It's been a long time (1989 A-Level Economics when I was defeated by the mathematics) since I have read a serious text book of economics. But, in the last week I've read Joseph Stiglitz's fascinating analysis of the recent financial crisis, Freefall: free markets and the sinking of the global economy. "Wall Street's high rewards and single minded focus on making money might attract more than its fair share of the ethically challenged," writes Stiglitz, "but the universality of the problem suggests that there are fundamental flaws in the system." A confluence of things led me to investigate why this respected economist is convinced that there is a "systemic" failure in free-market economies.
I'll return to Stiglitz in a later post but what were the things that drew me to his book? First, a General Election in Great Britain and the intuition that the recession and its consequences are far from over (I write this post the day after the first public tv debate between the leaders of the three main political parties. This debate was peppered with views about what stimulus package would help or hinder the recovery, nationally and internationally. Also, the latest news on the wires is that Goldman Sachs has allegedly been involved in fraud and share prices are collapsing...). Secondly, I bumped into a visitor to Brentwood Cathedral at one of the Easter Sunday services. "What do you do for a living?" I asked. "I work in the City. I'm a banker," he said, adding half-jokingly "but don't tell anyone." In the popular imagination, bankers and priests have acquired a sort of pariah status. We are the new unclean. I shook the banker's hand. And, finally, I got to see Lucy Prebble's play, Enron. Who would have thought that mark-to-market accounting could make for two hours of thrilling theatrical inventiveness? Enron does.
The energy giant, ENRON was America's seventh largest corporation. It had taken 16 years for it to grow from 10 billion dollars of assets to nearly 70 billion dollars. It took 24 days to go bankrupt and collapse on 2 December 2001. This was the corporate world's equivalent of the collapse of the Twin Towers. It's devastation would not be counted in numbers of dead, but in jobs lost, houses reclaimed and futures lost. On 2 December, 21,000 staff in Houston were given a severance pay of 4,500 dollars and half an hour to pack their desks into boxes in a building they had christened the "Death Star".
Lucy Prebble's play is morality tale of financial testosterone (although a number of women executives were involved) and metastatic hubris. "I believe in God. I believe in democracy and I believe in the company," says Kenneth Lay, the Enron Chairman, in the play. It was not Milton Friedman or John Maynard Keynes that the executives at Enron were reading, but Richard Dawkins' The Selfish Gene which outlines the view that the genes that survive are those who best serve and protect their own interests. Financiers added dollar signs to their crude reading of Social Darwinism. "Creative" accounting became the intellectual pursuit that masked the self-interest of the Enron executives. In a programme note, Tim Bouquet writes:
Enron was becoming a financial fantasy land still paying million dollar bonuses based on imaginary profits when it was really 30 billion dollars in debt. It was debt that needed hiding. [Jeffrey] Skilling (the CEO) called on chief financial officer Andrew Fastow, who set about creating hundreds of companies called special purpose entities, with exotic names like Jedi and Raptors, in which he stashed the company's debt where it posed as assets.
The financial whizz-kids of Enron were well versed in the films of Stephen Spielberg and George Lucas. In a sense, their financing and lives mirrored the CGI effects in the films they were watching. Their conscience was avatarised. The lines between reality and fantasy were wilfully blurred so that self-deception and the deception of others became not only possible, but normative behaviour. Prebble's play is a reminder that behind the flashing stock market figures and adrenalin rush of the trading floors were brilliant men who had lost a grip on an objective moral order within which to work and make money. The fundamental issue was not that they had money, but that the money had them in a constricting stranglehold and they willingly participated in this moral degradation. Bethany McLean, author of The Smartest Guys in the Room about the scandal, observes:
It is like looking at the flipside of so much possiblity that ended terribly. It started with a lot of people who thought they were changing the world and over time they became victims of their own hubris, victims of their own greed.