Yes, We Should Worry About Donald Trump's Business Conflicts of Interests—and His Whole Approach to the Interaction Between Government and Business
The president-elect was a crony capitalist businessman. Now he's set to become a crony capitalist politician.
As a real estate developer, Donald Trump made and sought special deals designed to use the power of government to improve his personal bottom line.
The first building project he ever developed, the Grand Hyatt hotel in Manhattan, was completed using a multi-decade tax abatement obtained using his father's connections. This was not a broad-based tax cut so much as a state-granted subsidy that granted Trump's project the financial wherewithal to proceed. In 1994, Trump proposed that the city of Bridgeport, Connecticut, become a partner with him on a $350 million theme park project, allowing him to get access to land by declaring a number of businesses as condemned properties. Over the course of his career as a developer, he repeatedly pressured the government to use eminent domain to clear private property owners out of the way, including one instance in 1994 in which he requested that the government kick an Atlantic City widow out of her home in order to replace it with a limousine parking lot. While campaigning for president, he aggressively defended the use of eminent domain, calling it a "wonderful thing," and describing it as necessary for construction projects that create jobs.
For Trump, this is not merely a business strategy. It amounts to a working theory of how government and the private sector should interact. And it is one that should worry anyone concerned about maintaining a fair and proper division between the state and the private sector.
Because what's evident in Trump's background is that he is both a believer in and practitioner of a very direct and open kind of crony capitalism, in which government officials grant certain businesses favorable treatment, deciding which projects to approve and which to deny. He doesn't believe that the government's role is to set clear ground rules and let market competition work things out. Instead, he thinks that the government should work directly with private interests, picking winners and losers—and that his own projects, in particular, deserve to be on the winning side.
That is a disturbing enough belief when held by a powerful private developer seeking to curry favor with the government. It is cause for further alarm now that Trump sits on the other side of the table, controlling the levers of executive power, even as he continues to maintain a vast global real estate empire.
As president of the United States, Trump will have unique global political influence, and it is already apparent that Trump will use it to personally advantage his own business interests. At the end of last year, Trump lost a lengthy legal battle over the placement of a wind farm within view of a golf course resort he developed in Scotland. Since then, the issue has been a recurring obsession; Trump has tweeted about it 60 times. Now, as president-elect, Trump is continuing to raise the issue: According to The New York Times, in a post-election meeting with British politician Nigel Farage, Trump pressed the foreign official to oppose the sort of wind farms he unsuccessfully fought as private developer.
All else being equal, this is a fairly small issue; Trump lost the legal fight against the Scottish wind farms. But Trump similarly mixed his private business with his public aspirations on the campaign trail as well, hawking Trump branded products like wine and steaks—some of which were long discontinued—at a bizarre victory speech during the primary, and dangling the possibility of making a major announcement about his position on birtherism to advertise the opening of his new D.C. hotel.
All of this is indicative of Trump's extreme comfort with mixing political power with personal, private business interests. Trump is now arguably the most powerful and influential politician on the planet. And as The New York Times recently reported, Trump-branded properties now exist all over the world, with multiple major projects in various stages of development, often in countries where large developments rely on government cooperation in order to succeed.
Trump's seems to believe that this is a non-issue. He recently told The New York Times that he believes that, regarding the mixing of his private projects and his public role, "the law is totally on my side, meaning, the president can't have a conflict of interest." Given his history, though, it is not unreasonable to worry that he might seek to use his political position to advance his business interests.
Moreover, it's not necessary for Trump to actively pursue his own private interests via public office; even if Trump scrupulously avoids doing so, the possibility remains that foreign interests will attempt to curry favor with the American president by giving special, favorable treatment to his businesses. This is already visible on a small scale with Trump's newly opened hotel in Washington, D.C. As an Asian diplomat told The Washington Post, "Why wouldn't I stay at his hotel blocks from the White House, so I can tell the new president, 'I love your new hotel!' Isn't it rude to come to his city and say, 'I am staying at your competitor?'" It is more than plausible that even in the absence of any action on Trump's part, his new hotel—and other properties across the globe as well—will benefit simply from the fact that he is the president. The government of Bahrain has already decided to hold a national holiday celebration at Trump's D.C. hotel. Is this a coincidence? Or an effort to curry favor with the incoming president? It's impossible to tell.
And in that respect, despite Trump's claims to the contrary, the law may not be on his side. A little-known provision of the Constitution known as the Emoluments Clause prohibits U.S. politicians from receiving gifts from foreign officials. The clause is rarely if ever invoked, but as Adam Liptak recently reported, it is at least conceivable that some of Trump's dealings could run afoul of its rules. In particular, the state-owned Bank of China occupies space in one of Trump's buildings; when the lease is renegotiated, any payment above the market rate could be in violation of the constitution.
The Wall Street Journal, among others, has called on the president-elect to liquidate his holdings and place them in a blind trust, and Trump initially resisted. But he may move to separate himself from these conflicts after all. He tweeted this morning that on December 15 he would hold a press conference to explain how he would leave his "great business in total," though he did not detail any particular steps that he would take.
But even if Trump completely divests himself of his personal business conflicts, we should still be worried about the theory of government-business interaction under which he operates. That's because Trump appears to believe that the job of both businessman and politicians is to work in partnership—to make deals that benefit the political and private sector operators and insiders on both sides.
Indeed, it looks more than likely that this is what happened this week with the Carrier air conditioning manufacturer in Indiana. Earlier this year, the company announced plans to move 2,000 jobs from the U.S. to Mexico. Today, however, the company said that it had reached an agreement with Trump to keep about 1,000 of those job in the country. It's not clear what Trump's role in brokering the deal was, or whether any special treatment was involved, but Trump and Vice President-elect Mike Pence (who, as the outgoing governor of Indiana, may have been the key player) are expected to appear at the factory tomorrow to announce specifics.
Even if there was no overt favoritism or special privilege, the move is indicative of Trump's approach to freely mixing business and politics, his insistence on casting himself as the critical dealmaker, and the likelihood of government playing favorites in the Trump era. As The Washington Post reports, the company that owns Carrier separately owns other companies that do business with the federal government. The owners may be seeking to curry favor with the incoming president now by giving him a political victory he can tout as he transitions into office.
This sort of arrangement is both unseemly and dangerous to prosperity in the long term. It creates incentives for other businesses to threaten to move in order to receive inducements to stay. As University of Chicago economist Luigi Zingales pointed out earlier this year in a column on Trump's cronyist instincts, it also muddles the distinction between pro-market and pro-business (Trump is the latter, not the former).
Perhaps worst of all, it creates a system in which corporations succeed and fail not based on their value in the marketplace, but based on their facility at making friends in the government, and friendly deals with the political class. It is an approach built on harnessing political power for special private gain, and for directing the economy based on elite political whims rather than consumer-driven market forces. That is the approach that Trump took to building his empire a businessman. And it looks increasingly as if it is an approach he will bring to his public dealings from his new perch in the highest office in the land.