When Standard and Poor’s lowered its rating on U.S. sovereign debt to AA+, a period of frightening volatility seized stock markets. Confusion in the euro zone, rioting in Britain and a weak recovery in the United States sent stock prices plunging worldwide. As the incapacity of governments and international institutions to meet the current crisis is openly debated, few have looked to business leaders for the contributions they might make to economic stability and recovery. But they have the resources to play a significant role in reviving the U.S. economy. American banks and corporations hold between $4 trillion and $5 trillion in reserves. With government options limited, the time has come for corporate and financial leaders to take some responsibility for the common good in a way they did not during the 2008 crash.
In past financial panics, financiers like J. P. Morgan persuaded their peers to take steps to avoid catastrophe and create a structure of regulation to smooth out economic cycles in the future. Henry Ford understood that workers needed decent wages to be able to buy his Model T’s; and David Packard and William Hewlett made their company a model of equity where management and labor alike shared in the profits and losses of the business cycle. For decades profit-sharing made millionaires of workers at Proctor & Gamble. And who did not take heart from Aaron Feuerstein, the Polartec manufacturer, who paid his Malden Mills employees while their plant was rebuilt following a fire? The recovery of General Motors and Chrysler, moreover, demonstrates that in collaboration with government and labor American enterprise can revive in ways that not only save but create jobs. Enlightened business leadership is part of the American story.
America still has wealthy businesspeople with a sense of justice and the public good, people like Warren Buffet, Bill Gates and Patriotic Millionaires for Fiscal Strength, who lobby for higher taxes for people like themselves. Unfortunately, the icons of the zeitgeist have been the extravagant and imperious Donald Trump (“You’re fired!”); and “Neutron” Jack Welch (General Electric) and “Chainsaw” Al Dunlap (Sunbeam), who were infamous for raising profits by cutting jobs. Then there are the no-show titans of Wall Street who failed even to attend President Barack Obama’s post-crisis speech on financial reform.
Conventional wisdom, however, is an obstacle to responsible business involvement in economic recovery. The public is told that banks do not make loans and businesses do not invest because there is no demand. But there is little or no demand because there is no liquidity. We are told the housing market will not bounce back because of weakness in demand, but government funds to prevent foreclosure go unspent, and lenders insist on foreclosing on householders who are making full payments after the value of their homes has fallen. We are told businesses will not invest because of economic uncertainty, but uncertainty is a vague rationale; and the financial sector tends to bless as certainty only rules that are most advantageous to itself. Furthermore, certainty has also become a code word for lax regulation, the kind of careless oversight that led to the 2008 financial crisis.
Conventional wisdom is a defeatist oracle. It prevents Americans from seizing the opportunities to rebuild the economy. What is lacking in many quarters of corporate America today is goodwill and courage: the goodwill to spend and negotiate for win-win solutions, the courage to invest, despite uncertainty, and be job-creators. The American story suggests that business can work for the common good.
The current economic impasse is due in no small part to business models with little or no sense of social responsibility as integral to the business enterprise. Pope Benedict XVI was right in identifying a deficit of trust as the root cause of the 2008 financial crisis; and he was correct in arguing that the remedy lies in an economy where capital is utilized for the common good as well as for private profit. Bankers and business executives should heed his plea for investment in projects in which not just executives and shareholders but all the stakeholders profit.
Avenues are open for cooperation between private enterprise and government. With some corrections, unspent federal funds to prevent home foreclosures could be made into a workable program. A joint government-business infrastructure bank to rebuild the country’s failing roads, bridges, airports and power and water systems could spur an economic upturn. Banking and business can make other moves on their own. Loans to small businesses, which have been starved for cash, for example, could help revive the sinking job market.
It is past time that business and capital play a responsible role in the new American story.