Politicians Put Big Business in Their Sights

All the forecasts are in. Readers of these and other pages know what myriad experts think of the outlook for most of the world's economies, the securities traded on the world's exchanges, trends in the commodities markets, and the course of the once-mighty dollar. It would, therefore, add little to the sum total of knowledge were I to add my own forecast to those already available.

What readers might find useful is an impressionistic survey of some American industries in which politics might trump economics in 2007. The first that comes to mind is the pharmaceutical industry, set for tussles with five congressional committees over prices, safety, and competition from generic drugs. Voters are telling politicians that one of their principal worries is the soaring cost of healthcare in general, and of prescription drugs in particular.

Older folks feel particularly pressed by rising prices, and old folks tend to vote. So they are getting a hearing from the Democrats who have taken control of Congress, and who are eager to demonstrate that, unlike the Republicans who they say are in the pockets of the big drug companies and the insurance lobby, they are for the little guy.

This means that they will attempt to empower the federal government to bargain with the manufacturers on behalf of the 22.5m elderly and disabled enrolled in Medicare, a government health-insurance programme. Presumably, mass buying will lower prices; possibly, it will lead to de facto price controls. That pressure will be supplemented by calls to allow reimportation of drugs from Canada, which now buys American-made pharmaceuticals at prices below those in the US. Never mind that the Canadians are "free riding", and not bearing any of the cost of the research and development that make these drugs available in the first place. Low prices now, even at the cost of fewer new drugs in the future, is seen by Democratic strategists as one key to retaining control of Congress and seizing the White House in 2008.

Next in line for punishment will be the oil industry. Big Oil is caught in the perfect political storm. Profits are at record levels; petrol prices remain high enough to have motorists muttering about price gouging; the Bush family and vice-president Dick Cheney have long associations with the petroleum industry; the greens are out to cut consumption of oil; and there is a row over pipeline and refinery safety that will see BP's Lord Browne hauled before a few of the less gentle committee chairmen in Congress.

This will result in legislation that cuts into profits. Congress will demand an increase in the royalty payments, and the removal of some of the tax benefits the industry has traditionally been accorded. Bush will be hard-pressed to veto any such legislation.Politics will also rear its unlovely head in the airline industry. Congressional protectionists are looking for some way to demonstrate their America-first credentials, and have found it: they have frightened regulators into preventing Sir Richard Branson's plan for a low-cost airline from getting off the ground even though he complied with the corporate-structure requirements laid down in the law. Nevermind that American airlines are flying at such high load factors (capacity utilisation rates) that travellers are finding it difficult to get the bookings they want, and that frequent-flyer programmes have been made virtually worthless by a proliferation of "blackout days".

Then there are the defence contractors. The administration is about to ask Congress for a large amount of new money to replace hardware depleted by the wars in Iraq and Afghanistan, rebuild the armed forces after decades of neglect, and fund the development of new aircraft and other equipment. The Democrats will be reluctant to be seen to "short-change our soldiers", and will more or less have to go along.

But they will show no restraint in their assault on alleged corruption and waste by the merchants of death, as many of them view producers of military hardware.They will also lay into Halliburton and other companies they believe have ripped off the government with too-lucrative contracts for reconstruction in Iraq and, while they are at it, in areas of the United States stricken by hurricane Katrina.

Finally, there will be outrage, real and feigned, at the huge bonuses paid to Wall Street's top producers -and the howls will grow louder when the Democrats realise that the partners at Goldman Sachs are pikers compared with hedge-fund managers, some of whom are taking home ten times as much as the Wall Street crowd that has dominated the headlines.

The Democrats have long contended that the average worker is not sharing in the nation's prosperity, that profits are sopping up too much of the national income, that globalisation enriches the few who can thrive in an international labour market and penalises the many who cannot compete with $1-a-day labourers. Those complaints will now become an assault on the tax system, and especially on the president's reductions in corporate and capital-gains taxes, and in marginal tax rates.

This is not an argument that will be settled by reason and statistics, but by a tallying of potential voters. Al Gore failed in 2000 to get into the Oval Office with his appeal to the politics of class and envy, but that was then and this is now -and similar views held by the more emollient Barak Obama or the shrewder Hillary Clinton might, just might, resonate with voters if Congress can keep this issue alive.

I hope all of this, factored into the forecasts you have received recently, will increase your ability to foresee what is in store for this year.