- The Washington Times - Thursday, January 31, 2002

Liberal critics of the Enron Corp.’s sudden collapse want us to believe its bankruptcy represents American-style,

free-market capitalism at its worse.

On the contrary, what happened to this once-high-flying energy trading company is a prime example of how efficiently our capitalist system acts to cleanse our economy of weak, inefficient, badly run businesses.

Enron’s precipitous plunge into bankruptcy, leaving investor and creditor lawsuits to pick its carcass clean, has hurt a lot of innocent people. Certainly what happened to its workers and their retirement savings may be held criminal. But Enron’s demise is yet another example of how our economy unceremoniously gets rid of unproductive companies to make room for new venture capital businesses.

What happened to Enron is the way capitalism works. It levels the big, the small and the in-between and it does not care how politically well-connected you are. It is the reason we are the largest and most prosperous economy on Earth. And why other economies, such as Argentina, for instance, would do well to copy our model.

In terms of its revenues, Enron was the seventh-largest corporation in the United States. It hid its mounting debt from investors and wildly inflated its income. It owed billions to major banks and other creditors.

Yet Enron’s collapse seems to have had no significant impact on our economy not on our energy industries, not on our banking system, not even on our investment markets. Our annual $11 trillion economy swallowed its losses and has moved on.

Compare the laissez-faire way the U.S. government dealt with the Enron mess to the way that Japan the second-largest economy in the world dealt with a major department store chain’s imminent demise in just the past month.

U.S. economic policymakers had hoped that this time Japan, which has been in a recession for more than a decade, would finally show it was abandoning its costly “too big to fail” system that has propped up failing, inefficient, bankrupt businesses. But no. The government rushed in again with additional credits and loans to keep this department store chain afloat.

Long the linchpin of the Pacific Rim’s capitalist economies, Japan is in danger of falling behind its surging capitalist neighbor, China, which is now poised to replace Japan as the world’s second-largest economy in the not-too-distant future. China has been selling off state-owned companies and is letting failing businesses fail.

Tokyo’s finance minister could learn a lot from the way the United States responded to the Enron debacle. The lesson here is that free-market capitalism is the most efficient system ever devised for the efficient allocation of goods and services and when government unnecessarily interferes with that system, its economy suffers.

So as we pick our way through the roots of the Enron scandal hidden debts and inflated revenues and shredded documents it is important that we keep “the larger picture in mind,” says the Wall Street Journal’s free-market crusader, Robert Bartley.

Yes, there is greed and wrongdoing in capitalist economies. But “for all of [its] human failing, capitalism as an economic system has emerged triumphant from the long trials of the 20th century, providing the developed world once unimaginable prosperity and, not so incidentally, historically unprecedented personal freedom,” Mr. Bartley says.

“Capital markets are particularly good at funding innovation, providing investment in promising ventures where government technology priming consistently picks losers. Market-driven economies also have great recuperative power: Far from buckling from the shocks, it has received over the last year, the U.S. economy has stabilized and is probably already recovering,” he says.

I think so, too. America’s economy was hit by recession, slugged by the September 11 attacks, and whacked by the Enron fiasco. Yet, a few months later, there are new signs that the U.S. economy is growing again. Government forecasters are projecting we will have nearly 4 percent gross domestic product growth by next year, if not sooner.

Enron investigations are going on all over this town. And there will likely be many reforms proposed to further regulate the economy, accounting practices and 401(k) pension rules. And some reforms no doubt are needed.

But I think that, in our zeal to prevent another Enron collapse, it is important not to enact new regulations that will suffocate the animal spirits inherent to a growing and dynamic economy.

Employer stock ownership, 401(k) pension plans and the mutual fund revolution, perhaps the highest achievement of 20th century capitalism, have put the ownership of the economy in the hands of workers. In our desire to fix some mistakes, let’s make sure we follow that old medical maxim: “First, do no harm.”

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