Carter: a Problem of Confidence

Executives cannot figure him out

If any Democratic President could get along with business executives, it ought to be James Earl Carter. He won his party's nomination as an outsider railing against bloated Government, angered liberals by putting a balanced budget ahead of expensive new social programs, and disavowed any thought of imposing wage-price controls or even guidelines. Perhaps equally important, as Carter frequently observes, he is a former businessman himself. During the campaign and for a while after the Inauguration, even many executives who voted for Gerald Ford did indeed warm to Jimmy Carter as they rarely do toward any Democrat. But now a severe problem of confidence has arisen between the President and a business community that is increasingly suspicious of and apprehensive about him.

The trouble has been greatly aggravated by Carter's televised assault on the oilmen who oppose his energy program as profiteers out to "rob" American consumers and stage "the biggest rip-off in history" (TIME, Oct. 24). Nervous executives in many industries other than oil saw that attack as an indication that Carter may after all be an antibusiness Georgia populist rather than the fiscal conservative he has often seemed. Says Frank Borman, the former astronaut who now heads Eastern Air Lines: "He is casting suspicion on business in general, and that is unfortunate. He doesn't have a very good idea of what 90% of the businessmen in this country are like." Adds Edson Spencer, president of Honeywell Inc., the computer maker: "The way he said it makes you think there is some instability there. You think, 'If that is the emotional way he feels about the oil companies, it might be me next.' "

But business disaffection with Carter did not begin with the explosion at Big Oil --and it would now persist even if the President had called the oilmen a group of public-spirited gentlemen. As Carter's energy program has been gutted in the Senate, as his much-touted tax-reform program remains unborn, as high inflation and high unemployment persist, many corporation bosses have come to see he President as someone who particularly unnerves them: an incompetent, or-at least vacillating, Chief Executive. In their view, Carter has tried to tackle too many major problems at once--energy, taxes, welfare reform--without thinking them through. They believe he lacks a clear idea of where he wants to take the economy, let alone how to get it there. The result is that worst of all business bugaboos: uncertainty.

Corporate executives are by no means alone in that uncertainty. Stock traders are so unsure about the direction of the economy that their selling selling has driven down the Dow Jones industrial average about 19% so far this year, from 1,000 at the end of 1976 to under 810 now. Louis Harris surveys show a startling pessimism among the general public about Carter's economic policies. In September only 26% of those polled by Harris gave the President a positive rating on his overall handling of the economy.

Uncertainty about the Carter Administration among business leaders is particularly dangerous because it gives them one more reason for holding back on the expansion programs that are necessary to keep production I growing and bring down unemployment. And businessmen already have plenty of cause for such caution. The deep recession of 1973-75 shook their faith that the economy would keep rising, with only minor setbacks; the double-digit inflation of 1974 made them doubt that they could realistically estimate future costs; the Arab oil embargo of 1973 and the fears of energy shortages that followed caused them to wonder whether they could find fuel to power new plants, and at what price. Investment always involves some risk, of course, but in the minds of many executives the risks now outweigh the potential rewards. Says Grant Simmons Jr., chairman of Simmons Co., the Georgia mattress maker: "Ten years ago, management would make investment decisions on the basis of intuitive, broad-stroke guesses. Now we want to be damn sure we see the fish in the barrel before we shoot."

Currently, the threat of low-priced foreign competition also worries businessmen--and with good reason. The U.S. trade deficit is ballooning toward a horrendous $30 billion this year, almost five times the 1976 figure. The present drop in the value of the dollar--6% against the Swiss franc, for example, in the past eight weeks --hardly inspires confidence either. Unease about many of these matters predates Carter's Inauguration, but there is no question that doubts about the President's economic policy have increased the reluctance to invest. Says Willard Butcher, president of Chase Manhattan Bank: "Frankly, many companies just don't know whether to go forward with capital expansion plans because they have got no clear signals from Washington." A senior official of California's Bank America Corp. adds, "They are waiting to see what happens to the energy program, what happens to taxes."

Actually, capital investment has lately been picking up somewhat. In real terms--that is, discounted for inflation--it is increasing at an annual rate of about 7% to 8%. But Administration officials, who are as insistent on the need for investment as any businessman, would prefer an increase of 10% or more. That is essential to the Administration's economic strategy. At the moment, the economy is growing satisfactorily; real gross national product is expected to rise a bit more than 5% this year and about 4.5% in 1978. Though that is not enough to cut into the unemployment rate, which has been stuck at around 7% for the past six months, it has sent to an alltime high the number of people who do have jobs.

But Administration officials, such as Charles Schultze, chairman of the Council of Economic Advisers, fear the growth rate might drop to around 3% in the second half of next year--a pace too slow to prevent another rise in unemployment. Consumers, they think, cannot spend much more on cars, houses and other goods than they are now doing; if a slowdown is to be avoided, business spending must rise more than it has.

So Administration leaders are worried almost as much about the mood of business as businessmen are worried about them. Says Treasury Secretary W. Michael Blumenthal: "We confront a troubling paradox: on the one hand, good economic recovery in 1977 and reasonably good prospects for 1978; and on the other, the lowest level of business confidence in a long time."

What exactly is it that makes businessmen so apprehensive about Carter? Many executives are far from clear in expressing their doubts. They speak generally of confusion, indecision and a lack of leadership--a view hardly consistent with their assertion that the President is trying to do too much, too soon. But corporate leaders do identify five specific concerns, all of which reinforce in their minds the picture of a President who does not appear to understand the needs of the modern U.S. economy:

Energy. The more businessmen ponder the program that Carter presented to Congress in April, the less they like it. The program relies primarily on taxes to force conservation by raising the cost of fuel to consumers. To many executives, that is wrongheaded reliance on Government fiat. The emphasis, they think, should be put on increasing production of oil, gas, coal and nuclear power by granting energy companies more incentives. David Packard, chairman of Hewlett-Packard Co., Palo Alto, Calif., a maker of measuring instruments, says with a snort that Energy Secretary James Schlesinger, who put the program together, "doesn't have the brains God granted a goose about the way the economic system is supposed to work."

That is an angry exaggeration: Schlesinger is conceded even by most of those who disagree with him to possess a first-class mind, and he and Carter are grappling with a peculiarly baffling problem to which no one has proposed a wholly satisfactory solution. Businessmen argue that Carter's taxes would only feed inflation without reducing consumption much; the Administration contends that fuel costs to the consumer must go up and business cannot expect to take all the increase in profits. The outcome, so far, is a debilitating uncertainty: the House passed Carter's program almost intact, the Senate dismembered it and no one can now predict what compromise may emerge from the conference committee. Meanwhile, businessmen apprehensively note that polls indicate that Carter has yet to convince the public that there is any energy crisis at all. Says Herbert Schmertz, vice president of Mobil Oil Corp.: "There is no consensus in this country for any energy policy, including ours."'

Taxes. The Administration's tax-reform program, which was originally supposed to go to Capitol Hill as early as September, has indefinitely been held up, and many businessmen take that as a sign of presidential indecision. Actually, the principal reason for the delay is that the Administration wants to get the energy fight out of the way first. In any case, it has inspired some wild--and false--stories in executive suites. Says J. Edwin Matz, president of John Hancock Mutual Life Insurance Co.: "It's rumored that the tax bill has things in it so horrendous you can't believe it."

Carter does intend to propose taxing all capital gains at full ordinary-income rates (at present, only half the profit on sales of assets such as stock and real estate is usually taxed). Businessmen complain that that would inhibit the very investment the President says he is so anxious to promote. Says James L. Moody Jr., president of Hannaford Bros. Co., a Maine food distributor: "The chief incentive to invest in business is to make money. Such proposals will slow down businessmen's investments in the U.S. at a time when countries like the Soviet Union and Japan are allocating more for capital investment."

Treasury's tax-reform proposals to Carter also contain many provisions designed to give business more money for investment. Among them: a cut in the top corporate tax rate from the present 48% to 46% or less; more generous investment tax credits; some easing of the double tax on dividends, which are taxed first as corporate profits and then as individual income to shareholders. Strangely, these concessions have made next to no impression on businessmen, who seem unwilling to believe anything good about the tax bill until it is sent to Congress with Carter's blessing.

Inflation. Despite blips up and down, the rate of price increases has been pretty much stuck at around 6% annually since the spring of 1975, and most economists predict that it will continue at about that pace through next year; some recent easing has been illusory because it has reflected a drop in food prices that will not last. Businessmen complain that Carter seems to have no idea how to bring the rate down; the "anti-inflation" policy he announced last April turned out to be largely a list of regulatory and review measures.

That criticism exasperates Carter's aides. Says Blumenthal: "When you ask the business community what they have in mind, I don't hear anything. You mention guidelines, wage and price controls, jawboning--no, no, no, they don't want that." The President himself notes that the Federal Reserve's sporadic efforts to check inflation by restricting the growth of money supply push up interest rates --and rising interest rates have helped to depress the stock market. Last week the White House issued a highly unusual "notice to the press" warning the Federal Reserve not to push interest rates higher.

Businessmen have a valid point in contending that Carter could have refrained from politically inspired moves that are likely to make inflation worse: increasing farm subsidies, for example. Arthur Okun, a member of TIME'S Board of Economists and sometime Carter adviser, calculates that the Administration's own acts will add more than a point to the 1978 inflation rate.

Regulation. Carter did not erect the network of transportation, labor, safety and environmental regulations that many businessmen feel is strangling them, and his criticisms of the abuses of Big Government during the primary campaign led some to believe that he would make the regulations less onerous. Now they can see no sign that he has or will. CEA Chairman Schultze contends that the Administration has brought about some improvement in the Occupational Safety and Health Administration (OSHA), which had gained well-deserved notoriety for enforcing niggling rules. That is news to executives, who find OSHA as petty-minded as ever. Grant Simmons Jr. complains that OSHA rules amount to "major capital programs imposed willy-nilly on business with a virtual carte blanche"--sometimes to modify plants that have had "no history of accidents in 50 years."

Bert Lance. Businessmen did not think Carter should have kept Lance as Director of the Office of Management and Budget; some, indeed, regard the President's long defense of Lance as evidence of unreasonable stubbornness. Nonetheless, now that Lance is gone, they feel they have lost their only real friend in high Administration councils. Says General Electric Chairman Reginald Jones: "Bert Lance was one who was quite close to the President, never failed to return a call that was made to him, never failed to grant us an interview, and always was a conduit through which our thinking could reach the President."

Lance's exit especially troubles businessmen because they feel Carter, whatever his own sentiments, has filled the Administration's second-level posts with people who have no sympathy for them and favor more regulation. Oilmen are particularly suspicious of S. David Freeman, who helped Schlesinger draft the energy program; they regard him as a doctrinaire conservationist who does not even want to increase energy production. William P. Tavoulareas, president of Mobil Oil Corp., adds that "everybody we see in the Interior Department these days is an environmentalist."

Businessmen, of course, do not judge Carter solely on economic issues; like other citizens, they are still trying to make sense of the President's personality. Many have concluded that Carter is a headstrong man who cannot believe he is ever wrong. Says Matz of John Hancock: "I think that it has become clear that he brings to the job his own values as a Georgia-born and -bred peanut farmer and he does not have much use for other people's values. He operates less on consensus than other Presidents have."

Raymond Holliday, chairman of Hughes Tool Co., says Carter "seems never to be willing to compromise or accept advice. He is reluctant to admit that it is possible for him to make a mistake." Gene Woodfin, chairman of Marathon Manufacturing Co., a Houston-based maker of drilling rigs, caustically characterizes Carter's attitude: "He's 100% right and everyone else is 100% wrong, and he's the President and we have to do it his way."

William W. Weide, president of Fleetwood Enterprises, Inc., of Riverside, Calif., a maker of mobile homes, is disturbed by the prominence of Carter's family: "I don't know where he ever thought he got a mandate from the American people to have Rosalynn Carter handle the South American issue and Lillian Carter handle other issues." Many executives are disturbed by Carter's reliance on the advice of a close-knit Georgia Mafia. Says Thomas Sampson, managing partner in the Boston office of Arthur Andersen & Co., the accounting firm, and a New England fund raiser for Carter: "I don't think all the brains in the world are in the Northeast. But I don't think they are all in Georgia either."

Carter has his defenders in the business community. John D. deButts, chairman of American Telephone & Telegraph Co., calls the attention of his executive colleagues to the proposals favoring business in the draft tax-reform program. Sampson contends that businessmen are judging Carter too quickly. Says he: "It's almost as if he were being photographed every 15 minutes to see if he's aging gracefully. He can't turn the economy around in ten months, and anybody who suggests he can is a damn fool." Donald Frey, chairman of Bell & Howell, who has considerable doubts about Carter's preachy moralism, nonetheless gives the President high marks on one subject: "On international economic issues, Carter is dead right. There is no ambiguity about where Carter, [Chief Trade Negotiator Robert] Strauss and Blumenthal stand. They are opposed to protectionism."

Even Carter's supporters, however, share the nagging doubt that the President has any comprehensive economic policy. Says Donald Kendall, chairman of PepsiCo: "We have a very confused ball game. There are big problems, and people don't know what will happen. With a Democratic Congress and a Democratic President, you'd think we would know where we were heading."

Part of the confusion arises because Carter must try to satisfy many constituencies besides business--liberals, labor, blacks--and he has zigged and zagged between their conflicting demands. Generally, he has pleased environmentalists far more than businessmen--but he also has proposed a speedup in the licensing of nuclear power plants that dismays some environmentalists. More important, he pleased business initially by asking for an increase in the minimum wage so small that AFL-CIO President George Meany called it "shameful." Now, he is prepared to sign a bill increasing the minimum wage by 45%, to $3.35 an hour in 1981--a boost that businessmen consider highly inflationary.

The confusion is compounded because there is no economic eminence grise in the Carter Administration. Says Blumenthal: "That label never applied to Bert [Lance] or to Charlie [Schultze] or to me, and in my judgment it probably never will. It's easy to convince yourself that you're the only one he's listening to, but that's baloney."

Instead, says one CEA staffer, "the only guy making economic policy is Carter, for good or ill. He is reluctant to delegate authority and judges every issue on the merits of the case presented to him." And the President does tend to consider issues one by one. A senior Administration official asserts: "Although he's a very fast learner, he doesn't move easily from one concept to another. You can open one subject, and he'll quickly have it mastered. Then he'll master a second one. But he often doesn't see the relationship between one and another, despite a really first-class mind." It is also true that Carter has committed himself to seemingly incompatible economic goals: a 4.75% unemployment rate, a 4% inflation rate and a balanced budget in 1981.

Nonetheless, there is an economic grand design of sorts. It proceeds from the assumption that the economy is in a delicate balance between inflation and unemployment, and so needs gentle treatment. The idea is to feed in just enough stimulus to maintain moderate growth, without accelerating inflation--at the price of a very gradual decline in unemployment. Says one White House adviser: "That's the hardest thing in the world--not to yank the economy around. It doesn't give anybody very clear signals," expansionary or deflationary. It also is not a very inspiring vision for the country and is a difficult policy for a Democratic President to proclaim publicly, because it sounds so much like the strategy that Gerald Ford might have followed.

What can Carter do to get the message across? All is not lost, by any means. For all their disenchantment, most executives do not yet regard Carter as an enemy or believe that he sees them as one. Many indeed seem almost pathetically eager for some sign of reassurance from the President. Executive after executive begs for a clear program to set the rules under which business should operate, even if business does not agree with them.

Those assertions must be taken with a large grain of salt. It is difficult to envision businessmen embracing a tax policy that provides for full taxation of capital gains. There are real and serious differences that should be argued out, rather than papered over by facile talk of "better communication." But the differences should be between adversaries who know each other's position. Many businessmen are bothered most by a feeling that Carter simply does not listen to --never mind agree with--them; they would like a chance to argue with him face to face. Says O. Pendleton Thomas, chairman of B.F. Goodrich Co.: "The President hasn't been willing or hasn't had the time to meet with business leaders. Calling each other names in the press is counterproductive."

Blumenthal and others pledge to arrange a series of meetings between Carter and business leaders. Such meetings do seem to help: for example, on the same day that he assailed Big Oil, the President dropped in on a White House conference between his aides and steel executives and cheered the steelmen by pledging to take vigorous action on any complaints they file against "dumping" of foreign steel in the U.S. (that is, the selling of imports at prices below their costs of production). The President is also considering a major speech on economic policy just before or after his nine-nation tour in late November.

Meetings and speeches, of course, will not resolve deeply felt differences, nor should they. But they can at least define what the differences are and leave each side better prepared to argue its position. Traditionally Republican businessmen will probably never feel wholly comfortable with a Democratic President, nor will such a President ever totally dispel his suspicions of business. But both sides are locked into a partnership that they cannot escape. Businessmen know their companies' profits depend heavily on Washington's tax, spending and energy policies; the President realizes and has often said that only business can make the investments, create the jobs and pay the wages necessary to produce prosperity. It is only natural that both should resent that mutual dependence--but it is a hopeful sign that both recognize it.

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