Monday, February 9, 2009

Stumbling on their sense of entitlement

Feb 9, 2009

By Steven Pearlstein

MR TOM Daschle still doesn't get it. Mr John Thain never did. Mr Barack Obama gets it sometimes, Ms Nancy Pelosi and Mr John Boehner, not so much.

Corporate executives think they get it but aren't even close. College presidents, governors and union leaders, for the most part, don't have a clue.

'It' is an understanding of how fundamentally the political and economic environment has been transformed with the bursting of the bubble economy and how that has jeopardised basic assumptions and expectations.

Mr Daschle's problem was not that he didn't pay his taxes. It was that he - along with those who vetted his nomination as Health and Human Services Secretary and many of his former senate colleagues - found it perfectly ordinary and acceptable that he would be able to cash in on his time in the Senate by earning more than US$5 million (S$7.5 million) over two years as a law-firm rainmaker, equity fundraiser, corporate director and luncheon speaker, all the while being driven around town in a chauffeured town car. Not exactly Cincinnatus returning to the plough.

For the American public, Mr Daschle became the latest symbol of everything that is wrong with Washington. Now that this system has let them down, and left them poorer and anxious about the future, people are angry about it and no longer willing to accept the corruption of the public process. The irony, of course, is that President Barack Obama understood all this and tapped into Americans' frustration as the central message of his 'change' campaign. But even he failed to see the depth of the problem or anticipate the ferocity of the backlash.

Mr Obama's first mistake was to hand the keys of the transition office over to a crew made up almost exclusively of Washington insiders who - surprise! - have largely succeeded in restoring to power their friends from the Clinton administration. Worse still, he has fallen for the tired old Washington 'wisdom' that the only way to get anything done is to concentrate even more power in an ever larger White House, full of czars and councils and chiefs of staff who ostensibly are there to 'coordinate' policy but invariably wind up making it, sapping the departments of whatever importance and energy and creativity they have left.

At the other end of Pennsylvania Avenue, congressional leaders, while nodding in the direction of bipartisan cooperation, have also stuck largely to business as usual. It's hard to know who is to blame more for the party-line vote in the House on a desperately needed economic stimulus Bill - the Republicans who cling to stale ideology and spout economic nonsense or the Democrats who shut them out of the drafting process, never bothered to articulate a compelling rationale and lost a golden opportunity to reform the programmes as they were expanding them.

Not that the private sector has done any better. For most of us, it seems inexplicable that a man as smart and sophisticated as Mr Thain could spend US$1.2 million to redecorate his office at Merrill Lynch or demand that the board of directors give him a US$30 million bonus at the end of the year.

This goes beyond mere greed. As with Mr Daschle, it springs from a deeply felt but rarely articulated sense of entitlement that now warps the judgment not just of those on Wall Street but of those throughout the upper reaches of corporate America. And over time, it has filtered out to law firms and consulting firms, where freshly minted MBAs and legal associates came to expect starting salaries of US$150,000 and partners thought it their God-given right to draw US$1 million a year.

All that is history. It turns out that those inflated pay stubs weren't really a measure of genuine economic worth but manifestations of the mirage that was the bubble economy. Economically, they are no longer sustainable; socially and politically, they are no longer acceptable.

But it's not only the rich and powerful who are still in denial and need a bit of mental retooling. Is it too much to ask those college presidents who are about to be the beneficiaries of big increases in student aid and tuition tax credits to use this crisis to finally embrace the productivity revolution and find a way to use technology and new teaching techniques to lower the cost of education?

And if we're going to spend billions of dollars to upgrades roads, bridges and public transit and create jobs for unemployed construction workers, what would be so terrible about temporarily suspending the rule requiring that union wages be paid? That way, more jobs would be created and taxpayers would get a better return on their infrastructure investment.

It's also a good thing that Congress is preparing to ship billions of dollars to state and local governments to maintain vital services and forestall layoffs of teachers, police officers, firefighters and social service providers. But in return, shouldn't the governors receiving this temporary relief be required to come up with plans to make the necessary adjustments to balance their budgets over the long term, much as we've already done with aid to struggling automakers? And would it be so terrible if state employees would pitch in by accepting a two-year freeze on wages and a reduction in pension contributions?

It would be lovely if we could get out of this economic mess simply by having the government bail out the banks and spend a trillion more dollars in borrowed money. Unfortunately, it won't be that easy. As Mr Daschle and Mr Thain have demonstrated, it is going to require fundamental changes in what we do, how we do it, and how the costs and benefits are allocated. It will also require a commitment to shared sacrifice and mutual responsibility that we are only beginning to understand.


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