Donald Trump: A flop in business
by Ivan Light
Donald Trump is very wealthy. But wealth does not make him a successful business owner. In fact, Donald Trump’s record of wealth creation is mediocre.
At age 21, he received a gift of $1.1 million from his father. If we calculate compound interest on $1.1 million over 50 years (1966 to 2016) at four percent annual interest compounded quarterly, the result is $8.1 million.
When his father, Fred Trump, died in 1999, he left an estate of $300 million from which Mr. Trump received an estimated $40 million. When to the prior sum, we add the expected earnings at four percent per year compounded quarterly from $40 million invested over 16 years, we obtain $78.7 million. Adding these two sums, we get $86.8 million. This total represents the expected wealth Donald Trump would have enjoyed at age 69 simply by saving both his inheritances in an insured bank account.
In 2016 Forbes and Bloomberg separately estimated Mr. Trump’s net worth, reaching a combined average estimate of $3.3 billion. This is half of what he claimed, but taking into account Mr. Trump’s record of exaggeration and secretiveness, the business press credited lower numbers. Three billion dollars is 36.6 times greater than the $86.8 million he received as inheritances, and that multiple (36.6) may be taken as a measure of what Mr. Trump’s entire business career added to the wealth that he simply inherited. The bigger the multiple, the more Trump himself achieved relative to his inheritance. In 50 years of work, Donald Trump multiplied his inheritance 36.6 times. This feat is not so difficult to achieve.
To put Mr. Trump’s business achievement into perspective, consider the business career of a hypothetical immigrant entrepreneur, Jose Lopez.
Mr. Lopez received $1,000 from his parents at age 21, and on the strength of that gift opened a taco stand in East Los Angeles. Invested in the bank at four percent, Jose’s $1,000 would be worth $7,900 after 50 years. Suppose that after 50 years of work at age 70, Mr. Lopez’s aggregate net worth is $289,000 today, which is 36.6 times his $1,000 inheritance with interest compounded over 50 years. That number serves as a measure of his business success.
With $289,000 at age 70, Jose Lopez could put a down payment on a two bedroom house in Los Angeles but he could not buy it outright. As a business owner, Mr. Lopez earned a living for five decades and broke into the lower-middle class, for which he deserves appropriate credit. But he would not have been, most people would agree, spectacularly successful in business. Yet that is exactly how successful Donald Trump was in business relative to his inheritance.
Jose Lopez and Donald Trump were equally successful if we measure success by how many times they increased the wealth they were given. This is an ancient measure of independent achievement and, endorsed by Jesus (Matthew 25: 14-30), it even has biblical authority!
Donald Trump: Salesman
Although in actuality a mediocre real property developer whose six spectacular bankruptcies were public knowledge, Mr. Trump convinced millions of Americans that by mastering “the art of the deal” he had achieved spectacular success in real estate and vast wealth. His political campaign ran on that erroneous perception.
His 1987 autobiography, The Art of the Deal, brought Mr. Trump more in royalties than he earned in the next decade from construction. The Art of the Deal was followed by a succession of self-help business manuals, some of which are still for sale. On the strength of this public image, he opened Trump University in 2005, offering courses in how to become rich in real estate. Trump University closed in 2010 as a result of lawsuits brought by dissatisfied customers. Mr. Trump was highly successful as an author who touted his own success in real estate development; he was not successful as a real estate developer.
Mr. Trump’s biggest step forward in self-promotion came in 2004 when he was offered a reality television show, The Apprentice, in which he would play the role of boss evaluating the performance of subordinates and firing the less competent. The entertainment media offered him this role because he had already achieved public celebrity as a successful business tycoon without actually being one. The Apprentice ran for 14 seasons and, to be fair, Donald Trump’s skill as an actor, entertainer and salesman surprised even his sponsors. His 20 million viewers loved him and his program. Donald Trump earned an estimated $350 to $500 million from starring in The Apprentice, and in doing so, he posed weekly as a wildly successful real estate entrepreneur, persuading millions of viewers that he was just that.
During the political campaign, President Trump assured voters that his negotiating skill, honed in real estate development, would enable him to drive hard bargains with foreign countries and NATO allies, thus restoring the United States to storied greatness. The proof of that skill was his self-proclaimed business success, an exaggeration the television public had already swallowed.
Trump’s culminating achievement, the presidency, rested entirely upon widespread voter acceptance of his counter-factual claim to vast business success. That claim rested on his undisputable success as an author, salesman and television entertainer. It is not easy to persuade millions of people who have access to contrary evidence that one is successful in business when one has not been.
Jeff Bezos of Amazon really is the entrepreneurial mega star that Donald Trump claimed to be, but Jeff Bezos does not enjoy the celebrity name recognition that Trump built for himself through his publications and his television career. Trump was a successful author, yes; he was a successful television entertainer and salesman, yes. But he was not a successful property developer.
Donald Trump’s real success in business was in personal brand creation. He convinced many people around the world that he had been a hugely successful property developer when he had not. His ability to do that required salesmanship and relentless self-promotion.
Donald Trump is a terrific salesman who created and marketed a personal brand that is recognized worldwide. This was not easy to accomplish; no one can deny that skill. But he was not a successful entrepreneur.
Claremont resident Ivan Light is professor emeritus of sociology at the University of California, Los Angeles. He has written many books and articles dealing with entrepreneurship, especially immigrant entrepreneurship. These can be read for free at researchgate.com.