TRANSCRIPT:
Brian Kenny: In 1844, in Philadelphia, an anti-Catholic orator named Lewis Charles Levin was elected United States representative from Pennsylvania's first district. It was a modest win, and seemingly insignificant in the grand scheme, but with one exception: He was the first candidate to emerge victorious from the Know Nothing Movement. The Know Nothings, also known as the Native American Party, were a xenophobic political movement that arose in the 1840s in reaction to a huge influx of Irish-Catholic and German immigrants. Native born Protestants saw these immigrants as job stealers, and a threat to American culture and religion. Secret societies were common in America at this time. When members were asked about the group's activities, they were told to say they knew nothing. The name stuck, but in 1855 they stepped out of the shadows and into the political spotlight to form the American Party, demanding immigration restrictions and a 21-year residency requirement for citizenship. They appealed to farmers, mill workers, and laborers. In 1856, the Know Nothings chose former president Millard Fillmore as their nominee. He finished third, winning just 21.6 percent of the vote. The American Party splintered within months.
Today, we'll hear from Harvard Business School Professor Rafael Di Tella, about his case entitled Populism in America: Fake News, Alternative Facts, and Elite Betrayal in the Trump Era . (Editor’s note: The case is currently only available to teachers.) I'm your host, Brian Kenny, and you're listening to Cold Call.
Rafael Di Tella, the William Ziegler Professor of Business Administration, is an economist whose areas of interest include corruption, crime, happiness, and political economy. All of those things sort of surface in this case we're going to discuss today. Rafael, thank you for joining me.
Di Tella: Thank you for the invitation.
Kenny: We've heard the term “populism” a lot over the past year with the new administration, but I don't know if people really know what it means. If they read this case, they'll get a much deeper understanding of it. What prompted you to write the case?
Di Tella: I've been interested in populism for a long time. Part of it is due to my country of birth. I was born in Argentina, and studied a lot Argentine politics, and Latin American populism is of course a central aspect of it. I'm also interested in microeconomics. A lot of imbalances are due to things that we economists call populism, derogatorily.
I've always been interested in trying to put some structure to what populism means. There have been populist tendencies in Europe and the US, and I was interested in studying them. I did a paper with a colleague of mine, Julio Rotemberg, just prior to the Trump election because we thought, not that he was going to win, but we thought he was going to be very, very close. And so, we did a paper with data from the weeks prior to the election.
That was the idea, to try to use some of the notions we got from populism more broadly in Latin American, or Africa, or other countries, or even to see if we could understand aspects of American populism, or populism in richer countries.
“A lot of the companies that were in countries that went through populist experiences, some did extraordinarily well and some did extraordinarily bad. The ones that did better are the ones that had a more sophisticated understanding of what populism meant”
Kenny: Is it easy to define populism? Can you just put a definition to it?
Di Tella: One aspect is that they have views about institutions in ways that you wouldn't have in a standard left/right political debate. So, they're kind of anti-institutions… Another element is that they're anti-knowledge, or anti things that in standard models of political competition you would think it would be a good thing to be more competent [at]. We see over and over populist candidates who are seen as less competent, neither more left nor more right, but just silly. Populism involves a whole different way of thinking about what are the relevant constraints. That's the closest I can get to a definition. They have a different take than the established wisdom on what the constraints are.
Kenny: The way you describe it makes it sound like there is a fundamental belief that things are different, versus a lot of people who may perceive populists to be simply playing on the emotions of those who are insecure about their situation. If you look at the past election, it was said many times that President Trump, during the campaign, was simply playing on people's fears. And that's where all of this immigration policy stuff was coming to the fore. So I guess my question is, are populists ... is it a derogatory thing? Is it a negative thing all the time? Or can a populist emerge who really does have fundamental beliefs that are in the best interest of certain people?
Di Tella: I don't really connect too much with the idea that these people are exploiting emotional weaknesses in ways that are weird, or unusual in politics. Politics is all about providing narratives that make sense to people. And those narratives naturally produce emotions. We have these views about people being rational in all these domains--like, when they buy stuff; when we think of how markets work--because people are rational in so many ways. And suddenly, when it comes to politics, we decide to assume they're not rational? That seems not very scholarly. I think it's better to think about why these people have those emotions. Why is it that they feel insecure? And would a rational person connect with that?
I think we overplayed how much we understood the consequences of globalization. We've oversold [the benefits] in big ways, even when we understood that the benefits would be concentrated, and the cost would hurt lots of people. We just went along with the idea that there was this potential for compensation that we had no idea whether it was going to happen or not. In fact, we suspected there was no mechanism at play to produce that redistribution from globalization, or from greater openness. The elites kind of pushed for it. I'm a person who kind of connects with that part. I certainly like more open markets, but I understand that it's a preference, not a scientific knowledge that I'm carrying. I think economists have overplayed that card. People's fears, emotions, and anger are connected to that. And I think it's correct, it's a correct anger.
Kenny: It seems like we are in a populist movement in many parts of the world. Is globalization at the core of that?
Di Tella: In part, yes. I think part of the anti-globalization movement is they’re upset that they cannot really contest our ideas about globalization, because we look down on them as if they are stupid, or their ideas are illegitimate, or as if [they are] just a lobby... I think it's part of a democratic deficit that we have in the conversation. We certainly don't have that much knowledge. We really are exaggerating on the status that we insist on giving ourselves.
Kenny: That's part of the label that's been slapped on the elite. And it's part of the anti-intellectualism that we saw surface during the campaign. Your case gets into this phenomenon of fake news. Can you talk about how fake news factored into the rise of populism here?
Di Tella: I'm very interested in the media, and I've done some research connected to that. I've noted in other countries, before talking about the US, that there is this split in what people believe. When you study … how people in certain countries come to believe such different things, there is so much polarization. Typical economists dismiss it, “Oh, it's countries with lots of inequality, or this or that.” I don't think that's correct. I think there's a key element of how democracies work and function: trust. And a central aspect of the trust component of how this is work is the media.
The media is how we get a lot of information. And when people start suspecting that the media is biased, etc., they see the media as an ally of these intellectuals, or as a pro-globalization cheerleader… They think that the media has stopped calling it straight. But this is true also in other countries. So, I wouldn't call it part of American exceptionalism. I think it's part of everywhere. The idea that when there's a breakdown in trust and how am I going to get my information? becomes crucial. I'm very nervous about who owns the media. If anything, outside of the US, it's a bigger concern because there are fewer independent media outlets.
So, my interest in putting the media at the center of this case was to make readers aware of how fragile the equilibrium is where we trust the media. It's very easy to disrupt that. The Fox News phenomenon here is, in a small scale, believe it or not, what has happened in other countries. It's a very difficult question for the future. How are these media markets going to evolve, particularly when you have all this financial pressure on these media outlets?
Kenny: And candidate Trump, as well as several of the other Republican candidates, were calling the media out throughout the campaign, and questioning the validity of the media. And continue to do so to this day. So, you've got a president in office who has said that the media is the enemy of the American people. That's a pretty powerful statement, and that certainly fuels distrust, and lack of confidence in the media.
Di Tella: There is at some level, sometimes intensely, sometimes marginally, but trust is a component of this connection. When that begins to break down--they're not reporting things that are happening to you in the way that you see it. This equilibrium where we have a lot of information being produced begins to get destroyed. Then you get just opinions. And then these opinions, of course, can make the problem even worse.
Kenny: With social media as a platform, everybody's opinion can be heard in a much bigger way than it could before.
Di Tella: Big time. One of the issues with the lowering cost of producing information is that more outlets can survive… They can be more targeted to [specific] readers. A poorly understood fact is that people like reading stuff with which they already agree. So, if I'm trying to figure out if you're trustworthy or not, one of the ways I do it is by figuring out what you're reporting on and whether you agree with me or not. That's part of the element of the models that explain this in a deeper way. But you're exactly right. Mistrust of the media, which is being compounded by social media.
Kenny: Let's go back to the business context around this case. Why do business people need to care about this?
Di Tella: I work in the Business, Government and International Economy Unit. The premise for our unit is that it's important for business leaders to understand the business environment... If you missed out understanding there was a devaluation of the currency coming, you missed out on something that is a thousand times more important than getting the right marketing, accounting, or this, or that.
Our focus is everything that happens outside of the firm. And there are these changes in taxation or the privileges of business that are happening around the world, and I think those are connected to populism. And if you miss on that, you really are running very big risks. A lot of the companies that were in countries that went through populist experiences, some did extraordinarily well and some did extraordinarily bad. The ones that did better are the ones that had a more sophisticated understanding of what populism meant. It's very typical for sophisticated people in companies to dismiss populism, because it's something they disagree with. But, they don't understand that they have only one vote. And there's a million other people who disagree.
“I don't really connect too much with the idea that these people are exploiting emotional weaknesses in ways that are weird, or unusual in politics. Politics is all about providing narratives that make sense to people”
So predicting populist movements, even though it's extraordinarily difficult, is an advantage. Part of what I wanted to do with the case was to make students think about how many things about the business environment in the US could change with a populist candidate.
Kenny: We are in the throes of the first year of the Trump administration. Business has been booming. The stock market is hitting record highs. Everybody is feeling really jubilant about where we are today. But many of the policies that this administration wants to enact haven't really taken effect yet. So, I guess the jury is out, so to speak, on how US businesses will fare.
Di Tella: Yes. Although, if we are being honest, not many people thought this was going to be the outcome for the first year. If you read what people were saying on the news, in their speeches, etc., it was that this guy was uniquely unqualified to run the country. And that included, I guess, the economy. One could argue, well, who cares about what stock markets [are doing]? They're all driven by weird sentiment. But I think that would be superficial to do. There are elements that are going well, I guess. And I think there is a lot of expectation about these reforms that might help business, because he is very strong, the president has very strong views about how to do that...
Let me just be clear about my position, I don't particularly like some of those policies... I certainly don't know that these policies are going to be catastrophic. They look like they're going to weaken the US, I think.
Kenny: You've discussed this case in class?
Di Tella: Yes.
Kenny: I'm curious, because we have a very global student population here. Does the discussion take on emotional tones? It's hard to read about populism, I guess, without feeling kind of emotional about it.
Di Tella: Well, I taught it only once last year … post election. MBAs at that point were, understandably, shocked and surprised. We had a conversation, which was very emotional, difficult, and strange. My conclusion at the end was that a lot of people had spoken during the class as if it was a given that everybody else should agree with them on how bad Trump was. And I thought that was a strange assumption that we had never done before. We always, even with cases that are of countries where things seem to go wrong, you always see the other side. And I think we were more blind to the possible virtues of Trump in class than what I thought we were in other cases. So, that was interesting. I have a different teaching plan for this year, which I'm working on. So, we'll see how it goes.
Kenny: Rafael, thank you for joining us today.
Di Tella: Thank you for the invitation.
Kenny: I'm your host, Brian Kenny and you've been listening to Cold Call.
This interview was recorded December 4, 2017. The transcript has been edited for length and clarity.