All Commentary
Wednesday, March 24, 2010

Capitalism at Work: Business, Government, and Energy

Capitalism at Work by Robert L. Bradley, Jr., looks at the destructive force of cronyism (or what Bradley calls “political capitalism”) in America. Though people keep saying—especially in the wake of the bursting housing bubble and subsequent financial meltdown—that “capitalism failed,” the book makes the exceedingly important point that what prevails in the United States is not true capitalism (free enterprise, no government impediments to success nor bailouts for failure), but rather a badly deformed mutation. When critics blame capitalism, they’re blaming an innocent bystander. It’s political capitalism they should indict.

Bradley, who worked for 16 years at Enron, becoming a confidant of CEO and Chairman Ken Lay, devotes many pages to the company, perhaps the most spectacular business failure in American history. Many readers will be surprised to learn that Enron was extraordinarily dependent on political favors, a perfect example of crony capitalism. Bradley digs deep to expose the real causes of Enron’s demise, but he goes much further, showing that Enron was but one instance of the ruinous relationship between government and business.

Bradley makes his case in three parts: Heroic Capitalism, Political Opportunism, and Energy and Sustainability.

Each chapter in Part I is devoted to an individual whom Bradley considers a heroic, as opposed to a political, capitalist—that is, an advocate of free markets. Readers of The Freeman will be familiar with Adam Smith and Ayn Rand, but most likely will be unfamiliar with the Scottish moralist Samuel Smiles, whom Bradley calls “the father of the self-improvement movement.” Bradley’s profiles help delineate the positive moral ground of capitalism: self-reliance, respect for the rights and property of others, cooperation, abiding by one’s contracts, and so on.

In Part II Bradley drives home the point that political capitalism is the “intersection of business opportunity and political opportunism.” Here he vividly contrasts the positive features of free markets with the grubby, furtive nature of political capitalism, which hinges on “connections,” favoritism, and secret deals to make profits, injure competitors, and pin losses on taxpayers.

Bradley throws a wider net than we usually see in the pro-market literature. In chapter 4, for example, he discusses the influence of business writers such as Gary Hamel, Peter Drucker, and Jim Collins. He even includes a well-informed section on accounting principles, where he warns against the “invited manipulation” of fair-value accounting. And chapter 6, “U.S. Political Capitalism,” includes numerous examples of industry representatives scheming with politicians to establish government rules and regulations (and entire agencies) to limit competition for the benefit of the current members of the industry at the expense of new competitors, consumers, and taxpayers. The alarming truth is that political capitalism is slowly strangling heroic capitalism.

In Part III Bradley enlightens the reader on many issues relating to the production of energy. “The Dark Decade,” for example, focuses on the foolish governmental meddling in energy from Nixon to Carter. It’s an especially timely topic, given the Obama administration’s infatuation with “green energy” schemes that require government financial support.

At the end of the book Bradley turns to Enron. He describes its founder, Ken Lay, as a “Ph.D. economist, interested in the big picture and the ways of political power. His résumé was top-heavy with Washington experience, acquired at three federal jobs, the last two regulating the energy industry.” As Enron’s CEO he was the master of the government-favor game.

Bradley gives examples of how Enron played both sides of the political aisle and how it “politicized” its tax and accounting systems to create the illusion of profitability. Bradley states that Enron “was a logical, albeit grotesque, outcome of the mixed economy writ large.” Most Americans think that Enron’s collapse shows some inherent weakness in capitalism, but what Bradley shows is that it rose only because Lay and others in the firm knew how to game the political system. Equally important, Enron’s collapse came about because investors in the world of real capitalism finally discovered that the company was a hollow shell and dumped its stock.

Bradley’s Capitalism at Work is actually the first book in a planned trilogy called Political Capitalism. The forthcoming volumes are titled Edison to Enron and Enron and Ken Lay: An American Tragedy. I’m looking forward to both of them.