Nice Guys Get Things Done Too

So the Commerce Department (or DARPA for that matter) won’t become a U.S.-style MITI or ersatz venture capitalist after all. But under Robert Mosbacher it is becoming a facilitator and market opener. Do nice guys win policy disputes?

June 1 1990 by Chief Executive


Self-styled wildcatter, business entrepreneur, yachtsman and a close friend of President Bush, Robert Adam Mosbacher, 63, rarely misses a chance these days to affirm his free trade credentials. As the 28th U.S. Secretary of Commerce, he is but one of many players on trade policy and with USTR Carla Hills having established herself and her office as a tough negotiator (French prime minister Michel Rocard once called her the “Stalinist of free trade”), it is said his role is far from the lead one. But even his critics concede he has created a new role for the 77-year-old Department by championing U.S. “competitiveness” in ways his predecessors never did.

Like motherhood, competitiveness is something everyone is for until the details are disclosed. After more than a year in office, Mosbacher continues to receive praise or criticism for having espoused what Washington‘s National Journal called “an industry-led, business-government partnership, which many characterized as Republican industrial policy.” His alleged support reported in the New York Times and Washington Post for government money to develop HDTV reportedly got him into hot water with White House insiders Michael Boskin and Richard Darman, who oppose sector specific measures.

In its one-year report card on Bush and his Cabinet, the Heritage Foundation’s senior vice president and director of research Burton Yale Pines awarded a “B” to the president but only a “gentleman’s C” to Mosbacher. The free market Pines felt the Texan was owed at least a passing grade due to his advancement of a U.S.-Mexico Free Trade Agreement, but would have given an “F” because of “Mosbacher’s support for national industrial policy.”

Mosbacher claims he never advocated anything of the kind and can’t understand why anyone would ascribe such views to him. Michael Skarzynski, assistant secretary for trade development, says the confusion arose in June 1989 when the Secretary’s appearance before a House subcommittee on telecommunications was closely followed by a representative of the American Electronics Association, who proposed a $1.3 billion package of grants and loan guarantees for HDTV.

Like his longtime friend George Bush, Mosbacher is a former independent oil and natural gas producer in Texas although he was born and raised in White Plains, N. Y Before coming to Commerce, he was chairman of Mosbacher Energy Co., based in Houston, and was national finance chairman for the George Bush for President Committee in 1988. The relationship offsets to some degree Commerce’s historic role as cabinet stepchild to State and Treasury, according to Herbert Stein, who was chairman of the Council of Economic Advisors under Nixon and Ford.

Murray Weidenbaum, who held the same post under Reagan, says, “Every Commerce chief since Maurice Stans says I’m going to make a difference, but can he really? The level playing field each one advocates can only be achieved through the macroeconomic policies and tax system controlled by Treasury and the Congress.”

Undaunted, Mosbacher articulates an eight-point “agenda for competitiveness” which is summarized as follows: Reduce the cost of capital. Reduce the federal deficit with no new taxes. Cut capital gains taxes in line with other OECD nations. Revise antitrust. Eliminate harmful regulations that impede exports. Boost R&D. Make permanent the R&D tax credit. Clean up the environment. (The competitive impact on the President’s $21.5 billion proposal is left unanswered.) Improve education. Focus on quality. Commerce will continue to push the Baldrige Quality Award just as Japan extols its Deming prize. Streamline export controls. Clarify trade policy. “Competitiveness is hard work and innovation, not export subsidies and/or managed trade.”

Whatever his earlier missteps or crossed signals Mosbacher now consistently advocates this to anyone who’ll listen. He has in the process built a considerable constituency outside of government. For what it’s worth the dozen CEOs CE informally polled around the country in industry and business, both big and marginal exporters, rated his overall performance to date a respectable seven on a scale of one (“fire him’) to 10 (“clone him; he’s brilliant’). “He’s made more progress in 12 months than anyone else has in 10 years,” says Arvin Industries’ James Baker.

“When you talk to him you know he’s an ally,” says Monsanto’s Richard Mahoney. Some chiefs, however, remain uncertain about Mosbacher’s strategy in particular and the administration’s trade policy in general. AMA President Thomas Horton doesn’t approve of “the shouting match with Japan,” and doesn’t see a unified strategy with respect to Latin America, a fast growing potential market for U.S. goods and services. “Bush and his friends don’t seem to be comfortable with `the vision thing,’ ” Horton says.

Nucor steel chief Ken Iverson thinks Commerce is doing a fine job, but feels it’s overly concerned with the trade deficit. Much of the imports of late are capital goods needed to improve overall productivity. He’d like to see the current FTA with Canada extended to other countries, including Japan.

Some CEOs who asked not to be identified praise Mosbacher’s personal qualities and enthusiasm but doubt he has sufficient gravitas within the administration to accomplish much. “He doesn’t have the intellectual firepower of Dick Darman,” says one. A former senior official in the Reagan-Bush administration who knows Mosbacher well says, “he’s a great guy. I consider him a friend, but he’s a lightweight and perceived as such. Carla [Hills] comes on as smarter and tougher.”

Overlooked in the calculus of Washington power wattage is that Darman, whatever his gifts, doesn’t suffer fools gladly and grates some members of Congress accordingly, while Mosbacher is generally liked. Also, to America‘s trading partners, Mosbacher is the proverbial good cop to crowbar Carla’s bad cop. Consider the results of Mosbacher’s recent talks on the Structural Impediments Initiative (SII) with Prime Minister Toshiki Kaifu and senior Japanese trade and industry leaders. The Liberal Democratic party’s Shin-taro Ishihara, coauthor with Sony’s Akio Morita of the controversial book The Japan That Can Say No, recently made public his acceptance of SII demands “to the extent it benefits Japanese consumers.”

The former prime ministerial hopeful told The Japan Times; “We are witnessing the advent of an era of individualism in which the business structure which has served the interests of business, politicians and bureaucrats at the expense of consumers must be abolished even by taking advantage of external pressure.” The strategy of making common cause with Japanese consumers to force producers to open markets may ultimately prove successful.

In the current period, in which sector after sector of the U.S. economy sees itself under attack from international producers, Mosbacher sees Commerce’s role as a remover of bottlenecks and opener of markets. With this in mind CE solicited views from CEOs on how the Department can best do this effectively and posed them to the Secretary during a recent conversation editor J.P. Donlon had with him in Washington.

Depending upon who one talks to, Robert A. Mosbacher is either a free trader or a convert to “managed trade.” What exactly is your vision and international trade strategy?

I am not for managed trade. I am for free trade, and the only confusion might be how we get there. Like most good goals there might be more than one way to achieve it. Part of this goal focuses on what we must do in this country. This includes measures to lower the cost of capital such as the President’s capital gains tax cut, the long-term family savings plan, and lowering the budget deficit.

It includes product liability reform and joint manufacturing where feasible. We need to make the R&D tax credit permanent. It is an important step to set forth jointly planned, needed long-term research. We need to redirect our growing research budget. The President has raised the R&D budget by almost 16 percent. We need to get business involved with the states and local groups in education. Finally, U.S. manufacturers must offer quality products, because if they don’t, all of the foregoing won’t change the end results much. Eventually we have to think of not just quality in manufacturing but quality in services too-because it is part of the overall picture.

Historically, the Commerce Department, closely followed by Congress, is the first to hear pleas from weaker industries for help. How do you distinguish between a merited complaint and whining? How do you personally measure competitiveness?

First, it’s the customer who decides what is competitive. We in the government, however, should get some obstacles out of the way. Whether one is competitive or not is not up to me.

Intervention, free trade, managed trade, industrial policy, all these are buzz words to a lot of different people. I eschew all of them. I don’t want to talk about any of them because I believe in helping U.S. industry be more competitive once the playing field is level. That is all we can do-make sure that they get the chance to sell on the merit of their product. From there on it is up to them. I shouldn’t call some head of state or counterpart of mine in XYZ country about an American company that is trying to sell there and say anything more than what I do say, which is please make sure that this case is decided on the merits, not politically, not because of pressure from some head of state from another country, or from us.

In international trade, what’s your tactical approach?

I believe in getting the job done any way you can that is legal and moral. Often the best way to get the country’s attention is to use specific industry examples. Now that isn’t the only way. People complained about the semiconductor agreement because to some degree it was managed trade. I don’t want to get into whether it was right or wrong. Having an agreement-it is up to me to do what I can to make sure it is being honored.

Do you agree that agreements such as the 1986 one on semiconductors and the earlier voluntary restraints on automobiles have the effect of giving monopoly profits to the other side-which is contrary to the aim of opening up markets and allowing greater access?

Well, theoretically that is correct. Pragmatically, you can’t get a free market until you get people to open a closed market. In the semiconductor case it’ll be opened by 20 percent next year. It may not be the preferred way. Obviously the best way is for people to take down their barriers and buy. When the Japanese say they need more time after 20 years, it is hard to give it credibility.

I try not to lose patience because it isn’t helpful. I just sort of laugh and say you don’t have much credibility when you claim you have an infant industry, or you don’t have enough time. These things are ludicrous. How do you expect to have credibility when you make comments like that? They also have other rationales: Yes, we will do it, but we have to look into it; or that several steps are needed to get to the point where we can open up in this area. I don’t find any of these acceptable.

Is the Structural Impediments Initiative (SII) working?

It is too early to know, really. It is a struggle. We went to Japan to follow up on the President’s message of friendship to Prime Minister Kaifu. But in order to be able to have a good partnership we’ve got to have free and fair trade, and there are just too many areas where we don’t see that now.

SII also gives them an Opportunity to point out things we must do to change. Some are legitimate: our education, quality and cost of capital. The President put forth legislative proposals dealing with them.

But we need them to move too. So I delivered the message that we expect to see changes in their trade approaches. There is a sense of urgency. I thought for the first time the vast majority of leaders both from the government and the private sector thought we were serious. This administration, more than any previous administration, was cohesive.

They didn’t take us seriously until then?

Well, there are degrees of seriousness. They now feel they have to do something; they have to move. How far they move and how broadly they move is really the big question left. It is important that we understand that if we are going to get anything done, we have to keep the pressure on-in a kind and gentle way.

Having sat in this very office with your predecessor Malcolm Baldrige discussing the same subject, I am hearing the same exchange between the U.S. and Japanese sides. Are we really at a turning point?

Yes, I think we are. Part of our difficulty results from two different mind-sets, the Japanese mind-set and the U.S. mind-set. I am moderately optimistic that we will have positive exchanges.

What was the reaction from private industry leaders in Japan-Keidanren, Mitsubishi, Honda and other auto firms-with whom you met along with their senior staff and procurement officers, when you pitched U.S. goods to them?

Some of them were positive.

Did you come away with any orders in your pocket?

Well, in a couple of areas we think we have. For instance, Honda said it was going to put the Jeep Cherokee out in showrooms around the country. We talked about Toys “R” Us. Some said that they would recommend changing their large retail store law.

Are they actually going to do it?

That is what they say.

Do you believe them?

Talk to me in a year or two.

We would like your reaction to suggestions CEOs around the country made when we asked them whether Commerce could do a better job of helping U.S. firms generally in competing worldwide.

Arvin Industries’ chief James Baker suggests that your department could be more active in alerting domestic firms about products foreign companies or governments are seeking to buy. MITI, for example, issues lists of such products. It encourages Japanese firms to buy from the U.S., and it recently listed gas springs used primarily in auto hatchbacks. Since Arvin is one of three sole U.S. makers, Baker feels it would have learned of the list soon enough, but he wonders whether other firms may have missed similar opportunities to export.

MITI is working with us to do this. In some cases, companies in Japan can receive tax credits for increased imports, and they are taking some things off the tariff list. We are working jointly in some of these areas, not only on the Secretarial level, but below the Secretarial level, where we will get notification.

Monsanto’s Richard Mahoney suggests that while the government naturally focuses on areas with a negative trade balance, it shouldn’t overlook trade-positive industries such as aircraft, chemicals, scientific instruments, etc., which enjoyed a $59 billion net surplus last year. Just as doctors adhere to the homily, “First do no harm,” he recommends that Commerce in some way alert Congress to pass no law that would hurt the positive trade such industries now enjoy.

The worst thing I could do for those businesses is to send a statement to Congress not to touch them. It might have an opposite reaction. But where we think they are being hurt, we are willling to testify in support of their case.

For instance, in the product liability area, lots of companies come up and say they just can’t afford to pay the cost. The Japanese and the Europeans generally don’t incur this cost penalty. The competitiveness argument is finally permeating most of Congress on the product liability issue.

When your term expires, how will you gauge whether you have been a successful Commerce Secretary?

If we have developed a free trade system in the world that is a two-way street, with an open door to American products, on a fair and open basis, and if we have raised the quality of our own goods and services, I would be very happy.