THE BUSINESS-GOVERNMENT RELATIONSHIP IN THE UNITED STATES BGP-100 Roger B. Porter Harvard University Fall 2007THE BUSINESS-GOVERNMENT RELATIONSHIP IN THE UNITED STATES BGP-100 Roger B. Porter Description This course is designed to help students think analytically about the ways in which government and business interact with one another in a mixed economy. It examines how business and government are organized and how they seek to influence one another. It considers how government policies affect the competitive positions of individual firms and industries and how firms and industries compete to influence such policies. It looks at the ways in which government policies affect economic growth and at the ways in which governments seek to achieve a variety of non-economic objectives. It will examine how to define national economic interest in an increasingly integrated global economy. Although the focus will be on U.S. business-government relationships, comparisons will be made to ways in which government and business interact in other nations. Class Hours Class sessions are scheduled on Tuesdays and Thursdays, from 2:30 pm -4:00 pm in L140. Requirements Course requirements include: (1) required readings; (2) class attendance and appropriate contributions to class discussions; (3) a take home mid-term examination; and (4) a take home final examination. The examinations will require students to reflect analytically and synthetically upon course readings and class discussions. One of the best ways to prepare for class is through a discussion group. Students should organize or join a study group of 3-6 individuals. Grading Grades for BGP-100 will conform to the general letter grading scheme used for all Kennedy School courses. Transposition to appropriate grades for students registered in other faculties will be done, as necessary, by the relevant registrars' offices.2 A student's grade in the course will be based on three elements: (1) 20 percent on contributions to class discussions; (2) 40 percent on the mid-term examination; and (3) 40 percent on the final examination. Students may elect to write a 20-25 page research paper on a topic approved by Professor Porter in lieu of the final examination. Distribution of Course Materials The package of course materials is available at the Kennedy School Course Materials Distribution Office (CMDO), Belfer G-7. The cost of the packet will be charged to your term bill. Appointments Professor Porter's office hours generally are Thursdays from 4:00-6:00 p.m. Students may schedule appointments with Professor Porter through his assistant, Jamie Georgia, who can be reached at 496-3440 or via email (jamie_georgia@ksg.harvard.edu). Students may also sign up directly for office hours on the visiting hours schedule at his office, 414 Belfer.3 The Business-Government Relationship in the United States Assigned Readings I. Introduction Session 1: Overview: An Historical Perspective (September 13) Thomas K. McCraw, “American Capitalism,” in Creating Modern Capitalism, edited by Thomas K. McCraw, (Harvard University Press, 1997), pp. 303-348. Session 2: The Organization of Government and Business in the United States (September 18) Allan J. Cigler and Burdett A. Loomis, “Always Involved, Rarely Central: Organized Interests in American Politics,” in Interest Group Politics, 6th edition, edited by Allan J. Cigler and Burdett A. Loomis, (Congressional Quarterly Press, 2002), pp. 381-390. Roger B. Porter, "The President, Congress, and Trade Policy," Congress & the Presidency, Vol. 15 (Autumn 1988), pp. 165-184. Session 3: Managing in the Public and Private Sectors (September 20) KSG Case: Vision and Strategy: Paul O'Neill at OMB and ALCOA. Case No. C16-92-1134.0 W. Michael Blumenthal, "Candid Reflections of a Businessman in Washington," Fortune, January 29, 1979. Donald Rumsfeld, "A Politician-Turned-Executive Surveys Both Worlds," Fortune, September 10, 1979. Session 4: Systems of Influence and Interaction (September 25) Malcolm S. Salter and John T. Dunlop, Industrial Governance and Corporate Performance, HBS Case 9-390-032, pp. 22-29.4 Council of Economic Advisers, "Regulation in a Dynamic Economy," Annual Report of the Council of Economic Advisers, Chapter 4, (February 2003), pp. 135-173. II. Business-Government and the Quest for Prosperity Session 5: The Elements of Economic Growth (September 27) Congressional Budget Office , “The Economic Outlook,” The Economic and Budget Outlook: An Update, (August 2007), pp. 25-46. Council of Economic Advisers, “Productivity Growth,” Annual Report of the Council of Economic Advisers, Chapter 2, (February 2007), pp. 45-62. Ben S. Bernanke, “Monetary Policy Report to the Congress,” (July 8, 2007), pp. 1-24. Session 6: Macroeconomic Policy I (October 2) KSG Case: "The 1975 State of the Union Tax Proposals" Session 7 and 8: Macroeconomic Policy II and III (October 4 and 9) Rudolph G. Penner and Alice M. Rivlin, “Dimensions of the Budget Problem,” in Restoring Fiscal Sanity 2005: Meeting the Long-Run Challenge, edited by Alice M. Rivlin and Isabel Sawhill, (Brookings Institution Press, 2005), pp. 17-34. Barry Bosworth, “The Budget Crisis: Is It All Déjà vu?” in Issues on Economic Policy No. 2 (Brookings Institution, February 2006), pp. 1-26. Congressional Budget Office, “The Looming Budgetary Impact of Society’s Aging,” Long-Range Fiscal Policy Brief (July 3, 2002). Rudolph G. Penner and C. Eugene Steuerle, “A Radical Proposal for Escaping the Budget Vise,” The Urban Institute, National Budget Issues, No. 3 (June 2005), pp. 1-5. Douglas Holtz-Eakin, “Options for Social Security: Budgetary and Distributional Impacts,” CBO Testimony before the Committee on Finance, U.S. Senate (May 25, 2005), pp. 1-16. Peter A. Diamond and Peter R. Orszag, “Saving Social Security: The Diamond-Orszag Plan,” The Economists’ Voice Vol. 2, Issue 1, Article 8 (2005).5 Glen Justice, “Groups That Clashed in the Campaign Are Facing Off Again,” The New York Times, (April 12, 2005). Session 9: Savings, Investment and the U.S. Economy (October 11) John H. Makin, “Should Americans Save More?” American Enterprise Institute, Economic Outlook (March 2005), pp. 1-5. Council of Economic Advisers, “Saving for Retirement,” Annual Report of the Council of Economic Advisers, chapter 3, (February 2006), pp. 65-83. William G. Gale, J. Mark Iwry, and Peter R. Orszag, “The Automatic 401(k): A Simple Way to Strengthen Retirement Savings,” The Retirement Security Project (March 2005), pp. 1-12. Session 10: Efficiency, Equity and Tax Policy (October 16) C. Eugene Steuerle, “Tax Policy’s Principles and Principals,” in Contemporary U.S. Tax Policy, (Urban Institute Press, 2004), pp. 9-30. Council of Economic Advisers, "Tax Policy for a Growing Economy," Annual Report of the Council of Economic Advisers, chapter 5, (February 2003), pp. 175-211. Council of Economic Advisers, “The U.S. Tax System in International Perspective,” Annual Report of the Council of Economic Advisers, chapter 5, (February 2006), pp. 107-123. Session 11: Research, Development and Technological Innovation (October 18) Congressional Budget Office, Federal Support for Research and Development, (June 2007), pp. 1-28. Council of Economic Advisers, "R&D in the New Economy," Annual Report of the Council of Economic Advisers, chapter 3, (January 2001), pp. 110-119. Linda R. Cohen and Roger G. Noll, “Is U.S. Science Policy at Risk?” Brookings Review (Winter 2001), pp. 10-15. 6 Session 12: Education and Training (October 23) Frederick M. Hess, “Biz Ed,” The American -online (July 17, 2007), accessed August 8, 2007 Frederick M. Hess and Andrew J. Rotherham, “Can NCLB Survive the Competitiveness Competition?” American Enterprise Institute, (June 2007). Jay Greene and William C. Symonds, “Bill Gates Gets Schooled,” Business Week (June 26, 2006), pp. 64-70. William C. Symonds, “The Reform of School Reform,” Business Week (June 26, 2006), pp. 72-75. Diane Ravitch, “Every State Left Behind,” The New York Times (November 7, 2005). Eric A. Hanushek, “Education and the Economy: The Seeds of Growth,” Education Next (Fall 2002), pp. 10-17. James J. Heckman, "Doing it right: job training and education," The Public Interest (Spring 1999) pp. 86-107. Session 13: The Competitiveness Debate (October 25) Paul Krugman, "Competitiveness: A Dangerous Obsession," Foreign Affairs (March/April 1994), Vol 73, No.2, pp. 28-44. Roger B. Porter, "Industrial Policy and the Role of Government in the Economy," in French Industrial Policy, edited by William J. Adams and Christian Stoffaes, (Brookings Institution, 1986), pp. 166-174. Robert Z. Lawrence, "The Questionable Case for Selective Industrial Policies," in Can America Compete? (Brookings Institution, 1984), pp. 87-116. Julie Kosterlitz, “What Would Darwin Think?” National Journal (September 29, 2001), pp. 2994-2995. Louis Jacobson and Mark Murray, “Behind the Bailout: How Airlines Joined Forces to Win Approval for Emergency Assistance,” National Journal (September 29, 2001), pp. 2996-2997. Session 14: Mid-term (October 30)7 III. Business-Government and Achieving Social Purposes Session 15: Regulation, Markets, and Efficiency (November 1) Council of Economic Advisers, “Government Regulation in a Free-Market Society,” Annual Report of the Council of Economic Advisers, chapter 7 (February 2004), pp. 149-156. Robert W. Crandall, “Extending Deregulation,” Opportunity 08: A Project of the Brookings Institution (February 28, 2007), pp. 1-16. Murray Weidenbaum, “Progress in Federal Regulatory Policy, 1980-2000,” Center for the Study of American Business Contemporary Issues Series 100 (May 2000). Robert W. Hahn and Robert E. Litan, “Improving Regulation: Start with the Analysis and Work from There,” Testimony before the Subcommittee on Regulatory Reform and Paperwork Reduction, House Committee on Small Business (June 2000). Kenneth Arrow, Maureen L. Cropper, George C. Eads, Robert W. Hahn, Lester B. Lave, Roger G. Noll, Paul R. Portney, Milton Russell, Richard Schmalansee, V. Kerry Smith, and Robert N. Stavins. Benefit-Cost Analysis in Environmental, Health, and Safety Regulation: A Statement of Principles (Washington, AEI Press). Murray Weidenbaum, "Regulatory Process Reform: From Ford to Clinton," Regulation (Winter 1997), pp. 1-7. Session 16: Health Care Policy I (November 6) Congressional Budget Office, “Health Care and the Budget: Issues and Challenges for Reform” (June 21, 2007) pp. 1-30 Michael E. Porter and Elizabeth Olmsted Teisberg, “Redefining Competition in Health Care,” Harvard Business Review (June 2004), pp. 65-76. Session 17: Health Care Policy II (November 8) KSG Case: “The Battle Over the Clinton Health Care Proposal,” C15-00-1600.0 Sherry Glied, Chronic Condition: Why Health Reform Fails (Cambridge: Harvard University Press, 1997), pp. 1-16. Theodore R. Marmor, “U.S. Health Reform Failures: The Elusive Quest for Explanations,” Health Affairs (May/June 2006), pp. 872-874.8 Session 18: Business-Government and the Environment (November 13) KSG Case: “Cleaning Up the ‘Big Dirties’: The Clean Air Act of 1990 and the Problem of Acid Rain,” KSG C1514.0. Lester B. Lave, “Clean Air Sense,” and Robert W. Crandall, “The Costly Pursuit of the Impossible,” The Brookings Review (Summer 1997), pp. 41-47. Margaret E. Kriz, "Politics in the Air," National Journal (May 6, 1989), pp. 1098-1102. George Hager, "Bush Sets Clean-Air Debate In Motion With New Plan," Congressional Quarterly (June 17, 1989), pp. 1460-1464. George Hager, "The 'White House Effect' Opens A Long-Locked Political Door," Congressional Quarterly (January 20, 1990), pp. 139-144. Session 19: Government-Sponsored Enterprises (November 15) (guest lecturer – Thomas Healey) www.freddiemac.com/corporate/whoweare/faq.html and http://www.fanniemae.com/aboutfm/index.jhtml Thomas Healey, “Rethink the Rules at Fannie and Freddie,” Financial Times (October 15, 2003), p. 13. Scott Frame and Lawrence White, “Competition for Fannie Mae and Freddie Mac?” Regulation, (Fall 2004), pp. 56-60. Peter Wallison, “How to Privatize Fannie, Freddie”, American Banker, (October 1, 2004), p. 10. Bethany McLean, “The Fall of Fannie Mae,” Fortune, (January 24, 2005). Office of Federal Housing Enterprise Oversight, “Report of the Special Examination of Fannie Mae: Executive Summary,” (May 2006), pp. 1-14. Peter Wallison, “Moral Hazard on Steroids: The OFHEO Report Shows that Regulation Cannot Protect US Taxpayers,” AEI Financial Services Outlook, (July 2006), pp. 1-6. Ben Bernanke, “GSE Portfolios, Systemic Risk, and Affordable Housing,” Remarks before the Independent Community Bankers of America’s Annual Convention, (March 6, 2007). Editors, “Freddie Krueger Mac,” The Wall Street Journal, (May 10, 2007), p. 16.9 “Fannie and Freddie Ride Again – America’s Mortgage Giants,” The Economist, (July 7, 2007), pp. 71-72. Jeremy Grant, “Fannie Mae Offer to Ease Subprime Pain Rebuffed by Regulator,” Financial Times, August 11, 2007, p. 3. Session 20: The Search for Balance: Striker Replacement (November 20) Testimony of Thomas R. Donahue, Secretary-Treasurer, AFL-CIO before the Subcommittee on Labor of the U.S. Senate Labor and Human Resources Committee, March 12, 1991. Testimony of Lynn R. Williams, President, United Steelworkers of America before the Subcommittee on Labor of the U.S. Senate Labor and Human Resources Committee, March 12, 1991. Statement of Lynn Martin before the Labor-Management Relations Subcommittee of the U.S. House Education and Labor Committee, March 6, 1991. Floor Statement of Robert Michel, Congressional Record, June 14, 1993, H3494-3495. Labor Policy Association, Analysis of S. 55, March 9, 1992. Caterpillar Inc. Statement on S.55/H.R.5 IV. Business, Government, and the International Economy Session 21: Adjustment in a Global Market: The Case of Steel (November 27) KSG Case: “Saving the Steel Industry,” KSG C15-85-625. Julie Kosterlitz, “Reinforcing Steel,” National Journal (December 5, 1998), pp. 2842-2846. Statement of George Becker before the Congressional Steel Caucus (March 21, 2001). Statement of Stephan K. Todd and Terrence D. Straub to the Congressional Steel Caucus (March 21, 2001). Brink Lindsey, Daniel T. Griswold, and Aaron Lukas, “The Steel ‘Crisis’ and the Costs of Protectionism,” Cato Institute Trade Briefing Paper No. 4 (April 16, 1999), pp. 1-15.10 Greg Mastel, “The U.S. Steel Industry and Antidumping Law,” Challenge, vol. 42, no. 1 (May-June 1999), pp. 84-94. “Unfair Protection,” The Economist (November 7, 1998), pp. 75-76. Session 22: Using Economic Measures to Achieve Foreign Policy Purposes (November 29) KSG Case: “The U.S.-U.S.S.R. Grain Agreement,” KSG C1449.0. Gary Clyde Hufbauer, "Sanctions-Happy USA," International Economics Policy Briefs Number 98-4 (Institute for International Economics, July 1998), pp. 1-4. Session 23: The Global Economy and the Nation State (December 4) Roger B. Porter, "Efficiency, Equity, and Legitimacy: The Global Trading System in the 21st Century," in Efficiency, Equity and Legitimacy: The Multilateral Trading System at the Millennium (Brookings, 2001). Kenneth F. Scheve and Matthew J. Slaughter, “A New Deal for Globalization,” Foreign Affairs, (July/August 2007) N. Gregory Mankiw and Phillip Swagel, “The Politics and Economics of Offshore Outsourcing,” Journal of Monetary Economics, (July 2006), pp. 1027-1056. V. Summary, Synthesis, and Conclusions Sessions 24 and 25: Summary, Synthesis and Conclusions (December 6 and 11)

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