Google wants a management structure more like Berkshire Hathaway’s. Berkshire Hathaway wants growth more like Google’s. Monsanto and Terex want to be more like Apple and other companies that minimize their tax burdens. And China wants to be more like the U.S., or at least its central bank wants to follow the Yellen brick road of devaluation to prosperity. All are seeking the 2 percent solution.
There is a growing consensus that the new normal is an annual growth rate of around 2 percent. Some Republican candidates say they have plans to double that, but until they answer the key question – “how?” – doubters will outnumber believers by a substantial margin. Yes, the auto, housing and office market sectors are providing a significant uplift to the nevertheless modest recovery. But the coming increase in interest rates will create a new headwind for those industries, there is talk of an office market bubble, and analysts are increasingly worried about the quality of the IOUs consumers are using to pay for their top-of-the-line vehicles. Also, the strengthening dollar and the entry of China into the currency-devaluation race, which will stifle American exports; the massive overhang of billions in student loan debt; Hillary Clinton’s call for higher taxes on “the rich”; the Obama administration’s assault on the coal, oil and gas industries – over 2,600 pages of new regulations that he hopes will put him in the unaccustomed position of leading from the front when 200 countries meet in Paris in December to combat climate change – combine to lend support to those economists who see 2 percent growth in America’s long-term future. Or enough support to have many companies hunting for ways to continue growing in a 2 percent economy in which in the second quarter Standard & Poor’s 500 companies saw what Reuters calls the “worst sales fall in nearly six years” and a first year-on-year quarterly profit decline (-1 percent) since 2012, after first quarter profits for all US companies fell by almost 9%compared with the fourth quarter of 2014.
So what’s a corporation to do? Take steps to beat that growth rate. For Google it means trying to step up the growth of what are now peripheral businesses by following Warren Buffett’s lead and making them independently operated entities, each controlled by its own CEO who will have complete operating authority to manage his own company. Chief executive Larry Page and co-founder Sergey Brin will head a new holding company, for some reason named Alphabet, with Google and the so-called moonshot companies – self-driving car, robots, live-forever-or-almost heath care, balloon-connectivity to the Internet -- separate subsidiaries. “Fundamentally, we believe this allows us more management scale, as we can run things independently that aren’t very related,” says Mr. Page. Page and Brin, or Larry and Sergey as they now refer to each other in shareholder communications that mimic the Berkshire style of Warren and Charlie (Munger), will concentrate on allocating capital to what they see as the most attractive businesses.
The organizational structure may copy that of Berkshire Hathaway, but the vision of the future couldn’t be more different. No moonshots for Buffett. He has dipped into his $67 billion cash hoard for $37 billion to finance the largest acquisition in the fifty years since he took Berkshire Hathaway from a small textile company to the world’s largest conglomerate. Precision Castparts is no shoot-for-the-moon operation: it is a manufacturer of equipment used by the aerospace, power and other industries about which Page and Brin know little and care less. For Buffett, Precision is what he calls “an elephant”, a company of sufficient size to increase Berkshire’s earnings, assuming Precision can reverse its own recent sales declines. Add that to a railroad, GEICO, ketchup and mustard, Dairy Queen and other stalwarts, and you have a company with an idea of how to achieve growth in a slowing economy that is very different from Alphabet’s, but is run on the same principal of independence for the operating entities, combined with centralized capital allocation.
Legendary investor Warren Buffett was asked this morning in an interview whether he'd still bet money on Hillary Clinton being the next president of the United States. Yes, he said, he still think it's "very likely" she'll be the next president. But he warned in the CNBC interview: "things could always happen in politics, including illnesses or something of the sort."
Even if you're Warren Buffett--billionaire investor, founder of Berkshire Hathaway, and Democratic donor--it helps to have friends in high places. Through his holding company MidAmerican Energy, Buffett is currently atttempting to purchase NV Energy, a Nevada-based energy firm, and he's getting some big help from that state's senior U.S. senator, Majority Leader Harry Reid.
Warren Buffett is by now no stranger to the national debate over federal tax policy. In 2009, he penned a New York Timesop-ed calling for "truly major changes in both taxes and outlays." Two years later, he returned to the Times with a widely publicized call for large tax increases on the "super-rich," noting that his own effective federal tax rate (17 percent) was far less than his employees' rates (ranging from 33 to 41 percent). President Obama liked the idea so much, he called for Congress to pass "the Buffett Rule" in his 2012 state of the union address.
Warren Buffett expressed support for the Keystone Pipeline on Fox News last night. "I'm not an expert, but it certainly seems like it makes sense to me,” said Buffett. He added: "There are an awful lot of pipelines running in the United States and net, they've certainly been a huge plus for the country."
President Obama has implied that he himself would pay more under the Buffett Rule--and that he supports it anyway. But according to tax returns released today by the White House, the Obamas wouldn't have to pay higher taxes under the Buffett Rule.
Politico reports that Warren Buffett’s idea of tax reform is apparently quite different from President Obama’s. Buffett says he would raise taxes on those with “very high incomes that are taxed very low,” but not on those making annual salaries of $50 million.
New York City mayor Michael Bloomberg, who is a proponent of raising taxes on everyone, criticized President Obama for using theatrics to trumpet his plan to raise taxes on the rich. "The Buffett thing is just theatrics," Bloomberg said this morning on NBC's Meet the Press.
In his recently released deficit plan, President Obama lays out the “Buffett Rule” (named, of course, for Warren Buffett, the famous investor and supporter of Obama). The rule, as Obama defines it, is “that people making more than $1 million a year should not pay a smaller share of their income in taxes than middle-class families pay.”