Wall Street's attacks could turn President Obama into a true populist

By Jacob S. Hacker and Paul Pierson
Sunday, September 26, 2010; B05

Corporate America's stance toward the Obama administration has recently deteriorated into vitriolic attacks and outright opposition. Blackstone Group chief executive Stephen Schwarzman said this summer, for instance, that President Obama's proposal to tax the earnings of private equity and hedge fund managers at the same rate as other workers' income was "like when Hitler invaded Poland in 1939." Far more ominous for the White House, business has been putting its money where its mouth is: In sector after sector, corporate campaign contributions ahead of November's elections are going to Republicans.

Conventional explanations for this mounting opposition focus on policies and personalities, insisting that the president has embraced runaway government or unnecessarily ruffled business's feathers. Perhaps in response to this received wisdom, Obama is reportedly trying to appease the business community by considering a corporate chief executive to replace Larry Summers as his top economic aide.

But this has it exactly backward. The business-Obama divorce isn't about personalities, and it's not because the president and his economic team have pursued anti-business policies. Instead, it reflects a deeper disconnect between corporate leaders and the rest of America, rooted not just in the economic privileges executives enjoy but also in the particular ways business connects to Washington. This disconnect has blinded corporate leaders to the extent to which most Americans feel that the government, far from crushing corporate America, has been looking out only for those at the top.

Had Obama realized sooner that he would never win over corporate America, he might have pursued rhetoric and policies that would have alienated fewer voters. But the cost would have been alienating Democratic moderates in Congress, thereby jeopardizing his reform agenda. After November's inevitable Republican gains, however, those moderates will have a less decisive role, and Obama might feel freer to adopt a more populist approach.

Obama wasn't always big business's nemesis. During and after his campaign, many corporate leaders backed him. In March 2009, at a friendly meeting between the president and 60 top chief executives, Verizon's Ivan Seidenberg, the chairman of the Business Roundtable, said, "There's a misperception I think in some people's minds that the relationship between business and the Obama administration is like, well, oil and vinegar. . . . From our standpoint, that couldn't be farther from the truth."

"Oil and vinegar" would be an understatement today. Corporate leaders assail Obama's rhetoric (he has "vilified" them, they say) and his policies (he is spending and regulating too much, and he wants to let the upper-income Bush tax cuts expire). In June, the Business Roundtable, which represents executives at leading U.S. companies, accused the administration of fostering an "increasingly hostile environment for investment and job creation."

These views are clearly overwrought. Yes, Obama has spoken of Wall Street "fat cats," but if anything, his rhetoric has been deliberately non-antagonistic, as when he reassured financial executives in April that Main Street and Wall Street will rise or fall "together as one nation." Compare this with FDR's famous scolding of "organized money": "They are unanimous in their hate for me -- and I welcome their hatred."

Nor can the policy inclinations of Obama and his advisers easily explain the scale of corporate apoplexy. The president filled his economic team with establishment pragmatists such as Summers and Treasury Secretary Tim Geithner. More liberal economic thinkers such as Jared Bernstein and Elizabeth Warren were either put in the vice president's office (in Bernstein's case) or left out of the initial lineup altogether (in the case of Warren). Time and again, Obama has either ruled out the proposals that business most opposed or has allowed them to languish-- from labor law reform to a "public option" for health insurance to breaking up banks to serious caps on or claw-backs of bonuses.

And it's not as if the past year has been terrible for top executives. After the biggest economic crisis since the Great Depression, the government poured huge direct and indirect subsidies into the financial sector, and Wall Street roared back. Even if Wall Street profits this year wind up being lower than those last year, as some are forecasting, they will still be much higher than anyone would have dared imagine in late 2008.

Ordinary Americans certainly don't think Obama has been too hard on business; they see a government that has backed Wall Street and corporate titans but abandoned the middle class. In a Pew-National Journal poll two months ago, 53 percent of Americans said the government's economic policies had helped banks and financial institutions "a great deal." Forty-four percent thought they had helped large corporations a great deal. Just 2 percent thought they had helped the middle class a great deal.

Why, then, doesn't business agree?

The first reason for the disconnect is simply that the economic status quo is a lot less ugly for those at the top than for other Americans: Since the late 1970s, while middle-class incomes have grown only modestly, the incomes of the very richest Americans have skyrocketed. On Wall Street and off, executives have continued to pocket huge sums, even at moments when their companies and shareholders have suffered.

But this is only a partial explanation. Corporate leaders do see problems on the horizon: rising health-care costs, the risk of more turmoil on Wall Street, an unsustainable energy sector. For most businesses, each of these is just one of many concerns. For a handful of corporations, however, one of these issues is their business. Insurance companies care the most about health care, banks care the most about financial regulation, and so on. Leading the business community into its increasingly vigorous opposition have been the firms whose bottom lines are most directly challenged by Obama's reform agenda.

Finally, business's growing antagonism toward the Obama administration has been aided and abetted by the Republican Party, which has stuck to its tax-cutting, deregulatory guns, even in the face of economic and electoral losses. Obama has offered American capitalists a serving of spinach: Make some big and painful changes to come back fitter than ever. The GOP, by contrast, continues to offer candy: a return to the economic priorities of the past few decades, when Washington's role was to remove rules that businesses found bothersome and to make tax cuts aimed at the top -- even though this binge helped set America up for a crash in the 2000s.

The irony is that a dispirited electorate that thinks Obama has been too favorable to executives has shifted toward the GOP -- the same GOP that executives are now backing.

Given these reasons for business's opposition to Obama, winning over the executives may always have been a hopeless cause. But could the president have instead won over the public by launching the very thing his detractors in the business community already accuse him of: a populist campaign to reform the economy?

To many on the left, the answer is yes. Journalist Robert Kuttner, in his new book "A Presidency in Peril," blames both the weak economy and Obama's declining popularity on an economic team that was too solicitous of Wall Street. Democratic pollster Stan Greenberg, meanwhile, has found that Obama's fight against extending tax cuts to the very rich resonates powerfully with crucial voting blocs.

Still, the barriers to a more populist route weren't limited to Obama's temperament and his Cabinet. They extended to his Congress, in particular the conservative Democrats in the Senate and the "Blue Dogs" in the House (who, amazingly, just blocked a vote to eliminate high-end tax cuts, a move that would have positioned Democrats on the side of middle-class Americans while reducing future deficits by $1 trillion). Especially in the Senate, where the threat of a filibuster now compels 60 votes for virtually any piece of legislation, these business-friendly Democrats have had an outsize voice. A more populist route would have alienated them, jeopardizing Obama's entire agenda.

After November, however, Democratic moderates will probably no longer be at the center of the action. With even more Republican votes needed to overcome a filibuster, and with the GOP shifting ever further to the right, Congress is likely to descend into gridlock.

At that point, tough talk will no longer threaten important legislative opportunities. The president will be free to speak frankly about middle-class concerns and draw sharper ideological distinctions. By swinging its support to the GOP, business could bring on a more strident Obama -- in rhetoric, and maybe even in substance.

Jacob S. Hacker is a professor of political science at Yale University, and Paul Pierson is a professor of political science at the University of California at Berkeley. They are the authors of "Winner-Take-All Politics: How Washington Made the Rich Richer -- and Turned Its Back on the Middle Class."

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