[A-List] US legitimation crisis: corporate state

["Michael Keaney" <michael.keaney@xxxxxx>]

Time for Bush to get tough on business
By Jeffrey Garten
Financial Times: December 18 2002

With George W. Bush's new appointments - John Snow as Treasury secretary,
Stephen Friedman as National Economic Council adviser and William Donaldson
as chairman of the Securities and Exchange Commission - and with the recent
Republican electoral victories in Congress, American chief executives can be
forgiven for believing that Washington is poised to pursue the most
pro-business agenda in years. However, the real interests of the business
community may differ from what chief executives imagine.

For example, many executives would say that the recent laws to combat
corporate and accounting transgressions are too severe and would welcome a
Republican-led slowdown in regulation. But this would be short-sighted for
business itself. It is in corporate America's interests that the 80m
Americans who have relied on the stock market for their retirement and their
children's education believe that corporate governance is on a much stronger
foundation. Otherwise, the pervading lack of faith in America's market-based
system could lead to years of under- investment. This would not only
jeopardise national welfare but would also undercut corporate health.

Consider tax policy. Many business leaders are behind Mr Bush's putting his
recent $1,300bn (£833bn) tax cut, which expires in 2010, on a permanent
basis. There may well be a strong case for lowering taxes in 2003 to
stimulate the sagging economy. However, cutting them in perpetuity is
another matter, for the recently projected $5,000bn US budget surplus for
the decade has now turned into a stream of annual deficits of at least
$150bn for years to come.

Business leaders would do well to recall that less than 10 years ago, such
budget shortfalls not only set back the national economy but also damaged
American companies. This happened because the government was forced to
borrow huge sums to cover fiscal deficits, thereby competing with private
enterprise to obtain funds in the market. The combined pressure of public
and private borrowing drove up interest rates and inhibited business
expansion. High rates also pushed up the value of the dollar, raising the
prices of US exports and making it easier for European and Japanese
companies to take markets away from US companies.

Chief executives seem pleased that a Republican-sponsored drug prescription
plan for elderly Americans, one also favoured by the pharmaceuticals
industry, is within political reach. While any plan is better than none, it
would not be in the interests of US companies if this narrow initiative were
used as an excuse for doing nothing else to reform the healthcare system.
After all, the cost of medical attention is increasing by about around 15
per cent a year and 40m Americans are without health insurance coverage.

Fixing the health system is in the interests of American society as a
whole - but, for companies in particular, the short-term danger is clear.
Rising company contributions to employee premiums are eating into corporate
profits. In addition, employees have either to pay much more for medical
benefits or forgo important treatment altogether. They are thus likely to be
sick more often and worry more about their health. As a result, they are
sure to be less productive.

Chief executives seem tacitly to support the administration's international
policies, partly because they assume that the Republicans are strong
supporters of free trade. But they should take another look. Republicans did
not hesitate to erect extensive barriers to steel imports or to raise farm
subsidies sky high. Moreover, it appears that the administration has never
met a treaty it likes, having walked away from those relating to protection
of the environment, control of nuclear and biological weapons and pursuit of
international criminals, among others.

Such strident unilateralism is not in business's interests: chief executives
of American multinationals need more rather than fewer global accords, to
include those on trade, banking regulation, securities trading, accounting
rules, protection of intellectual property rights and harmonisation of
antitrust policies. Indeed, without more such agreements, the successful
globalisation of US companies, now so heavily dependent on foreign markets
for revenues, will be dramatically curtailed.

Currently, chief executives are not accustomed to looking far ahead. In the
1980s and 1990s, business leaders were preoccupied with pumping up the value
of their companies' share prices in the short term, often by financial
manipulation, ill-conceived mergers or sheer rhetorical hype. This behaviour
may have ended for now. But chief executives are still intensely focused on
meeting quarterly earnings targets. This tendency has been reinforced by
remuneration based heavily on stock options that can be cashed in soon after
being awarded, not to mention the shortening tenure of chief executives -
which has now reached three to four years on average.

It would be an important turn of events if the administration and business
leaders took a longer and broader view of the policies that would stimulate
economic growth, strengthen our free market system and help American
companies. But it seems that this is not what the Bush administration and
Congress will be pushing, or what chief executives will be supporting. For
that, businesses and the public will both be losers.

The writer is dean of the Yale School of Management and author of The
Politics of Fortune: A New Agenda for Business Leaders. He was
undersecretary of commerce in the first administration of Bill Clinton