Jul 07, 2010

Washington Post columnist Steven Pearlstein hosted a discussion on Wednesday, July 7 at 11:00 ET on big business CEOs v. Obama.

Great article, but of course, there's little incentive on the part of big business to play, correct? We are being told that come November, Congress will turn Republican and, therefore, the rest of the "radical" Obama agenda will die. Given that, why should business look to do anything but make the administration look bad? Of course, this completely ignores what may be better for the nation...

That's a good question. There are some in the business community, particularly at the Chamber of Commerce, who have come to exactly this conclusion and have decided to play for all the stakes. Their hope is to knock the Democrats out of power in the congress and paralyze the Obama administration so that it can accomplish nothing, setting up for a Republican victory in 2012. The Chamber, along with the National Association of Manufacturers, has become an arm of the Republican Party for all intents and purposes.

    On the other hand, most big business folks probably understand that this is a two-party system and they have tohave relationships in Washington that are robust enough to withstand all probable electoral outcomes, in which case making enemies of the administration that is in charge of the veto pen and the regulatory apparatus and the trade representative's office isn't a wise strategy.

Dear Mr. Pearlstein: Does the current hostility of CEOs and bankers to the Obama Administration express the resentments of an oligarchy that believes its privileges are threatened? Is this situation similar to many other historical struggles between entrenched oligarchies and the rest of the populace that believes that it is being short-changed? Do you continue to believe, as you seemed to several months ago, that the U.S. economy no longer functions fairly for the majority of Americans?

We may be witnessing, as Harvard Business School professor Rakesh Khuranah put it to me yesterday, a contest for supremacy between the political elite and the business elite.  We did see that in the 1930s and, as you point out, the business oligarchy does feel it is being shortchanged after years of really calling the shots. I think any objective analysis, comparing the situation here to those in other industrialized societies, would indicate that, at most, we are simply restoring things to a much needed balance, but it is hard to convince a business tycoon who is used to getting h is way on everything, all the time, that this is the case.  Making the system work more to everyone's benefit is exactly what is needed, and what Obama in various ways is trying to do, but the business types don't accept that premise. They think that if the market provides the top 5 percent with more than half the benefits of economic growth over the last decade, then it must be right because the market said it was right. They simply can't process the idea that that might be a symptom that something in the machinery of capitalism has gone awry.

Steven: I'm neither an Obama or big business groupie, but why doesn't the President (and perhaps you) kindly say the following to big business: "You might think we're unfriendly to business. You might think the previous President was very friendly to business. However, for a variety of reasons, the laissez-faire attitudes of the previous administration haven't exactly worked out so well for business, consumers, or the economy. So why aren't you willing to take a chance on a new approach that rewards investing for the long-term instead of trying to goose everything for the short-term?" Now allow me to say the same thing more crudely: why the heck would we want a business environment that promotes subprime garbage, allows Goldman Sachs to do whatever it wants, and allows management to loot the company coffers all in the name of business friendliness? At least you seem to have some sense about this.

Why don't you become a newspaper columnist. You'd be pretty good at it.

     Actually, I said rather something close to that last week in my first cut at this topic, in critiquing a speech by the chairman of the Business Roundtable, Ivan Seidenberg.  And from time to the time, the President does rise to that kind of eloquence, as he did at his reprise speech recently in New York City's Cooper Union. Like you, however, I yearn for one of those Oxford style debates between the president and a top business leader that would really bring the different attitudes into sharp relief.  The problem is that the business types would never agree to such a debate.

I would think that most CEOs would welcome the Government taking health off their hands - a headache gone, and more money for them.

You would think so -- and until a few years ago, that was precisely the position of big business, that they wanted to be out of the health care business. But when the Obama process got going, it was clear they didn't trust the system enough to believe that they would ever be relieved of it, and they would be left with the worst of both worlds -- to be perceived by employees as being responsible for health insurance, but without the power and responsibility to manage it well. So they came back around and demanded that everything about the current arrangement, at least at it related to big companies and their employees, remained exactly the same. And by and large they got that.

A great column as usual. I have a question about "allow[ing] all businesses to deduct the full cost of investments and research in the year they were made." Most R&D is a long-term investment, and a company laying on a research division, say, is making a multi-year commitment. I think it's important that any new initiative not allow businesses to "forward fund" R&D for tax purposes, which would make a whole new financial crisis possible (R&D swaps anyone?). Or am I just being paranoid? (I don't know how I could think that Wall Street would game the system.) Thanks again.

Well, yours has been the prevailing view in accounting and tax circles. Theoretically it makes sense. In practice, it makes the tax system very complex and subject to a lot of games because the depreciation rules have become complex and subject to abuse. Also, as relates to R&D, I think expensing is a better way of providing a bit of subsidy (in the form of the time value of money) than a credit, which business demands every time there is a recession and even when there is not a recession. So rather than continue the tax games and the political games with R&D, why don't we just go to expensing and leave it at that -- that's my view anyway.

Could the CEO's really be deliberately keeping the economy down to influence November's elections?

They're not that manipulative and, in any case, that might be a dangerous game for them to play. But they aren't h iring and they are, for the most part, risk averse people who follow the crowd and buy into the group-think and take their cues from Wall Street, where the investing mentality has long since been replaced with a trading mentality. What they are doing, however, is using their reluctance to hire and invest as a lobbying tool to stomp their feet and demand they get their way on policy issues, out of the belief, or the pretend belief, that their business decisions have been driven by the adverse policy environment, when in truth that is just a gross exxageration.

Is all this talk about fighting between CEOs and the Obama administration a precursor to a sentiment to extend the Bush tax cuts? All this talk of "uncertainty" among businesses and investors seems to feed right into an argument that GOP and conservative Blue Dogs would adopt to differentiate themselves from the administration.

That's a part of it, certainly, but not the biggest part. Even Obama has said he doesn't want to increase the marginal corporate tax rate and would actually like to reduce it. And he has proposed, I think, a 20 percent tax rate on interest and dividends and capital gains, which is a bit higher than the current 15 percent but nowhere near the old formula of taxing these as ordinary income, which means 40 percent after expiration of the Bush tax cuts for those in the top bracket.  The tax threat they are most upset about is his proposal not to allow multinational corporations to defer paying the full US corporate profits tax on foreign income until the profits are repatriated to the U.S.. This is a complicated subject and I actually have some sympathy with the corporate position on this, since our approach is at odds with virtually every other country in the world. But rather than sit down and strike a larger tax deal with the administration on taxation of capital, the business community prefers to focus on this one thing. It is another lost opportunity.

My fear is that Congress will do what they did last year after the elections in Nov.  They will start passing all sorts of stuff before Jan 1  so that we will have absolutely no way to stop them. I think many people are fearful of this - companies too.

The people who come up with these conspiracy theories obviously haven't spent much time around the United States Senate.

Steve, it seems to me that at some point, the American public is going to become more angered and frustrated by the increased demands of business for workers to be more and more productive. The American workforce is already very productive and being abused in this climate of high unemployment and little to no new hiring by firms with enough money to pay executives extremely disproportionate wages. At what point do you think that big business will get pressure from their workforces to hire?

Outside of tech and some high-paying sectors like investment banking, workers don't have much impact on corporate strategy.  Corporate executives like to give this big song and dance that their people are their most important resource and a few of them may actually believe it.  But in a 10 percent unemployment environment, they know most of their people feel lucky enough to have a job that they can continue to push them  even harder. Given how the labor laws have been thoroughly gutted, they also know there is almost zero chance of buying themselves a unioin organizing campaign if they push too hard.

Given your constant cheerleading for Obama, do you think that he has done anything wrong in his attempts to fix the economy? To put it a different way, do you have a poster of Obama on the ceiling above your bed?

So maybe you are forgetting the column criticizing him for demonizing the chairman of BP. Or the one criticizing him for pushing for more stimulus rather than long-term investment in infrastructure? Or for being a wuss on financial reform, to the benefit of Wall Street and the Fed?  Or the one kicking him in the groin for getting led around by the nose by the unions on tax treatment of health care benefits?  Trust me, they don't think of me as a reliable ally over there at the White House.  If you're going to paint me as an Obama toadie, you might try doing your homework a bit more thoroughly.

Hello, just because a few bad apples inflict great damage upon the public for their profit, all big business is not painted with the same brush. Bill Gates and other are calling for clean energy investment and innovation to create jobs while the Oil and Coal industries criminal negligence has proven to be a killer of jobs and the environment. Do you think that distinction should be made more often?

Yes, and some of us try to do that. At the same time, I'd like to see some of those more responsible business leaders distance themselves from the others by refusing to join and support organizations like the Chamber and NAM and the Round Table when they act in narrow selfish ways.  They have more of a responsibility to criticize those organizations, rather than leaving it to union leaders and newspaper columnists, whose criticism doesn't carry the same punch.

If "business executives dislike...the political stalemate over climate change, why do they spend all that money to sustain that stalemate?" If big business dislikes "the uncertainty of health care reform," why did they write it into their health reform bill since industry input always determines the final substance and shape of a bill? If big business dislikes the 'uncertainty' of financial regulation, why did it screw up and make itself vulnerable to some measure of control? How much longer does the public live in terror of a deregulated market?  Big business's concerns seem to reflect those of a diseased and pathological mind set.

You raise a good point. The business community likes to say what it dislikes most is uncertainty, but by fighting about every aspect of every issue, it creates the stalemates that are at the heart of that uncertainty. The problem with that, I think I've discovered, is not as much with the CEOs as with the vice presidents for external affairs and the lobbyists and the association heads, whose reason for being is to fight and win all those fights, at any cost. The problem with the CEOs is that they don't rein those guys in enough and force them to make the tradeoff between "winning" the last 10 percent versus the cost of continuing the policy uncertainty.

Many big business CEO's are responsible for their companies contributing to the major economic conditions that the country is facing at this time. The majority of the American people begged the President and Congress to put policies in place to prevent this from happening again. So, why do the CEO's think nothing should be done to change the way they have been doing business? Also, it seems that many businesses are alive financially, but they are REFUSING to hire, even modestly so. They can help bring the economy back, but are so angry that they will punish the American people, rather than hire people who will in turn spend money and purchase their goods and services. What do the CEO's hope to accomplish by using this tactic? What exactly and precisely would a Republican Congress/President have done differently than the Democrats have done to fix the economic/business/jobs problems and kept the CEO's on their side and giving to their coffers? Is what the Dems and the President have done as bad and ineffective as the CEO's say?

Again, they're not setting out to punish anyone. It is that they have convinced themselves that the reason they are too chicken to take some reasonable risks is that the policy environment is hostile. It's rationalization on their part, an attempt to justify their cowardice as business leaders, rather than conscious strategy to hurt people. They don't think of themselves as people who would ever do that. They think of themselves as corporate statesmen, in fact.--that is their self image.  But in order to maintain that image of themselves, they have to find some way to explain why they continue to hunker down in ways that don't benefit society.  And in Obama they think they have that bogeyman that they can use to deflect responsibility onto somebody else.

Mr. Pearlstein, Have corporations purchased the SCOTUS in addition to our representatives?

That's probably going a bit too far, but it is true that in John Roberts we have a chief justice whose career as an attorney in private practice was arguing for corporate interests over those of every other group in society. I suspect that had an impact on his thinking and his values.  And in Justice Alito, you have what can only be described as a corporate hack with mediocre legal skills.

Don't have a clue what life is like for most of us outside of the major metropolitan areas in the Northeast. Cap and trade, carbon taxes and other parts of the progressive agenda do not work in Montana, Nebraska or Mississippi. Electric cars and solar power sound great but when the nearest grocery store is 75 miles away an electric car is not practical, we need our pick ups and SUVs. A Leaf or Tesla won't work. Maybe the political elites need forced reeducation at a local community college in North Dakota or at Big Red. The Ivy League schools they graduated from didn't teach them a thing.

Nobody is saying you shouldn't be able to  drive your Dodge Ram anywhere you want to. But what you are saying is that you should not have to pay for the environmental damage you cause by doing so in the form of higher gasoline taxes, or higher electric rates for power generated by coal, which impose costs on everyone else on the globe. That's all cap in trade is about -- making consumers pay the full social costs of the goods they consume. In fact, you want the government to subsidize these products through sweetheart drilling and mining contracts on federal lands, and by using general tax revenues to pay for roads and bridges in rural areas that don't have the traffic to justify such expenditures. The problem is that you guys are, in an economic sense, free-loaders, and we don't want to pay for your free-loading any longer.

As a rather anti-Obama Republican, I have to admit I have very little empathy for the big-time CEOs. Being super rich instead of ULTRA super rich doesn't make me shed tears. However, I am a small business owner. While things have picked up slightly, I am sure not hiring anyone. Why? I am uncertain what health-care reform will cost me and what new/ increased taxes are on the way. If there was a more positive, pro-small business environment out there (meaning, in Washington), I would hire more people. I currently employ 12 and could go to 15 or 16, but I won't with the uncertainty. Also, every (and I mean EVERY) small business owner I know is feeling the same and making similar decisions. The CEOs aside, do you feel small business owners have a more substantial gripe with Obama and Washington?

Health care reform cuts lots of different ways for small businesses. If you currently offer insurance, you should be glad because it is going to reduce the rate of increase in your premiums in pretty short order. If you don't, well then you are looking at the possibility that you may have to contribute something to the pot in some way. There's no way around that if you want to go to a system of universal coverage while maintaining the current employer-based system of health insurance, which the country has decided it wants to do.

    Until that sorts itself out, you and other small business owners may face uncertainty -- there is no doubt about that. But you have to understand that there really isn't any good time to do such a reform. In the middle of a boom, you'd be writing letters complaining that health reform would "kill" the economic expansion.  So the question is whether the country is going to reform its health care system and move to universal coverage, or not. It's a one time change, it involves some disruption and uncertainty, but before long the costs and benefits will be known, people and businesses will adjust and the economy will move on.

     That said, I remain somewhat skeptical of the notion that you have some great business oppportunity out there that would justify your expanding your staff by 25 percent but you are not going to do it because you might have to pay several thousand dollars more for health insurance in the future. First of all, you can fire people as easily as you can hire them -- that's one of the great "advantages" of the U.S economy.  And if the profit margins on the incremental business are so thin that even a few thousand dollars is the difference between making money and losing it, then maybe there is more at issue here than public policy. 

Steve, I still don't understand the relationship between this 'uncertainty' on health care reform and the hiring of people today. The big thrust of health care reform does not come into play until 2014. Would Steve Jobs pass on hiring and developing another innovative product because of the spector of health care costs in 2014?

Yeah, well that's the point, isn't it. The business community gets into this group think, and get's everyone worked up so that they actually start to believe their lobbying talking points.

Steve--can we dispense with the canard that corporations are "sitting on piles of cash"? It's nonsense. For the most part, this "cash" is short-term government liabilities or commercial paper. In other words, it's not cash at all. Someone has to hold those notes at each and every point in time until they expire. This is NOT money "sitting on the sidelines"--it's money already borrowed and spent by government. If there was a mad rush to dump the notes and convert to actual cash, the notes would be worthless.

Oh, please. This is money listed on balance sheets as either in cash or short-term liquid securities. It is cash in any sense of the word. It is available. Yes, it might raise short term interest rates a bit if they were all to cash it in at the same time. But with short-term rates paying less than 1 percent, this is hardly a threat to the economy. Give me a break!!

What people who haven't been senior managers don't always understand is this: as a C-level executive, you're not only competing for market share in your field. You're also competing for investor dollars and your only real obligation is to your shareholders. Thus, sitting on profits--or investing in other companies, or doing anything else that directly improves earnings per share--is better management than "creating jobs," whatever that really means.

What it tells me is that companies and top executives may be a lot less imaginative and creative as they claim to be, or certainly a lot less courageous.

Could help the economy if he just told Paul Krugman and his buds to shut up. He just needs to stay another trillion dollar stimulus bill will not work and I will not sign it. Govt stimulus is very inefficient.

Its  not Obama's role to tell Paul Krugman to shut up. Paul Krugman rants and raves about stimulus because Washington has decided it doesn't want stimulus. Krugman lost this argument, so why does the other side have to do anything. The reality is not what happens in the blogosphere. It is what happens in the legislative process. And right now, there is no stimulus nor any prospect of stimulus. Right or wrong, that is the end of the story.

Thank you for being so blunt. Actually, cap and trade works for those of us in the hinterlands willing to sell carbon offsets.

And bless you for that.

Good discussion today. Out of time. No column next Wednesday (going up to New England for a long weekend) so there won't be web chat. We'll pick up in two weeks.

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Steven Pearlstein
Steven Pearlstein is a business columnist for The Washington Post. He won a Pulitzer Prize in 2008 and is co-moderator of the On Leadership discussion site.
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