What political leaders can learn from Trump about how not to talk to allies
Knowing how to talk to allies is a key political skill. Most politicians understand what to do when talking to other political leaders – though Trump has very clearly shown how not to do it – but when it comes to speaking to business leaders, they often fall into the Trumpian mode.
That is bad for the population, bad for the economy and ultimately even bad for business.
Trump shows how not to do it
In July 2018, Trump held a summit meeting with Putin in Helsinki, a summit which shocked people across the political spectrum, and around the world.
Even agreeing to hold the summit was considered by many – even on the right – as a serious error of judgement: “It makes the US a less reliable partner for Western countries like my own,” said former UK Chancellor of the Exchequer George Osborne.
But the summit itself was truly shocking. Republican senator John McCain called Trump’s performance “one of the most disgraceful performances by an American president in memory. … President Trump proved not only unable, but unwilling to stand up to Putin. He and Putin seemed to be speaking from the same script as the president made a conscious choice to defend a tyrant against the fair questions of a free press, and to grant Putin an uncontested platform to spew propaganda and lies to the world.”
One of the things that shocked McCain, and most observers, was that in the wake of an FBI investigation which had concluded that Russia had interfered in the 2016 US election and when 12 Russian agents had, just the previous week, been indicted for their roles, Trump chose to side with Putin against his own intelligence services.
The 2017 report of the US Office of National Intelligence concluded that,
“We assess Russian President Vladimir Putin ordered an influence campaign in 2016 aimed at the US presidential election. Russia’s goals were to undermine public faith in the US democratic process, denigrate Secretary Clinton, and harm her electability and potential presidency. We further assess Putin and the Russian Government developed a clear preference for President-elect Trump. We have high confidence in these judgments.”
In the post-summit press conference, despite all this, Trump commented at Helsinki,
“President Putin says it’s not Russia. I don’t see any reason why it would be.”
Trump looked very obviously either Putin’s dupe or Putin’s puppet. He even appeared to be considering accepting ‘help’ from the Russian Intelligence services.
The Republican House Speaker Paul Ryan said that Trump “must appreciate that Russia is not our ally”. John McCain put it more strongly, “No prior president has ever abased himself more abjectly before a tyrant.”
For those who do not remember the event itself, here is a video (the most interesting part is Trump’s answers in the Q&A which begins at 18 minutes).
The most recent developments in relation to Ukraine, show that Trump continues to make extraordinary concessions to Putin.
Sane leaders are cautious even with allies
Allies are countries with whom we cooperate closely, and whom we have agreed officially to support and help, particularly in times of war. We share many values (though maybe not all) and we share many interests (though not all).
When leaders of allied countries meet, they do so in a friendly way, and they look for mutually beneficial outcomes, but it is clear that, for example, the German Chancellor owes his or her primary duty to the people of Germany, and the French President owes his or her primary duty to the people of France.
Political leaders (mainly) understand this very well. And they are friendly but careful with each other. The French President, for example, would accept an outcome that benefited France but not Germany – not because of any antipathy to the German people but simply because his job is to look after the French. And the German Chancellor is fully aware of that and would not take every suggestion at face value (as Trump did with Putin).
Intelligence matters are an area where even close allies are extremely cautious: Britain and France are close allies, but France is not part of the Five Eyes. No British Prime Minister has agreed the sort of intelligence collaboration with France that Trump appeared ready to accept with Russia. And, as Paul Ryan pointed out, Russia is not even an ally.
Politicians should treat business leaders in the same way
Business leaders are allies in that they share many values (though maybe not all) and they share many interests (though not all). But like political allies, they have their own legal duties: the British Prime Minister owes his or her primary duty to the people of Britain but the CEO of Astra Zeneca owes a legal duty to the shareholders of the company. This has profound implications.
If you are the Prime Minister and you are talking to a business leader, it means that they will not take everything you say at face value, and they will tell you what it is in their shareholders’ interests for you to hear – so you should not take what they say at face value.
Business leaders won’t, for example, believe you on growth of the economy. Every Prime Minister promises that they have a policy to accelerate growth in the economy. And this is what CEOs have seen delivered by those promises. Declining growth since 1970.
And, since they don’t believe you on growth, they will tell you what they need to grow their profits in a low growth environment. If the top line is stagnant, the only way to grow profit is to reduce costs. So they will tell you that to succeed and grow, you need to reduce regulations and reduce taxes. In reality, they want you to do this so that they can externalise more of their costs. That will no more deliver growth than Putin’s suggestions would have delivered what America needs.
If, as Prime Minister, you are aiming to deliver national renewal – a growing economy with the benefits shared by all, improving public services and serious action on climate change – a policy of reducing regulations and cutting taxes is (as we have seen for the past 14 years) exactly the wrong way to get what you are aiming for.
To succeed, you need to understand what really makes businesses grow: an environment with growing demand from households, from government and from abroad. That means putting more money into the hands of ordinary people, investing more in public services and in a green transition, and removing barriers to trade.
| What Makes Businesses Grow?
Businesses invest in growth when they have reason to believe they will get a good return on their investment. If they have significant spare capacity, they do not need to invest to meet demand and of course they do not do so. So the conditions for growth are essentially: 1) demand will soon outstrip ability to meet it; and 2) profitability will be high enough to ensure a return above the cost of capital. Note that these criteria do not include corporation tax rates – something that many politicians have been persuaded is a key determinant of growth. Why not? Well, most large businesses use discounted cash-flow techniques to assess whether they will get a return on investment. Since the government has made full expensing permanent, changing corporation tax rates will have exactly zero effect on equity funded businesses growth decisions: a 1% increase in rates will increase the value of the tax allowances and thereby reduce the effective investment by 1% and also reduce the value of the return on investment by 1%, with a zero net effect on rate of return. The same is true for a reduction in tax rates. A change in tax rates does not change the rate of return on a new investment – if it was a sound investment before the change, it is sound after; and if it was unsound before, it remains unsound after. What a change in tax rates does achieve is to alter the return businesses receive on investments they have already made. A tax cut makes shareholders richer but does not incentivise growth. And conversely, a tax rise will not stop growth in a market with growing demand. |
Conclusion
Sound policy is possible if our leaders treat businesses the way they treat allies, recognising that they share many values (though not all) and many interests (though not all).
When political leaders meet business leaders, they should do so in a friendly way, and look for mutually beneficial outcomes; but they must be clear that, for example, the CEO of Shell owes his primary duty to the shareholders of Shell, and the CEO of HSBC owes his primary duty to the shareholders of HSBC.
We cannot afford leaders who treat businesses as Trump treats Putin and Musk.