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September 1, 2011

Lemons and Lemonade

Would the Obama administration's policies be different if the White House employed more entrepreneurs and CEOs? To find out, Forward addresses three questions on business leaders' minds.

Senate Minority Leader Mitch McConnell (R-Kentucky) seems to have started it. There is “nobody down at the White House who's ever even run a lemonade stand,” he has said numerous times since the Obama administration took shape in 2009. There are just “all these professors or former elected officials.” And even though the senator himself said he was not sure his claim was “technically true or not,” the accusation stuck.

It has been picked up almost as a mantra, mainly by conservative Republicans, including Florida Rep. Allen West, Indiana Gov. Mitch Daniels, and pundits Glenn Beck and Newt Gingrich. And technically, they may be correct: There is no proof that anyone in the Obama administration has ever been in the lemonade business. But that, of course, is not the point.

What is the point? They want to know first whether there are top administration officials with business experience. Second, they want to know whether that experience is the right kind. And third, they want to know whether anyone in the administration is really listening to those with legitimate business backgrounds.

From its inception, the administration has been slammed by much of the business community as anti-business, from the U.S. Chamber of Commerce to the National Federation of Independent Business (NFIB). And one prominent lament has been that things would be quite different if there were any real, live businesspeople in the administration. “They just don't get it,” says Jean Card, NFIB's vice president of media and communication. “If there is someone in this administration who has actually run their own business, I would like to hear about it.”

WHERE HAVE THE BUSINESS PEOPLE GONE?

Card is, of course, exaggerating for effect. She and others who complain don't believe there is a total lack of actual business experience in the Obama administration. There are, in fact, plenty of examples to the contrary. Interior Secretary Ken Salazar has run a variety of businesses, from his Colorado family ranch and a Dairy Queen to a radio station. Housing and Urban Development Secretary Shaun Donovan was head of Prudential Mortgage Capital. And Valerie Jarrett, a particularly influential senior adviser to the president, was the successful CEO of The Habitat Company, a Chicago-based real estate development and management firm, before moving to the White House.

Studies of businesspersons and their influence within the administration, including the often quoted but admittedly flawed Cembalest report, all come up with different numbers and count in different ways. Cembalest put the percentage of business folks at less than 10%. (See “A Clash of Studies,” page 17.) Some studies don't count lawyers as having business experience. Some argue that running a big business counts more than running a small one. How about directing a nonprofit or a research organization? Do investment bankers count as businesspeople?

The fact is that perception can have the same impact as reality. Regardless of whose numbers you believe or which pundit you listen to, the perception is that the Obama administration does not have business' interests at its heart. A Bloomberg poll of investors early last year, for example, found 77% saying the president is “anti-business.” Whether the issue is delayed trade pacts with South Korea, Colombia and Panama, costs and regulations in the new health care law, or the National Labor Relations Board's (NLRB) latest fight with Boeing, the impression is that things would be different if business had a louder voice in the administration.

Listen to Glenn Beck, one of the more influential conservative radio commentators. “Here are the past presidents and the number of appointees in their Cabinets with private-sector experience,” Beck said on one of his shows just after the Cembalest study appeared in 2009. “Folks that have done more than write on the chalkboard; they've been out there, in the real world. Let's compare President Nixon — he's over 50%—with President Obama: Under 10% of his appointees have any experience in the private sector.”

DOES THIS EXPERIENCE COUNT?

In addition to questioning whether the facts are correct, one may well ask whether “business experience” and “private-sector business experience” are the same, or significantly different.

Take Energy Secretary Steven Chu, for example, a Noble Prize winner for work on laser cooling of atoms and a former head of electronics research at AT&T Bell Research Labs, and a former director of the Lawrence Berkeley National Laboratories. Are the labs a business? Not in the traditional sense, but Chu held the Lawrence Berkeley job for four years, managing a $520 million annual budget and 4,000 employees. Arguably that requires business skills.

Before his White House call, Education Secretary Arne Duncan ran the Chicago Public School System, managing more than 600 schools, 40,000 employees and a $5.3 billion budget in fiscal year 2009-2010. Before that he ran the Ariel Education Initiative, a small nonprofit branch of Ariel Investments in Chicago that funds education programs for inner-city kids. That is not bending metal for a living, but it is hiring and firing, analyzing opportunities and program effectiveness—many of the same things that businesspeople must do to be successful.

And then there is the question of whether lawyers, of any stripe, or investment bankers qualify as businesspeople. “Well, maybe if they hung out their own shingle,” says NFIB's Card. Vice President Biden founded his own law firm—a firm that still exists today. He practiced for only a couple years, however, before launching a more than three-decade career as a successful politician.

Another question in this debate is whether big business experience is the same as running a small business. Does running a Dairy Queen make someone more or less suited for the Cabinet than, say, running the New York Federal Reserve Bank? Is Ken Salazar a better Interior Secretary for his experience than Treasury Secretary Timothy Geithner is for his? For Card, there is a yawning gap between the interests of big and small businesses. “Regulatory and tax issues are far more sensitive to us than they are to large firms,” she says. “The small business owner doesn't have the money to hire a bunch of lawyers and accountants. She has to figure it out for herself. The perception of the White House seems to be that venture capitalists represent small businesses, but they do not.”

Certainly plenty of large and international corporations, constantly lobbying for regulatory and tax breaks, would beg to differ. In any case, except for Salazar, there is no small business voice in the Obama Cabinet.

At the same time it is also obvious that the categorizing difficulties can get a bit muddy. Is a former investment banker turned high-level political operative, like former White House Chief of Staff Rahm Emanuel, a businessman, or a professional political crony?

And what of the president's recent nominee for commerce secretary, former electric utility CEO John Bryson? No question he's a former business executive, but his founding of the Natural Resources Defense Council makes him a target of the same critics who bemoan a lack of business acumen in the administration. Sen. James Inhofe (R-Oklahoma) has slapped a “hold” on the Bryson nomination. Although Bryson rescued his California utility from bankruptcy turning it into a profitable enterprise, Inhofe feels that his stance on climate change and other environmental issues threatens economic growth, which should be the primary focus of the commerce department.

Clearly, business experience alone does not satisfy the administration's critics and does not determine whether someone will be confirmed as a Cabinet member—nor whether they will do a good job as one.

CAN YOU HEAR ME NOW?

It also is helpful to recognize that although the White House may be light on business experience, campaign contributions, effective lobbying and a fractured and angry Congress ensure that business is heard inside the beltway. The president has either retreated or just changed his mind, for example, on issues such as a carbon tax or any cap-and-trade program to control greenhouse gases, the card check in union voting and the watering down of financial regulations aimed at preventing another economic meltdown. As these issues have unfolded, their fates seem to turn far more on a sharply divided Congress or an under-fire regulatory agency coming to its senses, than on whether a former business executive has the president's ear.

The president quickly realized, for instance, that he simply did not have the votes for any carbon control legislation. Manufacturers particularly breathed more easily. The heavily business-backed deal to lower tariffs and potentially produce $13 billion in new business with South Korea, Colombia and Panama is stalled in Congress by normally pro-business Republican budget hawks. They object not to the trade deal but to another program entirely. They do not want to continue a nearly 50-year-old, now $1-billion-a-year program called Trade Adjustment Assistance, set up to help retrain workers who have lost their jobs to offshoring.

Even the much-maligned Environmental Protection Agency (EPA) can occasionally see the error of its ways. All last year, Congressional members of both parties and businesses large and small pointed out that EPA's proposed rule for maximum achievable control technology to cut industrial boiler emissions was ill-conceived. Too expensive, too broad-brush, especially damaging to small businesses, they all said. In February, the EPA announced a scaled-back rule and said it would be reviewing even that one.

Which is not to say that some of the Obama agencies do not run a bit amuck. The NLRB's fight with Boeing, which wants to relocate some of its manufacturing to South Carolina where labor laws are less stringent than in its Washington state headquarters, has been called “unusual” by the more left-leaning New York TimesThe Economist called the NLRB position “loony left.” The board is trying to stop the relocation, alleging that it is simply a ploy by Boeing to escape its unions. And this action was indeed made possible by the president bypassing Senate approval and “interim” appointing three labor lawyers to break a two-year stalemate on the board. Arizona Sen. John McCain called the appointments “a clear payback by the administration to organized labor.”

Even the president agrees, as he said in June, “companies need to have the freedom to relocate. We can't afford to have labor and management fighting all the time at a time when we're competing against Germany and China.”

NFIB's Card says NLRB's treatment of Boeing is representative of the Obama slant on business. “Our members see something like that, it chills them,” she says. “They figure if that is the attitude of NLRB, they get a message loud and clear that business is seen as bad in the eyes of the administration.”

The president has moved on several fronts since the first of the year to try to change the perception that his administration is anti-business. He replaced chief of staff Rahm Emanuel with William M. Daley, a former investment banker at J.P. Morgan Chase with deep and respected roots in the business community. Even Sen. McConnell, he of the “lemonade stand” comment, called this a “hopeful sign,” as did many businesspeople.

The president replaced his Economic Recovery Advisory Board with a Council on Jobs and Competitiveness chaired by Jeffrey Immelt, CEO of General Electric (GE). His U.S. Department of Commerce Manufacturing Council is headed by Bruce Sohn, former president of First Solar Inc. in Arizona, and includes heavyweights like Daniel DiMicco, president of Nucor, and Michael Gambrell, executive vice president of Dow Chemical. And the president has been reaching out to a range of business groups with White House meetings, most notably to the Business Roundtable. It remains to be seen what this will amount to.

Only five months before accepting the Council on Jobs and Competitiveness appointment, Jeffrey Immelt said, “business did not like the U.S. president and the president did not like business.” This prompted the GE home office to quickly clarify that their chief executive's remarks “do not represent our views.”

eedless to say, Immelt has since softened toward the administration, praising its “tone of just being open to work with business.” And calling the president's announced goal of doubling exports in five years “the right aspiration,” and one that will help ensure that “this is the most competitive country in the world.”

MANUFACTURING VS. WALL STREET

This does not much impress NFIB's Card, however. “Look at the president's Jobs Council,” she says. “When you look at the makeup of the council, you see it is mainly big businesses, people from Wall Street and venture capitalists. I have a lot of respect for Jeff Immelt, but, trust me, GE does not have the same concerns as Joe's Dry Cleaning.”

Scott Paul, executive director at the Alliance for American Manufacturing (AAM), is also concerned about the council. He is troubled not so much by the number of business voices whispering in Obama's ear, but by the quality of those voices. “There are a number of folks with business community experience in this administration,” Paul says, “but most are from Wall Street and I don't view that as particularly healthy. It encourages the view that what matters most is what Wall Street wants. Just because the administration has business representation doesn't mean it is the right business representation.”

For Paul, what makes the difference is not what's on a person's resume, but what is in their head. “Success as a manufacturing CEO, for instance, doesn't necessarily translate to success inside a Cabinet,” he says. “Take Paul O'Neil, [George W.] Bush's Treasury secretary. He was a smart guy and ran Alcoa pretty well. But he seemed to be kind of baffled by the palace intrigue. So I am not going to make the argument that someone from the business community can automatically do a superior job than someone who is a policy expert. There is not always a great crossover.”

Paul goes considerably easier on this administration than other critics, especially when it comes to manufacturing. “We do not feel the administration has done enough on China's currency manipulation,” he says. “But this administration has launched a skills initiative and worked with [the National Association of Manufacturers] to do it. This is a far more ambitious effort than anything Bush or Clinton ever did. It has launched an advanced manufacturing initiative, reaching out to businesses like Allegheny Technologies and Corning and the academic community. That is a serious initiative from a domestic manufacturing standpoint.”

As any politician knows, you can't please all the people all of the time. No administration has gotten it exactly right, according to Paul. “If others are basing their views on climate, or labor, or regulatory issues, they may come to a different conclusion. But looking at concrete steps for manufacturing, this administration has done more than any of the previous ones since Reagan. You just can't credibly make the argument that this president doesn't care about manufacturing.” Not that Paul doesn't hear regularly from AAM members making exactly that argument.

From the small business perspective, “We loved Bush,” says Card at the NFIB. “We always felt he was really listening to us.”

WHAT WE ARE REALLY ARGUING ABOUT

It seems doubtful that adding a few more CEOs to the mix would persuade very many that the president has abruptly changed direction. And even if we could agree on what defines a businessperson and whether the right businesspeople are representing the business community, there's still no way to tell who may be shaping the president's business agenda other than himself on any given issue. The business experience of past policymakers is notoriously difficult to relate to their performance at the White House. No one seems to have studied this, but it's probably safe to bet that the number of ineffective executives in Cabinets present and past is right up there with the number who have played major roles on policy issues. President George W. Bush, for example, had several chief executives who served as treasury secretary—Paul O'Neill of Alcoa, John Snow of CSX and Henry M. Paulson Jr. of Goldman Sachs. The conventional view is that only Paulson had much influence.

Despite the difficulty in accurately tracking White House influence and deciding who counts as a businessperson, the business community consensus is that Obama is anti-business and that is reflected in a debate over executive experience that just won't die.

At the same time, the business community may get a lot of mileage out of a William Daley, or even a Valerie Jarrett or a Gene Sperling, who replaced Larry Summers as head of the president's influential National Economic Council. These people may have been appointed primarily for their political, rather than business acumen. But they have been around the block, are viewed as business sensitive at the very least, and are noted for their savvy in managing the political process. Daley, in particular, has been getting an earful from business groups, which means the president may be listening a bit harder.

In the end it is pretty clear that the debate over how many ex-businesspersons sit around the Obama administration's Cabinet table is at best a proxy for the real debate, the one over the president's policies.

A CLASH OF STUDIES

Michael Cembalest, the chief investment officer at J.P. Morgan Private Bank, did not start the hue and cry over the lack of business experience in the Obama administration. But he certainly fueled a fire that continues to this day. Cembalest published his research on Forbes.com as a November 2009 guest column titled ”Obama's Business Blind Spot.”

“In a quest to see what frame of reference the administration might have on this issue,” he wrote, “I looked back at the history of the presidential Cabinet. Starting with the creation of the secretary of commerce back in 1900, I compiled the prior private-sector experience of all 432 Cabinet members, focusing on those positions one would expect to participate in this discussion: secretaries of state; commerce; treasury; agriculture; interior; labor; transportation; energy; and housing and urban development.

“Many of these individuals started a company or ran one, with firsthand experience in hiring and firing, domestic and international competition, red tape, recessions, wars and technological change. . One thing is clear: The current administration, compared with past Democratic and Republican ones, marks a departure from the traditional reliance on a balance of public- and private-sector experiences.”

Cembalest concluded that less than 10% of the Obama Cabinet had private-sector business experience (although Cembalest has since updated the number to 20%). And the conservative and far right-wing blogosphere, not to mention pundits like Glen Beck, Rush Limbaugh and Newt Gingrich, promptly exploded.

Unfortunately, as Cembalest himself has since regretfully admitted, and others have found, his attention-grabbing study is either a bit off base, or flat out wrong, depending on how you count and who you consider to be a businessperson.

”What I was really trying to get at was some kind of completely, 100% subjective assessment of whether or not a person had had enough control of payroll, dealing with shareholders, hiring, firing and risk-taking that they'd be in a position to have had a meaningful seat at the table when the issue being discussed is job creation,” Cembalest told Politifact.com, the St. Petersburg Times' Pulitzer Prize-winning fact checking site.

Cembalest said he has “written 250,000 words in research over the last decade, and every single thing I've ever done—except this one chart—was empirically based. . This is the one time I stepped out into making judgment calls, and I assure you I won't do it again.”

When Politifact.com counted business experience in the Obama cabinet, it included lawyers and investment bankers and people like Energy Secretary Steven Chu, Education Secretary Arne Duncan, Housing and Urban Development Shaun Donovan and even Treasury Secretary Timothy Geithner who worked as a consultant at Kissinger Associates long before he was president of the New York Federal Reserve. Politifact's count left only two of the 15 Cabinet members (Labor Secretary Hilda Solis, who was a labor lawyer, and Transportation Secretary Ray LaHood, a former school teacher) without what they deemed sufficient business experience. That would make the Cabinet nearly 87% private-sector experienced.

The National Journal, an award-winning weekly aimed mainly at Capitol Hill insiders, was far less generous in its Obama administration business tally. It was also more comprehensive, looking beyond just Cabinet members, to the seven so-called Cabinet-rank advisers as well. These include the vice president, chief of staff, director of the Office of Management and Budget, environmental protection administrator, trade representative, chair of the Council of Economic Advisers and the ambassador to the United Nations.

“Overall, only 28% of Obama's top officials were business executives at some point in their careers,” the National Journal said. It said 38% of George W. Bush's top officials were business executives at the start of his first term. It also found a high percentage of so-called “policy wonks” in the Obama administration. “More than one-third . 37% have worked at a think tank or in academia at some point in their careers,” it said.