Why Corporate America Should Quit Carping

Nobody has benefited more from government stimulus than big business.

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The public doesn't respect them. Regulators are hounding them. And Congress wants to tax all their profits away.

The bellyaching out of corporate America could leave you thinking that the typical conglomerate has become a powerless shell, tormented by vicious bands of policymaker-vigilantes. Wall Street executives, miffed by the treatment they've gotten from the White House and Congress, have shifted the majority of their political donations from Democrats to Republicans. Verizon CEO Ivan Seidenberg, chairman of the Business Roundtable, complained in a recent speech about "the growing disconnect between Washington and the business community"—while pleading for more subsidies for business. The U.S. Chamber of Commerce, corporate America's biggest lobbying group, frets that government policies "are needlessly prolonging the economic agony ... for millions of Americans and their families." The solution? Lower corporate taxes and easier regulations.

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There are legitimate concerns about a dysfunctional political establishment that seems unable to form a coherent plan for fixing America's economic and fiscal problems. Yo-yo taxes and unpredictable policy changes are a bona fide business challenge. But corporate complainers are pushing it: If any group has been an unambiguous beneficiary of bailouts, stimulus spending and other government action over the last two years, it's big business.

Let's revisit September 2008, when Lehman Brothers failed, AIG imploded, and most of Wall Street nearly foundered. During that fateful time, big companies faced a terrifying spectacle that most CEOs had never seriously contemplated. The market for commercial paper and other short-term lending that corporations rely on to fund everyday operations had nearly frozen up. Without access to quick capital, hundreds of big companies would have had trouble meeting payroll, paying the bills, and staying solvent. On the day Lehman failed, General Electric CEO Jeff Immelt told Treasury Secretary Henry Paulson that GE was struggling to raise everyday funding. "His report alarmed me," Paulson wrote in his memoir, On the Brink. "I'd never expected to hear [financial] trouble spreading like this to the corporate world, and certainly not to GE."

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The TARP bailouts, along with a variety of maneuvers by the Federal Reserve, were meant to stabilize the financial system so that GE and hundreds of other corporations could return to normal functioning and avoid catastrophic layoffs. The big $862 billion stimulus package came after that, replacing lost private-sector spending with government funds. Since then, Washington has passed several extensions of unemployment benefits and other measures that have kept weak demand for goods and services from falling even further.

Two years after the roof nearly fell in, corporate America is thriving. All that federal aid included some botched bailouts, like the AIG fiasco, plus overzealous grandstanding about corporate bonuses and other matters that politicians should stay out of. But it also put big business first, on the theory that aiding the largest employers is the most effective way to help the biggest number of people.

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Stabilizing the financial system has largely restored routine funding for big companies, even as credit remains scarce for consumers and small businesses; in fact, record-low interest rates make it a boom time for big firms to raise capital. Labor laws that are much more permissive than those in Europe have allowed U.S. companies to slash their payrolls and cut costs rapidly and deeply. Profits have surged as a result, even though overall sales remain depressed at many companies. All told, says analyst Brian Belski of investing firm Oppenheimer, "corporate America is in its best fundamental condition in decades."

For six straight quarters, corporate profits have been on a tear. At IBM, profits are up 11 percent so far this year, even though sales are up less than 4 percent. Ford Motor Co. has executed a turnaround and become profitable ahead of its own predictions, despite a dismal year for car sales. Bank of America, a big TARP recipient, has posted higher profits in the first half of 2010 than it earned in all of 2009. Even Wall Street analysts are surprised at corporate America's virtuoso performance: Nearly 75 percent of the firms in the S&P 500 have beat earnings estimates in the latest quarter.

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Stocks have benefited too. They're still about 30 percent below the all-time peak from October 2007, but they're about 37 percent higher than they were on the day President Obama took office. Some analysts think the huge rally that ran from March 2009 through April 2010—producing an 83 percent surge in the S&P 500 index—was a direct result of the Fed's bank stress tests and a separate scheme that pumped nearly $1.5 trillion into the money supply. If priming stock prices isn't a huge assist to big business, it's hard to imagine what is.

Big companies are now sitting on more than $1 trillion in cash that they're reluctant to spend, for good reason. The economy is slowing when it ought to be strengthening, highlighting how deep our economic problems really are. Demand for goods and services is barely growing, and without stronger demand, companies can't grow or hire more workers. Everybody would like to see big companies start hiring again, but it would be somewhat pointless if the economy sank further and companies had to go through painful layoffs all over again.

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It's also true that there's a lot of uncertainty about what Washington will do in coming years to raise new revenue, slash government spending, and start reducing the huge national debt. Companies will no doubt bear some of the burden, through higher taxes, closed loopholes, and tighter regulation. But we're all going to share the burden. The retirement age will go up, Medicare will become less generous, middle-class taxes will rise, and government services will decline. With its lobbyists, deep pockets, and privileged position at the top of the economic food chain, big business will survive just fine. Corporate chiefs would be wise to keep their mouths shut and enjoy their privileges gracefully.