How to Learn to Stop Worrying and Love Big Business
Opinion

How to Learn to Stop Worrying and Love Big Business

Big Business is in Big Trouble. President Obama is currently on the campaign trail, trying to rally disheartened Democrats by suggesting that corporations are trying to buy the election. His underlying message: Corporate America is ill-disposed toward average citizens. Given today’s high unemployment, voters are easily convinced. Ironically, corporations themselves may have stoked this fire through their much-publicized efforts to become socially responsible.

Americans are deeply confused about business. While polls show that people have little confidence in our corporations or their executives, the majority believe that the strength of our country is tied to business success. Nearly nine out of 10 of our citizens think Big Business has too much power and influence, but more than half think that Big Government poses a greater threat to the country. Even at the nadir of this economic cycle, 51 percent of Americans thought business executives were better capable of managing the country’s affairs than their bureaucrat counterparts, even while most think they are overpaid. 

The unpopular health care law was not sold on the basis that it
would rein in costs, but rather that it would crimp insurers’ profits.


Does it matter what people think about our business community? Most definitely. Antagonism towards corporations is driving efforts to strengthen shareholder rights and increase regulations — moves some think could weaken our ability to compete in the global marketplace. Hostility towards Big Business has also encouraged laws that many consider harmful. The unpopular health care law was not sold on the basis that it would rein in costs, but rather that it would crimp insurers’ profits. Similarly, financial regulation was pitched as likely to end the “culture of greed” on Wall Street. These bills, with their complexity and probable market distortions, will divert capital from our industries and, by fostering uncertainty, slow our recovery.

Americans blame businesses for outsourcing jobs overseas and for failing to hire workers. The argument that investments in tech produce better returns, or that demand is still weak or uncertainty high does not wash. In other words, Americans do not buy the idea that corporations have one task — maximizing returns to shareholders. Polls show that more than half think that businesses place profits over the national interest. They are right, but they should understand that corporations are supposed to put the interests of their owners above those of the nation — not by breaking laws, fudging numbers or ignoring ethical violations, but by making money. These are not, after all, charitable organizations. 

Unfortunately, according to Karlyn Bowman, a senior fellow at the American Enterprise Institute, “Americans have never understood the profit motive very well.” They don’t connect the dots between corporate success and their own welfare. The path from profits to dividends to tax revenues to their Social Security check is simply too attenuated. It’s an even longer path from profits to research to new technologies to an improved quality of life. What resonates is a large company shutting its gates and laying off workers.

Small business rates higher with the public than
churches, and has thus become the Lourdes of this
political cycle — attracting politicians of all stripes.


Partly, Ms. Bowman says, “It’s a problem with bigness; the public distrusts big business, labor, government and even media. They start with a deep well of suspicion.” Polling confirms this; while regard for Big Business is in the basement, small business rates higher with the public than churches, and has thus become the Lourdes of this political cycle – attracting politicians of all stripes.

Ironically, companies have undoubtedly fostered this confusion through their own efforts to win over the public. Spurred by scandals and funded by profit growth, corporations in the past decade jumped to become do-gooders—embracing environmental causes, workers’ rights, helping underserved neighborhoods. They have given generously to charity -- $14.5 billion in 2008 alone, according to the GivingUSA Foundation. Companies now include a corporate sustainability report in their annual reports and attempt to earn high ratings for corporate governance. In assessing the “World’s Most Admired Companies,” the Hay Group includes “social responsibility to the community and the environment” as one of 10 attributes.

Though popular, such measures have arguably muddied the public’s understanding of the role of Big Business. If Starbucks can funnel $2.1 million to organizations like International Youth Foundation that “support” young people, why can’t they add more workers to lower unemployment? 

We have seen what happens when corporations serve two masters. Fannie Mae and Freddie Mac both went broke because they were asked by the government to expand home ownership to those with poor credit ratings and then joined the banking firms in the slice-and-dice mortgage mess. Both were publicly held companies whose primary responsibility was earning profits for shareholders. The befuddlement was promoted by regulators, who reportedly discouraged the companies from discussing “shareholders’ equity.” Historically these government-sponsored enterprises had restricted lending to high-quality credits. In acceding to the government’s mandate, and then exacerbating the situation by thinking they could cover their tracks through CDOs and other derivatives, the companies lowered their standards and put themselves out of business.

What is the message here? Should corporations behave as good citizens? Yes – but in ways that benefit shareholders, and they should broadcast that such efforts are intended to be self-serving. For instance, Starbucks’ environmental efforts, inaugurated because global warming threatens lands available to coffee farmers, make sense – it is in its best interest. Most good works will in fact benefit shareholders. Good community relations help build a customer base. Generating good will with employees helps retain the best workers.

Will clarifying Big Business’ mission educate Americans and win them over, or invoke the specter of Gordon Gekko? Who knows? At the least, given the current level of distrust of our institutions, Americans might actually applaud a CEO who dares to tell the truth.

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