Malcolm S. Salter

Although much has been written about the rise and fall of Enron, the focus of most of this work has been more on “What Happened?” rather than on “Why it happened?” This research reports on four important questions relating to the social pathology of Enron’s collapse: What management behavior and practices led Enron down the path from truly innovative to fraudulent management? How could Enron’s board of directors have failed to detect the business, ethical, and legal risks embedded in the company’s aggressive financial strategies and accounting practices? Why did Enron’s external watchdogs—security analysts, credit-rating agencies, and regulatory agencies—fail to bark? What actions can prevent Enron-type breakdowns in the future? 

This in-process work focuses on how best to address the declining public trust and confidence in democratic capitalism, which many citizens consider to be a cornerstone of our national ideology and identity? While the answer to this question is not entirely clear, I argue in this work that any effort aimed at restoring public trust in democratic capitalism needs to start with the understanding that U.S.-style democratic capitalism has become less democratic in recent decades and that restoring U.S.-style democratic capitalism requires its further democratization.  In presenting this argument, I start by defining what democratic capitalism encompasses as a system of economic and political governance and then explaining how this governance system has become corrupted in recent decades by the toxic combination of pervasive cronyism and restricted political voice and suffrage. On one side of this “democracy squeeze,” cronyism has led to a situation where a small but wealthy and influential group of individuals and corporations seek to advance their private interests by the capture of legislators and regulatory agencies through campaign contributions and lobbying, often with scant regard for the interests of ordinary citizens. On the other side, restricted political voice has made it difficult for ordinary citizens to countervail this elite power due to constraints on their rights to vote, to run for public office, and to hold elected officials accountable to the public will. This situation hardly qualifies our political economy as either truly democratic or truly capitalist. And it forces the question of how best to strengthen democratic capitalism as our primary governance model going forward. To this end, I draw on the work of political philosopher and democracy advocate Danielle Allen in calling attention to the principle of political equality, and the two related sub-principles of reciprocity and power sharing, as essential guides. Based on these ideas, I suggest a series of practical steps to make our economic and political markets more democratic by curbing cronyism and expanding citizen access to the political processes governing our nation. These market-specific recommendations are, however, insufficient in themselves. They leave unaddressed the reality that democratic capitalism can also be diminished by the way in which many corporations, which serve as our nation’s primary social institution, are managed—namely, as nondemocratic regimes, modeled on centuries of military chains of command and control, that tend to downplay employee participation in decisions affecting their interests and personal well-being. This prospect raises the important question of how private corporations can become more “democracy supporting.” The answer lies, I suggest, in introducing the principle of reciprocity and the artful practice of power sharing or collaborative problem-solving, into highly politicized areas of corporate governance.  To support this suggestion, I describe past and current examples of reciprocity and power sharing as a way of indicating future possibilities. Finally, I end with some reflections on the societal norms and values—that is, the ethical culture—required to support such a transition, along with suggestions regarding how these norms and values can be socialized in the years ahead.