Markets & Stocks
What's Buffett up to?
Warren Buffett has moved from agitating for corporate reform to trying to change economic policy.
November 12, 2003: 11:59 AM EST
By Justin Lahart, CNN/Money Senior Writer

NEW YORK (CNN/Money) - Warren Buffett's Berkshire Hathaway sells everything from Blizzards to long underwear. But Buffett has also been trying his hand at peddling something else entirely: influence.

And where once the Nebraska nabob was focused on provoking change in corporate behavior, more recently he has been working at influencing broader policy -- advising governor-elect Arnold Schwarzenegger on sorting out California's fiscal mess and most recently prescribing a way to dig the U.S. economy out from under a mounting trade deficit.

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Buffett has become a powerful force for change in company boardrooms, an early voice decrying the aggressive expected returns at many corporate pension funds and, more important, companies' refusal to treat employee stock options as an operating expense. Thanks in no small part to agitation from Buffett (and despite continuing pushback from companies and lawmakers who would prefer the status quo), the Financial Accounting Standards Board is looking to tighten up its rules on both counts.

"Whenever anybody writes anything about options, they quote him," pointed out Harvard Business School accounting professor David Hawkins. "He set the agenda."

Buffett didn't always enjoy such stature. As he grumbled about stock-market excesses in the late 1990s through the beginning of 2000, a lot of people thought he had lost his touch. But when things fell apart, many investors wished they had paid attention to his cautions. And as the level of deceit that existed at companies like Enron and WorldCom was revealed, Buffett's appeals to clean up the way accounting is done in the United States found a ready sounding board.

"His reputation is as a thoughtful and responsible person who's interested in shareholder value and doing the right thing to get there," said Hawkins.

This sets him apart from other big investors, like billionaire financier George Soros and Pimco chief investment officer Bill Gross, who are often accused of talking their own books whenever they see fit to stand on the soapbox.

But the good will Buffett has generated among investors may not count for much as he forays into the world of public policy. Already statements he made to The Wall Street Journal (statements he has since said weren't taken in their full context) suggesting that one of the two homes he owns in California was undertaxed drew the ire not just of Schwarzenegger's Democratic opponents, but of voices typically allied with the right.

"Mr. Buffett is a wonderful stock picker, but his politics lean toward tax and spend," inveighed the Journal's editorial board.

Indeed, despite his support for Schwarzenegger, Buffett is viewed as a Democrat in Washington, and many Republicans there are still angry over his opposition to this year's dividend tax cut, which he termed "dividend voodoo."

Buffett detailed his latest worry, the huge trade deficit the United States is running with the rest of the world, in an article he wrote for Fortune. In it he argued that the U.S. trade deficit is an accident waiting to happen -- that in order to continue consuming more than we make America has put itself dangerously in hock to the rest of the world.

Buffett's so worried about the situation that he's offered up a radical fix -- the issuing of chits, which companies that want to export to the United States must buy from companies that export U.S. goods abroad. The chits would only let overseas companies ship as much here as we ship abroad. It's sort of a crazy solution, and Buffett admits that there may be other answers.

The point seems to be that Buffett thinks the United States needs to take radical steps, and undergo some pain in the short run, to ensure the longer-term health of the economy. "Perhaps there are other solutions that make more sense than mine," wrote Buffett. "However, wishful thinking -- and its usual companion, thumb sucking -- is not among them."

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Yet Buffett's radical policy prescription -- and even the idea that a radical policy prescription is needed to fix such structural imbalances in the U.S. economy -- isn't likely to get any play at all in Washington, according to Schwab Washington Research Group director Greg Valliere.

"He can afford to tilt at windmills, because he's Warren Buffett," said Valliere. "But I doubt he can really influence the Republican leadership."  Top of page

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