BARACK OBAMA is unloved by business. And as the mid-term elections approach and voters ponder whether to hand the Senate to his Republican opponents, that could make a difference. Business owners give Mr Obama lower than average approval ratings. Corporate lobbyists discuss his reform of health care with contempt. A Wall Street boss accuses the government of extorting fines from banks in order to win votes. A technology chief says he is Mr Obama’s last fan in Silicon Valley. On October 8th Randall Stephenson, the head of AT&T, grumbled about a wave of damaging regulations. His audience, many of them bosses, approved.
The puzzle is why big firms are so miffed when they are so minted. Since Mr Obama took office in early 2009, AT&T’s earnings-per-share have risen by 56% and Mr Stephenson’s annual pay by 47%. The S&P 500 index of shares is near a record high. American firms dominate rankings of the world’s most valuable companies for the first time in a decade and a half. Profits are at their highest level relative to national income since the 1960s. While the median household has seen its income stagnate, the median pay of an S&P 500 chief is up 43% since 2009.
Some blame this paradox on Mr Obama’s lack of chemistry with chief executives. But you would think that the $885 billion of profits that non-financial firms made last year might be some compensation for his aloof bedside manner. Another theory holds that American firms are being tortured by red tape and taxes to an unprecedented degree. The cost of regulation has risen under Mr Obama, according to the Office of Management and Budget. Batty new rules abound. The Environmental Protection Agency (EPA) wants to define the “waters of the United States” to include not just navigable rivers and lakes but also their tributaries. The National Federation of Independent Business (NFIB), a lobby for small firms, howls that this could include ponds and ditches that are dry most of the year. It predicts that developing such land could require permits costing tens of thousands of dollars and long delays.
It’s my party and I’ll cry if I want to
Yet Mr Obama’s taxing and fiddling is not unprecedented. Richard Nixon introduced price and wage controls in 1971. The federal tax code grew more than 50% longer under Ronald Reagan and George H.W. Bush; since 2007 it has grown 10%. The aggregate tax paid by non-financial firms under Mr Obama, at an annual average rate of 25% of pre-tax profits, is lower than the 32% paid under the Gipper. America is the fourth-easiest place in the world to do business, according to the World Bank.
Instead, three structural factors explain American firms’ gilded grump with their government. First, they are more global than ever and see greener grass abroad. If you operate in East Asia, it is hard not to envy its roads and airports. In 1988 America’s headline corporate-tax rate of 34% was among the lowest in the world. Today, at 35%, it is among the highest. Many firms are now mobile and can shift activity to friendlier places. Some are under pressure from shareholders to do so. Bosses feel that by standing still, America is falling behind. A new survey of Harvard Business School alumni by Michael Porter and Jan Rivkin finds that 47% think America is losing competitiveness—in the bleak days of 2011 that figure was even worse, at 71%.
The second factor is the polarisation of American politics. Partisan rancour is higher than in the 1970s, according to a new index (see chart 1). The wounds of the financial crisis have yet to heal. Opinion polls suggest that Americans still hate banks and big business. Both big parties have wings that are hostile to the corporate establishment.
Polarisation is bad for business. When the two parties refuse to compromise, they are unlikely to pass the long-term reforms that might boost growth. And polarisation makes extreme events more likely. In 2013 stand-offs over the budget and the debt ceiling caused a government shutdown and nearly led to a cataclysmic default. All this uncertainty deters investment.
Thus although firms are making big profits, they are not re-investing enough. In 2013 S&P 500 firms spent more on dividends and share buybacks than on capital investment. Mr Porter says that when Japanese competition was a threat in the 1980s there was a sense of common purpose between American firms and politicians about how to respond. The lack of any unity now is “extremely scary”, he says.
While they rage at Washington, firms are making things worse by spending more than ever to influence politics. Spending by business in 2013-14 on lobbying and campaigning has so far exceeded $5 billion, according to the Centre for Responsive Politics. Google is now one of the biggest spenders. The US Chamber of Commerce, the main big-business lobby, has broken new ground by trying to influence primaries as well as elections. In primaries it has backed mainstream Republicans against Tea Party rivals. In elections it nearly always backs Republicans: of its 280 endorsements, only five are of Democrats. Its recent ads feature Rand Paul, a Republican senator who is also an eye doctor, attacking Democrats in swing states. “As a physician…it bothers me that Kay Hagan [a Democratic senator in North Carolina; see article] doesn’t think you’re smart enough to choose your doctor,” he says, referring to the fact that some Obamacare policies limit your choice of doctor.
Throwing cash at politics makes sense for firms individually—Strategas Research Partners, an analysis outfit, runs an index of companies that lobby, and says this group has outperformed the stockmarket for 15 consecutive years. But it is collectively insane. Donations are roughly split between the two big parties, leading to an arms race. Those unable to write big cheques, including voters and small firms, grow cynical. Business hates partisan politics, but is partly to blame for it.
The third factor behind the collective strop of American firms is corporate inequality. Multinationals and technology giants are booming. The ten biggest companies in the S&P 500 generate 23% of its profits, up from 20% in 2007. Yet small firms have yet to regain the ground lost since the financial crisis, says Christine Kymn of the Office of Advocacy, a watchdog. Employment by firms with fewer than 100 staff is still well below the 2007 peak. The NFIB’s confidence index for small firms is still below 2006 levels (see chart 2). Disturbingly, since 2008 more firms are dying than being born, for the first time in at least 30 years.
Mr Porter worries that small firms are “especially disadvantaged”. They complain that mega-banks, which got bigger after the bail-out, won’t lend to them. They believe that cumbersome new rules, most obviously Obamacare, hurt them disproportionately. For example, a firm that shrinks its workforce to 99 or fewer people will now have to certify that it did not do so to evade its obligations under Obamacare, according to the NFIB. And they think big firms get an unfair advantage from lobbying. Robert Wolf, a banker who has advised Mr Obama, talks of a new and fraught intersection between Wall Street, Main Street and K Street, the Washington address where lobbyists congregate.
Pleasing business is not straightforward for either party. Bosses’ demands often conflict. Small firms want small banks that serve local customers; Wall Street wants the opposite. Silicon Valley tycoons like Elon Musk are betting on green technology, whereas energy firms are fighting rules on carbon emissions. Multinationals are furious about rules that tax overseas profits when they are repatriated to America. Most other firms view this as an irrelevance that bothers only a tiny aristocracy: 45 giants, including Apple, General Electric and IBM, account for 70% of the earnings stashed overseas by American firms.
Yet there is a chance of reforms after the mid-terms. If the Republicans capture the Senate they may want to show that they can govern, while President Obama may use his last two years in office build a legacy. Democrats, Republicans and companies do have some common ground. A legislative majority could in theory be cobbled together to overhaul the corporate-tax code by lowering headline rates and widening the base of profits they apply to, to pass free-trade deals with Asia and Europe, and to reform immigration.
The last big tax reform, in 1986, was passed by a divided government, with a Republican president and Senate and a Democrat-controlled house, notes John Engler, the president of the Business Roundtable, a lobby group. There is, he says, “an opportunity for everyone to put the politics aside and get something done for the country”.
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