The Double Political Whammy for Business

U.S. companies feel a chill from both parties and from voters. Time to emphasize the long-term common good.

By William A. Galston

     Photo: Getty Images/iStockphoto


We may not know who will win the 2016 presidential election, but we already know who has lost it: corporate America.

Open warfare has broken out between the U.S. Chamber of Commerce and the Republican nominee. The less-combative Business Roundtable makes no secret of its dismay over the choice of candidates it faces. The turn away from free trade and welcoming immigrants confuses business leaders who still cannot understand why anyone would object to these policies. The corporate sector favors moderation in social policy and a steady internationalism in foreign policy—the reverse of the main currents within today’s Republican Party.

Nor is big business as comfortable with Hillary Clinton’s Democratic Party as it was with her husband’s, and with good reason. The party’s new left-leaning populism sees large firms as a principal source of the ills of working- and middle-class Americans. A Democratic victory in November would guarantee moves to rein in the financial sector, heighten scrutiny of mergers and acquisitions, and put the squeeze on corporations that shift jobs and profits overseas.

The political homelessness of corporate America is a kind of rough justice—the consequence of policies that have ended by alienating huge numbers of Americans. As recently as 1999, according to the Pew Research Center, 73% held “very” or “mostly” favorable opinions of corporations. By spring 2008—months before the financial crash and onset of the Great Recession—that share had already declined to 47%, and it fell further, to 38% in 2011, before bottoming out.

Other surveys help explain this negative attitude. In 2014, 66% of Americans told Gallup that big businesses were successful at creating jobs in foreign countries with which they were doing business.

But only 43% thought U.S. companies were creating jobs domestically; 54% said firms were doing a poor job of balancing the best interests of the U.S. and American workers with the best interests of their company. Businesses have one view of “global supply chains,” it seems, and average Americans quite another.

The moral for corporate leaders is clear: If you care only about shareholder value, only your shareholders will care about you. And when a political crunch comes, your shareholders won’t be numerous or powerful enough to save you.

In a modern democracy, a stable relationship between citizens and corporations rests on a tacit compact. The people are willing to give big business substantial latitude to chart its own course. In return, business leaders are expected to give due weight to the interests of the people, including not only the businesses’ employees but also the citizens of the communities whose well-being the leaders’ decisions affect.

In the three decades after World War II, all parties to this compact understood its terms and mostly honored them. Since then, the social compact has weakened steadily, and many Americans now believe that it has broken down altogether. They have come to view corporations as employing a narrowly self-interested calculus to determine the level of wages and the location of production. And they are fighting back with the only weapon they have—their vote.

Many corporate leaders insist that they are doing what they must amid intensifying global competition. Their real choice, they say, isn’t between paying U.S. workers $20 an hour or Mexicans $3 an hour to make air conditioners, but rather between paying Mexicans $3 an hour and going out of business.

No doubt this is true in some cases. But if global competition is so intense, why are profits at near-record levels as a share of the GDP? Why is executive compensation soaring? It is hard not to conclude that many firms have taken advantage of soft labor markets to keep workers’ wages and benefits low.

If workers benefit from their firms’ performance only when full employment episodically enhances their bargaining power, they won’t enjoy the steadily rising standard of living that lies at the heart of the American dream. Looking back, they see that their household incomes are no higher than they were in the late 1990s. Looking ahead, they don’t expect better lives for their children.

Under these circumstances, it is easy to understand why so many Americans are in open revolt against policies they view as undermining their future. And they have grasped a key point: Globalization isn’t an abstract, irresistible force. It has political preconditions, including legal protections for mobile capital. Without international agreements, businesses could not confidently invest in new markets abroad.

It is telling that neither party’s presidential candidate has endorsed the Trans-Pacific Partnership—and that the business community is surprised. Business leaders should examine their own role in bringing this about. Unless they are willing to live with an America of increasing economic insularity, they must look beyond narrow, short-term self-interest to the long-term common good on which their own well-being ultimately depends.

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