The Bear’s Lair: The politicization of Big Business

The collapse of President Trump’s business advisory councils had little to do with Trump’s policies, or even his presentation. After all the business leaders had joined the councils after he became President, so knew what they were getting into. Traditionally, businesses have been careful to maintain a political neutrality, so their opposition to President Trump appears surprising. Yet in reality, 22 years of funny money have corrupted businesses as they have economic life in general, and in an age of crony capitalism, the media friendly activist left is where you can expect to find CEOs.

Traditionally, big business strove to preserve neutrality between political factions. In the early Industrial Revolution, the financial district was Whig and most of the manufacturers were Radical, with only a few of the bankers and manufacturers supporting the Tory government of Lord Liverpool. Yet Whig bankers such as Alexander Baring were happy to give advice to the government, and were valued for their intelligence and technical capability when doing so. When a banker such as Nathan Rothschild attempted to “talk his book” and reverse government policy on returning to the Gold Standard (because that return would eliminate a lucrative FX and arbitrage business) his advice was rejected with a degree of contempt.

Conversely, the Tory manufacturers Sir Robert Peel (father of the future prime minister) and the Radical, or even Socialist Robert Owen, both benign mill owners, worked together to persuade Liverpool to pass the first child labor legislation, doubtless hoping to benefit themselves economically against less scrupulous competitors. Liverpool treated advice from Peel, Owen, Baring and Rothschild with the respect it deserved (or did not deserve) without regard to their private political beliefs.

In the U.S. Gilded Age, business, now very definitely Big Business, was likewise apolitical – it bribed politicians of both parties. You only have to read Mark Twain’s “The Gilded Age” to see how little political principles came into the making of business decisions, and how completely business dominated the politicians, not the other way around. There was a certain amount of friction in 1895, when Grover Cleveland’s Treasury Secretary John G. Carlisle was happy to allow Pierpont Morgan to solve the government’s liquidity problem with a gold loan in Europe, but Cleveland himself worried about the effect of this on the party’s prairie wing, and so took considerable persuasion to accept Morgan’s deal. But Morgan’s only real problem with the government came with a Republican President seven years later, when Theodore Roosevelt proved immune to his plea to “let my man talk to your man” over the Northern Securities takeover.

Even during the progressive Wilson presidency, business stayed politically neutral – after all, the Republican Theodore Roosevelt had also been a progressive business-harasser. In the 1920s, the Democrats nominated John W. Davis, a Wall Street lawyer, as their 1924 Presidential candidate, while John J. Raskob of General Motors ran Al Smith’s 1928 campaign.

Only with the 1930s Liberty League did business choose sides politically. Its motivation was clear; top business executives almost universally preferred the small-government free-market position of the pre-1929 United States to the big government interventionist position of the New Deal and its successors. What’s more, they were probably more aware than most other Americans that the New Deal worked very badly, in terms of lifting the U.S. economy out of the Great Depression – other countries such as Britain, which persisted with a free market approach, did much better during the decade. Still, the League’s utter failure in 1936, losing every state but Maine and Vermont, made businessmen wary of trying such a stunt again, however obnoxious the President’s economic policies.

It appeared at the time that institutional memory of the Liberty League’s failure, and the danger it showed of antagonizing a left-leaning administration, was partly responsible for business’s relatively benign attitude to the Obama administration’s multitude of economic failings and the ultra-sluggish, low-productivity recovery that they produced.

World War II brought business back on the side of the government in a burst of patriotism and dollar-a-day war service, and from then on business was almost completely apolitical, supporting generally the government of the day whether or not it agreed with its policies. Some Presidents did more for business than others, but it seemed to make little difference in business’s attitude to government.

I once commiserated with the aide to a Chilean-Croatian tycoon, whom I believed, given his free-market economic views, to have been subjected to defeats in two elections in a week, in both his native and adopted countries. She responded to me coldly: “No, you don’t understand. Mr. Big is a Governmentalist. He supports whichever government is in power in any country at any time, and contributes to their campaigns. He finds it easier to do business that way.” Governmentalism, it seemed, had become a way of life for U.S. business also.

Not any longer. The mass resignations from President Trump’s business advisory councils demonstrate that virtue signaling to the left is now more important to U.S. business than coziness with the administration in office. Donations by big business to such entities as Planned Parenthood and the Southern Poverty Law Center show the same thing; those are not politically neutral charities, they are organs of the hard left, deeply offensive to a large percentage of their fellow citizens. The censorship of “alt-right” entities by Google and other Internet titans also shows that political neutrality is thought no longer to be good business. Even minor gestures, like Goldman Sachs CEO Lloyd Blankfein tweeting that Trump was “casting a shadow over the country” during an eclipse shows a willful disregard for the views of half the country’s consumers that is surprising in a major corporation that wants to do business with everybody, if they are rich enough.

It is not clear why this is happening. The example of the Liberty League should demonstrate that Big Business’s hope of swinging the next election against a candidate they apparently dislike is almost certainly futile, and in the interim alienating the President and his supporters surely cannot help their hopes for goodies from the Federal government.

You might also suppose that swinging politically against the more free-market, small government party was not the interests of Big Business, until you looked at the actual incentives in place. After 20 years of ultra-sloppy monetary policy and negative real interest rates, businesses are leveraged to the hilt, but at the same time enjoy record earnings as a percentage of GDP, especially when the reduced share count from buybacks is taken into account. Consequently executives, who these days are rewarded mostly by stock options, enjoyed fat pickings in the Obama years, even when few others did.

Certainly, the traditional Republican remedies of sound money, lower government spending and lower tax rates partly financed by eliminating loopholes do not look attractive to today’s top executives. Add to these disincentives the possibility of Trump undertaking protectionist policies that reduce the profitability of the global sourcing networks to which they have committed themselves, and the further possibility of Trump reducing the flow of cheap labor on which many of them have depended in their businesses and almost all of them have depended for their maids and gardeners. Thus, the overall Trump package, however good it might be for the economy and for ordinary working people, is very unattractive for Fortune 500 CEOs. A world of lower stock prices, higher interest rates, higher U.S. wages and fewer tax loopholes is to them a dystopia not a utopia.

The leftward turn of the country’s CEOs is thus not surprising. Obama-era policies were good to them, and a continuation of those policies would continue to widen the wealth disparities in U.S. society in their favor. They have in any case never known a true free market economy, since the United States during their adult lifetime has been a big-government Keynesian-meddling compromise, continually eating the economic seed corn and piling up massive obligations for future generations. When Big Business CEOs are both economically somewhat ignorant and beset by economically counterproductive incentives, it is not surprising that they act in their own short-term interests rather than in the long-term interests of the country and the world.

The CEO virtue signaling of Big Business giving money to leftist scams and cutting off Internet service for those with whom they disagree is however truly nauseating – and in the long term yet another danger to the freedom and prosperity of the rest of us.

(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)