Questions About a Cozy Relationship

THE Secretary of Commerce is the spokesman for business in the Cabinet, and for the past three years Maurice Stans performed that duty with great though often misguided zeal. He fought for quotas on textile imports and large subsidies to shipyards; he argued forcefully against strict consumer protection and antipollution standards that might put an expensive burden on industry. On Feb. 15, Stans resigned to take a new job as chief fund raiser for President Nixon's reelection campaign. With equal ardor, he is now bracing presumably grateful executives for contributions.

In at least three meetings with top businessmen at the St. Louis Club, at a club in Chicago called The Casino and at an Olin Corp. game preserve near Brighton, Ill., Stans has bluntly asked executives to donate stock or cash. His guideline: each executive should contribute up to 1% of his personal net worth. He also has pressed businessmen to hurry up and give as much as possible before April 7 in order to avoid the disclosure of donations required by a law that takes effect on that date. The law was praised by the President because it will give "the American public facts about political financing." All the more reason, apparently, for hustling in contributions earlier. In a recent letter to potential contributors, Thomas P. Pike, a Stans lieutenant in California, pointed out that the public will know nothing about pre-April 7 gifts, but "you may be assured that he [the President] will be personally apprised of your support."

The Stans pitch is perfectly legal. But it underscores again the symbiotic relationship between big business and the incumbent Administration. That relationship is the real focus of the uproar about International Telephone and Telegraph Corp.'s promise to help finance this summer's Republican National Convention, and the subsequent out-of-court settlement of a major antitrust case on terms relatively favorable to ITT. That case reached some kind of high point last week in one of the strangest Senate hearings ever held. Testifying from her Denver hospital bed, propped up on pillows and hooked up to heart monitoring equipment, ITT Lobbyist Dita Beard "categorically" but unconvincingly denied that she had written the celebrated memo released by Columnist

Jack Anderson. She did admit writing a similar memo in which she supposedly discussed ITT's pledged contribution, but not the antitrust cases. Asked why she had not repudiated the Anderson document earlier, she replied that she had "no one to turn to"--ignoring the battery of ITT lawyers who had been advising her. After two and a half hours of questioning, Mrs. Beard collapsed with chest pains, and worried Judiciary Committee members called off their polite interrogation. Back in Washington this week, they will vote on whether to continue the ITT probe.

Whatever the outcome, and despite the fact that no wrongdoing has been proven, the case has stirred nasty charges of favoritism to friends and political contributors that are especially embarrassing to an Administration that came to office pledging evenhandedness in all its policies.

Subtle Dealings. Coziness between business and whichever party is in power is rarely a crude quid pro quo arrangement. In the world where high finance joins high politics, deals are usually far more subtle. Whether or not they contribute to political campaign funds, corporate leaders have as much right as any other citizen to expect an Administration to listen sympathetically to their complaints or requests. The most that the businessman can expect is for a high official to call a bureaucrat and ask him to investigate the matter. White House Aide Peter Flanigan, who has become the Administration's chief hand holder for business, readily admits to making many such calls. All he asks, he says, is that a federal department or agency "take a look at" the case. But that is plenty. Flanigan is surely aware of the galvanic effect of such a call on bureaucrats whose careers can rise or fall with changes in White House favor.

Concern for business is far from a Republican monopoly. Many executives court Democrats whether or not the party controls the White House. "There isn't a big business operation in Washington that doesn't work both sides of the street," says White House Special Counsel Harry Dent. Indeed, no Administration could ignore the views of businessmen, whose decisions create jobs and income.

Democrat John F. Kennedy created the "President's

Club" of $1,000 contributors whose members got invitations to rub elbows with the Chief Executive. During Kennedy's Administration, Myer Feldman performed the job now done by Peter Flanigan with such success that a colleague once hung a red light outside his office--a blunt suggestion that he was the call boy of business. Democrats have, in fact, suffered their share of allegations that business influence on their decisions went beyond the bounds of propriety. Republican eyebrows shot high when the Johnson Administration in 1966 dropped an antitrust case against beer-brewing Anheuser-Busch three weeks after the chairman, August A. Busch Jr., his wife and other executives and wives contributed $ 10,000 to the President's Club. Years before, Labor Boss John L. Lewis growled that "the only difference between Republicans and Democrats is that the Republicans stay bought. Democrats keep coming back for more."

Such hyperbole aside, there are important differences in atmosphere between the Nixon Administration and its Democratic predecessors. The key word for all who want something from Washington is access--the ability to see a top official to press a plea in person. Under Democratic Administrations, labor leaders have had the quickest entree.

For campaign funds, says a Nixon White House aide, "labor is the Fort Knox of the Democratic Party." Moreover, labor leaders can offer votes as well as money. Though every Democratic President has had some businessmen chums, the Democrats generally have made a conscious effort to keep favor-seeking contributors away from the White House and route them to lower levels.

By contrast, reports TIME'S Washington Bureau Chief Hugh Sidey, "Nixon has gathered the power to himself and his few trusted men. The action is in the White House; the rest of the bureaucracy is paralyzed with fear of those White House aides. More corporate representatives find their way into the White House back rooms than in the two previous Administrations. Nixon's public entertainments embrace more big businessmen than his predecessors ever saw. John Mitchell, acting probably as an old acquaintance, has referred people to certain lawyers and influence men who stand the best chance of getting the job done."

The imperatives of political financing are not the only reason for the easy access of corporate leaders to G.O.P. officials. Many Republican politicians come from the world of big-time corporations, banks and law firms. Even the Labor Department, which is supposed to represent labor's point of view to the Administration and vice versa, is top-loaded with former corporate executives. Its high officials are alumni of Lockheed, Ford, Cities Service, American Motors, Bethlehem Steel and Olin. Corporate executives often can approach White House aides as friends. But whatever a businessman's connections, there is no doubt that campaign contributions ease access to any Administration's decision makers. One high White House aide says: "If I give $100,000 and you give $10, of course I have more pull. And I should. I have a bigger stake in things than you do."

The results of access vary, but many businessmen have got much of what they wanted. Some examples:

MILK PRICES. On March 12, 1971, Clifford Hardin, then Secretary of Agriculture, announced that there would be no increase in support prices for milk during the next year. Ten days later, a large dairy cooperative gave $10,000 to four Republican Party committees through its political arm, TAPE (Trust for Agricultural Political Education). The next day, 16 officials of dairymen's co-ops met privately with Nixon and Hardin. According to Hardin, they argued that increases in their costs demanded a boost in the support price. Two days after that, Hardin raised the support price from $4.66 to $4.93 per 100 Ibs. of liquid milk, a move that has cost the Government $125 million in subsidies in the past year and that has raised prices to consumers. Three political committees of dairy co-ops have given more than $400,000 to Republican Party or Nixon re-election committees over the past year. In 1970, dairymen also gave $5,000 to Hubert Humphrey and $1,666 to Edmund Muskie. Despite the striking difference in contributions, both Senators joined in supporting bills that would have forced an increase in support prices had Hardin not granted it.

Hardin says that the dairy officials, at their meeting with him and the President, presented data that made him question whether, in his original decision to freeze support prices, he had given "sufficient weight" to increases in dairymen's feed costs. Presumably those data had somehow escaped the attention of Agriculture Department economists and the President's Council of Economic Advisers, who had supported Hardin's initial attempt to hold down subsidies.

POSTAL BONDS. When the Post Office was transformed into an independent Government corporation in 1971, it faced the necessity of raising its own operating capital. Officials decided to sell $10 billion of bonds over ten years to buy new machinery. First Boston Corp., a prestigious Wall Street investment banking house, had some advice for James Hargrove, then Senior Assistant Postmaster General. If the postal corporation marketed the bonds through the U.S. Treasury, it could save on interest costs and avoid the need for private underwriters. (Underwriters buy bonds from the issuer, in this case the Post Office, at a discount below par value and then resell the bonds to the public for whatever price they can get.) Hargrove rejected the advice. He feared that such a move would encourage postal officials to maintain the habit of relying on the Treasury to bail them out if they lost money. He then chose the underwriters by negotiation, rather than inviting competitive bids.

Hargrove selected five underwriters, including two that had little experience in marketing Federal Government bonds. One was Dillon Read, a firm in which Peter Flanigan was once a vice-president. Another underwriter was Kidder, Peabody, which retained Jack A. Gleason, active Republican fund raiser, to help get the postal-bond business. Albert H. Gordon, chairman of the firm, says he cannot recall exactly what Gleason did or how much he was paid. Legal work on the bonds--a lucrative but undemanding chore that consists largely of making sure that prospectuses are accurate --is being handled by Mudge Rose Guthrie & Alexander, a firm whose partners until 1968 included Richard Nixon and John Mitchell.

By Wall Street standards the postal-bond business is not excessively rich. Each of the five underwriters stood to make a commission of at most $63,250 on the first $250 million of bonds; their profits, of course, will multiply if they are retained for subsequent issues. Mudge Rose may collect $ 1 million or more in fees over ten years if it acts as counsel for all $10 billion of bond offerings. What the whole affair seems to illustrate is an old-school-tie network in operation among financiers, Wall Street lawyers and Administration officials.

on QUOTAS. Under President Eisenhower, the Government began holding oil imports to 12.2% of domestic production; President Kennedy agreed in 1962 to have the quotas frozen into law. The justification is supposed to be the need for encouraging domestic oil exploration in order to maintain reserves for national defense, but the quotas operate like a subsidy by enabling companies to keep U.S. oil prices well above levels in the rest of the world. Official federal estimates are that this system costs American consumers $5 billion to $7 billion a year in bloated prices.

Early in the Nixon Administration, pressures for change were rising, and the President appointed the Cabinet-level task force to study the quotas. As chairman he chose George Shultz, then Secretary of Labor and a dedicated free enterpriser. By late 1969, word leaked to the oil industry that the task force seemed ready to recommend letting in more foreign fuel. The oilmen were worried. But they are big contributors to both parties; in 1968, Texas oilmen gave generously to both the Nixon and Humphrey campaigns through John Connally, then Governor and now Secretary of the Treasury. In November 1969, Michael Haider, retired chairman of Jersey Standard, met privately with Nixon.

Haider refuses now to disclose what was said, but at the time he told a trade paper that he thought the President had "a good grasp of the problem." The next month John Mitchell, who was not a member of the task force, appeared at its final meeting to warn Shultz: "Don't box the President in." Despite that warning, the task force voted 5 to 2 to replace the quotas with a less restrictive tariff. The tariff would have diverted revenue of $1.5 billion a year from oil companies to the Government. Nixon told the task force to restudy the matter. He also dumped Shultz as chairman and replaced him with Mitchell. In August 1970 the task force announced that the quotas would not be moved.

Soft and Tough. Time after time the Nixon Administration has shown its protective concern for business. In 1970 it unsuccessfully sought congressional approval of a federal loan intended to save the Penn Central railroad from bankruptcy. Last year, with loud labor support, it won a Government guarantee of a $250 million loan to bail out Lockheed Aircraft--over the protests of a coalition of politicians and businessmen who contended that in a competitive economy inefficient companies should be allowed to go broke.

As for the regulatory agencies, for the most part they have droned on in their accustomed close relationship with the industries that they police. The Interstate Commerce Commission, for example, continues to keep rail rates at levels that seem intended to ensure the survivability of the least efficient carrier on any route. The Federal Communications Commission has been exceedingly slow even to authorize market tests of cable TV which would introduce uncomfortable competition for existing stations.

It is also true, however, that the Administration sometimes has been tough with business. Under Nixon-appointed chairmen, the long-somnolent Federal Trade Commission has turned into a severe critic of misleading advertising and promotion practices. It told consumers that some Reader's Digest contests were deceptive; that Wonder bread (made by a division of ITT), which claims to spur children's growth, is no better than other breads; that Profile bread has fewer calories only because it is sliced thinner; that there was little Vitamin C in HI-C fruit drink. Moreover, apart from the ITT affair, the Administration has generally pursued a strong antitrust policy. Businessmen commonly complain that Republicans are more vigorous trustbusters than Democrats.

Expediency. On balance, however, Administration actions that please businessmen clearly outweigh those that displease them--although that fact certainly does not prove improper business influence. In judging any policy, EPA Administrator William Ruckelshaus points out, the test is not who saw whom but "whether the decisions are in the public interest." Even partisan Democrats concede that Republican officials genuinely believe that their pro-business actions are good for the country.

Any Administration's policy judgments, of course, are open to dispute. In some cases, the Nixon Administration seems to have mistaken the good of one industry for the good of business generally. The oil quotas, for example, raise costs to all fuel users--industrial as well as individual consumers. Only the oil companies benefit.

The worst aspect of the ITT case is the hint of favoritism to political contributors. But even if no such favoritism was involved, the out-of-court settlement is unsatisfying. Former Top Trustbuster Richard McLaren filed three suits against ITT in hopes of forcing a Supreme Court ruling on the most pressing problem of antitrust law: whether, and under what circumstances, "conglomerate" mergers that create giant cor porations operating in dozens of unrelated businesses are il legal. Then, rather than go to court, McLaren agreed to a settlement that will let ITT keep the billion-dollar Hartford Fire Insurance Co., on the condition that ITT sell several lesser op erations. His mind was changed, he says, by a report from an outside analyst commissioned by Peter Flanigan. After two days of study, the analyst concluded that if ITT were forced to sell Hartford, the price of its stock might drop about 16% , and ITT might have to cut its dividend.

Whatever the merit of that "hardship" argument, the legal status of conglomerate mergers has been left as uncertain as ever. If the outcome of the ITT-Hartford Fire case suggests any standard, it is one of sheer expediency. Con glomerate mergers, it seems, are tolerable if the Administration can be persuaded that breaking them up would shock the stock market. (ITT stock actually dropped about 14% in the first two days after announcement of the settlement last summer, but by January it had recovered all the loss.) Way to Trust. Questions of form as well as substance must also be considered in any assessment of business-Government relations. Private meetings between Administration leaders and high corporate executives, followed by action favorable to the executives, inevitably give the appearance of a fix, whatever the facts. Public cynicism about political morality can only be compounded when former Administration policy makers become fund raisers, as Stans has done, and plead for large, secret contributions from the very businessmen whose interests they have defended in Washington.

Old pols generally say there is little chance to change things. Businessmen and labor leaders who can bankroll campaigns and influence blocs of voters will always have easy access to Administration offices. California Democratic Leader Jess Unruh observes with resignation: "The buddy system works. The rich and powerful know,the rich and powerful. Political contributions are the singletree between the mule's ears; the singletree is there to get the mule's attention."

Still, some steps toward reform could be taken. Federal financing of election campaigns is worth serious examination. There are many unresolved problems as to how it would work and how funds could be apportioned fairly to minority parties and political mavericks as well as Democratic and Republican campaigners. But federal bankrolling of electioneering would at least reduce the pressure on needy politicians to beg funds from greedy contributors who are delighted to have potential officeholders in their debt.

In the absence of a federal financing law, the best antidote for public suspicion may be a strict limit on the size of campaign contributions, combined with relentless publicity for all large donations. The law taking effect April 7 will be some help. Beyond that, all meetings between Administration officials and favor seekers should be publicly announced. Such policies would go against all the inclinations of many politicians from both parties, and of the businessmen and labor leaders who expect their contributions to buy influence. But continuing to transact public business in private is a sure way to destroy whatever faith is left in the honesty and credibility of the Government.

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