6/17/13

President Obama’s anti-business agenda is well established now with most objective observers. Over the last six months, more and more people are stating it more boldly and up-front.

I have been saying it for five years now. When people kept blaming “uncertainty” for the mediocre performance by businesses, I stated clearly that it was the certainty of the hostility of this president that was hobbling business. My strong view is that the president truly believes that business is a necessary evil. An evil that needs to be contained, regulated, and controlled to extract as much as possible from it toward his social justice and fairness agenda. His famous “you did not build that” remark comes from the same belief.

The vast majority of commentators reflecting upon this anti-business agenda are framing the discussion by reference to two elements, taxation and regulation, which they are lumping together. However, the two are completely different.

Taxation, for business, is simply a cost. It is another cost factor to be taken into account in assessing the price for its output. Therefore, as long as every business is subjected to the same tax regime, it really is not a big factor because they all adjust their costs accordingly. Having said that, a material result of this administration’s economic policy is a strong element of crony-capitalism, like it is in every socialist, centrally commanded economy. Large businesses, those who are the main beneficiary of crony-capitalism, enjoy better tax benefits or lower tax costs than others. In spite of that, taxation is by far not the biggest problem facing business.

Regulation, on the other hand, is devastating. It is insidious in that it too, like taxation, affects smaller business more than it does large companies, but unlike taxation, its effects are much more harmful and are underestimated. It is very difficult for a business to handle regulatory environment. Unlike taxation, regulation does not have a defined cost that a business can simply add to its cost of goods. It is time consuming, resources intensive, and the costs can change from one day to the other. A lot has been said already about this administration being the most “regulatory” intensive one in history, by far.

One element of this administration’s anti-business agenda, which does not get any discussion in media, is litigation. Indeed any efforts to get some statistics about the frequency and dimensions of this administration’s legal actions against the business sector, via a Google search, produces nothing. Based on my own experience and memory, this administration has been the most prolific litigator against business that I can think of. Although it is not covered by any discussion in the media, the fear of litigation is a huge element in business’ fear and lack of entrepreneurial spirits under Obama. There are so many examples that even my notoriously long blogs cannot cover it all, but here are a few distinct examples:

GM / Chrysler’s Bailout
This is old news, but still worth mentioning. The administration ran roughshod over the law. They forced the hands of a bankruptcy judge to accept a bankruptcy plan that was contrary to the law by implicating and publicly demonizing those who tried to resist it. This matter was well covered in the media so I am not going to repeat all the details here. Suffice it to say that it had a huge effect on the entire financial community and made them more reserved and cautious because they could never be sure any more about the rule of law. There was always the risk that the law would be sacrificed for the president’s agenda, for what he, and he alone determines is the “better good.” In this case, it was the better good of his political supporters—the unions.

BP
While I have no sympathy for BP, the facts are that even a bad company should be able to rely on the protection of the law. When the Horizon well blew up, the law specifically stated that the damages to the environment that BP can be responsible for are limited to a maximum of $75,000,000. To the best of my belief, that law has not changed yet. BP was put upon by the administration, with the unprecedented move of the president of the U.S. confronting and threatening a private company. The result: BP was bullied and agreed to provide $20 Billion. That is more than TWO HUNDRED and FIFTY times the maximum level of their liability, as provided by law. Why BP agreed to that is beyond me, but it is clear that all large corporations learned this lesson and raised the threshold required to invest in the U.S. The short-term benefits may have been huge, but the medium- and long-term costs to the economy from this example of ignoring the law are much, much larger. Possibly MORE than two hundred and fifty times larger.

NLRB vs. Boeing
The preposterous case that the NLRB initiated against Boeing for opening a plant in South Carolina is well-known. Boeing had little option but to fight it as the NLRB demanded that they close a facility that they invested billions of dollars in, and was/is critical to the production of their hit Boeing 787. Given the facts, even the settlement that they reached, mostly on Boeing’s terms, is shameful. Again, this is a chilling effect on all other U.S.-based business in terms of their investment decisions.

Disparate Impact Use Against Banks
The statistical theory of Disparate Impact has been used by Obama’s DoJ extensively. The WSJ has covered this element of prosecutorial overreach closely. In short, this theory states that if a business does not meet a statistically established mix of clients, it can be sued for bias—racial, gender, or otherwise. According to the DoJ, they do not need to prove any actual bias. The statistics speak for themselves. The only problem is that this is NOT what the law says, in this case. But that did not stop the DoJ from suing many times using this theory. As an example, a small California bank that survived the financial meltdown intact was sued by the Obama DoJ because its credit policies were strong and thus prevented it from participating in the sub-prime lending orgy that brought so many banks to their knees. According to the DoJ, the disparate impact analysis proves that they did not give enough loans to sub-prime borrowers, most of whom were minorities, and as such, it was in breach of the law by showing a bias. Yeah! A bias for good loans; a bias that stopped them from needing to be saved by the government under TARP. Having survived the crisis, now they are being sued for doing the right thing. This bank settled, which is the tendency amongst the spineless business community.

The administration is going to great length to avoid this theory being tested by the Supreme Court because they are afraid that it will not hold up, and thus rob them of the ability to extort monies from other small banks. So using this statistical theory, the administration is yet again encouraging unsound lending practices, which will later cause the banks to collapse and the administration to blame the financial community for unsound lending practices—a “catch 22” at its best.

Bank Foreclosure “Abuse” Settlement
The administration extorted over $20 Billion, I repeat more than TWENTY Billon dollars, from the financial industry for technical breaches of foreclosure processes, in the face of hundreds of thousands of residential foreclosures. Was anyone harmed by these breaches? Not really. If there were such damaged parties, they were compensated specifically and none were generally discussed in the media, so the incidence of wrongdoing was negligible, if at all. Still the industry faced with a coordinated onslaught by the administration and every States AGs decided to settle. Why? Because they simply added it to their cost basis and increased the costs to all of us—so at the end, we are paying for it. However, rest assured that this is another example of the chilling effect on business activity. If tramped-up charges can cause an industry to pay $20 Billion where no damage occurred, what else can happen under this administration?

AT&T / T-Mobile Anti-trust
The DoJ sued to prevent the acquisition by AT&T of T-Mobile. Nearly all business observers believe that it was a bad decision economically and will harm the end user. It will contribute to fast Internet connections not being as available as they should be. It will cause other such big mergers and acquisitions, normally one of the main oils in the economic engine, to be considered further before being embarked on.

Apple
Apple is unanimously considered one of the proudest and greatest examples of U.S. ingenuity and creativity. A proud moment for the U.S. in a generally difficult time. This does prevent this administration attacking it on a number of fronts and trying to both make it look bad and extract money from it. First, a recent decision by the U.S. International Trade Commission, an anachronistic government agency that belongs on the ash heap of history (to borrow a phrase from President Regan, used in a different context) concluded that Apple breached Samsung’s patents. Maybe they did but this government agency has no business intervening in the fight between these two giants. Next, a recent congressional hearing was convened by Senator Levin’s subcommittee to parade Apple in front of the committee in order to investigate their tax structure. Even Levin admits that what they are doing is legal, it is also desirable from a business perspective. The tone and the environment of the hearing were tantamount to persecution more than prosecution. Unbelievable. Finally the DoJ is suing Apple for creating a monopoly on e-books. The trial is still ongoing so one does not know what the outcome will be. Reading about it, not extensively I admit, leaves me with the uneasy feeling that this again is a prosecutorial overreach. At least Apple is big enough and courageous enough to fight it. Having said that, the clear message form the DoJ anti-trust division is chilling for economic activity.

EEOC vs. BMW and Dollar General
The most recent example, and one that gets the cake for being the most ludicrous, is the suit by the EEOC against BMW and Dollar General Stores. This is unbelievable. The suits claim that both companies, and by implications all other companies, are not entitled to do criminal background checks on potential hirees. Why? Because unfortunately there is a larger proportion of minorities amongst the criminal convicts. So the result, according to the EEOC, is a bias against minorities. Not against criminals, which is still allowed, as far as I understand U.S. law, but against minorities. This approach, similar to a disparate impact analysis, is based not on proof of bias, but on the notion that statistically if you carry out criminal background checks, you are bound to come up with more minorities having criminal backgrounds than whites, proportionally speaking. So now businesses are being told they cannot screen for criminal background in the process of hiring someone. Schools cannot screen potential teachers for pedophilia, banks for embezzlement, Brinks-type companies for armed robbery, etc. That leaves me speechless.

This is just the tip of the iceberg. The result of this hyperactivity in the courts will add a serious layer of resistance from businesses to invest or do anything other than survive day to day.

One important element of this discussion, and one reason why the administration is continuing on this road, is the tendency of businesses, especially large businesses, to settle rather than fight the government. With the exception of Apple, and to some extent Boing, in all of the above examples, the defendants simply settled even if the case against them was baseless and outrageous. This is part of the phenomenon of cowardliness that afflicts the U.S. business community and is enhanced by the crony-capitalism, command and control, centrally planned economy promulgated by this administration. You do not want to be on the wrong side of this administration, lest you find a target painted on your back, via regulation, congressional investigations, IRS being set loose upon you…other law suits, elimination from lucrative government contracts, etc.

I am quite convinced that every significant business decision these days is weighed down by the consideration and risk of government interference via litigation. That is one of the many reasons, but an important one, our economy is still sputtering rather than running smoothly as it should be four-and-a-half years after the recession ended.