The impact on business of political uncertainty in countries
that are seized by revolution can be substantial—so much so in fact that CEO’s
and board directors are motivated to avoid the uncertainty itself. I submit
that business analysts of political risk tend unwittingly to routinely overstate
the uncertainty arising from incoming U.S. presidential administrations. If I
am correct in this claim, CEO’s and board directors pay too much heed to
political uncertainty itself in the making of major strategic decisions
involving operations in the American context.
Although American culture welcomes and even encourages leaps
in technological development capable of transforming daily life, another sort
of change—one more subject to societal control—is tolerated only if made incrementally. Otherwise, the change is
dubbed as radical, which is a charge
made more out of fear than according to any objective measure. Clutching at the
status quo unduly translates politically into the tyranny of the status quo as
powers both in business and government that profit as things are hold back all
but incremental change that does not threaten the current basis of benefits.
The many points of access into the federal legislative and executive machinery
enable the stultifying influence a virtual veto over proposals of serious, or “real,”
change. Such change tends to be pulled back until only the tolerated
incremental change remains.
A few examples reveal the pattern. In 1986, amid large
budget deficits caused in part by the tax cuts of the early 80’s, Ronald Reagan
pushed for a wholesale change in the federal income tax, ridding it of its
myriad of deductions. Yet as the U.S. Senate debated the tax code, individual
senators came forward with rationales for all of the major deductions. The “powers
that be” were exercising their prerogatives to continue their respective
benefits, which Reagan’s vision for change would put at risk. Business
practitioners anxiously pointing to the political uncertainty of a revised tax
code were in retrospect overreacting, and thus putting too much emphasis on the
uncertainty itself.
In 2008, Barak Obama campaigned under the slogan of “real
change.” After his election, political risk analysts were doubtlessly impressed
with the sheer uncertainty latent in the very notion of real change. Yet when
Congress was considering the Affordable Care Act, Obama dropped his proposal
for a public option, which would be useful should private insurers leave the planned
exchanges. The president gave into pressure from the insurance industry lobby,
the members of which stood to lose benefits should Obama’s healthcare plan
instantiate real change even just in terms of there being a public
health-insurance option. The resulting law was incremental because the private
health-insurance companies were still to be relied on. The anticipated
uncertainty regarding the American health insurance system turned out to be
much less. The analyses of CEO’s making strategic decisions based in part on
avoiding the American context due to the uncertainty would have been distorted,
and thus not optimal.
In 2016, when Donald Trump was elected president, the
uncertainty in terms of political risk must have been palpable in corporate
boardrooms. Trump’s proposal of a substantial tax, or tariff, on American
companies that take advantage of lower labor-cost countries and import the
resulting products back into the large U.S. domestic market undoubtedly stocked
the uncertainty without much thinking-through of how political compromise could
take its toll on the proposal as it moves through Congress. Similarly, fears of
trade wars resulting from the proposed tariff may have been overblown. That American companies would be subject to
the penalty means that foreign companies manufacturing outside of the U.S. and
importing into the large domestic market would have a competitive advantage.
Pressure from Chinese companies could mitigate the likelihood of a
Chinese-stoked trade war even though the pulling out of American companies (i.e.,
the loss of some manufacturing plants) would have a detrimental impact on the
Chinese economy. Of course, such a scenario assumes that the actual tariff is enough to motivate
American CEO’s to return their manufacturing to America; the political
compromise that may be needed to pass such a tariff might reduce it to an
insufficient level and thus effectively discredit the very idea of using public
policy to alter the financial calculus of American companies such that they
have a financial incentive to return voluntarily in line with maximizing
profit.
The American preference for incremental over systemic
change puts any genuinely new political proposal at risk of being shrunk to fit
through the contours of the status quo, which is so dear to the vested
interests. The uncertainty typically thought to exist in the advent of a new
presidential administration tends to be overblown in retrospect. The American
economy suffers from this bloated condition to the extent that CEO’s and
corporate board directors move operations away from the geographically delimited
hyper-uncertainty.
