Country forgets an old Big Oil lesson, and Enron results

(Printed in USA Today, Wednesday, February 27, 2002)
Patricia Limerick and Brian Black

Let us now praise Ida Tarbell. And, while we're at it, let us quote her, and reflect on how useful her company would be today.

This year is the centennial of Tarbell's expose of Standard Oil, published in McClure's Magazine in 1902 and printed as a book in 1904. Thanks to Enron, her words and investigative enterprises are currently undergoing a "relevance" spike.

Here is Tarbell's description of the nation's energy establishment: "A compact body of a few able, cold-blooded men - men to whom anything was right that they could get, men knowing exactly what they wanted, men who loved the game they played because of the reward at the goal, and, above all, men who knew how to hold their tongues and wait."

Oh, Ms. Tarbell, your nation still needs you. One of the major changes your work brought about was later undone, and we are paying dearly for it in the Enron case.

In the early 20th century, Tarbell responded to her nation's needs. As she recognized, the energy business - or, more particularly in her time, the oil business—sits at the center of national well-being, if the public lets its attention drift away from the energy moguls' practices, Tarbell knew, the perils are proportionately great.

To Tarbell, the efforts of John D. Rockefeller to place his company in control of the nation's energy formed a turning point for this country. In the episode known as "the Oil War," Rockefeller sought to dominate petroleum markets worldwide.

Initially, small producers banded together and defeated his efforts. But Rockefeller built his Standard Oil Trust from the ashes of this initial setback. By the 1890s, Standard controlled roughly 80 percent of the USA's oil market. By dominating transportation and refining, Rockefeller dominated the market. An alarming picture of "Big Oil" took shape as Standard used ruthless business practices, including rollbacks and insider pricing, to squeeze out its competitors.

In a cautionary tale for the hordes of federal investigators currently poised to work over Enron, Standard repeatedly endured federal investigation during the last years of the 19th century, to little effect.

And then, in an inspirational tale for journalists, Ida Tarbell went to work. Her History of the Standard Oil Company spotlighted Rockefeller's practices, and mobilized the public. Readers nationwide awaited each installment of the story, serialized in 19 installments by McClure's between 1902 and 1904.

With the support of President Theodore Roosevelt, a receptive Executive Branch of the Progressive era took Tarbell's declarations seriously. Her investigation inspired new efforts to enforce anti-trust laws, many of them championed by Roosevelt Republicans, a heritage owned, if not exactly embraced, by today's Republican Party: In 1911, the Supreme Court ordered the dissolution of Standard Oil.

History, contrary to many heartfelt declarations, does not repeat itself. The differences between Standard Oil and Enron are numerous and conspicuous:

John D. Rockefeller was, after all, a great success, and Kenneth Lay was a great failure. Entirely unlike Standard, Enron went bankrupt, failing business's most basic test.

Standard moved oil with the effectiveness of Henry Ford's assembly line. It accomplished real work all too effectively, even from its squashed competitors' point of view. Enron remains largely a concept, an idea, a myth. It accomplished little, while claiming an integral role in the power of Americans' everyday life.

When Standard was dissolved, it broke into a host of companies to carry on its activities, including Mobil, Exxon, Chevron, Amoco, Conoco, and Atlantic. When Enron collapsed, it left almost only ruins, and injured investors and employers.

And the biggest difference was that Ida Tarbell's Progressive Era, and the New Deal that followed it, created a lot of regulations to ensure that no company would ever match Standard in its dominance over oil. But later, in the 1980s, another movement deregulation took those safeguards apart. A new entity arose from this deregulation: the "energy trading corporation," bearing a striking resemblance to "the trust" and "the oligopoly" of a century ago. Enron defined itself as the most effective player in this reinvigorated enterprise.

The historical symmetry was striking. John D. Rockefeller, the greatest symbol of big oil, finally had to acquiesce to forms of regulation and control after the Progressive era. Almost a century later, the greatest symbol of big energy exploited the economic opportunities of de-regulation.

Following the model of vertical integration that allowed Rockefeller to dominate the petroleum business from 1880 to 1911 (though operating in a very different regulatory context), Enron grew from an effort to master and control the complex energy market.

The operations of the energy industry in the late twentieth century would have seemed distinctly familiar to Ida Tarbell. In 1904, she described the plight, and flight, of the independent oil producers in their confrontation with Standard Oil.

"It was," she writes, "that man after man, from hopelessness, from disgust, from ambition, from love of money, gave up the fight for principle . . . . . A sudden hush came over the [industry], the hush of defeat, of cowardice, of hopelessness."

Tarbell defied that hush. Every word she wrote asked her fellow citizens to think hard about their relationship to the business that provided them with energy. And, speaking with remarkable relevance to us today, she did not condemn capitalism itself. Capitalism was and is a fact of life. "The open disregard of decent ethical business practices by capitalists," to use Tarbell's words, is another matter.