This month Erskine Bowles – the American political figure who co-headed a bipartisan fiscal panel last year – is launching a desperate new crusade. As Europe writhes in fiscal meltdown, Bowles is quietly appealing to American chief executive officers to join a new “CEO fiscal reform council” on how to tackle America’s debt headache – and prevent the nation from following Europe’s fate.
His idea is that by bringing business leaders into the debate, this could break Washington’s fiscal gridlock, and reduce the risk of America heading into “the most predictable financial crisis in history”, as he says; where the “supercommittee” of politicians failed, in other words, CEOs might (possibly) succeed in forcing action. Or so the hope goes.
Personally, I do not expect that any “CEO council” will actually cut America’s $14.3 trillion debt pile soon; nor, for that matter, affect Treasury yields (which are anyway ultra low now, as investors flee the euro zone).
But the move is a fascinating straw in the wind. For essentially, this plan marks a howl of frustration against traditional politics; it is born from the same cultural imperative – albeit a different tone – as the Occupy Wall Street movement, or the eurozone upheavals that are propelling technocrats such as Mario Monti to power. Everywhere from the streets to CEO suites there is a sense that the normal democratic processes are falling short and a hunt for something – anything – else. That impetus is likely to intensify, as debt headaches mount.
The saga of Bowles, for example, is a study in such frustration. Last year the White House asked Bowles (a former Clinton aide) and Alan Simpson (a Republican) to co-lead a bipartisan panel on fiscal reform. So, exactly 12 months ago, they duly produced a sensible plan, which envisaged that 75 percent of fiscal adjustment should be achieved with spending cuts, and the rest from revenue increases. (A ratio that is roughly in line with the current UK fiscal reform package, and most adjustment packages used in the west in recent decades.) The panel also warned that $ 4 trillion of adjustment would be needed over the next decade to merely stabilise the debt trajectory; without that, the problem gets dangerously worse.
But the White House never backed the plan, and subsequent efforts by the so-called “Gang of Six” senators were never sufficiently embraced by their colleagues to force action either. Another initiative was launched this autumn after the summer’s debt ceiling debacle, namely a bipartisan supercommittee. But this month it also gave up, failing to agree even its minimum target of $1.2 trillion in cuts amid deepening polarisation between Republicans and Democrats. Thus, while some pre-agreed tightening is slated to occur in early 2013, there is still no proactive, sensible long-term strategy.
So could business leaders now do any better? It is a tantalising question. This week Harvard Business School organised a high-level meeting of business leaders, trade union officials and academics to debate these challenges. These private discussions indicated that many CEOs strongly support Bowles’ ideas, not least because the meltdown in the euro zone has left them scarred – and scared that the current peace in the Treasuries market will not last.
But the debates also revealed a fascinating, equally important cultural twist. Three decades ago, the heads of American companies generally felt “American”, and thus had “skin in the game” of national policy debates. Thus, when men such as Felix Rohatyn were organising a solution to the New York debt crisis in the 1970s, he garnered company support. But these days, “American” companies are global and have many senior non-American staff. Or as one CEO of a global group says: “I am an American – I personally root for the US. But a majority of my [senior staff] are not. So am I supposed to serve the US?” American companies might spend heavily to lobby special interests; but it is unclear whether they have similar incentive to change wider American policies. Faced with an economic mess, it might be easier for CEOs to shift operations out of the US instead.
Of course, that logic does not apply to all CEOs; at this week’s Harvard meeting, an array of business leaders produced policy ideas, on issues such as jobs. There was also strong support for Bowles’ “CEO fiscal commission”, with groups such as Aetna, Humana and Honeywell already on board, and other Wall Street figures likely to follow suit.
But amid this rhetoric, the key issue that investors should ask is where this frustration with politicians – or loss of faith in democracy – will eventually lead. Is it just a cyclical phenomena, of the sort seen before in American history? Could it fuel political populism, and a backlash against the rich? Or might we be seeing a swing towards technocratic leadership? (Step forward, perhaps, Michael Bloomberg.) The trajectory of government bonds markets is becoming evermore fascinating; and unnervingly unpredictable.