This blog is written weekly by Dock David Treece, a registered investment advisor with Treece Investment Advisory Corp. It is meant to share insight of investment professionals, including Dock David and his father, Dock, and brother, Ben, with the public at large. The hope is that the knowledge shared will help individuals to better navigate the investment world.

Tuesday, October 19, 2010

When Business Talks Politics

Oh, how we long for the old days, when business and politics were two totally separate spheres of American society, never mixed even around the water-cooler. For the longest time, it was simply considered inappropriate for corporations to exert any influence in the political realms.

Those who did, including many of the industrial titans who built this country and prospered after the Industrial Revolution, received staunch criticism. Significant legislation aimed at RE-leveling the playing field, such as the Sherman Anti-trust Act, resulted.

And yet, lately the distinction between politics and business is again becoming blurred as businesses feel an increasing need to defend their own interests, a trend that will likely continue.

In modern history the line between business and politics was first crossed by mostly left-wingers, particularly environmentalists hoping to reshape American policy. More conservative businesses, however, remained mostly detached from the happenings of government. Meanwhile, men like George Soros and Warren Buffett began crossing the proverbial line in the sand in highly publicized ways.

Warren Buffett has been particularly vocal about his political views. The Berkshire Hathaway Chairman frequently attacks large companies and investors for aggressive structuring designed to diminish tax bills, but he also readily admits that he pays less in taxes than anyone in his office, despite his billionaire status.

Buffett is at least partially motivated in this new venture due to his previously-stated stance against inherited wealth. This sounds an awful lot like redistribution of wealth so highly held by communism as an ideal.

Unfortunately, the majority of more conservative businesses simply refused to enter the ring, or at least to take sides. And as history will show, when a pacifist meets a warrior on the battlefield, the pacifist tends to lose.

If there is any lesson to be learned from history, it’s that there must be a balance between the private and public sectors. Business simply can’t submit to government; the long-term results can be disastrous. Consider, as examples, Argentina, Venezuela, recent headlines regarding BYD in China, or the Mexican oil industry for a more historically perspective.

BYD, for example, is a Chinese auto manufacturer, in which Warren Buffett’s company Berkshire Hathaway is a major investor. BYD was recently fined by the Chinese government after apparently building several factories on land that was reserved for farmland. The factories were subsequently confiscated by the government, providing BYD little recourse for recouping their investment in building these facilities.

Conversely, business also can’t be permitted to exert excess influence on government. America’s robber-barons of the 1800s, largely resulting from the Industrial Revolution, showed just what can happen when industrialists are permitted to build vast business empires and accumulate the resources to defend their monopolies politically.

Over the past several decades, many businesses have been finding that they can no longer afford to remain on the sidelines. Originally they began to venture into the world of policymaking through the practice of lobbying.

However, thanks to the cloak-and-dagger practices associated with this dirty business, lobbying has become stigmatized, both for businesses and politicians, to such a degree that corporations today are much better off (from a PR standpoint) being involved directly rather than secretively.

Now, thanks to the recent US Supreme Court Decision of Citizens United versus Federal Election Commission (2010). Corporations no longer have to take a clandestine approach to political involvement.

As a result of the increased involvement from organizations like the Chamber of Commerce, the pendulum is swinging back to the right, further than many could have imagined. This has obviously led to substantial resistance from several more liberal sources, including David Axelrod’s recent challenge that the Chamber proves its innocence of funneling money to campaigns, as recently alleged.

Meanwhile, many Democrats have received campaign contributions just as dirty as those alleged by Axelrod.

After all, with the government now having involved itself in America’s private sector through bailouts, the expropriation of automakers, and financial reform bills government the operations and compensation of financial institutions, businesses are being forced to get aggressive and fight back.

As has been demonstrated repeatedly, especially in this election cycle, Congressman Tip O’Neill’s famous phrase that “all politics is local” is being proven increasingly false. The new phrase may very well be that “no politics is local.”

Thanks largely to the internet and e-commerce Americans have access to a greater amount of information – and the power to exert greater influence – than ever before. Look no further than Christine O’Donnell, whose campaign coffers exploded after she was praised on Rush Limbaugh’s show. Or consider the fundraising boost provided to American Crossroads, a Republican group backed by Karl Rove, after recently being slammed by Obama.

This growing trend among businesses to enter the political arena in a more visible and partisan way is one not likely to end anytime soon. Now more than ever companies have a responsibility to their employees and shareholders to defend their best interests by any morally defensible means necessary. Big business has been backed into a corner, and it isn’t likely to go down without a fight.

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