Chrystia Freeland

Short-term stimulus OK
Pete Peterson supports a short-term fiscal stimulus only if it is paired with long-term deficit reduction and faults both political parties for their unwillingness to cut specific government programs.

Cut spending, raise taxes
Peterson discusses the unsustainable path of U.S. fiscal policy and calls for cuts in spending on entitlements, defense and tax subsidies for the rich and corporations.

Blackstone founder on the GOP
Peterson says Republicans have called for fiscal responsibility, but have actually contributed to deficits. If the U.S. economy is to improve, Peterson says the GOP and business leaders need to do more.

This piece first appeared in The Washington Post.

For weeks people on both sides of the Atlantic have been speculating over who would lose his job first because of the BP spill — Ken Salazar, the interior secretary, or Tony Hayward, the oil company’s chief executive. Given last week’s initial progress in capping the well, I won’t try to name a favorite in that race. But I would like to suggest a third, inanimate, culprit: the cult of corporate social responsibility.

As crude poured into the Gulf of Mexico and the world economy struggled to recover from the financial crisis, corporate social responsibility might seem a perverse target. Surely we need more corporate responsibility, not less. But many of the business disasters of the past 24 months have been facilitated by the mini-industry of corporate social responsibility — known as CSR by those in the trade — a fetish encouraged by the philanthropies that feed off it and funded by the corporate executives who have found that it serves their bottom line.

Consider BP’s “Beyond Petroleum” campaign. Before the spill transformed that slogan into a punch line for late-night comedians, Madison Avenue had lauded BP’s effort to position itself as the greenest fossil fuel producer: “Beyond Petroleum” won two PRWeek “campaign of the year” awards and a gold “Effie” from the American Marketing Association. Ogilvy, the firm that invented the slogan, still boasts of “Beyond Petroleum” as a successful “case study” on its Web site.

Or how about Goldman Sachs’s “10,000 Women” project? This initiative to organize and fund business education for 10,000 “underserved” women around the world is the limousine of CSR drives: smart, innovative and absolutely in tune with Nicholas Kristof and Sheryl WuDunn’s “Half the Sky” zeitgeist.

But the gulf oil spill and the financial crisis have taught us, rather brutally, that the heart of the relationship between business and society doesn’t lie with the charitable deeds companies do in their off-hours but whether they are doing their day jobs in ways that help — or hurt — the rest of us. While BP was winning plaudits for being the first oil company to accept global warming as a scientific fact, the old-school Texas oilmen at ExxonMobil were unfashionably unapologetic about their core mission: to produce oil. Chastened by the Exxon Valdez disaster, however, they also became religious about safety standards. With hindsight, that attention to safety turns out to have had much greater social value than any number of creative CSR drives.

The same story played out on Wall Street. So much of the wealth of the gilded early “naughties” trickled down into 10,000-women-style clever charitable initiatives that my friends Matthew Bishop and Michael Green were inspired to coin a term to describe the phenomenon: “philanthro-capitalism.” Yet the considerable social good done by those projects pales in comparison with the destruction wreaked by the made-on-Wall Street financial crisis of 2007-08.

The problem with CSR is that it muddies the waters. Goldman’s purpose isn’t to educate women; BP’s isn’t to lead the green revolution. The job of business is to make money — in BP’s case by producing energy, particularly fossil fuels; in Goldman’s case through finance. Even the most cuddly, caring chief executive is ultimately charged with a selfish central mission: to generate profit for her shareholders.

Forgetting that core goal — which the CSR culture can tempt us to do — is bad news for business leaders. It was a sad day for American capitalism this spring when Goldman Sachs chief Lloyd Blankfein decided that it was politically unsafe to admit to Congress that he is very good at his job: in this instance, making the right bet on subprime mortgages. Even more deplorable was the moment a year earlier when President Obama used his bully pulpit to bully business — in this instance, the Chrysler bondholders, whose only sin was to stand up for economic self-interest and that of their investors.”

But getting confused about the principal job of business is even more dangerous for the state. CSR, and the communitarian philosophy behind it, asks us to believe that the interests of an individual company and those of the wider community are fully aligned. They aren’t — a truth too many regulators forgot in recent years.

Corporate social responsibility sounds as unobjectionable as motherhood and apple pie — and it would indeed be crazy to object to rich companies writing big checks for good causes. But we shouldn’t let that distract us from the fact that the chief social responsibility of business is to make a buck — and the social responsibility of government is to be sure that perfectly proper corporate greed is channeled and constrained for the greater good of us all.

Chrystia’s take on the financial regulation bill and Goldman Sachs’ settlement with the SEC, on the PBS NewsHour, Thursday, July 15, 2010.

A sunny July day in Aspen, Colorado, with Dvorak’s Symphony Number 8, courtesy of the Aspen Music Festival, lilting in the background, is a pretty good definition of the American dream.

Yet one of the most interesting threads running through the conversation Tuesday, the first full day of the Aspen Ideas Festival (underwritten in part by Thomson Reuters, where I work) is the fear that America’s days as the land of opportunity, particularly for the middle class, may be numbered.

The first warning came at 7:45 am – a typical start for the wonkish crowd assembled here – from Michael Splinter, CEO of Applied Materials. Splinter was full of Silicon Valley enthusiasm for his company and its prospects: “it very much is the frontier … this really is rocket science.”

But he wasn’t nearly as cheery about the state of his nation. Asked by moderator David Bradley, chairman of Atlantic Media and one of the festival’s hosts, how many of his employees would be in America if he were starting with a blank slate, Splinter said just 20 per cent. “90 per cent of our sales will be outside the U.S.,” he said. “The pull is to be close to our customers. The challenge is how to get jobs in the U.S.”

Splinter said he was worried about America’s deficit and the tax increases he believes will inevitably be required to pay it off. He was tough on the Obama administration – even though he is among the favored CEOs who have been invited to the White House to offer advice.

Splinter had good things to say about corporate sessions with the President. He said that behind closed doors CEOs “were quite honest” in expressing their views, and that the president was “forthcoming.” But, asked a visibly frustrated Splinter, “what are the results?” He wants more R&D spending, a better educational system and – the familiar CEO lament – a more pro-business attitude from Washington.

Yet Splinter’s critique contained its own contradictions: on one hand, he called on the government to spend more on R&D and education, but his chief complaint was that “frankly, our tax rate is not competitive” and that it was likely to increase.

The prospects for the American dream were addressed directly in an afternoon session which asked “Is America Still the Land of Opportunity? Taking a Hard Look at the Middle Class.” This was one of the day’s hot tickets: An overflow crowd spilled into a picnic-style sprawl on the carpet at the back of the room and in the aisles – one sign we were not in New York or Washington.

For the question asked in the afternoon session, Arianna Huffington had an unambiguous answer: “the upward mobility that has been at the heart of the American dream is a mirage for millions of Americans,” she said, especially for the millions of unemployed, or underemployed.

Coming from the dynamic diva of the Huffington Post, that verdict wasn’t much of a surprise. What was interesting was how her views were echoed by the other panels, and how, together, they told a story of a two-speed America, in which one group is flourishing, while another part of society is falling behind.

Journalist and Newsweek columnist Ellis Cose pointed out that the dividing line between the two Americas is starting to cut across racial lines. He is studying black Harvard MBAs and has found that they are confident that their future and their childrens’ future is bright.

Tom Wilson, the CEO of Allstate (another underwriter of the festival), made the essential — and brave — point that the fates of American business and American society may be starting to diverge. “I’ll get them [workers] anywhere in the world,” Wilson said. “It is a problem for America, but it is not necessarily a problem for business. I have workers in Belfast, I have workers all over the world. American business will adapt.” Like Splinter, Wilson urged more investment in education.

What frightened me most about today’s discussion was a possibility endorsed by Ron Brownstein, political director of Atlantic Media, and the panel’s moderator, that America’s two-speed economy may not be anyone’s fault (as Huffington insisted it was) but might, instead, be the inevitable consequence of the twin revolutions of globalization and technological change.

Wilson was certainly right about one thing: one of the great success stories of our age is how dynamically American companies have adapted to globalization and the technology revolution. But, as Huffington pointed out, the political consequences of a two-speed America might not be pretty: “America cannot be America without a middle class … we will become Brazil and all live behind gates to protect our children.”

The irony of this thread in today’s discussions, of course, was that most of the people who steadfastly turned their backs on the sunny alpine meadows in favor of geeky debates in lecture halls are members of the America which is winning in the world of globalization and technological change.

The festival’s crowd is an earnest and studious elite. Mercedes Benz, another conference underwriter, had such a hard time getting takers to test drive its cars that I overheard one rather desperate company representative offering her zippy convertible as a shuttle-bus –- and that is surely one of America’s saving graces.

One other small sign that the fabric of American middle class culture may not be fully rent. Ideas festival-goers were offered the sorts of foods you would expect the health-conscious-outdoorsy, super-elite to consume: protein-enriched smoothies, non-alcoholic wine (all the health benefits, none of the fun!), edamame and celery sticks to dip into peanut and almond butters. But the sell-out nosh? Hot dogs.

This piece first appeared in the Washington Post.

Watching Elena Kagan’s confirmation hearings this week, it is tempting to declare — as some have of late — that we have entered the age of women. Not just in politics but in school and in the broader economy women are doing well. Yet this female triumphalism overlooks an important exception: The areas where the real money and power reside are occupied almost exclusively by men.

Consider the industries occupying the commanding heights of capitalism: technology and finance. Google, Amazon, Apple and Facebook were all founded by men and are led by male CEOs. All of the big Wall Street banks are run by men. Hedge funds and private equity firms — where the real action is — are a male preserve. Sebastian Mallaby’s fine new history of hedge funds zeroes in on 14 chief protagonists — all male. In 400 pages, he interviews only two female hedge fund executives. Mallaby didn’t speak to more women because there aren’t many to talk to. Of the top 10 highest-paid hedge fund managers in 2009, none were women.

The absence of women at the economic summit is particularly significant because those at the very top of the income distribution have reaped the lion’s share of the rewards in the past couple of decades. For all their success elsewhere, it is precisely this economic apex that women are failing to scale.

The most dangerous explanation for the lack of female plutocrats — Oprah, of course, is in her own category — is probably the one made infamous by Larry Summers (whose  column I once edited): the view that women are less well-represented at the intellectual extremes and tend toward the genetic mean. Fewer women may be born with learning disabilities, the argument goes, but there are also fewer who are geniuses. Then there is the testosterone thesis: A growing body of research suggests that people with lower testosterone levels are more risk-averse, making women less likely to win big in the high-risk, high-reward global economy.

There is reason to be skeptical of these explanations. For one thing, the type of scientific aptitude measured by IQ tests may not be a prerequisite for financial superstardom: The uber-investor George Soros was an indifferent math student. And the financial crisis has shown that an extreme affinity for risk may not correlate all that well with long-term business success.

Surely social factors are at play, too. Whenever a job is high-status, we define it as being male. How many would picture a Wall Street “titan” in a skirt? When I studied in what was still the Soviet Union, almost all of the doctors and factory finance directors were women. In a system where power was vested in Communist Party functionaries, medicine and accounting were low-status professions — or, women’s work. In the West, of course, those were considered masculine jobs. Where I grew up in northern Alberta, most of the futures traders — an important business in a farming community — are women. That’s because the really high-paying jobs are in the (male-dominated) oil patch.

Feminists bear some of the blame for peddling their own brand of sexism: that women are more nurturing, better communicators. Some have argued that these skills are at a premium in the 21st-century economy. Yet that thesis doesn’t do much for the young MBA grad trying to convince Wall Street she has the cojones to make big bets. Broadly speaking, feminism long defined itself, and allowed itself to be defined, as an ideology of the left, and discomfort with capitalism in its rawest form meant that finance was not an area it tackled head-on. It is hard to encourage girls to become business titans if part of your message is that business isn’t such a good thing.

Feminists should applaud Kagan’s poised performance on Capitol Hill, but let’s not stop there. The job now is for women to accumulate their own capital.

Chrystia is writing a book about the global super-elite.