While Lay espoused free market views in private, he was quick to embrace business practices that limited free market pressures on Enron. Both parts of Lay indelibly shaped Enron. Bradley’s caricature of Lay is colorful: “Overconfident with a dose of hubris spawned different combinations of imprudence and philosophic fraud.” A Harvard Business School case study that Bradley highlights draws a similar conclusion, “an intense competitor who set goals with ‘a lot of stretch in them.’” Or perhaps the most honest opinion of Lay and his managerial style comes from Bradley’s recollection of Lay’s own comment: “[Y]ou cannot cut your costs to prosperity.” The end result of this notion was that Enron “chased dollars rather than pinched pennies.”
The book is a massive effort that tips the scale at 816 pages, consistent with Bradley’s earlier magisterial effort on the oil and gas industry, Oil, Gas, and Government (1996). The thoroughness of the treatment of the topic can be succinctly captured in the 12-page chronology of Ken Lay, which starts with the birth of his great-great-great-great-great grandfather.
The book has six parts, with the first covering the transition from Houston Natural Gas to Enron during 1984–1987. The second part addresses the crisis at Enron in 1987 and the ensuing recovery, including corporate restructuring. The third part addresses the rise of natural gas as a commodity in the period 1990–1993. The fourth part is devoted to the role of former CFO Jeffrey Skilling. The fifth part documents the expansion of Enron in traditional businesses during 1994–1996. The sixth part explores how Enron dabbled in renewable energy production, including wind, solar, and fuel cells during the same time period.
The first objective of the book is to thoroughly document the trajectory of Enron, and encapsulates what many readers may already expect to find in a post-mortem accounting. We learn how accounting practices and the relentless hunt of government contracts led to the ultimate failure of Enron. The emphasis on the latter lead to “heady” beginnings of partnerships with Chinese and Russian officials—agreements made in the hopes of becoming a natural gas “major,” on par with international oil companies. Yet the end result was unfinished projects and unfulfilled partnerships. In 1993, Lay attracted former Bush cabinet members, including former Secretary of State James Baker, to promote projects with Kuwait, Turkey, Qatar, and Turkmenistan. Bradley notes that none of these international endeavors ever came to fruition.
The insider’s view and strict timeline from project to project is a feature of the book that will be of interest to economists, historians, and political philosophers alike as the author allows us to trace the steps from executive to executive over time. Indeed, we even get an insider’s look at the strange coupling of Enron and Greenpeace and their effort to develop solar electricity in Crete, as well as other domestic renewable energy projects whose main aim was to receive Federal tax benefits. Bradley recounts the discussions the company was having regarding global carbon dioxide emissions and the impact they have on global climatic change. Unfortunately, these conversations seem to be the same discussions of “transition” fuels (along with a dose of climate denialism) that still stymy action to combat emissions at any meaningful scale, the only difference being that they occurred 24 years ago.
The author’s second major thesis of this work concerns the internal contradiction of the company: that Ken Lay did not practice what he preached, and in fact practiced nearly the opposite of what he preached. In one of the more interesting and personal parts of the book, Bradley notes that Ken Lay’s own actions were antithetical to Lay’s personal views, which tended towards Austrian economics. Bradley summarizes that, “Enron and Ken Lay, as they were and became, would not have existed in a truly capitalist culture.” While one can understand how the hunt for government contracts may seem contrary to a pure Darwinian free market, it is in fact still consistent with capitalist rent-seeking behavior. We do not need to conjure Ayn Rand’s Rearden Steel as a counterexample, though that seems to be the natural counterpoint to an executive like Lay. Instead, we need merely to recognize that the pursuit of government contracts, and any expenditures on lobbying to change the policy process to procure such a contract, are, in my opinion, consistent with a capitalist mindset because they are just another form of one company seeking to gain an edge on others participating in the market. Indeed, it is because of this rent-seeking behavior by firms that economists and political scientists continue to study optimal regulation policy and principal-agent problems.
Bradley highlights a prime example of Lay’s contradictory behavior when showing just why Enron made such a strong push into natural gas. Despite his belief in free markets and distaste for government subsidization, Lay and the company were in lock-step with many others in the industry at the time when following the allure of $2.4 billion in Federal grants and tax-incentivized natural gas reservoirs that were available between 1980 and 1990. Further, Bradley recounts Lay’s role in championing of Mandatory Open Access (MOA) in electricity transmission which, taken at face-value, was pro-competitive and more the policy of “economist reformers than by industry rent-seekers.” However, Bradley connects the dots for us in showing that this MOA ruling would stand to make Enron a “triple winner” as a power marketer, natural gas major, and renewables giant. And Enron would be even better off under this paradigm if Enron were able to ration carbon diox ide permits when a cap-and-trade program was instituted, which Lay also supported. The contrast between the words and actions of Lay remains, despite the semantic difference of recognizing this as rent-seeking behavior or capitalist culture, because Bradley is certainly right to highlight the fact that Lay’s outspoken belief in markets and market forces are conflicting with Lay’s own efforts to erect barriers to entry into these markets and limit market competition.
On balance, this book is a worthwhile read to anyone interested in the rise and fall of Enron, but distinguishes itself especially to those who have an interest in political philosophy. On the first count, the book is a natural fit for economists and those interested in energy finance and market regulation. I personally found the discussion of Lay’s involvement with FERC and EPA rulemaking illuminating. Moreover, using this book to retrace company and executive culture may be of interest to those who are interested in the intricacies and idiosyncrasies of different leadership styles.
Travis Roach University of Central Oklahoma