View Full Version : Why American CEOs covet a massive European-style social-welfare state.

12-09-2005, 11:08 AM
In late June, the Business Roundtable enthusiastically endorsed the plan to add a prescription drug benefit to Medicare. Normally, you'd think that the white-hot center of the industrial establishment would oppose the creation of an open-ended entitlement that will cost at least $400 billion over 10 years. After all, big business has historically cried "Socialism!" when Congress enacted safety net programs such as Social Security and Medicaid.

But these days self-interest trumps ideology. Many large employers would love to dump the burden of buying drugs for their retirees onto the federal government. (A study by the Congressional Budget Office determined that about one-third of Medicare recipients who now receive drug benefits from former employers would lose them if the plan were to pass.)

The embrace of the drug benefit reflects a larger shift in American big business. Even as they profess love for free-market capitalism, CEOs are discovering that European-style big government may turn out to be a surprising competitive advantage. For many old-line industrial companies faced with massive pension liabilities and spiraling health care costs, survival may depend on persuading the government to fulfill the financial promises they made to prior generations of employees.

Over the past few decades, large U.S. companies have generally done a great job at restructuring, reinvention, downsizing, and producing more with fewer (and less costly) employees. But even the shrewdest and most agile large manufacturers can't escape so-called legacy costs—commitments made to unionized employees in flusher times.

There's no doubt that the drug coverage would be a boon to some very large companies: Goldman Sachs analyst Gary Lapidus estimated that it would save General Motors and Ford $150 million and $50 million per year, respectively.