By Greg Ip
For the past generation, Democratic presidential candidates have
mostly talked of redistributing the rewards of American capitalism
while leaving its basic structure intact.
Elizabeth Warren promises to break that mold. The Massachusetts
senator, who has moved to the front ranks of the field, talks of
remaking capitalism from the ground up. As president, she would
drastically cut back the size and influence of big business, push
private companies from parts of the economy altogether, and shift
power to government and to labor.
Businesses are meeting the rising prospect of a Warren
presidency with a combination of concern, skepticism and, for a
few, a sense of opportunity.
Companies are used to Democrats criticizing business, whether
John Kerry, the 2004 nominee, for outsourcing jobs or President
Obama, for causing the financial crisis. But no front-runner has
issued so comprehensive an indictment as Ms. Warren, who has blamed
business for, among other things stagnant wages, high student debt,
global warming, gun violence, the prison population, high medical
bills, and the shortage of affordable housing and child care.
And no front-runner has proposed such sweeping changes to how
businesses operate. A President Warren would seek to regulate big
tech companies as utilities, break up big banks and split them from
securities dealers, ban fracking of oil and gas, phase out carbon
emission from buildings, cars and power plants in eight to 15
years, require big companies to appoint worker representatives to
at least 40% of board seats, ban private health insurance and,
effectively, for-profit college, and negotiate down drug
prices.
Her policies would directly affect companies with sales of
nearly $5 trillion and stock-market value of more than $8 trillion,
a third of the S&P 500 stock index. Taxes on the wealthy and
corporations would rise sharply.
That, in turn, has led to nervousness among some executives.
"She could create an environment where it is next to impossible to
function" for health insurers, said Vicky Gregg, a former chief
executive of BlueCross BlueShield of Tennessee and now partner in a
private-equity firm. "There's no question that keeps you up at
night if you're a health-plan executive."
Others, particularly in Silicon Valley, are enthusiastic
supporters of Ms. Warren despite, or for some because of, her plans
to break up big tech companies. Some economists predict her plans
could boost growth and that business warnings about the harm of her
policies should be taken with a grain of salt.
"Businesses have cried wolf far too many times for that to be
taken at face value during a presidential campaign," said Austan
Goolsbee, a University of Chicago economist who served under Mr.
Obama. When Ms. Warren first proposed companies should be
responsible to all stakeholders, not just shareholders, some called
it socialism, he noted. A year later, "the Business Roundtable
announced something very much in the spirit of what Elizabeth
Warren said."
Some executives express the hope that her plans are so
disruptive she would need to water them down significantly. A
fracking ban "would decimate our industry," said Scott Sheffield,
CEO of Pioneer Natural Resources Co., one of the largest U.S. shale
companies. "We understand candidates for the presidential
nomination often run to the extremes during the campaign and
moderate their positions once they are responsible for
governing."
Still, there is no sign of such moderation from Ms. Warren, and
political analysts warn not to expect any: Presidential candidates
of late, including Donald Trump, have governed much as they
campaigned.
By arguing that the growth of corporate power over the last 35
years is at the root of many problems in the U.S., she would make
the place of business in society a central theme of the
election.
Ms. Warren, in laying out her case, has said she is "a
capitalist to my bones," whereas fellow candidate Sen. Bernie
Sanders calls himself a "democratic socialist."
"I love what markets can do, I love what functioning economies
can do. They are what make us rich, they are what create
opportunity," Ms. Warren said on CNBC last year. "But only fair
markets, markets with rules. Markets without rules is about the
rich take it all, it's about the powerful get all of it. And that's
what's gone wrong in America."
Supporters say her proposals wouldn't displace capitalism but
align it with the what prevailed in the 1950s and 1960s and still
does in many other Western countries.
Ms. Warren would impose a 2% to 3% tax on wealth above $50
million, repeal President Trump's tax cuts for corporations and the
wealthy, impose a new 7% tax on big company profits and a 14.8% tax
on incomes above $250,000 to finance expanded Social Security
benefits.
Many economists say high tax rates discourage investment and
work, and thus slow economic growth. Gabriel Zucman, a professor of
economics at the University of California, Berkeley who advised Ms.
Warren on the wealth tax, said it depends on how the money is
spent. "If it's spent on child care, and that increases women's
labor force participation, then you get an increase in income for
part of the population." He noted the wealthy paid 91% rates on
incomes and 77% on estates in the 1950s and 1960s and "there's no
evidence it killed innovation or growth."
Mark Zandi, economist at Moody's Analytics, wrote in a series of
reports that the taxes required to pay for Ms. Warren's proposals
would damp investment and work by the wealthy, but that effect
would also be more than offset by increased spending by
lower-income people, such as child-care workers.
Supporters note almost every advanced capitalist economy has
single-payer health care, and in Germany, big companies have worker
representatives on their boards. "It has not killed German
capitalism," said Mr. Zucman. "They have some pretty strong
corporations."
A sharp break
If each Warren proposal has some precedent in U.S. or foreign
experience, in its totality her program would be a sharp break with
capitalism as American companies know it.
A senior executive at a Washington-based trade group who works
closely with top CEOs said of the distinction often drawn between
Ms. Warren's capitalism and Mr. Sanders' socialism: "I don't know
if business is buying that distinction. From a policy standpoint
there doesn't seem to be a great deal of difference." (Mr. Sanders
sought the nomination in 2016 but unlike Ms. Warren now, never led
the Real Clear Politics polling average or online prediction
markets.)
A common refrain among business is that Ms. Warren seems to
thrive on attacking them, indeed considers it part of her brand.
She retweets articles about their criticism with: "I approve this
message."
The rancor is most acute among financiers Ms. Warren regularly
casts as villains, even after a decade of postcrisis reforms that
have made banks safer, less profitable and their treatment of
consumers more tightly regulated. She called her capital-gains-tax
proposal, introduced this summer, the Stop Wall Street Looting Act.
Some still stew over her blocking investment banker Antonio Weiss
from a Treasury job under Mr. Obama in 2015, despite his Democratic
credentials, because he worked on deals that moved some companies'
domiciles abroad.
Few, however, will say so publicly, fearful of the damage she
can do to their companies and share prices. Two weeks ago, she
knocked 3% off the shares of the two big bond-rating agencies by
challenging the impartiality of their ratings in a letter to
regulators. When the chief executive of UnitedHealth Group Inc.,
parent of the country's largest health insurer, briefly addressed
the impact of Medicare for All in an earnings call, it was blamed
for driving down the entire sector's share prices.
UnitedHealth says it "welcomes the renewed national discussion
on how to achieve universal coverage."
In July, Facebook Inc. CEO Mark Zuckerberg, referring to Ms.
Warren's plan to break up Facebook, said in remarks to employees
reported by The Verge, a technology-news site: "If she gets elected
president, then I would bet that we will have a legal challenge,
and I would bet that we will win the legal challenge," adding that
"at the end of the day, if someone's going to try to threaten
something that existential, you go to the mat and you fight."
Ms. Warren shot back on Twitter that Facebook has "a lot of
power -- and [faces] little competition or accountability."
Last week, Mr. Zuckerberg held another employee Q&A, which
was publicly livestreamed. Asked about Ms. Warren's plans and how
Facebook's platform would remain unbiased toward her, he joked he
would "try not to antagonize her further," then added employees
needed to be neutral and empathetic to a wide range of opinions.
"The value that we care about is giving people a voice and allowing
people to express themselves," he said. "We obviously try not to be
biased."
The consensus among business leaders is that few of Ms. Warren's
big initiatives will be enacted, because she will tack toward the
center if she secures the nomination or the White House, or because
Congress and the courts won't let her. An antitrust lawsuit against
a big tech company would take a decade or longer and probably fail,
Barclays analysts said in a July note.
Medicare for All "would destroy" private insurers, said Matthew
Borsch, an analyst with BMO Capital Markets. But, he said, an
executive of a major health insurer, in a recent private meeting,
put the odds of such a plan passing at "10,000 to one."
Many business leaders have no problem with Ms. Warren's goals,
but do with the speed and means by which she means to reach them.
Minneapolis-based electric utility Xcel Energy, which serves eight
states, in December pledged to slash its carbon emissions 80% by
2030 and 100% 2050. That's not good enough for Ms. Warren, who has
targeted 100% by 2035.
The problem, said CEO Ben Fowke, is that getting from 80% to
100% depends on as-yet-unproven advances in storage, carbon
capture, and nuclear and hydrogen generation. Ms. Warren "would set
up some unrealistic expectations."
Automobile manufacturers are rolling out electric models, but
none has yet found a way to make such a car affordable to
mainstream consumers and profitable. "The current market is 1%
electric vehicles. All of those, 100%, are sold at a loss. The
industry isn't here as a non-profit, " said one auto executive. The
economics will improve, yet Ms. Warren's plan to make all new cars
emissions-free by 2030 "is, simply put, preposterous."
The Trump administration is already mulling action on drug
prices. Ms. Warren would go much further, letting Medicare
negotiate prices with suppliers, permitting imports of cheaper
foreign medicines and having the federal government manufacture
scarce generics.
Ron Cohen, CEO of biotech drugmaker Acorda Therapeutics said
there are legitimate concerns about drug costs and some price
increases have been excessive. But her proposals won't work, he
said: Patients could lose access to vital drugs if Medicare and
manufacturers can't agree on a price, and it would be more
efficient for the federal government to offer existing
manufacturers incentives such as tax breaks to make scarce
generics.
Ms. Warren's sympathizers aren't surprised by the blowback. They
see big-company CEOs as preoccupied with their own welfare rather
than that of the economy as a whole. Small banks, they argue, would
benefit from breaking up big banks, and startup technology
companies would benefit from breaking the grip of big tech
companies on internet search, social media and e-commerce.
"Breaking up big tech is pro-growth and pro-innovation," said
Bharat Ramamurti, who heads Ms. Warren's economic policy team. "In
the 90s, Microsoft was threatening to corner the internet via
Internet Explorer and Windows, and federal government antitrust
action helped pave the way for companies like Google and Facebook
to emerge in the first place. And now Google and Facebook dominate
that space, and smaller tech companies are run out of business or
snapped up -- undermining innovation and dynamism."
Some private analysts agree: "If Warren does break up the big
tech giants, we will see more competitors and innovation," said
Jonathan Tepper, head of a financial markets advisory firm Variant
Perception, who has been critical of the companies. "The telecoms
and tech boom happened after AT&T no longer had a stranglehold
on U.S. telecoms. Likewise, breaking IBM's hold of hardware and
software led to the software boom of the 1980s and 1990s."
Business supporters
Ms. Warren does draw business support, in particular in Silicon
Valley, because some agree with her plans for business, don't think
they'll happen or simply consider the rest of her agenda more
important. Venture capitalist and liberal donor Chris Sacca called
her wealth tax "*extremely* and *radically*... reasonable" on
Twitter.
In June, venture capitalist and former Facebook executive
Chamath Palihapitiya tweeted: "I don't agree with many of her
proposals but I donated to Elizabeth Warren because SHE IS THE ONLY
MAJOR CANDIDATE WITH STUFF WRITTEN DOWN." In an email, Mr.
Palihapitiya predicted big tech wouldn't ultimately be one of the
issues Ms. Warren prioritizes.
In response to concerns that phasing out fossil fuels would kill
jobs, Ms. Warren has said her green energy and climate adaptation
plans will create millions of even better paying jobs.
Businesses have a history of adapting to, and ultimately
profiting from, expanded government. Accountants vehemently opposed
being regulated under the 2002 Sarbanes-Oxley Act, then made a
fortune advising companies on the law's provisions, notes one
former Democratic staffer who worked on the law.
Some health-insurance executives hope Ms. Warren's push for
Medicare for All will fall short and, to win over moderate
legislators, she will instead expand coverage in a way that would
bring them more customers -- as Mr. Obama's Affordable Care Act
did.
And for many business leaders, Mr. Trump, given his attacks on
free trade, immigration and companies that cross him, isn't an
overly appetizing alternative. Thus, uneasy as they at the prospect
of a Warren presidency, few would act actively work to re-elect Mr.
Trump, the Washington trade executive speculated.
--Deepa Seetharaman, Anna Wilde Mathews, Christopher M.
Matthews, Peter Loftus, Ben Foldy, Liz Hoffman, Katherine Blunt and
Rebecca Elliott contributed to this article.
Write to Greg Ip at greg.ip@wsj.com
(END) Dow Jones Newswires
October 09, 2019 14:13 ET (18:13 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.