April 16 2021

Thought of the Week:

Earlier this week, I had the opportunity to participate in a discussion with Ronald Brownstein, the author of Rock Me on the Water: 1974-The Year Los Angeles Transformed Movies, Music, Television, and Politics. In short, the book is about how 1970s Los Angeles exerted more influence over popular culture than any other city in America. At the time, popular culture reflected the demographic, social, and cultural realities of a changing America, and Brownstein believed that 1974 represented a hinge point in the confrontation between a massive younger generation intent on change and a political order rooted in the status quo. We are witnessing a similar generational cultural divide today. 1974 was the moment when the ideas first raised in the 1960s triumphed in popular culture, and when the Baby Boomers’ coming of age became critical to the fortunes of business. At the same time, Richard Nixon was winning presidential elections by appealing to the voters most concerned with change. In all of this, Brownstein sees a self-perpetuating cycle—social and cultural change; an opportunity for politicians to leverage resistance to change; creation of a new baseline; and future political debates stemming not from the old, but from the new baseline. A present day example is President Clinton’s 1990s effort to win the debate on gays serving in the military, which created an opportunity for President Bush to leverage support for gay marriage bans in more than a dozen states, and eventually led to a present day baseline of support for LGBTQ rights. In 2016 and 2020, President Trump was able to mobilize voters who resisted cultural change. Eerily similar to 1974, Trump’s resonance came at the very moment when a large, younger generation was bringing with them new cultural andsocial thoughts and ideas. This younger generation’s definition of inclusion may very well be the road map to America’s future, and corporate America views these young people as their new consumers and workers. 

Different from 1974, and in contrast to Brownstein’s observations, the present day political order is moving from one based on class and income to one based almost exclusively on culture. In fact, the major political parties have realigned themselves to the point where income is no longer the primary predictor of one’s political affiliation. Beyond culture, the country is also witnessing a geographical political separation as well—in terms of an urban-rural divide. 

If Brownstein is correct, however, what is happening today will become the cultural mainstream in 10 to 15 years. While this cultural change may not be a predictor of absolute political wins, it will establish a new baseline for future political debates. This dynamic has enormous relevance for companies. And today’s CEOs recognize that they have to make their firms relevant to future consumers, workers, and stakeholders.  In this way, corporate reactions to climate change, diversity and inclusion, and even Georgia’s voting laws are a reflection of where the country is headed in establishing new baselines. 

Thought Leadership—from our Associations, Think Tanks, and Consultants:

American Enterprise Institute (AEI): Is the era of big government back?: The United States has always been the world’s capitalist nation par excellence. In fact, Americans have long enjoyed the benefits (and headaches) of a dynamic economy because our country has always encouraged vibrant competition in the private sector, while ensuring the state’s hand, if sometimes heavy, never became oppressive. This is changing.

Brookings Institution: Do not overreact to inflation data this spring: An economic debate is underway on whether historic trillion-dollar stimulus bills related to COVID-19 could lead to dangerous levels of inflation. Brookings’ analysts explain why the economic data that will come out over the coming months that will fuel this debate should be analyzed with some caution.

Capital Alpha: Who Wins, Who Loses From the Biden Corporate Tax Increase?: We believe the companies most exposed would be U.S.-based global multinationals in general, and U.S.-based global tech and pharma companies in particular. These would be the companies targeted by the 28% tax rate, the global minimum tax, and the 15% minimum tax on book income. Companies most at risk to the higher tax rate would include domestic U.S. manufacturing, telecommunications, financial services, and service industries generally. However, we are skeptical that the full 28% tax rate will be enacted, and we recognize that the taxation of pharma companies is highly fact dependent.

Cool Graphic:

The Rising Costs of U.S. Climate Disasters, 1980-2020

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In Other Words (Quote): 

“President Trump is reported to have referred to Senator McConnell on Saturday as a ‘dumb SOB.’ As all of my colleagues in the Senate know, this is not true. He’s a very smart SOB,” NRSC Chairman Rick Scott.

Did You Know:

President Biden accepted an invitation from Speaker of the House Nancy Pelosi to deliver a joint address to Congress on April 28.

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