In a July 27 interview in the Oval Office, President Barack Obama reflected on his first six months in office and discussed his evolving relationship with business leaders.
The President clearly had a lot he wanted to say to the business community, with which he has gotten off to a somewhat shaky start. He addressed the criticisms of some CEOs that his policies are antibusiness, defended his proposed tax increases on the wealthy, and drew management lessons from his executive experience thus far.
During the wide-ranging conversation with Editor-in-Chief Stephen J. Adler and Washington Bureau Chief Jane Sasseen, the President was cautious at times but always precise. He looked ahead to growth in a deleveraged economy driven by a more productive health-care system, energy innovation, educational improvements, and a more effective government. He added that many Americans are as cynical about business as business leaders are about government and that his goal is to channel this wave of populism in a constructive direction. (This is an extended transcript of the entire interview.)
BusinessWeek: We write a lot about management and leadership. Since you have the premier leadership position in the world, can you tell us what you've learned about management and leadership that you didn't know six months ago, and what you've gotten better at?
President Obama: Well, I think I came in understanding that the magnitude of the issues facing the country required that I put together a team that I could delegate a whole range of different tasks to and would be able to work well together. So I understood that coming in. I think over the last six months I have just relearned that lesson—that my most important job is to get the right people in the right place, give them the freedom to innovate and to think creatively about problems, hold them accountable for results, and make sure that they are cooperating with each other and communicating with each other on an ongoing basis. And on that front I think we've been pretty successful. You know, you haven't seen a lot of controversy, infighting, turnover.
I've always insisted on making sure we are equipping ourselves with the best evidence, the best data, the best information, that it's real-time, and that we don't ignore information just because it's not convenient or doesn't conform with what our working hypothesis might have been. We're constantly trying to make sure we're open to changing our minds about issues. The deliberative process that's taken place has allowed us to avoid big mistakes [and] make adjustments when what we were doing wasn't working.
You know, I think that the thing that I maybe understood theoretically but did not, I think, fully comprehend until I'd taken office is the degree to which so many of the issues you're dealing with involve legacy structures that are not easily changed. They're pathways that have already been set up, health care being the most classic example of a whole set of institutions and very complex relationships. So even if you could imagine in the abstract a much better way of doing things than we're doing right now, getting from here to there is extremely difficult.
The second thing I have learned since taking office is the degree to which you're working with probabilities. A lot of the decisions you're making, whether it has to do with Afghanistan or the banking system, involve seeing a set of options, the outcomes of which are never guaranteed, and then making the best possible decision—knowing that there's incomplete information but being willing to make those decisions, even if there's a risk involved.
Can you talk about what business leaders have said to you, how it influenced your decisions, and what you've learned from them that you might not have known when you came in?
For the transition and the first three months of the Administration, we were in crisis mode. A huge amount of the conversation revolved around how vulnerable the financial system is, what's required to stabilize it, and how we make sure that as we stabilize the banking system we're not creating new problems in terms of moral hazard or squelching innovation. There was a certain, very instrumental, solving-the-problem-right-in-front-of-you flavor to the conversations we had. If I called [Berkshire Hathaway (BRKA) CEO] Warren Buffett, it wasn't to stargaze; it was to ask him what he's seeing in the marketplace right now. If I talked to [General Electric (GE) CEO] Jeff Immelt, it was [about] what's needed to jump-start corporate borrowing.
Now that we've been able to step away from the brink of disaster and the challenge becomes how to spur long-term economic growth, I think the nature of the conversations is broader and involves some bigger strategic questions.
I'll try to be specific. The last lunch that I had, I guess we had the CEOs of Xerox (XRX), AT&T (T), Honeywell (HON), and Coke (KO). We talked about the fact that, in the 1980s, when everybody was afraid Japan was going to eat our lunch, a lot of companies did a 180 in terms of quality improvement, efficiency, increasing productivity. There was a change in corporate culture that significantly boosted corporate productivity for a long time and helped create the boom of the '90s. What they pointed out was, there were a couple of sectors that were resistant to that: health care, education, energy, and government.
And so if you think about the problem that we're now trying to solve, we've stopped the bleeding, the economy is stabilized. There's this huge deleveraging taking place, both at the consumer level and among businesses, and, ultimately, government's going to have to do the same thing. We're not going to be able to drive the next big stretch of economic growth through debt.
So what is that model of a post-bubble economy? What we've tried to say is that there are some foundations, some pillars that have to be in place in order for that next round of growth to take off. This is not to pick winners and losers and be able to predict exactly, in detail, which companies are going to be successful and which aren't. This is always the straw man that gets put up there when you hear about government being involved in the economy. That's not what we're talking about.
[What we're saying] matches up almost perfectly with what those CEOs were saying: Can we introduce the same sort of productivity in the health-care industry, which we know is going to be a growing sector because of the aging population? Can we use the need to transition our energy economy in such a way that it ends up being a huge engine for economic growth? Can we revamp our education system so that it's producing the kind of workers we need? And then can we make government sufficiently efficient so that it not only is delivering good services for taxpayer dollars but also regains credibility? Because in the 21st century economy, a lean, mean, but effective government is going to be important. And we need to get beyond this notion that somehow government is always just the problem.
And so I actually think that some of these conversations that I have with corporate leaders, as well as with small business leaders, there's a real recognition of, rather than be bogged down in the old ideological debates, the whole question is how do we create a smarter economy? And if we don't do that, then we're going to be limping along with unsatisfactory growth rates for a pretty long period of time.
A lot of business leaders consider you to be antibusiness. I was struck when I attended the Aspen Institute Ideas Festival. [Council of Economic Advisers member] Austan Goolsbee was speaking, and he hit a fairly hostile audience. These are wealthy, fairly progressive older people who had tended to support you, but they seemed very upset about corporate taxes, individual taxes, card check, all sorts of things you're doing that they perceived as not helpful to them. What can you say to those people?
Let's look at the record. I've been in office six months. So far my only tax policy has been to cut taxes for 95% of working people. I haven't signed a bill that's raised taxes yet. To the extent that we have put in place policies, they've all been directed at helping businesses. A number of those who think we're antibusiness seem to forget that it was just three or four months ago when, at great political expense, we yanked them out of the fire. And they still—at least if they're in the financial sector—are enjoying a whole bunch of government guarantees that are propping up their business models. So it's hard for me not to be a little skeptical when I hear that somehow we've been antibusiness.
But you're aware of that perception?
Well, here's what I think. To the extent that I can identify any aspects of this that make any sense, one is that, at the height of the AIG (AIG) debacle, I used pretty tough language in terms of folks paying themselves bonuses at a time when they were given big taxpayer bailouts. I continue to believe—and this is not antibusiness, this is common sense—that if you've presided over an enormous meltdown that has resulted in about $10 trillion worth of wealth being lost, that you might want to be a little self-reflective and perhaps change your business goal. And when I see Wall Street not doing that, it tells me not only that they have forgotten the recent past, but that they are putting the country's economy at further risk. One of the things I'm worried about is, having had to step in in extraordinary ways, we now have even more potential for moral hazard, where financial institutions think to themselves, "We can continue to take extraordinary risks and pay ourselves extraordinarily high salaries or bonuses because we know that we are too big to fail." I think that's dangerous for the economy and for business. And so that would be one example.
You're seeing returns to some of those practices? Goldman Sachs (GS)?
We are seeing a return to that, and I've spoken out forcefully on it.
Example No. 2 has to do with GM and Chrysler. The perception was that we were not being sufficiently friendly to the bondholders in that situation. Once again I'd like to point out that most of these bondholders, many of whom were hedge funds, would have lost everything they had, had it not been for the extraordinary interventions that we made in the financial system. They had no problem with government intervention if it was helping them. When, on the other hand, we say that to ensure that GM and Chrysler survive, the intervention involves everybody taking a haircut and making some decisions about how we spread the pain more equitably, [they say,] "Well, a contract's a contract. You can't intervene like this. This is government meddling." There's a selectivity to how businesses perceived some of the more extraordinary actions we've had to take.
And, frankly, it's probably to be expected, because that's sort of the nature of this job. Somebody's always got to complain about something.
That, the last point, has more to do with the broader, sort of ideological, and that has to do more than anything probably with taxation. And what I've said in the past is no different than what I'm saying now, which is, I think that we probably struck roughly the right balance on—when it came to tax, the progressivity of the tax system, during the '90s under Clinton. We are now at the lowest tax rates for high-income individuals that we've had—what?—since 1979. We have an unsustainable structural deficit that is going to have to be closed. We've got an enormous amount of need out there. The top 1% [of taxpayers have] taken a larger and larger share of growing productivity. For us to return to some semblance of balance is hardly radical. If there are any other proof points that are out there, I'd be interested in hearing them. My sense is this has more to do with people buying into stereotypes or expectations about Democratic Presidents than it has to do with specific initiatives that we've been putting forward.
One context where [the perception that you're antibusiness] has come up in is the discussion over multinational taxation and the various proposals about the taxation of foreign income. One of the concerns people have raised broadly is that, while they think you've hired, as you mentioned earlier, very, very good, strong senior staff, that many of them have come from academia, or they are lawyers. There's not a…
They don't know business, they've never made payroll, etc.
Precisely. And people say that's one of the reasons why there are a lot of concerns about the tax issues—the sense that not enough people would understand fully what the implications of that are for competitiveness. Can you address that issue?
This is an evolving process. The issue of how you tax multinationals is very complicated. There's almost no structure that you get that's perfectly fair. If you freeze it in time at any given moment, there's going to be one company that's paying a lot more for creating jobs here in the United States than a company that's creating jobs overseas. That instinctually feels unfair and also unproductive to our economy. If you cut it another way, companies will say, "If you change the existing tax structure, then we'll just base ourselves overseas and never create any jobs here." I don't think there's any perfect way to structure tax policy across international boundaries, so what we're trying to do is just achieve some balance that encourages investment here at home without being mercantilist or protectionist. Other countries are doing the same thing.
Part of the challenge we have here is that, you know, back in the '60s, '70s, America was so dominant, our competitors were so far behind, that whether it was trade policy or policy in terms of regulating multinationals, we didn't even really have to think about how we were operating vis-à-vis the world. We could throw our markets open to a China or Korea or a Japan, and it was a blip on the screen because our manufacturing base was so dominant. It was all our multinationals who were penetrating other countries, and we didn't really have to think through what the implications of our tax policies were. That portion of their business overseas just wasn't that dominant.
That's all changed. We now live in a 21st century global economy. And so we're going to have to update a whole host of rules, and tax policy is one of them. I would like to see a lower corporate tax rate. I'd like to see fewer loopholes to go with it so that we don't lose revenue in the process. I also have to think about the relationship between multinational businesses and small businesses. So all those folks at the Aspen Institute may get really ginned up about the prospect of changing multinational taxation. On the other hand, I've got a bunch of local companies here who are paying 35% taxes when some Fortune 100 company is paying an effective rate of 12%. And that doesn't feel too fair either.
So I guess my general point is that I hope what develops is a healthy debate with business in which we are trying to find a stable, sustainable set of policies—regulatory policies, tax policies, environmental policies—that create a level playing field and that are predictable enough that companies are able to thrive and compete. What you haven't seen from our Administration is a suggestion of a bunch of command-and-control, top-down, heavy-handed bureaucratic regulations that would bog businesses down. That's not our model. That's not how we think about these problems. That's not going to be our approach.
It seems like everything in Washington is always in progress—nothing's ever quite done. Have you succeeded on something where you had a high-five moment, where you said, "I wanted to do this. I've done it. It's done. It's checked off my list." And if so, what is it?
Well, if I say it's done, that worries me because then, you know, the thing—whole thing could unravel. I'd have to knock on some wood.
Well, go ahead and knock on wood. What were you thinking of?
I think we've done a really good job of stabilizing the financial system. I don't think people understand how close we were to the whole thing unraveling, and the degree to which, had it unraveled, we could be in a much worse situation than we're in right now. Now that's no consolation for the folks who're out of work or small businesses that are closing. But given how quickly we had to act, how much uncertainty and fear there was out there, in retrospect it is a very significant accomplishment.
If I could then follow on that, because I would say, even the people who grant that and very much like the ambitious agenda that you've tackled worry a lot about execution. They worry about the question of the economy, nonetheless still very weak. What do you say to those who argue you're risking the success of your agenda by taking on too much at a time?
Yeah. I—a couple of points I guess I would make. No. 1, I do think that it's important to understand that, although sound management theory says figure out what your core business is, focus on that, and don't get distracted, we don't always have the opportunity to choose our agenda. Sometimes the agenda is handed to us. Would I prefer having less on my plate? Absolutely. Would I prefer being able to phase in over time a series of initiatives—consolidate one, then move on to the next? Absolutely. The nature of the crisis that we experienced and the problems that we now face in terms of recovery mean that I've got to focus on a number of things at the same time. This is born of necessity, and not some sort of ideological imperative on my part to get no sleep and overwork my staff.
Point No. 2, if you look at health care in particular, because I think it's a good example of where people think, we've had an economic crisis, let's slow down and let's not try to take this on. I am not only compelled to move forward because of the letters I get every day from people who have lost their health care or in small businesses who used to give health care to their employees and can now no longer afford it. I'm just staring at my deficit projections over the next 10 or 15 years. Nothing would be easier for me to do than to say, "We can't afford to do health care right now. I've inherited $9 trillion worth of debt over 10 years, not of my making, and we're just going to stand pat." And if that's the case, there is no way that we're going to change the trajectory of the deficit, because almost all of it is driven by health-care inflation. Nondefense discretionary spending is going up about at the rate of inflation, in some cases even a little bit less. So all the growth in the federal deficit is basically Medicare, Medicaid, some Social Security, but that's not really a problem. So if I don't get started now getting some of these changes in place, particularly because they have to do with delivery-system reform that gets into very detailed aspects of the health-care system and will take years to refine, then we are going to be that much more vulnerable to major financial shocks from unsustainable debt loss, and investors, at some point, just blanching at financing the federal government any further.
Now, I recognize the skepticism on the part of some who say, whatever comes out of Washington is going to be bloated and will add to the deficit, and it's an illusion that you can take on health-care inflation, so better to just stand by and do nothing. I think that is irresponsible. I think that's an irresponsible position, and it is belied by our past history. We've been able to take on complex problems and solve them when people are constructive about it.
But the last point I would just make in terms of the operating economic philosophy here: My working assumption has always been, if the market could do it better, have the market do it. I have very little confidence in, as I said, some sort of command-and-control regulatory regime. I think businesses create jobs. And I'm a big believer in the profit motive and think free-market pricing is the best way to figure out how to distribute goods and services in a complex economy. In that sense, maybe I spent too much time at the University of Chicago, but I'm pretty steeped in what would be considered a very mainstream view of the economy and government's role in it. I just think it's a sign of how far our ideological pendulum has swung that the things we suggest are somehow deemed antibusiness. And if we suggest that after the worst financial crisis since the Great Depression, maybe we should strengthen regulations in the financial system; if we propose not a single-payer health-care plan, but a plan that builds off the existing employer-based system, but has some insurance reforms in it and squeezes some efficiencies and incentivizes better care for lower prices, that that's somehow seen as this radical step. You know, if we think that we should make sure that the tax code is not encouraging the exporting of jobs, and if there's a way of doing it—at least creating a level playing field so the companies who invest here at home are doing at least as well—those aren't real radical propositions. And so there's, I guess, going to need to be some sort of cultural adjustment over the next couple of years.
But I will tell you that if you talk to ordinary Americans right now, they feel at least as cynical about business as they are about government. And part of my motivation here is to channel what is going to be, I think, a lot of populist energy in a constructive way that does not end up preventing us from continuing to be the most dynamic, innovative economy.