Public Scrutiny Dries Up Special Interest Cash Flow
As reporters systematically uncover the links between Enron Corp., its accountants and virtually every politician with a pulse, the multiplying connections can obscure as much as they reveal.
In many quarters, the story is being portrayed as a simple morality tale of how money corrupts politics. Yet the lesson of Enron’s experience in Washington is more complex. Money always matters, but it matters most when the press and public are not watching the decisions money is meant to manipulate. If there’s a wake-up call here for politicians, there’s also a ringing alarm for reporters and voters to pay more attention to what their government does. Because, more often than not, such public scrutiny is the only offset to the power of special interest cash.
Campaign reform advocates often act as if the way to understand everything that happens in the capital is to just follow the money. But money is only one of several ingredients that produce decisions in Washington.
Ideology, and yes, even principle, matter at least as much. So do electoral calculations. Big donors win more than their fair share of political disputes. But when a problem provokes an unambiguous public demand for action, even the most powerful contributors and supporters can get rolled.
If contributions were always the decisive weapon in political arguments, there would be no Occupational Safety and Health Administration, no Food and Drug Administration, no Clean Air Act, no Medicare (which the medical industry adamantly resisted), no ban on assault weapons and no fair lending laws. Each time, well-heeled interest groups resisting changes were abandoned by politicians who feared disappointing an engaged public.
The same thing happened to Enron last summer. For months, Enron’s opposition helped block price controls on the wholesale electricity sales that had become an important profit center for the company. But when soaring power prices in the West generated enough outrage to prompt Congress to begin seriously discussing controls, the Federal Energy Regulatory Commission reversed itself, swallowed its deregulatory instincts and approved the caps.
It’s when the press and public aren’t watching that money really talks. The Enron scandal illuminates this basic truth of Washington life: the more obscure the issue, the greater the leverage of special interests. Put another way, there’s an inverse relationship between the amount of public and press attention a Washington decision attracts and the ability of special interests to shape the result.
Over and again, the Enron story underscores this point. Today, many in Washington consider the Andersen accounting firm’s dual role as auditor and management consultant for Enron an inherent conflict of interest. But that conflict didn’t seem so obvious when the Securities and Exchange Commission tried to ban such double-dipping toward the end of the Clinton administration. The accounting industry mobilized a huge campaign against a proposal by then-SEC Chairman Arthur Levitt to bar accounting firms from auditing and consulting for the same clients.
Last week, USA Today revealed that at least 50 members of Congress wrote the SEC in 2000 opposing the rule. Sen. Phil Gramm (R-Texas), the Senate Banking Committee chairman, wrote to complain that “adoption of the proposal could result in a wholesale overhaul of the accounting profession.” Democratic Sens. Charles E. Schumer of New York and Evan Bayh of Indiana piled on too.
Some of those most aggressive in denouncing the Enron scandal today--such as Rep. W.J. “Billy” Tauzin (R-La.), chairman of the powerful House Energy and Commerce Committee--were most insistent on blocking Levitt then. “There is no evidence set out in the [SEC’s] rule proposal that even suggests that there is a problem caused by a broad scope of services, let alone a problem that needs to be addressed right now,” Tauzin wrote of Levitt’s initiative.
Maybe all these legislators genuinely believed the SEC proposal was government run amok. But their fervor may have been at least somewhat stoked by the $53.4 million that, according to the Center for Responsive Politics, the accounting industry has contributed to candidates for federal office since 1990.
The fight over the SEC proposal proved no contest. Almost all of the pressure came from the accounting industry and its allies; with the press paying little notice, there wasn’t enough public engagement to offset the industry muscle. The result was predictable: Levitt was forced to back down, and Andersen was free to wear two hats at Enron. Only now, with Enron’s fall, is the SEC facing calls to reconsider (from Tauzin, among others).
A similar dynamic drove Enron’s success at virtually exempting from government oversight its lucrative business in trading contracts to supply electricity. Today, reporters are crawling over that history, particularly the role played by Gramm and his wife, Wendy (the former head of the Commodity Futures Trading Commission who later joined Enron’s board), in carving out that exemption.
But when the critical decisions were made--at the commodity commission in 1993 and in Congress in 2000--hardly anyone noticed. Less attention meant more clout for Enron.
Scandals change the balance of power on these obscure but critical decisions by widening the circle of interest. For politicians, siding with the demands of a special pleader suddenly carries not only benefits (campaign contributions) but costs (voter doubts about your allegiance). To stand with Enron now is to stand against workers and retirees who were financially crippled by the firm’s collapse. That makes the money less persuasive.
In that way, scandals have played a cleansing role, propelling reforms otherwise unlikely to overcome special interest resistance. Enron now looks like a financial Love Canal: a crisis that makes practices long tolerated suddenly unacceptable.
But as Enron’s retirees can testify, there’s a price for delaying reform until scandal occurs. The better answer is greater public scrutiny of legislative and regulatory favors for special interests. Lots of people and institutions failed in the Enron mess. A distracted press and public were among them.
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Ronald Brownstein’s column appears every Monday. See current and past Brownstein columns on The Times’ Web site at: https://www.latimes.com/brownstein.
