The End of the Bromance: Musk and the Tragedy of Diverted Talent

6 06 2025

The latest spat between Elon Musk and Donald Trump has moved from petty to poisonous. After months of barely concealed tension, Musk finally went on the offensive. For an overview of the events of the last 48 hours, see here, here, and here.

The two men, once mutual admirers, now represent opposing poles in the Republican constellation. This latest clash offers more than just tabloid drama for us to gossip about it underscores a deeper institutional problem: why do entrepreneurs as talented as Musk get pulled into the dark gravity well of rent-seeking politics?

Musk’s career is a study in duality. On one hand, he is the archetype of the Schumpeterian entrepreneur: making life slightly better for millions of people through innovations in things like payment systems. On the other, he has repeatedly deployed his political acumen to extract subsidies from governments. Tesla’s early growth was underwritten by generous tax credits, SpaceX relies on NASA contracts, and his energy ventures have gorged on regressive green subsidies. Musk is certainly not unique in this regard—he merely illustrates with exceptional clarity the tragic misallocation of genius that occurs when institutions permit, or even incentivize, rent-seeking entrepreneurship. Imagine the gains to human welfare if all of Musk’s talents had been directed solely at solving engineering problems rather than navigating political patronage.

President Donald Trump meets with Conor McGregor and family in the Oval Office, March 17, 2025. (Official White House Photo by Molly Riley)

William Baumol was one of the most versatile and influential economists of the 20th century, whose career spanned over six decades and touched virtually every subfield of economics from labour markets to innovation theory to the economics of art. Baumol spent much of his academic life at Princeton and later at NYU. While he published extensively on the theory of the firm and macroeconomic policy, his most enduring contribution to entrepreneurship studies came in the form of a deceptively simple insight: that entrepreneurship is not inherently productive. In his seminal 1990 paper, Entrepreneurship: Productive, Unproductive, and Destructive, Baumol argued that while the supply of entrepreneurial talent may be more or less fixed across societies (only a certain proportion of people are born with the genes that make them good entrepreneurs), how this scarce resource is allocated is highly sensitive to the institutional environment. In societies with strong property rights, the rule of law, and competitive markets, entrepreneurs are more likely to engage in innovation and socially beneficial enterprise. In contrast, in institutional contexts that reward rent extraction, through bribery or lobbying at the royal court—the same entrepreneurial energy may be directed toward unproductive or even destructive ends. Baumol’s typology reframes the policy debate: the problem is not a shortage of entrepreneurship per se, but the set of incentives that determine where entrepreneurial effort is deployed. His work reminds us that the entrepreneur is not always the hero of capitalism; he or she is whatever the institutional context incentivises him or her to be.

William Baumol’s typology remains a commonly used lens through which to understand this phenomenon. In his formulation, entrepreneurship is neither inherently good nor bad—it is merely energy. Whether it is productive, unproductive, or destructive depends on the institutional context. In the Gilded Age, many American factory owners lobbied for tariff protection to protect their margins from foreign competition. Thomas Edison got rich by spending long hours in his laboratory producing innovative products that genuinely made life better for ordinary people. That’s socially productive entrepreneurship. Other entrepreneurs of that same era got rich by hanging around in smoke-filled rooms in Washington trying to get the details of the schedule of tariffs altered. Today, too many entrepreneurial energies are expended on capturing regulators, designing market-thwarting rules, and lobbying for subsidies. The returns to such behaviour can be immense, and perversely, in some socio-political systems, more reliable than those from genuine innovation. Hence the tragedy: the institutional architecture, not the intrinsic morality of entrepreneurs, determines whether entrepreneurial energies go toward inventing better mouse-traps or rent-seeking (e.g., hanging around the court so you can ask the monarch to give you a monopoly on the salt trade or something).

Institutional theory seeks to explain the ultimate causes of economic growth not in terms of resources or geography, but through the quality and structure of a society’s institutions, the formal and informal rules that govern human interaction. The foundational figure in this tradition is Douglass North, who won the Nobel Prize in 1993 for his work demonstrating that well-defined property rights, enforceable contracts, and predictable legal systems are essential preconditions for sustained economic development. North’s key insight was that institutions shape the incentives that individuals and organizations face: when the institutions reward productive entrepreneurship, economies flourish.

More recently, Daron Acemoglu and co-authors have built on and extended this framework, arguing that the deep determinants of prosperity lie in the presence of what he and his co-authors call “inclusive institutions”—those that create broad-based opportunities and constrain the arbitrary exercise of power. His work, especially Why Nations Fail, has powerfully influenced both academic and policy discourse, which is why he got the Nobel Prize. Acemoglu’s arguments, like North’s, are ultimately about incentives: inclusive institutions direct effort toward innovation and wealth creation, while extractive institutions channel energy into rent-seeking, repression, and elite entrenchment. Taken together, institutional theory provides a compelling answer to one of economics’ most profound questions: why some nations grow rich while others remain poor.

This brings us to the central insights of the paper I co-authored with Graham Brownlow,  “Informal Institutions as Inhibitors of Rent-Seeking Entrepreneurship”. In this paper, which was published in a journal called Entrepreneurship Theory and Practice, We examined why the United States, despite having formal constitutional rules that ostensibly promote market competition, saw such variation over time in the degree to which entrepreneurs engaged in rent-seeking behaviour. One of our key findings was that the effectiveness of anti-rent-seeking provisions, such as the anti-aid clauses that were inserted into many state constitutions during the Jacksonian era, depended not merely on their formal wording, but on how judges interpreted them. Judicial scepticism towards governments using taxpayer funds to help specific firms had a chilling effect on collusion between politicians and entrepreneurs. State efforts to subsidize politically connected firms were routinely struck down. In that institutional climate, rent-seeking became a riskier and therefore less attractive strategy for an entrepreneur trying to get rich.

We argue that the shift in judicial philosophy after 1915 rendered many of these formal constraints inert. Courts began to defer to legislative decisions, even when these transparently served private interests rather than public welfare. The result was an institutional environment increasingly friendly to rent-seeking. Even though the constitutional text remained constant, its meaning had been transformed by a shift in thinking of the judges. This insight underscores the fragility of formal constraints.

The key policy implication of our research is that the ultimate effectiveness of institutions in curbing rent-seeking entrepreneurship hinges on the moral and intellectual commitments of judges. Constitutions can inhibit rent-seeking only if the judiciary interprets them in that spirit. Judicial philosophies, which are shaped by public opinion, legal culture, and broader intellectual currents, determine whether the constitutional order channels entrepreneurial energy into productive or parasitic endeavours. The tragedy is that when these interpretive norms erode, talented individuals like Musk are rationally induced to play the political game rather than innovate in the marketplace.

Still, we should not end on a pessimistic note. Recent judicial decisions suggest that at least some parts of the American judiciary are reawakening to the dangers of rent-seeking entrepreneurship. If this trend continues, it may yet be possible to restore a climate in which entrepreneurship is once again skewed toward the productive. The battle between Musk and Trump is a mere symptom. The deeper issue is institutional. If we want more Musks designing rockets and fewer Musks manoeuvring for subsidies, we need courts that stand firmly against rent-seeking.


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Some Thoughts On Trump and Annexationism

13 12 2024

In late 2024, President-elect Donald Trump reignited diplomatic tensions with Canada by making provocative remarks about the country’s sovereignty. Trump referred to Canadian Prime Minister Justin Trudeau as the “Governor of the State of Canada,” adding with a smirk that Canada might as well join the United States if it wished to avoid the heavy tariffs on its exports. Trump took to his preferred platform, Truth Social, to repeat these sentiments. Over the following days, Trump’s posts escalated in tone, suggesting that Canada’s economy relied heavily on U.S. trade and that tariffs were inevitable unless it reconsidered its status. By mid-December, Trump’s comments had sparked widespread media attention, with some analysts unsure whether his statements were intended as serious policy proposals or simply political theatre or were simply a joke.

Here is some media coverage from India of the issue.

My educated guess is that they may be serious. There are certainly people around Trump who are concerned about the “browning of America” and who have, in the past, mused that incorporating Canadian provinces as states of the union would raise the Caucasian share of the US population (sorry I can’t find the link but they did say that). The same people seem to be fiercely opposed to Puerto Rican statehood). I don’t think that Trump is a racist ideologue, but I do think that he is interested in building a legacy and there would be no greater legacy than permanently expanding the United States. Changing the map of your country is a way to get your face on Mount Rushmore. That’s even better than being happy about Trump Tower becoming the tallest building in New York.  When I first heard the slogan “Make America Great Again” I noted that it didn’t specify when exactly American greatness had peaked. Like many, I had assumed that the imagined Good Old Days in this slogan were either some nostalgic version of the 1950s or the 1980s, a period when Trump was in his prime. But it could be the vaguely defined period of greatness underpinning the slogan is the nineteenth century, the period of manifest destiny.

Perhaps I am personally biased in thinking that Trump is serious about offering statehood to some or part of Canada because my PhD thesis looked at the 1860s, a period when that option was very much on the table. Maybe my background is skewing my analysis of what is going on right now.

In any event, Canadian popular reaction to Trump’s remarks was swift and defiant. Prominent politicians across the Canadian political spectrum rejected any notion of annexation, although I did notice the Premier of Ontario took the precaution of placing a US flag next to a Canadian and provincial one during a press conference. Polling data showed that Canadians overwhelmingly opposed closer political integration with the United States, with support for national sovereignty apparently at record highs. Only 1 in 8 Canadians are open to the idea of Canada, or their Canadian province, joining the United States. Even in the more politically conservative Prairie provinces, that number isn’t much higher than 20%.

Trump’s 2024 comments about Canada echoed his earlier proposal in 2019 that the United States should acquire Greenland, then an autonomous territory of Denmark. In August 2019, news broke that Trump had floated the idea during meetings with aides, reportedly framing the acquisition as a strategic move to gain access to Greenland’s natural resources and enhance the U.S. military presence in the Arctic. Trump later confirmed the proposal on Twitter, which is now called X. The proposal drew immediate backlash from Denmark, with Prime Minister Mette Frederiksen describing it as “absurd” and anachronistic. Her view was that while Tsarist Russia might once have been able to sell Alaska to the US, this isn’t 1867 anymore and we don’t do things that way. Trump retaliated by cancelling a state visit to Denmark, claiming Frederiksen’s response was disrespectful.

The idea of the United States annexing Canada has deep roots. During the early 1800s, tensions between the United States and British North America culminated in the War of 1812, during which some American leaders saw the conflict as an opportunity to annex Canadian territories and to liberate their inhabitants, many of whom were Anglo-Saxons culturally indistinguishable from people in neighbouring states, from British misrule. While the war failed to achieve this goal, the idea persisted among American expansionists. The Annexation Movement gained momentum in the 1840s, spurred by Manifest Destiny and economic pressures. In 1849, a group of Montreal merchants published the “Annexation Manifesto,” calling for Canada to join the United States to escape economic stagnation and benefit from free trade.

William Henry Seward, U.S. Secretary of State during the 1860s, was a vocal proponent of territorial expansion and believed that Canada would eventually be absorbed by the United States. In the 1850s Seward, who was an ardent abolitionist from New York State, said it was more logical for Canada to be part of the United States than it was for the slave states.  Seward was confident that economic integration and demographic trends would lead to Canadian annexation without military force. However, these ambitions, along with garden variety interest group politics in the US congress, resulted in the cancellation of the Reciprocity Agreement in 1866, which had established free trade between the U.S. and British North America since 1854. This Free Trade agreement’s termination was partly driven by American resentment toward British support for the Confederacy during the Civil War, as well as lingering annexationist sentiment. The cancellation intensified Canadian fears of U.S. expansionism and reinforced support for Confederation as a means of unifying and protecting Canada against American ambitions.

A paper I wrote long ago, “Confederation as a Hemispheric Anomaly: Why Canada Chose a Unique Model of Sovereignty in the 1860s,” sheds light on why Canada ultimately resisted annexationist pressures. I wrote this paper because in part because I was sympathetic to the 1860s Canadians who favoured Annexationism, some of whom had arguments that were based on economic logic. (Annexationism was very strong in communities in which the border was an annoyance that complicated everyday life.) Once the US passed a constitutional amendment ending slavery, many Canadians, particularly farmers in the area west of Toronto, concluded that they could now safely join the Union. The paper argues that, unlike the United States and many Latin American nations, Canada adopted a model of sovereignty that preserved close ties to the British Empire while granting autonomy through Confederation. I argued that Canadian Confederation as a deliberate rejection of U.S.-style republicanism, emphasizing the desire to strengthen ties with the British Empire. Another reason the Annexation movement of the 1860s failed was the fact that Anglo-Saxon Americans were aware that Canada was home to a very large number of non-Protestants). Whether those ties were ultimately good for subsequent Canadian living standards is something we can discuss—as I argued in the final chapter of book published in 2008, post-Confederation Canada’s economy really fell behind the US. I speculated that the Canadian constitution designed in London in 1866-1867, which provided for an excessively centralized and not very democratic political system, had something to do with it. In the generation after 1867, vast numbers of Canadians voted with their feet in favour of the US and moved there, settling in places such as Ontario California.

My own personal view is that while I don’t like Trump, I think there is a strong logic in favour of continent-sized economic units, particularly those that resist the tendency to become protectionist blocks. I was totally opposed to Brexit and think that Britain would have been better off had it remained in the EU. (I’m agnostic about whether the UK should have adopted the Euro as its currency, as was once proposed by Tony Blair). By the same token, I think that Canadians and Americans would be better off if they combined their two countries at least in the form of an EU-style customs union with a common currency. The devil is obviously in the details. However, I think that we need to be able to separate the issue of which constitutional arrangement is economically superior from the political personalities of the day. When Clinton and Obama were presidents, support for greater integration in Canada was higher than it currently is. Whenever some particularly objectionable Republican gets in the White House, be it Richard Nixon or the like, we tend to see a nationalist reaction in Canada.  I bet that if the annexation of Canada were proposed by the likes of a Clinton or an Obama, the Canadian reaction would be different. I also bet that if the prospect of Canada’s ten provinces getting votes in the electoral college became a realistic one, many Republicans would become strongly opposed to the concept because at least nine of those provinces would be staunchly blue states.

While Trump’s recent statements may have been made in jest, they reflect a pattern of American leaders revisiting old territorial dreams to achieve economic or political goals. Canada’s current response is consistent with a historical commitment to maintain sovereignty in the face of external pressures.


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What Business History Has to Say about Huawei, Geopolitical Jockeying, and the Battle to Sell Americans 5G Equipment

16 05 2019

In this blog post, I’m going to show how the research of two business historians is relevant to understanding the ongoing controversy about Huawei. The Chinese company Huawei is in the news again, thanks to Donald Trump signing a presidential order that declared that Chinese exports of telecoms equipment to the United States constitute both a national security threat and a national “emergency.” Given that Trump previously labelled Canadian and European steel exports to the U.S. a threat to national security, it is not surprising that the justification for the U.S. government’s attack on Huawei is not being taken seriously. As the BBC reported this morning, Trump’s executive order is “widely seen” as an attack on Huawei, a firm whose 5G products are competing with those of two European manufacturers, Ericsson and Nokia, and Samsung, a South Korean firm. For this interpretation of Trump’s executive order, see here, here, and here.

The French president, Macron, has rightly called Trump’s attitude to the Chinese firm “overprotectionism”. Many experts who have compared the Huawei’s products with those of its non-Chinese rivals have concluded that  Huawei’s equipment is smaller, more cost effective, and more energy efficient than equivalent products from its competitors, which implies that the U.S. consumers will lose out from the ban on Huawei products.

The immediate winners of Trump’s move would appear to be the U.S. subsidiaries of Ericsson, Samsung, and Nokia. As of yet, there is no direct evidence that any of these companies were involved in making Americans concerned about  Huawei. There’s no proof that these companies paid U.S. journalists or Congressmen to adopt anti-China, anti- Huawei stances, but that’s not unthinkable. I would note that when Borje Ekholm, the CEO of Ericsson, was asked about Trump’s executive order, he was remarkably restrained and did not join in the Huawei-bashing.  However, there is rising Sinophobia in the U.S. and that’s good news, at least in the short term, for the shareholders of Ericsson, Samsung, and Nokia, Huawei’s rivals, as well as for domestic U.S. firms competing with Chinese imports.(The US doesn’t have any companies that make 5G equipment).

 

This episode is certainly not the first historical instance of third-country firms benefitting from rising tensions between two countries. In the early twentieth century, the emergence of the movement for independent in India prompted many Indian firms and consumers to shun British-made goods. As the business historians Christina Lubinski and  Dan Wadhwani  discuss this dynamic in their new SMJ paper “Geopolitical jockeying: Economic nationalism and multinational strategy in historical perspective”. Their paper introduces the concept of “geopolitical jockeying” which is when a multinational firm attempts to delegitimize rival multinationals and position themselves as complementary to the economic and political goals of the host nation. I know that many business historians will tend to view the Huawei with relation to the wider trade war between the United States and China and the literature on the history of trade wars However, in thinking about the Huawei saga, I find it more useful to use the concept of  geopolitical jockeying.


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Larry Summers on Trump

4 02 2017

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.


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Justin Fox on Shareholder Primacy in the Age of Trump

6 01 2017

obama_meeting_with_trump

The excellent Bloomberg columnist Justin Fox has published a great piece on the current state of corporate governance in the United States. He speculates that the “shareholder value” view of corporate purpose — that corporations exist to maximize value for their investors — is finally on its way out…. Donald Trump is effectively challenging the gospel that shareholder interests should come first. 

As Fox points out, the doctrine that the sole or primary purpose of a public company is to make money for shareholders has long been challenged by a group of academics who believe that CEOs should revert to running firms with the interests of a wider group of stakeholders in mind. (That was the dominant philosophy in corporate America from teh 1930s to the late 1970s). What is new is that the President-elect is questioning the ideology of shareholder primacy through his repeated criticisms of US corporations for sending manufacturing jobs overseas and otherwise being insufficiently patriotic. In effect, Trump has been calling on US corporate managers to adopt the ethos that pervaded US business life in the years between the New Deal and the 1970s, when CEOs saw themselves as stewards who would manage in firms in a way that balanced the interests of workers, shareholders and other stakeholders. In that era, US corporations certainly regarded their interests as closely tied to those of the nation, as evidenced by Charles Erwin Wilson’s famous declaration during his Senate confirmation hearing that For years I thought that what was good for our country was good for General Motors, and vice versa. The difference did not exist. Our company is too big. It goes with the welfare of the country.

Fox’s article deals with many of themes (the impact of shareholder primacy, short-termism, and the obligations of corporations to the nation-states that charter them) that are examined in the paper I wrote with Kevin Tennent and Jason Russell. The title of our paper is: “Berle and Means Reconsidered: the Military Roots of a Philosophy of Stakeholder Governance”. If all goes as planned, we will be presenting this paper on the conference circuit (Academy of Management, EURAM, BAM, Association of Business Historians) this summer. Our paper examines the relationship between military service and the ethos of public service associated with it and competing ways of thinking about the social responsibility of business corporations.  We structure our analysis around a discussion of The Modern Corporation and Private Property by Adolf Berle and Gardiner Means (1932), a text that influenced a generation of US business executives that remains one of the most cited works in management.

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Our paper shows that Berle and Means espoused a stakeholder theory of corporate governance that challenged the idea that the sole purpose of a corporation is to create value for the shareholders. Whereas shareholder value ideology was dominant in the United States in the 1920s, the nation’s corporate governance system moved towards a stakeholder model during the New Deal. Berle and Means clearly disagreed with the view that the primary purpose of a corporation was to serve the interests of the shareholders. The communitarian ethos advocated by Berle and Means can be seen in this passage:

 Neither the claims of ownership nor those of control can stand against the paramount interests of the community. . . . Should the corporate leaders, for example, set forth a program comprising fair wages, security to employees, reasonable service to their public, and stabilization of business, all of which would divert a portion of the profits from the owners of passive property, and should the community generally accept such a scheme as a logical and human solution of industrial difficulties, the interests of passive property owners would have to give way…It is conceivable—indeed it seems almost essential if the corporate system is to survive—that the “control” of the great corporations should develop into a purely neutral technocracy, balancing a variety of claims by various groups in the community and assigning to each a portion of the income stream on the basis of public policy rather than private cupidity (Berle and Means, 1933, 356, emphasis added).

In the paper, we argue the ethos espoused by Berle and Means remained dominant in the US corporate world until the late 1970s, when it was challenged by the re-emergence of shareholder value ideology.By the time Gardiner Means died in 1988, the shareholder-centric ideology of corporate governance presented by Jensen and Meckling (1976) had largely displaced the stakeholder approach espoused by Berle and Means.

There is something of an affinity between the view of the purpose of the corporation outlined by Berle and Means and that recently advocated by Donald Trump on Twitter in that they both challenge shareholder primacy. Of course, there are massive differences between Berle and Means on the one hand and Trump on the other. These differences are evident in terms of temperament and style of communication. Berle and Means wrote a scholarly book. Trump writes tweets in the middle of the night. Berle and Means patriotically served in the military when called to do so in 1917. Trump obtained dubious medical deferments during the Vietnam War, although that doesn’t stop him from being a cheerleader for war now that he is too old to serve. There is also a massive disconnect between Trump’s rhetoric on Twitter and the way in which Trump’s companies have actually been run. I’m probably the last person in the world who would defend Trump. However, I do think that Fox and other observers are right to argue that Trump is pushing back against shareholder value ideology in his own crude fashion. I suppose the danger of someone like Trump being the champion of some variant of the stakeholder model is that he may end up discrediting the entire concept.

I would also hasten to add here Hillary Clinton, Trump’s Democratic opponent, also critiqued the doctrine of shareholder primacy. She did so by calling for a return to “corporate patriotism” during her campaign. Her first use of this term was during the Democratic presidential primaries, when she was battling with Bernie Sanders, a fierce critic of outsourcing and globalization. Campaigning in Detroit in March 2016, Clinton criticized the outsourcing of US manufacturing jobs to low-wage countries: “I’m not asking corporations to be charitable, although that’s important. I’m asking corporations to realise that when Americans prosper, they prosper too. The idea of corporate patriotism might sound quaint in era of vast multinationals, but it’s the right thing to do” and in the long-term interests of the companies themselves, as “more money in the hands of working people helps everyone, including businesses” .

In her speech to the July 2016 Democratic National Convention, Hillary Clinton once again called on American corporations to begin acting in a more “patriotic” fashion. Clinton’s call for a “New Bargain” with American workers, which was delivered after a series of military speakers had warmed up the audience, echoed the ideas of Berle and Means and challenged the view that the sole purpose of a company is to make money for its worldwide shareholder base. Noting that the US left had appropriated the rhetoric of militarism and patriotism, Megan McArdle quipped that progressives had “learned to speak Republican” .

I think that McArdle is on to something there. The US has been on a war footing ever since 9/11. For fifteen years, nationalistic flag waving and patriotic exhortations to “service” to the nation (i.e., military service)  have been everywhere. In this political climate, it is not surprising that the idea that a CEO’s primary duty is to maximize returns for his or her global shareholder base would come to be regarded as unpatriotic.  The US appears to be locked in a cycle of perpetual war, fighting perceived Others in the Middle East and elsewhere. Given this cultural and political context,  it will be difficult to defend the Friedmanite thesis that the sole purpose of a corporation is to make profits for the shareholders. This idea may have flied in the peaceful days of the 1990s, but it doesn’t fit the nationalist and anti-globalization mood of the present.

 

 


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