Saturday, January 1, 2011

The meaning of the Enron collapse

I recently watched a movie on the Enron collapse because I wanted to watch a story about how seemingly good ideas go bad.

Was it the ideas that were bad (de-regulating electricity and natural gas markets, money=good, cutthroat competition=good), or was it the people that were bad (Ken Lay, Jeff Skilling, Andy Fastow, Lou Pai)?

After watching the movie "The Smartest Guys in the Room", I came across with the underlying feeling that the executives of Enron were naive and amoral.
They were living in a world with no moral foundations (while thinking that it did have moral foundations.)

They were living in a world of ideas (money=good, cutthroat competition=good) but with no way to tie these ideas to a larger spiritual purpose. It's like the Protestant work ethic devoid of any sense of reward in heaven. It's like killing a buffalo and not giving thanks to the animal for its sacrifice. In this amoral world, the executives convinced themselves that they were good and those around them were evil.

For example, Enron purposely caused rolling blackouts in California in order to profit from the high electricity prices, but they were unable to see that this was not sustainable. This is not moral. This hurts our society. But they convinced themselves that it was California, and its politicians that were evil, not them.

Our goal should be to lower electricity prices, and a free market was supposed to help bring about lower electricity prices. Instead, a large company (Enron) manipulated the market in order to make money at the expense of people living in California.

The damage done to the market has been enormous because a 'free' market runs trust. There is no market without trust. There can never be a 'free' market if people game the system for their own personal gain, and destroy our trust in the market.

How do we move on after realizing that there are people out there that will game the system for their own benefit at the expense of society's benefit? (i.e. when they benefit, then the GDP drops... where as, you could argue that Bill Gates, Jeff Bezos, Steve Jobs generate wealth and the GDP increases.)

Here's some suggestions for how we can sustain trust in our markets.

1) Realize that when you look into the abyss, that the abyss is looking right back at you. (i.e. there is something in human nature that drives us to compete and kill one another. This includes all people, even the holiest of holy priests.)
2) Realize that we need a moral, spiritual foundation that incorporates our human nature (rather than forcing us to suppress our drive to compete and make wealth.) The competition and the wealth, however, can not be the goals in themselves... but rather means to a end in which you can link your wealth to global prosperity.
3) Figure out how to make sure that power is not in the hands of a few people, but rather in the hands of everybody. For example, one reason I like Amazon (both buying and selling) so much is that Amazon simply takes a percentage cut of the transaction amount. What we need is for all of us to be 'electricity-traders', and the Enron's of the future need to be like Amazon or E-trade (taking a known percentage of the trade.)

Sometimes competition will be moral (but other times it may be immoral, and cooperation is actually the better option for growing our society.) Sometimes wealth can be moral (Meg Whitman appears to be an example for me of moral creation of wealth), whereas the Enron exec's and Bernie Madoff are examples of immoral wealth accumulation at the expense of others.

I think that the 'Enron collapse' represents our society's lack of moral foundations. We seem to be torn between the amoral religion of 'poor=good' and the amoral religion of 'rich=good'. Neither of these concepts (when strictly held) are healthy.

We need a moral foundation that is consistent with our scientific knowledge of the world. I briefly discuss what such a moral foundation would look like in the previous blog:
"Why we need to reconcile science and religion"

Let me know what you think is the meaning of the Enron collapse.

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