Speech before the Los Angeles World Affairs Council on November 4, 2002:

 Jeffrey Garten
Dean, Yale School of Management

New Roles and Responsibilities

for Business Leaders Post 9/11

Thank you for a lovely introduction and I want to say it's a delight to be here for a second time.  Today is the day that my new book is coming out, so I can think of no better place to test some of the ideas than in Los Angeles.

What I'd like to do is just tell you a little bit about what was in my mind when I wrote The Politics of Fortune and then very quickly get to the part of the book, which deals with business and foreign policy. 

On September 11, 2001 I was, in addition to being shocked like everyone else, really put on the spot, because that afternoon I had to call together the students at the Yale School of Management, the business school at Yale, and say something.  And so right from the very beginning I was forced to think about one particular angle of the terrorist threat: “what does it mean for business leaders?” since in front of me were 400 future leaders.  I felt I'd better say something or try to put it in some context.  Of course, on September 11 that was really impossible for anyone to do with any skill, but it got me thinking very early on about what that new era, an era of terrorism, means for business leaders.  And I guess it was the intensity of having to think about it right from the beginning that made me feel, well, maybe I should just write down my thoughts as they occurred because there was just so much attention to this issue and so many people were trying to think about it.

I started to scribble and scribble and thought I had a good thesis, but then the Enron crisis came and I said to myself, “How can you write about business leaders without taking this into account?”   And I started to think, “Is there any common thread between terrorism and the Enron scandal?” and I began to think that if you take these two together they might actually mark the beginning of a whole new era for business leaders.  An era that is much different from the last two decades that we have known, two decades of prosperity, two decades in which our society was really saying in so many words, “Let's get the government out of everything.  Let's let the market function.”  I don't know that we articulated it this way, but if you watch TV or read the newspapers, if you looked at the magazines, we were also saying, “Let the free market reap.  We're a prosperous country. It's all about the market.  It's all about free enterprise.”  But the conjunction of 9-11 and Enron made me feel, “Hey, wait a minute.  Something is going to change now.”  And one of the big things was that the role of government was going to reassert itself in a really big way. 

Because of terrorism, obviously an enormous amount of security concerns immediately took center stage.  Because of Enron, and everything that followed, a great deal of suspicion began to emerge about the conduct of business generally. 

As I looked at it I realized there have been big swings in American history in which we have gone from periods in which business was revered and markets were thought of as the be-all and end-all, and then the pendulum swung and all of a sudden there was an era of government regulation.  That is sort of embedded in our culture — that we have these big swings. 

If you look at the last half of the 1800s, the era of the robber barons, huge fortunes were made — but more than that, huge amounts of investments were made in the country.  This was the era when we had the railroads, we had big national companies emerging for the first time, the growth of cities and then, ten years later, the government stepped in, there was a lot of dissatisfaction.  There was a swing the other way.  If you look at the 1920s, irrational exuberance in the markets was followed by an era of regulation.  If you look even in the 1960s, we had an era of prosperity and then we had a wave of regulations relating specifically to consumer protection and environmental protection. 

So we had these swings and I saw, for different reasons, this pendulum swinging again.  But I asked myself the question, “Is this good or bad?”  And the fear that I had, and the fear that I have now, is that we could swing [too far].  We swung much too far in the 80s and 90s, toward unrestrained markets.  Now that pendulum could really swing much too far in the other direction.  And given that we are a market-oriented society and given that that is the way the global economy has been moving, this would be, I think, a real mistake and would become a huge problem for American society. 

So I asked the question, “How do you prevent this?  How do you prevent an era of over-regulation, of too much government intrusion?”  And it struck me that one of the keys is that you need a group of business leaders who have the wherewithal to talk about a market society, to contribute to the making of public policy.  The hallmark of today is we don't have those business leaders.  We don't have them because, as a result of both terrorism and the Enron mess, they veer into intervening in an era of national security or they’re discredited.  They’re discredited because of the state of scandals that we've seen.  I think this is an enormous problem for us.  In my book I trace all the issues that I think business leaders ought to be engaged in, over and above running their companies, and which they're not. 

I am making a strong case — I hope it's a strong case — that business leaders need to rehabilitate their reputations as soon as possible in order to have a stronger voice in some of these public policies; otherwise, they're going to be far too skewed in one direct. 

I talk about a whole bunch of issues.  I talk about homeland defense in my book.  I talk about corporate governance.  I talk about the role of business in our domestic economy, the role of business in the global economy, what business leaders ought to be doing when it comes to global poverty, even what they should be doing when it comes to education.  But the one example I want to give you is with regard to foreign policy itself.  You may say, “Well, of all the examples, what do business leaders have to do with foreign policy?”  You know, the fact is, that if you look at American foreign policy, if you look at the history of it, business has been at the center of it for most of our history.  George Washington said we should have no political alliances but we should have commercial relations with all countries.  And, in fact, that was pretty much the guideline for American foreign policy up until the beginning of the Second World War.  If you just take away the period of the Second World War, commercial interests have been at the center of our foreign policy.  

Take the Cold War.  Although we were obviously in strong military competition with the Soviet Union, a lot of our foreign policy was in building commercial ties with other countries, western countries, in order to keep the western alliance strong.  Business leaders played a big role.  In fact, in my book I talk about a group of business leaders who in the late 1940s helped to design the Marshall Plan, helped to implement it, and helped to create a whole series of national policies that put us in really good stead.  But we don't have that today and, if you ask me, this is a real problem in our foreign policy. 

I'd like to explain why.  Let me start by saying that I am among those people who feel that Iraq is a menace, that Saddam Hussein is as evil as anyone can be.  I am a strong supporter of removing him and removing the weapons of mass destruction.  I don't want to make this a discussion about Iraq, but the problem I have is that the approach to Iraq is all too reflective of our foreign policy more generally.  The notion, for example, of extreme unilateralism that the administration has embraced; this kind of unilateralism, in my view, represents, or is reflective of, a world which simply doesn't exist any more.  I think that if business leaders had the wherewithal to talk about foreign policy, to be involved, they would describe a whole different world.  They'd describe a whole in which virtually everything that the United States needs out of the globe requires the cooperation of other countries. They would point to such issues as trade where a quarter or a third of all American economic growth is a result of trade, and show how we need the cooperation of other countries.  They would talk about global finance and how, as strong as the U.S. is, it can't create financial stability alone.   They would look at such issues as antitrust and say that American companies that want to acquire companies abroad need to pass muster with some 60 different antitrust authorities around the world, and point to the need to have one cooperative framework.  They might point to food safety and say, “We have nothing on the global scene that is the same as our FDA.”  In other words, they would point to a whole range of issues and say, “You have to have international cooperation.  You can't do this alone,” and that is different from the kind of foreign policy that the Bush Administration is pursuing.

Another area.  The Bush Administration is almost proud of what it calls the “Doctrine of Preemption.”  That is, we have the right to go ahead and invade someone else that we think is going to be a threat to us.  Well, let's be honest.  We can never give up that right.  We're a sovereign country, we have, I think, a lot of global responsibilities and there will be cases — and maybe Iraq is the case — where we cannot wait to defend ourselves.  But what this Administration has done is make this the centerpiece of our foreign policies.  It's gotten up on its soapbox and bragged all over the world that this is what we're about.  And aside from the fact that we've given license to China to invade Taiwan if it thinks that Taiwan is a threat, or India to invade Pakistan, or Russia to invade one of the republics around it, this is a degrading of international law.  We're signatories to the U.N. charter.  The U.N. charter is very specific — there's no such thing as preemption.  You can go to war if somebody attacks you.  So by elevating this notion of preemption to the level that the Administration has its basically said, “We don't care about international law.”  Now, if American CEOs had a voice they'd say, “Hey, we actually care a lot about it.  We care if somebody rips off our intellectual property rights.  We care if somebody expropriates our property.”  We have a huge interest in more, rather than less, international law and yet the Administration is going in exactly the opposite direction. 

Let's take another area.  If you look at American foreign policy now the economic issues are way, way down the ladder.  If you talk to government representatives in virtually any other country their interests are in the economic sphere.  You talk to Japan, you talk to China, you talk to Russia, you talk to Mexico, you talk to Brazil — the things they care about are economic growth, economic progress.  I'm not saying that national security isn't the most important thing that we face, I'm just saying that can't be the only thrust of our foreign policy, and if business leaders had a voice they would be saying, “The agenda is deeply imbalanced.” 

Now, the question on your minds undoubtedly is, “What are business leaders supposed to do?”  I'm certainly not advocating that they make foreign policy.  That is not going to be possible and maybe not even desirable.  I'm not even saying they should execute foreign policy, but they need a voice.  The business community, in fact, is the only strong voice in this country for continued globalization.  They are the only potential champions.  You're not going to get it from the labor unions; you're not going to get it from dispersed groups of Americans.  We're at a very tender point in globalization where we could go forward with more opening, more trade and more of the things that globalization has brought or we can go backwards and the world could very easily fragment into different blocs of countries, more nationalism, more protectionism.  I believe that the voice of the business community is absolutely crucial in determining which of these two directions we go in, and, in my view at least, there's only one that's in the interests of the United States.

So, what I would like to see is business leaders, first of all, talking to their counterparts in the government and at least expressing a need for a different kind of vision of the world.  I'd like to see organizations like this backed very much by business leaders far more active and far more collective in saying, “Hey, this world that the government seems to be describing is either yesterday's world or only a partial reality.”  I'd like to see business leaders funding studies and research and having their trade associations much more active in terms of describing the kind of world we ought to be in and what we ought to be doing.  I'd like to see the business leaders and the Administration — this isn't going to happen — but I'd like to see them form the equivalent of a major foreign policy council, a business foreign policy council, that advises the White House and the National Security Council, and basically has a chance for very high level input, as to how some of the policies that we're pursuing are likely to unfold and what the impact is going to be. 

I think that voice would be a voice with content that is much different than anything we're hearing on the national scene now.  The debates over Iraq, the debates over foreign policy, they're very, very narrow.  They don't deal with the broad long-term interests of the United States.  They don't take into account what this extreme unilateralism, this preemptive doctrine, this militaristic focus, is going to do to the interests of the United States in the global economy over time.  They don't take into account of the kind of anti-Americanism that is being shown and that will affect all of us, particularly these young people here in the audience and their counterparts.  

I firmly believe we're embarked in something that is very dangerous.  I don't think that business leaders hold the answer, but I think it's a role that they need to play. 

Let me give you just one or two short examples and then I'd love to open this up.  Let's take homeland security.  Business is playing a very small role in homeland security.  I think this is a terrible mistake.  Eighty-five percent of all assets in this country are in the private sector.  Fifty percent of everything spent on security, if you take away the military stuff, is spent by private companies.  I can tell you there is no scenario for a real, effective, homeland security policy that is based on anything other than a major partnership between business and government.  You can't protect the electricity grids, you can't protect the telecommunications, you can't protect any of the assets if all it is, is government.  That is unless you want to see the whole economy nationalized. So, I think here is another area where business leaders ought to play a bigger role.

Now, one of the big questions is, “Why aren't they doing this?”  And this brings me back to the starting point about business reputations.  I think it's vital to the national interest that there is a fast, or as fast as possible, rehabilitation of the reputation of business leaders.  I think a lot of that is in their hands, frankly.  I happen to believe that the corporate governors transgressions were very deep and very wide.  I think there's a real role for business to play to show that it's really serious about upgrading its act, but there are a lot of other areas, too. 

For example, campaign finance reform.  We will never have serious business leadership in this country if it is seen that business is de facto attempting to bribe the government into various policies.  But you know, two-dozen business leaders could stand up and basically say, “We're done with campaign finance reform.  We're not making any contributions,” and that would have an electric effect.  Forget about these laws that are being passed.  They've got holes you can drive a Mack truck through.  What we need is business leaders to say, “We're done with this shaking act.  We're done with this shakedown.”  And I think we need a couple of dozen business leaders to stand up and basically say, “We really care about the public interest.  We're going to form a group that is not based on the interests of ourselves or our companies but on something broader — on the kind of national and international policies that we should have.” 

It's happened before in the United States.  It happened in the late '40s and early '50s, and I just fail to believe that it can't happen again.  But, if it doesn't, I see a period in which we are going to experience a gradual, but inexorable, government involvement in every aspect of our economy with some very good reasons — national security, homeland defense, corporate governance — but when we wake up we're going to find a society that is less open, that is over-regulated, that has forced companies to be risk-adverse, and I think that would be extremely unfortunate.

So, let me stop there and I would be delighted to take your questions.