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27 October, 2021updated 03 Nov 2021 12:31

Why the assault on US democracy is a business issue

Efforts to undermine the integrity of US elections carry a heavy cost for businesses and could weaken investment in the country.

By Sebastian Shehadi

 width=Texas Democratic lawmakers, who fled their state to derail a Republican-led voting restrictions bill, speak outside the US Capitol in Washington, DC, on 6 August 2021. (Photo by MANDEL NGAN/AFP via Getty Images)

The ongoing erosion of US democracy, in particular electoral manipulation across key states, is a grave problem for the local, US and global economy. 

It may come as news to some that, since the election of US President Joe Biden in 2020, loyalists of former President Donald Trump have been immensely busy preparing for the 2022 midterm elections and the 2024 national one – albeit using tactics intended to undermine democracy and skew the result. 

The past ten months have witnessed a dizzying array of legal and political tussles between Democrats and Republicans over voting rights and electoral procedures, mainly at a state-level. Despite a concerted backlash, the Grand Old Party (GOP) has successfully implemented a slew of changes to election laws across a number of crucial swing states, alongside a campaign to gerrymander Congressional districts. A recent deep-dive from Investment Monitor takes a much closer look at this unravelling of US democracy, and how it could be used to overturn Democrat victories in upcoming elections. 

“The recent voter suppression laws enacted by the Georgia, Texas, Arizona and many other GOP majority state legislatures were designed to disenfranchise primarily voters of colour to ensure GOP success in state and federal elections,” Cheryl Koos, professor emerita of history at California State University, Los Angeles, tells Investment Monitor

“[The GOP] understands very keenly that demographics aren’t working in their favour [in key swing states such as Texas, Arizona, Georgia] and that these laws will make it more difficult for working-class voters of colour who lean or who vote solidly Democratic,” she adds. 

In Texas, for instance, voter suppression bills (HB 6 and SB 7) have altered voting hours, banned drive-through voting, and introduced ID requirements, in ways that clearly disadvantage working-class voters or other pro-Democrat cross sections of the population.

Meanwhile, very significant efforts have been made to turn electoral boards into instruments of GOP-led state legislatures, especially in Georgia and Arizona, where more moderate Republicans (who pushed back against Trump’s allegations of voter fraud in the 2020 election) have been replaced with more radical proponents. Should these efforts fully succeed, the legislatures will possess partisan control of vote counting for their states, thereby having the ability to overturn local voting results if they do not produce the desired outcome. 

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“These laws subvert the will of the people and are similar to ones used by so-called ‘illiberal democracies’ such as Hungary and other authoritarians to shape the electorate to keep them in power and thwart majorities,” says Koos. “The arguments that these politicians have used and continue to use – non-existent voter fraud and perpetuating Trump’s ‘Big Lie’ of the ‘stolen 2020 Presidential election’ – undermine the very foundations of US democracy.”

The price of hollowed out democracy

Beyond its immorality, the erosion of voter protection and rights in the US may also come with a stark financial cost. 

Analysis conducted by the Perryman Group, a Texas-based economic consultancy, contends that Texas’s economy will lose over $30bn by 2025 if voter suppression laws go into effect. 

The company’s argument is as follows: voting restrictions cost people time and money, thereby reducing their earnings and spending power. US election day is usually on Tuesday, meaning that lowest-paid jobs often offer the least flexibility for workers to take the day off. 

“The impracticality of election day voting for thousands of working-class Americans is obvious — and Republicans are working hard to cut back on alternative voting methods that allow folks to cast their ballots without taking time off from their jobs,” writes Democracy Docket, a news website focused on US voting rights and election litigation.

However, many, if not most, of those workers impacted by voter suppression will remain determined to reach the ballot box, meaning they will then need to take unpaid time off to vote. If this were to play out, the Perryman Group argues that the Texas economy alone would lose a whopping $14.7bn in gross product per year by 2025, due to the effects of lost wages and lower earnings incurred. In turn, consumer spending will decrease since those individuals will have less disposable income to put back into the economy. This domino effect could result in $1.5tn in economic losses over the next 25 years, the study predicts.  

With the increasing enactment of voter suppression measures nationwide, what are now early signals can become large reversals in the labour market gains generated by the Voting Rights Act. Carlos Fernando Avenancio-Leon, University of California San Diego

The Perryman Group’s research is strengthened by similar analysis conducted by Carlos Fernando Avenancio-Leon of the Rady School of Management at University of California San Diego, who argues that protecting the right to vote improves labour market outcomes, especially wages, for workers of colour. 

“My co-author, Abhay Aneja, and I show this is not only the direct consequence of voting creating the right conditions for more equitable hiring in the public sector,” says Avenancio-Leon. “The indirect consequences of voting on private sector labour practices can be even more determinant.” This is for two reasons. First, hiring in the public sector puts pressure on the private sector to increase wages in a way that narrows the black-white wage gap. Second, non-discrimination law is more likely to be enforced when the electoral power of minority constituencies is stronger. 

“This is why, following the passage of Shelby County v. Holder in 2013 – [a historic court case that undermined the Voting Rights Act of 1965] – we document early signals pointing toward erosion of equitability in public sector hiring. But with the increasing enactment of voter suppression measures nationwide, what are now early signals can become large reversals in the labour market gains generated by the Voting Rights Act.”

Voter suppression is not a good brand

As well as the aforementioned impact on Texan workers, the erosion of US voter rights may also result in companies (and workers) from out of state taking their business and talent elsewhere. 

“Whether through political pressure or the caution of public relations departments, companies are not eager to conduct business in states that are determined to suppress their voters,” writes Democracy Docket. “Corporations keen to avoid controversy are likely to move their investments and events from states with undemocratic voting laws.” 

The loss of this investment and talent could cost Texas $16.7bn annually by 2025, the Perryman Group estimates. The collateral damage from this is also hefty. If fewer companies move to Texas there will be less taxable revenue in the state, thereby impacting funding for schools, roads and other public investments. 

The loss of foreign or domestic talent, especially from people of colour, would be a loss for globalised companies in Texas and elsewhere. “It is pretty clear from the recent census data that we are becoming even more so a multicultural society in America,” says Seth Radwell, former CEO of The Proactiv Company and author of the recently published American Schism. “So whatever business that you are in, your customers are going to be increasingly diverse domestically and internationally.

“So if you want to understand the needs of customers that you are trying to address, the problems of these customers that you are trying to solve, demographically, you need to understand the different segments of the population that are out there. You need a multicultural workforce.” 

Little wonder, therefore, that May 2021 saw 175 Texan business leaders write an open letter to the Speaker of the Texas House, Dade Phelan, objecting to the voter adjustment bills (HB 6 and SB 7). The group wrote that the proposed laws will “inevitably damage our competitiveness in attracting businesses and workers to Houston. Especially as we aim to attract major conferences and sporting events, including the FIFA World Cup, voter suppression is a stain on our reputation that could cost our region millions of dollars.” 

For the first time since the Cold War, there is now concern about medium and long-term political stability of the US business environment. Jonathan Wood, Control Risks

That same month also saw more than 50 major companies and Chambers of Commerce in Texas – such as American Airlines, Microsoft, HP and Patagonia – write an open letter condemning the proposed legislation and advocating for a road that makes “democracy more accessible”.

In early September, the Republican-controlled Texas legislature successfully passed the aforementioned voter suppression bills, leading Texas businesses to seek greater support from the US Senate. “We hoped for a different outcome,” an American Airlines spokeswoman told the DealBook newsletter. Microsoft, Patagonia and Levi Strauss also said they were disappointed with the Texas bill’s passage, calling for Congress to pass voting rights legislation, according to the New York Times. 

Long-term investors hate regulatory instability

With bills like those in Texas being passed in many other Republican-controlled states, it is far from just the Texan business community that is worried. Indeed, business lobbies in Georgia have also been very vocal for the same reasons. 

“For the first time since the Cold War, there is now concern about medium and long-term political stability of the US business environment,” says Jonathan Wood, lead analyst for North America at global political risk consultancy Control Risks. “And what we are seeing in voter suppression acts and political gerrymandering, etc, is undermining that perception of the US as a very predictable and stable environment.”

This is also a problem from a policy and regulatory standpoint. If a foreign or domestic business is making a long-term investment in the US, with a life or ten or 20-plus years, they want to know that the next people in power will safeguard their property rights, contracts, and more generally, keep a stable regulatory environment that is not changing every time a new party takes office, says Wood. 

On a more practical note, these ongoing changes in electoral laws are also driving up protest activity across several states that could lead to large-scale unrest like that seen during the US Capitol attack of 6 January 2021. Consequently, more and more companies are concerned about the security implications of this loss of US democratic legitimacy, explains Wood. The question now is: can they really expect that upcoming elections will be peaceful? Do they need to start planning better security measures? 

“The reduction in the legitimacy of the US elections, and in the inherent legitimacy of the governments in power, means there is going to be greater volatility in the operating environment for business with each election cycle,” argues Wood. “The federal level is already manifesting the whiplash of policy reversals from administration to administration. All this makes it harder to conduct long-term investments, [not least] since CSR [corporate social responsibility] is driving decisions more and more.”

Companies are indeed coming under an ever increasing amount of pressure from their stakeholders, shareholders, suppliers and/or customers to uphold values and decisions that meet environmental, social and governance values. These pressures are of course one of the main reasons why companies in Texas and Georgia came out against the voter suppression bills, but such issues should not just be the concern of US businesses, but rather the global community too. 

“I certainly think that there are negative externalities that come from American political instability,” says Professor Richard L Hasen, co-director of the Fair Elections and Free Speech Center at the University of California, Irvine. “Trump’s support for authoritarians around the world, in and of itself, was problematic, but undermining American democracy from within the US has been able to accomplish what Vladimir Putin and other foreign adversaries to the US have been unable to accomplish, which is to undermine the legitimacy and trust in the American electoral process.”

Dr Ruth Ben-Ghiat, professor of history and Italian studies at New York University and an expert on authoritarianism, paints an even darker picture. For her, Texas and Arizona are “laboratories of an American version of electoral autocracy… Today’s autocrats don’t suppress elections but manipulate them. One of the biggest myths of authoritarianism is that it is ‘good for business’. Big Capital may prosper – especially oil, weapons, anything involved in infrastructure expansion – but anything below that becomes fair game [for being persecuted].” 

“Putin has jailed over 100,000 business people on trumped-up charges of tax evasion, financial irregularities, etc. Anyone with a profitable enterprise becomes a target, regardless of their political sentiments. This practice goes on in Hungary and Turkey too. Business people should know that this can happen anywhere, to anyone, if autocrats take power,” she adds. 

How can companies fight back?

As already discussed, businesses in Texas, Georgia and elsewhere have already taken a vocal stance against voter suppression – although often couched in rather vague language. 

“I think one of the reasons why the Georgia election law that passed a few months ago was not as bad as it could have been, [and the Texas bill, for that matter], is because major corporations in the US put pressure on Republican legislators not to completely water down the protections we have for free and fair elections,” says Hasen. 

One of the biggest myths of authoritarianism is that it is ‘good for business’. Big Capital may prosper – especially oil, weapons, anything involved in infrastructure expansion – but anything below that becomes fair game [for being persecuted]. Dr Ruth Ben-Ghiat, New York University

But companies can do much more. “You could see movements as you saw in response to transgender restrictions in North Carolina, which caused a massive boycott by even the NCAA and sports organisations, and others,” says Maximilian Hess, head of political risk at Hawthorn Advisors.

They can also boycott their financial contributions to the Republican Party. In the aftermath of the US Capitol attack, a swath of businesses indicated they would no longer make corporate tax contributions to those legislators who voted to sustain objections to the electoral college votes, says Hasen. 

“Since then, a number of corporations have gone back to making those contributions and have faced a backlash, such as the American subsidiary of Toyota, which then received a lot of public outcry,” adds Hasen. Toyota has now indicated it will stop donating to Republican election objectors

Eric Eve, CEO and founder of the Black-owned consulting company Ichor Strategies, writes that, beyond using social media and writing open letters to criticise voter suppression, US-based companies need to facilitate ongoing and productive conversations with local leaders, and provide employees with time to volunteer at polling sites or encourage them to get out and vote. 

While it is not always possible for multinational companies to vote with their feet, so to speak (for example, many oil companies simply have to be in Texas due to its resources and established ecosystem), some have the power to vocally pause or cancel their decision to enter, for instance, Texas or Georgia until those states better safeguard voters.

In this sense, Tesla’s recent decision in October to move its company headquarters to Texas from California is a setback. Not least since it came at a time when, on top of voter suppression laws, Texas passed a bill making abortion effectively illegal – a huge shock for many liberal workers and citizens in the state. 

This is testimony to the economic allure of the state – whose low taxes and light regulation has attracted a hoard of major companies to Austin and Houston – but also the failure of many major companies to weigh in on the erosion of liberal democracy in the US. 

Large investments are never apolitical. Although Tesla CEO Elon Musk has declined to comment on the aforementioned controversies, Texan Governor Greg Abbott said that Musk supported his state’s “social policies”. Indeed, in this context, Musk’s silence is a political statement in of itself. 

“The business community has huge influence,” says Ben-Ghiat. “Time and again that influence has been used to anti-democratic ends, with business communities falling for the ‘I alone can fix it’ or ‘drain the swamp’ promises of charismatic authoritarians. Then, as happened in the US and Brazil, the chaos and mismanagement they foster ends up hurting the economy and often causing massive waste of human and other resources.”

Part of the problem is that, due to the current hyperpolarisation of US politics, the mainstream perception within corporate America is that ongoing changes to voting rights in US states is very much a partisan one, says Hess. “Speaking personally, I do see it as something that is a democracy issue, but I don’t think it has had the same cut-in in how it is perceived in America more broadly, yet.”

This could change in the coming months, with more companies realising the dangers of remaining silent or actionless on this all-important topic. It is very much in their economic interest since, without any exaggeration, the future of US democracy is at stake.

Explore the current status of voting rights across the US in the interactive chart below, as well as which states are most likely to be the focus of any attempt to overturn the 2024 presidential election. Interactive by Josh Rayman.

To read more on Investment Monitor about the attempts to prevent the Democrats from winning the 2024 election, click here.

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