Enron, China, and One-Track Economics
Sunday December 02, by Jerome F. Keating Ph.D.
[A French translation by Jerome Besson is available at Taiwan 1st!]
This past October with four other Taiwan scholars/advocates, I spent two weeks in seven European capitals discussing Taiwan and China issues with governmental leaders, think tanks, university professors, journalists etc. It was a beneficial and enlightening trip. There was much interchange and sharing of ideas. As would be expected positions varied from country to country, and naturally there was not always agreement. However, amidst the variety of positions expressed there were some that were so glib and callous in their solutions of how to make money off of the China economy that I found them frightening.
Now no one would question the ambition of any country to pursue a viable, long-lasting and profitable economy. Who would not want to keep his/her country's economy running and growing? Running and growing, yes, there comes the rub; there are a variety of ways to keep an economy running and growing but other questions must come up as to how much this should it be at the expense of others? In dealings with China, some see that as a moot and unimportant point; they answer from a simple, short-term perspective that everything should bend to the wealth of opportunity in the China market. For example, as regards the Taiwan question, such economic advisors would prefer that Taiwan be silent or better yet disappear so that all can make money with a clear conscience. It matters little to such advisors, whether the 23 million democratic people of Taiwan have any say in their destiny or representation in world affairs. After all, there is money to be made. In short, life would be simpler if Taiwan would just buckle under China's demands and let the rest of the world get on with business. The proponents of this position belong to what I call the Enron School of Economic Enthusiasts.
Some may protest that Enron and China differ in so many ways. For starters, Enron is now a bankrupt company while China is a growing country. The comparison is not however in what the entities are now but in their similar promotion methods by economic enthusiasts. Here Enron is more a microcosm of that macrocosm stage known as the great China Rush. In its day, Enron was not just any company. Enron at one time claimed revenue of US$ 111 billion (note that the word used is claimed). Some countries come no where near that mark. So step back a few years to Enron's glory days and the way in which Enron was touted as the ideal sure-fire guaranteed investment and the clear way to make money.
First, for six years running, Fortune Magazine had named Enron "America's Most Innovative Company." By the year 2000, with its claimed revenues of $111 billion, Enron was clearly the best thing since sliced bread. It cared for its workers; it was a model of management and creativity; it was something to be imitated. Year after year, magazine after magazine, analyst after analyst touted this wonder. Enron was the darling of investment advisors, its executives were seen as the best and the brightest. Few could resist its lure. Enron could do no wrong.
In the beginning, a lot of people certainly made a lot of money and Enron stock rose accordingly, but then, well then, you know the rest of the story. When all the smoke cleared, one huge unasked question remained. It may have seemed superfluous at the time but it is needed now to gain perspective on today's market. In retrospect, from the standpoint of the business, economic and world community, would you say that Enron was a responsible stakeholder?
Was Enron a responsible stakeholder? Who would be the persons to answer that? Perhaps we should ask the people of California who suffered blackouts as Enron made money. Or perhaps we should ask the many investors, some of whom made money at first and bailed out when the house of cards began to fall. Perhaps we should ask the many loyal employees who put their pensions in Enron's hands only to see them go up in the smoke. Perhaps we should even ask Arthur Andersen LLP, which some might call Enron's partner in crime. Perhaps . . . well you get my drift; now transfer those questions and that same blind trust to what we see in China.
Is China a responsible stakeholder in the world community? I am not asking whether you would wish or want China to be a responsible stakeholder, but is China a responsible stakeholder? This is where we separate the economic realists from the fanciful dreamers and see who qualifies for the Enron and/or China School of Economic Enthusiasts.
There are certain requirements to be an Enron/China economic enthusiast. First you have to be a bandwagon advisor with a blind or jaundiced eye. Enron did not have transparency and China does not have transparency and that helps, but still you must not ask questions. Enron was less fortunate because while it had its bandwagon proponents, it could never control a questioning press the way that China does.
Second as a bandwagon advisor, you should never let your own money be involved. How many Enron economic enthusiasts suffered personal loss? Remain an advisor and like a stock broker, when the stock is ascending with profit, you make your commission. When the stock is descending in losses, you still make your commission, Either way, up or down, you make your commission. However when losses do come, then you do have to invent excuses, but don't worry China will always help to provide them.
Excuse #1 China should be given leeway because it has so many people to take care of etc. What is China's solution? Give us more people, give us Taiwan. Of course Taiwan is a cash cow and logic begins to falter, but still China should be given leeway.
Excuse #2 China has many worries, but its heart is in the right place. Though beleaguered, China magnanimously insists on taking care of Tibet and its resources. It fills the country with its own people so that Tibetans are becoming a minority in their own country and their culture is destroyed. But that is OK since China practices benevolent paternalism.
Excuse #3 China is different from other countries, you can't expect them to follow the same standards and be responsible as other countries, remember there is money to be made. China tried to cover up SARS? That's OK, the Chinese are different; being a responsible stakeholder has to be seen that way.
What else makes an Enron/China Enthusiast? Along with having a blind eye and not being too personally involved, it helps to take the blasé attitude that it is not your ox that is being gored when matters of human rights and collateral damage come up. The Falun Gong? Don't worry about them, what do they contribute to the world economy? Tibet? Well it was a nice culture, but the economy is still rolling. Taiwan? They need to learn to play ball.
Collateral damage has many forms. For Enron, in hindsight the damages are obvious: the blackouts in California, the bankruptcy and the loss of the jobs and pensions of loyal employees. And of course, not only Enron went down but Arthur Andersen also bit the dust. In China, such damage is more difficult to measure. In pollution, China does have 16 of the top 20 polluted cities in the world, but how do you measure that effect on Chinese citizens let alone the rest of the world. The damage of poisoned toys, pet food, toothpaste etc. that flood the US markets is readily seen, but what about the added cost of now paying to train China in quality. Include also harm done to Falun Gong and those suffering religious control and the list grows; finally of course there is the risk of Taiwan's democracy, which some countries do not see as their problem. Is China a responsible stakeholder?
What these economic enthusiasts do not see or care to see is that China is a power-based, hierarchical culture; it is not a team player. Cooperation is given only at a price. China's goal is hegemonic dominance of Asia. The only way it can remotely consider being a responsible stakeholder is when it is on top of the food chain. From that perch then, the practice of a paternalistic benevolence and responsibility are options.
In discussions in Europe many we talked to only saw the dollar signs in China investment, but countries like the Czech Republic, Poland, and Hungary that had been under communism were not ready to trade human rights and Taiwan's democracy for economic gains. In Berlin, investment bankers were eager to rush to China but Chancellor Merkel emphasized that Germany should diversify into other Asian countries like India and Vietnam. Certainly, there are more responsible countries in Asia, (countries not bent on land acquisition) where investment can be directed. Such countries may not be as cooperative as China because they are not as willing to sacrifice their citizens for the ruling few. Who would you say is a more responsible stakeholder, India or China? Thailand or China? Yet who do the enthusiasts run to?
For such enthusiasts, China of course has other advantages in its profit making that Enron did not have. China can control its economy and the value of the yuan so that the playing field is not level; Enron could never do that. China has a large military army with nuclear weapons; it can bully in a much more effective way than Enron ever could. Think of it, Enron might still be around if it had had China's might and power.
Is China a responsible stakeholder? The cracks in China's façade and the golden promises of the economic enthusiasts are already there for those who have eyes to see. As I said above, I found some of the European discussions frightening. They were frightening not because people wanted to make money, but because some participants were driven by such narrow, short-term profit driven priorities that excluded all else. The blind trust and rose-colored glasses ignored the fact that everything has its price and some prices, even if they are collateral damage are too steep. In a different realm, the US Navy got its own wake up call about the real team play and benevolence of China when Hong Kong refused not only the Kitty Hawk but earlier refused two smaller ships seeking a port in a storm.
Enron's slogan ironically was "Ask Why" Its economic enthusiasts in their rush to make money never did ask it. The Yellow Brick Road that leads to the China Market isn't made of gold. It's time to stop listening to China's Enron Enthusiasts and ask why.