Gore vs. Bush: what it means for business

SUNDAY TIMES (LONDON)August 20, 2000

Now that both the Republicans and the Democrats have left their convention halls and gone to the hustings, the differences between the parties have become clear. And, from the point of view of the business community, the differences are far from trivial.

The pharmaceuticals industry is in the direct line of fire. Vice-President Al Gore has decided to make the big drug companies a special target of his increasingly populist rhetoric. As medical science has advanced and prescription drugs have shortened hospital stays and lengthened lives, payment for these medicines has become a burden for some senior citizens, although not all by any means. Older folks are among America's richest citizens, and most of them can well afford the drugs that keep them on the nation's golf courses and improve the quality of their sunset years.

But some cannot. And Gore blames the high prices and what he sees as excessive profits of the pharmaceutical companies for their plight. So, if elected, he would limit the prices the drug companies can charge, either directly or by having the government become the main buyer of these medicines. If you think Gore will beat George W. Bush, short the pharmaceutical companies.

Then you could invest the money in companies that sell alternatives to fossil fuels because Gore wants to subsidise them to reduce the use of coal and petrol. Few doubt that if elected Gore would press hard for measures that in his view are necessary to prevent global warming. Never mind that the scientific evidence is far from unequivocal: Gore would lavish government subsidies on companies engaged in solar research and in the development of alternatives to the petrol-fuelled internal combustion engine he so abhors.

He would make it more difficult for car companies to continue to produce the large sports utility vehicles that account for the bulk of their profits. And he certainly would make it more difficult for coal companies to retain some of the markets they now serve.

Bush, on the other hand, would attempt to relieve the burden of drug costs on the elderly by insurance programs that give needier old people access to these medicines without forcing down their prices. And he would certainly place greater weight on the cost burdens that new environmental regulations may impose on the car, coal, oil and other industries than would Gore, while at the same time being stingier with handouts to proponents of technologies that aim to replace fossil fuels.

Whether you agree with Gore or with Bush, if you are a prudent investor you must make a judgment about the outcome of the election and adjust your portfolio accordingly.

It is easier to spot the industries that may be affected by the outcome of the election than it is to identify its effects on the performance of the overall economy.

At the moment, the American economy is moving forward briskly. Retail sales are up and businesses have increased their stocks in line with these sales increases, showing that they expect goods to keep moving rapidly off the shelves. And well they might: unemployment is nil, consumer confidence is at near-record levels, and businesses continue to invest hugely in productivity-enhancing capital goods.

The Bush team does not think this benign situation is likely to continue. In the privacy of their planning sessions, they are saying that consumers are overextended, that the stock market is unsustainably high, that the record trade deficit will eventually cause a flight from the dollar and that a slowdown, with a touch of inflation, is around the corner.

This is why Bush is advocating a much larger tax cut than is Gore - $1.3 trillion over 10 years, compared with Gore's $500 billion. The Texas governor is persuaded that the economy will need the stimulus of such a cut or at least be able to absorb such an easing of fiscal policy early next year. He also is convinced that unless he cuts taxes and returns to Americans a good part of the surplus funds that are flowing into the federal coffers, Washington politicians will find ways to spend it.

But whether Gore spends the surplus on new social programmes or Bush returns it to the taxpayers from whom it was extracted, fiscal policy will be eased. If the economy does not cool, as Bush's advisers expect, the Fed would have to offset his looser fiscal policy by tightening monetary policy. Interest rates would be about half a percentage point higher by the end of the decade than would otherwise be the case, estimates Dudley Moore, chief economist at Goldman Sachs.

Finally, there is the question of how to reform social security. If Bush's plan to allow individuals to invest a portion of their social-security payments in shares is adopted, brokerage houses will get millions of new customers investing billions of dollars previously taken from them and invested by the government in treasury bonds.

If you think Bush will win and persuade Congress to go along with his plan, you may want to stock up on shares in stockbrokers - and on other equities. Moore estimates that the increased flow of dollars into the stock market could raise share prices by 3% on average, other things being equal.

There is one important caveat: unlike the British prime minister, who can count on his parliamentary majority to adopt any budget his chancellor puts forward, the president must cajole, beg and threaten Congress to get his program through. How successful either Bush or Gore will be in getting his program enacted will depend on his political muscle and his persuasive powers. It is not as neat as the parliamentary system, but it has stood Americans in good stead for more than 200 years.