Revolt of the CEOs
A massive expansion of the federal government, supported by big business, is on the way. Conservatives couldn't be less prepared.
By Christopher Hayes
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Years from now, historians will argue over the exact moment at which the Great Conservative Crack-up finally occurred, and they’ll have no shortage of candidates. Was it December 21, 2004, with the appearance of the first poll that showed a majority of Americans believed the Iraq War to be a mistake? Or September 2, 2005, when President Bush told Michael Brown he was doing a “heckuva job” while New Orleans drowned? Or a month later, when Travis County District Attorney Ronnie Earle indicted Tom DeLay?

Subscribe Online & Save 33%But I’d take January 22, 2007. On that date, a who’s who of corporate America—CEOs from such industrial stalwarts as Alcoa, DuPont, Caterpillar, Pacific Gas and Electric, and General Electric—joined environmental leaders at a Washington press conference on global warming. Their surprising message for the president and Congress: Please, for the love of God, regulate us.

It’s worth lingering for a moment over just how strange this was. Back in 1997, when the Clinton administration signed the Kyoto Protocol, businesses lobbied the Senate strenuously not to ratify the treaty. And yet here were industry leaders—some with miserable environmental records and decades of experience fighting off the long arm of the law—taking the lead in advocating for a comprehensive, economy-wide regulatory regime to address global warming. It’s a little like a thief who’s been running from the cops suddenly stopping, turning around, thrusting out his wrists, and saying, “Arrest me.”

These weren’t the only CEOs asking government to step in and solve a pressing social problem. Two and a half weeks later, Wal-Mart CEO Lee Scott joined Andy Stern, the president of the Service Employees International Union, to announce his company’s support for some form of universal health care. When it comes to business’s united front against regulation, as Leo Hindery, former CEO of the YES Network and author of the book It Takes a CEO, puts it, “[These guys are] looking and saying, ‘Look, if we don’t play this global-warming thing right, heck with politics, our company’s going to get hurt. If we don’t reform health care, I don’t care if I’m a Republican, my company will fail.’ ”

Not everyone’s happy about this shift. A Wall Street Journal editorial dubbed General Electric CEO Jeff Immelt a “climate profiteer,” while CNBC analyst Larry Kudlow complained, “Wal-Mart’s standing shoulder to shoulder with the public service unions who basically want nationalized health care. Is Wal-Mart just kind of getting duped into this?”

But other allies of the corporate sector see these moves less as betrayals or mistakes and more as a turning of the page. “The country goes through cycles, and I think we are in a different period now,” Charles Kolb, a pillar of the Beltway establishment and the president of the Committee for Economic Development, a Washington-based business advocacy group, told me. Kolb served in both the Reagan and George H. W. Bush administrations, and he said that he sees Reagan and Margaret Thatcher’s downsizing of the regulatory state as historic achievements. But, he went on, “the issue is not whether [Franklin D.] Roosevelt was right or wrong, or whether Reagan was right or wrong. Look, the question I would ask is, Are there areas that we need to rethink?”

If the nation’s business leaders seem increasingly open to an expansion of government’s role in dealing with climate change and health care, they’re not alone. A recent New York Times poll found 52 percent of Americans rating global warming as “very serious,” while 63 percent agreed that “[p]rotecting the environment is so important that requirements and standards cannot be too high and continuing environmental improvements must be made regardless of cost.” And according to an October 2006 USA Today survey, 68 percent of Americans believe providing health care coverage for everyone is more important than keeping taxes down. The sentiment extends more broadly: last year, a Pew poll showed that only 45 percent of Americans now think the government needs to get smaller, down from 61 percent a decade ago.

If these polls and other political winds are any indication, then massive change may be coming to Washington in the near future, most likely starting in January 2009. On energy and health care—two huge sectors of the American economy—the regulatory power and reach of the federal government is likely to expand in a way that hasn’t occurred since the 1970s. Today’s conservatives, desperately embracing the small-government ideology that once supported their movement, are almost completely unprepared for this tsunami of federal growth. Unless they can get business back on their side, or win back power, they’ll be in a position neither to stop this development nor to shape it. Indeed, right now they seem blithely unaware of what’s about to hit them.

The history of the relationship between big business and the Republican Party isn’t quite as simple as one might imagine. Not much gets done in American politics without either the active support or the strategic silence of major corporations, and while big business has been a remarkably consistent and aggressive foe of certain staples of progressivism (anything having to do with unions, for instance) it has also lent crucial support to some of the most significant expansions of the regulatory or welfare state. To name just one example among many, the Social Security Act of 1965, which reformed Medicare and Medicaid, came about in large part because of the backing of Blue Cross Blue Shield, who wanted to unload the high-risk, high-cost elderly onto government.

As recently as the late 1980s and early 1990s, top-drawer corporations could still be found supporting efforts to expand Washington’s reach—particularly when those efforts were designed to solve social problems that affected their bottom line. For instance, in response to the failure of the education system to provide properly trained workers, business threw its weight behind the call from the nation’s governors, and then president George H. W. Bush, for greater federal involvement in local schools—support that CEOs have kept up through subsequent administrations. And though it’s been somewhat lost to history, big business, faced with spiraling health care costs, was an early driver of President Clinton’s reform initiative. When the plan was unveiled in 1993, the U.S. Chamber of Commerce offered tentative backing.

That was not to last. Conservatives, led by Newt Gingrich, Bill Kristol, and the National Federation of Independent Businesses—an interest group for small and medium-sized businesses, with a unwaveringly conservative line—recognized the political threat that universal health care posed. In a now-famous strategy memo, Kristol warned that Republicans had to kill, rather than amend, the Clinton proposal. Its success, he warned, would “re-legitimize middle-class dependence for ‘security’ on government spending and regulation,” and “revive ... the Democrats, as the generous protector of middle-class interests.” Kristol and his allies succeeded in convincing big business that their long-term interests couldn’t brook a Democratic resurgence. The change was decisive. The business community mobilized against the Clinton plan, spending $17 million on advertising, and helping to ensure its defeat.

Riding the momentum of that victory, the Gingrich revolution swept Republicans into power, inaugurating a new era in which there would be almost no daylight between major corporations and the GOP. Tom DeLay’s K Street Project kept corporations inside the tent by threatening to stonewall their legislative agenda unless they hired lobbyists who had been preapproved by Republican gatekeepers. Business, which in the past had dispensed its largesse without much heed to party, now cast its lot with the side that controlled nearly every branch of government. During Bush’s first year, Karl Rove won business support for tax cuts, even though the White House didn’t insert the breaks and loopholes for corporations that many in the business community had sought. (Rove wanted a relatively “clean” bill to insulate Bush from the criticism that had bedeviled Reagan’s tax cuts back in 1981, when, in the words of Reagan budget director David Stockman, “the hogs were really feeding.”)

While under the DeLay/Rove machine the GOP has often acted as little more than an agent for the interests of big business, the relationship has by no means been unidirectional. The Republicans also have used corporations for their own ends. DeLay, perhaps self-servingly, boasted of the arrangement this way: “We are ideologues. We have an agenda. We have a philosophy. I want to repeal the Clean Air Act. No one came to me and said, ‘Please repeal the Clean Air Act.’ We say to the lobbyists, ‘Help us.’ We know what we want to do, and we find people to help us do that.”

Of course, DeLay is now under indictment and no longer in Congress, and the machine he helped construct, a hybrid of ideological zeal and crass corruption, is quickly breaking down. Democrats now control Congress, and the president’s approval ratings rival Nixon’s during Watergate. The GOP machine was always, crucially, a monopoly enterprise, relying on its stranglehold on Congress and then the White House to keep its various constituencies in line. This generally held sway even as Hurricane Katrina and Iraq made the administration’s incompetence harder and harder to ignore, and business leaders started shaking their heads behind closed doors. But with its popularity and power now greatly diminished, the party is no longer able to keep those splits private. “The ability of the administration to intimidate the business community ... seems gone,” said John Podesta, who heads the Center for American Progress. “They don’t seem very afraid to incur the wrath of the White House.”

Of course, the relentless push of real-world problems has been even more important than the weakening of conservative power in prompting this shift. After a period in the late 1990s during which HMOs helped keep a check on health care costs, those costs started to rise again in 2002, and are now hovering around 7 percent above inflation. In addition, as the world has continued to warm, the scientific consensus around global warming has hardened. Of the ten warmest years on record, four have been in the last decade.

In 2005, Peter Darbee, the CEO of PG&E Corporation, decided his company would do well to take a hard look at this reality. PG&E is no Ben & Jerry’s do-gooder company. In fact, it’s been an archetypal Hollywood bad guy: as the movie Erin Brockovich dramatized, in 1996 it was found to have contaminated the drinking water of a southern California town and was forced to pay $333 million, the largest settlement in a direct-action lawsuit in U.S. history. Still, Darbee had become convinced that climate change was a real and growing problem, and that his company, which provides power for much of the West Coast, was a major contributor. So he initiated an internal process to produce a report on climate change and its effects. The results were unequivocal: “We came to the conclusion that the earth is warming, mankind is responsible, and the time to act is now,” he told me. The internal review also concluded that the best way to address the problem was some kind of mandatory control and regulation of carbon emissions.

Last year Darbee emerged as an outspoken proponent of Governor Arnold Schwarzenegger’s ambitious greenhouse-reduction strategy, and helped to organize the business-environmental coalition that put together the January press conference. When I asked him what initially prompted his decision to focus PG&E’s attention on climate change, he cited a basic principle of management: the longer you wait to address a crisis, the less room you have to maneuver. “We could sit on this and drag our heels and then the consequences could be drastic. The more time you have to deal with it, the more degrees of freedom you have.”

Even for those CEOs preoccupied with the next quarter’s earnings, the long term has a funny way of sneaking up. Imagine for a moment you’re planning a new factory to produce washing machines. Ideally, the facility is going to operate for a number of years into the future, but its operating costs are going to be quite different if the federal government imposes a carbon tax at some point in the near future. How much capital do you invest up front to reduce the facility’s emissions? Or imagine you’re a major car company debating whether to site a new car plant in Canada or Alabama. After weighing the pros and cons, you decide on Canada. Why? Because in the United States, health care costs are growing at 7 percent above inflation, and you’re likely to be on the hook for your employees’ health care costs into the foreseeable future. This, in fact, is exactly what happened in 2005, when Toyota sent shockwaves through corporate boardrooms by opting to open a new plant in Woodstock, Ontario, citing Canada’s socialized medicine as a factor.

If the Toyota decision was a wake-up call on health care, Hurricane Katrina played a similar role on climate change. “I think it moved the frame of reference,” said Mindy Lubber, who leads a group of institutional investors working to pressure businesses to reduce emissions. Even for those CEOs who’d believed that climate change was a problem, Lubber said, most had conceived of it as a long-term issue. “And as a CEO, I’m programmed to think about quarterly earnings. But what we saw with Katrina was that quarterly earnings are impacted,” since the destruction of the Gulf refineries caused a spike in energy prices, among other negative effects.

Health care and climate change are, of course, distinct issues, each with their own associated policy debates—single-payer or individual mandates, carbon taxes or cap and trade—but what unites them is the unpredictability of the future costs they’ll impose on business. “The one thing that business managers and CEOs hate is uncertainty,” said Bruce Josten, a top lobbyist at the U.S. Chamber of Commerce. “They love certainty. Here you have two issues of huge uncertainty and huge unpredictability.”

But certainty requires clear rules, and those have been lacking at the national level. In the absence of federal leadership, state governments have rushed in to fill the vacuum, passing rafts of legislation meant to encourage alternative energy use, curb carbon emissions, and provide health insurance for their citizens. The initiatives on both these fronts—from Massachussets Governor Mitt Romney’s universal health care reform to New York Mayor Mike Bloomberg’s recently unveiled congestion pricing—have triggered fears among corporations that they’ll have to deal with a state-by-state patchwork of fifty different regulatory regimes, giving them a powerful incentive to support a comprehensive nationwide approach.

Whatever public-mindedness there was to Darbee’s decision to take a lead on carbon regulation, his calculation of the likelihood of future regulation had more than a little to do with his conversion. “It’s not clear whether we will get legislation in this administration,” he said. “But I think in the next three years, the probability approaches 100 percent.” The more convinced corporations become that regulation is going to happen, the more invested they become in shaping that regulation. In this way, the anticipation of future regulation creates something of a self-fulfilling prophecy. “The underlying statement I’ve heard is that if this [health care] system collapses then the business community will end up with something they don’t like,” Andy Stern told me. “There’s sort of a sense [that] we should lead this, or if we don’t, whatever happens we should accept the consequences.”

“The corporate guys are beginning to think this is going to happen,” said Bill Galston, a senior policy adviser in the Clinton White House and a current fellow at the Brookings Institution, referring to health care and climate change legislation. “They are willing to make their peace with the welfare and regulatory state as long as they can have some say. What they don’t want is for the train to leave the station and they’re not in the first-class car.” The Chamber of Commerce’s Josten summed up his members’ views this way: “You want a seat at the table, because if you’re not at the table you may be on the menu.”

Though in the imagination of the left, big business and conservatives are natural allies, from the point of view of many on the right that’s hardly the case. “I see most of the corporate types as the enemy,” conservative direct-mail guru Richard Viguerie told me, speaking of big business’s newfound support for action on global warming and health care. “I don’t see them as our allies, never have. They’re country-club Republicans. They really don’t like us, quite frankly, and it’s probably mutual. Can you imagine Jeff Immelt standing up and defending any social issue he feels strongly about, or talking about the vulgar culture we have? They’re very unprincipled with these things. They’re recovering big-government types. You give them a temptation, and they jump at it.”

In that sense, the partnership that congressional leaders forged with big business in 1993 has always been unstable. And the recent defections of some CEOs have sparked vituperation from movement loyalists. “I’ve been hearing that the Fortune 500 types would love to drop their legacy costs off at the federal taxpayer,” conservative power broker Grover Norquist lamented to me. “The Safeway guy”—CEO Steve Burd, who recently endorsed Democratic Senator Ron Wyden’s universal health care legislation—“has signed off on pensions because he’s a lousy businessman. He screwed up, and he wants the rest of us to pay for his lousy incompetence. Wrong answer!”

Norquist and his allies understand that their only hope is to remake that 1993 deal. But short of the GOP retaking Congress and holding on to the White House—or the earth suddenly cooling—that’s not going to happen. And at some level, conservatives know it, responding to questions about the rift with blustery denial: “There are 27 million companies in America,” said Norquist. “I’m surprised at how few collaborators the Democrats can come up with. The Germans had better luck.”

Republicans, weighed down by the knee-jerk small-government philosophy that their base demands, simply lack the ideological flexibility to even talk about issues, like global warming and health care, that will require an expansion of government—much less propose ideas to help shape them. Just look at the presidential field: John McCain has retained the lone plank of his maverick platform by sponsoring legislation in the Senate to cap and trade carbon emissions, but he’s not spending much time touting that effort in front of Republican primary voters. Rudy Giuliani, who as mayor of New York was moderately fiscally conservative but certainly no supply-sider, is now waxing poetic about the benefits of the flat tax, the beauty of the Laffer curve, and the creeping “socialism” of the Democratic Party’s universal health care proposals. And Mitt Romney finds that his signature accomplishment as governor of Massachusetts—a universal health care law that relies heavily on “individual mandates”—makes him suspect in conservative eyes. “He’s spinning his wheels at 100 miles an hour to explain how it wasn’t a big-government solution but a market solution,” former GOP Congressman Dick Armey told me.

So Republican presidential candidates are caught in a bind: between, on the one hand, what the public increasingly wants and the business class increasingly sees as necessary, and, on the other, what the party’s ideological enforcers demand. Some conservatives aren’t too blinkered to see where this is likely to lead. From his perch on the New York Times op-ed page, David Brooks has been urging fellow conservatives to stop looking to the idealized small-government icons of Goldwater and Reagan as a guide to the problems of the twenty-first century. “Democratic approaches are favored on almost all domestic, tax, and fiscal issues, and even on foreign affairs,” Brooks wrote in an April column entitled “Grim Old Party.” “The public, in short, wants change. And yet the Republicans refuse to offer that.”

At the end of the day, the country can’t tax-cut its way to better health care or a post-oil economy or fewer carbon dioxide emissions. The titans of capitalism are beginning to realize that, even if the conservative movement’s leading lights can’t—or won’t.

   

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Christopher Hayes is a Puffin Foundation Writing Fellow at the Nation Institute.  
 
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