Obama’s Interlocking Directorate
The robber barons of old would marvel at the tentacles of influence of Barack Obama.
By Rich Lowry
National Review Online
The interlocking directorate is anathema to trustbusters and corporate watchdogs. It occurs when a board member or top executive of one company sits on the board of another company, accumulating undue power over a given industry. When it reduces competition, the arrangement is forbidden by the Clayton Antitrust Act of 1914.
If Henry De Lamar Clayton, the Alabama congressman who introduced the aforementioned act, were still with us, he’d presumably be shocked at the creation of the most far-reaching interlocking directorate in U.S. history. Obama Inc. has effectively won a seat on the board of companies at the heart of the nation’s industrial production and its financial system. The robber barons of old would marvel at the tentacles of influence of Barack Obama, a CEO whose power would overawe J. P. Morgan (the famous industrialist, not the bailed-out bank).
In difficult negotiations with business, Obama has the advantage of sitting at both sides of the table. This makes the art of the deal considerably simpler than when Donald Trump wrote about it years ago. Consider the matter of CAFE (Corporate Average Fuel Economy), the mileage standards that have been resisted by automakers for decades in a multifaceted regulatory and legal battle featuring enviros, the state of California, and industrial-state lawmakers. The other day, Obama snipped the Gordian knot in an offhand swipe with his fingernail clippers.
He gathered Detroit’s CEOs in the Rose Garden and announced that they had acceded to a drastic increase in the standards, to 39 mpg for cars in 2016. And why wouldn’t they? Both General Motors and Chrysler continue to exist on the basis of Obama’s good will. After their bankruptcies, the companies will give a 72 percent and 8 percent ownership stake, respectively, to the federal government. A president needn’t bother with the traditional “jawboning” of an industry, the tiresome work of a Harry Truman or Lyndon Johnson, if he carries that industry around in his back pocket.
As Chrysler headed into bankruptcy, the government got the company’s creditors that were dependent on TARP funds to do its bidding and take a substantial “haircut.” The banks, too, knew to heed the directive of the ultimate interlocking directorate.
As the next logical step, former Clinton labor secretary Robert Reich has proposed putting public directors on the boards of all companies in which the government has an ownership stake. “In exercising their oversight function,” Reich writes, “they should seek guidance from the president and his top economic officials.”
Over time, this public-private arrangement will be subject to all the traditional pitfalls of interlocking directorates, from collusion to conflicts of interest to strategic myopia. The directorates have at times been used to create cartels, commonly defined as “a form of collusion between firms in the same industry aimed at restricting output and increasing prices.”
The new CAFE deal fits the definition almost exactly. It restricts the production of large automobiles, will increase the price of cars, and ignores the interests of the consumers. The only difference is that the industry doesn’t benefit from the cartel. It’s the senior partner, the federal government, that is wielding its industrywide influence to twist the market to its social-political ends.
Government doesn’t have to own a stake in its corporate partners to bring them to heel. The liberal lion in the House, Henry Waxman, got surprising industry buy-in on his draft of a cap-and-trade bill through giveaways that favored selected energy players. Health-industry groups are jockeying for a place at Obama’s table on health-care reform so they can see to it that all the pain is inflicted on others. This is beggar-thy-neighbor industrial policy, wherein government uses its power to inflict harm or bestow advantage in order to divide and conquer corporate America.
As a short-term political strategy, it’s unassailable. As a way to run an economy, it will prove corrupting and stultifying. The cause of free-market capitalism awaits its Clayton to unravel the sprawling Obama directorate.
Rich Lowry is the editor of National Review. © 2009 by King Features Syndicate
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