JULY 2019

Takeaways from the Aspen Ideas Festival: American Renewal, Part III

Category: Portfolio Management

By Doug Cohen, Managing Director, Portfolio Management

The following are my key observations from the speakers of the remaining sessions that I attended on the broad theme of American Renewal. Please see Part I here and Part II here.

My observations and key takeaways from sessions on the topics of the Next New World Order and Economic Progress can be found here.

In Conversation with Paul Ryan

Paul RyanFormer speaker of the US House of Representatives, director of the Fox Corporation

1) While Ryan bemoaned the rising polarization in the country—and the extent to which the growth in 24/7 cable news has made stars out of some politicians who have yet to prove themselves in any meaningful policy way—he was upbeat about the US economy. He termed it the strongest in the developed world and believes that the post 2016 election combination of deregulation and tax cuts (particularly the corporate tax cut) are responsible for that strength.

2) Despite the above, Ryan acknowledged that significant challenges remain. He believes President Trump has been right to take on China on trade, even if he would have strongly preferred a more unified approach incorporating our allies. He disagrees with other protectionist measures such as those in the steel industry. He expressed frustration with the failure to pass comprehensive healthcare reform by a single vote in the Senate. The plan would have provided universal coverage, covered pre-existing conditions and was a legitimate “game changer”, in his view. He believes the current deficit/debt trajectory is completely unsustainable in light of demographic trends as baby boomers retire and that entitlement reform will be essential over time (he didn’t sound optimistic that President Trump would be the one to tackle it). The debt and immigration are the two issues he believes have the potential to weigh heavily on US prosperity in the current century. On immigration, he believes both parties deserve blame and that the system is “utterly broken” at present. We need to change the asylum laws to prevent people’s false claims and have secure borders that prevent drugs and other forms of lawlessness from taking root, in his view. He believes President Trump has pointed out the relevant issues but expects little help from Democrats in solving them. He believes that initiatives passed when he was Speaker such as Opportunity Zones and social impact bonds will help to promote upward economic mobility but that more clearly needs to be done.

3) In terms of the 2020 election, Ryan believes that former Vice President Biden would be, by far, the most formidable opponent for President Trump. This is largely due to Biden’s ability to connect with voters in key “rust belt” states such as Pennsylvania, Ohio, Michigan, and his own Wisconsin that voted for Trump in 2016. That said, he expects Biden to suffer “death by a thousand cuts” inflicted by his more left-leaning opponents during the democratic primary season and does not expect Biden to be the ultimate nominee. He believes Trump has a clear path to victory in 2020 as long as the economy is strong, and the Democrats embrace policies such as Medicare for All and abolishing ICE that he believes do not play well to all but the far left. While Trump’s personality makes him highly vulnerable to attacks from Democrats, Ryan believes that the President’s ability to take on entrenched interests in Washington allows him to resonate with many voters in a way that many traditional politicians simply cannot. Finally, much like ex-Governor Christie, Ryan noted that Trump tends to listen carefully in private to opposing views—he is far more receptive to such disagreements in private than he is when they are voiced publicly or through the media.

--A key question that was not addressed: This was actually one that Ryan himself posed, with no clear answer in his mind—"Who will inherit the soul of the GOP in either 1 ½ or 5 ½ years?”

When Should a Company Take a Stand?

Tom WilsonChair, President and CEO of The Allstate Corporation

Edward StackChairman and CEO of Dick’s Sporting Goods

1) The seemingly stone-faced Stack spoke eloquently about the profound effect that the Parkland shooting had on him, noting that it was the most he had cried since his mother passed away. The shooting was the impetus for his controversial decision to ban several types of firearm sales at Dick’s. He noted that the decision likely cost the company about $250 million in revenues (~2% of sales) and 62 employees who quit in protest. He noted that he would take the same actions again without hesitation.

2) Wilson, reflecting on his role at Allstate and the US Chamber of Commerce, argued that there is no way that businesses can make everyone happy, but that executives need to take the actions they feel are right. Saying something isn’t enough—it must be followed by action. He said that job creation must be a major focus in an economy where close to 40% of families cannot easily scrape together $400. Echoing a theme that was prominent throughout the conference, his view is that profits alone are not enough. Job creation has to be a priority and for that to be the case, it must be measured. If CEO’s don’t measure something, it typically will not be prioritized. There should be a Job Creation Board, akin to the Financial Accounting Standards Board. As Darren Walker noted in the kickoff to the Aspen Festival, companies must serve broader constituencies than just shareholders. In Allstate’s case, he believes that means serve customers, improve the community, create jobs and make profits (not necessarily in that order, in his view). The same thinking is taking root at the Chamber of Commerce. The Chamber is reaching out more to Democrats than it has previously on those issues and also pressuring many of the successful tech start-ups that have been seemingly slow to embrace this approach.

3) Like many speakers at the conference, Stack bemoaned the sense that those on the right and the left in DC are only open to one view. If you don’t conform with that view, you are the enemy and politicians believe (perhaps correctly) that they won’t get donations if they don’t check the “correct” box on key issues. The key is to break through the hyperbole (e.g., “if you don’t believe in the 2nd Amendment, you don’t believe in the Constitution”) and find common ground. For example, he believes a $15 minimum wage makes sense for adults but not necessarily for the many kids under 18 that Dick’s employs—hence his comfort with an $11 hourly wage for them. He added that the “noisiest shareholders are the ones who are in and out. If I lose my job because of them, so be it…We need leaders willing to take a stand.”

--A key question that was not addressed: Wilson himself noted that technology is making it much easier to resolve an auto collision claim (for example) by having pictures sent to a central location and avoiding the need to send employees for a visual inspection. Therefore, “How does one reconcile the extent that technology is increasingly able to replace humans with the professed goal of boosting job creation?”

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