Transcript

A warning for business leaders: Aspiring autocrats tank economies

0:00 Hey folks, Jeff Berman here. In this episode, we're sharing my conversation with political scientist and author Barbara F. Walter. Her most recent book is How Civil Wars Start. And how to stop them.

0:17 She joined me at the twenty twenty five Masters of Scale summit for a conversation about the state of American democracy. And the vital role of business leaders in safeguarding stability. Barbara offers concrete examples from around the globe to inform her perspective on what is likely next for our economy. And for our country.

0:38 I hope you find it as thought provoking as I did. Popularly I think we think about the United States as the world's longest standing democracy. Are we? We are no longer the longest standing democracy. Switzerland is, which kind of is good and bad news to me. I I love America, I'm American, but my mom came over from Switzerland, so I feel like That's okay, maybe. We lost that title in December of 2020. I'll give a little bit of background because this task force that I served on from 2017 to 2021 is something that most Americans don't know about.

1:19 And it's been incredibly instrumental in my research, and it's gonna be incredibly important to America moving forward. So the political and stability task force is run or was run in by the CIA. It existed from 1994 and it shut down in August of 2023. I don't know why they shut it down, but one of its goals was to help the US government predict what countries around the world were likely to experience Significant political violence. And or significant political instability within the next two years. And when the task force put together this model, in the room were half political scientists, experts on conflict and civil war, like myself, and half data analysts. And the data analysts asked the experts, Tell us everything that could possibly

2:09 Potentially lead a country towards civil war. And we gave them thirty-eight different factors. So sort of the grab bag of anything that we had a hunch might matter. Some of the things we thought for sure would matter, like poverty, income inequality, whether a country was really ethnically heterogeneous, whether there was a group or groups that were heavily discriminated against. So we gave them thirty A factors and they they left. And a few months later they came back and they said It turns out that only two of those factors were highly predictive, and they were not the ones that the experts thought were going to be important. The very first and the most important one turned out to be this variable called Enocracy. And the way to think about Enocracy is it's just a fancy term for a partial democracy. It's a country that has elements of democracy, but it also has elements of autocracy.

3:03 And usually the countries that are partial democracies are getting into this middle zone either because they're once healthy democracies that are declining or they're once hardcore authoritarian regimes that are democratizing. It turns out Та те мост анстабес тобі. as a government is in this middle zone. Political instability and political violence is extremely rare in strong healthy democracies. It's actually relatively rare in hardcore autocracies.

3:37 Almost all the violence And the significant instability, and that's political, economic, and social in instability happens in this middle zone. The second factor was whether citizens in those partial democracies were organizing their political parties mainly around race, religion, or ethnicity rather than ideology. So instead of joining a political party because you were a conservative or liberal or you were a communist or a capitalist, you were joining because you were black or white. You were a Muslim, you were Christian, you were a серb or croat.

4:16 If a country had these two features, so it was a partial democracy with these identity based parties, the task force considered it at high risk. Of either significant political instability andor political violence within the next two years, and we put it on a watch list. So The US government has known what the main underlying features are of political violence and political instability. The CIA is not allowed to monitor anything having to do with the United States. So when we got together, and we got together about four times a year, we would talk about Ethiopia, we would talk about Venezuela, we would talk about Syria, but we would never ever

4:59 Talk about the United States. But of course. I was a private citizen. I had access to the data. I knew the model. And when I went to the data to see where the United States was. I started in twenty seventeen.

5:14 I could see that by the CIA's own measures that it had used In this model. Both of those features were emerging here in the United States, and they were emerging relatively rapidly. A long answer to question, but by December of twenty twenty. By that enacracy measure, the US had fallen for the first time into that middle zone. Incredibly important foundation for where we go with this. I'm gonna set aside the risk of civil war and and allow folks to read the book and digest it. But we know that stability is critical for business to thrive.

5:48 How should business leaders be thinking about this moment and and what their role, our role in this needs to be as we go through this next phase of America? So I'm so grateful for the opportunity to be here because when I think about American democracy and what are the like the three big legs of power If we want to make America's democracy healthier and stronger, so get us in a in a safe space where Really, there's very very little violence and instability. The three pillars are political leaders.

6:20 You know, they could institute reforms from the top. Let's say maybe that's not gonna happen right now. No, this is not gonna it could be it could be voters, so they could vote in high numbers and change the makeup of Congress. That's probably not gonna happen. The third big Leg is business. And in fact, business is probably the most powerful actor in American politics. Simply because of the way our political system is structured. They have an enormous influence in who gets elected, what policies they pursue, and so if business were willing to get involved, it could have a big influence. Still ahead more with political scientist Barbara F. Walter.

7:14 What does the AI revolution mean? For jobs, for getting things done. Who are the people creating this technology? And what do they think? I'm Rana El Kalyubi, an AI scientist, entrepreneur.

7:27 investor, and now host of the new podcast Pioneers of AI. Think of it as your guide for all things AI. with the most human issues at the center. Join me every Wednesday for Pioneers of AI. And don't forget to subscribe wherever you tune in.

7:49 You're listening to Masters of Scale and you can find this conversation and more. on our YouTube channel. Also be sure to check out the link in our show notes to subscribe to our newsletter. This week the newsletter has an epic book list of all our favorite reads just in time for your holiday shopping.

8:09 Okay. CEO of a big public company or I sit on the board of a big public company and I'm going, Well look, Barbara, thank you. But I'm worried about the next quarter or the next quarter after that, and sticking our head up and putting us on the radar of an administration that you know would rather us cozy up than fight them probably doesn't seem like a great idea.

8:29 I'm not incentivized to think super long term. What am I supposed to do? Yeah. I think one of the misconceptions that almost all Americans have, not just the business community, is that they think we have time. I think they think of political systems as this sort of bimodal distribution. You're either a democracy or an autocracy, and I think Everybody in this room would agree, wow, we are really far from being an autocracy. You know, we're not a China or North Korea or Bahrain. You know, we probably have declined somewhat, but we have a long way to go before we have to worry. What they don't understand, again, is this middle zone. Autocracies have low levels of instability for reasons that are quite different from democracies. Democracies have very low levels of instability. It's an inverted U shape.

9:18 All of the instability happens in the middle. So I would say to business leaders who really care very deeply about Stability in all its forms, economic stability, political stability, social stability. Enocracies those partial democracies Are the most unstable economically. They have lower rates of GDP per capita, lower rates of economic growth, lower rates of of investment, and you can go down the list than either. Healthy democracies, or even

9:48 Autocracies. If you go to political instability, they have higher rates of Couze? And more frequent leadership turnovers, greater volatility in terms of their policies, than either healthy democracies. or autocracies. They have more protests and strikes and demonstrations. And then they are The most violent

10:11 governments in the world. They are involved in more wars with other countries and they are involved with more civil wars. than any other type of I'm gonna continue being devil's advocate here. Like that doesn't sound great. I don't love it. Uh not you know not thrilled about running a business in that environment, but We've got a collective action problem here, and if I stick my neck out alone, I'm risking, you know, uh am I breaching fiduciary duty? Am I hurting my shareholders? How am I as a leader, business leader, supposed to handle this? I think one is is simply to start planning, right? You break

10:44 Collective action problems by beginning to coordinate. And maybe one way to answer the question is to give you some examples. You guys, if you've been following Brazil, follow what's happening in Brazil in real time. It's really extraordinary. Bolsonaro is А Стронгман лідер і вante тон Бразил. into his own dictatorship. And he sort of systematically followed the playbook that Victor Orban put out there into the world. And it looked like he was gonna be successful. And he ran the last election that he ran in was in twenty twenty two, and everybody was worried that this would be.

11:22 Бразилсь ласт democratic election, last truly competitive election. And what the major business leaders did of manufacturing, of finance, of the big industries is they decided that they were gonna hold I'm gonna call it kind of a public service campaign where they went on television together and had a series of ads before that election where they didn't condemn Bolsonaro, but they came out and made the case for the value of democracy. And they just hammered home how important it was for Brazil to remain a democracy, how it would benefit everybody, businesses as well as citizens, and how their vote. Was going to determine whether this would happen or not. And you saw unusually high turnout in the twenty twenty two elections, and Bolsonaro lost. Now, Bolsonaro didn't take that loss easily, which is often the case, right? Those types of wannabe.

12:24 Autocrats will try to figure out whatever dirty trick they could use to stay in power. And he tried uh secretly to organize a coup. And what just happened, it was I think the Brazil Supreme Court. Indicted Bolsonaro for an attempted coup. And he's now awaiting sentencing. So what that did is basically we hope ended Bolsonaro's ambitions, but it sent a very, very strong message. to other wannabe autocrats in Brazil, to Brazilian citizens, to other important actors, that the business community was behind democracy. And that it was the benefit of everybody. The only other example I would give you is South Africa. The apartheid regime.

13:15 ended in the early nineteen nineties. It was a surprise to a lot of people. I was already studying civil wars back then and when civil war people would get together and we'd we'd like, well where do you think what country is most likely to have a civil war? We didn't agree on the full list, but everyone's like, oh yeah, South Africa, for sure. And it never did. And it never did because Declerc, who is the last White apartheid president decided He was going to hand over power to the black majority and he made that deal with Mandela. And many people thought, Oh, De Klerk, you know, what a hero.

13:53 And in some respects he deserves credit for that, but he did that for very self-interested reasons. The white minority regime South Africa only survived А злом аз за велфі бізнес коміті Back apartheid. And what happened was that economic sanctions eventually took their toll. On South African businesses, and by the early nineteen nineties, business leaders had to make a decision. They could either have apartheid or they could have profits, but they could not have both. And when they

14:25 Picked profits and they said we are no longer going to support the apartheid regime. Power shifted very, very quickly. So you said a few minutes ago that there's a sense that we've more time than we do. Yeah. What percentage roughly of countries that go into anocracy go all the way to autocracy, what linger mired in anocracy And which ones.

14:49 you turn back to democracy. Yeah. So once countries fall into this middle zone, and the countries that fall into this zone. very rapidly the speed at which they decline those democracy declines matters. They tend to stay in in the middle zone longer. They tend to be more unstable. Once they're there, about forty-five percent will eventually become autocracies. About thirty-five percent sort of kind of linger in that zone. There you have leadership change after leadership change. It's quite chaotic.

15:27 Only about twenty percent ever returned to full democracy. So it's hard to reverse the process once it has happened, especially if it has happened quite rapidly. And for that 20 percent. How long From when you go into innocracy and and you're really there, do you usually have to begin that real U turn before you've just kinda lost the opportunity. So political scientists have a a term for going into innocracy and coming back out to democracy. We call it a U turn, and of course you want

16:00 That minority of countries that do that U turn. That usually happens Within five to eight years of when that country declined, that's usually the first electoral cycle. So If they're gonna turn around, if they're gonna turn things around. It usually has to happen relatively rapidly. The longer you stay in the innocracy zone, the harder it is to get out. So given this twenty percent return number.

16:29 Given the time frame in which the data and I really appreciate you are a true political scientist. You are looking at data and and making judgments off of that. And given what we know to be the extraordinary risk to capitalism uh in Anocracy and and the move into autocracy, and certainly you know, in autocracy only so many businesses are gonna win. Yeah. You're not getting calls from the business round table or from the CEOs of the largest, most powerful corporations in America. You're sitting in front of hundreds of the most influential leaders in technology, in business, and academia, not for profit world. What's the message to this group? What do we leave here and do so you do end up in those boardrooms having those conversations?

17:13 I think we have to take the threat seriously, right? If you don't know there is a threat and you don't know What the implications are let me let me just as a little bit of an aside. We know who gets within the business community who gets hurt. The most who gets hurt the quickest

17:32 And then who gets hurt later on. The bottom line is Everybody gets hurt. Small businesses get hurt. Immediately. New companies, startups, it just falls off the cliff. Innovation falls off the cliff. Medium sized businesses, they they're sort of, it's sort of it has a neutral effect on them in the first few years, but then they're eventually affected. Initially, big industries do well, in fact, in some cases they get a bump.

17:59 Because the aspiring autocrat recognizes that they are an important Constituency, they're important ally that they will need to get into power, but eventually those the autocrat doesn't want to share power. And and I'll I'll give you a little example of I did this just um before coming here, looking more closely at Hungry because Hungry followed A very, very clear pathway from democracy to autocracy, and you're seeing other people. Copy that.

18:32 I looked at the the fifty richest people in Hungary prior to twenty ten, when Viktor Orban came to power the second time. When Orban came back into power, he was very, very quick to take control of the media, to fill the Justice Department with his cronies. He acted very quickly. So twenty ten he came in, of those fifty richest Hungarians. Prior to Orban coming into power. Only about twenty three percent are still on the list. Fifte later, twenty cut.

19:06 Twenty three percent. Thirty eight percent Their companies were hit either with aggressive we'll call it regulations. Or lawsuits that eventually Bankrupted their companies, at which point Orban supporters Boug those companies for pennies on the dollar.

19:27 Twenty two percent have disappeared from the public realm. So I could not find them. I assume they're there, but I could not find them.

19:37 About four percent have died of suspicious circumstances. So Even the wealthiest Hungarians who probably thought you know Orban needs needs us, or I don't want to stick my head out. Right?

19:52 Only twenty three percent of them. Are still on that list. The good news And there is good news.

20:00 I'm actually a pretty sunny person. I have no idea why I'm doing this. I have no idea. The good news is we still have time. Yeah. And the good news is we have data driven experts like Barbara who are writing books like How Civil War Start and How to Stop Them, Your Substack, which is a must read. And who are available to advise boards, business leaders, investors.

20:22 On the risks and what we can do to get there. Grateful for your joining us at the Masters Skills Stage. Thank you so much. Thanks again to Barbara F Walter for joining us. This interview was recorded live at the Presidio Theater in San Francisco as part of our twenty twenty-five Masters of Scale summit. Her book is How Civil Wars Start and How to Stop Them, and she has a fantastic sub stack that is a must-read. We'll put a link to all of that in the show notes. You can find this conversation and much more. On our YouTube channel.

21:09 Masters of Scale is a Wait What original. Our executive producer is Eve Tro. Our senior producer is Trisha Bobida. Associate Producer is Masha Makatanina. Senior talent executive is Stephanie Stern. Mixing and Mastering by Aaron Bastanelli and Brian Pugh. Original music by Ryan Holiday. Our head of podcasts is Letal Mulad. Visit mastersofscom to find the transcript for this episode and to subscribe to our newsletter. And please make sure. to check out our YouTube channel.