Eminentoes

Three Little Piggies

… go against the market in trucking with the government.

By From the September 2009 issue

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OINK, SAYS JEFF IMMELT, SMACKING HIS LIPS. While his company's stock has shed two-thirds of its value over the last year and a half, GE's chief is looking heavier than ever. Burying one's nose in the public trough can do that to a man.

Oink, oink, says Wal-Mart's Mike Duke, signaling his support of the government's health care plans. His company is actually doing rather well. He is keen to take advantage of a situation that would allow super-sized Wal-Mart to gain market share at the expense of smaller and more entrepreneurial rivals.

Oink, oink, oink, says JP Morgan Chase's Jamie Dimon, grunting happily on the front page of the Sunday New York Times. Dimon basks in the glow of White House adulation. The former Wall Street wonder boy has become his industry's ambassador to the court of King Barack. The king has rewarded his fealty by patting him on the head and calling him "Jamie"-which is the cute and affectionate handle that his mom bestowed upon him when he was a little baby. Even then, his soft, moist eyes had a special pleading quality that set him apart from his littermates.

It is sad to see, and hear, so many prominent CEOs going out of their way to curry favor with the government-a government that is madly determined to mismanage the economy and to bend private enterprise to its will in the pursuit of social objectives.

In a speech to the Detroit Economic Club on June 26, Immelt announced the opening of an "Advanced Manufacturing and Software Technology Center" just outside Detroit, which is of course home to Government Motors and the UAW. He gushed about how "We should welcome the government as a catalyst for leadership and change," saying, "There's a long history in this country of government spending that prepares the way for new industries that thrive for generations....Think of the NIH or NASA and all of the new innovations that came out of those programs-from computing to communications to health care. America has that kind of chance with unprecedented levels of new government investment."

Right on, Mr. CEO. Hooray for unprecedented levels of wasteful public spending that threaten to bankrupt the economy and will certainly result in raising taxes on individuals and businesses alike.

In another part of his speech, Immelt, or "Jeffkins," as the king calls him, spoke of how GE's new technology center "will develop technologies that can change peoples' lives-clean energy, better transportation, affordable health care." Will Immelt be using TARP (Troubled Asset Relief Program) money to finance this wonderful investment? Since late last year, GE Credit has raised billions in long-term debt with the help of federal loan guarantees. Without these guarantees, GE's stock would no doubt be even deeper in the toilet. According to some analysts, GE would be in the same approximate position as the CIT Group.

In his latest announcement of dismal quarterly earnings, Jeffkins pointed to an emerging bright spot in the nation's economy: stimulus spending. GE expects to get as much as $200 billion in stimulus money targeted for clean energy and health care. A friend of mine who quit GE years ago to set up his own business, which has become the world leader in supplying low-cost carbon fibers used in making the world's most advanced wind turbines (a part of the market in which GE is a non-player), expects the slow-moving and bureaucratic GE to do an excellent job of winning government grants-and an equally exemplary job of wasting every cent that the government gives it.

A FEW MONTHS AGO, Wal-Mart's Duke sent a letter to the White House announcing his support for proposed new legislation requiring all but the smallest employers to provide health insurance for their employees. This left the National Retail Federation, the industry's main lobby, feeling "flabbergasted." One of its spokesmen said that a blanket mandate would be "the single most destructive thing you could do to the health care system shy of a single-payer system."

But was Wal-Mart's move really all that surprising? As the Wall Street Journal reported on July 16, "In the past four years, Wal-Mart Stores has undergone a stunning metamorphosis-from whipping boy to the political left to corporate leviathan now welcomed with open arms by a Democratic White House."

The metamorphosis began when Lee Scott, Duke's predecessor as CEO, hired Edelman PR executive and longtime Democratic political operative Leslie Dach to head corporate communication. Over the past several years, the company has spent millions to broadcast its tender and heartfelt concern for the environment.

Just the other day, the company announced that it will tell suppliers they must calculate and report the full environmental impact involved in making their products, and be prepared to submit to a rating system that Wal-Mart will devise and disseminate alongside prices for everything from clothes to electronics. Imagine that! Wal-Mart, as the nation's largest employer and retailer, now stands ready to act as a kind of global Environmental Protection Agency, policing its suppliers. This should put them in good stead with the likes of Al Gore, but it also means that that the company is prepared to sacrifice the customer's desire for the lowest price on the altar of environmental activism. That will be the inevitable result of forcing suppliers to spend more on living up to tougher standards and conforming to a more demanding and bureaucratic purchasing department inside Wal-Mart. The increased costs will be passed along to Wal-Mart shoppers.

AND THEN THERE IS DOE-EYED Jamie Dimon, whom the New York Times describes as "President Obama's favorite banker." The New York Times, which happens to be the president's favorite paper, got the scoop on how JP Morgan Chase is holding a meeting of its board for the first time in the nation's capital with a very special guest speaker: White House chief of staff Rahm Emanuel. The paper noted that Treasury Secretary Tim Geithner had declined an invitation to join the party "out of concern that he would be seen as too cozy with a company that has numerous business issues before the department." Silly Tim! Bad Tim! This is a playground where everyone is supposed to share their toys.

Jamie understands that. He is one of those visionaries with the uncanny ability to read the writing on the wall. According to Obama's favorite newspaper, in 2007 Jamie "assessed his own performance for his board and gave himself a ‘D' for effort in Washington. He subsequently revamped the firm's government affairs office, mindful of Democrats' ascendance." He now calls government relations the firm's "seventh line of business." But wouldn't it make better sense to think of it as a "third rail"-one that doesn't kill outright but does the next worst thing: reducing those who touch it to a zombie or vegetative state? However, if one of Jamie's trusty lieutenants dared to suggest any such free market heresy, that person would be fired on the spot.

For Jamie Dimon and JP Morgan, the government relations business involves a good deal more than boring old banking. It means constant trips between New York and Washington, D.C. It means constant banter-via phone and e-mail-with his pal Rahm Emanuel (whom he tried to hire back when he was second in command at Citigroup). One gets a sense of the extraordinary chumminess and simplemindedness of this dialogue from this exchange included in the front page story in the president's house organ:

He [Emanuel] recalled that Mr. Dimon once phoned to protest the anti-business populism taking hold as voters tired of bailouts, and snapped, "Washington doesn't get it!" "You guys don't get the anger out there," Mr. Emanuel replied. "Jamie, you're asking then American people to bail out the industry. And if they're going to bail out the industry, it's got to change its habits."

With its lofty motto of "All the News That's Fit to Print," we must assume that the New York Times demurely deleted all the F-words that studded at least one side of the conversation.

Of course, another part of being in the government relations business involves making the right noises about the environment, diversity, etc. And the darling Jamie does not disappoint here either. Among other bits of gratuitous information, we learn from the JP Morgan website that the bank's "portfolio includes interests in 54 wind farms as well as several solar projects that together can power close to 1.5 million U.S. homes annually." There is no mention of how many coal-fired electrical generating plants are in the "portfolio," or how many U.S. homeowners have them to thank for cheap and abundant energy.

IN THEIR DREAMS OF revving up the economy, saving the planet, and meddling in the nation's politics and social affairs, the three CEOs seem to have lost sight of the basic idea that the business of business is business. They may think they are gaining "a seat at the table," but what they are really doing is playing a sucker's game in inviting further intervention into the marketplace by people who have no respect for the marketplace.

A long time ago, Milton Friedman pointed out why he distrusted businesspeople who run on about the "social responsibilities of business in a free-enterprise system." It is because "the doctrine of ‘social responsibility' involves the acceptance of the socialist view that political mechanisms, not market mechanisms, are the appropriate way to determine the allocation of scarce resources to alternative uses."

This is certainly the case with the Obama administration, whether one is talking about job creation, economic stimulus, health care reform, trade policy, limiting carbon emissions, financial and auto company bailouts, or changing the rules to make it easier for unions to monopolize the supply of labor at more companies.

Absolutely the last thing that this government wants to do is to encourage market mechanisms at
the expense of political mechanisms.

Jamie and Jeff and Mikey-you can trust me on this one.

But maybe you still don't get it. So let me be real clear: BEWARE THE BIG BAD WOLF. He may act nice...but he really doesn't have your best interests at heart.

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About the Author

Abu M. Friedman (not his real name) is a business writer.