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16 December 2020

Why rational investors bankroll dangerous politics

Strongmen leaders such as Donald Trump, Vladimir Putin and Viktor Orbán all appeal to a certain kind of investor.

By Courtney Fingar and Sebastian Shehadi

One fact that should worry those celebrating Joe Biden’s win in the 2020 presidential election is that the number of people who voted for Donald Trump was much higher than the number who voted for him in 2016. After four years of incompetence and repeated assaults on democratic institutions, the Trump campaign gained 11,237,765 new voters.

And while businesses are preparing to welcome their new president – and are, in many cases, imploring Trump to leave the office with a shred of dignity – the fact that so many companies supported the Trump administration should also be analysed. It was a love affair that began intensely, as businesses large and small were enthused by the promise of tax cuts and deregulation, but still many remained faithful as the president conducted destructive trade wars and attacked the globalised business models that had made many CEOs wealthy.

Foreign investors, too, were happy to bankroll Trump’s America, research by Investment Monitor has shown, as part of a study that found countries run by “strongmen” rulers are surprisingly attractive to some businesses.

Investment Monitor: The dark side of foreign investment Part of New Statesman Media Group

The aggressive protectionism, regulatory failure and, in some cases, corruption of such leaders might be expected to make rational investors wary, but these men enjoy an irrational appeal.

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In his book Dangerous Charisma: The Political Psychology of Donald Trump and His Followers, Jerrold Post – who had a 21-year career as a psychological profiler for the Central Intelligence Agency – examines the nature of what he calls the “charismatic leader-follower relationship”. Not every charismatic leader is an autocrat, but most autocrats or aspiring autocrats have some degree of captivating charisma, which enables them to seize and maintain power.

Post describes the effect that such leaders have on their followers as “a form of mass hypnosis”, in which there is a “quality of mutual intoxication in the leader’s reassuring his followers who in turn reassure him”.

Trump’s refusal to consider other perspectives or be held accountable for his actions is part of his appeal. Such leaders, Post writes, “are attractive to individuals seeking idealised sources of strength: they convey a sense of conviction and certainty to those who are consumed by doubt and uncertainty”.

Investment Monitor: What is FDI? Part of New Statesman Media Group

Business decisions are ostensibly more rational than those made in the polling booth. But experts on authoritarianism say investors’ support for strongmen is not driven by the short-term gains of tax cuts and regulatory culls – actions that many businesses reject as impractical – so much as autocrats’ direct psychological appeal to the people on company boards.

Dr Cheryl Koos, who is professor emerita of history at California State University, Los Angeles, explains that strongmen leaders offer psychological safety to some business leaders. Strongmen leaders tend to be, as the name suggests, men. Business leaders in the US and the UK are overwhelmingly white, male, middle-aged and conservative. Beneath many statements of corporate values lies a private desire to preserve that status quo.

Authoritarians, says Koos, offer “reinforcement of traditional hierarchies in a very complicated and messy world”, promising to preserve not only economic order but the cultural and social standards that have benefited those with a seat in the boardroom.

Authoritarian leaders are particularly appealing to such businesspeople at times of accelerated social progress, when there is cultural pressure to adopt more egalitarian and socially liberal policies, academics point out. Business leaders who are more conservative may welcome the resistance to progress that right-wing or conservative autocrats such as Trump and Putin offer.

“If we are talking about right-wing strongmen, the appeal is [in] part ideological for the business community and investors. They do not see a threat to their order of things. They see a powerful figure who shares their basic values… and with that goes a promise of stability for markets, or for capitalism [itself],” says Koos.

Dr Ruth Ben-Ghiat is professor of history and Italian studies at New York University, an expert on authoritarianism and the author of the recently published Strongmen: Mussolini to the Present. In the US, Ben-Ghiat says there is “a big configuration in society right now” of people “who haven’t liked the changes going on in the workplace”. Trump’s recent executive order banning anti-racism training in federal workplaces, contractors and grant recipients is one example of policy directed at these groups.

“Conservative elites, who include business leaders, haven’t liked some of the changes going on, where women are being put on boards through quotas, for example, and they see Trump as a perfect avenue to turn that back,” says Ben-Ghiat.

As well as appearing to offer social and cultural “order”, Trump has sought to project economic stability. “The current crop of anti-globalist strongmen has capitalised on people’s fear of losing economic and cultural power”, says Koos. “And when you’re talking about investors, this finds expression in very hierarchy-driven economic structures.”

This is why Trump took so much effort to cast Joe Biden as a “socialist” who is “bad for business”, a strategy that helped win him the vote of Florida’s conservative Latino community. Trump’s war against globalisation and China also manifests this zero-sum game.

“Like many other authoritarians, Trump excels at creating an alternative reality. For him, it’s always the fault of others,” says Ben-Ghiat.

This is why Trump blamed globalisation for the loss of millions of US manufacturing jobs over recent decades, harnessing the anger of the Rust Belt’s unemployed. But globalisation is what made America great in the first place and continues to support its economy, not to mention Trump’s own business empire. It is far from the only cause of the downfall of US manufacturing.

But Sultan Salem, from the department of economics at the UK’s University of Birmingham, explains that “in times of fear and uncertainty, even the most educated people – including investors, of course – tend to seek a leader who offers the ‘only way out’ of their troubles…regardless of how flawed the rationale may be”.

Investment Monitor: Who killed British manufacturing? Part of New Statesman Media Group

The link between economic crisis (or change) and political extremism is nothing new, the most obvious historic example being the rise of European fascism following the Weimar Republic’s hyperinflation crisis (1919-1923) and the Wall Street Crash of 1929. Trump’s black-and-white approach to America’s current economic crises has been particularly attractive to investors. “Businessmen are practical people who are interested in getting things done, and also may suspect that the complexity in politics is a smokescreen for something else, less salubrious,” argues Saul Estrin, a professor of managerial economics and strategy at the London School of Economics.

Businesspeople are “often attracted to simple solutions and effective implementation apparently offered through strong leadership”, says Estrin, “which explains why businessmen usually make bad politicians; they do not know how to address the complexity”.

“Did the markets like the trade war with China? No,” says Koos. “Tens of millions were paid in subsidies to Iowa farmers to essentially buy off their votes and to prop up the US soybean industry.”

Despite his administration’s disastrous mismanagement of the Covid-19 pandemic, which has killed more than 300,000 Americans, Trump’s “invincibility rhetoric” continues, says Koos, observing that this is a strategy that has served him well in business. “You don’t have to go that far to see that his business empire was basically constructed on a complete stack of lies. He just applied this to politics.”

This is in keeping with what Ben-Ghiat says is the first rule of “the authoritarian playbook: dismantle the idea of truth […] Investors are just as prone to falling prey to propaganda.”

But businesses are also finding that authoritarians such as Trump, Putin and Erdogan can be immensely destructive for them in the long term. Authoritarians are primarily concerned about themselves and their enablers; hence, many strongmen rulers were the last to recognise Biden’s victory. A Biden White House is likely to dampen US investment to and from strongmen countries.

Business leaders have already moved on from Trump, but history suggests he will not be the last autocratic leader to enjoy their support.

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