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When the Business of Business Is Politics

By Sebastian Mallaby

George W. Bush is a crony capitalist. His business career was built on political connections, and his political career has been built on business backing. In the 2000 campaign, Bush froze out opponents in the primaries by raising record millions, and he was openly proud of his corporate connections. Out on the hustings, he called himself an agenda-setting chief executive, and he went on to fill his administration with boardroom chieftains. Now Enron has exposed the dangers of this approach to politics.

The exposure is most obvious at the Pentagon, where Bush installed three business executives to run the Army, Navy and Air Force. The theory was that this trio would apply corporate smarts to the lumbering armed services -- even though two of these businessmen had worked for military contractors, making them unlikely champions of unbiased procurement. Thanks to the Enron scandal, the theory now seems worse than dubious. Thomas White, the new man at the Army, no longer looks remotely smart.

White, it would appear, ran a peculiar style of business. He was vice chairman of Enron Energy Services, which sold electricity and gas to commercial clients. White's outfit would sign up to supply energy at a fixed price in the future, then make a guess about how much it would cost to deliver on the contract. The margin was then booked as an immediate profit, and the sales team got instant bonuses. When the cost estimates later proved rosy, Enron Energy Services apparently lost upward of $500 million. More than half the 1,000 or so employees who once worked there have lost their jobs.

White was paid millions for his services to Enron, but how much he knew about his outfit's bookkeeping is uncertain. The New York Times quoted one former employee as saying that White was "out to lunch." But if you take the charitable view, and assume that White was ignorant, you have to wonder whether he's really the brilliant manager that the Army needs. You also have to ask what he was paid for. And the likeliest answer raises further questions about Team Bush's judgment.

The most obvious reason why White got millions is that he was a former Army general, and Enron wanted the Army as a customer. This explanation fits with Enron's habit of hiring people for their political connections and with the fact that White's subsidiary talked the Army into a $25 million contract. But if White was valuable to Enron primarily for his contacts, what made him valuable to the administration? Why did it kid itself that it was hiring a cost-containment whiz?

White stands out because he came from Enron, but the Bush administration is full of people who came from the political-business nexus. Many of these people may be excellent, and they may even know something about the nitty-gritty of business. But others are political types dressed up in corporate clothing: people who got hired by business because they knew government, then hired by government on the theory that they knew business.

Why would members of the Bush team stoop to this? Well, they may have hired White because their paymasters at Enron told them to; once he got to the Army, White used his position to promote out-sourcing of energy, a policy that was likely to profit suppliers such as Enron. But there also may have been a different reason. The top people around Bush gravitated toward figures in the gray zone between business and politics because that's where they themselves came from. That's who they raised money from; that's who they were.

Enron is not a political scandal in the sense of gotcha-gotcha-now-resign. But it has exposed the administration's sleazy corporatism and underlined its relative indifference to the market principles that form the Republican Party's more attractive side. The folks at the White House tolerate the free-trade efforts of the trade czar, Bob Zoellick, but they don't really like him. They hired a free marketeer to run the office overseeing regulation, but they won't necessarily back him up. Their agriculture secretary says the right things on market-distorting farm subsidies, but they don't have the stomach to fight Congress on this issue. They won't even stand up for school vouchers, despite Bush's emphasis on education. What the White House team really cares about is cutting taxes, which has less to do with market principle than with rewarding backers.

The political question now is whether this might change a bit. In the 2000 campaign, Bush could boast about his corporate connections; the long boom of the 1990s had made businesses look like heroes, and few seemed more heroic than Bush's backers at Enron. Now, however, things are different. Maybe, if he is imaginative, the president will start to seek legitimacy in pro-market policies rather than pro-business ones.