The growing divide and tension between the Obama administration and the business world is a cause for national concern. As Clive Crook wrote in the Financial Times, Obama is "a president under business attack." He is certainly under sharp criticism and for good reason: He has lost the confidence of much of the business community, whose worries over taxes, the dramatically increased costs of new regulation, and a general perception that the administration is hostile toward them and may take yet harsher steps, are holding back investment and growth. In the midst of a weak economy accompanied by levels of unemployment unprecedented since the Great Depression, it is critical that the government in Washington appreciate that confidence is an imperative if the business community is to invest, take risks with start-ups, and altogether get the economy going again to put the millions of unemployed back to productive work.
This is what businessmen do when they are free to conduct business. For example, in the two decades of the 1980s and 1990s, the United States created 73 million new private sector jobs—while simultaneously losing some 44 million jobs in the process of adjusting its economy to international competition. That was a net gain of some 29 million jobs. A stunning 55 percent of the total workforce at the end of these two decades was in a new job, some two-thirds of them in industries that paid more than the average wage. By contrast, continental Europe, with a larger economy and workforce, created an estimated 4 million jobs in the same period, most of which were in the public sector (and the cost of which they are beginning to regret).
How could America achieve this? It is because of the get-up-and-go culture that reflects individualism, courageous entrepreneurialism, pragmatism, adaptability, and innovation. This adventurous spirit outlived the passing of the frontier and still inspires and nourishes millions, including our young and our newcomers. No other country has a population so habituated to self-help, self-improvement, and even self-renovation in a manner that carries over into business life.
The unique historical conditions of America encouraged a remarkable management culture. The anthropologist, Lionel Tiger, showed that the style of American corporate management was a response to the opportunities of a huge internal market, but also the obstacles presented by vast distances and diverse populations. We created a monetized market economy inspired by a belief in technology and scientific management, governed not by kinship and custom but by contracts freely agreed upon and law passed by assent.
Over the years, the transformation of American industry has been nothing short of phenomenal. U.S. companies replaced large, mass-produced consumer products with sophisticated goods derived from intellectual output and knowledge-based interests, the fastest-growing segment of the world's economy. Management was assisted by a level of labor flexibility that is the envy of both Europe and Asia. Europe struggles with the legacy of the steam age in the form of craft, union, and management demarcations that limit management's role. In Asia, management is often stifled by large, oligopolistic networks and government mandates.
American managers consistently led the world in investing in new technologies and providing high-tech training to exploit them. We were the first to realize the importance of computers and information technologies and invested massively in them, spending twice as much per capita on info-tech as Western European firms and more than six times the global average. In fact, U.S. companies are the major suppliers of the information age's silicon, brains, and sinews.
No other country has met the requirements of an emerging economic system that needed people to be mobile both physically and psychologically. No other country shares America's belief in numbers and statistics as a basis for rational decision-making. No other country invests so much in business training and the retraining of its people—on top of having the world's best graduate and undergraduate business schools. No other country forms as many small companies year after year that compete with flexibility, rapid response, openness, innovation, and the ability to attract the best people. And as new products and services are developed, American businesses' unique marketing and advertising skills establish their success at home and abroad. Our system, in which ideas freely percolate at all levels, is tantamount to a giant information-processing machine. It enhances our capacity to absorb, adapt, and manage ongoing revolutions in technology, information, and logistics, which are too dynamic and complex to be handled by a top-down system.
The energy in business is matched by a unique and remarkable world of finance capital that over decades has identified the multiple sources of entrepreneurial funding. For example, our IPO process provides capital to service a merit-based, diversified financial environment and to fund young talent, new ideas, and the risks associated with high-tech, high-growth, high-concept companies.
Further, we enjoy a public policy framework that articulates not just what the government does, but what the government does not do. Our government is not involved in the formulation of industrial policy or in mandating funding or other support to specific industries and companies. It is the private sector that makes the overwhelming majority of strategic and tactical business decisions and thus makes the best decisions for allocating resources.
So it is no surprise that America's economy is even better suited for today's rapidly changing, knowledge-based world than it was for the mass-production industrial economy. But—and here's the heart of the current concern—the Great Recession has resulted in great damage to this superb record. Having expanded economically at a healthy clip for most of the last 70 years, generating higher incomes and wealth for American households, our country has in the last several years faced a stall and then a decline in prosperity. It is tantamount to a lost decade: chronic high unemployment, zero net job creation, and middle-income households slammed by a drop in their net worth and their incomes, adjusted for inflation. It's the first decline of median incomes and net worth since figures have been compiled starting some 50 years ago.
The unique danger today is the possibility that we may face longer-term stagnation as a consequence of relying too heavily on borrowed money. When the housing and credit bubbles burst in 2007 and 2008, the unemployment rate soared to double digits and caused a cascade of shock throughout the credit markets and the banking system. Washington's ability to initiate a resurgence is now limited by the long-term dangers of our deficits and our debts.
But one unfortunate pattern that has emerged in the last 18 months is to lay all the blame for our difficulties only on the business community and the financial world. This quite ignores the role of Congress in many areas, but most glaringly in forcing Fannie Mae, Freddie Mac, and the Federal Housing Administration to back loans to people who could not afford them. And not to mention the role of the Securities and Exchange Commission, which in 2004 sanctioned higher levels of leverage for financial firms, from 12 times equity to over 30 times equity.
This predilection to blame business is manifest in the unnecessary and provocative anti-business sentiment revealed by President Obama in a recent speech that was supposed to be seeking the support of the business community for a doubling of exports over the next five years. "In the absence of sound oversight," he said, "responsible businesses are forced to compete against unscrupulous and underhanded businesses, who are unencumbered by any restrictions on activities that might harm the environment, or take advantage of middle-class families, or threaten to bring down the entire financial system." This kind of gratuitous and overstated demonization of business is exactly the wrong approach. It ignores the disappointment of a stimulus program that was ill-designed to produce the jobs the president promised—that famous 8 percent unemployment ceiling.
But it's not just the rhetoric that undermines the confidence the business community needs to find if it is to invest. Consider the new generation of regulatory rules, increased bureaucracy, and higher taxes created by the Obama administration. For example, the new financial regulation bill includes nearly 500 "rule-makings," studies, and reports, compared with just 14 in total for the controversial Sarbanes-Oxley bill, passed after the financial scandals of Enron and WorldCom. The disillusionment has spread to the Business Roundtable, the U.S. Chamber of Commerce, and the National Federation of Independent Business (NFIB), which represents small businesses that normally account for roughly 60 percent of job creation.
The chief economist of the NFIB, William Dunkelberg, put it clearly: Small business owners "do not trust the economic policies in place or proposed." He also said, "The U.S. economy faces hurricane force headwinds and the government is at the center of the storm, making an economic recovery very difficult."
Our economic Katrina, in short.