U.S. to Get Tougher With Business
A new policy climate for American business is taking shape for the 1990s. It will be an environment much less hospitable than has been the case in recent years. This emerging business climate will not be a return to the 1970s, when business was almost uniformly portrayed as the villain and every shortcoming in the society was blamed on private enterprise. But we are seeing a step away from the relatively pro-business attitudes of the Reagan Administration to a more middle-of-the-road position.
Several factors are causing this shift. The most obvious are the strengthening of Democratic control of both houses of Congress and the conclusion of the Reagan presidency. A more subtle influence is the inevitable swing of the public opinion pendulum as citizens grow dissatisfied with one approach to public policy and try another.
In recent years, public confidence has declined in the ability of American business to deal with the problems facing it. The pervasive inroads into traditional American markets by foreign firms have been felt both by shareholders and employees. The fundamental power of the American corporation to compete has been called into question. Simultaneously, a series of scandals involving unethical and perhaps illegal behavior on the part of some government contractors has put U.S. business on the political defensive.
All this has coincided with a wave of corporate restructuring and takeovers often described to the public in terms of making a “quick buck” and supposedly with scant regard for employees, customers, or communities affected. Despite the exaggeration embodied in such characterizations, their widespread circulation weakens the public support for the private enterprise system.
Let us focus on six likely areas of deeper government involvement in American business in the near future.
We are already witnessing an acceleration in the pressures on the federal government to minimize its own expenditures by imposing social costs on employers. The proposals with a substantial head of steam range from higher minimum wages to compulsory health-care insurance to requirements for employee leave for a variety of family and personal purposes.
The common characteristic of these items is that they use government power to bypass the fiscal operations of government and thus appear to achieve important public purposes without any cost--to the government. Of course, the costs that they impose on
the private sector--to both business firms and nonprofit institutions--can be substantial. But to cite a cynical observation in the field of public finance, “The best tax is a hidden tax.”
A second area of expanded government involvement is the renewed emphasis on environmental protection and employee and community safety. The specific issues range from new ones such as combating acid rain to more traditional concerns such as cleaning up hazardous wastes. In terms of its own budgets and manpower, the Environmental Protection Agency is already on a growth trajectory. The pressures for “doing more” are accelerating with little attention to the need to relate the benefits of regulations with the substantial costs that they impose. In any event, President Bush is appointing a new roster of officials eager to make their marks at the regulatory agencies to which they are assigned.
Despite the reality, the worry about America being for sale is real. In the aggregate, foreign ownership of American businesses and real estate is very modest. Moreover, British and Dutch interests far exceed those of Japan, which is bearing the brunt of current criticism. Nevertheless, the outlook is for Congress to enact some restrictive legislation, perhaps initially a law requiring the registration of new direct investment by foreign interests. It will be hard to object to “just” requesting some more data, but the camel’s nose would be under the tent.
The pressures for directly reducing the federal deficit cannot be ignored. But every dollar the federal government spends is a dollar of income to someone--so Congress is always on the lookout for easy answers. We can expect special emphasis on reforming expensive defense programs, notably the way the government buys weapon systems from private business. But Congress seems to learn little from experience. The result will almost inevitably be more detailed, burdensome and costly regulation of what already is the most closely regulated sector of the economy.
Given the growing public opposition to hostile takeovers and leveraged buyouts, we may well see some legislation in this area. The most popular candidate right now is to reduce the tax deductibility of interest paid on “junk bonds” and other debt issued to finance LBOs and takeovers. The more sensible answer is to change the tax treatment of dividends so that companies no longer have the incentive to substitute tax-deductible interest payments on debt for non-deductible dividends on equity. But the loss of federal revenue involved makes this change unlikely at present.
A sixth area of greater government involvement in business (and vice versa) results from the poor job that the public sector has been doing in the area of education and training. It is becoming clear that many parts of the American work force are not adequately trained in terms of the language, math and science skills required for U.S. companies to compete effectively in an increasingly global market. Over the past year, this issue has become the top public policy priority of American chief executives. It often gets translated into the position of business leading drives for higher school taxes and new bond issues and otherwise urging an expansion of the public sector.
Quite clearly, American business operates in a time of continuing, if not accelerating, change. Executives really have only two basic choices. One is to hunker down and oppose change, hoping to ride out any adverse consequences of new market forces or expanded government rules and regulation. The second is to take the initiative and be part of that change--either by gearing up for the new operating environment or participating in the public arena in which government policies are formulated.
American history reveals strikingly different results from these two business approaches to major change. Before World War II, Montgomery Ward and Sears Roebuck were the two giants of retailing in the United States. Pursuing a disastrously bad economic forecast, Montgomery Ward cut back after World War II to guard itself against the next depression. However, this is 43 years later, and that depression has not yet arrived. Montgomery Ward is no longer a giant of American commerce. Sears Roebuck, in striking contrast, was a part of the change, and--serious corporate problems notwithstanding--it continues to be in the front rank of American businesses.
The difficult and dynamic public policy environment that is likely to characterize the coming decade surely will not see the survival of every individual enterprise. But given the track record of American business in overcoming obstacles, entrepreneurship and innovation will continue to flourish.
