Two things troubled President Barack Obama as he greeted Bloomberg BusinessWeek on Feb. 9 for a wide-ranging interview in the Oval Office.
First was the snowstorm that had crippled Washington. "I can't believe I have to shut down the federal government for a week for this," said the president, gazing outside in mock condescension before reminiscing about his years in Chicago, a city that takes heavy weather in stride.
Obama's second concern is more frustrating and far less likely to melt away: the impression that his administration — and he personally — is anti-business.
At least on this day, business and the economy topped Obama's agenda. Twenty steps from the Oval Office, GE's Jeff Immelt, Honeywell's David Cote and several other CEOs huddled with White House officials to provide industry input on climate change.
With his economic council waiting outside, Obama repeatedly expressed his disappointment that policies he believes are overwhelmingly pro-business have been misunderstood. Obama even had a staffer send a follow-up e-mail to a question about CEOs he admires with additional names, including Cote, Verizon's Ivan Seidenberg and John Doerr of Kleiner Perkins Caulfield & Byers.
What follows are excerpts of Obama's conversation with Bloomberg News White House Correspondent Julianna Goldman, Washington Bureau Chief Michael Tackett, Executive Editor Albert Hunt and Bloomberg BusinessWeek Editor Josh Tyrangiel.
Bloomberg BusinessWeek: There is a sense that the administration is perceived as anti-business. Why?
Obama: I think that is a good question, because if you actually look at our policies, everything that we have done over the last year, and everything we intend to do over the next several years, I think is going to put American business on a stronger footing.
Look, I came in with the worst economic crisis and financial crisis we have had since the 1930s, significantly worse than what we saw in the 1980s. And the steps that we took were designed to break the back of the recession, put a floor under the economy and reduce a sense of panic that had grown. And I think we have done that very successfully. We had an economy that was contracting by 6 percent. It is now growing by 6 percent. We had a market that people had no idea where it would bottom out, and that market has now stabilized. We had a banking system that was on the verge of meltdown that now is showing significant health, at least in terms of their bottom lines. And so the steps we have taken, I think, has created an environment in which businesses can be profitable.
BW: And yet, that perception seems to still be out there.
Obama: Yes. I think that part of what has happened is that during the course of the year, the frustrations expressed toward the behavior of some of the biggest banks on Wall Street — a frustration that was not unique to my administration but is widely shared across the country — in the minds of a lot of business leaders was viewed as anti-business rhetoric. And I think that part of what also happened was that there were some big issues like health reform, like energy, like financial regulatory reform, in which you have got some pretty significant, well-funded industry interest groups who are adamantly opposed. And they have got a lot of sway within the business community.
BW: Some of that anti-Wall Street rhetoric is heard by businesspeople outside of Wall Street. Do you think that they take that as a lack of confidence and, therefore, they are hesitant to invest?
Obama: I do think that the anger directed toward the big banks had a spillover effect. As much as we have actually been restrained this year, if you look at the statements coming out of this White House, the irony is, is that on the left we are perceived as being in the pockets of Big Business. And then on the business side, we are perceived as being anti-business.
We are pro-growth. We are fierce advocates for a thriving, dynamic free market. But we do think that there have to be some rules of the road in place in the financial sector that will create an even playing field and allow businesses to raise capital and consumers to buy products with confidence.
Coming out of this past decade, there has been a sense on the part of a lot of middle-class families that they have been left behind, even when we were expanding. And I talked during the campaign about the need for us to restore a sense of balance to the compact between business, government, and employees all across the country.
If businesses are making record profits but employees are seeing their wages flatline — and in fact, incomes decline over the course of the decade — that puts enormous strains on families. It puts, I think, a dampening effect on consumers who help drive this economy. We are going to be better off if everybody feels like they have got a stake in growth and innovation moving forward. And I think that balance got lost.
Now, making sure that we restore that balance without tipping too far in the other direction in ways that squelch innovation and investment is going to be an important challenge, and one that we take very seriously. But the important message I would have for the business community—and this is something that I emphasize every time I have lunch with CEOs, and we have had a lot of them in here—is we have every interest in you succeeding.
In the international marketplace, the more the American brand and American products and American services are thriving, the better off we are going to be and, by the way, the better off I will look as President of the United States.
BW: Every American president in the last 30 years has had a major CEO as a member of the Cabinet in the inner circle. You don't so far. Why is that?
Obama: It just has to do with who the particular individuals who were needed at a time of crisis. I thought it was very important to have Larry Summers and Tim Geithner as two of my key economic advisers early on because they had gone through significant global economic crises before.
But I think it is a legitimate point to say that we want and need more input from the corporate community, if nothing else, just so that we can communicate to the corporate community and to the business community the fact that, if you look at our actual policies, as opposed to the speculation around our policies, they have been fundamentally business-friendly.
BW: Do you want to weigh in on a specific CEO you admire?
Obama: There are a bunch of them. You know who I really enjoyed talking to at our last lunch was Fred Smith of FedEx. Very thoughtful. He's an example of somebody who is thinking long-term. His industry is deeply sensitive to energy prices, and he's the first one to say that if we don't start getting an energy policy that's smart, we're going to lose. He's also very thoughtful about trade and talks about the difficulties they've had in some cases with partners around the world. Obviously, along with UPS and some other U.S.-based companies, they're the best in the world at logistics and moving product. That's something that we should be able to export to other countries, and we're having a lot of problems with it. But that's just one example of somebody where sitting down and talking to him was incredibly productive and helps inform how we shape policy.
BW: If you had to distill your economic message into a single declarative sentence, what would it be?
Obama: That having broken the back of this recession, our goal now is to build a new foundation for long-term, sustainable economic growth, and that that requires innovation. It requires a smart energy policy. It requires a health-care system that is not a drag on business. And it requires an education system that is producing the most productive workers in the world.
BW: You proposed a payroll tax [credit] for small businesses that boost hiring. Would you consider expanding that to all hiring?
Obama: We think that small businesses are the area where a targeted jobs credit would make the most difference right now. We think bigger businesses that have healthier balance sheets, more money, are in a position right now to hire, and that their decisions are going to have more to do with, are they seeing enough customers out there to justify expanding payroll.
I am optimistic that in the months to come you are going to see more and more investment like that, people being willing to take additional workers on. But small businesses are still having problems, even where they are seeing more orders, they are still having problems just generating enough capital to be able to take on more workers.
And we think that a jobs credit might not have been appropriate in the depths of the recession, where just because of the lack of demand, people were not going to hire no matter what. They were just trying to hang on. Now, as the economy is recovering, a job credit can potentially accelerate people who may be planning to hire at some point, anyway, but right now are just dipping their toe in the water.
BW: If your deficit commission comes back and says we would recommend raising taxes on households earning less than $250,000 a year, would you accept that as part of a larger deal?
Obama: I don't want to prejudge the commission because the whole point of it is to make sure that all ideas are on the table, and let's see what folks can come up with.
What I want to do is to be completely agnostic in terms of solutions. I want everybody to sit down and work off of a common base of facts. And the fact of the matter is that we have a structural deficit that is in place that was there before the recession. The recession has compounded it.
But our real problem is not the spike in spending last year or even the lost revenues last year, as significant as those are. The real problem has to do with the fact that there is just a mismatch between the amount of money coming in and the amount of money going out. And that is going to require some big, tough choices that, so far, the political system has been unable to deal with.
BW: Let's talk bonuses for a minute. Lloyd Blankfein: $9 million. Jamie Dimon: $17 million. Now, those were in stock and less than what some had expected. But are those numbers O.K.?
Obama: First of all, I know both those guys. They are very savvy businessmen. And I, like most of the American people, don't begrudge people success or wealth. That is part of the free-market system.
I do think that the compensation packages that we have seen over the last decade, at least, have not matched up always to performance. I think that shareholders oftentimes have not had any significant say in the pay structures for CEOs.
BW: $17 million is a lot for Main Street to stomach.
Obama: Listen. $17 million is an extraordinary amount of money. Of course, there are some baseball players who are making more than that and don't get to the World Series either, so I am shocked by that as well.
I guess the main principle we want to promote is safe say on pay, that shareholders have a chance to actually scrutinize what CEOs are getting paid, and I think that serves as a restraint and helps align performance with pay.
The other thing we do think is the more that pay comes in the form of stock that requires proven performance over a certain period of time, as opposed to quarterly earnings, is a fairer way of measuring CEO success and, ultimately, will make the performance of American businesses better.
BW: The Volcker Rule got a bit of a frosty reception from the Senate Banking Committee. Has the bank lobby rolled you on this one already?
Obama: (Laughs) Let me broaden the question, and then I will get specifically to the Volcker Rule.
After what we have gone through, surely nobody in the business community thinks that the status quo, in terms of how we regulate the financial system, is adequate. I can't believe that there is anybody who is running a business out there who thinks that 60-to-1 leverage and folks making $100 million bonuses based on gambles on derivatives, takes comfort in that kind of system.
What we have said is that if you look at the holes in the system right now, we have got to have a way of monitoring the systemic risks. We have got to make sure that there is a way to wind down a firm that's in trouble that is quarantined from the rest of the system so that we don't have institutions that are too big to fail.
We think it is very important to have a consolidated and streamlined regulatory approach to things like derivatives and hedge funds, not just banks. We think it is important to have a consolidated and streamlined approach to consumer financial protection, because although it is true that the immediate cause of Lehman's [bankruptcy] may not have had to do with what was going on with credit cards, what is also true is that if you have consumers who are getting predatory loans that they don't understand, credit cards or debit-card rates that they don't understand, a lot of these financial instruments that drive huge profits, but leave consumers unprotected. That is not good for the system overall.
We think that increasing capital requirements for systemically significant firms is important. So all these things are of a piece — not designed to squelch innovation in the financial market, but designed to make sure that there is a level playing field, transparency, clarity in how this system operates.
Now, the Volcker Rule is part of this overall framework. And I think there has been some misunderstanding, at least in the popular press, about what we are proposing. What we are simply saying is that it makes sense if banks are getting cheap money through the discount window, if they've got assurances and guarantees from the government, that they don't simply take that cheap money, fully backed by the U.S. Treasury, and go out and just start rolling the dice in proprietary trading or other transactions that aren't designed to help raise money for their customers or designed to ensure investment and job growth, but basically, are just designed to boost their profits and their bonuses.
That is not something the government probably should be in the business of subsidizing. And that is the essence of the rule.
Whether we can get it through Congress is always a question because, as we have seen throughout this year, we have a political process in Washington right now that is a little dysfunctional.
BW: You want to double exports over the next five years. What about trade agreements with South Korea, Colombia, and Panama? Will you press Congress this year to sign any or all of those agreements?
Obama: I would like to get them done. And, now, whether I can get all three done or any one of them done this year, in part, is going to depend on the conversations between our U.S. Trade Representative and his counterpart in those three other countries.
In each of those countries there are different glitches in getting a deal completed. With respect to South Korea, there is some concern that, although the deal was good for our telecommunications and our finance system, that our auto exports to South Korea are still subjected to a lot of nontariff barriers.
BW: But this year, if you could, you would like to do that?
Obama: If we can work out those kinks in a way that is fair and reciprocal, then I would like to get them done because the vision I have for our economy in this century is that, after going through a binge where we are a consumer economy driven by home equity loans and debt, that we are making stuff and we are selling it to other countries. And we have the potential to do that, because we have still got the most innovative economy. We have still got the best universities in the world. We have still got, I think, a structure that is friendliest to entrepreneurs. But frankly, we have gotten our clock cleaned over the last several decades when it comes to world trade.
The interesting thing in conversations I'm having with CEOs now is that it is not just labor that has concerns with trade now. What you are seeing are a lot of corporate CEOs who are concerned about mercantilist practices by other countries and feel as if the U.S. is not being aggressive enough in terms of our export promotion and getting the best deal possible.
Part of what I think we need to do is to align the interests of business, and workers, and the U.S. government, recognizing that we have got to compete with these other countries. And so the old rhetoric of business is free trade no matter what—whatever the deal is—and labor is opposed no matter what the deal is, that is what I want to break.
BW: You said you would get much tougher with China on trade. Yet so far the administration has shied away from citing China for currency manipulation. Are you ready to do that now?
Obama: During the course of this crisis, we got the G-20 to adopt language that explicitly says for the global economy to continue to grow, there has to be a rebalancing. The U.S. can't be the consumer engine for the entire world while we are racking up more and more debt.
The relationship between China and the United States is obviously key to that. And I have said publicly, and I will repeat, that China and its currency policies are impeding the rebalancing that's necessary. My goal over the course of the next year is for China to recognize that it is also in their interest to allow their currency to appreciate because, frankly, they have got a potentially overheating economy.
There are a bunch of bubbles that are being created inside of China. What you are also seeing is when China maintains a currency peg to the dollar, it is forcing other countries, particularly in Asia, competitors, to do the same and artificially devaluating its currency.
So this is something that goes beyond China, but China is the biggest player in this. And we are going to have some very serious negotiations. And it's going to be bumpy, because China's entire growth model has been based on exports rather than internal consumer demand for a very long time.
But we think that if China adjusted that policy, what you would actually see is more consumer purchasing power inside of China, a growing domestic market. They would be less vulnerable to the vicissitudes of trade. And so, it is a potential win-win situation. But, look, negotiations with China, or any country, when it comes to trade and currency, is never easy.
BW: On jobs, obviously, the American automobile industry is so important to this economy. Now we have got a situation with Toyota. Do you think that the response to the safety concerns with those cars was delayed? And if so, do you think that responsibility lay with either the regulators, the company, or both?
Obama: We don't yet know all the facts. So I don't want to offer an opinion just off the top of my head. Obviously, Toyota has been an extraordinary automaker for a very long time, and I suspect that they will continue to be, despite this recent glitch.
I do think that every automaker has an obligation when public safety is a concern, to come forward quickly and decisively when problems are identified. We don't yet know whether that happened with Toyota. That's going to be investigated. And my hope is that, moving forward, all automakers recognize that their brands are at stake when it comes to safety issues.
I will point out, while we're on the topic of autos, that Ford is doing very well and GM posted a profit. And although there was a lot of second-guessing about our interventions in these auto companies, we feel that we made the right decision. GM and Chrysler aren't out of the woods yet, but there is an enormous opportunity for us to rebuild a U.S. auto industry that, absent our intervention, might not have been there, at least with those two companies.
So that is an example of a very hard decision and a very politically unpopular decision that from my vantage point is pro-business. And my expectation is that as the economy continues to grow, more and more businesses will recognize that.
The last point I want to make with respect to just our policies on business, generally, and this goes to your first question about the perception of us being anti-business: This year I will sign legislation that will cut corporate taxes by about $70 billion — their tax obligations will be reduced by about 10 percent because of bonus depreciation and some other steps that we intend to take. This notion, somehow, that we have been putting this enormous tax burden on business is just not true. It is not supported by the facts.
And even some of the more controversial proposals that we have put forward, like health care, if you actually analyzed what's on the table there, certainly small businesses are a net winner, one of the biggest winners. Because it would provide significant subsidies to them to provide insurance for their workers and allow them to pool with other small businesses and individuals to get a better rate. Large businesses who are already providing health insurance to their employees would end up benefiting from significant changes in delivery systems that would promise to lower costs over the long term.
You would be hard-pressed to identify a piece of legislation that we have proposed out there that, net, is not good for businesses. That doesn't mean that some people might not be happy with it, and this goes to the broader point that I was raising earlier.
I think that the two areas where we probably got the most [criticism] from the business community that are specific, as opposed to general and "we're worried about your rhetoric," one has to do with marginal rates. Now I was very clear during the campaign that for people making more than $250,000 a year, we were going to go back to the kind of rates structure that we had during Bill Clinton in the 1990s, when businesses were doing perfectly well.
I do that not for any punitive sense, but simply that I can't deal with debt and deficits in a realistic way and continue to sustain those particular tax cuts.
The second area had to do with issues of deferral and multinational practices in terms of how they deal with the tax code. We listened to some of those concerns, but the proposal that we put forward, I think, is one that the average business would say is eminently fair. If you are a business here, entirely located in the United States, and investing in the United States, and hiring workers in the United States, you are paying a 35 percent rate.
If you are a multinational and you are investing in India, and your workforce is in India, and your plants and equipment are in India, but your headquarters are here, you are taking deductions on all the expenses in India, but you are keeping your profits outside the United States, that just doesn't seem entirely fair. The same is true where you have companies that have 90 percent of their sales in the United States, but are posting 90 percent of their profits overseas. You get a sense there that the accountants have been busy.
Now, there are some legitimate concerns that were voiced from last year's proposal where people pointed out, well, we may be investing a lot in R&D here in the United States, but we have got to have factories or sales forces outside the United States, and you don't want to discourage [companies] from doing that. So we made modifications around some of these proposals.
But our goal here is simply to make sure that there is an even playing field between businesses who are investing in the United States, hiring U.S. workers, selling to a lot of customers here as well as overseas, and those who are operating across borders. And that is an area where there can be some legitimate debate, but certainly shouldn't be portrayed, somehow, as being anti-business.