WEDNESDAY, JULY 7, 2010


KLMNO ECONOMY BUSINESS &


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Congress puts Havana on the horizon BILL WOULD


ALLOW TRAVEL


Business groups push for looser U.S. sanctions


by Howard Schneider Mojitos at Varadero Beach . . .


fishing in the waters Hemingway immortalized . . . dinner and a show at the Tropicana: A long list of currently forbidden pleasures will become legal for Americans under pending legislation that would lift central provisions of the United States’ half-century embargo of Cuba. The bill is being pushed by business and agriculture groups that have long argued that the Cold War-era sanctions against Cuba should be lifted, but it is op- posed by an influential anti-com- munist lobby, which is against Cuba’s ruling Castro family. But at a time when the Obama administration is fighting to boost U.S. exports, supporters of the bill argue that they have their best chance yet to reopen a coun- try famous for its white sand and hand-rolled cigars, featured in American pop culture from “I Love Lucy” to the “Godfather” films. The sanctions have been in place since 1959, when commu- nist leader Fidel Castro took over the country and nationalized the holdings of U.S. investors, and they became entrenched in U.S. foreign policy three years later, when Castro tried to import So- viet nuclear weapons. A bill approved by the House


Agriculture Committee last week would repeal a broad travel ban on Americans visiting the island — leaving the broader sanctions in place but taking a major step toward weakening them. It also would loosen rules that allow food sales to the country. Such efforts have come before, and there is no guarantee of suc- cess this time. The bill narrowly passed the Agriculture Commit- tee, 25 to 20, and must clear the House Financial Services Com- mittee and the Foreign Affairs Committee before a floor vote is


10-YEAR TREASURY UP $3.80 PER $1,000, 2.93% YIELD


CURRENCIES $1 = 87.52 YEN; EURO = $1.262


DIGEST EXECUTIVES Top FCC adviser departs for Atlantic Media


Bruce Gottlieb, chief counsel and senior adviser to the chair- man of the Federal Communica- tions Commission, is leaving the agency to become general coun- sel for the Atlantic Media, pub- lisher of the Atlantic and Nation- al Journal. The move is the latest shakeup of the highest ranks of the FCC, as the agency seeks to assert greater regulatory author- ity over broadband services. Gottlieb will be replaced by Rick Kaplan, chief of staff for Mignon Clyburn, a Democratic commissioner, according to an FCC news release. The agency said Gottlieb will leave Chairman


PRIVATE EQUITY


KKR clears way for trading shares in U.S. KKR announced that founders


JAVIER GALEANO/ASSOCIATED PRESS Cubans drive along Havana’s coast. Business groups see vast potential for U.S. tourism on the island.


possible. The Obama administration in


theory supports liberalizing rela- tions with Cuba but has ex- pressed disappointment at the pace of reform under current Cu- ban leader Raúl Castro, and did not testify at hearings on the pending legislation. Mike Ham- mer, spokesman for the National Security Council, was noncom- mittal on the substance of the leg- islation, saying the White House supported Congress’s “robust” discussion of Cuba policy as an example of the type of democratic freedom that it would like for the Cuban people. In addition, what had been a budding agricultural trade with Cuba has foundered. First au- thorized in 2000, U.S. farm sales to Cuba grew steadily through 2008, peaking at more than $700 million and accounting for nearly 40 percent of the country’s agri- cultural imports. But financing restrictions — the purchases must be handled through banks in a third country, and credit can’t be offered — and the economic downturn have un- dercut those sales as the country shifted to suppliers in Brazil, Canada and elsewhere, according


to a study submitted to Congress by researchers at Texas A&M Uni- versity. The bill tries to reverse that by removing the financing restric- tions, and putting Cuban import- ers on a more even footing with other purchasers of U.S. farm products. The current rules “have hand-delivered an export market in our own back yard to the Bra- zilians, the Europeans and other competitors around the world,” said Rep. Collin C. Peterson (D- Minn.), chairman of the Agricul- ture Committee, at a March hear- ing on the legislation. Lifting the travel rules, how-


ever, is potentially the more pro- found change. Americans are cur- rently allowed to travel to Cuba under certain circumstances — if they have a special permit to pro- mote agricultural sales, for exam- ple, or, as of last year, if they are going to visit members of their immediate family. Tourism is still prohibited, and business groups say they see the potential for hundreds of thou- sands of Americans to begin vaca- tioning in Cuba if the rules are changed. That, they argue, might be a more effective tool for chang- ing the country’s politics; it


would also be a step toward busi- ness groups’ ultimate goal of lift- ing the embargo altogether. With little American presence there since the late 1950s, Cuba is considered a ripe market for U.S. hotel and service companies — a potentially profitable Caribbean playground. Supporters of the bill acknowl-


edge that the fight is likely to in- tensify in the House Foreign Af- fairs Committee, a forum where Cuba’s restrictions on political rights and detention of political prisoners likely will get as much attention as its market for rice, soybeans and frozen chickens re- ceived in the agriculture commit- tee.


Still, the U.S. Chamber of Com- merce and other business groups are planning a push, and have made the pending bill one of the priority items on which it is rat- ing legislators.


“Cuba has been frozen in time.


Its leadership is a relic,” said My- ron Brilliant, the Chamber’s sen- ior vice president for interna- tional affairs. “If we want to im- prove the environment in Cuba, we have to find ways to do more trade and have more interaction.” schneiderh@washpost.com


here is no denying it — bad blood has developed between big business and the Obama administration, and that’s not a good thing. Business executives dislike the


T


uncertainty created by health- care reform and financial regulation, and the political stalemate over climate change and immigration. They hear the demonizing rhetoric directed at the health insurance industry, Wall Street and oil companies. They see a wave of new regulation heading their way after years of writing their own rules. They know that balancing the budget will almost certainly mean higher taxes. It’s all true, and it’s coming at a terrible time for the economy. And with trust in big business now down near single digits, it’s no wonder these chief executives are feeling like the political deck is suddenly stacked against them. “When citizens distrust big business, governments will follow suit,” Jeff Immelt, the chief executive of General Electric, wrote to shareholders earlier this year. “We can find ourselves in a sort of ‘dark cycle,’ where the people who can make our economy better are considered its worst enemies. The rallying cry becomes, ‘Why can’t you clowns just create some jobs.’ ” That was in February. Today,


many of those overpaid and coddled chief executives have convinced themselves that they’re not the ones to be blamed for the lack of private-sector job growth, but rather the anti- business clowns at the White House and in Congress. There’s little doubt that businesses are holding back. Right now they are sitting on more cash than they know what to do with, thanks to strong profits, depreciation that exceeds new investment and meager spending on researching, developing and marketing new products. Business investment as a percentage of economic output is at its lowest level in more than 40 years, while hiring continues


Obama vs. Big Business: A losing battle for all STEVEN PEARLSTEIN


on washingtonpost.com/discussions Chat today about CEOs vs. Obama


Columnist Steven Pearlstein will host a discussion at 11 a.m. on big-business chief executives and President Obama.


to lag behind growth in output. While it is possible that this


reluctance to hire and invest is the result of anxiety over taxes and regulation, experience suggests other explanations are more likely. We know that this kind of groupthink and herd behavior are all too common, with irrational exuberance now giving way to a period of equally irrational and widespread pessimism and caution. We know that financial


markets have become particularly risk-averse, ready to punish any company that makes investments in long-term growth that might negatively impact short-term profits. We know that, during the bubble years, companies misallocated capital buying up their own stock, making overpriced acquisitions, overpaying executives and bidding up financial assets. That money could have been used to develop new products and new markets. Instead, too many firms went into this downturn with a meager pipeline of ideas. We also know of companies such as Google and Apple that didn’t get the memo about the looming threats from Washington and have continued to invest and innovate. They’re also making gobs of money. Indeed, as James Surowiecki recently pointed out in the New Yorker, it has always been thus.


The reason that Kellogg pulled ahead of Post in the cereal business, that Kraft came to dominate the mayonnaise market, and that Texas Instruments built a big lead in transistor radios, is they took advantage of downturns to make the investments needed to grow markets and market share. But then, as now, most firms prefer to hunker down. Jeff Pfeffer, a professor at Stanford’s business school and a man who knows his way around a boardroom, says that if corporate executives are looking for someone to blame for weak job growth, they should take their eyes off Washington and try looking in a mirror. “They follow the crowd, do what is conservative and play a very short-term game,” he said. While administration officials bristle at corporate leaders’ accusations, they have largely refrained from returning fire, if for no other reason than they understand the importance of business confidence in any economic recovery. They also take some comfort from the fact that other Democratic presidents —Roosevelt, Truman, Kennedy and Clinton — likewise found themselves at odds with the business community early in their terms. The truth is that this is a fight that neither the White House nor the business community can win — but everyone will lose if it continues


ALY SONG/REUTERS


301,524 vehicles Ford sets a sales record in China


Henry Kravis and George Roberts will own 25 percent of the pri- vate-equity firm, clearing the last major hurdle for its shares to start trading on the New York Stock Exchange. Tuesday’s dis- closure of the stake, valued near $1.6 billion at KKR’s current share price, caps a two-year proc- ess that will allow New York- based KKR to move its shares from Amsterdam.


AUTOMOTIVE


A U.S. listing would allow KKR to issue additional stock and tap public shareholders to raise mon- ey, and it would permit company insiders to cash out their stakes. Private-equity firms, seeking fees beyond those from leveraged buyouts, are using public listings to raise money and expand into investment banking and manag- ing hedge funds and real estate. — Bloomberg News


Julius Genachowski’s office at the end of July. Sources at the com- mission who spoke on the condi- tion of anonymity said Gottlieb will be joining the Atlantic Media Group as its general counsel. The move follows the resigna- tion last month of senior adviser Colin Crowell, who oversaw com- munications strategy and rela- tionships between Genachow- ski’s office and Congress. Crowell, was replaced by Josh Gottheimer, of communications firm Burston Marsteller, who is set to join the agency mid-July.


— Cecilia Kang


S


A9


Ford said it sold a record-setting number of vehicles in China during the first six months of 2010, up 53 percent from the period in 2009. The company said its sales were fueled by the new Fiesta subcompact car. Changan Ford Mazda Automobile, a joint venture where Ford makes Mazdas, above, drove sales.


— Associated Press


to escalate. It would be useful if both sides could focus on finding common ground. The business community could demonstrate its good faith by resolving its internal conflicts and agreeing on a credible plan to meet the widely accepted goal of reducing carbon emissions without adding to the deficit. For business leaders to blame Obama for creating that uncertainty is the height of hypocrisy. For its part, the White House


might find that it could enlist the support of the business community for extended unemployment benefits if it would pair the extension with a tax bill that would allow all businesses to deduct the full cost of investments and research in the year they were made. Tax reformers have always supported this idea, small firms can already do this, and because it would shift the timing of taxes rather than the overall amount that companies pay, it wouldn’t add to the long-run deficit. In the short run, however, it will provide a big incentive to business investment. Without retreating on other


initiatives, the administration could also win back some business support by devoting more resources and high-level attention to winning those competitions for big new plants and research facilities that, increasingly, are winding up someplace else. Americans may be unaccustomed to presidents and Cabinet secretaries acting as glorified economic development directors, but in a globalized economy this is how the game is played and won.


Snaring multibillion-dollar


projects with a midnight meeting at the White House or a last- minute pitch from a won’t-take- no-for-an-answer secretary of commerce — a few wins like that would generate more votes and goodwill from the business community than those set-piece presidential factory visits peddling the latest version of “jobs, jobs, jobs.” pearlsteins@washpost.com.


ALSO IN BUSINESS


 Toyota had earlier reports of faulty engines: Toyota said Tues- day that it received reports more than three years ago of defects in its engines’ valve springs, which are at the center of a global recall of Lexus vehicles announced last week that involves nearly 139,000 cars in the United States. Toyota plans to recall 270,000


Lexus and Crown vehicles from model years 2006 to 2008 be- cause of reports of engines stall- ing while vehicles were in mo- tion. The automaker recalled more than 10 million vehicles world- wide due to earlier safety issues.


 Apple bans app developer, alleg- ing fraud: Apple blocked a devel- oper from its online applications store, alleging that his items were linked to fraudulent purchasing patterns. Technology blogs in- cluding Engadget reported that the developer, Thuat Nguyen, controlled 42 of the top 50 titles in the App Store’s book category and that some users reported having hundreds of dollars charged to their accounts. Apple recommended that users with af- fected accounts change their passwords and contact their fi- nancial institutions. — From news services


Faster Forward ROB PEGORARO


Excerpt from washingtonpost.com/fasterforward Music’s future is digital, but not Prince


“The internet’s completely over. . . . The internet’s like MTV. At one time MTV was hip and suddenly it became outdated.” Those pronouncements come from an odd interview with enigmatic


singer-songwriter Prince posted Tuesday by the Daily Mirror, a British newspaper. In the storyby Mirror writer Peter Willis, Minneapolis’s gift to music explains that he will release his next album, 20TEN, only as a CD and only to Mirror readers, who will get a copy tucked into the tabloid Saturday. Prince cites business reasons, complaining that Apple’s iTunes and other online stores “won’t pay me an advance for it and then they get angry when they can’t get it.” But he also seems to have a broader objection to the whole concept of digital sales: “Anyway, all these computers and digital gadgets are no good. They just fill your head with numbers and that can’t be good for you.” Prince does have company in


forgetting that ignoring the Internet will simply cede the online market to other distribution channels — as in, the unlicensed and illegal kind. The Beatles are the best-known members of this club; the Fab Four’s surviving members seem determined to wait until everybody with a computer has already downloaded their entire catalogue. But there are others, including metal bands AC/DC and Def Leppard, that remain absent from iTunes and Amazon.


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