Wise leaders know that it is never sensible to underestimate either the forces of nature or the power of public outrage. Washington and Wall Street are about to receive an important lesson in history.
The winds of change can blow in both directions. One year ago, they propelled Barack Obama into the White House on a current of support from every quarter of society. Today, the President finds himself pushing against mounting gales of outrage and discontent, leaving his popularity diminished and his agenda for reform in doubt. This is his first, but likely not his last, major encounter with what we have dubbed turbo populism. Fueled by the costs of two far-off wars, record deficits, unprecedented levels of CEO pay and historic rates of unemployment, what lies at the heart of this movement is a revolt over the power and perks of entrenched interests, whether they are found in Washington or on Wall Street. By the time it ends, more than just Mr. Obama and a very unimpressive candidate who lost her party’s bid to retain the seat held by Massachusetts Democrat Edward M. Kennedy and before that, John F. Kennedy, will have experienced some very Rolaids days.
Abuses on Wall Street and excesses on the part of its key players which led to the worst financial crisis in generations are also featured actors on this stage of seething discontent. The sight of bankers salivating over bigger bonuses has not gone over well among ordinary Americans, who continue to struggle with jobs losses, spiraling home foreclosures and a crushing national debt. Mr. Obama’s stalwart support for Ben Bernanke as head of the Fed and Timothy Geithner as Treasury Secretary, both now facing major questions about their roles in the bank bailout and whether they are too close to Wall Street to serve the needs of Main Street, have placed the President in an awkward position for one who campaigned so vigorously on the promise of change. Health care reform now seems to have been the victim of almost terminal mismanagement by the White House and by the Democratic leaders in Congress, who, in doling out deals to various senators in exchange for their votes, did exactly what Mr. Obama campaigned to change: the way Washington works.
Changing the way politics is done struck a populist chord on the campaign trail, where the forces of unease and the preponderant view that America was on the wrong track, gave momentum to Mr. Obama’s message. But now, that same misdirected train has turned to face the White House and a political process that so many of its dissatisfied passengers still find intolerable. What it seems many Americans, especially independent voting Americans, were banking on in Mr. Obama’s policies was that more hope would be focused on Main Street and less audacity would be displayed on Wall Street.
Over the past year, America and its admirers have witnessed the spectacle of business leaders who were paid hundreds of millions of dollars admitting that they did not see the coming storm clouds of their own creation. But they still kept the hundreds of millions. Men who were once trumpeted as financial titans and graced the covers of countless genuflecting magazines have been humbled in a way not seen since the 1930s. Former Citigroup CEO Sandy Weill recently confessed that he always thought the company, whose stock continues to languish in a $3.50 shell of its nearly $50 glory, was “impregnable.” He was apparently stunned by the extent of Citi’s meltdown. “I felt that we should be able to weather that storm,” Mr. Weill recently told the New York Times. No amount of miscalculation, however, prevented Mr. Weill from pulling in more than half a billion dollars in the late 1990s and early 2000s, or being appointed to the board of the New York Federal Reserve in 2001. Icons like General Motors and Chrysler have become financial wards of the state. Their descent to that status did not prevent those at the top from pulling in tens of millions in compensation, however. On the tenth anniversary of what was then billed as the deal of the decade, the merger of AOL and Time Warner is now seen as the marriage from hell, costing tens of billions in shareholder value, lost earnings and vanished jobs. Only last week, three CEOs of leading Wall Street firms admitted to a Congressional inquiry that they were as surprised as anyone when the credit crisis struck in 2008. The trio of Jamie Dimon (JPMorgan Chase), Lloyd Blankfein (Goldman Sachs) and John Mack (Morgan Stanley) were not compensated like anyone, however. Collectively, they were paid more than $300 million over the past five years.
Leaders often fail to heed the growing signs of change and disaffection when they are fond of basking in the reflection of their own egos instead of looking at where reality commonly resides.
The betrayal of elites, or at least the promise of their much-vaunted magic, both in business and in the political arena, the scale of the abuses and excesses of the few and the costs they inflicted on the many, the pervasiveness of leaders who place the claims of special interests over cries for public good – these are among the backdrafts and jet streams that have unleashed the winds of turbo populism. And like the concept of stakeholder capitalism, a term we coined more than 20 years ago to mark the growing dissatisfaction of institutional investors and pension funds with the self-aggrandizement of management and the somnolent tendencies of boards, this latest wave of populist outrage will be coming soon to a boardroom near you.
Sometimes, change comes in battalions, as it did with the campus upheavals of the 1970s and the swelling protests demanding an end to the war in Vietnam. Other times, it arrives clothed in the moral authority of a single man, as it did with Mahatma Gandhi and Rev. Martin Luther King Jr. Occasionally, it will come in the form of a Tea Party or just one too many credit card holders fed up with paying interest rates of 30 percent when the bank is getting money courtesy of the Fed at zero percent.
Wise leaders, as history has shown, do not wait for a call from Western Union before they get the message the people are trying to send. They know that it is never sensible to underestimate either the forces of nature or the power of public outrage. Both have the occasional tendency to sweep aside pillars of man-made glory and monuments to entrenched interests as if they were mere castles of sand.
Welcome to the era of turbo populism.