What the Presidential Election Result Tells Us

Many of my Republican friends (I am registered as an Independent) are bewildered that President Obama won. However, I believe in the voters’ collective wisdom, and would offer observations about some of the reasons Americans chose President Obama over Governor Romney.

The Republican Party platform and its U.S. Senatorial candidates frightened many people who would otherwise consider voting Republican because of harsh, insensitive positions on issues like immigration, abortion, and contraception.  Governor Romney’s path to winning the nomination forced him to support positions he probably would not have supported in a general election campaign.

However, the more interesting question is whether, as President Obama has said since the election, the American people bought into his idea that wealthy people should pay higher taxes.  I do not think the answer is a simple one, since voters make decisions for multiple reasons, not all of which are prioritized the same way for every voter.  Some people who think that wealthy people should be taxed more voted for Governor Romney because they preferred his position on healthcare, and some people who do not think that wealthy people should be taxed more voted for President Obama because they believe he had a more sensible position on other issues.

American attitudes toward wealthy people

My view, based on what I have read over the years, on polling data, and on talks with many people at all income levels, is that Americans have highly sophisticated views about wealth accumulation and taxes. They are willing to let wealthy people keep their wealth if:

  • they feel it was earned by improving the lives of others, not by gaming a particular system or taking advantage of others;
  • the wealthy people share their wealth through philanthropy, do not flaunt it, or invest it in job-creating businesses; pr
  • Americans feel that being wealthy is a status to which they can reasonably aspire during their lifetime.

Most Americans do not share President Obama’s visceral dislike of wealth accumulation, but President Obama was able to characterize Governor Romney as someone who obtained his wealth through misery inflicted on others, who flaunted his wealth, and whose policies were going to deny Americans a chance to realize the American dream.  These characterizations may have been wrong, but because of Governor Romney’s tone deafness as to the degree to which they were sticking, the perception the Obama campaign created became the reality for enough Americans that it probably swung the election.

Americans pay a lot of attention to how people get wealthy.

I have seen a highly sophisticated understanding of the difference between their attitudes toward people who get wealthy by creating and delivering products and services that produce real societal value and those who manipulate rules and deliver no value, or worse, destroy jobs and communities.

Years ago, I read a survey in which a broad cross-section of the public, were quite willing to let people like Steve Jobs, Bill Gates, Sam Walton, and others who founded or grew great companies keep their wealth because they had changed society for the better.

Americans have problems with at least four kinds of wealth accumulation:

  • Many people get wealthy by activity that either adds no value to society, or by being able to profit even when they are not performing in their jobs, or by taking actions that destroy other peoples’ lives.

Contrast wealthy business leaders Americans admire with the hedge fund trader who accumulates wealth by devising a high-speed computer program and acquiring high powered computer servers that trade options, puts and calls milliseconds faster than others, thereby getting an advantage on other market traders. Americans resent the wealth accumulated by these individuals, since, in many cases, these the income produced by these high speed computer programmed trades does not appear to benefit anyone other than the traders and their companies.

Americans do not like it when wealthy people exploit unintended tax loopholes to avoid paying taxes.

Think also about Wall Street firms that devise a tax avoidance scheme to save clients billions of dollars, because lawmakers inadvertently left a loophole in a tax code.  That scheme is simply a wealth redistribution tool, until the tax savings are redeployed for societal benefit.

Many CEOs get wealthy, even when they fail.

Also, think about an all-too-common scenario relative to large company CEOs: the CEO is terminated for nonperformance, but gets a severance package equal to two years of base and incentive pay, and the ability to exercise options for another seven years. Americans resent individuals who get richer while failing.

Many CEOs get wealthy by producing profits through eliminating jobs and loading up a company with debt.

In the 1990’s, one of the most celebrated CEOs was Al Dunlap, nicknamed “Chainsaw Al” because he quickly and severely cut costs in the companies he led.  He terminated the employment of thousands of people and did so without determining whether a less destructive option was available.  Americans do not like those who get wealthy by creating massive misery and disruption in the lives of others.

What I found as CEO is that employees and their families could accept certain kinds of job reductions, but had difficulty accepting others.  When Pitney Bowes closed its Stamford factory because we did not have the patented technology to produce digital ink jet postage meters, factory workers accepted the need for us to do that.

However, when we outsourced IT work to India, employees strongly opposed that action, since workers mistakenly believed that our sole reason for doing so was to cut costs.  When they realized that there was a difference in the kind of work we needed done, and that the Indian firm was better able to do it, the opposition diminished.  Job outsourcing solely to cut costs is very difficult for Americans to accept, since they believe that executives are tempted to do them to excess.  Job reductions and replacements to improve organizational capability or productivity are less difficult to accept.

Many private equity firms of the 1980’s and 1990’s increased the net income of the companies they acquired by loading them with debt and cutting costs by laying off thousands of workers.  The effects were positive in the short term, but highly destructive in the long term.  In most cases, the private equity firms had long since sold the companies by the time the debt loading and the asset stripping’s negative consequences became obvious.

Could we develop income tax rates which distinguish among the various ways in which wealth is accumulated, and taxes some ways higher than others?  We already do that in many ways.  Americans are telling elected officials that they need to do it better.

Where did Governor Romney fit?

Governor Romney had a difficult time explaining how he fit into the wealth-creating category represented by Steve Jobs and others like him.  He had great examples, like the capital his firm provided to Staples, which transformed small business by reducing their purchasing costs, the way Walmart had made life more affordable for consumers.

However, private equity in the era in which Governor Romney ran Bain Capital stood all too often for financial engineering tactics, in which wealth was created by acquiring companies, taking advantage of tax code provisions that made debt capital interest deductible and creating profit by stripping assets and laying off people.

Private equity firms are far different today, and they add great value by enabling large firms to avoid the pressures of short term earnings creation to invest for long term shareholder and societal benefit.  Governor Romney did not take the fight to President Obama on this issue, and he was painted with a very negative brush as someone who made money by creating misery for everyday workers who lost their jobs.

Governor Romney also made his tax planning a bigger issue than it needed to be by using tax shelters available only to those with the financial wherewithal to park certain assets outside the United States.

He did not appear to be getting wealthy through failure, but having been tagged as someone who got wealthy through creating misery for others, his manner of wealth accumulation was resented by many people.

  • Americans do not like people who accumulate and flaunt wealth, rather than redeploying it for public benefit.

Bill Gates made an incredible amount of money during his business lifetime, but has redeployed much of it through the Gates Foundation in a visible effort to make a difference in reducing world poverty and in improving educational opportunities and the poor health conditions that arise from poverty and illiteracy.  Michael Bloomberg has been a generous benefactor to libraries and business schools, as well as the Johns Hopkins School of Public Health.  Going back a few generations, Robert Wood Johnson, one of the founders of Johnson & Johnson, became a major benefactor in improving both individual and community health.

Although Governor Romney is a personally generous individual who gives more to charity in both absolute and percentage terms than President Obama (who is actually very wealthy himself) and gives huge sums of money to his church, he is identified with no major signature public benefit initiative the way Bill Gates has been identified with reducing world poverty. If there had a well-funded “Romney” Foundation initiative that was focused on curing world hunger or homelessness, the perception of Americans about his wealth accumulation might have been different.  When we see what Romney’s Tyler Charitable Foundation supported, there were legitimate charitable causes, such as research on multiple sclerosis and other health-related causes, as well as other humanitarian causes.  However, he never established a brand around championing a broadly accepted charitable cause.

Americans could not understand how Romney’s economic plan would help them participate in the American dream.

Governor Romney often talked about how tax reductions would create small businesses and enable them to hire more people, which would be the future job creation for America.  I have fallen into the same trap he did on many occasions, which is that American audiences are persuaded by stories, not statistics and not conceptual arguments.

President Obama was able to be very concrete, even if wrong, in describing how he preserved automotive jobs with the bailouts and how he preserved local government police, fire fighter and teaching jobs with the stimulus legislation.  Although his way of doing the bailout was inefficient and deeply flawed, because it gave unions higher priority than bondholders, it had the virtue of being concrete and simple.

Where will the middle class jobs of the future come from?  Governor Romney needed to tell stories that would register with voters about how the private sector would create those jobs, although, in my judgment, the private sector needs a partnership with the K-12 educational systems and our community colleges to be able to do that.  He articulated no powerful game plan about he would put the machinery in place to create opportunities for that.

Did the public make the right decision?  Given the information available to them, I believe they did.  However, Governor Romney and other proposing lower tax rates for everyone, including wealthy Americans, did a poor job making what could have been a more compelling case, whereas President Obama brilliantly presented a flawed case and won the election.  Unfortunately, those who lose a Presidential election do not get an immediate “do-over.”

In our wonderful democracy, we accept the results, try to work together for the greater good, and move one.  It is time to do that.

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