From Hope to Lack of Confidence in 18 Months

Newspaper editorial pages, news websites and blogs have been full of reports and commentary lately about the increasing expressions of disagreement between the business community and the Obama Administration. The sad result of this distrust and lack of confidence by business leaders in the direction of the federal government is the continuing high rate of unemployment and the slow recovery of the economy.

I spent over 26 years as a corporate lawyer in a major American corporation. It became very clear to me during that career that business managers do not like uncertainty in the regulatory landscape. They want to know what the rules are in order to be able to make business decisions that comply with the applicable regulations.

Whenever a major new federal law was passed that applied to our business, the lawyers in the company would be expected to give the company's management advice on what the impact of the new legal requirements would be on the company's business and future plans. The company's lawyers were expected to help the managers make decisions on what changes would be required and when the changes would have to be implemented to meet the effective dates of the new law.

In the 18 months of the Obama Administration, the stimulus bill, major health care reform and now significant financial regulatory reform have passed with major changes in laws affecting various types of businesses. There have also been less publicized bills passed that affect business, such as a wage equality law that addresses income disparity between men and women in the workplace and a credit card law that requires new disclosures to cardholders. In addition, of course, the TARP bailout program imposed new requirements on financial institutions, auto companies have faced new federal requirements (including orders to close certain dealerships) and the federal government took over the student loan business that forced Sallie Mae to close its Virginia headquarters. Many of these new legal requirements have caused jobs to shift from the private sector to the government.

The news media has covered well the political arguments and gamesmanship involved in the Democratic party's "strong arm" tactics to pass these laws with very little Republican input or support. However, with each new 2,000 plus page bill passed (basically by only one party), there are numerous changes in business practices required, and, when the bills are so complex and massive in their scope, it takes huge legal staffs at companies and law firms to review and interpret those bills and determine how they will affect their clients. This will, of course, cost quite a bit in legal expenses and take a lot of time during which business people will feel very uncertain about the future. This lack of certainty inhibits the ability of business people to effectively make plans for expansion, investment in new businesses or hiring new employees.

The above discussion only deals with major new laws that have already passed since Obama became President. As each new law passes, the President and the Democratic leaders in Congress start talking about what is next on their agenda. Even as oil gushed out of the Gulf oil spill, the President went on national television and advocated new energy legislation. The Arizona immigration law that is the subject of so much controversy has prompted many Democratic politicians to talk about the need for comprehensive immigration reform legislation at the federal level, which would likely affect company personnel practices. Each of these laws would require "reform" in various aspects of business decisionmaking.

As a result, as profits have started rebounding since the worse of the recession has ended, jobs and other economic benefits have not been growing very quickly. A week ago, Fareed Zakaria described the current business climate as follows:

"The Federal Reserve recently reported that America's 500 largest nonfinancial companies have accumulated an astonishing $1.8 trillion of cash on their balance sheets. By any calculation (for example, as a percentage of assets), this is higher than it has been in almost half a century. Yet most corporations are not spending this money on new plants, equipment or workers. Were they to loosen their purse strings, hundreds of billions of dollars would start pouring through the economy. These investments would probably have greater effect and staying power than a government stimulus....

So why are [business leaders] reluctant [to make investments that could further improve the economy], despite having mounds of cash?.....

Economic uncertainty was [described by business leaders who were interviewed as] the primary cause of their caution. 'We've just been through a tsunami and that produces caution,' one told me. But in addition to economics, they kept talking about politics, about the uncertainty surrounding regulations and taxes.....

One CEO told me, 'Almost every agency we deal with has announced some expansion of its authority, which naturally makes me concerned about what's in store for us for the future.' Another pointed out that between the health-care bill, financial reform and possibly cap-and-trade, his company had lawyers working day and night to figure out the implications of all these new regulations....

Most of the business leaders I spoke to had voted for Barack Obama. They still admire him. Those who had met him thought he was unusually smart. But all think he is, at his core, anti-business. When I asked for specifics, they pointed to the fact that Obama has no business executives in his Cabinet, that he rarely consults with CEOs (except for photo ops), that he has almost no private-sector experience, that he's made clear he thinks government and nonprofit work are superior to the private sector. It all added up to a profound sense of distrust." http://www.washingtonpost.com/wp-dyn/content/article/2010/07/04/AR2010070403856.html

The White House seems confused about the increasing business criticism it has been receiving recently. As Larry Kudlow noted, the President often says the right things:

"After all, as part of his so-called 'business charm offensive,' the president is arguing that 'it’s the private sector that has always been the source of our job creation, our economic growth, and our prosperity; and it’s our businesses and workers who will take the reins of this recovery and lead us forward.'

He also says 'the free market depends on a government that sets clear rules that ensure fair and honest competition,' and that 'too much regulation or too much spending can stifle innovation, can hamper confidence and growth, and hurt business and families'.” http://dailycaller.com/2010/07/15/business-knows-more-than-obama/#ixzz0u58Y1C00

If Obama recognizes that business needs "clear rules", why is there a continuing pipeline of major new rules flowing through Congress that create uncertainty about what those rules will be? And why does the President and his party repeatedly attack business (from AIG to BP) as the cause of almost all of society's problems? The Administration and the Congress have done much to create an uncertain business environment and nothing to help business see the future with any clarity. Sphere: Related Content