Polarized politics is not leaving much room for agreement on economic regulation, even as inequality and business power grow. But Pepper Culpepper and Taeku Lee find that corporate scandals can often mobilize the public and wider interests to overcome big business power, including after the financial crisis. They argue that this kind of populism can be a useful form of backlash to break through in our calcified political system.
Guests: Pepper Culpepper, Oxford University; Taeku Lee, Harvard University
Study: Billionaire Backlash
Transcript
Matt Grossmann: Can corporate scandals reinvigorate democracy? This week on The Science of Politics. For The Niskanen Center, I’m Matt Grossmann.
Polarized politics is not leaving much room for agreement on economic regulation, even as inequality and business power grow. Can any issues break through our alignments and use public outrage to bring new policy? History suggests that big public concerns can arise in response to corporate scandals, though the record from there to policy change is mixed, especially in the US. This week, I talk to Pepper Culpepper of Oxford University and Taeku Lee of Harvard University about their new Bloomsbury book Billionaire Backlash. They find that corporate scandals can often mobilize the public and wider interest to overcome big business, including after the financial crisis. They argue that this kind of populism can be a useful form of backlash to break through in our calcified political system. They’re honest about what this channel is up against and acknowledge that waiting for scandal may not be that hopeful, but they want to learn from a few heroes about when it does work. I think you’ll enjoy our conversation.
Taeku, tell us about the findings and takeaways from the new book Billionaire Backlash.
Taeku Lee: Of course. Thanks for having us, Matt. So Billionaire Backlash is written as a book for our time and our time is a time of alarming economic, political, social, cultural changes, but we were hoping to write a book that’s on a more hopeful register than a lot of the books out there. So rather than deepen our existing knowledge about democratic backsliding or the possibility of civil war in the United States, or how national politics has swallowed up local politics, or rural resentment and white rage, and so on, we wanted to look at those instances when entrenched interests and deepening divisions don’t rule the day.
So the book makes a kind of audacious argument that scandals, which we often think of as these regrettable moments where we learn something sordid and unsavory about somebody or some entity as instead these potentially positive events that could be democratically consequential. That can produce an angered and outraged public, reminding governments in power that they should be serving the voters’ interests and not the interests of large corporations, the donor class or the personal interests of the politicians themselves.
So the core of our argument is that scandals can function as focal events that galvanize and mobilize a latent public opinion to overcome a collective action problem that exists in many democracies and open up a window of opportunity for genuine regulatory reform. The foundation for our thesis is built out of nearly 70,000 survey respondents that we’ve studied over almost a decade. Also, some quantitative text analysis, some in-depth interviews of policy entrepreneurs and so on, which has yielded a bunch of journal articles.
But the book itself is written for a broader audience, so a lot of the book is actually a pheno-style soaking and poking around for instances that manifest this democratic potential that we think exists in scandals. So these scandals range from banks, Goldman Sachs, tech firms, Facebook Meta, insurance firms. We talk about Youpla in Australia, cryptocurrency markets like FDX, energy with ExxonMobil in the US and Sasol in South Africa, all the way to family-owned conglomerates in South Korea with Samsung. So we cover both positive cases where scandals did lead to reform and negative cases where they didn’t.
The last thing I want to say just to open is that while we think scandals can be moments of democratic hope, we’re also realists in that we understand that you can’t build a project of democratic renewal entirely by stitching together a bunch of corporate scandals. That would suffer a fate worse than the creature in Frankenstein. So we closed the book by returning to the idea of a latent public opinion that is discontented and that feels dispossessed, and then discussed the possibility and promise of something like what good populism would look like, which is a topic that I’m hoping we’ll be able to talk more about later.
Matt Grossmann: So Pepper, tell us the backstory behind the book here. I know you all had some different starting points and areas of focus and you’ve went through the article process first. So what was the path to the book?
Pepper Culpepper: The path was long. So we both started as junior scholars at the Harvard Kennedy School a long time ago. Taeku, a behavioral scholar of opinion, super happy when he gets a new data set telling him about what individual voters’ thinking. And I’m much more interested in interest group conflict and take policy outcomes as the things that I’m interested in, the dependent variable that I’m trying to study.
So we had a different way of looking at the world from your behaviorist on the one hand and your political economist on the other. And we would often be having conversations about what’s going on in politics where we would, one person would say something and then the other would rephrase it in his own language. So we had a problem of what Max Weber would call [foreign language 00:05:43], just a cross within political science between Taeku’s approach and mine.
But that long-term exchange got focused on, we were looking together what had happened during the financial crisis and how to understand what was going on with public opinion in the wake of the financial crisis following an intuition that the bailouts and the response to the bailouts had really changed the way people thought about politics. So this was something I was working on and Taeku said, “Yeah, you may think that, but I go and I look at the basic data on redistribution and it seems like the needle hasn’t moved.” But Taeku was enough of a big picture guy to say, “But clearly, things have moved and let’s figure out what it is.” We eventually began to hone in on how people thought about big companies, what the media coverage of these things was and how it is that people thought about big companies.
So we wound up focusing on the hearings around Goldman Sachs as a clarifying moment in the financial crisis. The financial crisis was, if you like, a mega scandal in that there were lots of acts of corporate malfeasance that became revealed over time that people were very uncomfortable with and people responded to with moralized outrage. However, politics in the wake of the scandal returned to not the status quo, but people lost a little bit of that focused anger and it had to be reignited. And Senator Carl Levin helped reignite it in a series of hearings where he put Goldman Sachs on the stand to try to illustrate what was going on with conflict of interest by investment banks.
So we were studying that and then we focused on the anger that people were feeling and who they were blaming for the financial crisis when they read about media treatments. And that got us focused on the scandalizing moment and that was, if you like, it’s an a-ha moment, but a slow a-ha moment and that is something that we generalized and we began to think, “How has this changed how people think about finance? And what do scandals do in finance?” And then, “Where else do we see scandals? And what’s been going on with the evolution of opinion towards big companies in this area?”
Matt Grossmann: So Taeku, your baseline is that big business or richer interests should win, especially in regulatory politics as the norm, but scandals solve this collective action problem of getting more people involved. So explain that mechanism, convince me that it’s really the public that has to be involved here, rather than just an argument that’s more convincing to the elites.
Taeku Lee: Yeah. So we lean into this insight that I would attribute to E. E. Schattschneider in the Semisovereign People, who famously said, “The outcome of every conflict is determined by the extent to which the audience becomes involved in it.” So he says the outcome of the conflict is really decided by the scope of the contagion.
And what corporate scandals do is bring the public fully to any fight. So specifically, for us, they bring a mobilized outraged latent public opinion to the fight. And I know the audience for your podcasts are either political scientists or people that are well-versed in politics, but I want to just remind everybody of an important distinction that we draw and that V. O. Key makes between three different kinds of public opinion. So Key says there’s mass opinion, which is the sort of read on what people are thinking that you might get from regularized polling about what issues are important to people, who they think they want to vote for in the next election and so on. And that’s one kind of way to think about what public opinion is, and governments in power and elites in power for the most part think they understand what that aspect of public opinion is. They know what to expect and in many cases, they can kind of construct what to expect by asking certain kinds of questions in polls and so on.
Then Key says there’s activated mass opinion, which are the opinions of people that are regular activists, and elites, and people that are organized, and interest groups and so on. And elites also know what to expect from that manifestation of public opinion.
The key insight from Key is that there’s this third aspect of public opinion which he calls latent public opinion and key says it’s really about the only public opinion that generates any anxiety among governments because it’s the unknown unknowns about public opinion. And we think in democratic societies, especially in wealthy, unequal democracies, there is this growing groundswell of latent public opinion among people who really don’t feel like their government, especially these democratic governments, are really representing their interests.
Key also famously said, “Voters aren’t fools.” So we think what scandals do is that they help overcome this collective action problem in a lot of democratic societies where the institutionalized mechanism for latent public opinion to be heard, to have its day, which are elections, don’t seem to be working. Either because voters who are discontented don’t see the candidates that they want to see or they don’t hear the candidates speaking to the issues that they want governments to be addressing. Or when elected, these politicians aren’t able to carry through on their campaign promises.
So the work that scandals do in helping to overcome this collective action problem is they create other moments, other events where those feelings, those discontented feelings about what democratic governments are failing to do can actually be heard. So scandals really create these focal events. These moments where there’s a revelation of transgression and because of the revelation of transgression, sustained publicity about that revelation of transgression and the effect is it creates these moments of common knowledge.
So we lean into a lot of the political science research on common knowledge. And as focal events, what scandals do is they work to mobilize latent public opinion in two aspects. Cognitively, they provide new commonly known information that reduces issue complexity down to a single dimension that often simplifies hard issues into easy issues. And then affectively, they galvanize quiescent latent public opinion into visible outrage. So public opinion, we borrow this metaphor that public opinion is like an iceberg. The stuff that you see above the surface of the water is the regularized, known public opinion that you see in polls, but the stuff below the surface of the water, that’s latent public opinion. That’s the stuff that could really expand the scope of contagion and that’s really what ordinary advocacy doesn’t have as a resource.
Matt Grossmann: But, Pepper, you need someone to direct that outrage and you focus on successful policy entrepreneurs in your book, so there’s a lot of proper named stories here. So tell us what you learn from the book’s heroes.
Pepper Culpepper: Well, let me switch metaphors. What public opinion does is it opens the window and someone’s got to push it through the window. And here, we really go back to John Kingdon and Agendas, Alternatives, and Public Policy, thinking about who are these policy entrepreneurs that do the hard work of solving some of the collective action problems for us. When the public gets focused on a problem and says, “We want change,” there’s got to be someone who does the hard work of organizing what that change is and putting a solution through. And we make a distinction between those on the inside of the system, the insider political entrepreneurs, policy entrepreneurs, and those on the outside.
The characteristics shared by both those on the inside and those on the outside is ultimately tenacity, that’s what they have in common. Because they have to fight hard, they have to fight long, they have to lose a lot of battles and they got to just keep pushing. They’re in some sense the Don Quixote figures where they tilt at windmills and we all think tilting at windmills is a silly thing until it turns out that the monsters really are out to get us. And there, people have always been telling us the monsters are out to get us.
They’re people like Max Schrems on privacy in Europe, who waged years’-long campaign in the courts against Meta, Facebook and the other big tech companies trying to overturn the regulations that had been agreed between the United States and the European Union on how it is that privacy was going to be regulated. Or people like Alistair McTaggart in California, who was a policy entrepreneur. He’s a property developer who decided he wanted to do something to leave some lasting legacy besides just having built houses and made money, and he made a good amount of money. He was a multi-millionaire. And he decided that he was interested in privacy and doing something about privacy regulation, and so he did the hard organizing, bringing people together, getting signatures, pushing legislators once they decided to pass the law, and then fighting interest groups in the legislature post-law passage.
So you can only do that if you’re a little bit crazy and that tenacity, that sticking with it, that’s what the policy entrepreneurs have in common. And it’s shared by these outsiders, with somebody like Margrethe Vestager, the former competition commissioner for the European Union, who on the back of the Cambridge Analytica Facebook scandal pushed through these big regulations at the European Union level, the DMA and the DSA, Digital Markets Act and the Digital Services Act. The first dealing with competition, the second dealing with online safety, and both really sticking it to-
… the second dealing with online safety and both that are really sticking it to big tech, but she had fought a lot of battles and she’s got a lot of scars as a result. So you got to be a little bit crazy and you’ve got to be very, very determined to be one of these successful policy entrepreneurs.
Matt Grossmann: So, Tieku, you have accumulated quite a bit of survey data and some experiments here. So tell us what you are able to conclude from that and what it might mean for practitioners. So the next scandal arises, what do you have to tell them? Not just it’s going to be long and bloody, but some new perspective.
Taeku Lee: Yeah, absolutely. I mean, I mentioned before that the bedrock of this book is a ton of survey data over six countries which are multi-wave panel data with experiments embedded into the second and third waves of these studies, and our goal was to test for the causal effects of public narratives about scandals. So we don’t try to create experimental manipulations about scandals in the lab, but we try to use, in all instances, actual published content about real scandals that have been published. So for instance, for one study on the effect of a rigged economy framing of inequality on public support for redistribution, we excerpted an article that was written by Joseph Stiglitz in Scientific American. And these experiments, I think with greater causal specificity than observational data or case studies or personal hunches or vibes allow us to demonstrate that exposure to news about a corporate scandal really moves public opinion to be more broadly supportive of corporate regulation than non-exposure to the same news story quite consistently across issue domains, across corporate industries, across different countries.
And so they allow us to say with greater causal specificity, in addition, which particular aspects of scandals are especially likely to move public opinions. So among the things we vary are whether stories that are about scandals but attached to a particular party are more likely to be successful, whether stories that are about scandals that really feature the aspect of regulatory capture are more likely to be successful, whether stories about scandals that feature episodic information about particular families that are victims of corporate grief, for example, are more likely to be successful and so on. And I think these are aspects of scandals that might be especially beneficial to policy entrepreneurs in the sense that policy entrepreneurs without studies like ours essentially operate in a world where they have to act on the basis of untested hunches, and what we’re really able to do is test some of the hunches.
So let me just close with one strong example from our data. I had a very strong hunch based on some of the framing literature and based on my own work before I was in political science, organizing for lost political causes, that if you foreground the victims of scandals in an episodic way, that would be much more powerful in motivating public opinion than a simple story about a scandal narrative. But it turns out in our studies that it really doesn’t have that different of an effect than simply telling somebody about what corporations have done. And I imagine that a lot of policy entrepreneurs have that same kind of hunch that if you feature the stories of victims of these kind of transgressions, you’re more likely to move the needle, but we found that for the most part that was not the case. So I think these kinds of things that are very carefully tested are likely to be more helpful to policy entrepreneurs than operating in a data vacuum.
Matt Grossmann: So Pepper, let’s talk through some of the success stories in the case in US politics. You look at the Goldman Sachs in Dodd-Frank and Cambridge Analytica in this California privacy law case. So tell us what happened and why they were successful, and then kind of address this fear that it might just be too episodic if it’s scandal-driven, that these things won’t last if we go back to the corporate power after the media storm has passed.
Pepper Culpepper: Great. So it’s a question of what you do when you open that window that we talked about earlier, and I’ve already mentioned that Carl Levin was crucial in this. Carl Levin was heading the Permanent Subcommittee on Investigations, and therefore as chair of that committee he had subpoena power. He subpoenaed Goldman Sachs and he was trying to figure out how can I make the American people understand what the character of conflict of interest that was going on in investment banking when investment banking is really complicated and most people don’t have a good idea of what exactly it is investment banks do. So what he did was he subpoenaed their emails, and Goldman thinking, “Well, we’ll just give them two million emails and they’ll never go through it.”
In fact, they did go through it, the hardworking staff on the PSI, the Permanent Subcommittee on Investigations, they went through it and they found discussion of collateralized debt obligations, CDOs like Timberwolf, where they talked about this being a shitty deal and making some lemonade from the horrible lemons, and what they meant was they were selling to their clients packaged sort of subprime debt and while they were offloading subprime debt from their balance sheet, because they were convinced, Goldman Sachs was convinced that the market was going south, correctly. They were correct, but they were basically selling to their client stuff they knew was going to go wrong, and as far as they’re concerned, that’s just allowing a mature client to make a decision about credit allocation. As far as Carl Levin was concerned, that’s basically screwing over your client.
And so he brought out these emails talking about how much of that shitty deal did you sell to one particular client, and this really hit the news in 2010, the word shitty deal, and that’s something we focus on. And this kind of getting the CFO of Goldman on the stand and saying to David Viniar, who was the CFO at the time, “So when you hear that the people in your corporation are going around saying, ‘How much of this shitty deal did we sell?’ how does that make you feel?” And what David Viniar said was, “It’s a really unfortunate thing to put in email.”
And so that’s the moment when the Republicans had previously been mounting a filibuster against Dodd-Frank, the financial reform, but they don’t want to go on TV and say, “We’re in favor of Goldman Sachs.” And so in a matter of days, their opposition crumbles. Their position doesn’t change. They still oppose to Dodd-Frank. They think it’s too much intervention in markets, but they know it’s a loser. And so Dodd-Frank passes, it gets much more aggressive on proprietary trading, and that’s something that Levin is also involved with in trying to worry in particular about their selling on their own account, these banks selling on their own account. And so that passes.
And so then your question is, well, how durable is that, because people will know that in 2018, Dodd-Frank was rolled back in the sense that it wasn’t applied to the smallest banks anymore, and small banks, community banks had been exempted from the very beginning. That was the only way to get it through Congress. In 2018, President Trump and his first administration further exempted a set of small banks, including Silicon Valley Bank which then was exempt from some of the requirements of Dodd-Frank and runs it into its own financial crisis in 2023.
So all regulation, there tends to be sort of an overadjustment to a crisis or a scandal, and then it slowly gets whittled away by what you call the hard entrenched corporate power, and we expect that that’s going to happen. We don’t think that scandals solve things forever and make good policy. We think what they do is they rebalance, they push back against these calcified interests and they get things done temporarily. And then we’ve had long enough time with financial regulation to see some of that pushback now and some of the pushback on capital requirements that you’re seeing from the Trump administration now which was part of the Basel requirements as opposed to being part of Dodd-Frank per se.
Let me very quickly, on your question about the other success case, one other success case we talked about, in California, this again is a case where we have a blocked privacy regulation at the national level. And so using the institutions of federalism and the fact that California has a referendum process, Alastair Mactaggart, this organizer, this person who becomes an organizer, who’s a property developer, is able to put a measure on the ballot if he can get enough signatures. And then once Cambridge Analytica happens, the people in Sacramento think, “Okay, he’s the guy we’ve got to talk to because his law is definitely going to pass. So we want to pass the law instead of having him pass it as the referendum.” Why do they want to pass the law? Because you can amend this law afterwards.
And so the law passes and immediately the big companies start undermining it, the same way, of course, that the finance companies have tried to do on Dodd-Frank. And Mactaggart has an idea. He says, “I know people are still mad, so I’m going to put another issue to the referendum.” And now, so this was initially in 2018, now we’re going for 2020. He writes an over 50-page bill in which he says, “We’re going to adopt this sort of privacy regulation for California. It’s going to have the stiffest privacy regulation by far in the United States.” At that point, there was no other state that had privacy regulation. “And by the way, this can only be strengthened by amendment. It cannot be weakened.” So he builds in a ratchet such that you can’t amend the bill to death which is what he had run into in legislature. And that passes with something like 56% of the vote in California in 2020.
And so what do the tech companies do in response? They can’t beat the California law. So they go to Virginia and they pass a law. In fact, Amazon writes the law, passes it to a legislator, he copy-paste it in and proposes it to the legislature and passes it. So what they tried to do is they tried to pass numerous state laws that are much less demanding on privacy than the one passed in California so that the California one doesn’t become the national standard, and that’s a debate that continues today. 20 states have privacy regulation and California’s is by far the strongest, Utah and Iowa are the very weakest, and then there are a bunch that stand in the middle.
But California, which also has auto emissions regulation that has determined the defacto regulation for the United States for a long time, is sitting out there waiting for the rest of the United States to decide where does it want to cluster. Does it want to cluster towards the middle of these state regulations or does it want to go to the hard top of the regulations? And I think that it’ll be another scandal that drives that.
Matt Grossmann: So Tieku, you both mentioned that this isn’t necessarily a solution for the biggest picture because the powerful regroup and we can’t have sort of reliance on continuous scandals to solve everything, but what does that mean for the big picture? We still have rising inequality at the top. We still have corporate power very influential. And these seem to be cases where we can do a little bit better than the Goldman Sachs CFO and say, “Oh no, these were the bad apples, not us.” That would seem to leave a lot of room for them.
Taeku Lee: Yeah, I think that’s a great question, and it’s one that we struggled with in the whole decade that we worked on this project. I think the first thing to say is that we are realists. I think it’s hard to be a political scientist and not be a realist. So we understand that the status quo is one where corporate power is entrenched, and for the most part, where governments are beholden to the billionaire class, the donor class, the 1%, and where it’s easy for corporate power to say, “Okay, those guys are the bad apples, but we’re the ones that are abiding by the regulations as much as we are loathed to abide by them, but we’re willing to do that.” At the same time, I would say we’re also not defeatists in terms of the status quo and where it leaves a lot of wealthy unequal democracies.
And I think here for me, it’s valuable to draw a contrast between two possible kinds of political science research, one of which is done most of the time, and in fact, it’s done most of the time by Pepper and I in other work that we do, which is the contrast between what I would call probabilistic political science research and possibilistic political science research. So probabilistic political science research, which we do most of the time, is the kind of research where we take an outcome and we try to tell a story about that outcome that explains the greatest variation in that outcome or that explains or that minimizes the sum of square deviations from the mean outcome or something like that. And I think that kind of research would say there’s actually probably very little visible, statistically significant role if you pooled every possible scandal across the universe of scandals. The effect might not be that big and it might not be that positive.
But I think possibilistic political science research is the kind of research that really wants to try to understand those consequential deviations from the expected outcome of scandals to try to understand how democratic renewal might be possible. And so can the powerful just separate themselves and say, “Well, those are the bad apples and we’re not the bad apples.” I think the probabilistic story would be to say, “Yeah, they probably can,” but we would say kind of the possibilistic story would be to say, “Every time they do that, this groundswell of latent public opinion of discontent about what of the failures of democratic governments is likely to keep growing.” And so the possibility of the next scandal producing consequential regulatory reform increases as a result, whether it’s the Panama Papers or whether it’s the Epstein files today, I think the possibility for the next large scandal to lead to even greater, more structural reform also grows.
So if you think in terms of eventful political science and the degree to which events from small scandals to large scale events like wars, revolutions, Great Depressions, and so on, we think the possibility of scandals to have even greater effect increases the more that groundswell of latent public opinion increases. So I think status quo is probably right. You’re probably right that entrenched corporate interests can continue to try to disassociate themselves from the transgressors. But I think over time, going back to V.O. Key and he said, “Voters aren’t fools,” I think voters see what’s going on, and over time I think that iceberg of public opinion will just continue to grow.
Matt Grossmann: But Pepper, you do try to learn from the failed cases or mixed cases as well, and so let’s talk about a couple of those. First, the failure of FTX, and here we had a very clear villain of Sam Bankman-
Here, we had a very clear villain of San Bankman-Fried, but maybe not necessarily the crypto reform that advocates were hoping for. And then this Exxon Knew case where we have a strong evidence that the company knew about fossil fuel effects on climate change, but obviously didn’t move the needle in national policy. So what can be learned from there? What happened?
Pepper Culpepper: I mean, so to put it in a frame for political scientists, we really do specify scope conditions on this. And we go back to Carmines and Stimson idea of hard versus easy issues, which is not just technologically or technically complicated issues. Easy issues are those about which people have a kind of visceral reaction. They know what they think and that reaction comes from the gut about it. And so on easy issues, which in polarized policies, there are several of them that sort of come into the easy category because I know what my tribe thinks and therefore I follow it instinctively without even having to think about it or reckon the sort of contradictory interest that I might have, we think it’s going to be much harder for scandal to move the needle. Because you have to break not just the grip of these sort of corporate interests on politics, but you also have to break the grip of voters on the way that they’ve been thinking in terms of what they’re willing to follow.
And so what we have here between the Exxon case and the FTX case is climate change in the United States has become an easy issue in the sense that it wasn’t, as you’ll know, Matt, a partisan issue in the early 1990s. People had very similar views, Republicans and Democrats, about the threat from climate change and the extent of climate change regulation that they wanted. But over time, following elite conflict in this area, it’s become one of the most polarized areas of policy in the United States. And in 2015, it was the most polarized area. 2015 also incidentally is the year that inside climate news broke the story of the Exxon Knew scandal, which was, as you said, in the late 1970s, Exxon scientists were producing really good models of the likely path of global temperature increase. So those models, it turns out, were as good as models that scientists, government scientists, anybody had anywhere.
And yet, the Exxon Corporation, what’s now the ExxonMobil Corporation, was lobbying on the basis of scientific uncertainty. Now, we all believe in the importance of expressing your confidence intervals, but confidence intervals also say, “We’re pretty confident in this space there’s something going on.” And Exxon Knew that there was likely change, but they were stressing the uncertainty side to the public such that they could have regulations that would benefit them and not constrain their profit. And that’s what was revealed by Insight Climate News in 2015. And we’ve looked at what happened in Europe. We looked simultaneously at what went on in Britain, France, Germany, and the United States in a sort of survey experimental context. And then we’ve also looked at what actually happened with opinion a little bit, though in a more limited way. And what happens is there’s an inflection point in Europe at about that time, though we can’t ascribe it to Exxon Knew, of course.
And in our survey experiment, you get regular responses that whether you’re British or French or German, you read about Exxon Knew years later and you want more climate change regulation and climate change becomes more salient to you personally. And that’s consistent with the movement in opinion and in policy development in Europe. What we find in the United States is, well, so Democrats, they read about Exxon Knew and they get very exercised and they want more climate change regulation. And Republicans go, “Doesn’t really matter. That doesn’t really change how much climate change opinion or how much climate change regulation I want.” And it doesn’t move the salience in a survey experimental context of either Democrats or Republicans in the United States.
And we think it’s because on the one hand, there’s this hard and easy issue problem where it’s become a really easy issue and Republicans aren’t willing to move on the regulatory problem, but also, if you look between the United States and Europe, there’s a lot less latent anger built up towards fossil fuel corporations in the United States than there is in Europe. And so there’s a lot less that the Exxon Knew scandal was able to draw on. So that’s how we find the sharp contrast between how Americans react to Exxon Knew and how Europeans react. And if we go to the case of FTX, I mean, FTX, crypto is a super hard issue. No one thinks they understand cryptocurrency.
We have above 70% of people telling us that they don’t know much about cryptocurrency, and we test them on basics of cryptocurrency. And in fact, they do not know. So they think they don’t know and they’re right about that. And so this should be an issue where our logic really does apply. But in the wake of the FTX scandal where basically Sam Bankman-Fried was taking money from FTX, from investments at FTX, using it in his Alameda trading fund to trade crypto and bet on crypto markets, then when the crypto market generally goes south, he gets revealed. And it’s a very old-fashioned fraudulent scam. There’s nothing especially sophisticated about what Bankman-Fried was doing, even though crypto is hard to understand.
And so Republicans and Democrats agreed overwhelmingly that Bankman-Fried was guilty of fraud, but they didn’t know how to think about it. And the stories they got from the media were very different in the left media, CNN, the New York Times, versus the right media of Fox News and The Wall Street Journal. And so we find that the press coverage, we do analysis of what the actual media coverage looked like. And we show that the left media outlets were much more likely to stress regulatory failure, to talk about the crypto wild west with regulation. And so they see the FTX scandal and they say, “And the solution to the FTX scandal is more regulation.” And that’s the story you read in the New York Times. That’s the story you read in CNN, that’s the story you read on or see on MSNBC.
Whereas the Wall Street Journal and Fox News, they see moral failure. And by the way, they see a big democratic donor in Sam Bankman-Fried. And so that’s what they stress. And then when we ask actual people who’ve been exposed to the scandal versus people who haven’t been exposed to the scandal in the United States, what they attribute the cause to, those who mainly were getting their news from the right-wing media believed much more strongly that it was all about moral failure at the top of FTX, and those who were getting their news from the left-wing media believed much more that it was about regulatory failure. And if you take people who are cross-cutting, that’s to say people on the right who got their news from the left, which is a lot of people, and then people on the left who get their news from the right, which is very few people in our sample, so don’t believe me on this, but both of those, they tend to cluster in the middle in terms of where they attribute what the causation was.
So we think what happened in FTX is instead of there being a unified story of FTX teaches us something about what regulation the public wants, they got two different stories from the media looking for an explanation. And so the divided American public view now is born of the FTX scandal. And so ultimately, if there’s another big crypto scandal, it will be a question of, does a unified view emerge that cuts across left and right? And that’s the only moment when we’ll get voter regulation.
Matt Grossmann: [inaudible 00:40:03]. You say that the voters aren’t fools and that they respond to scandal, and yet, we are in our second term of a scandal-a-month president, including some scandals that are tied to his own corporations. So why doesn’t the same logic apply in the political domain, and what makes corporate scandals different?
Taeku Lee: Yeah, I think this distinction between corporate scandals and political scandals is really a touchstone for the book. If you think about the history of political scandals, political scandals used to do a lot of democratic work. The Teapot Dome scandal nearly took down the Warren G. Harding presidency. We talk a little bit in the book about the Profumo affair in Great Britain in 1963, which took down Harold Macmillan’s conservative government all the way to Watergate in the 1970s. And probably a culmination in terms of the political consequences of political scandals was Gary Hart’s misguided pursuit of the Democratic nomination for President of the United States where he challenged journalists to try to find any kind of dirt on him and was found on a yacht called The Monkey Business. If political-
Pepper Culpepper: Not alone on the yacht.
Taeku Lee: Not alone on the yacht, yes, with a South Carolina beauty pageant winner on his lap. So if political scandals continue to be as democratically consequential as they have been in the past, we wouldn’t have a book to write. And I think something important happens in terms of the political effects of political scandals that tracks with the growing polarization of American politics more generally, such that by 1998 when the Clinton-Lewinsky scandal hits, Democrats and Republicans in the country have vastly different interpretations of the political importance of whether or not President Clinton was or was not having an extramarital affair with Monica Lewinsky.
So for Republicans, this was an impeachable offense and Republican members of Congress acted on that impulse. And for Democrats, it was a sexual peccadillo unrelated to whether or not Clinton could deliver the goods and continue to produce good governance. And we think that for the most part continues to rule the day, whether you look at instances like PartyGate involving Boris Johnson or Trump’s affair with Stormy Daniels, which barely raises an eyebrow.
And you could make the argument that with the Second Trump administration, political corruption, scandal-worthy political corruption is no longer the exception to the rule of governance where governance is expected to be transparent and democratically accountable. But instead, corruption now is kind of the MO, the standard operating procedure for government where offices of the inspectors general and special councils have either been terminated or are targeted for termination. If you contrast the Teapot Dome scandal to what is currently happening in the Trump administration, it’s hard… My understanding of the Teapot Dome scandal was that part of the scandal was that there was private payments to a cabinet member which superseded competitive bidding. I think it’s hard to find agencies in the current administration where there’s clear evidence of competitive bidding going on in terms of government contracts, so such as the change to our politics between that era and the current era.
So I think in such a hyper-partisan environment, we think corporate scandals are more likely to generate a shared narrative in a cross-partisan eruption of public outrage, particularly because corporations for the most part aren’t thought of by the public in partisan terms. So people don’t think of Wells Fargo or Google or Exxon or Samsung as corporate entities that have a specific party attached to them. And I think for that reason, a lot of the tendencies of ideological and partisan polarization to lead people to different interpretations of the same transgression don’t tend to happen with corporate scandals. Of course, it’s not always the case. And we talk about in the book, the degree to which, like the ExxonMobil Knew scandal and climate change really is a case where polarization did happen as a result.
Pepper just talked about FTX is another case. We talk about a scandal involving a South African energy company, Sasol in Southwest Louisiana, as really hitting upon this empathy wall and therefore also not having the effect that it could. So they don’t always work, but I think corporate scandals have much more promise in terms of the democratic potential than political scandals do today.
Matt Grossmann: So Pepper, I’ve been gearing us toward American politics here, but you obviously study more than just the US, and we can learn from the comparison, particularly it’s interesting where we have these cases like the Edward Snowden scandal and the Cambridge Analytica scandal, which seem to have more influence elsewhere than in the US. Why?
Pepper Culpepper: It’s a question, first of all, of timing. So if we think about the Snowden scandal, the European Union now has the GDPR, which is kind of the gold standard of privacy regulation around the world, and other countries have subsequently copied the European Union. That law was actually being debated in 2013. And as it was being debated, you had more lobbyists for Google than you had actual people in the European Commission working on the bill. So they were successfully amending the bill to death so that it wasn’t going to be a hard law at all. But what happened, of course, in June 2013 is that Snowden releases all of this information about the extent to which the big tech companies have been closely engaged with the NSA in the United States and with GCHQ in Britain in sharing people’s information, sharing metadata such that governments can track them and know what they want to know about them.
And that’s really a banner moment in changing what Europeans think. And it changes European opinion right at the time when there’s a law happening, right? A privacy law has already gone forward, is in the European Parliament being amended. And so it can very easily, the politicians can respond and say, “Oh, we’ve got to respond to this very angry public because they’re suddenly worried about this and they think that we haven’t been defending their interests.” So the timing is really good. And then the GDPR goes from being a Swiss cheese legislation with all these holes that were being brought in by amendment to being the toughest privacy regulation in the world.
What’s going on in the United States at the same time that this sort of revelation happens is that you have privacy advocates inside the Obama administration who are tossing around the notion of what should we do about privacy, and they don’t come up with a law until much later. And by the time they do, the Obama administration has been facing kind of a different problem from Europeans because it’s the NSA working for Obama. What was the NSA doing? It was wiretapping Angela Merkel’s phone so that he could listen in, not he, but-
… Tapping Angela Merkel’s phone so that he could listen in, not he, but so that the NSA could listen in and then tell the president the sort of conversations that the German chancellor was having. So there’s much more conflict at the level of the U.S. government about this problem and time passes. And so by the time that the U.S. privacy advocates are finally ready to go, Penny Pritzker, herself a billionaire, the president of the Harvard Corporation and the older sister of Illinois Governor J.B. Pritzker, himself a noted progressive politician, also a billionaire, so Penny Pritzker is going around on a peace offensive with all of the tech companies and trying to mend fences with them. And Penny Pritzker says, “We are absolutely not going to have this privacy law without doing some close consultation with affected interests.” And by affected interests, she of course meant the big tech companies.
So this proposal for a law, a bill, gets lacerated, turned into Swiss cheese before it ever goes to Congress. By the time it goes to Congress, neither privacy advocates nor tech companies like it. Privacy advocates, because it’s been completely weakened and turned into a self-regulation bill, U.S. tech companies, because they don’t want anything at all. And so that privacy regulation dies and we’ve never had serious privacy regulation in the United States since. So it’s a matter of timing and institutions.
Matt Grossmann: So Taeku, backlash politics can be good. You identify a good populism. What’s that?
Taeku Lee: Yeah, so populism at its core, of course, involves the defining us versus them, where society, the economy, politics is fundamentally seen as divided between a good, authentic us, the many, and then a them, the corrupt elite. And that way of viewing politics, of course, is neither inherently bad nor good. But when we think about good populism, in some ways it’s a negative definition that picks up off of what many people think of as regrettable about instances of populism that are breaking out all over the world today. So in its most visible forms, more often than not around the world today, populist movements and populist politicians tend to succeed by stoking voter’s kind of fears and anxieties and resentments against vulnerable minorities who then become scapegoated as being part of the corrupt elite. And in that sense, I think populism can be bad. Another sense in which populism can be bad is the populist politicians themselves who, for the most part, have no inherent loyalties to democratic norms or democratic institutions or even democracy as a system of government.
Democracy is not seen by most populist politicians and populist parties as a constraint to getting and keeping power. So in that sense, good populism we think of as being neither of these things. So as a negative definition, good populism would reject scapegoating of minority groups and reject the expedient instrumental attack on democratic norms and institutions. And it turns out that that way of thinking about good populism and bad populism in terms of being good for democracy or bad for democracy is not just idle speculation, but it’s something we actually see in some of our data, specifically in data from four countries, the U.S., Great Britain, France, and Germany, where we asked a serious battery of questions related to populism. And what we find are two distinct and separable dimensions of populist thinking: one that’s rooted in anger about political institutions that no longer work, media institutions that can’t be trusted. And the perception that everything is really run by a secretive and small group of elites that wield in order to power, which we call the political failure dimension of populism.
And then the other is rooted in a sense of deep unfairness of an economy that is rigged to favor the haves and a growing detachment of those haves from everybody else, which we call the economic unfairness dimension. And it turns out that these two dimensions of populism really function in quite different ways in terms of what other beliefs they are associated with. So people in the political failure dimension tend to be very nativists. They tend to be very racially resentful. They tend to be very antisemitic. And people who are on the economic unfairness dimension of populism, they’re actually much more focused on structural critiques of the economy. And it turns out that they’re actually far less nativist, they’re less racially resentful, and they’re less antisemitic.
So in that sense, we think of the economic unfairness dimension as capturing more of a potential of what good populism might look like. So to the extent that a politics of us versus then could spark genuine democratic debate and reform about regulatory capture, structural unfairness, other kinds of undemocratic outcomes of current governments, we see this economic unfairness dimension of populism as a kind of backlash politics that could actually be a good thing.
Matt Grossmann: Pepper, I know predictions are dangerous, but artificial intelligence certainly seems like an issue area that’s ripe for your kind of backlash politics. We’ve got AI company CEOs themselves saying they might cause mass unemployment, they might lead to killer viruses, all kinds of things might go wrong as a result of their product. What happens when they do?
Pepper Culpepper: Yeah, I think it’s pretty clear what’s going to happen when they do, and it’s just a question of how exactly that scandal will manifest itself or that big event will manifest itself given your warnings about prediction. So the great thing about AI for our case is it’s so important with its likely effects on the economy and the way that it represents big companies completely dictating what’s going on and government being completely aside from, except creating facilitating conditions for Sam Altman to do whatever he wants, from the actual sort of innovation in this area. And if you look at the Left and the Right, they don’t want to lay regulations on these companies because they think these guys are really going to solve some big, big problems. And if you look at their voters, voters on the Left and Voters on the right in majorities clearly want in the United States and elsewhere, more regulation.
So it’s true that people on the Left want a little more regulation than to people on the Right, but they both want AI regulated. They’re both concerned. Any way you slice the question, you have voters who really want something. So that’s a classic case of what we think of as latent opinion. That’s sitting back there. It’s being ignored by the politicians, the political leaders for now, because they’re not sure what to do about AI and they don’t want to miss out vis-a-vis China in the United States context, but that’s really just a red herring because they’re worried about the economy, which is so dependent on AI investment. So if you look at the character of investment … So Matt, I’m not even going to talk about the labor market effects because you’ve already alluded to them. They could be big and we don’t know exactly what they are, but there’s another thing going on where these companies are all investing, they’re cross-investing in each other.
And so NVIDIA is investing in everybody. So he’s investing in OpenAI. He’s investing in Anthropic. And when I say NVIDIA, I mean, I’m talking about Jensen Wong, the CEO of NVIDA when I’m personalizing it. He’s doing that so they can buy his chips because what are they doing? They’re pouring this money massively into the production of data centers. And so their capital expenditures have been huge, these companies, and it’s not clear that they can generate a return on all that capital investment. Now, the character of the coming scandal could be something to do with a failure where AI goes rogue in defense, or it could be we have a sudden financial crisis that’s a result of the market saying, “Hang on, I actually don’t think Sam Altman’s going to make any money from this as he says he’s going to. And we think therefore that OpenAI is a massively overvalued company and is in trouble.”
And so whether it’s a financial crisis or whether it’s sort of a failure case of AI safety, I think both of those are at least as likely, possibly more likely than the short-term labor market effects of AI to come out as a scandal and to really crystallize this latent anger that we’re seeing. And when that happens, you can bet you’re going to get big AI regulation. And that’s really going to be what determines the framework going forward of what AI regulation is likely to look like, at least in the United States and probably internationally as well.
Matt Grossmann: We’ve covered a lot. Anything we didn’t get to that you wanted to include or what do you want to tout about what’s next?
Taeku Lee: Pepper and I are both fans of JR Tolkien. So we have in mind three books out of this project. And I’ll let Pepper say more about what the next book is going to be about. I would just say that we have such a rich treasure trove of data that we’re not finished with the kind of narrower scholarly contributions through academic journals out of this project. So one of the things in the immediate horizon we’re working on is getting more of our workout out of these data.
Pepper Culpepper: Yeah. And just to sort of make a hint at what the book we call The Two Towers and what it might look like, we’re really interested on the one hand with the problem that I think is largely understood in the United States under the label of the Abundance Debate, which is why can’t governments do things anymore? And we think that’s a debate that Klein and Thompson have really put their finger on something that is behind a lot of the decline in trust in government. And we think they’re also incredibly naive about power in politics and not just about power in politics, but what Democratic publics want and what Democratic publics want is they want some restraint on this power in politics that Klein and Thompson don’t even mention exists. And so we’re trying to bring together how is it that governments can do things, can be allowed to do things and do things effectively for their citizens at the same time that we somehow restrain the various blockages, the calcification of power that’s happened in these economies.
And we focus in the first book very much on the largest corporations and billionaires. Our coming focus in the second book, we think is going to be a little broader because if we focused on the top 0.5% in the first book, I think the top 20% is going to come in for a little closer scrutiny in our second book because there’s a lot of rent seeking that goes on in our societies. And that’s part of why people are so unhappy about the deal that they’ve got right now from democracy. And we think … Taeku talked about in his address when he was president of the APSA, the challenge to epistemic institutions and the dilemma that populism poses. And we’re going to have to rethink in our epistemic institutions what it is that the universities are doing, that media is doing, such that the social contract between all these knowledge producing institutions and the societies that they supposedly serve is rebrought together as opposed to sort of falling apart such that nobody wants to defend the universities and nobody wants to defend the media.
And that’s just one part of the economy, but we think there’s a variety of questions like that that are about getting rid of rent-seeking and rebuilding social contracts such that states can work better and therefore democracy can work better.
Matt Grossmann: There’s a lot more to learn. The Science of Politics is available biweekly from the Niskanen Center, and I’m your host, Matt Grossman. If you like this discussion, here are the episodes I recommend checking out next: Why Scandals Don’t add up to Damaged Candidates? Why Rising Inequality Doesn’t Stimulate Political Action? Does Anyone Speak for the Poor in Congress? How to Change American’s Views of Inequality? And Has American Business Turned Left?
Thanks to Pepper Culpeper and Taeku Lee for joining me. Please check out Billionaire Backlash and then listen in next time.
