By Greg Ip
For the past generation, Democratic presidential candidates have mostly talked of redistributing the rewards of American capitalism while leaving its basic structure intact.
Elizabeth Warren promises to break that mold. The Massachusetts senator, who has moved to the front ranks of the field, talks of remaking capitalism from the ground up. As president, she would drastically cut back the size and influence of big business, push private companies from parts of the economy altogether, and shift power to government and to labor.
Businesses are meeting the rising prospect of a Warren presidency with a combination of concern, skepticism and, for a few, a sense of opportunity.
Companies are used to Democrats criticizing business, whether John Kerry, the 2004 nominee, for outsourcing jobs or President Obama, for causing the financial crisis. But no front-runner has issued so comprehensive an indictment as Ms. Warren, who has blamed business for, among other things stagnant wages, high student debt, global warming, gun violence, the prison population, high medical bills, and the shortage of affordable housing and child care.
And no front-runner has proposed such sweeping changes to how businesses operate. A President Warren would seek to regulate big tech companies as utilities, break up big banks and split them from securities dealers, ban fracking of oil and gas, phase out carbon emission from buildings, cars and power plants in eight to 15 years, require big companies to appoint worker representatives to at least 40% of board seats, ban private health insurance and, effectively, for-profit college, and negotiate down drug prices.
Her policies would directly affect companies with sales of nearly $5 trillion and stock-market value of more than $8 trillion, a third of the S&P 500 stock index. Taxes on the wealthy and corporations would rise sharply.
That, in turn, has led to nervousness among some executives. "She could create an environment where it is next to impossible to function" for health insurers, said Vicky Gregg, a former chief executive of BlueCross BlueShield of Tennessee and now partner in a private-equity firm. "There's no question that keeps you up at night if you're a health-plan executive."
Others, particularly in Silicon Valley, are enthusiastic supporters of Ms. Warren despite, or for some because of, her plans to break up big tech companies. Some economists predict her plans could boost growth and that business warnings about the harm of her policies should be taken with a grain of salt.
"Businesses have cried wolf far too many times for that to be taken at face value during a presidential campaign," said Austan Goolsbee, a University of Chicago economist who served under Mr. Obama. When Ms. Warren first proposed companies should be responsible to all stakeholders, not just shareholders, some called it socialism, he noted. A year later, "the Business Roundtable announced something very much in the spirit of what Elizabeth Warren said."
Some executives express the hope that her plans are so disruptive she would need to water them down significantly. A fracking ban "would decimate our industry," said Scott Sheffield, CEO of Pioneer Natural Resources Co., one of the largest U.S. shale companies. "We understand candidates for the presidential nomination often run to the extremes during the campaign and moderate their positions once they are responsible for governing."
Still, there is no sign of such moderation from Ms. Warren, and political analysts warn not to expect any: Presidential candidates of late, including Donald Trump, have governed much as they campaigned.
By arguing that the growth of corporate power over the last 35 years is at the root of many problems in the U.S., she would make the place of business in society a central theme of the election.
Ms. Warren, in laying out her case, has said she is "a capitalist to my bones," whereas fellow candidate Sen. Bernie Sanders calls himself a "democratic socialist."
"I love what markets can do, I love what functioning economies can do. They are what make us rich, they are what create opportunity," Ms. Warren said on CNBC last year. "But only fair markets, markets with rules. Markets without rules is about the rich take it all, it's about the powerful get all of it. And that's what's gone wrong in America."
Supporters say her proposals wouldn't displace capitalism but align it with the what prevailed in the 1950s and 1960s and still does in many other Western countries.
Ms. Warren would impose a 2% to 3% tax on wealth above $50 million, repeal President Trump's tax cuts for corporations and the wealthy, impose a new 7% tax on big company profits and a 14.8% tax on incomes above $250,000 to finance expanded Social Security benefits.
Many economists say high tax rates discourage investment and work, and thus slow economic growth. Gabriel Zucman, a professor of economics at the University of California, Berkeley who advised Ms. Warren on the wealth tax, said it depends on how the money is spent. "If it's spent on child care, and that increases women's labor force participation, then you get an increase in income for part of the population." He noted the wealthy paid 91% rates on incomes and 77% on estates in the 1950s and 1960s and "there's no evidence it killed innovation or growth."
Mark Zandi, economist at Moody's Analytics, wrote in a series of reports that the taxes required to pay for Ms. Warren's proposals would damp investment and work by the wealthy, but that effect would also be more than offset by increased spending by lower-income people, such as child-care workers.
Supporters note almost every advanced capitalist economy has single-payer health care, and in Germany, big companies have worker representatives on their boards. "It has not killed German capitalism," said Mr. Zucman. "They have some pretty strong corporations."
A sharp break
If each Warren proposal has some precedent in U.S. or foreign experience, in its totality her program would be a sharp break with capitalism as American companies know it.
A senior executive at a Washington-based trade group who works closely with top CEOs said of the distinction often drawn between Ms. Warren's capitalism and Mr. Sanders' socialism: "I don't know if business is buying that distinction. From a policy standpoint there doesn't seem to be a great deal of difference." (Mr. Sanders sought the nomination in 2016 but unlike Ms. Warren now, never led the Real Clear Politics polling average or online prediction markets.)
A common refrain among business is that Ms. Warren seems to thrive on attacking them, indeed considers it part of her brand. She retweets articles about their criticism with: "I approve this message."
The rancor is most acute among financiers Ms. Warren regularly casts as villains, even after a decade of postcrisis reforms that have made banks safer, less profitable and their treatment of consumers more tightly regulated. She called her capital-gains-tax proposal, introduced this summer, the Stop Wall Street Looting Act. Some still stew over her blocking investment banker Antonio Weiss from a Treasury job under Mr. Obama in 2015, despite his Democratic credentials, because he worked on deals that moved some companies' domiciles abroad.
Few, however, will say so publicly, fearful of the damage she can do to their companies and share prices. Two weeks ago, she knocked 3% off the shares of the two big bond-rating agencies by challenging the impartiality of their ratings in a letter to regulators. When the chief executive of UnitedHealth Group Inc., parent of the country's largest health insurer, briefly addressed the impact of Medicare for All in an earnings call, it was blamed for driving down the entire sector's share prices.
UnitedHealth says it "welcomes the renewed national discussion on how to achieve universal coverage."
In July, Facebook Inc. CEO Mark Zuckerberg, referring to Ms. Warren's plan to break up Facebook, said in remarks to employees reported by The Verge, a technology-news site: "If she gets elected president, then I would bet that we will have a legal challenge, and I would bet that we will win the legal challenge," adding that "at the end of the day, if someone's going to try to threaten something that existential, you go to the mat and you fight."
Ms. Warren shot back on Twitter that Facebook has "a lot of power -- and [faces] little competition or accountability."
Last week, Mr. Zuckerberg held another employee Q&A, which was publicly livestreamed. Asked about Ms. Warren's plans and how Facebook's platform would remain unbiased toward her, he joked he would "try not to antagonize her further," then added employees needed to be neutral and empathetic to a wide range of opinions. "The value that we care about is giving people a voice and allowing people to express themselves," he said. "We obviously try not to be biased."
The consensus among business leaders is that few of Ms. Warren's big initiatives will be enacted, because she will tack toward the center if she secures the nomination or the White House, or because Congress and the courts won't let her. An antitrust lawsuit against a big tech company would take a decade or longer and probably fail, Barclays analysts said in a July note.
Medicare for All "would destroy" private insurers, said Matthew Borsch, an analyst with BMO Capital Markets. But, he said, an executive of a major health insurer, in a recent private meeting, put the odds of such a plan passing at "10,000 to one."
Many business leaders have no problem with Ms. Warren's goals, but do with the speed and means by which she means to reach them. Minneapolis-based electric utility Xcel Energy, which serves eight states, in December pledged to slash its carbon emissions 80% by 2030 and 100% 2050. That's not good enough for Ms. Warren, who has targeted 100% by 2035.
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October 09, 2019 14:13 ET (18:13 GMT)Copyright (c) 2019 Dow Jones & Company, Inc.