Recomendaciones

“You need to change your opinion.” So said Enron’s Jeff Skilling in an individual meeting with the chairman of the House Energy and Power subcommittee in 1999. Skilling proceeded to lecture the congressman, in his own office, on the obvious wisdom of forcing states to deregulate their energy markets. As a celebrity top executive of a Fortune 10 company, Skilling felt entitled to give orders in Washington—perhaps especially when, as in this case, he was speaking with a Texas Republican. One high-ranking member of Enron’s government staff later said “Jeff thought you could throw money and buy people and they did what you told them to do.”4 As a general matter Skilling regarded public officials as “idiots,” and in conversations like this one he made little effort to hide it.

That year Enron was approaching the peak of its glory. It was entering more and more markets, its price per share was close to $100, and it was soon to be named Fortune magazine’s “Most Innovative Company in America” for the fifth year in a row. Yet in retrospect all of this appears dramatic prelude to the infamous bankruptcy of 2001. The mainstream news media would then register disgust with Enron’s leadership; particularly founder and CEO Ken Lay, former CEO Jeff Skilling, and CFO Andy Fastow, who had personally pocketed $60.6 million over years of accounting trickery.5

After the initial shock and condemnation of these executives, some observers began to fume that only a government bowing to corporate prerogative could have allowed such a disaster. Perhaps, the allegation ran, federal regulations had condoned this egregious fraud because of the documented campaign contributions that Enron had given to both parties. This complaint

4

Bethany McLean and Peter Elkind, The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron (New York: Portfolio, 2003), 173.

5

McLean & Elkind, Smartest Guys in the Room, 376; Kurt Eichenwald, Conspiracy of Fools: A True Story

(New York: Broadway, 2005), 554. These facts are uncontested; Fastow pled guilty on January 14, 2004 to conspiracy counts of wire and securities fraud, to reduce his forfeiture of assets and prison sentence in exchange for cooperation as a witness in the prosecution of other executives (Eichenwald, Conspiracy of Fools, 672).

soon broadened to refer to corporations more generally: that big business was buying favorable legislation, to the detriment of Americans’ interests as investors and as citizens. The

circumstances surrounding Enron’s bankruptcy cast shame on company executives as well as Congress, the president, and energy regulators. But for those who felt that big business enjoyed too much influence on government—and that argument of course long pre-dated Enron—this scandal actually was not a particularly good case in point. Nonetheless, political narratives used Enron to symbolize corporations’ political power during the 2002 debates on campaign finance reform. This analysis will explore how and why.

Between 1989 and 2001, Enron gave roughly $6 million in campaign donations, with about two thirds going to Republicans. Its foremost executives also gave generously on an individual basis. Enron was one of George W. Bush’s primary backers, and the Bush family had long been personally connected to Ken Lay.6 There is no doubt but that Enron won some influence in Washington: For example, Vice President Dick Cheney appears to have consulted Lay personally, in secret, as he crafted the Bush administration’s energy policy. Another Enron protégé, Sen. Phil Gramm (R-TX), co-sponsored a law that relaxed commodity futures trading— vital to Enron’s business model—while his wife Wendy sat on Enron’s board of directors.

But Enron had a grand political objective whose defeat far outweighed such victories. During its most successful years, the mid to late nineties, the company focused all of its

Washington wherewithal, including lobbying, advertising, and millions of dollars, on the legislative effort to force nationwide energy deregulation. This would not only have been a financial boon, but also an ideological triumph, for Enron. Yet congresspeople, including many who had gladly taken Enron moneys, flatly rejected the proposal, as did Rep. Joe Barton in our opening scene. Even as its “government affairs” budget staggered, Enron could not even move the bill out of committee.

When Barton ended the aforementioned meeting with a final rejection of Skilling’s proposal, it might have appeared that the Enron executive had made a grave political misstep. In truth, Skilling was fighting a losing battle—if sloppily. And at any rate, the company had many

6

advocates in Washington who were more socially adept. (Indeed, given his attitude toward government and his typical manner of engagement, both well known, it is not clear why Skilling was allowed anywhere near the Capitol as a representative of Enron). Deregulation stalled mainly because local utilities—smaller businesses in the various states—had stronger connections to their congresspeople than Enron did. In other words, this flush multinational corporation faced opponents who had far less money to spend, and yet found with all its might it could not even mount a challenge.7 This legislative loss to smaller, regional utility companies hardly represented any populist victory, for here one set of business interests simply trumped another. However, it pointed up that “Business” is not a monolithic interest group; and indeed that even an Enron can be overridden in this fragmented constituency’s internal struggles. More to the point in BCRA debates, it demonstrated that Enron made a poor model for campaign finance reformers, who spoke of large corporations that could buy any national policy they pleased.

Nonetheless, as the Enron scandal unfolded, politicians, including President George W. Bush, had to distance themselves from the company. Many legislators who had received moneys from Enron hastened to return them.8 And when campaign finance reform came up for debate just a few months after the bankruptcy, congresspeople were forced to contend with the proposition that they themselves were to blame, in part, as well. The story that developed, awkward as told by legislators, suggested that Congress’ “conflict of interest” was the problem; that lawmakers were declining to effectively regulate big business because they relied on corporations like Enron for campaign funding. As opposed to simple demonization of greedy tycoons, which underpinned the Sarbanes-Oxley accounting reforms of that same year, this explanation implied a need for institutional change that would address the business-government symbiosis. Since 1907 corporations had been barred from making direct campaign contributions, but they were known to funnel money through individual executives; to sponsor so-called issue ads that clearly supported one candidate over another; and to make generous soft money

Ibid., 173.

8

Victoria A. Farrar-Myers and Diana Dwyre, Limits and Loopholes: The Quest for Money, Free Speech and Fair Elections. (Washington, DC: CQ Press, 2008),82.

donations to parties (soft money being that which is unregulated by federal campaign finance law). Addressing such loopholes was the main stated rationale for the Mc-Cain Feingold and Shays-Meehan Bipartisan Campaign Reform bills, known together as the Bipartisan Campaign Reform Act.

Enron was thus not only conceived as a business scandal, but also—if reluctantly— considered as a political scandal as well. Ari Adut has pointed out that political scandal is in some ways endemic to democratic systems, because it entails certain expectations for leaders’

behavior, and empowers voters (if informally) to arbitrate what is acceptable and what is not. Political scandals can also represent “democracy in action,” as when culprits are criticized, voted out of office, impeached, or even prosecuted as a result of their scandalous deeds.9 Legislators, naturally, wanted to contain the narrative of Enron as political scandal, and thereby contain its possible impact on them. Therefore the BCRA debates conveyed, at every turn, careful and calculated negotiations between admission and denial; humility and grandiosity. But this was not the first time that American leaders undertook a tentative self-examination on the issue of money in politics.

A History of Big Business, Big Money, and Campaign Finance

Campaign expenses, and how they were covered, were not always so controversial in the United States. To begin with, “electioneering in the founding era did not involve large sums of money.”10 Candidates ran (then, tellingly, the term was usually “stood”) for office, largely on their pre-existing reputations rather than by proactively engaging the public. What little money was required went largely to printing and distributing campaign literature. When George Washington campaigned for a seat in the Virginia House of Burgesses, his provision of free alcohol to the 391 voters in his district (generously averaging more than one and a half quarts per head)

Adut, On Scandal, 75.

10

John Samples, The Fallacy of Campaign Finance Reform (Chicago, University of Chicago Press, 2006), 31.

represented an exceptionally large campaign expenditure. Furthermore, whether large or small, campaign expenses were paid by the gentleman candidate himself.11

By the early nineteenth century, however, the scenario began to change. Increasingly, men of more modest means entered politics—and though this development in one sense a realized a democratic egalitarian ideal, it also signaled a new role for money in electioneering. The “professional politician” hereby emerged; a candidate who relied on others to fund his campaign. His entrance entailed not only requests for donations, but also gave rise to the spoils system, whereby a newly elected officeholder would grant government positions under his purview to those who had supported his run. Eventually beneficiaries of the spoils system were expected to pay for their jobs, as the national political parties took assessments on their

salaries.12 Thus the primacy of money came not only to saturate the process of campaigning, but also the mechanisms of governing.

As the nineteenth century wore on, big business gained its reputation—and rightly so— for buying influence with public officials. Railroad executives in particular had a relatively easy time manipulating and paying off government officials at both the state and federal levels, and often thwarted unfriendly reform efforts with campaign contributions and outright bribery.13 By 1874, railroad leaders felt comfortable announcing that they would “disregard” regulations that were enacted against their wishes, such as the Wisconsin “Potter” Law controlling freight rates and passenger fares. In 1890 the president of the St. Paul Railroad seemed to declare that the railroad industry was self-governing. Its executives, Robert E. Riegel wrote, were “practically independent sovereigns, exercising functions and prerogatives in defiance of the laws, and practically denying their amenability to the laws of the country.”14 The word “practically,” used twice here, probably does not mean “virtually” or “almost.” Rather, Riegel was describing who

11

Congressional Quarterly, Congressional Campaign Finances: History, Facts, and Controversy

(Washington, D.C.: Congressional Quarterly, 1992), 29.

12 Ibid. 13

Jack Blicksilver, Defenders and Defense of Big Business in the United States, 1880-1900, American Economic History: A Garland Series, ed. Stuart Bruchey (New York: Garland, 1985), 212, 222.

14

Chester McArthur Destler, “The Opposition of American Businessmen to Social Control in the Gilded Age,” The Mississippi Valley Historical Review 39, no. 4 (March 1953): 641-72. 647.

made the railroads’ rules in practice, regardless of ostensible jurisdiction—and this came not as a complaint from some railroad discontent; but from someone highly ranked within the industry. The railroads would either buy the government that they wanted, or make a government of their own.

The railroads were not the only business group perceived to be above, or in control over, the law. Joseph Keppler’s famous editorial cartoon of 1889, “Bosses of the Senate” would become an icon of the Gilded Age. Keppler depicted the “bosses” as a line of grimacing men with dollar signs on their chests. Their bodies were roughly ten times larger than those of the senators, mostly due to gigantic stomachs, on each of which was written a given industry “trust:” sugar, coal, iron, and so on. They had entered through a wide doorway designated just for them, and in the background was a small window—closed and locked—marked “PEOPLE’S ENTRANCE.” The trusts, then, were apparently gorged on profits and power. Not only did they give orders in the senate—the “people” who senators supposedly represented were not even allowed in.15

If Congress appeared compromised, so too did the White House. William McKinley’s presidential victory over William Jennings Bryan in 1896 was partly due to the pioneering fundraising of campaign manager Mark Hanna, who developed a systematic means of soliciting donations from banks and corporations.16 If Bryan represented populism, then his defeat by McKinley and the Republicans’ big business allies was surely apt. It was the election of 1904, however, that decisively solidified the movement for national campaign finance reform. By this time the complaints of undue business influence in politics were strong enough to overwhelm opposition.17 Although some states had enacted campaign finance reforms during the late nineteenth century, the first major federal law on the subject was the Tillman Act of 1907. Tillman forbade corporations from contributing directly to federal campaigns—outlawing the type of funding that had helped bring McKinley and also Theodore Roosevelt to office.

The image first appeared in Puck on January 23, 1889. “Bosses of the Senate” has many ideological descendants among modern editorial cartoons—up to and including many artistic renderings of the 2010 Supreme Court decision Citizens United v. FEC, which relaxed rules on corporate campaign spending.

16

Congressional Quarterly, Congressional Campaign Finances, 30.

17

Robert H. Sitkoff, “Corporate Political Speech, Political Extortion, and the Competition for Corporate Charters,” The University of Chicago Law Review 69, no. 3 (summer 2002): 1103-116. 1128; Congressional Quarterly, Congressional Campaign Finances, 30-31.

The next major episode in campaign finance and the controversial relationship between business and government came with Teapot Dome. In 1925 Congress learned that the Teapot Dome reserve in Wyoming had been secured through bribery of public officials, and with contributions to help retire Republican campaign debts incurred in 1920. The scandal

corroborated then-President Warren Harding’s reputation for being on the take. Harding, who brought “cronies, poker, cigars, and bootlegged highballs” to the White House, indeed had had a hand in the operation. The head of the Department of the Interior, author of the secret leases, was an old friend of the President, and Harding granted him control of the reserves on dubious reasoning.18 Again, public outcry enabled reform; this time as the Corrupt Practices Act. The new law mandated more thorough and more frequent disclosure of campaign funding sources, thereby closing one loophole that had made the Teapot Dome scheme possible. It also tightened

restrictions on contributions, electioneering, and campaign spending, and broadened the purview of campaign finance regulations to apply not only to money but also to “a gift, subscription, loan, advance…or anything of value.”19

Nearly fifty years later, the Watergate scandal set off yet another impromptu referendum on the role of money in politics. On its face, the sordid story was of a president who

commissioned an office break-in. Watergate, however, was also an embarrassment in campaign finance. Richard Nixon’s 1972 reelection campaign, it turned out, had been largely financed by unreported contributions that were illegal by virtue of source, size, or both. Furthermore, some of these very funds went the conspirators who carried out the break-in at the Watergate Hotel, both in advance of the operation and afterward.20 Yet again, scandal cleared the way for a reform initiative that long pre-dated it. In 1974, public opinion polls showed that Americans ranked “government corruption” among the most important national issues, and that support for

Irving S. Michelman, Business At Bay: Critics and Heretics of American Business (New York: A. M. Kelley, 1969), 79-80.

19

Congressional Quarterly. Congressional Campaign Finances, 31-32.

20

disclosure laws and public campaign funding had risen from previous levels.21 That year reformers accomplished a major set of campaign finance regulations as amendments to the Federal Election Campaigns Act of 1972. This legislation began the public funding system for presidential campaigns, further restricted donation amounts (and outlawed them entirely from some sources), mandated more disclosure of gifts and expenditures, and created the Federal Elections Commission to oversee federal campaign financing.

Congress has been accused of enacting these new regulations essentially for show: so that they could appear to be taking action in response to Watergate. Indeed, nearly all of the campaign finance abuses associated with the scandal had already been illegal;22 thus any reform conceived strictly to close what loopholes remained, could have been minor. Instead, Congress propounded the most sweeping legislation on election funding to date. In The Fallacy of

Campaign Finance Reform, John Samples argues that this was, in part, due to another form of opportunism—here pertaining not to a pre-existing reform crusade, but, more cynically, to legislators’ practical self-interest.23

Thus the post-Watergate laws instantiated, perhaps most obviously, a perennial phenomenon in election reform. Here the uniqueness of campaign finance, as a topic of lawmaking, becomes particularly relevant. It is unlike most other realms of law that Congress considers and debates in that it pertains to the legislators themselves, carrying a much greater impact for them, overall, than it does for their constituents. People in Congress, when dealing with electioneering issues, are in the unusual position of making rules primarily for and about

themselves. And because campaign finance so directly affects their own careers and lives, legislators can hardly ignore the prospect of either helping or harming in decisions about regulation.

Specifically, immediately after Watergate and up to the present time, legislators have attempted to shape campaign finance according to their own desires as incumbents and as

21

Julian Zelizer, “Seeds of Cynicism: The Struggle Over Campaign Finance, 1956-1974,” The Journal of Policy History 14, no. 1 (2002): 73-111. 99-100.

22

Samples, Fallacy of Campaign Finance Reform, 215.

23 Ibid.

partisans. First, limitations on campaign contributions or spending typically help incumbents by undermining challengers. In most cases, a challenger must raise and spend far higher amounts, compared to someone already in office, to mount a viable candidacy and thereby a real

competition. It is not difficult to see how such a handicap on challengers might appeal to a Congress that is, by definition, composed entirely of incumbents—most of whom want to keep their seats. Second, different types of campaign finance reform are distinctly partisan because they can either encourage or hinder the kinds of donations that go to Republicans or to

Democrats. For example, unions being banned, in 1943, from contributing directly to campaigns, was a strategic answer to the analogous ban on corporate donations; for unions tended to back