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The day after tomorrow

7 November 2020 By Breakingviews columnists

American companies have had plenty of time to consider what a Joe Biden presidency will mean for them – thanks in part to an abundance of polls predicting a landslide that didn’t quite happen. But the drawn-out election results, and the ongoing uncertainty over which party will prevail in the Senate, is an amuse-bouche for the gridlock that lies ahead. Breakingviews takes a closer look at what will shape the agenda for various industries.

Wall Street reprieve

The money business has dodged the blue wave, but a purple ripple could still dampen the ankles of the masters of the universe. Going into the election, the worst-case scenario for banks like JPMorgan, Goldman Sachs or Citigroup was a Democratic sweep of both arms of government. That would have given a clear platform for ideas like the breakup of large lenders put forward by Senator Bernie Sanders, the elevation of Elizabeth Warren as secretary of the Treasury or proposals to curb stock buybacks and impose taxes on financial transactions.

Those are now vanishingly unlikely. Nor is there much to worry about from more onerous regulation – especially since Republicans did little to unravel the post-crisis protections in the first place. And while a President Biden would get to put forward his own people to run financial regulators, those will likely have to pass muster with moderates, even if Democrats manage to get control of the Senate. Financial industry executives may even be on the shortlist, and the revolving door will still revolve.

The other touchy subject is tax. Biden’s proposed rise in the corporate income tax rate to 28% from 21% would affect financial institutions as it would most companies. But his talk of raising personal rates for top earners and capital gains would hit finance, with its heavy concentration of wealth, hard. That too now faces heavy dilution. Every Senate vote counts, and Democrats like Charles Schumer of New York rely on Wall Street employees for votes and contributions. Mass decampment to low-tax Florida can wait, for a couple of years at least. (By John Foley)

Happy Valley

For Big Tech, what comes next is more a question of people than policy. Alphabet’s Google unit, Amazon.com, Apple and Facebook are all under antitrust investigation by the Justice Department or the Federal Trade Commission. Prosecutors have already filed a lawsuit against search giant Google. The big variable is who a Biden administration chooses to lead them – and what level of aggression that produces.

The technology sector is in the unenviable position of having enemies on both sides. The progressive push against the industry means Mark Zuckerberg and Jack Dorsey, of Facebook and Twitter respectively, can forget the kid-glove treatment they received last time a Democrat occupied the White House. Facebook could face even more scrutiny given the clashes the Biden campaign had with the social network over election content. And Republicans are unlikely to forget the platforms’ enthusiastic policing of Donald Trump’s false claims of winning the election while the count was still ongoing.

But slim Senate control – for either party – will benefit Big Tech. It makes it harder to pass legislation on antitrust reform to break up the firms or ban them from buying rivals. The same goes for plans to roll back legal liability protections for online content posted by users, which will likely get bogged down by partisan politics because both parties disagree on what constitutes objectionable material. The one area that could see meaningful progress is proposals to boost privacy. That happens to be an area where the industry welcomes joined-up regulation, and there’s less political bickering. (By Gina Chon)

Infrastructure weak

A stale joke in Trump’s Washington is that every week is infrastructure week, yet no major plans are ever announced. Biden has promised a $2 trillion program centered on clean energy, the creation of well-paid jobs, and equity in where and how investments are made.

Trump has pruned the forest of red tape that can strangle private-sector infrastructure projects raising hopes at companies who invest in such things, like Brookfield Asset Management and Blackstone. Biden’s manifesto makes it sound like Democrats might let some of it regrow. That may be appropriate, for example in pursuit of a carbon pollution-free electricity-generation sector by 2035. And tax breaks and other incentives could encourage investment. There’s a danger, though, that the burden falls heavily on D.C.’s budget.

An analysis from the Wharton School notes that extra federal spending on infrastructure may allow states and municipalities to invest less – but that such projects boost productivity and therefore wages and GDP. Trump has left much on the to-do list for Biden. And to mobilize vast reserves of cash waiting for the opportunity, states and localities may need to get friendlier with the private sector. Done right, infrastructure investment does come with payback. (By Richard Beales)

Back on the bus

Public transit may have had a rough year as Americans avoided crowded buses and trains – but it was a big winner on election night. Voters across the country approved ballot measures to fund better transportation. In Austin, Texas, around 60% of voters supported a property tax hike that would, among other things, fund more light rail and bus routes. Many other areas followed suit, like Virginia’s Fairfax County, which approved borrowing money to pay for transit improvements, and California’s Sonoma County, which voted to maintain a sales tax to make updates like expanding bus services. Biden is also an evangelist for Amtrak trains, which he took almost daily between Delaware and Washington for 36 years.

Is a boost for public transport bad for the private kind? Not necessarily. Leading car companies, like $31 billion Ford Motor and $53 billion General Motors, would have continued shifting toward electric vehicles no matter who was elected president. A Biden administration could mean tougher emissions standards, but less concern about divergence between regulations in the large liberal state of California and the rest of the country. And manufacturers should have fewer concerns about material costs increasing from tariffs or unpredictable trade policies disrupting supply chains. The modernization of transit may now shift into a higher gear. (By Anna Szymanski)

Energy goes greener

Whether America’s government is red, blue or purple, its energy is going to get greener. A change in administrations won’t change that direction, but it will affect the speed. Biden has called for a “transition” from oil and other fossil fuels – but his plan doesn’t call for a production ban. Instead it pledges to make polluters bear the cost of carbon emissions and proposes large investments in green technologies.

These actions merely echo where the market is going anyway. Cost declines in green energy production have been relentless and are driven more by technology than policy. Solar panels, batteries and wind turbines steadily become more efficient and cheaper, allowing them to outcompete fossil fuels in power production today, and transit tomorrow. Just look at coal. Trump promised to end “the war on coal” and rolled back environmental regulations to encourage both production and use. Yet U.S. coal production this year is expected to be about 30% lower than when he entered office, as utilities shut uneconomic electricity plants.

Even without Senate backing, Biden can wield influence. Where Trump pulled America out of the Paris Climate Agreement, Biden could put it back in. The way government agencies interpret pre-existing rules is critical and comes from the top. Companies already moving away from high-polluting fuels, from utility NextEra Energy to turbine-maker General Electric, are already on the right political track. And for holdouts like Exxon Mobil, the writing is on the wall. (By Robert Cyran)

Restart the press

A Biden presidency will halt the war on media launched by his predecessor. That’s good for the likes of CNN-owner AT&T, Comcast, ViacomCBS, Walt Disney and even Fox Corp, the parent companies of America’s top networks. A relentless four-year assault by the White House to undermine credibility in the press – branding journalists as “enemies of the people” – didn’t stop news organizations from carefully and methodically reporting on the chaotic 2020 presidential election. Even Fox News, Trump’s favored network, invoked his ire by declaring early on that the state of Arizona had turned Democratic, and stuck to its guns.

It’s not just the big organizations that will get an additional boost from a cease-fire. The collapse of local news should now get more attention. Since 2004, the United States has lost 2,100 daily and weekly newspapers, according to the UNC Hussman School of Journalism and Media. The country has paid a steep price for that loss, with a flood of divisive misinformation. Congress has taken note. Bipartisan bills including one that gives news organization a safe harbor to negotiate with tech platforms could finally pass. Information carpetbaggers Twitter, Facebook and Alphabet-owned YouTube, themselves scrambling to police a flood of fake news, may now be called on to effectively provide local news with a financial lifeline. (By Jennifer Saba)

Eat, drink, be merry

Consumer-goods firms will have their eye on one big – or maybe small – prize: stimulus. The Covid-19 relief package passed in the spring included $1,200 checks and extra unemployment benefits. The results of that were clear. In April, 64% of adults said they could find $400 in cash to meet an emergency, but that rose to 70% in July, according to the Federal Reserve. Companies from Clorox to Kraft Heinz reported strong sales – and consumers trading up to higher-margin items.

The big question is how much support is on the way. Democrats and Republicans have been far apart on how much stimulus is needed, with numbers ranging from $500 billion to over $2 trillion. With wafer-thin Senate control, or none at all, Democrats might have to rein in expectations. The outgoing president’s views matter too, since he remains in office until January. But all sides will recognize that the cost of doing nothing is high. After the $600 weekly boost to unemployment payments ended in July, consumer spending slowed. (By Amanda Gomez)

Smoke rises

The legal cannabis industry laid down new roots in 2020. Voters in New Jersey, Arizona, South Dakota and Montana approved marijuana for recreational use. Yet without a clear Democratic lead in the Senate, the prospects of a federal law giving weed the green light are slim. In short, this should be good for the product, if not so good for the companies that make it.

Bringing New Jersey into the fold of states that let adults buy and consume cannabis is a big step. It increases the pressure on neighboring states like New York to do likewise or see potential tax dollars leak away. Illinois, for example, estimates that around one-quarter of cannabis sales happen out of state. Companies like Curaleaf, which already sells medical ganja in the Garden State, are obvious beneficiaries. That’s contingent, of course, on drawing up new laws and rules.

The biggest listed cannabis stocks are still mostly wagers on the Canadian market, since for now, transportation of weed across U.S. state lines remains verboten. Canopy Growth, which has an option to buy U.S. rival Acreage, is the obvious exception. And without legislation permitting weed companies to use nationally chartered banks – or deduct their expenses from taxable income – the industry will struggle to create attractive investments big institutions want to own. Expect no big changes in the short term. Further out, the smoke signals are clear. (By John Foley)


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