Tuesday, 20 November 2012

What Obama Needs From Business Leaders OR What Can They Do for Obama

It's not exactly an apology tour, but the Business Relations Repair Initiative is fully underway.

Since his re-election, President Barack Obama has hosted at least a dozen CEOs at the White House and called several others to hear their ideas about reinvigorating the stagnant economy. The purpose seems obvious: After excoriating "fat-cat bankers" and overpaid CEOs during his first term, the president needs to repair relations with business leaders who collectively have far more power to lower unemployment and boost growth than he does.

[ENJOY: Political Cartoons on the Fiscal Cliff]

Whether the outreach is symbolic or substantive remains to be seen, but Obama seems to realize he needs more help from the business community than he may have thought when he first took office in 2009. Above all, businesses need to do one thing if Obama is to achieve many of his second-term economic goals: Spend more money.

Business spending helped end the Great Recession in 2009 and initiate a tepid recovery. In 2011, there was a spike in business spending, which for a while made it seem like a booming recovery, with robust hiring, might be just around the corner.

[READ: Why A Lot of CEOs Favor Higher Taxes]

But businesses pulled back for much of 2012, and in recent months there's been a worrisome drop in spending on things like computers, vehicles, capital equipment and commercial construction. "We've seen the sort of move down that you normally see when the economy is heading into recession," says Nigel Gault, chief U.S. economist for forecasting firm IHS Global Insight.

Part of that downturn could easily be caused by the approach of the "fiscal cliff," the big set of tax hikes and spending cuts that will go into effect in 2013 if Congress does nothing to prevent a big hit to the economy. If there's no deal to forestall some of those changes, it will turn economic growth negative and promptly cause a recession.

Many analysts expect some kind of last-minute compromise that will avert a recession. But CEOs get paid to prepare for worst-case scenarios, and besides, many companies can put off spending for a while, as they wait to see whether Congress will torpedo the economy. That's bad for the economy, but for most individual companies, it's a prudent way to handle a risky policy standoff in Washington.

CEOs are also worried about the chronic debt crisis in Europe, which has officially entered a recession. And China is still struggling with a cooling economy and a possible real-estate bubble of its own.

[RELATED: How Much the Fiscal Cliff Will Cost You]

For Obama, convincing business leaders to spend more money may be the single-biggest thing he can do to jump-start the economy. If anybody's got the wallet to juice growth, it's corporate America. Big companies have nearly $2 trillion cash on hand, and many of them have cut costs so much that they're now poised to invest and hire more—if only they had confidence the economy is truly on the mend.

If the fiscal cliff is the only barrier to a better economy, then making a deal with Congressional Republicans would be the best way for Obama to swing business leaders to his advantage. Many CEOs would be happy to have any deal, as long as it creates a stable business environment with predictable policies. Of course, they wouldn't mind if it included reforms such as a lower corporate tax rate, smaller deficits and even some corresponding tax hikes, if that helped fix the government's finances.

Simply asking business leaders for their support won't cut it, though. Like many ordinary Americans, CEOs are fed up with warring politicians who seem to put their own interests above national priorities. If Washington can't solve the sorts of problems that companies confront all the time, then those businesses might sit on their money indefinitely, or find a better place to spend it than the United States.

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