President Obama should issue an executive order requiring all companies with federal contracts to pay suppliers within 30 days rather than the "net 60" or "net 120" that is increasingly common, Jonathan Alter writes in a Bloomberg News column.
Mr. Alter portrays this as a way to look out for "small, vulnerable firms" and "small business." But if that is the idea, the two examples he gives aren't particularly apt:
consider the case of Anheuser-Busch InBev NV, the Belgian company that is the world's largest brewer. Net 60 is too wimpy for these folks. They routinely stiff their advertising agencies and other vendors for four months: Net 120.
Ah, Budweiser's small, vulnerable advertising agency. That would be DDB, "with more than 200 offices in 90 countries," which itself is part of Omnicom, a publicly traded company with a market capitalization of $13.7 billion.
More from Mr. Alter:
Cisco Systems Inc., for instance, announced last year that effective last May it was applying a "Net 60" policy toward all of its suppliers. Is Cisco still ailing, as it was a few years ago? Hardly. The company's earnings per share rose 27 percent in the last fiscal year and it had $39.9 billion in cash and equivalents on hand.
Cisco knew when it made the announcement that it might cause some hard feelings. After all, it was telling the world that it planned to hold on to invoices for two months rather than paying its bills on time. So the company explained that it was simply implementing "new payment terms" that had been "benchmarked against our technology peers." This is like breaking into your child's piggy bank, taking the money from someone dependent on you, and explaining that "all of my adult peers are doing it."
Who are these Cisco suppliers that Mr. Alter likens to children? Well, Cisco's 2010 supplier of the year was Xilinx, another publicly traded company with a market capitalization of about $8 billion. Its law firms included, at least of a few years ago, Fenwick and West; Morgan Lewis, and Baker Botts. Baker Botts was, as of 2009, a 721-lawyer firm where annual profits-per-partner were $1.36 million. James A. Baker III, a former secretary of state and secretary of Treasury, is a senior partner there. Small, vulnerable children, these aren't.
Any negotiation between a supplier and a purchaser is a negotiation, and the length of time to get paid, because of the time value of money, is just a variation on the price. If Mr. Alter suggested requiring businesses with government contracts to give all their suppliers a 3% price increase, he'd be denounced as an inflationary socialist. But by framing it as about the payment time rather than about the payment amount, he manages to sound (a little) more reasonable.
Nor are all suppliers necessarily smaller than the companies they sell things to.
Mr. Alter claims the executive order he touts would "cost taxpayers nothing." But companies like Budweiser or Cisco might deal with their increased costs by raising prices on beer or on routers they sell to their customers, who include taxpayers. Or they might absorb the cost increases and have less profits for their shareholders, who also include taxpayers. Of course, DDB, Xilinx, and Baker Botts, or their shareholders and employees, are taxpayers, too, and the executive order might help them. But rather than costing taxpayers nothing, the proposed executive order would just shift money from one group of taxpayers to another.