About this Episode
Bruce Mehlman, founding partner of the bipartisan Washington, D.C. lobbying firm Mehlman, Castagnetti, Rosen & Thomas, joins the Essential Podcast to discuss his latest quarterly review of the U.S. political and social landscape. He explores the greatest threat we face in 2021, which, to give a hint, isn't the coronavirus.
The Essential Podcast from S&P Global is dedicated to sharing essential intelligence with those working in and affected by financial markets. Host Nathan Hunt focuses on those issues of immediate importance to global financial markets – macroeconomic trends, the credit cycle, climate risk, energy transition, and global trade – in interviews with subject matter experts from around the world.
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- With over two decades experience in public policy, business and the law, Bruce helps leaders and organizations understand, anticipate and navigate political risk. His quarterly infographic analyses are consistently picked-up by national media and eagerly consumed by tens of thousands of readers around the world. Access his latest, which this episode explores, here.
Nathan Hunt: This is The Essential Podcast from S&P Global. My name is Nathan Hunt. 2020 was a year spent in crisis. It wasn't the pandemic or the protests or the elections on their own that produced an apocalyptic mood. It was the intersection of all of them and just as the multiple crises of 2020 had their roots in the previous decades, the implications, the effects of what has happened are going to play out over the decade to come and that is what I hope to talk about with my guests today.
Bruce Mehlman: This is Bruce Mehlman. I am the founder of a bipartisan government relations firm, and we try to help organizations understand what's happening in Washington anticipate what might happen next, and work with policymakers to ensure the best outcomes for their stakeholders.
Nathan Hunt: What Mary Meeker's internet trends presentations are to Silicon Valley. Bruce Mehlman's quarterly decks on social and political trends are to Washington DC. Meaning that in a town with a famously short memory, Bruce Mehlman takes the long view, perhaps that is why Bruce's opinions and insights are welcomed in corporate board rooms in the halls of Congress and by prominent journalists and pundits. Bruce welcome to the podcast.
Bruce Mehlman: Man, what a great introduction. I need to make sure my kids listen to this one.
Nathan Hunt: Bruce, I want to start with the title of your latest report, 'Crossroads 2021 Challenges and Choices in a low trust world.' After the year we've all had couldn't you have shared some happy news?
Bruce Mehlman: Nathan, that the really frightening thing is I had an outline over the Christmas holidays. I had a, I was cruising, and the entire slide deck was going to be called what now a subsection called, which is 'The Case for Optimism.' Why the future will be better than you think. I literally, I had all these slides planned. And I thought, well, let's just wait so that I can have the certainty of the Senate control after the Georgia races. And then comes the January 6th insurrection, which is really a harrowing day and a harrowing time, and it had me conclude, I think the case for optimism may be slightly premature. I needed a more balanced approach to my Q1, 2021 deck.
Nathan Hunt: 2020 did seem to stretch itself out into at least early January. I want to talk about one of your key findings, which is you talk about the biggest challenge you see facing the United States of America in 2021. According to you, it isn't COVID, and it isn't the economy, which is, I guess, good news. But what is the single biggest challenge?
Bruce Mehlman: I think our single biggest challenge is the lack of trust across the society because that's a cross-cutter. So, you know, if you really want to beat the pandemic, as we can see in some countries around the world, we'd all be wearing masks more regularly. No, it doesn't prevent it entirely, but it helps, it mitigates it. We would all be taking vaccines. There'd be a lot more, a willingness to follow the best thinking and epidemiology, even though that's, you know, that evolves along with our knowledge of the disease. Why is that not happening? Insufficient trust. Economically, trust is the core of a functioning economy. Whether, you know, I believe that the restaurant's not going to poison me, or the restaurant believes that I'm going to pay my bill. And it builds from the micro to the macro. But the lack of trust, that lack of trust in the institutions, lack of trust and other individuals, the lack of trust in our political parties and in our systems poisons so much of the cooperation and the collaboration that you need. If you want to, you know marshal the extraordinary capabilities and innovation that are inherent across America and apply them to these big challenges.
Nathan Hunt: You say that we are at a crossroads as a nation. Looking ahead, what are the two choices you see that we're facing, right now?
Bruce Mehlman: So, I picked crossroads as a title, less per se, about we have a choice and more, because it feels like we're at such a knife's edge. So, pick the pandemic. If I said to you that people will be getting vaccinated and the vaccines will hold, and that will rapidly accelerate our drive towards herd immunity and this is going to go from a pandemic to more like, you know, the flu that's endemic still sticks around, but most people are pretty well protected from it. You'd say totally credible. If I said to you, actually, the diseases are evolving so fast that the South African variant is proving to be elusive and not well covered by the AstraZeneca, it turns out not by the others either, or we have a whole other year of trying to deal with this, you'd say you can find that credible too. The economy., Is it going to be a relief rally or are we going to have a double-dip as Tesla and Bitcoin and some of these, you know, insanely highflyers are brought back to earth both equally credible. Is Joe Biden going to prove to indeed be an uniter and he's going to find 10 or more Republicans who are going to be able to work with him on the moderate policy? Or is he going to press the reconciliation tool to the advantage of 50 plus one in the Senate and push forward legislatively with a Democrat only legislation and using the phone in the pen and the executive branch powers? A very progressive agenda, again, both equally possible. And so unlike so many quarters when I've published these, and you kind of knew what was ahead and you could. Call it 60, 41 one way or another. It feels more of a 50, 50 future than most times I can remember.
Nathan Hunt: It feels like a lot to deal with in a low trust environment. Obviously trust touches on all of those issues that you are talking about. What, if anything, can public figures and politicians do when the trust just isn't there?
Bruce Mehlman: You know, trust is such a hard commodity because it takes years to build and moments to blow up. I don't think there is a single moment or dramatic gesture that would cause everybody to go from low trust to high trust. And I think the loss of trust is a long time coming as too many folks I think, believe that as if we had a high trust society before Donald Trump and that he somehow was uniquely a cause, I think he's much more of a symptom. And I think, what the low trust across both the United States and around the world reflects our decades of technological change, geopolitical change, and cultural demographic change, where the world's changing, but our policies, our institutions, and our politics weren't keeping up. And so now you're in this mismatch where for a majority of Americans, they don't feel like globalization is working for them. Or they feel like the knowledge economy is good for billionaires on the East Coast and the West coast, but, you know, leaving their flyover state behind, or, you know, all this demographic change maybe they feel like it's taking too long, women are still paid less for doing the same work than men, that's the progressive complaint. Or the right of center complaint is changing are coming too fast. They feel like strangers in their own country. And it's the failure of policy to recognize the people who were being left behind and to find new 21st century relevant policies to replace the ones from the 20th century, that's what's led to the erosion of trust over time.
Nathan Hunt: When I think about that, it seems to me like there would be two possible ways of rebuilding trust. One would be to level with people about the challenges we're facing. But the other side of what you're talking about, problems around globalization, technology, income, inequality, those require policy changes, which are going to be really hard to enact in the political atmosphere where we currently find ourselves. Which of those aspects of trust do you feel like the Biden administration has access to?
Bruce Mehlman: Well theory they've got access across the board, the challenge for those guys if you turn the first knob one way, then the second knob may be automatically turning the other direction. And do you wait for Republicans figuring maybe you'll be able to drive bipartisan legislation or do you fear that we'll both take too long and be too small to meet the needs of this pandemic year? So, you'd rather just hit the gas and figure. That the failure to be more bipartisan will be forgiven in a country that is having a relief rally because we got more vaccines for more people. Clearly, the Biden team concluded. They'd rather pedal to the metal, they'd rather max out, they're not worried about overstimulating, they're not worried about making some Republicans early on feel like the talk of unity was, was, was lip service. They want to get vaccines in arms., They want to get dollars on rebuilding, and I think their theory is when things are doing better, both disease-wise and economy-wise, they can come back and seek the more bipartisan partnerships that right now would require them to spend a lot less and have a significantly smaller bill. But in the, in the medium and the long term, you do need the policy reforms and something I put in there that we can talk about, but the thing people need to remember it, it's helpful to read and study history because what we're going through is not, and it's not the first time we've gotten to low trust. It's not the first time people have sought significant change, and it's not the first time there's been that mismatch between the realities of the present day and the anachronistic policies and institutions that are still governing.
Nathan Hunt: I'd love it if you'd go into that, you've talked about a 60-year cycle in American history. What is that cycle?
Bruce Mehlman: Yeah. So, first credit where credit is due. It's not my big idea. There's a brilliant historian, Huntington, who had observed that you have every, roughly 60 years, the same kind of factors come together. So, there's moral indignation at the state of the country. There's contempt for the establishment and established power that's governing. Trusted institutions plummet. And a new generation of leaders emerges from outside the current ruling classes and they drive change and reform. That explains our revolutionary period, the 1760s, add 60 years, 1820s, that's the Jacksonian uprising. Add 60-ish years, the progressive era, which was falling out of the gilded age, followed by the progressive era. At about 60 years and you get the fifties and sixties protests led by civil rights, but you also had women's rights and, and a lot of other broad changes at about 60 years and where we are today with the modern populism on left and on right. And all around the world. I still think reflecting the fact that the institutions, the parties, and the policies are very 20th century, still in a lot of ways, very designed for the cold war era, not internet ready, and not 21st century responsive.
Nathan Hunt: When I talk to people on the left and on the right, in this country, I'm struck by the fact that both sides seem to have an expectation or a hope of eventual victory in which the other side just shuts up and stops arguing. From your perspective is one side or the other on the verge of such a victory?
Bruce Mehlman: In the same way that I've successfully predicted 10 of the last two recessions, I'm not sure I can tell you an inflection point until it's 20 years after it happened. I had made the mistake, partly believing the polling, but I made the mistake a lot of folks believed, I thought 2020 was going to prove to be a pretty solid thumping and turning back of, of Trumpism and that, that would cause the Republican party to kind of re-examine where it was going. And while the president lost by, you know, the meaningful 7 million votes in a free and fair election, you only needed to turn about 45,000 votes to flip enough States in the electoral college. Hillary Clinton, you needed to turn 78,000 votes to flip enough votes in the electoral college, even though she won the popular vote, thanks to California in New York and a few other very populous States. And so, a lot of the current Republicans in the Senate walked away from 2020 concluding that a Trump-ist populism, you know, trying to be a, a broader working-class party, but maybe without the own goals, without some of the, you know, just inexplicably, crazy tweets or the going out of your way to be divisive when the working-class party should be a multicultural working-class party. You don't need to have some of the same dog whistles that I think harm the president, President Trump, I should say in his losing reelection campaign and so I think you see a lot of Republicans think they can be tough on the border, they can have America first foreign policy, they can be against the big elite, big tech, big wall street, big media and they think that's a winning formula. If, if you have just a bit more discipline than former President Trump shout,
Nathan Hunt: I get that America has always been a partisan nation. It's not a bug, it's a feature for people to be passionate about in a democracy. But do you think there's any appetite for the middle of the road, either in Washington or in the rest of the County?
Bruce Mehlman: Because I'm personally so centrist, you know I'm a Republican, but I'd say the politician who reflects me best as my own home state, governor of Maryland, Larry Hogan, who's pretty socially moderate. If more fiscally conservative, you know, a red governor in a very, very blue state. I do hope and believe that the majority of the country indeed wants less disruption, more moderation, more cooperation. Certainly, in our individual lives, we cooperate with our neighbors, we cooperate with our colleagues. That said the voices that are the loudest, if you look on Twitter, they're the extremes. They're are the voices that fight. If you look on cable news, cable, TV, I guess near 9:00 PM. It's not news, it's entertainment or anger-tainment. You know, but those again are the, the loudest and the shrill voices. And even in politics, when you take a look at who wins in primaries, it's, you know, the primary electorate tends to be 10, 20% of the overall party on each side. And it's the most intense and most intensely engaged. And that I think creates some structural challenges. The way the media works, the way the party system works, make a more moderate, milk toasty middle, have a lot less firepower than their numbers suggest that they might otherwise have. It also makes me wonder if some of the long-term reforms that are needed aren't structural. There's a woman, a former CEO of business leader, Catherine Gail GHL, who along with Harvard Business School professor, Michael Porter put a new book out called 'The Politics Industry.' Punchline is what we ought to do is we ought to change the primary elections to rather than having the party primaries where, you know, you end up with the most shrill, lefty, Democrat, and the most shrill populist Republican, and those are your choices and everybody's shaking their heads that they're, "why are these my two choices?" That you run, primary elections and the, and the, the top five become the candidates who are available on a general election ballot. And that creates far more opportunity then for, for actual choices and for the middle to be heard, because you know, what you may find is you may find that the moderate would lose the primary and the Dem side would lose the primary and the Republican side which still has a plurality of the actual overall electorate if they were available as an alternative.
Nathan Hunt: Let's leave DC to its own devices for a moment. Is there anyone else who might be able to show some moral leadership at this point in time?
Bruce Mehlman: Well, you know, when you say moral leadership, I guess we should start with morality is so frequently in the eyes of the beholder. That's how both sides can with true sincerity, believe that their side is morally right, and the other side is morally bankrupt. And in some ways, one of the challenges we have is that everybody imputes morality into what ought to be honest, disagreements over policy, by the loyal opposition, as opposed to people that we perceive on the other side is a threat to our way of life. But where I see among others, where I see trust being maintained and even growing in 2020 is among business leaders and among community leaders. And some would suggest that it's in part the nature of the internet, which makes it harder to be trusted on a large scale, but far more empowered on a more local or on a smaller scale. So, we've seen business leaders by talking straight and by speaking frequently increase the trust of their employees and their stakeholders. And as I think about the short-term future it really will be business and narrow community leaders more than global and national leaders, that we need to step up and delete.
Nathan Hunt: Bruce, I take your point on moral leadership. I think it is perhaps the use of that kind of rhetoric that lends itself to more divisive ways of interacting. So, I'll amend that to let's say, social leadership and accept your answer on that. But I have a question about business leaders. How would a business leader go about showing social leadership without being drawn into the interminable Culture Wars?
Bruce Mehlman: Nathan, it's a great question and the core of what my company does as noted is we help organizations understand, anticipate and, and influence public policy discussions. So, normally my job is to advise on what Democrats are thinking, republicans are thinking what's the art of the possible, what's the process. And yet what I found over, particularly the last three or four years, the most frequently asked questions, started being more of "what social policy issues might we engage on?" And with government as one of the many, but an important stakeholder, "how will folks feel about if we lean in?" For example, the proposed bathroom laws in North Carolina and Texas, I personally thought were discriminatory and also unnecessary, I didn't think they were an actual problem that needed this big-time solution. I thought the conservative lawmakers in both those States were, were kind of like picking fights. You saw the business community step up in both of those States, both red States and back the legislature down in both cases. Some would say, well, you shouldn't be speaking up on those kinds of issues. Others would say, actually it's smart. It's smart for a variety of reasons. Many would say it was the right thing to do. I'd be one of those, but separate and apart from that, it's also the smart thing for the business leaders to do because increasingly the value of their company is intangible. So, I think some of these issues leaning in on some of these issues in the right way is maximizing shareholder value by engaging with stakeholders because when, you know, when you go back and you take a look at the data about how much of a company's market cap is intangible, intangibles, I mean its brand it's trademarks, patents, Goodwill software knowledge, it was 17%. Of the S&P on average, the S&P companies market value in 1975, by 1985, it was up to 32% by 1995. And it's jumped way up to 68%. It's 90% of market cap. These days is intangible, which includes a lot of your brand. If you want to attract and retain the best employees, especially millennials and gen Z, they want to work for companies that they think have values and principles and live by them. Increasingly investors, especially in ESG are looking for businesses that they think are on the right side of the environmental issues or on social or governance issues. You know, consumers increasingly are telling researchers that they factor in some of the stances and it becomes a question for business leaders of, well, you know, you're not an NGO. Your job is not to every day, respond to political leaders, various tweets, but which are the right issues to lean in on when and how, and there a playbook is not. A lot of this is you actually have to; it's forcing a lot of companies to have a much better understanding of who your stakeholders are. If you only hear about them through a poll once a year, or when they're complaining, that's not the smart way to run your company you need to be engaged with them 24/7 so that you have a finger on the pulse with no one stakeholder telling you what to do. Nor can you ignore all of your stakeholders and just run by numbers.
Nathan Hunt: I have one final question and I'm going to return to where you started, which was the original title before January 6th, 'reasons for hope the future will be better than you think.' Bruce help me, I'm an optimist by nature, but I'm feeling a bit beaten down at the moment. Why do you think the future will be better than I think?
Bruce Mehlman: A couple of different reasons. First and foremost, historically, when we've had these moments of what David Brooks calls "moral convulsion," like in the gilded age, America has always found the way to come together, to put reforms in place, to fix the system, to make it more responsive, to make people feel less fragile and more included. So, first, history is on our side. You know, when there have been these sorts of failures that you've seen across cities in healthcare, like the Spanish Flu of 1918, it led to incredible advances in urban hygiene, in governance and instructors to say nothing of in technology. And I personally, I've been tracking my original idea before the insurrection that caused me to get a little bit more nuance, but the reason I wanted to talk about the case for optimism is technology. What people don't necessarily appreciate, and I think we're going to find chapters, if not entire books, about two or three decades from now is how there was this Cambrian explosion of investment in innovation that happened in 2020 and 2021 as a result of people's necessity forcing people to respond, to react to the pandemic, you know, in areas like healthcare in particular, the MRN vaccines, the fastest we'd ever, ever developed a vaccine in human history was between four and five years. We did this one in less than one year. On platforms for vaccine future discovery that are totally reusable. That's, it's an off the charts win, that, you know, again, we were all focused on murder Hornets and so it's kind of understandable. I think technology is going to help us live lives going forward. That is where we are more resilient, we are healthier, we have more opportunities to create businesses, there's more inclusive growth. We're not right around the corner we've got to make sure everybody has access to it. The digital divide went from something that's bad to something that's like a food divided this point or a healthcare divide, something simply it's untenable. In America and something that's holds our country back, but there are changes of foot that are going to make us more innovative, more productive, stronger, and healthier. We just have to make sure that the policy can keep up so that these extraordinary opportunities are inclusive of everybody and not just available to the to the superstar economy top 10%.
Nathan Hunt: The Essential Podcast is produced by Molly Mintz with assistance from Kurt Burger and Lundon Lafci at S&P Global. We accelerate progress in the world by providing intelligence that is essential for companies, governments, and individuals to make decisions with conviction. I am Nathan Hunt from my home studio in Manhattan's Greenwich Village. Thank you for listening.
The Essential Podcast is edited and produced by Molly Mintz.