European Pressphoto Agency/LARRY W. SMITH
April 17, 2015 6:39 p.m. ET
Warren Buffett is American capitalism’s answer to Marcus Welby, the 1970s TV doctor who put a warm, matter-of-fact face on things that must be endured.
Mr. Buffett’s latest patient is Kraft Foods, agreeing last month to be purchased by Heinz, of which Mr. Buffett is a major shareholder. On TV, Mr. Buffett sang the praises of the incoming management. He explained the deal’s financing. He cheerfully signed off his CNBC interview by saying, “Keep putting plenty of ketchup on everything!”
One word Mr. Buffett didn’t use was downsizing.
Running the combined company won’t be the jolly sage of Omaha. It will be run by Brazilian private-equity group 3G Capital. After Mr. Buffett helped finance 3G’s capture of Heinz two years ago, new management trimmed 7,000 jobs and closed three North American factories. As at other 3G companies, Kraft workers can expect to discover the rough charms of “zero-based budgeting.” At Burger King, 3G sold off 1,350 company-owned stores and lopped off 19 of 20 top executives. Those managers who remained were rationed 200 sheets of printer paper a month.
Mr. Buffett has made it clear, via his annual letter to shareholders, that he loves what 3G does but is glad he’s not the one who has to do it.
Mr. Buffett here represents what economists call a two-sided market. He’s President Obama’s favorite business titan, since Mr. Obama finds it useful to be associated with a business leader who is also popular with the public. Equally, he’s popular with corporate managements seeking to ward off bad political juju, especially from Democrats, as they undertake painful reforms. Some might even say he’s renting out his lustrous image. We like to think of him as employing his aura as a shield to let companies carry out capitalism as needed.
Alas, an election is coming up and trouble may come with it. Private equity, 3G’s business, was also the business of Mitt Romney’s Bain Capital, portrayed as a murderer in one of President Obama’s 2012 campaign ads.
Those ads, in turn, recall the Republican corporate vilification campaign of 1996, when downsizing became the central issue in a raucous GOP primary. Any who lived through a strange episode of GOP anti-business fever won’t soon forget it. Pat Buchanan, hurling rhetorical grenades at the Nafta free-trade deal and corporate CEOs, stormed to an unexpected victory in the New Hampshire primary and finished a close second in Iowa.
Many ingredients went into the snowballing of the GOP’s anti-business frenzy in 1996. Those elements are present again today: The recovery had been disappointing. Unions and businesses were up in arms over a controversial trade deal. Technology was upending the landscapes of several major industries at once. The presidential race consisted of a wide-open GOP field trying to get traction against a Democrat named Clinton.
Steve Forbes, who ran in ’96 pitching his admirable flat tax, happened to be on the radio the morning the Kraft takeover was announced. In a foretaste of what may be coming, he was assailed by a resident Bloomberg News personality: “This is why Americans can’t stand the rich guys. . . . They lead with cost cuts. When is your Republican Party going to get out front and say ‘labor matters, the middle class matters’?”
It doesn’t help that 3G is a Brazilian takeover firm, has cozied up to Democrats and has been downsizing quintessential American names like Burger King and Budweiser. Nor does it help that America’s economic recovery seems to be faltering, with plummeting job creation and three months of declining retail sales until March. We’re not saying the 2016 race will be a replay of 1996 but there’s something in the air. Hillary launched her coronation march last week with a fusillade at CEOs and hedge funds.
And here’s an odd fact: After a column two months ago on oil-by-rail accidents that didn’t mention the sage of Omaha, every WSJ reader email except one brought up Warren Buffett’s ownership of the Burlington Northern Santa Fe and his Obama connections. In an era where the GOP tea party wing is already riled up about crony capitalism, could it be that 3G bought protection from Democrats when it should have been buying it from Republicans? Make no mistake: The 1996 GOP war on capitalism was a deranged and unproductive episode. That doesn’t mean it can’t happen again.
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