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Sure, Hispanics had voted two-to-one for Al Gore despite an unprecedented multicultural campaign by George W. Bush to woo them for the GOP. Admittedly, an openly race-baiting campaign by the Democrats had reduced support for the GOP among black Americans to a historic low of eight points. And it could no longer be denied that immigration was pushing the electorate steadily leftwards into the arms of the Democrats. But the good news for Republicans was that a growing number of Americans owned stock — and these voters were increasingly pushed by their economic interests in the opposite direction. They would be less amenable to anti-corporate rhetoric and more disposed to consider such policies as the reform of Social Security. And as prosperity pushed more people into the so-called "investor class," there would be growing Republican dominance in the electorate — or at least a countervailing force to offset the electoral impact of immigration. "Investor class" theory was the brainchild not of the Republican machine but of a small number of independent activists, economists, and conservative journalists — Rich Nadler, the Kansas conservative activist, Ramesh Ponnuru of National Review, Larry Kudlow of the CSNBC show Kudlow and Cramer, and the economists Jim Glassman and Kevin Hassett of the American Enterprise Institute. Nor was this pure hypothesis. There was a good deal of evidence to support the theory. A Zogby study conducted in October 2000 showed clearly that the tendency to vote for the GOP rose in line both with the investor's investments and with his knowledge of them. Among non-investors there was a clear majority for the Democrats of 45 per cent over 27 percent. This shrank to a Democratic margin of 0.6 percent among "loosely defined" investors. And it became a clear GOP lead of 10 percent in the "self-identified investor class." The logic of this was clear: The GOP should seek to alert voters to their status as investors and thus to their presumed interest in voting Republican. All this was catnip to the GOP. But there was also a warning for Republicans in the opinion surveys. When a CNN exit poll asked voter-stockholders if they were worried about the market, another clear pattern emerged: Bears voted heavily for Gore and Bulls equally heavily for Bush. In other words, investors might see their economic and political interests differently if the market changed. The 2000 presidential election took place at the height of the bull market. What would happen if the market turned bearish? At the time I suggested two possible consequences, writing in NR. First, if stocks fell, there would be a general drift in the investor class away from risk and towards security — a drift likely to take them in a Democratic direction and away from such political projects as the partial privatization of social security. Second, the investors themselves might well become hostile to the party most associated with persuading them to put their money into falling stocks. That is why Lady Thatcher fell from power in Britain in 1990. New homeowners blamed her for the sharp deflationary fall in the value of their principal investment, namely their home, which her government had successfully urged them to purchase. Both trends seem to be happening right now as the market falls — though the evidence so far is less clear in opinion polls than in the reaction of the politicians. Democrats are gung-ho for regulation of every kind, while the GOP limps along in their wake, shouting "less of the same." Few Republicans now have the nerve to urge the reform of Social Security; most Democrats are delighted to raise it — as a GOP scheme. And it is seen as an embarrassment rather than a credit for a politico to be associated with corporate America. "Investor class" theory is looking somewhat shop-soiled. But these problems, though real, are temporary. They will dissipate quickly enough if the market recovers. And other things being equal, investors would recover their Republican electoral loyalties over time. As every schoolboy knows, however, other things are rarely equal. One recent development in particular strikes at the heart of "investor class" theory — namely, the dramatic revelations from WorldCom, Enron and a several major U.S. corporations that CEOs and corporate managements have been concealing the extent of their compensation in acres of fine print, accounting for it in ways that give a false impression of profits and profitability, and in effect bribing their auditors to confirm the falsehoods. In other words, they have been defrauding their investors. And even when no illegalities have occurred, some corporate managers have nonetheless treated the corporation as their private property, spending the stockholders' money on fleets of planes, handing out charitable donations as if from their own bank accounts, and arranging "golden parachutes" in the event of their corporation's failure. Why is this so significant? In the past investors made no distinction between their own interests and those of corporate management. They inclined towards the GOP because it was the party of corporate capitalism while the Democrats were the party of labor unions. If, however, investors and corporate managers seem to have different or opposing interests, then investors will want friends in politics to protect them against their employees. And the GOP will have to choose between shareholders and corporate managers. So far neither party is exactly proving itself to be the investors' friend. Most of the "reforms" in the Senate and House bills have been driven by the Democrats with a little help from the mainstream media. Not surprisingly, they confirm that the Dems are first and foremost the friends of the government bureaucracy. They are the kind of regulations that give more power to bureaucrats over both shareholders and managers. In an almost comical moment a Washington Post editorial, defending the Senate's proposed audit oversight board against the Republican criticism that it was an "unaccountable" body, retorted hotly that, not at all, it was accountable to the SEC! What is needed instead — as several commentators have preceded me in arguing — are changes in the rules of road that give corporate managers the incentives to align their interests with those of investors. Or, if they inevitably clash, to give those of investors preeminence. Or, if it is unclear whether they clash or not, to ensure that investors and potential investors are guaranteed full and accurate information from unbiased sources on which to base their judgments. Such reforms might include forbidding audit companies from performing other financial services for the same corporate clients; repealing or amending those corporate laws that place "poison pills" in the way of hostile takeovers; removing the tax bias against dividends; and ensuring that stock options are treated fairly as a company expense so that a false picture of company profits is not given to the public. But even these reforms need to be properly considered and evaluated by lawmakers before they are written into law. The present congressional rush to judgment risks putting in place "reforms" that will subsequently become the basis of perhaps greater "scandals" down the line. As Ramesh Ponnuru has pointed out, stock options — which are now portrayed as an unmitigated corporate rip-off — originally began life as an attempt to ensure that managers would share the shareholders' interests in a higher rate of return. It took some time for unscrupulous CEOs to discover and exploit the various techniques of massaging stock prices to divert profits from stockholders to themselves. And even then it was a Democratic law limiting CEO salaries but not other incentives that made such techniques apparently respectable. That said, the party that clearly roots its financial-reform program in arguments that protect and advance the rights of investors rather than the prerogatives of the regulatory bureaucracy will win the investor vote. And given that the GOP and the White House look awfully like a bunch of CEOs on sabbatical, they will have to work very hard — and take an uncharacteristically ideological stance — to convince investors and voters alike that they deserve at least a call option on their votes. — John O'Sullivan is editor-at-large of National Review. This first appeared in the Chicago Sun-Times and is reprinted with the author's permission. |
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hen
the political analysts were picking over the results of the 2000 presidential
election, the Republicans among them discerned one optimistic electoral
trend among so many disappointments.
