in Congress: not by pressuring politicians but by threatening the elite institutions that control the politicians.
Capital Strikes and Pro-Business Legislation
The Obama administration initiated a host of new legislation designed to advance the interests of business. Often those initiatives contradicted Obama’s campaign rhetoric, which had promised that he would tax the wealthy at higher rates, pursue trade deals that benefited workers rather than corporations, and regulate business more closely. The disjunction stemmed less from the new president “selling out” than from the imperative of boosting business investment in the economy. Cultivating businesses’ confidence in the administration was essential because the $787 billion government stimulus bill passed in February 2009 was too small, given the magnitude of the crisis, and because the administration was unwilling or unable to take measures that would force investment in Main Street.6
President Obama entered office in the throes of a historic disinvestment crisis. The problem was not a lack of money, but the fact that corporations were hoarding trillions of dollars in capital rather than investing it in the economy. Although the Great Recession officially ended in June 2009, the rate of unemployed or underemployed workers was still 17 percent in November 2010, and remained at almost 15 percent as Obama’s second term began in January 2013.7 Thus, Obama’s first term and much of his second were dedicated to convincing business leaders to start investing again.
During Obama’s first two years, many corporate leaders deemed his policies insufficiently pro-business. Their critique was overblown: from the start, the administration took great pains to accommodate corporate demands. But business was not satisfied. Treasury Secretary Timothy Geithner later wrote in frustration that although “the President helped rescue the economy and their bottom lines,” many corporate executives believed “that he was relentlessly hostile to their interests.”8 In the November 2010 midterm elections, business made its anger known. Whereas in 2008 the financial industry had favored Democratic congressional candidates by a margin of $124 million, in 2010 it favored Republicans by almost as large a margin.
When Democrats took huge losses in the midterms, White House officials interpreted it as a sign of the need to bolster business confidence in the administration. More consequential than corporate campaign donations was the fact that business was still withholding so much money from the economy, impeding the recovery and contributing to voter disaffection with the Democrats. Noting that unemployment was still “stubbornly high” and that there was “little likelihood” of renewed government stimulus, the Wall Street Journal argued in early 2011 that “the key to economic growth—and Mr. Obama’s re-election prospects—could lie in corporate treasuries. U.S. non-financial businesses are sitting on nearly $2 trillion in cash and liquid assets, the most since World War II, and Mr. Obama wants them to use it to create more U.S. jobs.”9 This approach was not the only logical one: many outside observers attributed the Democrats’ midterm losses to the shortage of progressive reform in Obama’s first two years. But the backgrounds of Geithner, Summers, and Obama’s other top advisers virtually ensured that the midterm defeat would be attributed to business discontent. Following election day, Obama buckled down in an effort to boost executives’ “confidence” in his administration. On the legislative front, Obama’s efforts to “repair relations with corporate America,” as the Journal wrote, took the form of bills that cut taxes for business and amplified investor privileges overseas via free-trade agreements.10 According to the Journal, Obama was proposing a deal with corporate leaders in which they would “stop hoarding cash and start hiring in return for tax breaks and other government support,” including free-trade deals and deregulation.11
None of these reforms would directly address the economic roots of the crisis. They would do little to boost the low level of domestic demand, which was the main economic cause of continued recession. Doing so would have required putting more money into the hands of consumers and/or greatly increasing government spending. Rather, the reforms sought to address the political nature of the economic recession. By granting concessions to business in unrelated realms of policy, the administration hoped to cajole banks into making new loans and employers into hiring new workers. The reforms did not make economic sense, but they had a compelling political logic. They were concessions designed to get business to cease its capital strike.
Corporate leaders were often explicit about their political demands. In November 2010, Emerson Electric CEO David Farr told the Journal that “he would expand more in the U.S. only ‘if I felt the government was going to get out of the way’” by overhauling the tax code and streamlining “environmental and hiring rules.”12 Taxes and regulation, not the lack of demand, were also key themes in a meeting between CEOs and Obama later that month. Barclays CEO Robert Diamond said that US corporations “don’t have the confidence to hire in the United States of America until we can believe that the government, the private sector and financial institutions are working together and connected again.” Bausch & Lomb CEO Brent Saunders warned that “we’re being a little more tentative on whether or not you want to move a plant, or invest,” due to disagreements with the administration over rules governing profit repatriation.13 A few months later, Joseph Czyzyk, the chairman of the Los Angeles Chamber of Commerce, said that “the thing that bothers us the most is regulatory reform.” To unlock the trillions of dollars that businesses were hoarding, Czyzyk said, the administration would have to get serious about dismantling regulations: “It can’t be lip service and blue ribbon commissions on that, it’s got to be sacred cows.”14
Obama listened. On tax policy, he agreed in December 2010 to renew the tax cuts for the wealthy originally passed under George W. Bush, which he had previously vowed to end. Although he did sign several measures, such as the ACA, that modestly increased taxes on the wealthy, he left the rate on capital-gains income (income from stock market holdings) lower than it had been two decades earlier. Many tax policy experts also argued that Obama could have ended the tax loophole on “carried interest,” which benefits hedge funds and private equity managers, but he did not.15 Most important for business confidence was the tax rate on corporations. In February 2012 the White House released the “President’s Framework for Business Tax Reform,” which proposed to reduce the top corporate rate from 35 percent to 28 percent, and 25 percent for manufacturing companies.16 Obama made the quid pro quos explicit. In exchange for his efforts “to give businesses a better deal” through new legislation, he was hoping to cajole new business investments. He also asked congressional Republicans to fund a small fiscal stimulus “to create jobs through education, training, and public works projects.”17
The most aggressive administration initiatives involved promoting exports and overseas investments by US corporations. Obama’s first secretary of state, Hillary Clinton, effectively became “the government’s highest-ranking business lobbyist,” as the business press noted, directly negotiating foreign deals for Boeing, Lockheed Martin, General Electric, and other companies. She pushed countries to embrace fracking for natural gas and Monsanto’s genetically modified seeds. Clinton also reoriented the State Department itself, converting it “into a machine for promoting U.S. business.” She created the new position of chief economist, hired a former Wall Street banker for the job, and promoted “the embassy economic officers who act as State’s liaisons to business.” She directed department employees to embrace what she called the “Ambassador-as-CEO”
