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The Terrible Effects of Business Deregulation

As An Effect Of Deregulation

The Enron scandal is blamed, in some part, on the deregulation of business practices, and in particular energy commerce, which was Enron's stock in trade. When the California energy markets were deregulated in 2000-2001, Enron began using very questionable policies and poor business ethics in order to take advantage of that deregulation, performing such practices as buying energy in California and selling it back to California from across state lines for more money. These practices allowed Enron to continue to make tremendous profits while in the midst of the collapse that would lead into the full Enron scandal and Enron bankruptcy.

Enron had originally achieved such great success thanks to the dereagulation of natural gas, which allowed Enron to sell its natural gas at higher prices than it would have been able to sell at normally. This led to greater profits for Enron, which in turn made Enron a stronger corporation. When those who were being injured by Enron's raised prices attempted to protest and argue for a return to greater regulation, Enron stood against these protests and lobbied for the retention of the deregulated free market system.

Had the market been successfully regulated, it is possible that Enron would appropriately have deflated as a company and never been able to reach the heights at which it towered at the time of the Enron scandal. It is also possible that the regulation might have led to closer examination of Enron's practices, preventing the Enron scandal and bankruptcy altogether by catching it before it became too damaging.

Regardless, the fact remains that during its final year, when Enron was collapsing, it was also raking in an enormous amount of profits, thanks to the deregulation of electricity in California. These profits actually could have been used to help prevent the Enron bankruptcy, but were instead most likely funnelled into off-shore accounts for Enron's executives.

The relationship between the Enron scandal and the deregulation of energy is complicated even further by such facts as Wendy Gramm's associations with Enron. Wendy Gramm was responsible for the deregulation of energy trading for Enron while she was the head of the Commodity Futures Trading Commission (CFTC) from 1988 to 1993.

Shortly after energy trading was deregulated, she left the CFTC to join the Enron Board of Directors and Audit Committee. To say that these actions are suspicious is to understate what appears to have been yet another contributor to the Enron scandal; Enron used government deregulation in order to actively and improperly seek terrific profits, while also ensuring that those who had helped it to do so were compensated illegitimately for their help.

Wendy Gramm seems to have been such a helper, and her placement on the Board of Enron, and its Audit Committee, which was partly responsible for the later Enron scandal and Enron bankruptcy, points to the larger flaws and wrongdoing that led to the Enron scandal.

In the end, neither the Enron scandal nor the Enron bankruptcy can be directly laid at the feet of deregulation. Instead, the blame goes to the Enron executives who put their greed and unethical practices above serving the company. But deregulation fostered such greed by making it terribly easy for those executives to make vast sums of money at the expense of the average citizen. While deregulation was not the proximate cause of the Enron scandal, it certainly contributed.

NEXT: The Truth About Unethical Business Punishments

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