The Enron scandal seems like a heaven-sent opportunity to reform the business excesses of our recent Gilded Age. But the fetish of markets retains a powerful grip on the American political psyche. Already, corporate lobbyists, elevating stock-market gambling to the level of a fundamental human right, are undercutting modest efforts to prevent future abuses of 401(k) pension plans--which for most Americans is the heart of the Enron matter.
These tax-subsidized "defined contribution plans," virtually the only jobrelated retirement programs now being offered to workers, shift the risk from employer to employee--a shift made possible by the weakened bargaining position of labor in our new economy. Unlike traditional "defined benefit plans," 401(k) accounts can be loaded up with a company's own stock. Among other things, this gives management control over the supply of shares and, thus, influence over their price. In Enron's case, it also allowed the top brass to cash out before their phony profit numbers were exposed, while locked-in employees had to ride the share price down from $80 to 80 cents.
One simple defense against this sort of thing is to ensure that 401(k)portfolios are diversified by capping the percentage made up of company stock.Senators Jon Corzine of New Jersey, Barbara Boxer of California, and PaulWellstone of Minnesota support a limit of 20 percent. It's no surprise that thereforms proposed by the Enron-besotted Bush administration contain no caps. Butneither do the Democratic proposals being organized on key House and Senatecommittees. The reason is that too many Democrats fear they will be accused oflimiting workers' freedom of choice--that is, the inalienable right to bettax-subsidized retirement savings on any investment horse that appeals to them.
In reality, this is the freedom of the worker-investor (after spending a dayon the job, making dinner, and putting the kids to bed), to sit down at nightwith the computer and try to outsmart the Wall Street high rollers and cronycapitalists. The result is well known: In a bull market, small individualinvestors get about one-third the average return on stock and about half theaverage return on bonds. In a bear market, they get hosed.
The response of the White House is that they should get better advice. Theadministration supports a bill by Republican Congressmen John Boehner of Ohio tomake it easier for companies to give employees financial advice by exempting themfrom lawsuits that stem from conflicts of interest. This proposal--with itsobvious potential for fraud and abuse--actually passed the House last year inresponse to the collapse of dot-com stocks.
The notion that individual worker-investors could buy and sell their way toretirement prosperity if only they had better advice is bipartisan.Connecticut's Senator Joe Lieberman, a former advocate of Social Securityprivatization who now favors a company-stock cap on 401(k) plans, also proposestax incentives for companies to provide advice to their workers: "If you don'tchoose wisely," Lieberman says, "you lose badly."
But those who lost money in Enron did not do so because it was, a priori, anunwise investment. It was regularly touted by reputable financial analysts fromthe major investment houses, given accolades by professors at Harvard and otherbusiness schools, and lauded by Fortune magazine six years in a row as America's most innovative company. Its books were certified by Arthur Andersen. And the biggest, most sophisticated investment banks in the world--Citibank, Morgan Stanley, Chase--were lending the company billions of dollars. Indeed, the more a diligent worker-investor learned about the company, the more Enron seemed a good buy.
As Senator Corzine tells his colleagues, "There is no real sense in which youare going to be secure by investing in stock." Thus, Congress has a choice: Itcan continue to indulge the popular delusion that the typical Americanworker--with perhaps a little advice from a company-certified financial wizard--canretire in style by outguessing the stock market. Or it can promote strongregulation to protect workers' savings and get on with the larger business ofenhancing retirement programs and extending them to the 50 percent of Americanworkers who have no prospects of any retirement income beyond Social Security.
As the evidence of fraud and irresponsibility spreads beyond Enron's corporatesuite, it is time for Congress to tell the country the truth. If capitalism is towork for all of us, it needs strong, effective, and independent government regulation, which will also impinge on individuals' "freedom" to invest theirtax-subsidized savings. Otherwise, there will surely be more Enrons in ourfuture.
