President-elect Donald Trump’s transition process has raised questions of personal financial interest and first family business connections that have no precedent in U.S. political history. His daughter Ivanka and son-in-law Jared Kushner have played a key role in the transition process. His sons Eric and Donald Jr. are also involved in the transition. Trump has resisted calls to follow the precedent of Vice President Richard B. Cheney, who put his investments in a blind trust, and stipulated instead that his children would manage his business interests during his presidency.
Most people have an intuition that business executives have the right to favor their children in their private business decisions. Most people also have the intuition that public office is different, and that public officials must not use their position to enrich themselves or their family members. This is why nearly every democratic government forbids elected officials using public office to support their private business interests.
What happens, though, when family business and public office mix at the highest levels of politics? The absence of precedent in the United States means that we must look abroad for answers. One country that provides useful, if distressing, parallels is Indonesia under former president Suharto.
Suharto was different from Trump in important ways
The differences between Suharto (who like many Indonesians used only one name) and Trump are many. Suharto rose to power on the heels of an abortive military coup; Trump won an election. Suharto was a general who oversaw the murder of at least half a million people; Trump is a property magnate and reality TV star. In looking at politics and business in Indonesia, the point is not to equate the two administrations or the two individuals, but instead to see what lessons can be drawn about what happens when family life and political business mix.
For the first half of his reign, Suharto built a political economy around natural resources, state-owned enterprises and pragmatic macroeconomic policymaking under the influence of technocrats in the planning and economic ministries. By the 1980s, however, the economic role of his immediate family was increasingly clear. This included his children, in particular daughter Tutut and son Tommy; his cousin Sudwikatmono; his half-brother Probosutedjo; and his son-in-law Prabowo Subianto. Tutut operated toll roads. Tommy held a monopoly on clove production and export. Sudwikatmono imported movies. Probosutedjo was into banking. Prabowo was a military officer while Suharto was in office, but his brother Hashim Djojohadikusumo was a prominent businessman.
Both relied closely on family members
Relatives are useful allies — in politics as in business — because their loyalty is beyond doubt. They owe their position to their familial connections and the wealth and power that they have amassed as a result. It is common for politicians to argue that their children are successful business leaders on their own, that they do not need to exploit their family connections, or that these connections support the public good. Although it is certainly possible that family businesses may leverage their initial advantages to create professional and apolitical enterprises, this tends to be rare, for two reasons.
First, connections are valuable, and the temptation to exploit these connections is difficult to resist. The reason most people think that family members ought not receive favors from relatives holding public office is that we expect such temptations to be irresistible.
Second, family connections attract sycophants and rent-seekers. Prabowo’s marriage to Suharto’s daughter Titiek is a perfect illustration. Late in Suharto’s time in office, Prabowo angled to become his successor by ingratiating himself to the aging president. Prabowo was widely reviled even among Indonesia’s political and military elites, who also owed their positions to Suharto. Naturally, Prabowo’s marriage did not last long after Suharto resigned. Even if family members want their businesses to become professional and apolitical, they find themselves surrounded by partners who do not.
Mixing family and politics can create big problems
Still, one may wonder whether the mixing of family, business, and presidential politics is such a big deal. Yes, it smacks of nepotism, but why would this matter for everyday citizens? The Indonesian case provides at least three lessons why family business and presidential politics is about much more than just nepotism and perceptions of fairness.
First, public funds get used in inefficient ways. Indonesians, like Americans, lament the state of their public infrastructure. They also worry about government spending. Under Suharto, toll concessions were primarily aimed at benefiting family members such as Tutut, who operated them rather than providing revenue back to the central government. In the words of one Indonesian in 1990, “it’s Tutut’s toll road.” Concessions that support private family interests may divert resources from the public.
Second, rulers become blind to their own problems and corruption. By the 1990s, observers of Indonesian politics were increasingly puzzled by Suharto’s willingness to shower favoritism on his rotten children. In a limited sense this may have been rational for an authoritarian leader like Suharto who, much like a mafia boss, could trust no one beyond his own family. However, over time it undermined his legitimacy and rule.
Perniciously, though, the people surrounding Suharto — his family and their hangers-on — probably insulated him from information that would have helped him understand how economically destructive this favoritism was. Vice President B.J. Habibie, a former engineer who earned plaudits for overseeing the country’s democratic transition in 1999, reportedly used to call Suharto “Super Genius Suharto.” We can only speculate about how the many lickspittles linked to Suharto’s children would have addressed him. When executives cannot see the consequences of their policy choices, the public welfare inevitably suffers.
Third, family favoritism sends terrible signals to international markets, in particular during times of economic uncertainty. In the fall of 1997, in the early months of what became a massive economic crisis, Indonesia’s regulators closed down a number of insolvent banks. Two of them happened to be owned by Suharto family members, who complained publicly. One of the closed banks was reopened immediately under a new name, and the other fought a protracted public legal battle with the Finance Ministry. What proved more damaging than these narrow instances of nepotism, though, was the signal these decisions sent to investors at home and abroad about the government’s priorities. If Suharto would risk the stability of the entire financial system to protect a small insolvent bank owned by his son, what else would he do? The government’s credibility never recovered.
What does this suggest about the Trump administration?
These stories from Suharto’s Indonesia show what can happen when politics, business and family mix. Should we expect the same from the Trump family? Just read this 1996 passage from the Independent describing the Suharto family:
The President’s children are among his closest advisers. One of the secrets of Suharto’s 30-year survival has been regularly shuffling his courtiers and banishing those who show signs of acquiring too much independent power. Suharto’s children, with their unmediated access to the presidential ear, are in enormous demand as intermediaries for local and foreign firms bidding for contracts.
Indonesians came to regret what would follow just two years later, as Suharto’s regime unraveled and the economy collapsed. The reason most people hold intuitions that private family interests ought not be mixed with public office is because private and public interests all too rarely coincide.