Where The Power Lies

In the era before Sept. 11, people could say with a straight face that businessmen like Bill Gates were more important than presidents. Not now. George W. Bush is the man. He leads an international war on terror, the reconstruction of New York City, the bailout of crippled U.S. industries, the revival of American defense spending and government efforts to stave off global recession. In a world turned on its head by the suicide hijackings, it's worth recalling that it was a Democrat, Bill Clinton, who declared, "the era of big government is over," only five years ago. Now a Republican president, of the party formerly against big government, is bringing it back.

Or so it would seem. It's tempting to forecast a global retreat by free marketers in this time of war, when governments traditionally muscle to the fore, and many pundits have. Not only the United States, but also Germany, France, Britain and Japan are considering new government interventions to avoid recession. The Swiss just bailed out Swissair, their beloved national airline. The United States and Canada last week forced Bayer of Germany to join the fight against anthrax by cutting the price of its antidote, Cipro. Wall Street is newly enamored of companies with ties to government, particularly defense contractors. Even corporate titans admit that they have fallen a peg. "In the 1990s, there was a common belief that corporations ruled the world," says Lord John Browne, CEO of British energy giant BP. "Without security, it's not possible to do business. Government has to set that framework."

Remember the chutzpah of the New Economy? The bottomless ambition of high-tech entrepreneurs had been plugged even before Sept. 11 by the fall of tech stocks. Now the whole idea of "Silicon Valley," a celebration of individualism and deep hostility to government meddling, has all but vanished from the American scene. In its stead comes a long line of auto-rental companies, insurers, theme-park operators and Hollywood producers waiting outside the White House for a bailout. Their logic: the airlines got $15 billion, we should get some, too. No wonder the land of the free market looks to some like the land of the free lunch.

But look behind the surface. What's really remarkable about Bush before and after Sept. 11 is how little his agenda has changed. The day after the attack, pundits were predicting that Bush would put the federal government in charge of airport security, the way most countries do. Wrong. Bush has held fast to the old Republican hostility to nationalizing anything. The Bush stimulus plan is top heavy with traditional Republican tax breaks, by definition the opposite of big government. After bailing out the battered airlines, the White House commissioned Budget Director Mitchell Daniels Jr. to warn other industries against targeting Washington with "opportunistic spending sorties masquerading as emergency needs." The message quickly sank home. "You could say that the Bush administration had two main objectives, to decrease the tax burden and step up military spending," notes Thomas Meyer, chief economist for Goldman Sachs in Frankfurt. Only one thing has changed since Sept. 11, Meyer says: "They are doing both faster than otherwise."

This familiar agenda has prompted a familiar debate with Democrats in Washington, who are also reverting to form. They want to stimulate the economy by raising the minimum wage, extending welfare payments and taking other measures that really do represent a return to big government. That's encouraging in at least one respect: politicians are not sacrificing ideals to the antiterror cause. They can still make reasonable distinctions in crazy times. After the administration proposed virtually unlimited federal powers for wiretapping and detaining immigrants suspected of terrorism, Congress last week granted the powers, but with clear time and procedural limits, on the ground that even wartime does not justify government by Big Brother.

Less encouraging is the rampant opportunism in Washington, where the meaning of Sept. 11 depends on what you wanted before the attack. The National Restaurant Association has spent six years trying to increase the tax deduction on business lunches from 50 to 80 percent, but is now asking for 100 percent. The computer industry is escalating its call for faster depreciation of equipment and software. Fred Lounsberry, incoming chairman of the Travel Industry Association of America, says, "The immediate opportunity really should build into a long-term role for a federal effort" to promote travel to the United States.

Not likely. Bush is not about to reverse the drive to privatize and deregulate that the Reagan revolution launched two decades ago. The Democrats continued on this road under Clinton, who slashed some 270 government programs, dispatched welfare recipients back to work and shoved more responsibility for pensions onto the private sector. All this has brought U.S. government spending down from a peak of 23.5 percent of GDP in 1983 to 18 percent, its lowest level since 1966. Defense outlays for the war on terror may halt the decline in public spending, but aren't likely to be large enough to reshape the $10 trillion U.S. economy. With all the tax cuts coming onstream, says Bob McIntyre, director of Citizens for Tax Justice, a nonpartisan tax-policy research group in Washington, D.C., "this is no prelude to [major] government spending."

This hardly foretells a radical shift in the balance of private and public power in the United States, or anywhere else. There's no prospect of a swing back to the 1970s, when economists and bureaucrats had great faith in their own ability to "fine-tune" the economy. That's also true in Europe, where a rush to pursue American-style reform of fat tax and welfare regimes hasn't really changed the landscape. "The state never left, we just forgot about it," says Dominique Moisi, deputy director of the French Institute for International Relations.

In Europe, the real struggle is between two governments--the national and the continental, as represented by the European Commission. Business is a relatively weak player. In Germany, where government spending still accounts for 45 percent of the economy, business leaders fret about the trends in America. Former Federation of German Industry chief Hans-Olaf Henkel worries that European governments will rediscover a taste for rules and regulations if the Bush administration does. Since Sept. 11, national capitals have made it clear that they and not the EC in Brussels are in charge of fighting terror and recession. Meanwhile, the EC has asserted its claim to govern by picking up the pace of work on new security measures, including a European arrest warrant, and by limiting national plans to bail out ailing industries like the airlines. "The government debate in Europe has nothing to do with big business," says Daniel Gros, director of the Center for European Policy Studies in Brussels.

If big government is not exactly back, at least the role of government has earned a new respect. That will temper the free-market worship of the 1990s, when it became fashionable to predict that government would become increasingly irrelevant as people learned how to contract services over the Internet. "That was always a little bit silly," says Joseph Nye, dean of the Kennedy School of Government at Harvard University. "People are realizing there are certain things you need government for, particularly in the security area." Now that patriotism isn't corny, and firefighters have replaced dot-com entrepreneurs as America's new heroes, public service might be cool again. Moisi recalls the recent scenes at the annual gathering of world leaders in Davos, Switzerland, where cocky Internet CEOs brazenly lectured politicians on their laziness and inefficiency. "That cannot occur today," he says. Yes, the relationship between politicians and businessmen has changed, but the change may be measured less in power than in celebrity.

Where The Power Lies | News