“Capitalism is at a crossroads: renewal or decline.” So say Steve Odland and Joseph Minarik of the Council for Economic Development in their new book, Sustaining Capitalism. The book argues that plunging trust in business, diminished confidence in the fairness of the economic system, and a loss of faith in capitalism itself, pose a crippling threat to our economic future.
Odland is former CEO of Office Depot and AutoZone, and the organization he now heads has a distinguished history. It was created during World War II and played a critical role in forging the business-government partnership that supported postwar prosperity—including the Marshall Plan and the Bretton Woods Agreement. Their book reflects growing recognition among business leaders that that post-WWII system is now badly in need of overhaul.
But what to do? Their formula includes a familiar array of policy fixes—including tax, budget and health care reform; campaign finance, lobbying and redistricting reform; improvements in education; and expanded programs to help those displaced from jobs.
More interesting is their call on business to change its approach, in three fundamental ways. First, by ending the bias that prioritizes short-term cost-cutting over long-term investment. Second, by ending the “crony capitalism” in Washington that boosts the bottom line of a company or industry at the expense of overall economic health. And third, by taking a more public leadership role in the debate over the nation’s economic future.
“Seventy five years ago, leadership from the American business community helped lay the foundation for policies that made the U.S. the most prosperous nation in the world,” they say. “That leadership is needed again.”
The coming tax reform debate could provide an early opportunity to demonstrate the new approach. Minarik was one of the intellectual godfathers of the 1986 tax reform act, and knows how hard it is to get companies to abandon lucrative special-interest tax breaks in favor of rate cuts that help the economy as a whole. Given growing rancor among politicians in Washington, business will have to lead if tax reform is going to succeed in 2017.
More news below.
• The Trump Trade Returns
Markets have opened the week with a bang, with a number of factors combining to trigger fresh bets on higher growth. The warm reception given to Japan’s Shinzo Abe by President Donald Trump damped fears of an imminent trade war, sending the dollar to a two-week high. The resignation of New York Fed Governor Daniel Tarullo, architect of some of the tightest post-crisis regulations on banks, raised hopes for financial stocks, and the EU raised its growth forecast for 2017 to 1.8% from 1.6%. Stock futures are indicated to build on Friday’s strong gains, while bond yields are also rising again, if only moderately. Reuters
• Loose Lips Sink Adviserships
National Security Adviser Michael Flynn may become the first casualty of the new administration, due to the furor over his telephone calls with Russian ambassador Sergey Kislyak between the election and inauguration day. Reports citing intelligence agencies appeared last week, saying that Flynn had discussed lifting sanctions on Russia during the interregnum, apparently unaware or unconcerned that Kislyak is a top target for U.S. government eavesdropping. Donald Trump’s top policy adviser Stephen Miller passed up numerous opportunities over the weekend to say whether Flynn still had the President’s backing. Fortune
• Verizon Finally Launches Unlimited Data Plans
Verizon has announced an unlimited data plan starting at $80 a month. The move is a response to Sprint and T-Mobile’s (slightly cheaper) initiatives that lured large numbers of subscribers away last year. Verizon’s ability to respond had been constrained by a lack of available spectrum, but it now says it has improved its network enough to cope with the expected extra traffic. Unlike Sprint and T-Mobile, Verizon said it won’t downgrade the quality of streaming video for unlimited plan users. However, the starting price is a little above its rivals’. Fortune
• Round Two For Samsung’s Lee
Samsung Electronics vice-chairman and heir apparent Lee Jae-yong was dragged in for another round of questioning by Korean prosecutors over the country’s influence-peddling scandal. Special prosecutors, who have already had one request for an arrest warrant against Lee rejected, are expected to decide this week whether or not to file a second request. Another key Samsung executive Chang Choong-ki, deputy head of the corporate strategy office suspected of orchestrating illicit payments, was also questioned Monday. Samsung has already decided to shut the corporate strategy office down. Fortune
Around the Water Cooler
• Today’s Glut Sows Seeds of Next Boom
Discoveries of new oil and natural gas fields dropped to a 60-year low last year as companies around the world slashed on drilling. According to Wood Mackenzie, spending on exploration fell from $100 billion to $40 billion last year, while figures from IHS Markit showed that only 8.2 billion barrels of oil equivalent were discovered last year. For comparison, the world consumed around 34 billion barrels of oil alone in 2016. The figures give ammunition to those predicting a new spike in oil prices three or four years down the road, as U.S. shale along will be unable to replace large-scale conventional fields as they deplete. FT, metered access
• Sears Becomes the Latest to Say “It’s Just Business”
Sears and Kmart became the latest big retail names to drop Trump-branded items from their catalogues, citing weak sales. The move appeared to corroborate suggestions from other retailers that if anyone is making political statements here, it’s the consumer, rather than the retailer. Eddie Lampert’s cash-strapped retailer is the last company on earth that can afford political grandstanding right now. Lampert had announced further radical measures to cut debt and operating expenses on Friday, driving the stock up 25%. With its debt cut to junk and many analysts predicting a default, Sears’ stock is now acutely volatile. Fortune
• China Plans New Crackdown on Heavy Industry
With 2016’s official growth targets safely ‘met’, the pendulum of China’s policy-making seems to be swinging back to choking pollution from choking its own citizens. Reuters cites a draft edict from the Ministry of Economic Protection that wants to force steel, aluminum, fertilizer and drug plants in 28 cities across five regions. The measures would cut capacity by at least 30% in the affected regions. On past experience, rival power centers in government will use any signs of a slowdown in growth to dilute the measures as much as public opinion will allow, but the news is a good reminder of the constant tension between the forces that are really driving Chinese economic policy. Reuters
• Revolt of the Ride-Hailing Drivers
The age of the driverless car can’t come quickly enough for the big ride-hailing companies. A strike by thousands of drivers for Uber and local champion Ola is causing chaos in the Indian capital of New Delhi and the surrounding region (pop. 25 million). Drivers are demanding an increase in the provision of adequate insurance policies and a cut in working hours. The dispute, which had echoes in cities and countries around the world, reflects how aggressively ride-sharing companies have pushed essential business costs onto their drivers in their efforts to keep fares low as they struggle for dominance.
Summaries by Geoffrey Smith Geoffrey.email@example.com;