The Deal of the Century

by Coll, Steve;

  All that had changed with the arrival of Wunder and Baldrige in 1981. In the Reagan administration, business boosterism was a policy goal, not a political liability. So that spring, when Wunder informally presented to Malcolm Baldrige the arguments and evidence that could support a decision to dismiss U.S. v. AT&T, Wunder found his boss willing and able to carry the proposal directly to the President. Before he was briefed by Wunder, Baldrige knew little about the issues of telephone industry competition. A self-styled cowboy who chain-smoked Marlboro cigarettes and rode in professional rodeos—but who was also a graduate of an exclusive Connecticut prep school and Yale University—Baldrige comported himself much like his President, tending toward home-on-the range aphorisms and styles and dress from the American West. Indeed, when Reagan called Baldrige to offer him the Commerce job, the then President-elect was told by Baldrige’s wife that he couldn’t come to the phone because he was out riding. “That’s my kind of guy,” Reagan reportedly said. After a long and successful career as a corporate chief executive, Baldrige had come to Commerce intending to spearhead the private sector’s role in the unfurling of Reaganomics. Getting the Justice department off AT&T’s back fit nicely onto the agenda, and Baldrige listened eagerly to Wunder’s presentations about why dismissing the government lawsuit was important. Wunder laid out the dismal legislative history of telecommunications policy making in Congress and explained how the government suit had thwarted the most recent attempt to pass a bill. Most impressive to Baldrige were the numbers NTIA had assembled about the rapidly growing trade imbalance in the strategically important telecommunications industry, once a sector of American dominance in the international market. According to NTIA’s projections, the telecommunications trade deficit would eventually top $1 billion annually, with most of that advantage going to Japan. AT&T, particularly its Western Electric and Bell Labs subsidiaries, represented the country’s best hope for righting that imbalance, Wunder said, if only because the uncertainty and debilitation caused by its antitrust entanglements could be ended. Baldrige took the NTIA numbers to heart—they turned out to be inaccurate, but only because they underestimated the size of the problem—and he decided that the international trade argument, combined with Cap Weinberger’s concerns about national security, would form a solid basis for President Reagan to order publicly the dismissal of U.S. v. AT&T.

  The challenge now was to orchestrate a decision before Judge Greene had a chance to rule at trial. AT&T lawyers and executives had let Commerce officials know that they believed Greene, because of his certifiably liberal background, might ultimately rule against them in court, despite the gallant efforts of George Saunders. Such speculation, calculated or not, fed the ideological prejudices of activist conservatives like Baldrige, and added a spice of partisanship to an already complex and contentious situation.

  On Wednesday, May 20, a dreary spring day in the nation’s capital, Baldrige met with Ed Meese in the west wing of the White House to discuss how the Commerce department’s dismissal proposal should be presented to President Reagan. The Reagan presidency was just four months old, and its decision making processes and internal centers of power were only beginning to take shape. When he was governor of California, Reagan had involved himself little in the day-to-day details of his administration; he had relied on formally structured working groups made up of his top advisers to present him with information and proposed decisions. During his first months at the White House, a similar pattern was forming; cabinet-level working groups, called cabinet councils, which were little used during the Carter administration, were looked to by Reagan as forums where top administration officials could develop and debate policy proposals before presenting them to the President once a consensus was reached. The obvious way to handle Baldrige’s dismissal proposal was to carry it up through the Cabinet Council on Commerce and Trade, which Baldrige chaired. There were eleven council members, including Baldrige and Meese. If consensus support for the idea could be built within that body, then the proposal could be presented to Reagan for ratification at a formal cabinet meeting. Sherman Unger, Baldrige’s politically appointed general counsel at Commerce and a veteran of Nixon administration intrigue, had suggested to Baldrige that he urge Meese to authorize the formation of a cabinet council task force on the AT&T lawsuit. That way, a working-level group made up of general counsels from some of the departments involved, including Commerce and Defense, could draft a “white paper” arguing why the lawsuit should be dismissed. Then the paper could be circulated to the cabinet secretaries who made up the council membership. Once they accepted its findings, the full cabinet council would meet with the President to seek his endorsement. If all went well, the decision to drop U.S. v. AT&T would be finalized by June 12, the date of the full cabinet council’s next scheduled meeting with the President.

  Meese thought Baldrige’s strategy was sound, and a few days later he issued a written, internal White House order authorizing the creation of a “Task Force on Telecommunications Policy” and a working group of general counsels underneath it. The departments represented were Commerce, Defense, Agriculture, Energy, and the Federal Emergency Management Agency; Justice would have no input, even though Attorney General Smith was a member of the Cabinet Council on Commerce and Trade. The policy decision to drop the lawsuit, Baldrige and Meese agreed to argue, had nothing to do with the merits of the case, or with the progress of the trial before Judge Greene; rather, it was an issue of national security and the national interest. Thus there was no reason to include Antitrust chief Baxter in the process.

  Even though his effort to drop the case was moving swiftly and smoothly, there would be a brief but no doubt intense reaction in Congress to Reagan’s announcement that he had dropped a structural antitrust suit against the country’s biggest corporation. After his meeting with Meese, Baldrige’s staff placed calls to several key congressmen and senators, including Oregon senator Bob Packwood and the majority leader, Senator Howard Baker of Tennessee, to “get a feeling,” as Baldrige put it later, about the depth of congressional support for the Justice case. Baldrige heard nothing discouraging. At the same time, he ordered Sherman Unger, Bernie Wunder, and others at Commerce who were involved in the proposal to keep contemporaneous summaries of all their meetings and telephone conversations as a precaution against a Democratic-led congressional investigation of the decision, which might try to establish politically embarrassing links between AT&T and the Reagan administration.

  The cabinet task force’s working group convened for its only formal meeting on Thursday, June 4, and because the arguments and data they needed had already been assembled by Wunder and the NTIA staff, it took only a couple of days to draft, type, collate, and copy the task force recommendation that U.S. v. AT&T be immediately and summarily dismissed by President Reagan. There were actually two versions of the task force report: a longer one explored in full detail the national security and international trade arguments, while a shorter one summarized the Commerce-Defense consensus. The long version contained two classified pages concerning the armed forces’ defense communications system and the geopolitical importance of the telecommunications industry; the two pages could be removed without disrupting the paper’s continuity. As soon as the report was drafted, Baldrige personally called each of the cabinet secretaries on the task force to be certain they supported the dismissal recommendation. Each of them said they would back Baldrige and Weinberger when the cabinet council met with President Reagan the following Friday. By Monday, U.S. v. AT&T would be over.

  When the meeting began at 10:00 A.M., no one seated around the long, rectangular conference table in the Roosevelt Room of the White House was certain about what, if any, consideration President Reagan had given to the proposal now before him. Weinberger, Baldrige, and Meese knew from his statements during the 1980 campaign that Reagan’s instinct about the phone company and its antitrust problems was, “If it ain’t broke, don’t fix it.” They assumed that since they were presenting the
President with a consensus opinion from some of his most important and influential cabinet advisers, Reagan’s ratification of the dismissal idea would be more or less a formality. What they had underestimated, not for the first or last time, was the tenacious vitriol of William Baxter.

  Even though he had found out only a few days before about the task force, its recommendation, and the fact that a cabinet meeting would be held to discuss it with the President, Baxter had arrived at the White House ready to go to the mat with Weinberger, Baldrige, and, if need be, the rest of Reagan’s cabinet, too. A copy of the task force’s paper had been sent to Justice earlier in the week, and Baxter’s Antitrust front office staff had hurriedly drafted a stinging rebuttal, which Baxter now carried with him. Like the task force recommendation itself, Baxter’s rebuttal paid no attention to the merits or factual details of U.S. v. AT&T; rather, it concentrated on the theoretical arguments behind Baxter’s belief that the phone company should be broken up. It stressed that the comprehensive legislation ostensibly sought by the Commerce department was really a regulatory solution to the phone industry’s competitive problems, while the full breakup of AT&T would lead to less government and less regulation, a goal that was in perfect tandem with the President’s most strongly held ideological tenets.

  As Baxter pressed his views, the tension around the conference table began to rise. There was something about the Antitrust chief’s self-confident manner that invited irritation.

  Cap Weinberger, himself testy and strident by nature, began to lose his patience. “This case should never have been brought in the first place, and it should be dropped!” he burst out at one point.

  Baxter, though, continued to argue. Though he was a political amateur in his first contentious cabinet meeting with the President and his top advisers, he was not intimidated. He emphasized the shortcomings of the legislative solution that Commerce hoped to pursue, and he complained, too, about the fact that Meese and Baldrige had excluded Justice from the decision-making process. The latter point was an effective one because in the early days of the Reagan presidency, much emphasis was placed by top White House staff on the importance of unity and due process within the administration. Baxter had brought with him to the cabinet meeting Jonathan Rose, an assistant attorney general in charge of Justice’s Office of Legal Policy. Rose was a Nixon White House veteran with a keen sense for intrigue and strategy inside the executive branch.

  “I don’t think the administration should start off by making a decision that so favors an American business,” Rose told the cabinet meeting, “unless it makes clear that it listened to the contrary arguments and decided that this is best. You have to be prepared to intellectually defend your decision.” What Commerce and Defense had done, Rose argued, was prepare a preset rationale that would not sell to the public or Congress. “We ought to slow down and do the job right,” he said.

  Baldrige, who was chair of the cabinet council and thus reluctant to adopt too adversarial a posture, mainly emphasized the arguments prepared by Bernie Wunder about the national interest and international trade. But he could not resist responding to Baxter’s and Rose’s political arguments.

  “If we drop this case, only a handful of antitrust lawyers will care,” the Commerce secretary said.

  No one at the meeting wanted to pursue the political arguments too far, however. Reagan frequently said in public that he instructed his cabinet officers only to discuss the merits of an issue while in his presence, never its political consequences. In 1981, virtually all of the President’s cabinet secretaries believed Reagan meant what he said.

  As the debate wore on, Baxter could not tell whether he was making any headway, but he was encouraged by the fact that only he, Weinberger, and Baldrige were doing any talking. None of the other secretaries on the task force were throwing their weight behind Commerce and Defense.

  Reagan himself said very little. He seemed to be listening, and occasionally he would ask a question of Baxter, Weinberger, or Baldrige. But when the vociferous back-and-forth between Justice’s representatives and the task force leaders died down, and it was time for the President to indicate where he stood, Reagan had nothing substantive to add.

  “I don’t completely follow everything that everyone is talking about,” the President said. “But I do know one thing …” And then Reagan launched into the same story he had told on the campaign trail in 1980, the one about how much it used to cost to mail a letter from Hollywood to New York in the 1940s versus how much it cost to call long distance, and about how the cost of postage had gone up while the price of the same long-distance call had fallen drastically. Only this time, Reagan left out the punchline he had used on the stump: “And of course, the government is suing the phone company.” Instead, he just tailed off at the end and left the story hanging, without indicating exactly what the point was.

  After the cabinet meeting broke up, some of the Commerce officials suggested that the President’s story was like a “parable” that supported their position that the case be dismissed. There was some concern, however, that Justice could interpret the parable to mean the opposite, because Baxter argued that the way to drive long-distance prices further down was to force divestiture of AT&T’s operating companies.

  Either way, the President had ended the meeting at noon, and had gone off to eat lunch with Vice-President George Bush without resolving the issue for one side or the other. The strategy devised by Baldrige and Meese to achieve a quick dismissal of the suit had failed. To have the case dropped now, there was no point in relying on formal task forces, white papers, and cabinet councils. The issues were now clear enough, even if the President didn’t “completely follow everything.” Reagan had seemed to say that he was sympathetic to Baldrige’s position. Despite Baxter’s sharp arguments, a majority of the cabinet was still on board with Meese and the Commerce secretary. What still had to be overcome were the ensnaring machinations of political decision making inside the Reagan White House.

  Chapter 21

  The Disengaged Presidency

  Howard Trienens was in almost daily contact with Sherman Unger and the other political appointees at the Commerce department, and so Trienens and AT&T chairman Charlie Brown learned immediately that the June 12 cabinet meeting with President Reagan had ended without resolving the Baldrige proposal to dismiss U.S. v. AT&T.

  It was not clear to Trienens—nor, for that matter, was it clear to Baldrige, Unger, or Bernie Wunder—why the dismissal juggernaut inside the administration had been so suddenly derailed. Officials at Commerce and Defense, as well as Trienens, Brown, and other AT&T executives, had all been highly optimistic that Reagan would put an end to the matter when he was formally presented with his cabinet task force’s recommendation.

  Since the President had left the matter hanging, Baldrige’s forces would have to reroute their proposal directly to the Oval Office. And that meant, for the first time, that Reagan’s top White House advisor, Chief of Staff James A. Baker III, would have to be brought into the deliberations.

  In the latter years of President Reagan’s first term, much would be said and written about the extraordinary power wielded by Jim Baker and his so-called moderate allies—Richard Darman, Michael Deaver, David Gergen, and others—in the Reagan White House. Baker was a wealthy Texas lawyer who had managed George Bush’s 1980 presidential campaign against Reagan in the Republican primaries. The staunchly ideological conservatives who supported Reagan from the beginning of his drive for the presidency were surprised when their candidate named corporate-bred, politically temperate George Bush as his vice-presidential running mate at the 1980 Republican convention in Detroit. Their surprise turned to dismay six months later when Reagan, having won a triumphant mandate for his conservative principles at the polls, chose the “pragmatist” Baker as his chief of staff. When Baker proceeded to gather around himself at the White House a coterie of likeminded traditional Republicans, some of whom had ridiculed as “voodoo” Reagan’s economic propo
sals during the 1980 campaign, hard-line conservatives began to talk of “betrayal” and a “sellout.” In the end, Baker and Bush both proved themselves to be immensely loyal to Reagan and his program, but at the same time, Baker especially demonstrated unusual savvy in his dealings with the internecine Washington world of bureaucracies, media, and Congress. Baker’s ability to be simultaneously loyal and practical eventually earned him and his allies unrivaled power among the top White House staff.

  Unfortunately for AT&T, none of this was apparent in May and June of 1981, when Howard Trienens and Charlie Brown had tried to woo administration support for Malcolm Baldrige’s dismissal proposal. If it had been, Trienens and Brown would probably have spent more time in consultation with Jim Baker and less talking to Ed Meese and the political appointees at Commerce. Trienens said later that it was not his “beat” to read the Reagan administration “tea leaves” and that, more important, the extent of Baker’s power in the White House had not yet been demonstrated. Trienens and Brown would have preferred to deal directly with Attorney General Bill Smith or Deputy Attorney General Schmults. Since that was impossible, Ed Meese, who had a keen interest in legal affairs and would in fact become attorney general in Reagan’s second term, seemed a good third choice. Meese was an old friend of the President’s and certainly one of his two or three most important advisers. Trienens and Brown assumed, at least until the June 12 cabinet meeting, that their contacts with Reagan’s counselor had established an effective link to the Oval Office.

  That the AT&T executives were wrong became evident during the first weeks following the cabinet meeting. AT&T’s sources at Commerce reported that in the aftermath of the vociferous debate between Weinberger, Baxter, and Baldrige in the Roosevelt Room, a series of meetings had been arranged to see if some kind of compromise or understanding could be reached between Commerce and Justice. Baxter, however, was unyielding in his view that telecommunications legislation, such as the comprehensive rewrite of the Communications Act being considered by the Senate that summer, was inadvisable, and that the only worthwhile solution was full divestiture of the operating companies ordered by the court. With the two sides at an impasse, the debate inside the administration shifted from the merits of dismissal—Baxter would never change his mind about that—to its political consequences for President Reagan, who was at the time battling with Congress to pass the biggest tax cut proposed by a President in almost twenty years. If dismissal was going to be forced on Justice by the White House, as Meese, Baldrige, and others were urging late that June, a serious evaluation had to be made of the political fallout from such an announcement.