The allure of the business hero

The news that Warren Buffett is advising Arnold Schwarzenegger to raise California's taxes is being presented as a big surprise. Hey, these guys are supposed to be conservatives! The situation is, at the very least, problematic for California Republicans. They were looking for a name to help them recapture the state's governor's office. But they were counting on that person also delivering on traditional Republican issues. And nothing is more traditional for California Republicans than cutting taxes.

In fact however this embarrassing situation was actually pretty predictable. After all, Mr Buffett never built a reputation as a big tax cutter. He never spent years running around giving lectures on the Laffer Curve. In short, he is not a policy person, he is a businessman. And the conservatives and Republicans who told themselves that this difference did not matter were succumbing to an illusion. The illusion of the business hero.

This business hero illusion is not new. Established political parties frustrate voters. The voters become desperate and convince themselves that affiliation with fabulous business success guarantees fabulous political success. Their faith is especially strong when it comes to economics. After all, the assumption runs, a businessman knows best when it comes to fostering growth.

But this is often far from true. Advisers from business sometimes give the wrong advice. Business superstars generally tend to burst on to the political stage, do a lot of damage - and then flop. Their failure can even be great enough to do something unimaginable: obscure their former success. Those of us who cannot imagine this happening to the Sage of Omaha might like to consider the fate of another Buffett-scale figure, one also associated with California. His name was Herbert Hoover.

An orphan, Hoover had the good luck and energy to make it into the first freshman class at Stanford, and to break into one of the hottest fields of his era, mining, while still an undergraduate. He proved to be a natural engineer, and a natural administrative talent. By the time Hoover was 22, Britain's Bewick, Moreing and Company had hired him to find gold in Western Australia for $10,000 a year, about $215,000 in today's money.

From that high starting point, the path continued upwards. In Australia, the young man did so well that he was promptly transferred to China (then, as today, destination of the best and brightest). He made his own rules and insisted on absolute control of any venture he undertook. By 27, he was, as the San Francisco Chronicle reported, the "highest salaried man of his years in the world".

Hoover soon went independent to focus on work as an "engineer- financier". As George Nash reports in the definitive biography*, by the age of 40 Hoover was director of 18 mining and financial companies; he was a dominant figure in zinc, oil and gold. Walter Lippmann, the columnist, said that Hoover had the "greatest gift for exposition" of anybody he had met.

Like so many business heroes, Hoover assumed his commercial talent would translate into commensurate talent in government. At first this seemed justified. After delivering food relief to Belgium during the first world war, he took the job as wartime food administrator in Washington. He was so successful that to "Hooverise" - meaning to economise - passed into the language.

Both political parties sought Hoover's favour; Justice Louis Brandeis called him "the biggest figure injected into Washington by the war". When Calvin Coolidge stood down as president, the Republican Party made Hoover their (winning) candidate in 1928.

But the same traits that facilitated Hoover's rise in business brought his political downfall. The first was his autocratic independence. He wanted nothing to do with Congress, and assumed that legislators would go along with him just because he was right. Lawmakers repaid disrespect with disrespect.

The second was his unbending assumption that what he believed in, or what had worked for him in business, must be right for the economy. As a miner, he had experienced the short-term value for individual industries of protectionism, and therefore permitted the disastrous Smoot-Hawley Tariff Act to become law. He thought higher wages had to stimulate spending, and so forced companies to continue to pay those wages, even after the 1929 market crash.

As the slump became the Great Depression, Hoover's name again became an American word, although this time a negative one: people spoke of "Hoovervilles", tent and shack settlements.

The point here is not that Hoover and Mr Buffett are identical types, or that Mr Buffett aspires to the presidency, or even a governor's office. It is that the business hero effect is a dangerous one. Business stars are outstanding at executing specific tasks (saving hungry Belgium, saving New York after the power blackout). Mr Buffett, for instance, would be ideal for handling asset management for California's enormous pension programmes.

Yet wider roles can be problematic. The same idiosyncratic insistence on one's own ideas that can make for business genius may be seen as vanity in politics. Think of Ross Perot, whose principal achievement was securing the election of a Democrat with whom he disagreed, Bill Clinton.

But the biggest problem lies not with the business stars and their midlife ambitions, but with us, the bedazzled. Mr Schwarzenegger and Mr Buffett are two "wow" brands; in terms of political experience and policy, however, they are not (yet) more than zero plus zero. Indeed, the best news about Mr Schwarzenegger this week is that he has linked up with a genuine policy person, George Shultz. In the end it will be ideas, not money or glitz, that will save California.

The Life of Herbert Hoover, 2 vols, Norton

© Copyright 2003 Financial Times

Available for order:

To book Amity Shlaes for a speaking engagement, contact Jamie Brickhouse at the Red Brick Agency, 646.281.9041.
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