The Unlikeliest Scourge (Bush and Big Business)

THERE he was -- America's first president with an MBA, the man who loves to boast about his business background, whose presidential campaign raised unprecedented sums from corporate wallets and whose cabinet is stuffed with chief executives -- standing before 700 pinstriped Titans in a New York hotel ballroom, dressing them down. Faith in the integrity of American business leaders was being undermined, George Bush said fiercely, by executives "breaching trust and abusing power". The business pages of American newspapers "should not read like a scandal sheet." It was time for "a new ethic of personal responsibility in the business community." He was going to "end the days of cooking the books, shading the truth and breaking our laws."

No Republican president has so bull-whipped business since trust-busting Teddy Roosevelt railed against the "malefactors of great wealth" a century ago. And there was more. "Responsible leaders do not collect huge bonus packages when the value of their company dramatically declines. Responsible leaders do not take home tens of millions of dollars as their companies prepare to file for bankruptcy." As Ralph Nader, erstwhile presidential candidate and America's best-known business-basher, put it, the former compassionate conservative was now the chiding conservative.

Only months ago, the idea that Mr Bush would publicly lambast America's corporate bosses was laughable. As a candidate, borne on the wave of a decade-long economic boom and an unprecedented 18-year bull market, he cashed in on Americans' love affair with corporate success. But things are different now. The stockmarket bubble has burst and, despite signs of economic recovery, Wall Street seems to be sunk in gloom. A string of scandals at some of America's most high-flying firms -- including Enron, Xerox, Tyco, Global Crossing and, most recently, WorldCom -- has radically changed the public mood. As investors see their portfolios shrink, venerated corporate bosses have been exposed as fraudulent hucksters. Worse, many of the bedrock institutions of American capitalism -- accounting rules, oversight bodies, boards of public companies -- have been found wanting. Time and again, it appears, auditors and outside directors failed to detect or disclose corporate malfeasance.

As political pressure for reform increases, so too does the heat on Mr Bush. With control of both houses of Congress at stake in November's mid-term elections, Democrats have been quick to pounce. In the past week, Mr Bush's own business background has come under fire (he was investigated by the Securities and Exchange Commission on suspicion of insider trading in 1990, but the case was dropped). So too has Harvey Pitt, Mr Bush's chairman of the SEC. Both Tom Daschle, the top Democrat in the Senate, and John McCain, Mr Bush's Republican challenger, called on Mr Pitt to resign this week, claiming that he has been too slow to react to the scandals.

Mr Bush's political opponents are also out ahead on reform. This week, the Senate was preparing to pass a Democrat-inspired corporate-reform bill, the brainchild of Paul Sarbanes of Maryland, that promises the most thorough overhaul of American accounting since the 1930s (and is considerably more radical than a bill already passed by the House of Representatives). Mr McCain this week called for even more wide-ranging reform, including requiring companies to record stock options as a business expense, and preventing top corporate bosses selling shares in their firms while they head them.

Is the businessman's president really prepared to take business on and push hard for reform? Despite the set jaw and aggrieved tone in New York, probably not. Mr Bush may have sounded a little like Teddy Roosevelt, but he showed scant sign of thinking like him. Roosevelt, a Progressive Republican, radically reshaped America's economic landscape -- and, in the end, left his party. Most famously, he broke up the "trusts", the powerful corporate monopolies that dominated late-19th-century America, by bringing 44 antitrust cases in seven years.

Mr Bush, by contrast, thinks the current crisis stems from a few bad-apple chief executives rather than the system as a whole. Hence his focus on tough penalties for corrupt businessmen and his plea for higher ethical standards. The president announced the creation of a "financial-crimes SWAT team" at the Justice Department to root out corporate fraud, and wants to double the maximum prison sentence for financial fraud from five to ten years. But he offered few concrete suggestions for systemic reform: no mention of forcing companies to record stock options as an expense, little mention of changes to strengthen shareholders' rights, not even an endorsement of the Senate corporate-reform bill, though he gave a brief nod to the weaker House version.

This "bad apples" theory is also one that corporate America is keen on. TV news programmes are full of corporate bosses deploring the "shocking" and "unconscionable" behaviour of a few of their peers. Tom Donohue, the boss of the powerful US Chamber of Commerce, this week excoriated the "inexcusable and unethical behaviour" of some of his kind. "Put 'em in jail!" he thundered at a press conference, banging his fist on the table. In the same breath, however, Mr Donohue warned against "over-reaching responses" and vowed to fight all the most radical parts of Mr Sarbanes's bill.

A close look at Mr Bush's team shows clearly why his position and Mr Donohue's are not far apart. Unlike the Reagan crowd, who -- despite impressive stock portfolios -- stormed into Washington from California in 1980 determined to cut the size of government and beat communism, Mr Bush has surrounded himself with less ideological types, veterans of the corporate establishment.

At the top, four of his cabinet secretaries are former chief executives of large American companies. Vice-President Dick Cheney ran Halliburton, an oil-services firm; Paul O'Neill, the treasury secretary, headed Alcoa, an aluminium giant; Donald Rumsfeld at Defence ran General Instruments; Don Evans, the commerce secretary, ran Tom Brown, an oil and gas company. No president since Eisenhower has had more than one ex-chief executive in the cabinet, and Eisenhower had only two.

Less well known is the infusion of corporate types at lower levels. At the Defence Department, Thomas White, the secretary of the army, was formerly head of the energy-trading arm at Enron; James Roche, secretary of the air force, came from Northrup Grumman; Gordon England, secretary of the navy, was with General Dynamics. Yet more junior ex-corporate staff have come into the administration with them.

Lobbyists have also fared well. Andrew Card, Mr Bush's chief of staff, was once the top Washington lobbyist for the car industry. Mr Pitt of the SEC made his career as a lawyer representing the accounting industry, lobbying hard against any tightening of the rules. (As a result, Mr Pitt has had to recuse himself from many of the SEC's decisions this year: at least ten of his former clients are currently under SEC investigation.) Two other Bush appointees to the five-member SEC also came from accountancy firms.

Business insiders were considered, at least for a while, as a positive asset to government. The White House bragged that they would make it run better. This year's budget, for instance, promised "competitive sourcing", the "strategic management of human capital" and a "Management Scorecard". From the famously cumbersome Pentagon to the Treasury Department, efficiency would be improved, the Bush team promised, by men who understood about the bottom line.

Unfortunately, business smarts are now a political liability. Mr White, the army secretary, was the first embarrassment. His assurances that he knew of no wrongdoing made him appear either incompetent or fraudulent. The next, and potentially much more serious, scandal could concern Mr Cheney: the SEC recently began an investigation into possible accounting irregularities at Halliburton when he was chief executive.

Finally, Mr Bush's own business background is coming under embarrassing scrutiny. In 1990, when his father was president, Mr Bush sold 212,000 shares in Harken Energy, an oil company of which he was an outside director. Two months later, the company announced a loss and the shares tumbled. A subsequent SEC investigation revealed that Mr Bush had not disclosed the sale of his stock in the "timely manner" the law required. The president's excuse for not filing the papers was a "mix-up" with his laywers. Though the SEC investigation in 1990 went nowhere, it is clear that (at the very least) Mr Bush failed to keep to the disclosure standards he demands from corporate bosses.

More telling than the business connections of his team is their policy record so far. For all the free-market talk during the campaign, this administration has excelled at forsaking sensible economics in the face of powerful special interests.

Trade policy offers a prime example. Mr Bush, who touts himself as a free-trade president and who pushed for the launch of a new global trade round, has nonetheless been happy to slap on protectionist tariffs. His decision in March to impose tariffs of up to 30% on imported steel was the most outrageous (and certainly something Bill Clinton, for all his faults, never did). He has also put tariffs on softwood lumber, and has tacitly condoned the efforts of Congress to offer more protection to America's dying textile industry.

Then came the farm bill, which two months ago overturned the market-based agricultural reforms that were bravely brought in in the 1990s. The farm bill busts the budget and threatens, by itself, to undermine the prospects for concluding a new global trade round -- all in the interests of doling out huge cheques to American agribusiness. Nor did the Bush administration flinch from offering America's airline industry (briefly shut down by government order after September 11th, but flailing long before) a bailout last year. Months after the terrorist attacks, administration officials are still engaged in deciding which airlines should receive government-guaranteed loans.

Although a few free-market purists haunt the White House, too many of the corporate types in the Bush team equate good economic policy with what is good for business. Sometimes the two coincide. Mr Bush's decision to embrace voluntary, rather than mandatory, guidelines for workplace ergonomic standards, for instance, increases employers' flexibility and makes economic sense. So, too, do his relaxations of parts of the Clean Air Act.

But too often this administration's policy seems to be expressly tailored for (and heavily influenced by) business lobbies. Mr Cheney's much-ballyhooed energy plan, prepared last year, appears to have been largely written by the energy industry. Similarly, this year's "economic stimulus package" was less an effective tool of economic policy than a sop to corporate America. Its main provision was a three-year investment-tax break. Even the conservative Weekly Standard called the bill "a collection of corporate pork, self-serving subsidies and narrowly focused favours".

Perhaps most telling, the Bush team has taken few goodies away from corporate America. Last year's budget, for instance, demanded a $12 billion cut in corporate welfare. Nothing happened. Instead, government spending -- even excluding defence and homeland security -- is rising fast. Part of this is, of course, the result of the recession, but for all the high-minded talk about reining in government, Mr Bush's team has presided over an explosion of corporate spending.

This grubby tale is not unprecedented. Mr Bush's protectionism still pales in comparison with Mr Reagan's -- the man who slapped "voluntary export restraints" on cars and machine tools and introduced minimum price floors on semiconductors. For all their Adam Smith ties, the Gipper's aides in the White House were only too happy to help out American farmers and other friends.

Moreover, the blame for the recent sycophancy towards business lies with Congress as much as with the White House. In an election year, with control of Congress in the balance, lawmakers from both parties are keen to spend lavishly, bail out airlines, suck up to steel firms and fatten the wallets of rich farmers. And the motivations of the Bush team, too, have often been crudely political. The steel tariffs were in part an attempt to shore up Republican votes in West Virginia, Ohio and other steel-dominated states. The farm bill was designed to boost Republican chances from Arkansas to South Dakota in the mid-term elections. Both sprang less from corporate prodding than from the political calculations of Karl Rove, Mr Bush's chief political strategist and the most important adviser in the White House.

In fact, when Mr Rove's electoral strategy demands it, corporate America's demands have been ignored. The tax cut that Mr Bush signed in 2001 did not (as businessmen wanted) cut the corporate-tax rate or hand them the other tax breaks they craved. Instead, corporate America was told to wait. Mr Rove wanted to use the tax cut to shore up the conservative base of the Republican Party. Mr Bush was to be painted as Mr Reagan's heir, determined to hand the American people back "their money", rather than as the candidate of big business.

This record suggests that Mr Bush will try to reform business practices only as far as Mr Rove impels him. And the omens are not good. There is unlikely to be pressure for action from the right. As many disgruntled conservative intellectuals are pointing out, the modern conservative movement has gone corporate. Marshall Wittmann, a leading conservative scholar, argues that the anti-government and anti-communist glue that held the conservative movement together has been dissolving. Big corporatism has taken its place. Many former firebrands of the Republican right are now making money as lobbyists. It is a sign of the times that Marc Racicot, the new chairman of the Republican Party, refuses to give up his day job at a law firm with numerous lobbying clients, though he promises not to lobby himself.

Nor is it clear how far Democrats will ride the bandwagon of corporate reforms. Though senior Democrats have turned up the populist rhetoric recently, this is the party Bill Clinton recast as one that was friendly to business. Al Gore's anti-business populism in the 2000 campaign may now sound prophetic, but the party establishment has yet to endorse it (see article). Democratic lawmakers, too, know the determinedly friendly embrace of corporate lobbyists. Joe Lieberman, Mr Gore's running-mate, is well known as a friend of Silicon Valley. Not surprisingly, he has long been a staunch opponent of reforming the treatment of stock options. This week's Senate activity, centred on the Sarbanes bill, may well mark the climax, rather than the start, of the Democrats' reformist zeal.

Most important, there are few signs yet that cleaning up corporate America is an issue that animates the voters. Polls show that Americans have little faith in their business leaders -- a recent survey found less trust in corporate America than in the paedophile-shuffling Catholic cardinals -- but politicians do not seem to be suffering as a result. Mr Bush's approval ratings have fallen from their sky-highs, but they are still very strong.

The president, therefore -- Mr Rove may well say -- need do no more than talk tough. This alone will convince ordinary Americans that he is on top of the issue. As the economy rebounds and public outrage subsides, the clamour for change will quieten. Democratic attacks will fizzle, and far-reaching reform bills will be watered down before they become law. Politically, the gamble makes sense. Unfortunately for American capitalism, a great opportunity will be missed.

Pres. Bush is going to ride out this Wall Stret witch-hunt without a scratch. The few bad apples in some corporate acccounting firms will be punished and things will blow over. The American people need a hero in a time of war. So long as the War on Terrorism is rolling, there is little room to attack a sitting US President. The business of America is business!

Globalization is driven by large multi-national corporations. It's possible that the whackos who oppose globalization are trying to ruin Wall Street's image. Those in the world's media (in the US and abroad) who oppose globalization know that the only way to stop it is to kill the engine driving it. And that engine is the large corporation. Bush will have his cake and eat it too, because the war on terrorism will allow him to be a hero to the masses, and also a hero to the corporations now at risk of being over-regulated. Watch the polls. Americans know that government in the US should work for, not against, Wall Street. The Federal Reserve, along with Corporate America, are the most sacred and cherished gems in the world-economy and should be promoted.

Only a foreign publication could have gotten this paragraph so wrong. George W. Bush was no more "connected" to corporate America than any other political figure in the U.S. -- the only difference between him and Al Gore was the names of their corporate supporters. And Bush certainly was not "borne on the wave of a decade-long economic boom." If the voters really had that "boom" in mind, they would have elected Al Gore instead.

Bush was elected primarily because he had convinced voters that he was an "outsider" to Washington. Call me naive, but I suspect that most voters in 2000 (even most Democrats) had a pretty good idea that the Clinton/Gore administration was full of crap from top to bottom. This is precisely why "the economy" did not play as a big a role in that election as it may have in most years.

George W. Bush was no more "connected" to corporate America than any other political figure in the U.S. -- the only difference between him and Al Gore was the names of their corporate supporters.

W had spent a good deal of time inside corporate America, unlike Gore.

I understand what you are saying, but I'm not sure how much of an impact those things have had in the overall scheme of things. The $150 billion (or thereabouts) farm bill, for example, is looked upon as a "boondoggle" of sorts. But that money is actually spread out over ten years, and in a nation where the annual GDP is something on the order of $8 trillion that comes to about 0.2% of the overall economy.

A lot of money? Sure. But it pales in comparison to the major government expenditures (Social Security and Medicare) over that period.

I spend 100% of my time working as a civil engineer on the planning and design of this nation's roadways and transit systems. And yet almost all of the political decision-makers that affect these areas (U.S. Secretary of Transportation, members of the House and Senate Transportation/Infrastructure subcommittees, transportation commissioners for the 50 states, etc.) are lawyers.

Nobody is ever going to call me "connected."

"Pres. Bush is going to ride out this Wall Stret witch-hunt without a scratch. The few bad apples in some corporate acccounting firms will be punished and things will blow over."

I have little doubt that Bush will survive. However, I am beginning to get a sinking feeling about Congressional Republicans come November. Up until now, I was very optimistic about the GOP's chances. But based on anecdotal evidence, I'm sensing that things are starting to shift the other way.

Don't worry about these fall 02 elections. Rove has a plan surely, perhaps it involves Iraq. If the US invades Iraq before the polls open, all this EnronWorldComWallStreet nonsense will fade away like cannon smoke on a bigger battlefield. Republicans will ride those war coat-tails to victory in Nov. 02 and beyond.

Daschle complains Bush must have known that the stock price of Harken would tank two months after he sold 2/3rds of his stake in the company. So if Bush knew that, why the heck didn't he sell off 100% of his stake?

Mrs. Clinton complains that Bush must have known in advance that September 11 would happen. You remember, her old tired watergate line, "what did he know and when did he know it".

Many other leftists have moaned and groaned that Bush must have known that the stock market was going to decline, so why didn't he tell us that Enron, WorldCom, Global Crossing, et al, would tank? What's next they want White House weather predictions? Or when, Sally Sue's baby will learn how to talk? Sniff, Sniff, whine and moan.

Give me a break into reality. IMHO, the leftist crisis and fear mongerers certainly desire to have a soothsayer as their leader and so far, Gore, Lieberman, Biden, Edwards, Clinton, Daschle, Gephardt, Kerry or any other leftist who wants to run for the office of president haven't a clue either.

Mrs. Clinton complains that Bush must have known in advance that September 11 would happen. You remember, her old tired watergate line, "what did he know and when did he know it".

In the interest of historical accuracy, that was Senator Howard Baker's line.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.