Wharton Faculty Wish-list for George W. Bush

There is little doubt that President-elect George W. Bush will have to hit the ground running once he is sworn into office on Jan. 20. A convergence of factors – leftover rancor from the election, a divided Congress, an economy that is showing signs of sluggishness, and a stock market that is about to turn in its worst annual performance in years – mean Bush will not get much time to ease into the job.

Knowledge at Wharton asked Wharton faculty members to identify the most important issues – related to their own fields of academic expertise – that the new administration should address.

Michael Useem, professor of management and director of the Center for Leadership and Change Management:

I believe it is in George W. Bush’s interest to continue what Al Gore began with the National Performance Review, popularly known as reinventing government. NPR is about making government more efficient: cutting waste, eliminating bottlenecks and creating a greater focus on the public. These are streamlining steps that many businesses have learned to do well over the last decade, and the federal government has been moving in much the same direction. George Bush should continue the NPR initiative because it is essential for better government – and because it is consistent with his own priorities for how government should be run.

For a second recommendation I’ll borrow a phrase, “stagecraft,” from Peggy Noonan, a columnist for The Wall Street Journal and former speechwriter for President Reagan. She recently argued that George Bush needs to work on personal staging – the ability to stand before a camera or an audience and convey not only content but also to communicate it in a compelling fashion. It’s the essence of leadership. Bush must use his moments on television, among reporters, and with groups to build public confidence that he has a persuasive message and the ability to carry it forward. It means staging in the best sense of the word – powerfully delivering a vision, a strategy and a path.

President-elect Bush should also consider arranging for the several hundred top people in his new administration to spend time together in a seminar-style retreat before taking office in January. That would give them a chance to transcend their personal and policy differences and work to define a broad agenda and common cause. Forming the top administrative team is essential for any person taking over a new leadership role: you must mold your top people into a genuine working team.

Olivia Mitchell, professor of insurance and risk management and executive director of Wharton’s Pension Research Council:

During the campaign, the Bush camp laid out a clear proposal for reforming Social Security. His plan would set up individual accounts and let people deposit a portion of their Social Security payroll tax into those accounts. The question now is how much cooperation Congress will give Bush in moving forward in that direction.

There are two big unknowns at this juncture. One is that the reform plan relies on there being a large and ongoing budget surplus. With the economy weakening, there is a real question how substantial this surplus will turn out to be. If it is smaller than expected, this will throw into question a number of Bush’s plans, including the establishment of the individual accounts. The other big unknown is what’s going on with the stock market. Since people would be putting part of their payroll tax in the capital market under Bush’s plan, everyone has suddenly become concerned about the recent erratic performance of the market and what this may imply for individual accounts.

As far as Medicare is concerned, forecasts indicate that this program faces huge hurdles in the near-term – that is, simply paying for the promises already made will lead to insolvency within a decade. Boosting benefits further with a new prescription drug program will bring the financing problems home sooner.

The political honeymoon, if there is one, will be exceedingly short for the new presidency, since it faces a divided Congress and electorate. Sensibly, the Bush administration has identified one or two goals to accomplish at the outset, so as to build a track record. So far, getting a tax cut through has been the transition team’s announced priority, but even if this plan is successful, it could undermine future policy efforts. If there is a downturn, having granted a substantial tax cut could prejudice a wide range of new initiatives, including the establishment of individual Social Security accounts.

Medicare and a Patients’ Bill of Rights

Mark V. Pauly, professor of health care systems and insurance and risk management:

The two main health-care issues facing the new administration are familiar to most people: prescription drug coverage for Medicare and HMO regulation in the form of a patients’ bill of rights.

The short-term proposal that Bush has for prescription drug coverage — providing federal subsidies to states to make drugs available to low-income seniors – will be up for consideration immediately and I think it has a good chance of passing because it’s a relatively small measure. But the other part of what Bush wants – making prescription drug coverage part of overall Medicare reform – will be a much bigger challenge. We’ll probably see another commission appointed to tackle that issue, or at least to provide cover while politicians delay action. The small proposal is a step in the right direction. I’m hopeful, but not politically optimistic, that you could reconfigure Medicare as a whole and in so doing find a way to provide drug coverage. Most of the elderly have drug coverage now through employers or “medigap” coverage, but it’s generally very inefficient insurance. If you took that money and put it in the same pot as Medicare, you might be able to pay for coverage.

A patients’ bill of rights is more of a hot potato. My own view is that Congress wants to pass something to be able to say they took action, but not have it be terribly revolutionary. The parts of a bill of rights that command unanimous approval include, for example, not allowing an HMO to deny payment for a visit to the emergency room if it turns out not to be a real emergency but the patient thought it was. The most controversial part is a provision that would expand people’s rights to sue HMOs. Businesses providing HMO coverage to their employees are terrified because they see a doomsday scenario in which they get sued, along with a physician and a hospital, if something bad happens to a patient. In general, I favor dealing with patients’ rights through disclosure rather than by regulation. If an HMO tells me I can’t sue them, I can make a decision about whether I want to belong to that HMO.

Another thing I’d like to see the Bush administration consider is coverage for the uninsured. A coalition of conservative Republicans and liberal Democrats wants to use tax credits to help the uninsured. That isn’t part of the governor’s stump speech and, of course, it’s what Bill Bradley advocated, only to have Al Gore make mincemeat of him for advocating it. But I think it’s an important thing to do. What Gore advocated was putting more people on Medicaid. But a tax credit would use the private market. It would offer people choices instead of using a government entity that gives them no choice.

I think if we are going to do anything that costs money, the window’s going to close pretty soon. The economy may be turning down, and medical costs are leaping up, which means the prospect of enough government money to pay for any of these things may start evaporating.

Peter Cappelli, professor of management and director of the Center for Human Resources:

Richard J. Herring, professor of international banking and co-director of the Wharton Financial Institutions Center:

I’d like to see the Bush administration support the ongoing reform of laws that have traditionally restricted the ability of banks and other financial institutions to merge with one another. This is a critical issue that will determine whether U.S. financial institutions remain competitive globally.

There is an unfinished agenda in Washington concerning this issue. The challenge that Congress faced in 1999 was how to allow banks and non-bank financial firms to form conglomerates. The initial idea was to have a two-way street: to allow banks to acquire non-bank financial firms and vice versa. But the way Congress decided to do it in the end was to pass the Gramm-Leach-Bliley Act, which introduced financial holding companies that would be regulated by the Fed under a new regime called “Fed lite.” The bill positioned the Federal Reserve as the lead regulator, with functional responsibilities left to others: securities issues would be handled by the Securities and Exchange Commission, insurance would be handled by state agencies and so forth. But, in practice, not much has happened – perhaps because potential non-bank acquirers of banks have found that Fed lite is not all that light. To date, only two very large non-bank firms have chosen to form financial holding companies: Charles Schwab did so to acquire U.S. Trust; the other is Met Life.

So the Shadow Financial Regulatory Committee, a group of academics and others, of which I am a member, has sent a letter to Bush and Congress outlining what we call an agenda for financial reform. In addition to the Fed lite issue, the letter addresses more than a half dozen other things. One part of the letter calls for further deregulation to eliminate the separation between banking and commerce in recognition of the fusion of technology and communications companies with financial service providers that is taking place in the market place. Another calls for the establishment of a uniform policy on the privacy of financial information. We’d also like to see additional reforms of international financial institutions. We muddled through the East Asian crisis in 1997 and 1998, but did so in a way that left everybody convinced that the large international financial institutions were in fundamental need of reform. The new administration clearly will want to work through that agenda before the next crisis strikes.

Raphael Amit, professor of entrepreneurship and director of the Wharton Electronic Business Initiative:

From my standpoint, the main challenge that President Bush faces is to ensure, through a range of policies both fiscal and monetary, that the momentum in the technology sector that has been built up during the Clinton administration is sustained. Productivity gains and the longest economic expansion in U.S. history have been credited in part to the entrepreneurial drive that fueled the growth of the new economy. Those initiatives and ventures will be critical to the United States in sustaining its global competitiveness. That’s the one big challenge. It is becoming a greater challenge now as the economy as a whole is showing signs of a slowdown.

The venture capital industry has an enormous amount of capital ready to be employed. For that industry to continue to finance the entrepreneurial economy, it needs stable financial markets. The current uncertainty in financial markets makes the continued development of the companies that have already been funded very questionable. In the last few months, we saw a record number of newly formed companies close their doors. Some perhaps should have closed their doors. But others had to [shut down] primarily due to the fact that they had not managed to reach a level of maturity that allowed them to internally generate cash flow to fuel their growth, and they were unable to raise capital. Research has shown that these companies have a harder time accessing capital markets because they lack operating histories. That’s why I’m so concerned. The challenge Bush faces is to restore confidence in financial markets.