Last spring the American business community was united as never before in praise of President Reagan's economic program. Typical of the captains of industry was Theodore F. Brophy, chief executive officer of the General Telephone & Electronics Corp. and a senior officer of the Business Roundtable.
"Implementation of the Reagan administration's proposed spending reductions, when combined with the other aspects of the president's economic recovery program," Brophy testified last May, "will provide us with a healthy, growing economy on a long-range basis--the best protection for all individuals."
Brophy's view prevailed, and Congress enacted Reagan's program. Last week, though, Brophy revised and extended his remarks:
"Our economy is in the throes of a recession," Brophy testified, "accompanied by inordinately high interest rates, and now is facing the prospect of large future budget deficits . . . . The Business Roundtable is deeply concerned about the size of projected deficits and believes that, unless promptly dealt with, they will encourage continued high interest rates and slow economic recovery and growth."
Brophy was testifying for the Roundtable, which now favors stern action to reduce gaping federal deficits. One by one, the organizations that businessmen form to advance their interests are jumping off the bandwagon of Reaganomics. No matter that less than a year ago, the same business groups were pushing that bandwagon forward like a V8 in a 1960s' gas-guzzler.
"Corporate America didn't have any idea what was in the tax bill," observed Sen. Charles McC. Mathias Jr. (R-Md.) last week, trying to explain the business community's flip-flop on Reaganomics. "They were like hounds after a fox," he added, referring to the big corporate tax breaks that made the Reagan program so attractive to businessmen.
A prominent Republican lobbyist who works for big business said he thought executives were now getting pressure from their boards of directors and stockholders to do something about high interest rates and the recession. "It just somehow isn't working," this man said of Reaganomics, adding that the business community is digging in to save the tax breaks it got from Congress last year. "I think they're getting a little greedy," he said, adding, "if you put my name in the paper, I'll be run out of town."
In a brief interview in the hallway outside the Senate Finance Committee, Brophy was asked why the tune had changed so quickly. "I don't think any of us feel we have crystal balls," he replied. Pressed on the wrong prognosis he and his colleagues gave Congress last spring, Brophy asked who had predicted that interest rates would still be so high.
One answer to that question is Henry Kaufman, managing director of Salomon Bros. Inc., an economist with a wide following on Wall Street. Kaufman was one of many voices warning last year that if the Reagan program were adopted, it would produce an unavoidable collision between an expansionary fiscal policy and a restrictive monetary policy. Brophy acknowledged that Kaufman was "right about some things, but not everything," noting that inflation fell much faster than Kaufman had said.
Another prediction of continued high interest rates came from the Business Council, a group of major corporations. At about the time Brophy was making his optimistic predictions last May, the council issued a formal forecast that echoed his hopefulness about economic growth, but said interest rates would stay in the 14-to-16 percent range throughout the year (as, roughly, they have). And the Business Council did predict much lower inflation.
But all that was last year, when corporate America was exhilarated by the defeat of a president it detested and the election of a free-enterprise Republican. "Businessmen are fundamentally Republicans," observed Irving Shapiro, the recently retired chief executive officer of DuPont, who himself was close to President Carter. "They persuaded themselves to back a new Republican administration 100 percent. They did that although they had misgivings."
"Their uneasihe Senate. "Now it's stark terror," he added, describing the dire private warnings that some businessmen are conveying to Senate Republican leaders who are hoping to persuade Reagan to modify his program to reduce future deficits.
None of these quotations come from sitting corporate executives. The captains of industry are active in private lobbying, but they appear unwilling to talk openly about their change of heart about Reaganomics. In preparing this article, calls were made to a number of chief executives who sent back word that they would be unavailable to be interviewed. Among them were Walter Wriston of New York's Citibank, C.C. Garvin of Exxon, and William Agee of Bendix.
One executive who was willing to be interviewed, J. Peter Grace, chief executive of W.R. Grace & Co., expressed great impatience with his fellow businessmen who are having second thoughts about Reaganomics. "It tells you that they're stupid, that's all, and they didn't know what they were doing in the first place," Grace said.
For his part, Grace is still staunchly in Reagan's corner. "I knew it was going to get worse before it got better," he said. Grace is now chairing the president's Private Sector Survey on Cost Control.
One way to find out what less enthusiastic business executives are thinking is to follow them around Capitol Hill. There one hears that the public statements of the Business Roundtable, the president of the American Stock Exchange, the American Bankers Association and others are relatively gentle expressions of feelings that are expressed much more starkly in private.
For example, officials of the Business Roundtable have passed the word that they have told the administration there will be "no more blind following" of White House policy. "We went along last year because we felt we had to" is the latest word from them.
Warren E. Buffett, an entrepreneur and newspaper proprietor who called himself a reluctant Carter supporter in 1980, said of Republican businessmen: "They really think it the economic situation is a shambles, but they hate like hell to knock their guy Reagan in public."
Corporate America's change of heart and the ensuing demands to Congress to "do something" about federal deficits and interest rates has not been well received on Capitol Hill. Senior Senate Republicans have told many complaining businessmen to convey their new anxieties to the White House. At least one has told the businessmen to take their new message to members of Reagan's "kitchen cabinet," the informal group of California businessmen who have been close to Reagan for decades. The man making this suggestion says maybe his oldest friends can persuade the president that he must alter his policy.
"It was predictable that we were going to be in this position," said Rep. Dan Rostenkowski (D-Ill.), chairman of the House Ways and Means Committee and one of the members who hears most often from the executives. "We were listening to the same economists they were," Rostenkowski said, referring to those like Kaufman who were skeptical about the Reagan program, but the businessmen "didn't want to believe" that things could turn out badly.
Suggestions that they might have foreseen the trouble do not sit well with businessmen and their lobbyists. For example, James D. (Mike) McKevitt, a former Republican congressman who is chief lobbyist for the National Federation of Independent Business in Washington, reacted angrily when asked why his group did not realize that the combination of big tax breaks and a much bigger defense budget would create big federal deficits.
Although McKevitt's group of small businessmen made total support for the Reagan program key test votes in their annual ranking of Congress last year, he denied that the group had supported either the big defense buildup or some of the big tax cuts.
John L. Sherman, an aide to the Democratic majority on Ways and Means, said he thought that "the CEOs are no smarter than the rest of us--they may be dumber." In the summer of 1980, he recalled, the then-chairman of Ways and Means, Rep. Al Ullman (D-Ore.), traveled around the country talking to chief executives about whether they wanted an across-the-board tax cut like the one Senate Republicans were then pushing.
Of 10 executives Ullman questioned, none was eager for such a tax cut, Sherman said. Then six months later nearly all the country's top executives were fervently supporting Reagan's similar idea. And now, nearly a year later, many have misgivings.
"I don't know why they got fooled," said a senior Senate Republican aide. "I think they thought Reagan had a magic answer, and they didn't analyze the fact that the magic answer would do something to them.
"They sure as hell are disappointed now," this Republican added.
Staff researcher Maralee Schwartz contributed to this report.