Is business success a good predictor for leading a superpower?

But are wealth and experience running a large corporation reliable measures of ability to run a country and its economy? Are such individuals better suited to lead a world superpower than a state governor, a senator, a former secretary of state, or an ex-military general? 

Not necessarily. 

Why? The short answer is that a country is not a corporation. A fuller answer requires us to consider the difference between good business judgement and good economic analysis and policymaking. 

Though related, economics and business are in fact distinct disciplines that require a different style, mindset and thinking skills. An executive who is thoroughly comfortable with corporate finances does not necessarily know how to read national income accounts or understand monetary or fiscal policy, while personnel management in business is not the same thing as labour laws that govern a state economy.

To appreciate the difference in complexity between a large corporation and a national economy, consider that the US economy has over 150 million workers – more than 350 times that of the biggest company. 

This complexity means that an economy has to be run on the basis of general principles and theory. Economic management typically consists of creating a market-friendly environment based on a sound economic analysis and framework. That idea rarely sits well with businesspeople. 

Most corporations are built around a core competence – a particular technology or an approach to a particular type of market. Corporate CEOs succeed not by general theory but by finding particular product strategies or organisational innovations that work for their businesses. Given the chance, these CEOs are likely to project their particular experiences onto the broader and far more complex situation of managing an economy. Successful business leaders have trouble accepting the comparatively hands-off role of a wise economic policymaker.

Another difference is that businesspeople are accustomed to thinking about “open” systems while economists are used to thinking about “closed” systems. This explains why economists generally see policy, such as “hardcore” industrial strategy – picking winning and losing industries – differently from businesspeople. The same goes for exports, jobs, trade deficit, and foreign investment. In a closed (global) system, trade does not create more jobs unless total world spending or overall demand increases, because every dollar in exports is matched by a dollar of spending shifted from a country’s domestic goods to imports. Foreign capital flows (investment) reflect trade deficits in the balance of payments accounting, which is a closed system.

The Misery Index, created by late Harvard economist Arthur Okun in the 1970s, measures the sum of inflation and unemployment rates. Studies have shown a significant statistical correlation between the Misery Index and presidential approval ratings. The graph below shows the change in the index during the tenure of 12 post-war presidents.

  The Carter administration, amid the impact of the first oil crisis and general public malaise, saw the Misery Index rise by more than 7 points. The index also rose under the tenures of Eisenhower, Johnson, Nixon, and both Bush governments. In stark contrast, Jimmy Carter’s successor Ronald Reagan managed to oversee the largest fall to date in indexed misery – more than eight points.  

President Obama has also overseen a drop, of nearly four points, despite the financial meltdown and the great recession he inherited in 2009.  

Both Carter and George W Bush were successful businessmen before becoming president, the former in farming, the latter in oil (and baseball). Bush can even boast a Harvard MBA. Yet the Misery Index climbed while they were in office. On the other hand, former actor Reagan and ex-lawyer Obama seem to defy the notion that business success and wealth make a good president. 

As such, history doesn’t seem to support the myth that business success and wealth are good predictors of effective political leadership. 

Nevertheless, in societies like America and Thailand where great value is placed on success in business, political leaders will inevitably and rightly seek advice from business leaders. Yet if they lack an appreciation of the limitations in applying lessons from business lessons to complex economic conditions and policy, they risk causing greater national misery. For the reality is that a country is not a large corporation.

 

Kiertisak Toh is a senior fellow at the Centre for International Development, Sanford School of Public Policy, Duke University, Durham, North Carolina, and a member of the economics faculty at Radford University, Virginia.