GE Decides To Take The Heat
General Electric did something interesting last week. It decided to stop lending to gun shop owners to finance consumer gun purchases.
As you might have imagined, the decision did not meet with universal acclaim. Gun owners were outraged; lawsuits were considered, and editorials thundered. There are countless websites for gun owners, and suffice to say GE was not showered with love.
But, beyond the noise, GE’s move goes to the very heart of something that businesses, large and small, have to deal with in this intensely polarizing time: just how do their economic interests intersect with social and political issues?
From one perspective, which is maximizing profit by trying to gain every advantage in the political marketplace, it is quite easy; you lobby, you spread around campaign contributions, you join trade organizations, etc. Let’s not be naïve: that Texas plant that exploded hadn’t had an inspection in decades, and that didn’t happen by accident. Regulators in many industries are chronically underfunded and there is often a revolving door between the two. The same is true with coalmines with inadequate safety measures, meat processing plants with repetitive motion (and more gruesome) injuries, drug “compounders” with contaminated facilities, and overseas sweatshops. The point is that safety cuts profits, and business is in the business of making profits. It’s a heck of a lot cheaper to buy political influence than it is to be state of the art.
Should we accept this? Well, in all honesty, we don’t have much of a choice. Teddy Roosevelt is long gone and so is Progressivism. Now Conservatives use the word as an insult. Google “progressive” and the conservative columnist George Will you get 48 Million hits, and they aren’t 48 Million moments of praise. And it’s not just the pundits and professional talkers; the politicians are firmly on board. There isn’t a single health or safety regulation that you won’t have a cadre from Congress fearlessly flinging themselves in front of, claiming the virtue of protecting us from being protected. Picture Clint Eastwood and “In The Line of Fire” except the menace is a proposal to reduce E. coli in ground beef.
In the end, businesses exist to make profits and businessmen allocate capital to the areas that bring them the highest leverage. That is why GE’s decision to exit the gun shop lending business is so fascinating. Because what GE did was make a statement for absolutely everyone to see.
You could be cynical and say GE’s gesture doesn’t really impact their bottom line; the action affects only about 75 shops across the country, not larger companies like Wal-Mart or Dicks, which also sell guns as part of a broader array of merchandise. In fact, the opposite is true. In exiting this tiny little segment of their business, which they could have ignored, and taking what is perceived to be a political stand, they put a big bulls-eye on their back. They knowingly accepted the fact that there will be collateral damage, perhaps significant damage.
GE isn’t the only business that is taking a step back from the gun business; the private equity firm Cerberus Capital Management LP is shopping its subsidiary Freedom Group, which makes brands like Remington and Bushmaster. But Cerberus operates quietly, while GE is one of the mostly widely known brand names in the world.
I like it. Not because I care so much about whether GE lends to gun shops (it’s none of my business) but because GE has come out of the weeds and exposed itself on an issue that it knows is controversial. It has walked away from the anonymity that many businesses crave.
That anonymity has been given new force with the Supreme Court’s decision in Citizen’s United, which allows businesses to spend unlimited sums on “issue-oriented” advertisements; ads that don’t directly urge a vote for or against a particular candidate. In the parallel world that is political speech, J&J, or McDonalds, or the Koch Brothers, or Chick-Fil-A can’t say “don’t vote for Congressman Y, he is in favor of amnesty for people like the Boston Marathon Bombers.” But they can say “did you know Congressman Y favors open borders and amnesty for terrorists?”
As Tom Donlan, in this week’s Barron’s, points out, businesses don’t necessarily see this as an unadulterated blessing. “It seems that CEOs don't want to get down in the arena if they will be seen throwing political dirt. They are well aware that their investors and customers include people of both parties holding widely different views on many issues, which means that some hold views that the executives believe to be antithetical to their corporation's interests.”
Donlan frames the argument in terms of investors or customers who might support policies that would cut into businesses profits (such as labor laws, or use of natural resources) but the same logic applies to issues that are more political or social. Smart businesses don’t want to anger their market. Voter A might be very annoyed to hear that his local department store chain sponsored that nasty ad about Congressman Y, and might be inclined to shop elsewhere.
Fortunately, at least for those businesses that want to weigh in politically, but don’t want to pay the price at the cash register, there is also something called a 501(c)(4) status “social welfare” group. They can take contributions anonymously, as can trade and “educational” organizations, and those groups can trash Congressman Y to their heart’s content. It should not be a surprise that Karl Rove has a “social welfare” group (Crossroads GPS), as do the Koch Brothers (Americans for Prosperity) as do some more liberal groups, like the Obama-affiliated Priorities USA.
But anonymity may breed corruption, and certainly can defile the political landscape. Donlan nails the point home. “Money that funds public speech should be subject to the same constraint as any speech was in the agora of Athens or the forum of Rome: The speaker should be identifiable. He may lie his head off, but he must be responsible for what he says.
It should not matter whether the giver of the money directly funded campaign ads or gave to a political action committee, a social welfare group, or a trade association. It should not matter whether the giver of the money be a single person or a collective such as a corporation, a church, or a labor union. When such a collective makes an expenditure that ends up as expression, it should identify itself so its shareholders, suppliers, and customers, its parishioners and neighbors, its employees, members and employers can know about its speech and judge it.”
That is exactly what GE did this past week, when they decided to end lending to gun shops. They engaged in a form of public speech. Now, they can take the economic consequences of that speech. Capital, seeing a good rate of return, may flow in. Customers may pull orders. Gun-friendly state legislatures may review their contracts with GE, and perhaps decide to not to renew them.
In my ideal world, I would prefer that businesses be completely apolitical and get out of the lobbying business. That is, of course, wildly and foolishly utopian. But, in the absence of that, capitalism, and advocacy, practiced out in the open, is the next best thing. Free markets, free expression of ideas, openly made and for attribution. Under those conditions, as Donlan notes, “If shareholders and customers want corporations to stay out of politics, that's information executives ought to have and information they ought not to ignore.”
Kudos, GE, for deciding to take the heat of the spotlight, commercially and politically. The market will judge the choice, and it can adapt accordingly.
Now, if we can only convince Congress that “for attribution” is a very good thing…
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