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VIEWPOINTS : Public May Be Willing To Give Business a Hand : As U.S. Firms Find Themselves on the Defensive in Global Arena, Americans Are More Likely to Support Increased Subsidies

DAVID VOGEL, <i> a professor of business and public policy at UC Berkeley, is author of "Fluctuating Fortunes: The Political Power of Business in America."</i>

Is business in political trouble again?

In recent weeks, several major business publications have argued that the political tide has once again begun to shift against business. They have cited such developments as the political resurgence of Ralph Nader, the passage of insurance regulation in California, the revival of public support for strong environmental controls and the growing anxiety of American consumers over food safety.

But before companies prepare for a decade of siege and increase the size of their public affairs budgets, a note of caution is in order.

In fact, political commentators and journalists have predicted a reversal in the political fortunes of business for more than two years. In February, 1987, the Washington Post predicted: “The American electorate may be ready to ditch its old economic bogyman, Big Government, for a new one, Big Business.” Two months later, Business Week, in its “Washington Outlook” section, observed: “A backlash against business is building.” Noting that the public was becoming fed up with “merger mania” and “Wall Street scandals,” its columnist concluded that political trouble for business, “was only an election away.”

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That the earlier round of predictions did not prove accurate does not automatically make the more recent ones invalid. Also, the political fortunes of business do tend to move in cycles and the last “reform” wave did end more than a decade ago. But to the extent that the past is any guide to the future, we are unlikely to witness a major expansion of government controls over business comparable to that which took place between the mid-1960s and the mid-70s.

Over the past 30 years, the most important factor influencing the political strength of business has been the public’s perception of the long-term strength of the American economy. The two have been inversely related. Business became unpopular and lost influence beginning in the mid-1960s primarily because the American economy was performing so well that the public began to take the success of business for granted. The conventional wisdom was that regardless of whatever restrictions were placed on business, American living standards would continue to improve.

The resurgence of business’s political influence during the last third of the 1970s had many causes, but among the most critical was the public’s growing sense, after the 1973 oil price rise, that the American economy was in serious difficulty. As a result, the public became more responsive to the arguments of business about the need to reduce corporate taxes, curtail inflation and slow the growth of government spending and regulation.

It is true that, compared to the ‘70s and early ‘80s, the American economy has performed relatively well in recent years. We are in the 80th month of the nation’s longest peacetime recovery. Inflation appears to be under control, and employment remains high. And although the growth of both GNP and per-capita income remains modest, it is possible that they are both sufficient to satisfy the public’s current economic expectations.

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These economic developments account for some of the resurgence of public hostility to business in recent months. But there remains an important difference between the public’s mood in the 1960s and the late 1980s. That difference may be summarized in one word: Japan.

Unlike two decades ago, Americans are now well aware that they live in a global economy. They also believe that, for a variety of reasons, American firms have not been very successful in competing in this economy: Most Americans now consider Japan to be the world’s leading economic power.

Not all the political implications of this perception are clear. But what is evident is that the public no longer takes the future success of American business for granted. They may be persuaded to support some modest increases in consumer and environmental protection. They are hardly likely, however, to endorse the kind of sweeping commitment to clean up the nation’s air and water such as the one that Congress embarked on so cavalierly in the early 1970s, when American firms looked as though they would continue to grow, and dominate the free world forever.

The private sector is spending $45 billion a year to reduce air and water pollution. Does anyone actually think that we are about to significantly increase this sum, particularly after the impact of these additional expenditures on our living standards and international competitiveness has been made clear to the public?

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Those interested in understanding the direction of business-government relations in the United States should pay less attention to the Exxon Valdez and more to the debate over high-definition television. The Bush Administration has apparently decided to give America a Japanese-style industrial policy. Thus, the Defense Department’s Advanced Research Project Agency has begun cooperating with private sector consortiums to finance research in semiconductors, superconductivity, brain-like computers, chips for communications systems as well as HDTV.

What is politically significant about these initiatives is not that they come from a Republican Administration. Rather it is that criticism of them has come almost exclusively from those on the right of the political spectrum. The fact that liberal Democrats do not think it is inappropriate for the government to subsidize business to further the goals of American economic policy is extremely significant. Such a mood contrasts sharply with the political climate that existed nearly two decades ago, when Democrats in Congress led the battle to deny future funding of the SST (supersonic transport), even though at the time it appeared that this decision would weaken American leadership of commercial aerospace.

To be sure, particular industries may well find themselves subject to increased regulation, particularly on the state level. But that has been true throughout the 1980s; it hardly augurs the beginning of this century’s next reform wave. As long as American firms find themselves on the economic defensive globally, the American public is more likely to be willing to support increased subsidies for business than additional restrictions on it. The most effective way for business to retain the political initiative is to stress the links between America’s global competitiveness and public policies that support, rather than hinder, the ability of American companies to compete successfully in the world economy.


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