Corporate woes could be liability for GOP

For a few weeks there, it seemed as if America – especially its political leaders – had forgotten about the country's economic woes.

The talk in Washington was about the "inevitability" of another terrorist attack, the shortcomings of its intelligence agencies, and the president's proposal for the new Department of Homeland Security. Not surprisingly, terrorism reappeared as Americans' No. 1 concern.

But along came telecommunications giant WorldCom and its misplaced $4 billion. Suddenly, Washington is snapping to attention. President Bush is planning a major address on corporate responsibility when he visits Wall Street July 9. Congress is wearing a familiar expression of studied concern, with the House holding hearings on WorldCom July 8, and the Senate taking up accounting-reform legislation when lawmakers return from the Independence Day holiday.

Behind much of the attentiveness, though, lies a fundamental political calculation: The Democrats believe they finally have an issue they can use against a popular president, while the White House is trying to get out front on a subject that could pose serious problems for the GOP – particularly if other economic problems deepen.

"The perfect storm comes when you have a sagging economy, a burgeoning deficit, and plummeting investor and consumer confidence," says Marshall Wittmann, a political analyst at the Hudson Institute here. We have indications of all three, though not yet at gale force intensity, and that does not bode well for the Bush administration or Republicans in this fall's congressional elections, he says.

Indeed, a new strategy memo by the Democratic group Democracy Corps argues: "Voters are very ready to believe that the Republicans have given free rein to an ethos that rewards irresponsible behavior by the powerful, at the expense of employees and ordinary investors."

Already, candidates across the country have been scrambling to address the issue in their campaigns. Out in the heartland, Iowa congressional hopeful John Norris faulted his opponent, GOP Rep. Tom Latham for inaction and proposed a "corporate accountability" plan of his own.

On the offensive, President Bush has spoken forcefully of the need for corporate responsibility since the WorldCom news broke last week. At the same time, he has sought to reassure Americans that most business leaders are honest and that the country's economic fundamentals are sound. In his radio address Saturday he emphasized that executives guilty of fraud "will do jail time."

Recent opinion polls show that Americans' concern about the economy is just as strong as the terrorism issue. According to the new bipartisan Battleground poll, the economy and jobs essentially tied with terrorism as the top concern among voters.

When asked which aspects of the economy worried them most, the top responses were healthcare costs and retirement security – issues where Democrats traditionally have an advantage.

Meanwhile, a poll released last week by the nonpartisan Pew Research Center found that only a third of Americans believe the president is "doing all he can" on the economy. At the same time, while his overall job approval rating remains at an enviable 70 percent, his score on handling the economy has slipped from 60 percent in January to 53 percent, according to the Pew poll.

Given the rolling news of corporate scandal, "there's a real chance now – though we're not there yet – that this could turn into a serious partisan issue," says government expert Norman Ornstein, of the American Enterprise Institute here. This could happen, he says, "by reinforcing with a vengeance the stereotype of Republicans as the party of big business."

More scandals could have a "cascading effect" on the economy, driving down the stock market, increasing unemployment, and leading to "that dreaded double-dip recession," says Mr. Ornstein.

One way for Bush to avert that contingency is to shore up investor confidence. That entails the president devoting consistent attention to the subject of corporate responsibility, says Cynthia Latta, economist at DRI-WEFA. "It's not something where he can come out once and say something needs to be done with it. It's something where people have to be sure it's generated enough investigation and long-term action," she says.

In March, the president laid out a 10-point plan on corporate ethics, including the forced return of profits which executives gain from false statements. A version of his plan passed the GOP-controlled House, while legislation pushed by Maryland Democratic Sen. Paul Sarbanes is gaining ground in the Senate.

The Sarbanes bill is perceived as providing tougher enforcement. It enhances auditors' independence by restricting consulting services they can provide, and creates a regulatory board that Democrats see as more independent.

Mr. Wittmann suggests the president has to do more than window-dressing on this issue. This is an "opportunity" for Bush to emulate the trust-busting spirit of Republican President Teddy Roosevelt, Wittmann says.

"This is a classic TR moment. But we don't know whether this administration has the inner fortitude to bite the hand that has fed them – corporate America."

• Liz Marlantes contributed to this report from Washington.