Economist: The bile of the bosses

President Barack Obama is unloved by business and, as the midterm elections approach and voters ponder whether to hand the Senate to his Republican opponents, that could make a difference.

Business owners give Obama lower-?than-average approval ratings. Corporate lobbyists discuss his reform of health care with contempt. A Wall Street boss accuses the government of extorting fines from banks in order to win votes. A technology chief said that he is Obama’s last fan in Silicon Valley. On Oct. 8, Randall Stephenson, the head of AT&T, grumbled about a wave of damaging regulations. His audience, many of them bosses, applauded.

The puzzle is why big companies are so miffed when they are so minted. Since Obama took office in early 2009, AT&T’s earnings-per-share have risen by 56 percent and Stephenson’s annual pay by 47 percent. The S&P 500 index of shares is near a record high. American firms dominate rankings of the world’s most valuable companies for the first time in a decade and a half. Profits are at their highest level, relative to national income, since the 1960s. While the median household has seen its income stagnate, the median pay of an S&P 500 chief is up 43 percent since 2009.

Some blame this paradox on Obama’s lack of chemistry with chief executives, but you would think that the $885 billion of profits made by nonfinancial firms last year might be some compensation for his aloof bedside manner.

Another theory holds that American companies are being tortured by red tape and taxes to an unprecedented degree. The cost of regulation has risen under Obama, according to the Office of Management and Budget. Controversial new rules abound. For example, the Environmental Protection Agency wants to define the “waters of the United States” to include not only navigable rivers and lakes but also their tributaries. The National Federation of Independent Business, a lobby for small companies, howls that this could include ponds and ditches that are dry most of the year. It predicts that developing such land could require permits costing tens of thousands of dollars and long delays.

Obama’s taxing and regulating is not unprecedented, however. President Richard Nixon, a Republican, introduced price and wage controls in 1971. The federal tax code grew more than 50 percent longer under Presidents Ronald Reagan and George H.W. Bush, both Republicans, but since 2007 it has grown by only 10 percent. The aggregate tax paid by nonfinancial firms under Obama, at an annual average rate of 25 percent of pretax profits, is lower than the 32 percent paid under the Gipper. America is the fourth-easiest place in the world to do business, according to the World Bank.

Instead three structural factors explain American companies’ gilded griping at their government.

First, they are more global than ever and see greener grass abroad. If you operate in East Asia, it is hard not to envy its roads and airports. In 1988, America’s headline corporate-tax rate of 34 percent was among the lowest in the world. Today, at 35 percent, it is among the highest. Many firms are now mobile and can shift activities to friendlier places, and some are under pressure from shareholders to do so. Bosses feel that, by standing still, America is falling behind. A new survey of Harvard Business School alumni by Michael Porter and Jan Rivkin finds that 47 percent think that America is losing competitiveness.

The second factor is the polarization of American politics. Partisan rancor is higher than in the 1970s, according to a new index. The wounds of the financial crisis have yet to heal. Opinion polls suggest that Americans still hate banks and big business, and both major parties have wings that are hostile to the corporate establishment.

Polarization is bad for business. When the two parties refuse to compromise, they are unlikely to pass the long-term reforms that might boost growth. Polarization also makes extreme events more likely. In 2013, standoffs over the budget and the debt ceiling caused a government shutdown and nearly led to a cataclysmic default. All this uncertainty rattles business and deters investment. Thus, although companies are making big profits, they are not reinvesting enough. In 2013, S&P 500 firms spent more on dividends and share buybacks than on capital investment.

Porter said that, when Japanese competition was a threat in the 1980s, there was a sense of common purpose between American firms and politicians about how to respond. The lack of any unity now is “extremely scary,” he said.

While they rage at Washington, companies are making things worse by spending more than ever to influence politics. Spending by business on lobbying and campaigning so far in 2013-2014 has exceeded $5 billion, according to the Center for Responsive Politics. Google is one of the biggest spenders.

The U.S. Chamber of Commerce has broken new ground by trying to influence primaries as well as elections. In primaries it has backed mainstream Republicans against tea party rivals. In elections it nearly always backs Republicans: Of its 280 endorsements, only five are of Democrats. Its recent ads feature Sen. Rand Paul, R.-Ky., who is also an eye doctor, attacking Democrats in swing states.

“As a physician,” he says, “it bothers me that (Sen.) Kay Hagan (D-N.C.) doesn’t think you’re smart enough to choose your doctor,” referring to the fact that some Obamacare policies limit patients’ choice of doctors.

Throwing cash at politics makes sense for firms individually. Strategas Research Partners, an analysis firm, runs an index of companies that lobby and says this group has outperformed the stock market for 15 consecutive years.

It is collectively insane, however. Donations are roughly split between the two big parties. Those unable to write big checks, including voters and small companies, grow cynical. Business hates partisan politics, but is partly to blame for it.

The third factor behind the collective frenzy of American firms is corporate inequality. Multinationals and technology giants are booming - the 10 biggest companies in the S&P 500 generate 23 percent of its profits, up from 20 percent in 2007 - but small businesses have yet to regain the ground lost since the financial crisis, said Christine Kymn of the Office of Advocacy, a watchdog. Employment by firms with fewer than 100 staffers is still well below the 2007 peak. The NFIB’s confidence index for small firms is still below 2006 levels. Disturbingly, since 2008 more firms have been dying than are being born, for the first time in at least 30 years.

Porter worries that small companies are “especially disadvantaged.” They complain that mega-banks, which got bigger after the bailout, won’t lend to them. They believe that cumbersome new rules, most obviously Obamacare, hurt them disproportionately. For example, a firm that shrinks its work force to 99 or fewer people now will have to certify that it did not do so to evade its obligations under Obamacare, according to the NFIB.

Small firms also think that big ones get an unfair advantage from lobbying. Robert Wolf, a banker who has advised Obama, talks of a new and fraught intersection between Wall Street, Main Street and K Street, the Washington neighborhood where lobbyists congregate.

Pleasing business is not straightforward for either party. Bosses’ demands often conflict. Small firms want small banks that serve local customers, while Wall Street wants the opposite. Silicon Valley tycoons such as Elon Musk are betting on green technology, whereas energy firms are fighting rules on carbon emissions. Multinationals are furious about rules that tax overseas profits when they are repatriated to America, but most other firms view this as an irrelevance that bothers only a tiny aristocracy: 45 giants, including Apple, General Electric and IBM, account for 70 percent of the earnings stashed overseas by American firms.

There is a chance of reforms after midterms. If the Republicans capture the Senate, they may want to show that they can govern, while Obama may use his last two years to build a legacy.

Democrats, Republicans and companies do have some common ground. A legislative majority could in theory be cobbled together to overhaul the corporate tax code by lowering headline rates and widening the base of profits they apply to, to pass free-trade deals with Asia and Europe, and to reform immigration.

The last big tax reform, in 1986, was passed by a divided government, with a Republican president and Senate and a Democrat-controlled house, noted John Engler, formerly a Republican governor of Michigan and now the president of the Business Roundtable, a lobbying group.

There is, he said, “an opportunity for everyone to put the politics aside and get something done for the country.”