Why Bush Stiffed Enron

The Wall Street Journal , January 25, 2002

Enron Corp. gave the Bush campaign lots of money. When Enron got in trouble, cabinet secretaries took its calls. But they did nothing to save it.

What are we to make of this peculiar chain of events? What, after all, is the point of handing out corporate money to politicians if the company can't get favors when its life is on the line? Was there a secret bailout deal that hasn't made the papers? Or were administration officials just doing what was good for the country?

It would be nice to conclude that the Bush administration turned down Enron's entreaties because of its deeply held free-market principles. But the most likely explanation is more complex and cynical. In any Republican administration, there are three forces (sometimes organized in factions, sometimes operating within the same individuals) determining economic policy: pro-business instincts, pro-market principles, and political considerations. Get two of the three on one side, and chances are that side will win.

Enron's problem, then, was exactly what Bush opponents tend to think of as its greatest strength. It was a Houston-based oil company. Enron, in other words, represented just the sort of voters President Bush can take for granted. In a reelection campaign, there's no way he would lose Texas. Indeed, many observers believe he lost the 2000 popular vote because he didn't work hard enough to get a large turnout in his home state.

So Enron had no electoral clout, giving the Bush administration no political reason to sacrifice its economic principles to help save the company. By helping Enron, the administration could only lose, angering free market supporters and embroiling itself in a business mess. A bankrupt Enron couldn't even promise future campaign funds. If only Enron had been based in Pennsylvania or West Virginia. Then things would have been different.

Just ask the steel industry. There, the Bush administration has pursued a dangerously protectionist policy, jettisoning not only its own stated principles but American leadership in breaking down barriers to free trade.

To help ailing steel companies, the administration initiated what is known as a section 201 action. This allows the government to establish import quotas or tariffs for five years, limiting competition while the domestic industry tries to get its act together.Under this law, the protected industry doesn't have to show that foreign producers get any unfair advantages from their own governments or even that imports are the main source of its problems. The industry merely has to demonstrate that it's hurt by foreign competition. Since any competition makes business tougher, that's an easy case for a struggling industry to make.

So the free-trade president has adopted a blatantly protectionist position, raising prices for everyone who buys or makes anything that uses steel. Big Steel is now demanding 40% tariffs and a bailout of $12 billion to cover lavish retirement benefits, particularly health costs. Steel retirees, who are, of course, already covered by Medicare, outnumber steel employees about 5 to 1.

Why is the administration that wouldn't try to save Enron entertaining such pro-business, anti-market ideas? It's a simple political calculation. President Bush won steel-producing West Virginia (and, arguably, the presidency) by a mere 40,000 votes. He lost steel-producing Pennsylvania by only 200,000 votes. He doesn't have to worry about carrying Texas. He does have to worry about the swing states of the steel belt.

That sort of calculation is nothing new in American politics. The first President Bush also denied the oil industry federal help while extending steel quotas.

Nor is the split a purely Republican phenomenon. Back in the early 1970s, economic historian Gavin Wright took a careful statistical look at New Deal largess. He found that the Roosevelt administration directed money not at the poorest states, which were in the solidly Democratic South, but at the swing states of the West. After controlling for how rural states were, Mr. Wright found that 80% of the variation in spending could be explained by factors that defined political swing states.

In a democracy of concentrated interests, some votes clearly count more than others. But, to look at the bright side, at least sometimes predictable votes lead to principled policies. The Bush administration dodged a bigger Enron scandal because it could take Texas for granted.