The Past Speaks

Larry Summers had joined the chorus of establishment figures who are ringing alarm bells about the current direction of travel in the United States. (Last week, David Frum, a former Bush speechwriter and lifelong Republican (!), published an essay in which he charged that Donald Trump is taking the United States in the direction of becoming an authoritarian ‘managed democracy’ along the lines of Erdogan’s Turkey or Putin’s Russia).  Larry Summers, erstwhile Secretary of the Treasury and President of Harvard, is calling on business leaders to resist Trump. I struck/shocked by the historical analogy that was used in the Harvard Business Review’s interview with Summers.

Interviewer:  You’ve mentioned, a couple times, parallels with 1930s Europe. How far would you take the parallel at this point?

Summers: If history teaches us anything, it is that authoritarianism is best combated at early stages rather than late stages. I’m not saying that I think that American democracy is somehow lost…But the resilience of American institutions isn’t something that happens automatically. It’s something that happens because people see dangers and take steps. So I think one can learn from the most extreme instances about the kinds of moral ideas that are important…

Note that Summers is carefully distancing himself from the more hysterical online voices that are talking about Reichstag Fires and possible coups. However, he isn’t dismissing out of hand the suggestion that there are  parallels between Trump’s election and the rise of dictators in the interwar period.

In the days immediately after Trump’s inauguration, Summers was using a very different historical analogy, the election of Herbert Hoover in 1928. You can see Summers using this historical analogy in an interview uploaded to YouTube on 30 January. Hoover’s election was followed by a “sugar rush” surge in share prices that was unsupported by the developments in the real economy. By using this analogy, Summers was lending credence to both the idea that Trump will be a bungler who ruins the economy and to Robert Shiller’s view the recent increase in share prices is not justified by the fundamentals.

In the HBC interview, Summers and his interlocutor are using a far darker historical analogy. Instead of comparing Trump to Hoover the bungler, Summers is comparing him to a dictator. Other centre-left and centre-right commentators in the US have used similar language to describe Trump.

To my mind, the most interesting thing said by Summers is about the impact of “short-termism” on the willingness of US CEOs to speak truth to power by joining the resistance to Trump. A great deal has been written about short-termism and quarterly capitalism, the tendency of the current generation of business leaders to have limited time horizons that contrast with the longer-term orientation that was likely common in US business a generation or two ago. (In my view, the long-term orientation of many US CEOs in the 1950s and 1960s was due to the influence of the philosophy of corporate governance promoted by Berle and Means in an influential book published in 1933–see here for a more detailed explanation).

Summers: But if you’re going to talk about your civic responsibility, as many business leaders do, if you’re going to talk about long-termism, as almost all business leaders do these days, what could be a more important long-term issue for American business than American leadership in the world? And I haven’t seen business leaders speaking out against protectionism in public. It’s very clear that, in private, many of them are deeply troubled by the signs that we’re moving in a protectionist direction.

Summers is right that there has been a lot of rhetoric from business leaders recently about the need to escaped from the curse of short-term thinking. Yes, business leaders in Davos and elsewhere have given renewed attention to the social, geopolitical, and cultural foundations of the business ecosystems in which they operate.  However, I’m not convinced that there has been a genuine shift in thinking towards the long-term, civic orientation that Summers favours. It is true that some business leaders have heroically spoken out against Trump. There may be a larger number of CEOs who are willing to say, in private, the Trump’s actions threaten the business ecosystem in which they have prospered. I suspect that  most business leaders will be like the CEO of Uber— they won’t distance themselves from Trump until their real-time data analytics suggest that consumers are starting to boycott their products. (This CEO resigned from Trump’s economic council after the #DeleteUber protest started getting rolling).

Bottom line: I’m not convinced US CEOs will stand up to Trump and unless they are prompted to by consumer pressure. Historically, CEOs have behaved generally adopted an unheroic stance during takeovers of democratic regimes. Only one or two of the oligarchs in Russia protested Putin’s efforts to construct an autocracy there. Ditto for Italy in the 1920s.  Moreover, the short-term orientation of my most US  CEOs means that they are especially unlikely to speak publicly against Trump, regardless of what they might say to Larry Summers in private. Impatient capital and the US system of corporate governance means that the CEOs of public companies aren’t really free to speak up in defence of Statue of Liberty values.