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Obama's BP arm-twisting stirs debate on tactic

President Obama's successful move to force BP to establish a $20 billion compensation fund reinvigorates debate about the reach of government power.
Image: Obama Meets With BP Chairman Carl-Henric Svanberg At White House
President Barack Obama meets with BP CEO Tony Hayward, BP Chairman Carl-Henric Svanberg and others Wednesday at the White House before BP announced it agreed to put $20 billion into an escrow account to pay for Gulf oil spill losses.Getty Images
/ Source: The New York Times

First there was General Motors, whose chief executive was summarily dismissed by the White House shortly before the government became the company’s majority shareholder. Chrysler was forced into a merger. At the banks that received government bailouts, executive pay was curbed; at insurance companies seeking to jack up premiums, scathing criticism led to rollbacks.

But President Obama’s successful move to force BP to establish a $20 billion compensation fund that the company will have no voice in allocating — just a down payment, the president insisted — may have been the most vivid example of what he recently called his determination to step in and do “what individuals couldn’t do and corporations wouldn’t do.”

With that display of raw arm-twisting, Mr. Obama reinvigorated a debate about the renewed reach of government power, or, alternatively, the power of government overreach. It is an argument that has come to define Mr. Obama’s first 18 months in office, and one that Mr. Obama clearly hopes to make a central issue in November’s midterm elections.

To Mr. Obama, this is all about rebalancing the books after two decades in which multinationals sometimes acted like mini-states beyond government reach, abetted by a faith in markets that, as Mr. Obama put it at Carnegie Mellon University a few weeks ago, “gutted regulations and put industry insiders in charge of industry oversight.”

'Shakedown' response telling
When Representative Joe L. Barton, the Texas Republican, opened hearings Thursday about the gulf oil gusher by accusing Mr. Obama of an unconstitutional “shakedown” of BP to create a “slush fund,” he was giving voice to an alternative narrative, a bubbling certainty in corporate suites that Mr. Obama, whenever faced with crisis that involves private-sector players, reveals himself to be viscerally antibusiness.

The reality, not surprisingly, is more complex.

Mr. Obama clearly sees his presidency as far more than a bully pulpit — he has cast himself as a last line of defense against market excesses that take many different forms. “In the past, corporate America was not only at the table, they owned the table and the chairs around it,” Mr. Obama’s combative chief of staff, Rahm Emanuel, said in an interview Thursday. “Obama doesn’t start off confrontational, but he will be confrontational if there is resistance to the notion that there are other equities.”

But at the same moment, as his critics on the left have pointed out, Mr. Obama has been warding off calls for far more stringent regulations of the banks, hoping to win at least a modicum of business support — and to defuse the notion that he is at war with American-style capitalism.

Jawboning rationales vary
Each of his confrontations with corporate executives had its own rationale. G.M. had become so uncompetitive, Mr. Obama argued, that its imminent collapse was threatening the jobs of millions of workers; the only way to save the company from its own worst instincts was to become its temporary owner and bring new blood into the boardroom. (It will take years to determine if that worked, but on Thursday, though it was overshadowed by the grilling of BP’s chief executive on Capitol Hill, G.M. announced it was forgoing its usual summer shutdown of most of its plants so it could meet renewed demand.)

The Wall Street executives who needed the government to prop them up, but still thought their services were worth millions a year, were cast by Mr. Obama as a shameless privileged class. Toyota was described as seeking profits over safety; Wellpoint, the insurance giant, was castigated for seeking to insulate itself from the new health care legislation by taking actions that the law will soon prohibit.

Against that backdrop, forcing BP to take a $20 billion bath — even before the inevitable lawsuits are filed — seemed an easy decision. Mr. Obama had no legal basis for the demand, but concluded he did not need one. “He had a power other presidents have used — you call it jawboning,” Mr. Emanuel said.

Obama 'walking a very fine line'
The question is whether the cumulative effects of these actions create an impression that, over the long run, may make it harder to persuade both American and foreign corporations to cooperate with Mr. Obama’s program to reinvest and reinvigorate the American economy.

“He’s walking a very fine line here,” said Jeffrey Garten, a professor of trade and international finance at the Yale School of Management and a former top official in the Clinton administration’s Commerce Department. “He is taking each case on the merits as he sees it, but he runs the risk of sowing a level of mistrust about all big companies. And it’s those companies — not small businesses — that he will need to invest and innovate for the kind of recovery he wants.”

Mr. Obama is betting that Republicans are also walking a fine line. That became evident Thursday as Republican leaders distanced themselves from Representative Barton’s outburst, which included the charge that Mr. Obama was acting illegally by applying “some sort of political pressure that in my words amounts to a shakedown.”

Mr. Obama’s aides clearly relished the idea of a Texas Republican dependent on donors from the energy industry who was actually apologizing to BP. As a political strategy, they appear to be adapting the course taken by Franklin D. Roosevelt, who seized on a mood of distrust when, in the closing days of the 1936 campaign, he said: ”I should like to have it said of my first administration that in it the forces of selfishness and of lust for power met their match.” When the applause subsided, he added: “I should like to have it said of my second administration that in it these forces met their master.”

It is in the “master” role, however, that Mr. Obama and his advisers know he is on dangerous ground. He has responded to his critics by making the case that every time American business predicted ruin from government intervention — that “Social Security would lead to socialism, and that Medicare was a government takeover” — American capitalism survived.

It did. But just as Mr. Obama’s fortunes last year depended on a G.M. turnaround, his fortunes this year depend on demonstrating that the health care legislation that he pushed through both reduces costs for the consumers and saves taxpayers money.

And his fortunes over the next two years depend, in part, on showing that he can both turn off the spigot of oil in the gulf and turn on the spigot of aid — out of the coffers of BP’s shareholders. Along the way, he will have to avoid painting with such a broad brush that foreign and domestic investors come to view the United States as a too risky place to do business, a country where big mistakes can lead to vilification and, perhaps, bankruptcy.

This story, "Obama’s Twist of BP’s Arm Stirs Debate on Frequent Tactic," originally appeared in The New York Times.