Consider the preconceptions that surface in your mind when you read the name “Enron”. What are they? Chances are that they are negative, and not particularly nuanced — fraudulent business activity, tarnishing the idea of free markets by trying to manipulate them using the political process, and so on. If that’s true for you, then you are probably in a pretty similar mental space to mine when I started reading Rob Bradley’s Edison to Enron: Energy Markets and Political Strategies. Rob’s detailed and thoroughly researched book is a well-told analysis of the valuable and interesting regulatory and business history that formed the backdrop of Enron’s spectacular failure.
The name of the book is somewhat misleading, because the first third of the book focuses not on Thomas Edison but on Samuel Insull. Insull, the oldest son of a working class family in Victorian England, emigrated to the US after several years of a successful financial career in London. He brought, and sharpened, his business acumen to complement Edison’s inventive creativity, and it was Insull’s business genius that accelerated the electrification of the country. Rob tells Insull’s story extremely well, and provides extensive links to supporting material that illustrates how important Insull’s contributions were to Edison’s success individually and as a business/set of businesses. With his analysis Rob also argues that Insull’s business skill generated substantial social value (i.e., consumer surplus as well as profit). That point is incontrovertible, but the story is not told often enough or well enough, and Rob has done so here. I appreciated this part of the book in particular because although I am familiar with Insull’s biography, I did not realized that his business model advocacy had shaped our modern electricity industry so dramatically; for example, Insull consistently pursued acquisitions and consolidation that led to reduced costs through economies of scale, but always advocated for pairing those moves with reductions in retail prices to consumers. The companies he headed that followed this strategy profited while charging lower prices, in the absence of formal economic regulation. Insull was, though, always an advocate for regulation, largely because he worried that rising debt service costs would make it difficult to pursue this model.
Insull’s career and life ended tragically, with him exercising unusual poor business judgment while simultaneously being too optimistic about economic prospects in the US in the early 1930s. His earlier career had been characterized by an emphasis on hard work, self-help, provision of quality service at affordable prices, and provision of a healthy working environment in return for the hard work of employers. His career ended with a successful defense against a federal lawsuit, which combined with the wealth effects of the stock market crash and Depression to leave him bankrupt.
Rob uses Insull’s history as a foil for Ken Lay’s story. The remainder of the book digs into the origins of the natural gas long-distance pipeline and local distribution industries, the mergers and acquisitions that would create Williams Energy and Enron, and Ken Lay’s role in this progression from the 1960s through the mid-1980s. Rob’s narrative combines business history with biography as he traces the individual and corporate interactions, personalities, and changes. Lay’s background as a Ph.D. economist, an academic, and a policy adviser in Washington, DC meant that he brought a diverse range of skills and experience to the natural gas industry. Given his experience of working closely with Lay, Rob can also attest to his temperament and his management style and how those combined with his experience to help him transform the natural gas industry.
The point at which Lay’s story stops here parallels Insull’s business and personal success, and in the next volume Rob will pick up the tale and finish the parallel by relating his personal experience of Enron’s demise and the extent to which Lay exercised unusually poor judgment. I look forward to reading the sequel to this analysis.
Another valuable aspect of Rob’s work in this volume is the book’s long epilogue, which pulls back and analyzes the period he’s covered (1881-1984) through the lens of what Rob calls “political capitalism”. Conveniently, Capitalism at Work was the first volume in this “Political Capitalism” trilogy. The epilogue here draws on the theoretical political economy framework Rob constructed in that first volume, a synthesis of energy economics, Austrian economics, and public choice theory. Rob uses this framework to “differentiate market capitalism from political capitalism”, an analysis that’s very timely and relevant today as we debate the role of politics in business and the unsustainable proliferation of cronyism in the economy.
Edison to Enron synthesizes business history, economic history, biography, and political economy to tell a compelling tale of innovation and new value creation in two energy industries, as well as increasing regulation and political capitalism in them. If you teach an energy economics class, the epilogue can be a useful reading to get your class thinking about the history of innovation and regulation and their implications in energy industries. The volume does have an unfinished feel to it, as you would expect from the second book in a trilogy, but it does not detract from the detailed analysis presented here.