USA 2020: What kind of country will it be and in what direction will it head?
On the dangers of relying on media punditry and the challenge of integrating political change into business strategy
by Rick Pasquier
Business investment thrives on predictability and suffers during periods of uncertainty. That appears to be happening now, as corporate profits continue to be high but the pace of capital spending by major corporations has stalled. There are competing visions about the shape of the world business will face after the 2020 U.S. elections. Pundits of many varieties will step into the void, but the record of standard “horse-race” predictions is very weak, as Trump’s “out-of-nowhere” victory in 2016 testifies.
Wouldn’t it be great to have privileged insight into where the country will go in 2020? Will the United States rejoin its European allies in defending the “liberal international order,” re-embrace globalization and economic interdependence and take on climate change through bold action? Or will the United States follow Trump and continue to try to carve out a safe-zone of national exception — using its superior military capabilities, relative economic independence and abundant supply of fossil fuels as wedges to drive advantageous trade deals that will protect traditional industries from regulatory disruption and foreign competition? If we can develop more accurate picture of what forces are driving political change, we could develop better predictions and better business strategies.
The Limits of Traditional Business Advice
Traditional counsellors to business (lawyers, bankers and management consultants — many of them with years of experience in government) can be counted on to attempt to offer a cooler and less obviously biased view than the talking heads in the media. Much of this advice too will be based on educated guesses — hunches — rather than systematic analysis. That’s where the academic discipline of political science can offer a corrective, and in particular the sub-disciplines of comparative politics, international political economy and international relations. Social scientists are generally held in low esteem by business folks as out-of-touch “ivory tower types.” There is some truth behind this stereotype. Yet, as surprising as this may seem, political scientists have developed tools that promise to help traditional business advisors develop better predictions. But economists, whose bona fides as “scientists” are as hobbled by the inherent limits of observational methods as political scientists, for years have been the social scientists of choice for business. Many big corporations used to hire PhD. economists and some banks still do. I don’t foresee anytime soon many big corporations keeping a staff of professional non-economist social scientists on staff, but as I will show maybe they should.
Bottom Line
Because this is an online article and not a book, I will cut to the chase and summarize my predictions about 2020. Once you read my predictions, you can read further to find out how I got there.
As I see it, there are three alternative scenarios for the US 2020 election:
First, a durable coalition will form among leading business “internationalists” and the educated scientific and professional classes to defend the US-led “liberal international order” around a strategy of joining forces with progressive activists and interest groups on the Left to defeat Trump. The policy mix will include liberal internationalism in foreign policy and New-Deal inspired reforms to reduce inequality and bring the US back into leadership on Climate Change. I call this the “Center-Left Coalition” scenario. If this coalition comes together, it gives a Democratic candidate the best chance of beating Donald Trump.
Second, a stable coalition between business “internationalists” and the educated professional classes will fail to form and, in any event, no agreement will be forged on policies to widen the coalition to forge a credible New Deal agenda that inspires progressive activists and motivates “out” groups to come to the polls. I call this the “Radical Middle Break-out”. Given the clear policy divides within the Democratic Party between the “Center” and “Left” tendencies and the reluctance of economically powerful to back structural change, this is the most “natural” scenario. However, US electoral institutions (legal duopoly in the two major parties, the Electoral College, first-past-the-post winner-take-all Congressional districts) mean that the “natural” emergence of a Center party for liberals and internationalist moderates and a Left party for economic progressives will not be possible. This is what the prevailing pattern has been so far in European politics (except in Italy): the dominance of a pro-European governing coalition in the Center that relegates Left and Right populists to dueling camps of partisans launching spit-balls from either side. This evolution has been facilitated by Europe’s different institutions (proportional representation, parliamentary systems). Michael Bloomberg’s decision not to run as a third-party candidate is a nice symbol for the overwhelming odds against the US two-party system breaking down and a new centrist “Third Way” emerging in this cycle. The “Radical Middle” may want to break out but will have trouble doing so in the US. So the failure to build a coalition that captures the enthusiasm of the activists of the Left and their supporters, will result in a more narrow Democratic coalition and may put a victory over Trump (and a return of the US to leading through the multilateral institutions of the rule-based “liberal order”) in serious question. To succeed the “Radical Middle” would need Trump’s scandal-prone administration to implode in a way that robs the President’s supporters of a reason to come to the polls. From a policy standpoint, if the Breakout succeeds, it will mean a restoration of policies acceptable to Wall Street, Seattle and Silicon Valley (return of US to global economic leadership and “business-friendly” action on climate change with minimal concessions to the Left that could result in higher taxes, more expensive welfare state etc.).
Third, the factions of business that have supported the “conservative revolution” since Reagan’s time and that have not yet been shaken from their conviction that the advantages of the “small-state” capitalism (low taxes, docile employees, free-reign for financial entrepreneurship) are worth the risks of sticking with Trump and his “instinctual” approach to global economic leadership, will continue to hold on and line up to help re-elect the President. This scenario depends on Trump continuing to benefit from a relatively strong domestic economy and avoiding the type of international crises and embarrassing scandals that worry even committed conservatives. This solidity around Trump at the top will make it virtually impossible for partisan Republicans to buck the President and will ensure that Trump-voters in 2016 largely stay loyal to the President in the face of their continued doubts about the future. This I call the “Right-Nationalist” coalition strategy. In order to appeal to this group, elite “conservative revolution” folks will have to live with tariff and immigration policies they do not favor and they will need to kick their worries about a fiscal crisis down the block again. White knuckled, the elites around Trump will hope for the best. The likelihood of the Right-Nationalist coalition being successful is higher if the Center-Left coalition strategy fails all things being equal, because it would face a weaker foe.
I do not weigh the probabilities of a fourth scenario. That is of a “Bernie Breakout” i.e. where there is a political revolution led by the Left that takes power. I will leave discussion of why that is extremely unlikely to another time.
So how do we weigh the likelihood of these scenarios coming to pass? Social scientists are now increasingly using Bayesian statistics to ensure that reliability, transparency and consistency in their reasoning. When using Bayesian statistics, you start with your base assumptions about the probability of various scenarios and you carefully update those priors to account for new evidence. Ideally, you should reveal ahead of time the type of evidence you believe will increase or decrease the likelihood of your scenarios. Here are my priors based on my theories about what will drive the election result:
- Center-Left Coalition (51%)
- Radical Middle Breakout (5%)
- Right-Nationalist Coalition (44%)
My plan is to periodically update these predictions on Medium. Stay tuned.
The type of evidence that increases the likelihood of a successful Center-Left Coalition would be: (i) good performance by Elizabeth Warren and Bernie Sanders in early primaries, especially among voters in areas that supported Trump in 2016 and especially in purple states that could influence the electoral vote; (ii) continued indulgence by elite editorialists of the policy “excesses” of leading candidates as not undermining their ultimate “reliability” (in the minds of the business and the meritocratic classes) as they are clearly obligated to try to steal Sanders’ thunder in the primaries; (iii) re-emergence of unemployment and other serious domestic economic worries; (iv) continued stability in the Trump coalition making creation of the broadest anti-Trump coalition necessary.
The type of evidence that increases the likelihood of a Radical Middle Breakout and its ultimate victory would be: (i) poor early primary performance of Sanders, Warren and (after her attempted take-down of Biden) Harris; (ii) continued strength in the Biden candidacy; (iii) surprise emergence in the primaries of a reliable “moderate” Democrat (Klobuchar, Buttigieg, Booker, Bennet or O’Roarke) who can attract voters initially in Biden’s camp without promising “shiny objects” to the Left; (iv) intensifying the campaign in the elite media and among the pundit-class generally about the dangers of too much “socialism” and the risks of a Center-Left electoral strategy specifically; (v) erosion of generalized elite support for Trump due to scandals and/or international crises or embarrassments; (iv) evidence emerging over the primaries that a significant segment of voters is sufficiently radicalized or disillusioned to make it unlikely that they would vote in the general election for the moderate Democrat who appears able to win the nomination. All these would make a bet on a more narrow Democratic coalition seem smart or at least smart-ish.
The type of evidence that increases the likelihood of a Right-Nationalist coalition victory would be: (i) no economic surprises and no surge of unemployment; (ii) no scandals or international crisis or embarrassments that make Trump look like a poor bet; (iii) outbreak of open conflict between Center and Left elite and activists as reflected among Democratic candidates and wars of words around issues of economic populism and privilege; (iv) a galvanizing national emergency that allows Trump to look like a successful leader.
Notes on Methods: Convergence or Divergence?
Much of the punditry about US politics and regulatory trends ignores developments outside the United States and treats developments in the US as happening in an isolated national bubble. But we know that the US does not operate in a bubble. It is the leading world power, with allies looking to it for defense in Europe, East Asia and the Middle East. Although the US is not as exposed to trade as other countries, trade is hugely important and US firms are leaders around the world. So we ignore the rest of the world at our peril.
Europe and the US are similar in many ways. They are both advanced industrial economies with strong democratic institutions. Moreover, the two economies are highly integrated with each other. The EU(considered as an economic unit) is the biggest US export market and the value of US exports to the EU continues to rise. The EU is the second largest source of imports to the US after China and the US trade deficit with the EU continues to rise. US and European firms have built factories in each others’ countries on a massive scale. In many important manufacturing industries like auto, electronics, pharmaceuticals and chemicals, the major firms competing for customers are the same in both US and Europe. Both Europe and the US have pursued financial deregulation and have experienced a decline in manufacturing employment and an increase in employment in finance, administration and services. There is a wide avenue for the sharing of culture across the Atlantic between Europe and the US. Europeans read US authors, watch Hollywood moves and listen to American and British musicians. The US quickly adopts to European trends in food and fashion. Smaller but not insignificant numbers listen to European music and follow European intellectual currents. So the presence of common patterns in economic, technological and cultural life that may be the source of variables that influence the evolution of political systems would be consistent with an expectation that politics would also tend to converge.
In the 1990s there was a worry that globalization would create a world that was “flat” (in Thomas Friedman’s famous phrase), i.e. one where there was one set of global rules that left only a limited field of play for domestic politics. Social scientists were always skeptical of this thesis, and a recurring theme in scholarship over the last 30 years has been to explain the reasons for continued diversity of economic and social models across the world and the robust and varied political response to globalization in all its forms.
There emerged from early debates an empirically-rich scholarly literature exploring “varieties of capitalism” in advanced industrialized countries. There appeared to be no a single model of an advanced capitalist democracy even as globalization increased. Scholars identified two basic models for an advanced economy: Liberal Market Economies (LME) like the US and the UK; and Coordinated Market Economy (CME) like Germany, Netherlands and the Nordic Countries. To these, I would add from the literature on comparative economic development, the Asian “developmental state” model adopted by Japan in the 1950s and 1960s and copied by South Korea, Taiwan and Singapore, and now in modified form, China and Vietnam. All three forms were open to the international economy and relied on markets and private ownership of the means of production, but the institutional arrangements were different. CMEs had smaller differences between rich and poor. Their welfare states were larger and benefits more generous. There were important institutional barriers preventing industries from take-over by short-term-minded investors. LME’s embraced markets more throughly, creating different policy outcomes. The preference was for low taxes and fewer transfers and a less-regulated market for corporate control. Finally, the Asian “developmental” state used responsive yet autonomous government institutions to promote technology development for export, implement training and educational strategies to upgrade the skills of labor but keep a control to keep wage costs low. In Asia, the developmental model did not incorporate European-style welfare spending into the mix.
What caused this divergence among states that were all deeply embedded within the US-dominated liberal economic order? A traditional explanation was culture, but explanations based on deep cultural affinities— influence of Protestant or Confucian values for example — have lost influence. Culture is now understood as plastic and historical evolutions are marked my sudden and surprising changes in pattern. One historically-minded school looked at the nature of coalitions that formed during periods of economic change and crisis as driving difference in policy outcomes. For example, the “rye and iron” coalition in 19th century Germany brought together Junker landlords and liberal industrialists around a particular strategy of national development under the authoritarian Prussian monarchy (protection for industry and for grain). So depending on the nature of the country’s economy and its relationship with the global system, the same structural forces could cause a different political evolution in one country versus another. Once established, these coalitions and the institutions they created would prove “sticky”, as feedback loops would make transitions to other models more costly. Other political scientists noted that institutional features, such as whether electoral systems were based on proportional representation or whether it had a presidential or a parliamentary system made a big difference. They assembled compelling evidence to show that parliamentary systems with elections decided by proportional representation were correlated with policy outcomes that featured generous transfers of income through welfare systems. The process that seemed to be driving this is the need for parliamentary parties to form coalition governments after elections encouraged compromise policies that spread benefits widely and cushioned significant economic sectors and classes of voters from the undiluted effects of global economic forces. The two-party winner-take-all presidential system in the US, which poses greater difficulties for those interested in forming legislative coalitions across the executive branch and two co-equal legislative houses, meant that such “grand-compromises” were more difficult to achieve.
The simplest way to understand the dynamics playing out in politics in Europe and the United States is to understand it in terms of coalitions formed among politically relevant actors within the structural constraints placed by domestic political institutions yo manage the social, technical and economic forces that today truly span the globe. At this level of generality it is enough to say that political scientists still debate how best to understand the actions and motivations of the actors that make up these coalitions. Do actors act rationally, calculating expected utility of various strategies and act in a way that maximizes welfare? Or is it more accurate to understand their actions and motivations in terms of sociological factors? And whose behavior is most relevant? Broad electorates or elites? Does any model of individual decision-making lead to meaningful insights about outcomes when powerful actors are large institutions (corporations, political parties, trade associations, unions etc.) through which the preferences of large numbers of individuals need to be aggregated to arrive at something relevant politically. And to what extent are institutions “sticky?” To what extent do changes in preferences affect institutions or do institutions mold the preferences and behaviors of actors in such a way as to inhibit change?
Returning to the Untied States in 2020, what are the assumptions that I used to come up with my “coalition” model? First, I assume that the role of the US in the world economy and the interests of key economic actors in continued US leadership still matter. If these actors do not behave “rationally” in the full sense of the term, they still identify their interests with preserving or enhancing their role in the world economy and wish that US economic and foreign policies continue to support them. Forces opposed to Trump include many whose fortunes are most tied to the world remaining a place open to US investment and trade and where US intellectual property is respected. These include big media and information technology companies and those entrepreneurs betting on transformations in power generation and storage and transportation to address climate change. Interestingly enough, the richest three Americans, Bill Gates, Jeff Bezos and Warren Buffet each has expressed opposition to Trump and some sympathy for policies to address growing economic inequality. Forces backing Trump tend to be those most tied to large relatively illiquid domestic investments in natural resource extraction, especially of fossil fuels, and in traditional manufacturing industries, many cast off from large publicly-traded companies. These industries are energy-intensive and their competitive positions are often tied to local sources of raw materials or energy. Any change that drives up their costs, like new regulations on energy use or environmental protection, are perceived as threat to their investments, as they face more competition and their pricing power is limited. There are also sectors, like domestic industrial lending, consumer finance and gaming that depend on light regulations and weak consumer protections and industries like fast-food that require large pools of cheap labor. Farmers do not have the power over Congress they used to, and their loyalty is somewhat up for grabs as they have to decide who they mistrust more: Trump who is threatening agricultural exports with trade brinksmanship or Democrats whose ambitious plans for “carbon-free” future have not thought through the implications for agriculture. In short, I am assuming that the inner circles of power are still dominated by elites with the power and position to influence the direction of institutions and the evolution of perceived interests. Elites clearly matter but, especially in this era of populism, the people do too.
It used to be that voters, depending on where they lived — in what region of the country or what type of community they lived in, white-collar suburb or industrial town — had a sense of how economic policy would affect their pocket books and the economic interests of community of which they were a part. In the 19th and 20th centuries, political scientists built models of political coalition-building that had relatively good fit on such questions as why certain political systems supported open trade and others protectionism. But in recent years, more attention has been devoted to trends that show that increasing numbers of voters have given up support for traditional parties that articulate policies aimed at economic hopes and insecurities of defined economic classes and sectors and more on “post-materialist” issues such as “values”, “quality of life” and “environmental health.” There is a 30-year trend in Europe where support from traditional parties, especially Social-Democratic parties that appeal to working class economic interests, have faded while new style parties with “post-materialist” messages such as pro-environment “Green” parties and more recently parties articulating a nationalist or an anti-immigrant messages. Expressed differently, these same trends have been visible in the US, with the rise of environmental and social issues such as abortion and gun rights in the platforms and agendas of the two major parties. The masses of voters in the era of social-media seem to be even more obsessed with issues of cultural identity and morality (viewed either through a lens of compassion or through a concern with the loss of traditional standards or rules of authority) than ever before.
In the US today, there is a dynamic playing out where the elites of both parties (those positioned to give large amounts of money, push editorial lines in the media, endow non-profits) do not agree on a common position on important issues of political economy. To prevail over the other elite faction, one must appeal to a broader electorate on value-laden issues central to the voters’ sense of identity and proper social order. In an interesting side note, researchers have found that the appeals to voters’ fears for the economy by the “pro-remain” forces in the Brexit fight may have had the opposite effect than intended: voters were so turned off by a campaign financed by the City of London banks and other prominent economic interest that they voted “leave” in disgust. Voters who take the time to go to the polls may prefer to think they are acting on principle and not personal economic interest, especially if the sources of the warnings on the economy are suspect for reasons of social resentment or general skepticism about the motives of the powerful.
My bet on the relatively good chances that the Center-Left coalition will form and will run well in the 2020 election is based on my estimation that the business elites that deeply wish that the US remain the leader of a liberal world order recognize two things: first, that voters will be somewhat tolerant of some slippage between the promises necessary for a candidate to win in the liberal and Left-heavy Democratic primaries and the appeals made in the General election campaign. The alternative of a Radical Middle breakout is made difficult because there is no institutional mechanism for a Democratic nominee to vault over the primary process or for a third-party candidate to emerge that would not throw the election to Trump. At present, I place the probability of a Radical Middle Breakout as low as I do because elite middle-of the road liberals see the threat of the Center-Left coalition as not sufficiently high to their place in society (i.e. the “meritocracy”) that they would risk trying to defeat Trump with a smaller coalition. To some extent, the extreme radicalism of some elites calling for impeachment is a likely sign that some would prefer an elite-driven solution to the Trump problem that would not entail the costly process of assembling an electoral coalition broad enough to defeat Trump. Outrage at Trump is high among certain classes of suburban and urban voters, but a larger group is pessimistic about politicians as a species and has a sense that they know where Trump is coming from, even if it is not ideal. For example, it is difficult to imagine “attack ads” having much influence on voters’ perception of Trump (outside of actual murder at Donald’s own hand) while any moderate Democratic newcomer would be starting from lower levels of voter knowledge, making any given blemish on their record a potentially much bigger deal. All the more reason that the Democratic campaign be based on the largest coalition of social forces as possible.
I view the probabilities of Trump successfully reviving his victorious Right-Nationalist coalition as somewhat less than 50/50 but still much more likely than the victory of a narrow centrist elite-dominated coalition. This means that any combination of strength in the economy, lack of new crisis or scandal involving Trump or a melt-down in the Democratic nominating process could result in a Trump second term. The re-election of Trump would almost certainly be coupled with the continuation of Republican-control in the Senate and at a minimum a reduced Democratic majority in the House. A second Trump term would be unpredictable in its potential radicalism, but it is clear that the international repercussions will be significant. The US will for a time maintain its global influence through three factors: military superiority; control of fossil fuel energy (both through exports of US gas and alliances with Persian Gulf powers); and the size of its appetite for imports. The degree to which these advantages are sustainable or whether the US would have been able in any event to defend its traditional influence over institutions key to the liberal economic order (the WTO, IMF etc.) if Trump had never existed, is unknowable. What is clear is that if Trump wins there will be as much tension between the internationally-minded business elite (Wall Street, Silicon Valley etc.) and the Trump administration as there would have been with an Elizabeth Warren or Bernie Sanders administration. How this tension will be resolved over time (accommodation by Trump or acquiescence to the new reality by organized wealth) cannot be predicted.
So in the end I would be bluffing if I presumed to make any firm prediction as to the ultimate direction of national economic policy and the place of the US in the world. But by stating probabilities and promising to revise probabilities on several mid-range alternative predictions using transparent assumptions, I hope to clarify what is at stake, improve the dialog dialog and perhaps also enhance your ability to make accurate predictions.
