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"The Great
Divide" by Paul Krugman
[Originally published in the New York Times - January 29th, 2002]
It was a shocking event. With incredible speed, our perception of the world and of ourselves changed. It seemed that before we had lived in a kind of blind innocence, with no sense of the real dangers that lurked. Now we had experienced a rude awakening, which changed everything.
No, I'm not talking about Sept. 11; I'm talking about the Enron scandal. One of the great cliches of the last few months was that Sept. 11 changed everything. I never believed that. An event changes everything only if it changes the way you see yourself. And the terrorist attack couldn't do that, because we were victims rather than perpetrators. Sept. 11 told us a lot about Wahhabism, but not much about Americanism.
The Enron scandal, on the other hand, clearly was about us. It told us things about ourselves that we probably should have known, but had managed not to see. I predict that in the years ahead Enron, not Sept. 11, will come to be seen as the greater turning point in U.S. society.
Quite a few people have belittled the significance of the Enron affair -- not just Treasury Secretary Paul O'Neill, with his unfortunate remark about how "companies come and companies go," but commentators who don't think a failed business is that much of a story. Think of it this way: The business of most Americans is business, and Enron already ranks as one of the biggest business scandals in history. There have been other big, admired companies that failed; there have been other companies that turned out to be largely fraudulent. But I can't think of another case in which the most admired company turned out to be a fraud.
So even if the story turns out just to be about Enron, it has been an object lesson in how appearances can deceive. And I don't think this is just a story about one company.
Before Enron collapsed, the economic story of the last few years seemed more of a comedy than a tragedy. Yes, many people lost money, but they did so because they were foolish -- they bought stock because they believed New Age economic drivel, or because they thought William Shatner made great ads.
Now the story looks vastly darker. People didn't deceive themselves; they were deceived.
It's true that Enron got a lot of mileage out of the same kind of new-economy jargon that fed the dot-com bubble -- for example, former C.E.O. Jeffrey Skilling liked to say that the company was "virtually integrated."
But despite the high-tech veneer, the structure appeared solid: Enron wasn't a profitless dot-com, run by crazy kids. It seemed to be a company with a proven track record. Its executives seemed to be smart but solid, personable men. It seemed to be a company with a great work ethos, a sense of mutual loyalty. Then it came apart at the seems.
So now what? At the moment, demands for reform are scattershot and confused. Some people want new rules for 401(k) plans; some want new rules for accountants; some want campaign finance reform; some want a return to regulation. These seem like unrelated agendas, but I think they have a common theme: They're all about ending an era of laxity, in which nobody asked hard questions as long as everything looked O.K. That era is now over.
The political speculation right now focuses on who will take the blame for what happened. I admit it: that's a very interesting question. But I suspect that for those who are not directly implicated -- and most politicians won't be -- what will matter is not what they did but what they do. Do they act as if they get it -- that they understand that the old laxity is no longer acceptable?
Clearly, Dick Cheney doesn't get it: He thinks, after all that has happened, that we should just trust his assurance that energy companies did not distort his energy plan. Clearly, Harvey Pitt, chairman of the Securities and Exchange Commission, doesn't get it: I don't pretend to understand the institutional issues in accounting reform, but everyone I know who does regards his supposed reform plan as ludicrous. Clearly, Marc Racicot doesn't get it: He thinks that we should just trust him when he says that he won't lobby as chairman of the Republican National Committee, even though his former lobbying firm will pay his salary.
Does Tom Daschle get it? Will George W. Bush get it? The answers to those questions may well decide their, and the country's, political future. Enron, I predict, will turn out to have changed everything.
