A Business Background is No Guarantee of Being a Successful Economic President, Mr. Romney!
Credit: Wikimedia Commons/HNN staff.
Mitt Romney claims that his success in business qualifies him for election as president in order that he can put the national economy right just like he has previously succeeded in putting many a business enterprise back on its feet. According to him, "Americans need a conservative businessman to get this economy moving again, not career politicians. That is why I am running."
Critics have been quick to point out that his business success with Bain Capital in particular involved destroying jobs as well as creating them. However, his claims that entrepreneurial competence will translate into effective presidential leadership on the economy have resonated with public opinion, and appear to have gained increased legitimacy in the wake of a successful performance in the first presidential debate.
Regardless of the shortcomings of Obama’s economic leadership, Romney’s argument that his business experience will make him a more successful economic manager than his Democratic rival is a spurious one if judged on the historical record.
Of the last thirteen presidents, four had substantial experience in business before entering politics -- Herbert Hoover, Jimmy Carter, and the two Bushes. George W. Bush was never a particularly successful oil man, of course, but avoided the failure of his businesses through merger or being taken over, and finally achieved business success as part of the syndicate that owned the Texas Rangers baseball team. All this did not endow him with the foresight to understand that the financial system was heading towards near meltdown in 2007-08. His father, in contrast, had enjoyed success in both the oil business and banking before the problems of the economy made him a one-term president. Jimmy Carter was a successful agri-businessman before being overwhelmed as president by the stagflation crisis of the late 1970s. Probably the most successful businessman to become president was Herbert Hoover, who made a fortune in engineering but whose name would become synonymous with the Great Depression. In paradoxical contrast, one of the most successful economic presidents -- Harry S. Truman -- was a failed businessman, having had a brief spell as co-owner of a Kansas City haberdashery shop that went bust in the early 1920s.
An interesting recent book, Bob Deitrick and Lew Goldfarb, Bulls, Bears, and the Ballot Box: How the Performance of OUR Presidents Has Impacted on YOUR Wallet (Advantage Media Group, 2012), crunches a lot of economic data to reach a negative conclusion on the question of whether there is a positive correlation between a president’s previous success in business and his effectiveness in economic management.
Bulls, Bears, and the Ballot Box uses a customized ranking system, consisting of a diverse and objective cross section of 12 different economic indicators to assess presidential performance as economic managers. These were: stock market returns; GDP growth; debt accumulation; percentage of months in recession; income disparity; growth in average disposable income; average unemployment rate; average change in unemployment rate; percentage of years of acceptable inflation; growth in industrial production; average trade balance; and growth in corporate profits.
Previous scholarly assessments have tended to confirm this book’s findings that the White House economic champs -- Truman, Dwight Eisenhower, John F. Kennedy, Lyndon Johnson, Ronald Reagan and Bill Clinton -- were not the products of a business career (Truman’s spell as an entrepreneur was too brief to qualify as a career). The biggest economic chumps, by contrast, all had a previous background in business.
This lack of correlation between business experience and presidential economic leadership success is hardly surprising. The skills needed to be a successful businessman differ from those needed to be an effective manager of prosperity in the White House.
Business leadership is based on profit projections, and measures progress based upon profits or losses and rate of return to shareholders and investors, with dollars and cents as the fundamental index of wellbeing.
In contrast, presidential economic management requires advancement of policies that benefit the whole nation and are not measured for success in basic cash balances. In ideal terms, indices of such success should include: creating an economic climate in which private businesses prosper and the public sector has the resources to lay the public investment foundations for the nation's economic future; developing an economic policy that maximizes employment levels and purchasing power, promotes fair wages, and safeguards equal opportunity regardless of class, race, or gender; protecting the environment from the abuses of unrestrained economic activity; and ensuring an adequate safety net for the neediest in society. In reality no president has fully met these exacting standards, but some have come closer than others.
In essence, a president works in a more complex environment with more moving parts and more uncontrollable variables than any business leader. He must understand and contemplate the impact of his decisions on multiple stakeholders from different walks of life, not just a finite group of shareholders or investors. Most significantly, a president is not a CEO whose word is fiat for lesser members of the organization. Instead, he is one actor in a policy domain where power is dispersed and shared with other institutions -- notably Congress, which has considerable say in fiscal policy through its the power of the purse, and the Federal Reserve, which has power over monetary policy. The president’s main instruments of economic leadership are the capacity to set the national agenda, through such instruments as his budget plan and economic report, and the resources he possesses to persuade other policy actors to do his bidding. In his case, economic leadership requires not only vision but also the political skills to attain it.
Far more than any business leader, the prospects for presidential economic leadership success depend on the macro-economic conditions (national and global) in which he operates (and inherits on coming to office), the political and partisan contexts in which he holds office, and his persuasion skills of manipulation, bargaining, and compromise to advance his agenda in a pluralistic political system.
All this does not mean that a President Romney could not be a successful economic manager, but were he to be so, this would likely owe less to his business skills than to other factors. He would have a better economic inheritance from Obama than Obama had from Bush. He would need to have freed himself from fiscal commitments that do not add up. He would have had to ditch his adulation of market forces in recognition that government has a constructive role in economic management. He would need to have recognized that it was the FIRE sector of American business (Finance, Insurance, and Real Estate) that got the U.S. into its present economic mess in the first place and is in need of regulation to prevent a repeat performance. Most importantly he would need to have realized -- and to have acted upon that realization -- that he was president of all the people, including the 47 percent he apparently disdains, rather than just of rich people like himself.
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