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Distruption goes Mainstream - Report from America - Sydney Institute 30 March 2017


Disruption goes Mainstream

Report from America

 

The Hon Joe Hockey
Australian Ambassador to the United States of America

The Sydney Institute

30 March 2017

In the first days after his inauguration, it was widely reported that Donald Trump had chosen to redecorate the Oval Office – as is the right of every incoming President of the United States.

As part of putting his own stamp on the most famous office in the world, President Trump chose to hang a portrait of the seventh President of the United States, Andrew Jackson, who was elected in 1828 at the conclusion of one of the most bitter and divisive presidential campaigns in United States history.

In his quest for the presidency, Jackson unashamedly campaigned as a populist conservative. He was a fearless, disruptive individual who was inclined to resolve significant differences with his opponents by engaging in actual gunfights - that is, duels at twenty paces, with real guns.

In Jackson’s mind you were either on his side or you were the enemy.

In particular, Jackson campaigned heavily on his deep disdain for the Washington elite, and he sought to capitalize on the perception that the US Federal Government was not "for the people"….

Rather, it was bloated and held its own people in contempt.

Almost 200 years after Jackson served as President, the United States has once again embraced the campaign of a disruptive outsider. Americans rejected the status quo and yearned for someone to put their interests ahead of all other concerns.

In twenty first century politics, tradition, precedent and custom mean little to the vast bulk of voters. Respect for most community institutions in the western world is low or falling.

The scars of the Global Financial Crisis are deep and painful. The cost of modern terrorism is high. Citizens across the western world feel that their governments have failed to provide them with the personal and economic security that has been promised for generations.

The combination of the Brexit vote and the US presiden-tial election result shocked commentators, pundits and pollsters. But it didn't shock millions of voters.

The Seeds of Victory for Donald Trump

On the 2nd of November last year, just 6 days before the presidential election, I delivered a speech in Sydney in which – being as diplomatic as a former politician can hope to be! – I stated that the presidential election in the United States was too close to call.

Given this had been no ordinary American election campaign, I simply could not shake the feeling that the signs were pointing to an outcome that was also in no way ordinary.

In the time since November 8, I have met with a number of analysts who specialize in assessing the mood of the American people – not their voting intentions mind you! – but how they really feel about a range of issues to do with their lives, their country and the world in which they live.

I have found these interactions to be incredibly insightful and therefore have chosen to incorporate the primary work of a number of these experts in my address to you tonight.

I would like to thank Glen Bolger of Public Opinion Strategies, and also Bruce Mehlman and David Castagnetti of Mehlman Castagnetti Rosen & Thomas for their gracious-ness in allowing me to cite some of their excellent analysis in my address.

As you will see, their work paints a far more vivid and effective picture than any words could hope to do alone.

Using this analysis, I wanted to quickly recap some of the key drivers for President Trump’s victory.

This first slide clearly illustrates that Trump attracted significant support from four traditional Republican constituencies, and importantly, in far greater numbers than Mitt Romney did in 2012.

Firstly, non-college educated white voters;

Secondly, those drawn from small cities and/or rural areas;

Thirdly, evangelical Christians; and

Finally, men. According to CNN, Donald Trump secured 53 percent of all votes cast by men.

In a voluntary voting system, all four groups turned out in large numbers for Donald Trump on November 8. And as we know, getting out the vote on Election Day in the United States is a crucial factor for a positive result that matters.

In focusing on these four key constituencies however, what should not be lost is the strength of Donald Trump’s support among groups that so-called experts presumed to be less receptive to his message.

Two pertinent examples:

Firstly, Trump secured 29 percent of the votes cast by His-panic Americans on November 8. That was more than Mitt Romney secured (27 percent) four years earlier. And given the hysteria around the Mexican Wall it was a pretty remarkable vote!

Secondly and perhaps even more striking: Donald Trump won the votes of a majority of white women – 53 percent of their total votes cast according to CNN – in an election where he was running against the first female nominee for president in the history of the United States of America.

So, while many Australians – and it has to be said many Americans! – are still scratching their heads at the support Trump garnered from constituencies such as women and Hispanic voters, the key takeaway is that there were much bigger issues driving the votes in the minds of most Americans.

Unquestionably, in a nation that celebrates innovation and success, there has been a cost associated with the advent of digital technology.

Factories have closed, towns have been gutted, wealth has rarely been more conspicuous and poverty more obvious.

With the emergence of business and job disruptors like Google, Amazon, Ebay, Uber, tesla and Apple, and with the comparatively rapid emergence of a truly global trading platform beyond capital markets, people see and feel a divide in the community.

Crucially, they identify themselves as being on the wrong side of the line.

This plays out in the daily news.

For example every conversation about an innovation like driverless cars and trucks translates into a feeling of job insecurity for millions of taxi drivers, hire car drivers and truck drivers.

According to the US Census Bureau the logistics industry is the single biggest employer of working class white men in America.

Of course automation and globalization have different im-pacts on different industries.

Many traditional working class American voters who live in communities that are dramatically affected by that modern change, such as coal mining and manufacturing towns, feel disenfranchised and left behind.

And this is best illustrated by the emergence of a pretty amazing political divide based on education.

This slide drills down on a specific – and increasingly critical aspect of electoral support in the United States: educational attainment.

While significant public commentary since the 2016 elec-tion has focused on the role of race, gender and geography, this slide reveals that education is without doubt the most crucial factor when predicting electoral support – in fact this data proves it to be the new electoral divide in the United States.

Rather than a "Democrat Blue wall" or a "Republican Red wall" – there actually exists a wall between voting preferences based on differences in the level of educational attainment.

The data is clear: states, like Massachusetts, New York and California, with the highest percentage of residents with professional degrees – such as medicine, law and engineering – are much more likely to vote for blue Democratic candidates.

Conversely, states where there are fewer residents in possession of professional degrees, like Arkansas, Texas and Iowa, well, they tend to vote red Republican.

I am sure people can think of some parallels here in Australia!

So with an increasing education and security divide in the community, Americans emphatically rejected the concept of maintaining the same policies Barack Obama had pur-sued over the last eight years.

Even though President Obama had good poll numbers for a retiring president, most Americans wanted "change". They rejected another Bush and they rejected another Clinton. They didn't want Republicans or Democrats.

This quest for change was the single biggest driver of a vote for a majority of American voters in 2016. And this slide reveals that the thirst for such change was even more evident in 2016 than in the historic election of Barack Obama in 2008, supposedly the high water mark of change politics.

The early warning signs of the power of change were most evident in the Republican and Democratic primaries. Both Donald Trump and Bernie Sanders drew huge crowds of new energetic supporters to their campaigns. In truth those new supporters were not wedded to the old political parties, they were highly motivated advocates for disrupting the mainstream of politics.

The desire to lash out at the "establishment" was there for all to see on both sides of politics and it has been building for years.

For anyone involved deeply in politics this graph is known as a "government killer" .

This slide illustrates that this thirst for change is not a new phenomenon.

The red line is the percentage of Americans that believe the country is heading in the wrong direction. They have felt that way for at least the last twelve years.

They have been given messages of "hope" before. But in the minds of many voters hope never became a reality.

If 65 percent of people think the country is heading in the wrong direction and have done so for more than a decade, when a candidate asks for your vote and implores you with the rhetorical question…. "what have you got to lose?"….it has powerful cut through.

That’s what candidate Trump did.

Naturally, if people think the country is heading in the wrong direction, and they have an opportunity to change that direction, they will take the risk.

So it is very difficult for an incumbent political candidate to win based on their track record.

As a result the incumbent can only win if they destroy their opponent. They have to make the transaction cost of change so high that voters default to the devil they know who is better than the devil they don’t know.

Regrettably this is the most orthodox political play in 21st century politics. The Clinton Campaign knew this to be true.

That’s why 100 percent of Hillary Clinton’s advertising dollars featured Donald Trump.

Because Hillary Clinton was labelled an "incumbent", only 10 percent of Donald Trump’s advertising needed to feature Mrs Clinton.

As a result 95 percent of all political advertising during the campaign featured Donald Trump – whether it was for him, or against him.

The more the media, past presidents, Hollywood celebrities and the elites campaigned for Hillary Clinton, the more it reminded voters that she was the establishment candidate.

And when establishment Republicans started campaigning for her, the deal was done. Donald Trump truly became the outsider who would stand up against the "es-tablishment".

"Drain the swamp" became a devastating cut-through political line.

Of course this was not enough on its own. Even though Donald Trump had assumed the Jacksonian mantle, it meant little if he failed to focus on the issues that mattered most to everyday Americans, in particular jobs and security.

So, ironically, the nominated candidate for America’s "Grand Old Party" of American politics had to deliver pol-icy disruption that, in places, broke with Republican or-thodoxy.

He railed against established Republican policies on free trade, immigration and religious tolerance.

And, with Teddy Roosevelt-like enthusiasm, he challenged big business and sidled up to a military that felt under re-sourced and over exposed.

This slide helps to reveal part of the answer as to why the strongman change maker, Donald Trump, was so attractive to many Americans.

These figures need neither introduction nor context. They tell the tale of the "hollowing out" of mainstream America after the Global Financial Crisis – and it is devastating.

For an average American family, their assets nearly halved in value in the first seven years after the global Financial Crisis.

The median net worth of many Americans effectively wound back 33 years to 1983.

Add job insecurity and an aging population to that equation and you have a pretty disgruntled constituency.

For some people in the world, the Global Financial Crisis has now been reduced to just a bad memory or perhaps a catchy acronym – G-F-C – but for many Americans, it remains an economic cataclysm from which they, and their families and communities, have still not recovered almost a decade later.

Surely you can see and understand the narrative going through the minds of these voters…

"My family and my community are going backwards, yet the elites are ok.

They lecture us on technology, climate change, who we can marry and whether we can carry a gun. They make billions on Wall Street and in Silicon Valley doing things that only the smart ones can do ….and I end up paying.

Meanwhile they call us deplorable. They seem to think it’s a good thing that our factories and coal mines are closing.

When we are threatened with violence in our community or against our country, we don’t see them going in there and fighting for us. When did you last see someone from Wall Street or Silicon Valley join the Marines or join the Police Force?

We have to fight for ourselves. We need someone to stand up for our interests"

The American people no longer have confidence that their traditional institutions are protecting their interests.

For a nation that has a reputation for always respecting and admiring their institutions, this graph is the most tell-ing.

As you can see there has been a dramatic loss of confidence over the last thirty years in many of America’s most revered institutions.

Institutions that are local to a community, or involve protecting a community, are most revered. So small business, local doctors and local police are respected.

The military is revered because not only is it keeping Americans safe but there are military bases in virtually every US state.

For example, Australia has military personnel located in thirty one US states.

The institutions that have clearly lost the support of the American people are more removed from their everyday life.

Big business, big banks, big government and Big Washington, in the form of the Presidency and Congress, have lost the confidence of vast numbers of Americans.

The Trump campaign didn’t miss this opportunity.

The candidate railed against the things everyday Americans felt they did not control such as trade deals, immi-gration policy, big media and, of course, Washington DC.

He lauded the military, police and offered huge tax cuts to small business.

Since coming to office, the President has not let up on his attacks.

This has helped to inoculate his support base with the lines that his supporters can use against his never waning critics.

For example any claims he does not like that are made by some media organizations are labeled "fake news".

His war against the media has popular support.

In his battle with Congress he has popular support.

Channeling this anger at Washington proved highly effective for Donald Trump, as he was seen as the only candidate that was willing to say what many Americans had been thinking for generations:

That is, that the "establishment" – personified by the federal government in Washington – no longer worked in the interests of the American people.

As this research reveals, in 1958, 73 percent of Americans surveyed agreed that they trusted the US federal government always or most of the time.

By 2015, this figure stood at just 19 percent.

The overwhelming majority of Americans have lost faith in their government…no matter which party is in power.

As a result, the presidential election held on November 8, 2016, heralded the arrival of disruption into the main-stream of American politics.

When Donald Trump labeled newspapers, such as the New York Times and Washington Post as "failing" enterprises, staffed by "fools", promulgating "fake news", he was motivated by some pretty strong anti-Trump opinions.

This slide clearly highlights that less than 5 percent of newspapers in the United States that made an endorsement, chose to endorse the red Republican candidate in the presidential election of 2016. 28

It is further evidence of the disconnect that exists between the "establishment" in America – including many sections of the mass media – and the tens of millions of Americans that chose to vote for Donald Trump.

Rejection of the Establishment: A Global Phenomenon

Beyond the United States, many people throughout the world are united by their disappointment and anger at in-stitutions and political leaders – the "Establishment" – that they feel have betrayed and abandoned them.

A closer look at the state of the world reveals that anti-establishment and populist sentiment is widespread in many regions, although it certainly takes different forms depending on local conditions.

This graph illustrates the elusiveness of political stability and certainty. All the areas colored in have experienced some form of political disruption over the last five years.

Where there is democracy, then there has tended to be changes in leadership or government. Where democracy is weak, there may be a form of authoritarian leadership that smothers dissent. Alternately, armed insurrection emerges that challenges the existing governance structures.

The Centralization of Power & Civil Impotence

Over recent decades the United States – and the world beyond its borders – has witnessed an incredible centralization of power, especially in the realm of business and political governance.

The creation and expansion of multilateral institutions – including the United Nations, the European Union and the World Trade Organization – have been seen by many as undermining the once sacrosanct doctrine of Westphalian sovereignty, and in turn, the belief of regular citizens that they have the power to speak their mind and influence the direction of their own communities.

Unlike Australians, who tend to focus on the services pro-vided by government rather than political philosophy un-derpinning government itself, generally, Americans are op-posed to the concept of "big government". Instead they prefer to focus on the Government’s role in protecting and facilitating the rights and responsibilities of the individual.

While this can be clearly divined from even a casual review of American history, it continues to be a strong and consistent theme running through modern American society and culture. One of my favorite examples being the official slogan of the great state of New Hampshire which is:

"Live free or die"!

While Australians generally seek to defend their rights, I can’t see any states rushing to embrace such an official slogan here!

If we are to truly understand the real mainstream of the United States and the deep disruption it is currently experiencing, it is critical to remember that Americans have a very different outlook on politics and government based on their unique history and culture.

America suffered more casualties in the US Civil War than it suffered in every other war combined.

So a nation that has the capacity to turn on itself should celebrate the safety valve of democracy that allows all corners of the nation to be heard.

Whether it be the United States of America or other parts of the world, it is clear that there is a connection between the centralization of political power and the disaffection and impotence felt by many citizens where this is occurring.

As political and economic power has been increasingly consolidated in far-away cities – whether it be a capital city such as Washington or a supra-city such as Brussels – regular citizens have become increasingly distant from their own governments, both geographically and often ideologically.

They don’t trust institutions that they can’t directly influence.

In an age where power has rapidly been devolved to individuals in their capacity as consumers, either through the mobility of capital, through global commerce or through social media, it is time for governments to play catch up with their citizens.

Without more control over the direction of their countries and therefore their own future, many citizens in the main-stream of United States society and beyond will continue to use the ballot box or, God forbid, other means, to achieve the disruption that they feel is necessary for their voices to be heard.

Disruption as the new norm?

So, what does the mainstreaming of disruption mean for Australia’s relationship with the United States?

In my view we need to avoid the temptation to become constant critics of the new US Administration because it is not a carbon copy of the previous Administrations.

The new Trump Administration is very focused on practical policy outcomes.

It is not beholden to ideology or tradition.

It is not in the DNA of the administration to procrastinate or give undue deference to process.

Whilst the necessary skill sets vary from policy area to pol-icy area, President Trump has clearly chosen a very credible Cabinet.

In keeping with the quest for a break with the past sought by many Trump voters, this slide perfectly captures how this mood has affected the composition of the President cabinet, specifically:

 There is a reduced number of cabinet appointees with prior Government experience – a dramatic decrease from the Administrations of both George W Bush and Barack Obama which rings true with the stated intention to "drain the swamp"; 

 Further, one in four cabinet appointees have served as a CEO in their prior career, which is again in keep-ing with an Administration which focused on deal making; and

 Lastly, there is not a single cabinet member that cur-rently holds a PhD. A different kind of "Education wall" to be sure, but as the slide reveals, an obvious break from past practice.

The new Administration has very little experience in office. It is also going to be challenged by a strident Congress where 72 percent of Republicans have never worked with a Republican President.

For years many of them have campaigned against the White House, now they have to work out how to side with the White House.

We are seeing the complex repercussions of this on a daily basis in Washington from engagement with the Congress on Intelligence matters to the rollout of an ambitious legislative timetable.

We are only at the very Beginning

At this stage, it is critical for us all to remember that we are only at the very beginning of the Trump Administration. While pundits will seek to endlessly speculate and make definitive statements each and every day about a range of issues concerning the Trump Administration, it is wise to avoid such speculation and instead rely on the facts.

As of today, we are 69 days into the four-year tenure of the Trump Administration.

Which means there are 1,392 days to go…or over 95 per cent of the term of the Trump Administration still to run.

If this was a five day international test cricket match, we would still be in the first session on the first day.

Even more pertinent: as at the 22nd of March, of the 553 key Trump Administration positions requiring confirmation by the Senate:

 495 are still awaiting even the first step in the process - nomination by the President;

 38 are awaiting actual confirmation by the Senate; and

 A mere 20 have been confirmed to date.

This means that less than 3 percent of nominees are actu-ally in position.

Rather than optimistic or pessimistic, be realistic

Therefore, I believe it is incumbent upon all of us – whether we are in Australia or the United States – to focus on the reality of the big picture.

In my view the election of Donald Trump has given keen observers around the world a unique opportunity to appreciate the United States as it actually is – in all of its immense complexity and diversity.

Like many people and their governments, Australians have a tendency to view our interactions with the United States through a narrow prism of our own interests. That is pretty understandable.

If November 8 reminded us of anything, it is that all politics is local.

And ultimately, it is domestic politics that drives foreign policy – not the other way around, as some may wish it to be.

This formula works for Donald Trump.

This slide reveals that Republican voters rated President Trump’s performance at the conclusion of his first two months in office more highly than that of President George H.W. Bush, George W. Bush and also amazingly, Ronald Reagan, at the same point in their own first year in office.

At the end of February, 76 percent of Republicans approved of Donald Trump’s performance as President according to the nonpartisan and well-regarded Pew Research Center.

Those people that voted for change are pretty happy with his performance. So far, they accept that he is delivering on his promises. He is their President and they are forgiving of his sins. They will continue to cut him more slack as he tries to shake up the system of Government.

I suspect the failure to repeal the US Affordable Care Act or "Obamacare" as it is known, will have little negative impact on Donald Trump’s standing with his own voters.

It will be seen as a failure of the system and will reflect poorly on the already poorly regarded Congress.

Repeated failure does have a cost.

The goodwill and tolerance of your voter base can be patient for only so long.

Even though Donald Trump won over Abraham Lincoln’s log cabin voter, he is clearly not a log cabin kind of guy.

Andrew Jackson had humble beginnings as have many successful political disrupters over time. So whilst Joe the Plumber voted for Donald Trump, if things go really bad for the President, then he will have to fight harder than ever to convince his heartland voters that he is "one of them".

Conclusion

Only two months in, President Trump already has a fair claim to being a 21st century Andrew Jackson. But it is early days.

Donald Trump’s election reflected all the frustrations of a huge number of Americans that have experienced change they did not want.

The question for the international community is: will the frustrations felt by the American people be exported to the rest of the world during President Trump’s term in office?

Whatever the answer, rest assured, the days of "business as usual" have come to an end.

 

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