Editor's Page -- The Honor System

Bush bets on business to respond appropriately when regulatory relief is granted.

President George W. Bush is placing a big bet on manufacturers, and I hope we don't disappoint him. Fresh from an historic mid-term election -- the first since 1934 in which the President's party did not lose seats in the House -- he's spending some of his vast political capital to push through several manufacturing friendly policies. Of course to some, he's returning dividends to his big campaign donors. Whichever way you look at it, he's looking for ways to help manufacturers (and businesses in general), and he has some expectations of what manufacturers will do once unburdened. Let's look at just two items at the top of Bush's economic agenda: deregulation, especially on the environmental front, and tax reform. Within these public policy arenas, manufacturers are lobbying hard, and Bush seems ready to fight for long lists of potential changes that will help manufacturers compete more effectively. Trouble is, though, even those who believe the reforms are needed are getting a little nervous. They fear that by delivering on this cornucopia of proposals, Bush risks overplaying his hand. So what should manufacturers do to help him avoid a backlash? Now there's a touchy question. The mere suggestion that manufacturers might hold back their efforts to win relief immediately or tread carefully in areas where regulations have been lifted might seem a bit much. Manufacturers have borne the brunt of environmental regulations and an unfavorable tax structure for so long, it's understandable that at the first sight of relief they'll grab for all they can get. But the changes Bush has been and will continue to push for aren't free gifts. Though he's not explicitly saying so, Bush expects a payoff of his own: that the changes will work, and, more importantly for you, that industry will help make sure they work. First, he's is expecting that companies won't overreach, that they'll be happy with a few key changes and not demand so many that it looks as if he's bought and paid for by special interests. This is politics, after all. More advantageous changes will certainly come later if the first round works. Second, he's betting that companies will respond appropriately: that once freed from some environmental regulations, they'll be good environmental stewards without the heavy hand of government pushing them to do so. If logging, oil and mineral companies now free to harvest their wares in once-protected national parks leave nothing but clear-cut devastation in their wake, or if companies fail to reduce pollution as they upgrade their factories, Bush will be out of a job, and regulations will make a strong comeback. As for tax cuts, Bush's wager calculates that if he reduces corporate taxes, corporate tax revenue will go up. That means he expects companies to repatriate headquarters and other assets now sheltered offshore and to pay a new fairer tax on them in the U.S. We've all seen what can happen when an industry that is newly freed from regulation runs amok. The long list of energy companies that pursued questionable business practices once outside the scrutiny of the government is as long as it is shameful. Such behavior plays into the hands of those who call for more regulations and who push for higher taxes on corporations. It's up to the manufacturing community to prove them wrong by doing its part to make sure the new policies don't turn into fuel for a referendum on Bush and his business-friendly agenda. That's what Bush is betting on. Patricia Panchak is IW's editor-in-chief. She is based in Cleveland.

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