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Explaining America

Government Affairs, Insights, News, Public Affairs, Reputation, Trade

Last night’s election of Donald J. Trump as President of the United States not only stunned the pundits, but confirmed many of the trends we’ve seen in populist movements worldwide. It signifies the potential for dramatic change to come in American policy on issues ranging from foreign policy and immigration to the environment and health care. It appears America chose to turn inward.

Last night’s election of Donald J. Trump as President of the United States not only stunned the pundits, but confirmed many of the trends we’ve seen in populist movements worldwide. It signifies the potential for dramatic change to come in American policy on issues ranging from foreign policy and immigration to the environment and health care. It appears America chose to turn inward.

This was a declaration by working class white Americans, who have suffered a decline in living standard and fear for their future in a globalized world, echoing the Brexit vote in the United Kingdom. It was a profound rejection of the establishment, especially of the mainstream media, which uniformly endorsed Secretary Hillary Clinton. Here are a few thoughts on the implications of the election.

Why this happened:

1. Inequality of Trust and Income Has Consequences — The 2016 Edelman Trust Barometer found that the informed public/elites (college plus education, top 25 percent of income, report significant media consumption) had much higher trust levels in institutions, than the mass population, particularly in the U.S. and UK (respectively). Income inequality correlates with trust inequality, with a 31 point gap between high and low income respondents in the U.S. on trust in institutions. Trump’s victory is a vote of no confidence in institutions and in the establishment.

2. Twitter Triumphs over The New York Times  Trump went direct to the people, mostly through his community of 14 million followers on Twitter. The mainstream media, notably The New York Times, broke stories on Trump’s non-payment of taxes, his failed Trump University and his questionable behavior with women. None of those stories ultimately were enough to change the tide. There was a near-universal set of editorial endorsements of Clinton. Trump used this disparity to his advantage, to claim media bias and unify his base of supporters. Social media coverage captured the angry tone of the country better than mainstream because it relies on a ‘person like me,’ doing away with the hierarchical in favor of the personal.

3. Genuine and Authentic Beats Intellectual and Measured — The short-form, speed and consistency of communication by Trump beat Clinton’s nuanced, detailed and long-form communication. Trump came across as more genuine, Clinton as less than transparent. Trump engaged directly with his community, Clinton spoke through the media in a careful and less frequent manner.

4. Advertising and Celebrities Hurt the Cause — The dominant advertising advantage of Clinton, with spending of 10 to 1 over Trump, reinforced the perception that she was trying to buy, rather than earn, votes. Her emphasis on negative campaigning, focused on Trump’s persona, instead of on economic issues, proved ineffective. The use of celebrity spokespeople may have rallied her base, but among swing voters it only exacerbated the feeling Clinton was part of the establishment, out to protect its own interests.

What must happen next:

1. Business in the Dialogue, Not Bystander — The temptation might be for business to use the Republican dominance in both Houses of Congress and in the Executive Office to seek less oversight in environment, financial services, and health care. This would be a mistake of monumental proportions, seen as the politics of self-interest. His Republican party can be deeply hostile to business. The need for Business to lead has never been more evident, whether on supply chain, pushing for free trade, or on immigration. CEOs should fill a leadership void, educating employees and their communities on issues such as trade while creating movements such as Starbucks’* 100,000 Opportunities jobs program.

2. Business Must Calm the Resentments — The election reflects a deep suspicion about the pace of change, the threat posed by globalization and the rise of the sharing economy. The Trump campaign slogan, “Make America Great Again,” is a simple line that relies on nostalgia. There must be a better explanation of the How and the Why, not simply the What. Any sense of cultural condescension must go away, in favor of a narrative that can be shared with employees and their families.

3. Recognize that Much of Your Audience Rejects Established Authority — The usual cultivation of academic experts and opinion leaders on issues is insufficient, if not counter-productive. We have to find voices who are believed by the average person, from long-tenured employees to passionate brand enthusiasts.

4. Consider the Impact of Nationalism and the Power of Local — We must recognize the rejection of long-accepted brands in favor of upstart locally sourced brands. National identity will be deeply important. The foreign companies seeking to prosper in the U.S. will have to emphasize their community involvement, training programs and local executive talent. There will be a much higher hurdle for brands from developing markets such as China.

5. Every Company Needs to Be a Media Company — Institutions are better served by going direct to end users, establishing a channel for direct dialogue and feedback. It is a world of many to one, not one to many. The predominant axis of communication is horizontal, that mass population relies on search and social, not mainstream media. Our content has to be short-form, shareable and with an opportunity for consumer generated response and engagement.

6. Truth Matters More Than Ever — In the campaign, there were several instances of exaggeration or part-truths. The hashtag #NeverHillary spread lies like wildfire. In a post-election context, there will be a need to prepare for similar pressure through social channels, best answered by passionate consumers and well-informed employees.

In January, in my essay on the findings of the 2016 Edelman Trust Barometer, I suggested that the Grand Illusion of the elites was coming to an end. The illusion was premised on three concepts: that elites had superior information, that elites were acting in the best interests of the mass population, and that someday a few in the mass population could become elites. The results of the Brexit vote and the U.S. election have confirmed the idea that the Pyramid of Influence, with elites at the top holding authority and influence, has been flipped on its head, with mass population now in control and wielding influence.

Historical context is vital. Many were concerned that the election of Ronald Reagan in 1980 would provoke nuclear war with the Soviet Union; ultimately he reached a deal on nuclear weapons with Soviet leadership. The populist sentiment unleashed by Trump has unsettled minority and LGBT populations. We would be advised to remember this is a country of laws, with a three-branch government designed by the Founding Fathers to check any momentary popular impulse. As an American running a global business, I have faith in our system, in our Constitution’s mandate to the balance of powers. President Obama said this morning that “Ultimately, we’re still on the same team.” Gridlock will cause government to walk away from key issues, giving the private sector an opportunity to fill this void. Edelman employees should also get more deeply involved in volunteer work for non-profits, to take up some of these societal challenges. Together, it’s our time to lead.

Richard Edelman is president and CEO.

*Edelman client

The Trans-Pacific Partnership: Australia’s Winners and Losers

Australian Business, Public Affairs, Trade

The TPP comes at a critical time for Australia as the country continues to stumble in its attempts to navigate away through the end of one of the biggest mining booms in history. As it welcomes its latest and fifth Prime Minister in eight years, the country is characterised by a political community in denial about the end of the boom, a business community threatening to usurp government and set its own direction, and a population growing increasingly incredulous at the dysfunction of government and fearful about the effects of the end of the boom.

The TPP comes at a critical time for Australia as the country continues to stumble in its attempts to navigate away through the end of one of the biggest mining booms in history.  As it welcomes its latest and fifth Prime Minister in eight years, the country is characterised by a political community in denial about the end of the boom, a business community threatening to usurp government and set its own direction, and a population growing increasingly incredulous at the dysfunction of government and fearful about the effects of the end of the boom. Coming on the back of outstanding successes in trade agreements with China, South Korea and Japan, the TPP is a landmark deal that could bind business and government together in the drive for a new, growing economy.  Critically, it needs to be sold well to the public by the new Prime Minister’s team, with support from the business community.  This comes at a time when the Government is already struggling to push through the ChinaAustralia FTA. Overall, the negotiations announced this week are beinseen as a success for Australia with 98 per cent of tariffs on Australian exports in the region being eliminated.  

This is a massive step when you consider that in 2014, a third of Australian goods and services exports, worth $109 billion, went to TPP countries. Australian Trade Minister, Andrew Robb remarked to the closing plenary session negotiating the TPP that the agreement could be “transformational” and would deliver “unprecedented new opportunities in the rapidly growing Asia Pacific region, with its rising middle class, for our businesses, farmers, manufacturers and service providers”. The TPP goes beyond the dismantling of traditional tariff and service barriers. It includes chapters on intellectual property, competition practices and minimum environmental standards.  While Free Trade Agreement negotiations are almost always conducted behind closed doors, the far reaching nature of the TPP has led some, including Australia’s Productivity Commission, to question the transparency of the negotiations. However, it is clear that Australia will emerge from the TPP negotiations with significant gains in key sectors – notably, food and agribusiness, and new rights to supply services sectors in which Australian companies already enjoy a worldclass reputation. 

Potential Winners in Australia Food and Agribusiness

The big winners here are beef, dairy, sugar and wine – with significant tariffs to be slashed when the agreement comes into force and as it progresses. The sugar industry was a clear winner with final outcomes from the deal anticipated to see Australia’s market access to the US double for local sugar producers, starting with a base increase of 65,000 tonnes. In the US, the higher price paid per pound of sugar, comparative to Asia, equates any increase in US market access of more than 500,000 tonnes a year to a benefit of around $100 million to the Australian industry.

The agreement also includes an option to increase access for Australian domestic producers should there be a US shortfall  a provision which could see Australian export volumes reach up to 400,000 tonnes by 2020.

Healthcare and Pharmaceuticals

On the matter of healthcare and pharmaceuticals, negotiations extended into the early hours of the morning as representatives from Australia and the United States sought a compromise over patent protection. Australia paved the way for a group of countries objecting to the US position of allowing pharmaceutical companies keeping data for biologics, advanced medicines made from living organisms, under data protection for twelve years. During that period, companies would have the ability to block the manufacture of biosimilars  generic versions of their drugs by competitors  and set prices accordingly. Concerns stemming from public health advocates and members of the Labor Party had stemmed around the rise in cost the of the Pharmaceutical Benefits Scheme (PBS) this provision could imply, with critics warning that the move could herald an increase in price of subsidised medicines. Under the compromise promoted by Australia, data protection will last a lesser five to eight years and will establish a twotrack approach where one track would set the Australian system as the standard and provide for a fiveyear protection period  an outcome which would not lead to any change to the Australian health system. The compromise means there will be no increase to the costs of medicine in Australia under the PBS. Additionally, and driven by Australia, tobacco companies were excluded from the controversial InvestorState Dispute Settlement (ISDS) process that allows firms to sue governments over regulatory changes that disadvantage them. It is understood Australia led the charge in backing a proposal that would stop tobacco firms from taking action against TPP nations for implementing tobaccorelated regulation.

Services Sectors

With Australia’s export of services about to overtake our exports in minerals, it was critical that the TPP crack open some markets that have been closed or limited to our best and brightest companies.  There are some big market access wins for financial services (including insurance), telecommunications, health and education services.  The Agreement also now levels the playing field for Australian companies to bid for Government work in many of the TPP countries.  This is significant, as many of the TPP countries have enormous stateowned sectors, such as Vietnam. 

Potential Losers in Australia

It’s early days and until the full details of negotiations are released in coming weeks there will be lots of speculation. Interestingly, while eCommerce was another sector to come out on top following the negotiations, new rules that promote and protect internetbased commerce could impact Australian bricks and mortar retailers, a sector already under intense pressure in Australia due to economic headwinds. Under the TPP framework, signatories will no longer be able to place customs duties on electronic transmissions.In addition, the Australian government will no longer be allowed to force localisation on global companies, which is in effect the requirement by domestic governments that businesses establish local infrastructure (such as data, servers etc.) to host their local customer data and legitimise their access to foreign markets.  This will slash the costs of foreign retailers accessing Australian consumers and presents huge savings for groups such as Google, Uber and [soon to launch] Amazon in Australia. Ultimately, the deal was structured to allow US technology and service giants access global markets for less money, so while it’s difficult to say who could lose,Australian retailers and local service providers should expect even more competition. What should Australian companies do now? For individual companies, it’s important not to get hung up on the headlines.  When the TPP text comes out, companies should be combing through the fine detail to see how it impacts their particular product or service line. Now is the time to assess how you can leverage the agreement for new investment, new export markets, and better relations with Governments who will be looking to make the most of this new landmark agreement.

Nic Jarvis – Head of Public Affairs, Edelman Australia

nic.jarvis@edelman.com

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