Enron "profits" and the dismal science

Louis Proyect lnp3 at panix.com
Wed Feb 13 11:01:46 MST 2002

Last night PBS talk show host Charlie Rose had a panel of experts
discussing Enron: Kurt Eichenwald and Floyd Norris from the NY Times, and
Allan Sloan from Newsweek. The discussion revolved around the degree to
which Enron flagrantly inflated profit figures. One expert described what
went on in this fashion: Let's say your wife borrows a thousand dollars
from you and gives you an IOU note to cover the debt. If you then inform
the world that your family generated $1000 in income--that would be roughly
equivalent to what Enron did. This led Charlie Rose to raise the cockroach
analogy. He said that if you spot a cockroach (Enron), you have to assume
that there are many others. Mind you, this Charlie Rose--just like the
Senators now denouncing Kenneth Lay who accepted his largesse in the old
days--would have been obsequiously deferential to Lay had he been on his TV
show before the collapse. This Charlie Rose is notorious for flattering
people like GE's Jack Welch, Amazon's Jeff Bezos and Bill Gates.

Watching this, I was immediately struck by the cockroach question, but from
another angle. If one can not take Enron's profits at face value, then you
have to wonder how can one accept the financial statements of other US
corporations. Could it be possible that the 1990s "boom" rested upon a
false bottom line? One of the big differences between Mark Jones and myself
on one hand, and Brad DeLong and Doug Henwood on the other was over the
*future* of American capitalism. But we tended to accept the rosy profit
figures for the *present* as given for the period when our cyber-debates
were raging. But what if those profit figures were inflated?

By the same token, both DeLong and Henwood accepted the United Nations
Development Programme Annual Human Development Indicators figures to prove
that the world was moving forward in some kind of inexorable, Panglossian
progress despite "icky" side effects. Just compare life expectancy from
1900 to 2000, they would insist. Everybody is living longer (implicitly
accepting capitalism's ability to deliver the goods--DeLong triumphantly
and Henwood begrudgingly.) But what if the figures were cooked, just like
at Enron? Who provides these statistics, after all. By the UNDP's own
admission, most of these figures come from the World Bank and other
imperialist institutions including the UN itself, if you will permit me a
brontosaurus Marxist class analysis of this world body. When you really get
down to it, the World Bank and UN have as much of a vested interest in
pumping up these figures as Enron had in its profit figures. One wanted to
paint a rosy picture for potential investors, the other wants to give the
impression that capitalism will lift all boats.

For example, the HDI report for 2001 (http://www.undp.org/hdr2001/) ranks
Chile number 39 in the "High Human Development" countries, with the USA
ranking number 6 and Germany number 17. This is a function of a combining
various statistics, including Life Expectancy at birth. For Chile the
figure is 75.2, while for Germany it is 77.6. There is something
counter-intuitive about this. Chile has borne the brunt of an all-out
assault on public health, while Germany has retained many welfare state
institutions, including health, because of its powerful social democratic
union movement. Is it possible that somebody has a vested interest in
pumping up Chile's figures in order to demonstrate that slashing away at
the public sector leads to a more dynamic private sector--the bedrock of
the World Bank ideology? If there is a conflict of interest in Enron paying
Arthur Anderson $27million in consulting fees then expecting them to
prepare a neutral audit report, why should we expect anything different
from the World Bank?

These questions are of crucial importance since Chile served as a model for
Argentina while Enron served as a model for US business in many ways. In
1998, the Financial Times cited Enron as one of the "World's Most Respected
Companies". Between 1996 and 1999, Fortune Magazine included Enron in its
"Most Admired for Innovativeness" list.

The question of how to evaluate numbers coming from ruling class
institutions with a vested interest in the outcome also has a bearing on
Marxist theory. In the endless discussion of the falling rate of profit,
has anybody stopped to consider whether the numbers coming from the Chamber
of Commerce or the companies themselves should be accepted at face value?

When Tecnica was consulting in Nicaragua, one of the most important
recipients of volunteer aid was INIES, the statistical governmental agency.
The Sandinistas considered it vitally important to have accurate and
reliable figures to base development strategies on. Perhaps there is a need
for accurate and reliable figures across the board. If Marxists are trying
to make sense of the class struggle based on the viability of the
capitalist system, the last thing we need to do is take the word of these
crooks and murderers as if it was Jesus's Sermon on the Mount.

Louis Proyect
Marxism mailing list: http://www.marxmail.org

PLEASE clip all extraneous text before replying to a message.

More information about the Marxism mailing list