Rethinking what it means to be a ‘U.S. company’

When the United Kingdom’s prime minister stands up in front of an elite audience and slams an old friend alongside of whom Britain is fighting the war on terror for its government waste and because too many of that country’s richest are getting away without paying much tax at all, it’s got to sting. But fortunately for Jeff Immelt and the rest of us here in the United States, David Cameron was in Islamabad and the broken, favoritism-ridden, inefficient system he was excoriating was not the one in Washington but the one that, at least nominally, is responsible for Pakistan.

That said, Cameron is among a rapidly shrinking number of folks who have yet to pile on to the revelations of GE’s protracted tax holiday and, by extension, President Obama’s appointment of Immelt to be his competitiveness advisor. In fact, my guess is Immelt will not be able to survive indefinitely in his capacity as an informal consultant to the president. When I spoke to two different senior economic officials in the administration about him this morning, they both rolled their eyes and wondered aloud what the White House was thinking when he was picked.

America has produced few better respected senior executives than Immelt. And for an administration that needed better ties with the business community in a hurry, he seemed like an excellent choice. But as one of the officials observed to me, he was a disaster waiting to happen even before the tax hubbub and GE’s ties to the Fukushima nuclear calamity became hot topics. Why? Because with so much of GE’s revenue coming from outside the United States, it was only a matter of time before the company made a decision to invest in an overseas project that would be seen as sapping American jobs or at least failing to create them.

It’s hard to minimize away such concerns. Sooner or later a GE corporate decision will spin up into a little firestorm among the punditerati and … with these other two problems already on the board … it’ll be strike three. Frankly, at that point or even before then the GE CEO will probably make the determination himself that the advisory role is a losing proposition for him. It’s too exposed and the interests of a big multinational like GE and those of the United States government are much less aligned than they have been at any time in the past.

Thus this seemingly small issue associated with one individual and with Washington’s insatiable appetite for controversy is actually related to a bigger issue that few policymakers have a good answer for. The U.S. government is charged with advancing national interests, that is to say, the interests of U.S. citizens and America’s peace and prosperity. Just because a company is based in the United States or employs lots of U.S. citizens doesn’t mean that it regularly or dependably acts in the U.S. interests. It doesn’t matter where a company is headquartered therefore but whether it employs Americans or contributes tax revenue to the U.S. government or invests in the United States or generates economic activity here. Businesses and business groups may argue to the contrary and wrap themselves in the flag but the reality is that the U.S. is competing for the economic favor of those companies. The United States needs the companies and on many issues the companies need the United States, but this is a relationship that should be seen as one between potential and impermanent partners not between automatic allies.

That means companies like GE will seek to minimize their tax burdens and sometimes they will locate factories someplace else. The American people shouldn’t be surprised by that and neither should be presidents nor CEOs working with the government. After all, as the scorpion said to the frog after first hitching a ride across a pond on his back and then poisoning him with a strike from his tail, "it’s in my nature." It’s the incorrect expectations that result in the fatal sting, not something fundamentally flawed in either of the participants.