Enron rooted in hands-off Houston ethos

The Allen brothers would use tricks and half-truths and file for bankruptcy more than once before their dream was realized. But what finally emerged was not just a new city but a freewheeling entrepreneurial spirit that still beats strong in the hearts of many Houstonians.

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So it is that the collapse of Enron - once the world's largest energy company - cuts to the core of the city's character, and highlights the boom-and-bust cycles that have long characterized its economy. But regardless of what the Enron investigation turns up, experts say Texas will continue to be about business first, government control second. In fact, since Enron filed for bankruptcy, Houston has seen a jump in the number of companies looking to relocate here.

"We're not worried," says Jim Kollaer, president of the Greater Houston Partnership, the area's largest chamber of commerce. "This is one company, and this one company will have ripples in the community. But this is nothing like the mid-1980s when we lost a quarter of a million jobs in 18 months."

Even in that 1980s oil bust, the city emerged a winner, he says, because its business community knows how to adapt. It also has unusually strong government backing, say academics and watchdog groups.

Powers intertwined

"This is a place where the business of government is business," says Stephen Klineberg, a sociologist at Rice University here. "The quintessential story of Texas is business. It was the focus of all activity ... and the government's purpose was to support the business structure and get out of the way."

Indeed, much of Texas' identity sprang out of the Reconstruction era, as the state rebelled against central government and embraced the freedom of the frontier.

Today, it is one of the few states with a weak governor, no cabinet, and a legislature that meets every two years. It's not uncommon for government agencies to be headed by people who came out of the industries they are supposed to regulate. Max Yzaguirre, the chairman of the Texas Public Utilities Commission and a former Enron executive, recently came under fire for his undisclosed ties to the company.

"This crisis shows how weak our protections against conflict of interest are both in state law and in [regulatory] statutes," says Tom Smith, director of Public Citizen's Texas office.

But changing such policies may be hard to do in a state that has shunned sharp lines between government and business. "That intertwining, which is true everywhere, is truer in Texas than anywhere," Mr. Klineberg says.

Indeed, the list of Lone Star politicians who have received campaign contributions from Enron seems to grow each day, including Democrats as well as Republicans.

Because Enron's reach was so extensive, sorting out what went wrong at the energy-trading firm may be difficult. Last week, the US attorney's office for the southern district of Texas bowed out of the investigation because so many of its prosecutors had family or friends who worked at Enron.

While Texas is considered a populist state, its history celebrates the rugged individual with a can-do attitude. Outside involvement was kept to a minimum, and handouts were frowned upon. For example, Houston refused to accept any federal money for school lunch programs until the 1960s because it considered that "socialism." It had no problem, however, taking grants to improve infrastructure to aid industry. The dredging of the Houston ship channel in 1911, for instance, was the largest federal grant at the time. The city later accepted federal money for the the Texas Medical Center and roadways.

But while most cities were being shaped by elected officials, Houston took a less-formal approach.

Houston's transition years

Historians still talk about the days when the city's future was decided in Suite 8F of the Lamar Hotel downtown. The elite group of white businessmen came to be known as the "Suite 8F Court," presiding from the 1930s to the 1960s.

It wasn't until 1979, as the effects of Congress's Voting Rights Act hit home here, that Houston was forced to give others a political voice, particularly minorities. Up to then, all the city council members were elected at large, which meant they were almost exclusively white men - handpicked by the business elite.

Since the shift in Houston's political structure and the massive change in its demographics in the past 20 years, experts see a gradual lessening of the business community's entrenched power - or at least a better dispersion of it.

But that ethos born back in 1836 will remain, they say. Ultimately, this is still a city founded on the idea that risking mightily might mean falling mightily. But daring the risk is what's important. And Enron certainly took it.

If Texas history is any indication, it's possible that Enron is not gone for good.

"The history of Texas is booms and busts, but it always comes back," says Robert Stein, a Rice social scientist. "Now it appears as if Ken Lay wants a quick resolution so he can get back to doing business."