It is now October 2008 – we are in the middle of the most significant financial crisis since the Great Depression and about a month before the most significant change election in a generation. At this unique moment in time, the world looks quite a bit different than it did when we approached the last transformative election – in 1980.
Using the mandate from a resounding victory, Ronald Reagan ushered in a broadly deregulatory approach to public policy. And while the party in the White House and in control of the Congress has changed multiple times over the intervening 28 years, both parties have generally supported Reaganesque moves toward free-market regulatory protocols. The philosophy is largely ascribed to Republican governance, but it’s hard to forget Bill Clinton’s 1996 State of the Union address where he declared that the “era of big government” was “over.” While political winds have shifted course many times since 1980, the general approach to deregulation has been relatively stable.
This predictable stability has shifted, but not for the headline-grabbing reasons one might think. The press, the pundits and the analysts have conveniently attributed the shift to the market meltdown and have branded it as a generational return to heavy-handed re-regulation – a characterization that is both inaccurate and overly simplistic.
Despite the recent news flow, this shift has been occurring steadily since 2001, and it directly reflects both a growing number of cracks in the regulatory system and an increasing public appetite for greater government involvement. It began slowly with Enron and WorldCom, sped up after Katrina, and has accelerated further with counterfeit drugs, tainted toys, contaminated food, the Minnesota bridge collapse, the housing crisis, and soaring oil prices. These are all quality-of-life issues and, in some cases, life-and-death issues. People on both sides of the political spectrum believe that something is very broken. And they’re right.
Events that were once viewed as distinct and apart are now viewed collectively as blinking red lights on the nation’s dashboard. The result is an emerging, bi-partisan realization that the market meltdown was a tipping – rather than catalytic – factor and that we must have a new approach to oversight.
Add to this realization the enormous financial challenges facing the country in the very near future and two facts become clear: Washington will have to be far more innovative in its approach to regulation, and the business and investment communities will have to be far more attuned to public policy.
Many analysts and observers contend that this means a new era of re-regulation is about to unfold. I disagree. I believe that Congress and an Obama or McCain Administration will take a more pragmatic and customized approach to regulatory oversight, in part due to the political pressure that has been mounting for years and, in part, to financial necessity. The country is facing record setting deficits and debt and exploding entitlement spending obligations that have only been exacerbated by the market meltdown. The federal government will have to pursue tighter regulation in some instances and lighter regulation in others, depending on what seems to make the most sense for consumers, the marketplace, and, most importantly, the nation’s financial reality. Regulatory protocols will, by necessity, be reviewed on a case-by-case, industry-by-industry basis, but blanket philosophies applied at all costs will no longer work.
Whatever the regulatory results, it’s abundantly clear to me that the near-term future of the energy markets, for example, will be based on how Washington ultimately decides to handle the current financial industry restructuring. These are not isolated events, and on the eve of a $700 billion-plus bailout for banks, insurers, and mortgage companies, a more frugal and prudent Congress might opt for less expensive and risky ways of helping the credit-hungry alternative and renewable energy sectors innovate and scale. Some of the restrained possibilities that could replace costly tax credits and R&D expenditures include loan guarantees, usage requirements, and public-private partnerships.
Without question, the next Administration and Congress will get under the hood and check the government’s regulatory engine in 2009. It’s unclear exactly how much reform and regulation we can truly expect going forward after January, but we do know that the knee-jerk Red State versus Blue State policies of the past will need to be revisited because of the voracious appetite for change in this area among voters.
A recent Wall Street Journal/ NBC News survey indicated that 53 percent of Americans want government to do more to solve everyday problems. To put these latest numbers in context, a similar survey 12 years ago found that Americans opposed more government action by a 2-to-1 margin.
Modification of our energy policy – along with health care reform and financial services regulation – will sit atop the 2009 legislative agenda regardless of who wins the White House. And whether we have reform, Reform or REFORM will depend on the new majorities in the House and Senate. But regardless, we will have change.
The executives and entrepreneurs who dot the U.S. business landscape must absolutely lean into structural regulatory changes if they are enacted and implemented.
New policies and protocols in Washington and state capitals clearly impact the marketplace and usually bring volatility. They force us to confront unanticipated risks, but frequently present us with unexpected opportunities.
If you’re an investment manager, your algorithm will need to be adjusted; if you’re nurturing a start-up, your capital raising strategy and exit plan will need to be revised; and if you’re an enterprise CFO or CEO, your product development cycles will need to be reviewed.
The key to getting ahead of the curve here is early insight and intelligence. Knowing before others know and understanding before others understand is a strategic, competitive, and real-time advantage as winners and losers are determined.
You have to see clearly in the dark if you’re competing in the global marketplace of the 21st century. This is uncharted territory, and there will be a host of serious and new regulatory and policy risks that can’t be avoided and must be contended with on the bumpy road to success.
That’s why I believe the linkage between risk, reform, and regulation will be pronounced and profound for a number of industries in 2009. Anticipating the obstacles and leveraging the opportunities is the best way to make sure that all of the change in Washington works for you.
Steve McBee is President and Chief Executive Officer of Washington, DC-based McBee Strategic Consulting