Private Sector, Public Doubts

The emerging story of Enron's collapse is about an abuse of corporate power. Top Enron executives were allowed to sell off hundreds of millions of dollars of the doomed company's stock before it turned worthless -- at which point employees and most shareholders took devastating losses. Federal and state investigators are now focusing on possible criminal misconduct, yet the more interesting question is whether Enron's collapse will undermine public trust in business.

In the last century, Americans' trust in major financial and Wall Street institutions has gyrated considerably. These shifts have been accompanied by larger changes in American politics: public trust in American business tends to determine how much Americans look to the federal government to regulate corporate behavior. It may also influence young people's desire to work in the business world, as opposed to pursuing other livelihoods like education, government service or medicine.

In the late 19th and early 20th centuries, public backlash against the abuses of the robber barons paved the way for Progressive Era reforms. Likewise, the excesses of Wall Street in the 1920's and the crash of 1929 produced considerable distrust of America's financial institutions and the business class and aided the rise of New Deal liberalism. That distrust dissipated during the 1950's and early 1960's, a period of economic growth and relative social quiescence.

In the late 1960's, however, public trust in business plummeted once more. Between 1966 and 1971, those expressing "a great deal of confidence" in people running "major companies" fell from 55 percent to 27 percent, according to the National Opinion Research Corporation. Distrust of corporate America helped fuel two of the most important American political movements of the era, environmentalism and consumer protection efforts.

The public's attitude toward business shifted again in the 1980's. During a period when trust in nearly every major public institution fell, Americans' faith in major corporations rose in the 1980's and 90's, according to opinion polls. Neither insider trading on Wall Street nor the savings and loan scandal undermined this public trust. According to the Pew Research Center for the People and the Press, over the last two decades public trust in corporations reached its peak in 1994, when conservative Republicans took over Congress. This trust in corporations helped produce a politics that has been reluctant to impose new tax or regulatory burdens that might diminish corporate profits.

If the Enron scandal were unique, it would be naive to expect any lasting ramifications from this episode. However, the Enron revelations come in the wake of an erosion in trust of business generally and of Wall Street in particular. As stock prices have plummeted in the last two years, Americans have learned that some investment advisers have major conflicts of interest because they work for firms that often benefit from the rise of the very stocks for which they are supposed to be providing objective analysis. And long before questions arose about Enron, we learned that dishonest accounting procedures allowed several technology companies to mislead investors.

A clear policy agenda is suggested by Enron's collapse: more federal oversight of corporate governance, private pensions and accounting procedures. The links between the Bush administration and Enron also highlight the need for campaign finance reform to reduce the access of big corporate donors to our highest government officials. If a prolonged scandal reveals more links between the Bush administration and Enron, the public may be more convinced than ever that Washington politicians are doing the bidding of corporate campaign contributors at the expense of average Americans.

Right now, the causes and consequences of Enron's collapse are still unfolding. In time, this scandal could be seen as something of a turning point. The impact of this story on Americans' trust of corporations and financial institutions, and perhaps on their politics as well, will depend on what happens next.