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Roger C. Altman: American capitalism needs to be reformed

02.03.2020

Gytis Kapsevicius

Original article in Lithuanian

Photos: Margarita Vorobjovaite

This year the world will continue to look anxiously at the economic performance and try to guess what the US presidential election will bring. The well-known US investment banker Roger C. Altman and IQ columnist Gytis Kapsevičius discuss American political culture, the impact of tariffsand a likely recession.

- During the discussion before our interview, you mentioned that democracy and capitalism are in danger. Let's talk about the latter. Do you think capitalism in the United States needs to be amended?

- I didn’t say that it is in danger, I said that it is under pressure. Yes, I do think it needs to be reformed. Our system is too centered around shareholders and handfuls of highly paid executives in each case. It needs to be expanded. The power of workers and communities in which companies operate, also the power of the environment needs to be brought more to the front, as it relates to the way American corporations operate.

So yes, I do think capitalism needs to be reformed.

- Donald Trump has focused his attention on the domestic market and by looking at sheer numbers we could say that it has worked or at least hasn’t done much harm. Does this mean that economic protectionism is a policy that other countries should be considering?

- It is not surprising that Trump‘s brand of protectionism hasn‘t hurt the US economy, because the export share of US economy is not that big. We put tariffs on the imports, and now there are reciprocal tariffs on our exports, which might hurt our exports. In certain sectors, such as agriculture, export is really important, but speaking broadly, it is not that important for the US economy as a whole.

I personally think that these tariffs are self-defeating, because they are paid by consumers, by the American taxpayers. It is just a tax on our own people; therefore, I am not in favor of these tariffs.

Talking about the strength of the US economy, you are right, it is strong. But it is not because we imposed those tariffs, it is strong in spite of the tariffs.

- However, can it backfire in the near future, given that we have not seen a recession in a long time?

- Well it is not going to backfire in 2020. It takes a long time for an economy to weaken, it is already mid-January. It is possible for the economy to get a little weaker as the year goes on, but we are not going to have a recession. Remember that recession is two consecutive quarters of negative growth, so it is almost impossible to have an actual recession in 2020, starting from where we are now.

- Is it realistic to expect it in the next four years that might become another four years of Trump's reign?

- Of course, sure. The American economy experiences recessions quite regularly, they occur every few years. It has now been more than 10 years since the last recession, so we are overdue for one. Of course, we will have another recession, but I just don‘t know when.

- But will it be because of the Trump policy?

- No, not likely.

- Yesterday, the defense minister of Germany confirmed that Trump put pressure on European countries and threatened to impose a 25% tariffs on European cars unless they initiate proceedings against Iran. This situation is worrying. Can the US economy continue to be used as a political weapon?

- Well, in the short term, I suppose you could use tariffs as a political weapon. But again, in the end they are paid by Americans and not by foreigners. And in the medium and long run they are self-defeating. I don‘t see it as an effective long-term political weapon.

- During the election period, Democrat candidates talk about social changes and ideas, such as higher education and health care reforms, or even basic income. Do you think these ideas will be appealing to US voters?

- Speaking broadly, there are two wings of the democratic party and they are competing for the nomination of the democratic candidate for president in the 2020 elections. There is a progressive or an ultra-progressive wing, with senator Bernie Sanders and senator Elizabeth Warren, who are calling for a dramatic expansion of the government. Very dramatic. In senator Sanders’ case it would mean roughly doubling the size of it.

The other side of the party, represented by such politicians like the former Vice President Joe Biden, is calling for more modest changes. The majority of American voters, I believe, would vote for the moderate wing and not for the ultra-progressive one. It is possible that the ultra-progressive side could win the nomination, but I think it would be hard for a candidate from that wing to become elected the President of the United States.

That is because some of the ideas there are being discussed, for example, terminating employer-provided healthcare. The healthcare proposal that senators Sanders and Warren have proposed would terminate it and that would affect 150 million American workers, who get their insurance through their employers. So, the idea of mandatory termination of employer-provided healthcare might not be popular.

Secondly, both candidates have called for ‘decriminalizing’ the Southern border as it relates to immigration. That is also a very unpopular idea.

So, do I believe that senators Warren or Sanders could beat Trump? Maybe. But not likely

- Do you think there could be a third party emerging in the 2020 elections?

- No, I don’t. There are no signs of a third party emerging. You might have a minor third-party candidate, as in 2016, with Jill Stein, who was the green candidate and there was also a Libertarian party candidate. But they had very little support. So, the answer is no.

- A growing number of green politicians are being elected to parliaments all across Europe. Why don't we see such a trend in the US?

- Look, it is possible, especially with a green party. But the democratic party adopted the green agenda to considerable degree so I don’t think the Green party would have to say here’s our green agenda, because the democrats basically have their green agenda too.

- And why don't Republicans do that? In Europe, most of the political parties at least formally agree that the implementation of green ideas is vital.

- It is a hard question to answer. You are basically asking me why the Republican Party is a climate denial party. I think that the only way to answer that in a sentence or two is to say that there are cultural reasons.

You know, in our country there is a big divide between rural and urban. And the Republican Party is increasingly becoming a rural party. And unfortunately, the climate issue is seen by a lot of folks in rural areas as elitist.

That’s a real shame, because this view is not correct, but unfortunately, that is how the people in these areas look at the climate. They think that policies, which are calling to combat climate change are from the Coasts and the Academia. They don’t like either of them. That’s why I say it is cultural.

Generally speaking, in rural America, there is very little support for climate policies. And the Republican Party has embraced the opposition to climate policy, because it reflects their supporters.

- How are the businesses reacting?

- Business is starting to change in terms of their climate agendas. Microsoft has just announced a very bold climate goal for their company (IQ – Microsoft wants to become carbon negative in 2030). Shareholders are increasingly embracing climate agendas and want them. So, I think that at least big businesses are beginning to change and became more pro-climate. But it is a slow change.

-Sustainability and ecology-based businesses are growing very rapidly, with billions of dollars flowing into this sector. Could skeptical people change their minds and become more pragmatic? Even if they do not believe in climate change, might they contribute to the fight because that means they can earn a lot of money?

- No, because the cultural factor is much more powerful.

R. Altman was born in 1946. 

He received an A.B. from Georgetown University in 1967 and an M.B.A. from the University of Chicago in 1969.

He served as Assistant Secretary of the Treasury in the Carter administration from January 1977 until January 1981 and as Deputy Secretary of the Treasury in the Clinton administration 

Roger Altman is Founder and Senior Chairman of Evercore, formed in 1995.

Mr. Altman is a Trustee of MIT and is a Trustee of New York-Presbyterian Hospital, serving on its Finance Committee. He is also a Director of New Visions for Public Schools and is a Member of the Council on Foreign Relations.

He was invited to Lithuania by his wife, American journalist, Jurate Kazickas.