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HUNKERING DOWN GIVES NO BOOST TO ECONOMY

There is no denying it - bad blood has developed between big business and the Obama administration, and that's not a good thing.

Business executives dislike the uncertainty created by health-care reform and financial regulation, and the political stalemate over climate change and immigration. They hear the demonizing rhetoric directed at the health insurance industry, Wall Street and oil companies. They see a wave of new regulation heading their way after years of writing their own rules.

It's all true, and it's coming at a terrible time for the economy. And with trust in big business now down near single digits, it's no wonder these chief executives are feeling like the political deck is suddenly stacked against them.

Many of those overpaid and coddled chief executives have convinced themselves that they're not the ones to be blamed for the lack of private-sector job growth, but rather the antibusiness clowns at the White House and in Congress.

There's little doubt that businesses are holding back. Right now they are sitting on more cash than they know what to do with, thanks to strong profits, depreciation that exceeds new investment and meager spending on researching, developing and marketing new products.

While it is possible that this reluctance to hire and invest is the result of anxiety over taxes and regulation, experience suggests other explanations are more likely. We know that this kind of groupthink and herd behavior is all too common, with irrational exuberance now giving way to a period of equally irrational and widespread pessimism and caution.

We know that financial markets have become particularly risk-averse, ready to punish any company that makes investments in long-term growth that might negatively impact short-term profits.

We know that, during the bubble years, companies misallocated capital buying up their own stock, making overpriced acquisitions, overpaying executives and bidding up financial assets.

We also know of companies such as Google and Apple that didn't get the memo from Washington about looming threats and have continued to invest and innovate. They're also making gobs of money.

Indeed, as James Surowiecki recently pointed out in the New Yorker, it has always been thus. The reason that Kellogg pulled ahead of Post in the cereal business, that Kraft came to dominate the mayonnaise market, and that Texas Instruments built a big lead in transistor radios, is they took advantage of downturns to make the investments needed to grow markets and market share. But then, as now, most firms prefer to hunker down.

The truth is that this is a fight that neither the White House nor the business community can win - but everyone will lose if it continues to escalate.

The business community could demonstrate its good faith by resolving its internal conflicts and agreeing on a credible plan to meet the widely accepted goal of reducing carbon emissions without adding to the deficit.

Without retreating on other initiatives, the administration could win back some business support by devoting more resources and high-level attention to winning those competitions for big new plants and research facilities that, increasingly, are winding up someplace else.

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