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Galston: The Civil War in the Business Community

This item by TDS founding editor William Galston is cross-posted from The New Republic.

"The chief business of the American people is business," Calvin Coolidge famously said. But not all business is the same: The policies that assist some may injure others, and the organizations that represent different kinds of business often work at cross-purposes. This reality, which the Republican mantra of "job creators" obscures, could be the key to determining the success of President Obama's second term. The Obama administration will need to recognize the fervent opposition of small businesses to its priorities, while taking advantage of large corporations' willingness to cooperate.

There are deep and strucutral differences between these two sectors. Most small businesses pay taxes through the individual code, while big businesses pay corporate rates. Small businesses typically hire through family and local networks, while big businesses draw from a national labor pool. Small businesses focus mainly on the domestic market, while big businesses are just as concerned about overseas sales. Corporations have sizeable cash flows and access to credit markets, which gives them a cushion against adversity and added costs; small businesses often operate much closer to the margin and are acutely sensitive to policies that threaten to drive up costs. Corporate CEOs can hire experts to help them cope with added regulatory burdens and can spread the costs over a large workforce; small business owners must deal with these burdens by themselves and have few ways dilute their impact.

A glance at the websites of two leading business organizations--the National Federation of Independent Business (the "voice of small business") and the Business Roundtable (CEOs of leading companies with a collective $6 trillion in annual revenues) underscores these differences. While the NFIB continues to call for the repeal of Obamacare, the BR seeks only modest fixes. The NFIB denounces "overzealous regulation" and advocates a national drive to protect small businesses from regulations recently proposed by the Obama administration. For its part, the BR calls for "smarter regulation" and criticizes eight proposed or pending regulations but also "applaud[s] President Obama's initiative to streamline the federal regulatory apparatus." Many corporate CEOs supported the fiscal cliff agreement, which small business people opposed because it increased top marginal rates for high-income taxpayers.

The NFIB stance toward government is almost entirely negative: Most of what government does makes the lives of small businessmen and women harder, and it should just stop doing it. By contrast, last year the Business Roundtable issued "Taking Action for America," a comprehensive plan for jobs and economic growth that called on the government to act on numerous fronts, from education and immigration to energy and trade. While it is easy to discern the thread of self-interest woven through its agenda, the BR at least acknowledges that well-judged government action can contribute to a more robust economy and a healthier labor market.

For the foreseeable future, the NFIB will remain a building-block of the Republican base and a charter member of the "leave us alone" coalition. Corporate American finds itself in a more ambiguous situation. On fiscal policy, the pantheon of gods to whom they bow includes Simpson and Bowles, Domenici and Rivlin. The Republican Party's tax rejectionism leaves them cold, but so does what they see as the Democrats' refusal to take entitlement reform seriously. They favor immigration reform, which most Republicans have not, at least until the recent election, but tilted toward higher skilled workers and away from family reunification--the reverse of most Democrats' priorities. While they are willing to make their peace with the architecture of the Affordable Care Act, they push for changes such as medical liability reform that are anathema to the Democratic base. The Republicans' populist, nationalist impulses worry corporate leaders, but so does the Democrats' heightened emphasis on fairness and redistribution. Neither party is focused on what the CEOs believe is the central challenge we face--sustainable economic growth in a hyper-competitive global economy.

On balance, corporate America remains right of center. But that does not make its leaders comfortable in today's Republican Party, dominated by a hard-bitten, quasi-libertarian stance toward the public sector. CEOs are closer to being politically homeless than they have been since the waning decades of the nineteenth century, when the pettiness and corruption of both parties drove business leaders to the sidelines. The right kind of Democratic agenda might cement a new alliance with at least a portion of corporate America. Gene Sperling, the author of a notable book entitled The Pro-Growth Progressive and the director of Obama's National Economic Council, would seem ideally placed to lead the conversation.

But it's not clear that his boss is interested. President Obama's second inaugural address was notable for the relatively short shrift it gave to fiscal issues, tax reform, and pro-growth public investments. He spent much more time on climate change and on the social equality agenda, which was clearly the thematic and emotional heart of the speech. And while he spoke in passing of "hard choices to reduce the cost of health care and the size of our deficit," he spoke much more forcefully about the need the preserve programs for the elderly, raising the moral stakes by calling them the "commitments we make to each other. If economic growth rests in part on expanded public investment--in research and development, education and training, transportation and communication--where is the money to come from? With an agenda dominated by a new emphasis on guns and immigration, and a renewed focus on climate change, where is the energy and political capital that would be needed to put growth first?

It was never exactly true that (in the words of Secretary of Defense and former GM head Charlie Wilson) that "what was good for our country was good for General Motors, and vice versa". Still, there is a substantial overlap between the agenda of responsible corporate leaders and the well-being of average Americans. Our country would be stronger if the Democratic Party could find a way of linking the long-term self-interest of corporate America to a progressive pro-growth agenda. But we seem to be headed in another direction altogether, and CEOs are likely to remain without a home in either party.