WSJ.com - Carly and Congress
Carly and Congress
February 11, 2005; Page A10
It's been a banner week for anyone contemplating the difference in modern American society between public and private accountability. Carly Fiorina lost her job as CEO of Hewlett-Packard, but don't expect anyone to lose his or hers as a result of Congress's latest Medicare fiasco.
Ms. Fiorina was ousted by the H-P board after five-and-a-half years as one of America's best known executives. She had made an all-in bet on a 2002 merger with Compaq Computer, but the promised "synergies" never materialized, earnings growth lagged, and H-P's stock price trailed those of its competitors. In American capitalism nowadays, the CEO takes the fall for that kind of record.
And more of them are doing so all the time. A 2002 survey by DBM found what it called "a continuation of a trend towards shorter CEO tenure that has been occurring over the past two decades." In 1999, 37% of serving CEOs had held their positions for five or more years. By 2001, that figure was just 28%. Our friends on the left will point out that Ms. Fiorina can console herself with a severance package valued at $21.1 million, which is enough to pay the rent even in San Jose. But she has lost a great deal in status and of course in her hopes for the company she led.
Meanwhile, in politics this week, everyone learned, or more accurately the government finally admitted, that the ballyhooed Medicare drug benefit is going to cost much more than the 10-year, $400 billion estimate that the White House advertised in order to pass it. Of course, any Member of Congress with more than a room temperature IQ -- and that's probably a majority -- knew that $400 billion was a fraud when he voted for it. But the entire exercise was still something of a Big Con.
The main reason the latest 10-year estimate is now more than $700 billion is because the program actually starts in 2006, whereas the fall 2003 estimate included two "free" years. Duh. The far larger problem -- as critics and Medicare's own trustees informed Congress before the vote -- is that the total long-term liability they created is something on the order of $7 trillion, or more that the entire projected Social Security deficit.
However, do not expect anyone to be held accountable for this act of fiscal recklessness. Medicare was barely an issue in last year's election, and the main criticism Democrats offered was that it wasn't generous enough.
In any event, a reality of modern Congressional politics is that it has become increasingly harder to hold our solons accountable, as they continue to protect themselves with redistricting and limitations on raising the money that can give opponents a decent megaphone. Out of 435 House races last fall, only seven incumbents lost their seats -- and only three if you discount those forced into new districts by Majority Leader Tom DeLay's Texas gerrymander. Ms. Fiorina would have loved that kind of incumbent protection.
Republicans shouldn't be so happy, however, because the ballooning Medicare liabilities mean they will have a harder time achieving their agenda of tax cuts (see below) and more defense spending. Already, Republicans John McCain and Olympia Snowe are joining with Ted Kennedy not to cut back on the Medicare benefit but to impose price controls on drug companies.
So in the name of chasing another phantom 10-year cost goal -- price controls will have little effect on long-term costs unless they massively reduce future drug research and development -- Washington's great and good are proposing punitive measures on one of America's most innovative industries. We'd say it serves Big Pharma right for supporting the drug bill in the first place, except that price controls will literally end up costing future patients their lives.
Also sobering for the White House and Congressional GOP are new survey results showing the party has gained absolutely nothing in credibility on health care issues by passing the drug benefit. Again, this is no surprise. Entitlements never work to the political advantage of parties claiming to believe in limited government. They always end up looking like Grinches while their big-government opponents can demagogue to their heart's content for benefit expansion. We can only hope GOP lawmakers keep this in mind should they be asked to support a faux Social Security reform that becomes an excuse for a big tax increase.
Thinking about Ms. Fiorina and Congress, we wonder if the pendulum of accountability shouldn't swing back to the middle in both cases. Perhaps some CEOs (not to say Ms. Fiorina) ought to be given more time than they now get to show results, especially since some investments take longer than others to pay off.
As for Congress, clearly we could use more accountability. At least in the case of H-P, its shareholders are paying for the failure of Ms. Fiorina's strategy. Taxpayers and patients will end up footing the bill for Congress's Medicare blunder. And some people wonder why we support a smaller role for government in the economy?