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After Enron, Bush Has Little Wiggle Room

Policy: President generally is opposed to regulation of business. But Capitol Hill is abuzz with calls for reform.


WASHINGTON — Enron Corp.'s collapse is forcing President Bush to balance his skepticism of government regulation against his desire to show his independence from the failed energy giant.

From the federal rules governing private pensions to securities law, accounting standards and even campaign finance reform, proposals are proliferating on Capitol Hill for laws and regulations to cope with the questionable practices highlighted by the company's crash.

These multiplying Enron-related reform ideas present a pointed political dilemma for Bush.

He arrived in Washington generally committed to rolling back federal regulation of business. And he has staffed many key regulatory agencies--including the Securities and Exchange Commission--with alumni of the industries they oversee.

But now, many analysts say, the White House may face irresistible pressure to distance itself from Enron by proposing new policy initiatives that respond to the firm's alleged abuses. This pressure "is going to nudge [the administration] even further away from its basic [anti-regulatory] ideological instincts," said Donald Kettl, a political scientist at the University of Wisconsin.

In the firestorm over Enron, Bush may face a political imperative similar to one that confronted President Clinton when his 1996 campaign fund-raising practices came under intense criticism. Clinton tried to transmute an ethical controversy into a policy debate by arguing that the real problem was a flawed system--not his own actions--and proposing campaign finance reform.

Bush may likewise seek to shift the debate from his administration's personal and political links with Enron toward policy reforms in areas such as securities and pension law.

"I don't think [the administration] has a legal problem [in Enron], based on what we know to date," said John Podesta, former Clinton White House chief of staff. "But they have a political problem--this is maybe the prototypical example of their connection to the wealthy, the powerful, the people who shave the rules to their own benefit. . . . And I think their cure for that will be coming up with some proposals to . . . better protect pensions in this country."

Bush has already taken a long step toward sanctioning new activism by appointing two administration task forces to review federal rules governing 401(k) pension plans and corporate disclosure requirements under the securities laws. Separately, the SEC on Wednesday confirmed a Washington Post report that it is looking at strengthening the accounting industry's self-regulatory system.

The range of issues spotlighted by Enron's failure "is going to require careful attention and deliberation, and we hope there wouldn't be overreaction," said Dan Bartlett, White House communications director. "But at its core, there are needed reforms and this administration welcomes the process."

All this talk of "needed reforms" is raising concerns among business groups that have supported the administration's deregulatory thrust.

"It would seem to make a lot of sense not to change the entire world because of one bad actor," said Bruce Josten, executive vice president for government affairs at the U.S. Chamber of Commerce. "Because that's not going to be beneficial to anybody; it just makes everything more complicated and expensive."

The profusion of reform proposals follows a powerful historical pattern. For more than a century, scandals have been the incubator of reform, inspiring many of the key statutes regulating business and the way Washington itself operates.

Financial scandals before World War I led to the creation of the Federal Reserve System, Kettl noted, and widespread securities fraud in the 1920s inspired the initial federal legislation regulating the stock markets during the New Deal. Patronage scandals inspired the modern Civil Service system in the 1880s, and Watergate generated campaign finance and lobbying reforms in the 1970s.

"When you look at the growth of the enormous federal regulatory apparatus . . . at each stage, there has been some kind of problem that's grabbed public attention and . . . moved Congress to act," Kettl said.

That dynamic is repeating itself with Enron. Members of Congress, especially Democrats, and outside reform groups are advancing an array of proposals to respond to the company's meltdown, including:

Pension reform: After workers were left holding retirement accounts stuffed with worthless Enron stock, Sens. Barbara Boxer (D-Calif.) and Jon Corzine (D-N.J.) quickly proposed legislation that would limit the amount of an employer's stock that workers could place in their 401(k) retirement plans to 20%. (No limit currently exists.) The measure also would provide workers more freedom to sell that stock if they choose.

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