An Economic Agenda for Democrats
Pictures are not only worth a thousand words; they also make it easy to choose sides. The kid on the cover of the Nov. 24, 1986, Fortune is the sort of person you love to hate. The young investment banker exudes arrogance, topped off with a stogie tilted at a jaunty angle. The cover proclaims he earns $500,000 a year. Pictures of arbitrageur Ivan Boesky, dripping with self-satisfaction, don't help him, either. And the photos of Prime Minister Nakasone apologizing for a racial slur aimed at Americans reinforce the public stereotype of Japanese cunning.
By contrast, have you noticed that all farm foreclosure stories feature a family snapshot, with two or three round-faced urchins, and a wife who looks like the friendly kid with freckles who sat in front of you in the third grade?
Don't underestimate the power of these images. They are about to profoundly affect American economic policy. Ironically, they may make the newly empowered Democrats the handmaidens of big business management in a way that Ronald Reagan would never have dared. Four policies the Democrats seem certain to pursue will negatively impact America's competitiveness:
1. CLAMP DOWN ON TAKEOVERS. Democratic Congressman John Seiberling asked Sir James Goldsmith, "Who the hell are you?" during a House subcommittee hearing called in response to Goldsmith's hostile bid for Goodyear. The Congressman, a grandson of Goodyear's founder, lashed out when Goldsmith had the audacity to tell him that Goodyear's acquisition program was dumb.
I believe that Goldsmith is dead right. In fact, I cannot name one well-run firm "victimized" by a hostile takeover. Nonetheless, I acknowledge that hostile takeovers do cause pain. However, they would be unnecessary if management had acted decisively five or ten years ago, when the handwriting on the wall first became clear. I am a reluctant but solid ally of the raiders, or of anyone who will scare the wits out of the still-asleep chieftains of most Fortune 500 companies. Who will benefit from bills to curb takeovers? Already unresponsive big business management.
2. REVERSE FINANCIAL INSTITUTION DEREGULATION. Financial institutions need more freedom, not less—to support industry's massive restructuring and to compete themselves. London's stock-market deregulation, called the Big Bang, is the latest and grandest movement toward a global financial network. We either go with the flow toward relatively unrestricted globalization or lose the competitive race. The only clear-cut winners from Democrat-inspired re-regulation: the Japanese and Germans.
3. PASS PROTECTIONIST LEGISLATION. Voters gave Democrats control of the Senate so they'd get tough with the Japanese. The only sure outcome of protectionism is that protected firms will be allowed to get even more slovenly, while the consumer suffers. We've already protected textiles, steel, and autos, and managements have frittered away the so-called "breathing space" in each case.
The semiconductor industry is the most recent debacle. The Japanese are defending against what looks like permanent protection by buying American. That is, by buying a landmark U.S.
company—Fairchild Semiconductor. The latest hare-brained response from Silicon Valley is to propose pooling their manufacturing ineptitude by jointly building a mega-plant funded and overseen by the Department of Defense, an agency not exactly noted for inducing cost-competitive, defect-free manufacturing operations. Winners from protectionism: the most negligent of big business executives.
4. MORE AID TO FARMERS. Thanks to accounting shenanigans, several big farm owners in California will reportedly each pocket $1 million or so this year from the last, ill-written farm bill. But the new Democratic majority portends giving the farmers more money. That won't solve the real problem—too many farmers. Inevitable beneficiaries of more farm aid: a few agribusiness executives, not those forlorn souls whose foreclosures you see on the evening news—or the consumer.
Despite the unintended beneficiaries, to beg the Democrats not to do things is futile. Fame and fortune do not accrue to politicians who turn their backs on popular actions.
So what are proactive, less destructive, Democratic options? First, go ahead and skin the Wall Street gang alive, in broad daylight, for insider trading. But don't bring the market to an abrupt halt with anti-merger or re-regulation bills.
Second, enforce existing trade legislation to the hilt and flay a Japanese company or two for dumping. But more significantly, Democrats should champion the cause of those millions of workers displaced by our managements' lethargic response to foreign competition. A major extension and increase of Trade Adjustment Assistance and no less than a GI bill for training and retraining should be aimed at the rank and file.
As for the farmers, we should also do everything we can to help them readjust, not simply put off once more their day of reckoning.
Traditional Republican business incentives focus on hardware. Democrats have a chance to become the proponents of "human capital," not via anti-competitive protectionism, slowing financial markets down and propping up unneeded farmers, but with massive incentives and tax benefits to help workers and farmers aggressively seek out new opportunities in a permanently transformed economy.
(c) 1986 TPG Communications.
All rights reserved.