Monday, February 09, 2009

Barack Obama and Ronald Reagan

More than a year ago, Barack Obama was criticized for referring to Ronald Reagan as a transformative president in an interview, saying that Bill Clinton didn’t change the course of the country the way Reagan did.
Michael Mandel, chief economist at Business Week, compares Obama’s action to limit the pay of bailed out bankers to Reagan’s firing of striking air traffic controllers in 1981:
On Feb. 4, President Barack Obama called for limiting executive pay at future recipients of government bailout funds, calling Wall Street bonuses "shameful" and "the height of irresponsibility." Could his public attack on sky-high financial pay have ripple effects on executive compensation in other industries?
If history is any guide, the answer is yes. A President, if he chooses the right moment to act, can have enormous impact on public attitudes. In this case, if Obama chooses to make an example of highly paid financial executives, it could make it a lot easier for shareholders and directors elsewhere to challenge multimillion-dollar pay packages.
Mandel compares the present conditions with those in 1981, when Reagan fired the member of the air controllers union, known as PATCO:
To see the best parallel to today's situation, look back to August 1981 and Ronald Reagan's actions against the air traffic controllers' union. At the time, the unemployment rate was up to 7.4%, as the economy was moving into the deepest recession since World War II. Sound familiar?
Mandel points out that the average number of strikes dropped from 269 a year in the decade leading up to the PATCO strike to just 58 a year in the decade following. The drop in the number of strikes was not all due to that one event, but Reagan's action certainly changed the tone in this country.
Likewise, Obama’s new rules for the bankers will not in themselves overturn the habits that have insulated corporate executives from any meaningful control over their pay. But the form they take—stock warrants that don’t vest until the government is paid and shareholder resolutions—could set the tone for an overhaul of the way corporate governance is practiced in the U.S.


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