Elements of geoeconomics
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The historical method has been largely discredited since the Second World War. Part of the reason is that people have been learning less history since then, so the phenomenon becomes a self-fulfilling prophecy, a downward spiral. The disciplines of history and geography have been systematically neglected, in the USA and indeed in the West more generally, right up to university level.
If we knew more history, this would strengthen our ability to draw historical parallels, and thus to make more accurate predictions about future events. Instead it is often wrongly assumed that we know as much as there is to know about history. The field of economics suffers greatly as a consequence.
This neglect of history has led to another dangerous common assumption, namely that an analyst or a scholar can know what is going to happen simply by looking for the appropriate parallel among current events – that to be “well read in history” is not relevant, because the world has changed. A further dangerous assumption is that knowledge of geography has become less important because of Man’s conquest of his environment via development of new technology, such as Google Earth.
We may know where to find something, but that does not mean we know when to look for it, or even what to look for. It just means that if we are given the correct question then we can often find the right answer, much more quickly than before. Often, the difficult thing is to ask the right questions, and to spot possibilities and parallels when important topics emerge.
Yet another dangerous assumption is that, if the facts are clear, then decision-makers will know what to do with them. Thus the whole intelligence function is conceived as a question of subscribing to the right sources (journals, magazines, internet services): simply knowing where to look. This is also what is easiest to do technically, which helps explain why so many companies come to think this way. Furthermore, it is what is easiest to sell. But what we find will only make sense if we know what context to place our intelligence in and how to analyze it.
When we aim to study the world around us we need to start from the parameters that are given to us as constraints, as it were:the recorded social behaviour we have in common and which is specific to a particular time (history), and the space we move around in, where all social behaviour must find its place (geography); but also the sum of Man’s possible behaviours (literature), and the limits to the ways in which he can understand the world (philosophy).
When studying human social behaviour we also need to make some basic assumptions regarding human nature. The first is that all people have interests and follow them (rational choice theory). Another is that these interests are mostly (but not entirely) selfish. When interests collide, there is a problem of persuasion. When one interest prevails over another, we have a power relationship. Analyses of power without the moral dimension are what is understood by Realpolitik, which lies at the core of geopolitics.
Geopolitics then is the combined study of history, geography, and Realpolitik. The methodological strength of this study is that its building blocks are constructed from the things that are most certain in Man’s nature and in his environment.
That is what is likely ultimately to give us the best predictions. But our current social-science paradigm is defined very much in opposition to this methodology. For economists and political scientists, this has often devastating consequences, as when they are asked for their opinions on current affairs. Either they juggle a few economic variables, or they choose the safe path of common-sense notions.
Most economists, most of the time, just repeat what they have read – what people they trust have said. Independent, critical thinking is often lacking. All the expertise may be there, but no-one seems capable of “joining the dots”, making syntheses, because no-one has learned how to do it –since experts by definition have restricted frames of reference and are victims of their own narrow reading. We are all “specialists”, which often ultimately becomes an excuse for failing to take responsibility for the larger picture.
The doctrine of the Nareland
The idea that holding the Middle East – the Heartland, “the greatest natural fortress on earth”50– is the key to controlling the civilized world was once the core idea in geopolitical thinking. It was the central plank in the geopolitics of Sir Halford Mackinder, the basis of the Truman Doctrine, the Eisenhower Doctrine, and the Carter Doctrine. With Nicholas Spykman geopolitical attention shifted towards the Rimland: dominating the coastal areas of Eurasia.
With the shift from geopolitics to geoeconomics the focus is no longer the Heartland or the Rimland, or any coherent geographical region, but the set of all geographical locations containing economically-important natural resources, what we shall call the Nareland (Natural Resource Lands). This new logic of dispersed geographical locations marks the shift from geopolitics to geoeconomics. We find support for this theory today in US involvement in the Middle East and in China’s growing involvement in agricultural production and oil extraction on the African continent.
China’s mission here, as everywhere else in the developing world, is twofold: to show the poor people of the world that China is the new alternative to the Soviet Union, and to secure China’s supply of raw materials. It is a policy of “hearts and wallets”, and it has been a great success. Only two decades ago Africa was largely a matter of struggle between French and Anglo-American interests. That was a geopolitical logic. The outcome of that has been poverty, corruption, and political elitism. China has
now captured most of Africa economically, though not yet culturally. For Africans the most important feature of a product is price. Today there are few markets where Western companies are able to compete against their Chinese counterparts.
For the Chinese it makes sense to focus on Africa:
- they have the contacts, from the Communist era,
- competition elsewhere is tough,
- the Chinese do not jib at working with the natives under rough conditions.
Although oil represents China’s largest interest in Africa (Angola – a quarter of Angolan oil production goes to China, Equatorial Guinea, Nigeria, and Gabon), they are investing in other sectors also, and they are there to sell. In most these countries they take on projects that we in the West consider ourselves too good for, projects that are deemed too messy or not profitable enough. When we have gone to Africa it has too often been to play the political game, to line the pockets of corrupt leaders or to administer relief funds; not to build, not to create long-term wealth. It is an old irresponsible habit from the colonial period which continued through the Cold War.
No other resource is so highly prized today as oil, and nowhere can it be had more plentifully than in the Middle East. The more we extract and use, the greater the demand becomes for what is left. Based on our current consumption of oil and on estimates of remaining reserves, it is possible that every drop will have been consumed by 2040.
This has set the first new geoeconomic agenda for the world’s resources since the Cold War. Until we have a substitute form of energy, countries like the USA have demonstrated that they are willing to risk lives for access to other countries’ oil reserves. This strategy did not begin with President Bush junior: it goes back to Jimmy Carter’s administration and its dealings in the Persian Gulf. US involvement in the Middle East goes back to the last days of colonialism, when Arab leaders made it explicit that they were fed up with the British and were looking for a new partner.
The Americans seemed ideal: they did not want to own territory or meddle in local politics, but cared only for the profits. This mutual relationship worked fine until the 9-11 attack. Then it became clear that the Saudis, the USA’s closest partner, were giving house room to their greatest enemies, people influenced by Islamic extremism. Instead of declaring war on the extremists’ homeland,
the US attacked an old enemy from the Gulf War. Political pressure demanded they attack someone, but economic interest demanded it should not be Saudi Arabia. The dilemma was too great to resolve in any other way.
The “scramble for oil” is just one in a series of races taking place in the Nareland. The next competition may be for clean water. There is also a race on for the most precious remaining minerals, as in much of sub-Saharan Africa. It was President Clinton who built up the US capacity to intervene militarily in the Middle East, not Bush senior or Bush junior. The 9-11 episode simply gave the Bush administration an excuse to speed up the process by using more aggressive military tactics. For the first time in decades the USA, Russia, and China are now openly supporting military operations for control of the world’s oil resources.
In trying to control the world’s oil the US is attempting what Alexander the Great succeeded in doing, and Napoleon and Hitler failed to achieve: to control the Middle East. For Alexander the motive was immortality, for Hitler it was ideology, for Napoleon and Bush it was greed. Obama’s perspective is more pragmatic. He seems convinced that it is the only option left for the survival of the American superpower. Napoleon justified himself by saying that he was bringing the French Revolution to other countries, Bush by saying that he was freeing the Iraqis from a tyrant. Obama wants us to believe he is building world democracy. All are, of course, excuses. Each story is adapted to its own time, to what people are prepared to believe. The interests have not changed.
Obama’s job is to save the American economy, which means protecting the interests of the rich. He has not set out to remodel the country, because that is not a realistic project (but then nor, it now seems, is saving the economy). The USA has become a corporate state, run directly in the interest of its multinationals, only indirectly for its citizens.
Evidence for this is seen in everything from the American approach to health care to its system of lobbying, overriding any possibility of a democratic process. (I try hard to explain to my students the difference between corruption and lobbying, but what is the difference really? One activity is illegal and the other legal, but what difference is there in substance?) Obama may want to change the system, but the interests supporting it are too overwhelming and the president is tied hand and foot.
He is expected to create jobs and to make the economy flourish. Any deviation from that agenda will be treated as a failure, by the voters not least. The lesson learned by the Republican Party may be that, next time, they need to find a candidate everyone can like. They are having great difficulty with this in the run-up to the 2012 presidential election.
They can hardly afford to use any of their political insiders, if they want to win. So it will have to be an outsider who is a communicator, a figure such as Ronald Reagan once was.
Only a cool-headed analysis of interests can reveal a State’s power structure and policy motives. We must see through the State’s rhetoric about a good society and good deeds. Individuals find the opportunity to do good, but this seldom applies to States. Good deeds areal ways encouraged, but their importance and consequences for a nation are systematically exaggerated. Even good deeds are mostly driven by selfish interests, such as when the super-rich engage in philanthropy.
These men are still making investments, only not in machinery or new businesses, but in their own future reputations. Most of them have made their fortunes by being unusually ruthless, or creating monopolies and cartels of one form or another. Later, when they have all the material possessions they could possibly want, everything that money can buy, they start to think about what people will say about them after they are gone. They are still investing, but in their own immortality.
Of course there are exceptions, but these exceptions do not disprove the way the world works in general. It is the same with nation states. They do good too, but that is at best a secondary phenomenon. More than anything else it is important to appear to be doing good, to occupy the moral high ground. The “international community” stands for that high ground among nations, founded on the values defined by the victors of the Second World War. Given that those are the accepted values, the English-speaking countries and their allies can win any political discussion. That is why countries
like Japan, Germany, Russia, India, and now China often prefer to remain outside international political discussions, to position themselves as alternatives. At another level it is the reason for the creation of the Goethe Institute in Germany and the Confucius Institute in China: to show the world that there are other values, other ways of thinking about society.
The organizations themselves, the State and the multinational enterprise, will continue to claim positive consequences for their activities. It makes good publicity, and good publicity means more public support and increased profits. We are at a point where the actions of organizations look moral because morals are good for business (window dressing). An immoral image has the opposite consequence: it creates negative publicity and damages the reputation of the organization, whether that is a nation state, such as Zimbabwe or North Korea, or a private-sector company like the oil companies, which are now busy telling us how much they care about the environment and people in general (“don’t mention the oil”).
Attempts will always be made to conceal the true interests and to appear to be doing good. What has changed in today’s world is that the truth emerges more often than once did – not through the traditional mass media, which have always been controlled by special interests and have therefore largely been self-censored, but through private individuals using new technology (primarily the Internet, easily-portable tape recorders, and miniature web cams).
Thus the logic of doing bad things or being a bad organization has become more transparent. This in turn has expanded the public relations, public manipulation, and corporate-identity consulting industries, which are increasingly being operated and administered via the Internet, often nowadays engaging directly with individual voters and consumers.
The aim of these PR efforts is to reverse people’s perception of reality. Just think about it for a second: a PR company has no obligation towards the truth or the common good, but often finds itself in opposition to it. It is a perception-manipulating mechanism, the true modern equivalent of the ancient Sophists. We have become so duped by these activities that we have come to accept their existence as normal and acceptable.
Manipulation has become an easier task in some respects and a more difficult one in others. It has become easier because large national and international networks reach ever larger parts of the world’s population (CNN, ABC, BBC and now CCTV, expanding faster than any network in history), but more difficult because new technology has given rise to new and alternative ways of communicating (Internet, e mail, mobile phones, etc.).
It has become more difficult also because the evolution of modern society, which is giving individuals more time off work, has been leading to increased concern for and interest in moral issues. Thus all organizations today, in both public and private sectors, are forced to take into account the moral consequences of their decisions and actions (child labour, labour laws, environmental pollution). A chief executive or manager never knows when he may be telephoned by a journalist to answer questions about decisions he has made; and if he fails to answer, whatever the excuse, he will be guilty in the public eye. If he takes the call, it will
be the journalist choosing the questions, and the interview will be edited to support the journalist’s side of the story and leave the interviewee looking like a fool or at best putting him in the wrong. That is easy enough to do if you have shot plenty of film footage or taken numerous photos. The outcome is all about the selection of material to present.
In reality these fights are never fair, to either side. Consequently both private- and public-sector organizations are putting increasing effort into training to handle various events and mishaps, as an aspect of their “external relations”. From an instrumental point of view we could see this as a form of moral risk. As such it can be handled (modelled and calculated) like other kinds of risk. Companies nowadays systematically resolve similar problems through humble apologies (giving us the expression “to do a puddle”), denial, or diversification.51All communication with the company will be handled by an “information representative” or “communications representative”(since by now “PR” has become a dirty word).
To sum up: for a long time the world was locked into a struggle between political ideologies. The forces of geopolitical interests were checked by interests which overrode them: the winning of minds, the nuclear threat, and the survival of humanity. The “end of history” has, at least in this first phase, come to mean the return of geopolitical thinking, in its new shape as geoeconomics. If we think that we have seen hot competition between nation states in the past, that is nothing compared to what we can expect from the multinationals in the 21st century.
Normative intelligence analysis
This book is not about geopolitics in its own right, but as it relates to the field of economics. The book aims to tie together a number of disparate theoretical threads: the frequent lack of relevance in much of the established economics literature, the growing but fragmented body of intelligence studies (pursued in different ways in different countries), and the shift from geopolitics to geoeconomics with the onset of what we know as globalization.
We shall mainly be concerned here with macro factors in our environment. That is rather different from the field of competitive intelligence, where the focus is mainly on micro factors. We are concerned first of all here with those macro factors about which we cannot be sure. This group of problems represents the largest challenge to the study from either a practical or a methodological perspective. We call this area, where guessing is often required, normative intelligence analysis.
How do we deal with behaviour that we cannot be certain about, which seems to demand some form or degree of speculation or guessing on our part? Should we ignore the problem or defer it, as we do with similar problems in the social sciences when we encounter questions that cannot be examined empirically?
This would mean having to discard a large number of problems. In intelligence studies it is necessary to live with speculations, ultimately for the simple reason that they are used (by others and by ourselves) in making real decisions, and in some cases also because we want to mesh our interests with existing theories. This is not a problem that we shall ever overcome: information asymmetry is the natural state of the world, even today, when we have better and more information than ever before. Since we are forced to use normative intelligence, we know that some decisions will be appallingly wrong and there is little we can do about that.
We saw the consequences of poor intelligence when the USA invaded Iraq on the pretext that someone thought, or said they thought, that Saddam Hussein possessed weapons of mass destruction. That was probably in part a pretext, but it probably also played a role as a genuine motive, at least further down the chain of command. It could also be that it was a pure fabrication. But we shall assume here that it was not, that the idea was more like an error of rationality which followed from poor intelligence.
By the time the intelligence was revealed as erroneous, among the higher military command and elsewhere, it had metamorphosed into something else: a new idea, a useful excuse for going to war. It also allowed the Bush administration to blame others, in this case the CIA, for its own subsequent actions. It is too simplistic to explain this as a mistake. It can instead be seen as a more or less rational decision, like any other important decision made in a large organization where facts are one thing but interests another. Decisions are often not actually made, but rather emerge over time, as the balance of all arguments and total press and television coverage comes to tip to one side. We must seek to model our analysis of the world to reflect more complex social situations.
The reality is that we make decisions using less than fully rational analyses of incomplete information, based on generalizations and a particular set of personal and cultural values. To complicate the picture even further, the real motives for many decisions made in the field of international politics are known only to a few people. For instance, continuing with the example above, few people within the CIA know any details about their “black operations” (assassinations), only that they are a reality.
Quite often the head of the CIA has no idea what the President himself wants to do. This is said to have been so during Bill Clinton’s presidency and under Donald Rumsfeld (George W. Bush). Clinton made it clear that he wanted no contact with the CIA, and Rumsfeld ignored the Agency, preferring to rely on military intelligence from the Pentagon.
The Bush administration supposedly requested no strategic intelligence on Iraq from the CIA, even though plenty of such analysis existed. If we assume a perfect world, where our adversaries have symmetric information, idealistic motives, and high ideals, we will be wrong in our predictions about world events. To be realistic we must assume not only self-interest and sharp conflicts of interest between organizations which appear to be co-operating, but we must also assume that a number of different subjective models of reality and erroneous conclusions are all present at the same time, all taken into consideration and leading to actual decisions.
The analytic skills which this situation demands of us are closer to those associated with literature students rather than students of political science. In contrast with the methodology of most social sciences, intelligence professionals have come to accept that they have to live with wide margins of error, in a working environment that resembles a room of revolving mirrors. The point is that this is a more realistic world view on which to base a study of human behaviour. It is also the reason why this book hasa clear intelligence perspective.
We are obliged to try to analyse the social complexity of the world we inhabit as best we can, so that at least we can know why we cannot know, but, more important, we can know how and in what respects we might improve our knowledge of human behaviour, ultimately in order to make better predictions. This all requires a more elaborated social-science methodology than has been presented so far.
A victory for historical materialism
It is not accurate to see the end of the Cold War as a victory for laissez-faire capitalism or for Western democracy. As shown above a market economy based on a private financial sector has just rendered the whole system close to bankrupt. It is not a success of Western mass democracy either. That system has rendered a number of Western States close to bankruptcy as well, developing a large welfare state that is no longer sustainable.
It is instead, and first of all, a victory of Materialism by which is here meant that increased wealth is the direct result of production and trade. Instead of production and trade the Western world has more or less voluntarily destroyed its factories and opted for an economy built on services and the service economy, more in line with the growing financial sector.
This development has been encouraged by most economists. This has probably been our biggest strategic mistake as a professional group. Services are important for the economy, but should not be allowed to dominate. Those countries in the west which have held up a certain production capability are also those who have not failed, first of all Germany, Sweden and Switzerland.
Marx’s historical materialism meant that change and improvement of society was brought forward by productive forces, such as tools, instruments, land, raw material, human knowledge and technology. Another way to explain this process of progress is to say that advances are made through man’s work on nature. This seems to confirm the route chosen by modern day China. As such China can rightly argue that they are following a form of Marxism.
Others have argued that it is difficult to see what is “historical” in Marx’s materialism. Unfortunately the term materialism and economic materialism has come to mean the excessive desire to consume and acquire material goods in most peoples’ minds. In this way the reference to “the material” alone has been deprived of its potential explanatory significance. For that reason we shall usethe term “historical materialism” and “economic materialism” to describe the essence of the strategy that makes nations competitive today.
Unfortunately, as has become apparent over the last twenty years, it might also result in irreparable damage to the environment and hence lead to the end of the human race, but this is not inevitable. We sometimes forget that our species has proved before that it can rise to a challenge. It may do so again.
In this age of economic materialism, when trade has become truly global, we see the nation state adapting to the perspective of the multinational enterprise, for it is now the multinational enterprise, not the nation state, which is taking on the role of locomotive of the future. To complicate things, this success of the organizational form exemplified by multinational enterprises and larger companies tells us nothing about who are best suited to run or own multinationals. The answer could well be the nation state. The success of this genre of organization derives from its meritocratic structure, with a professional management, a board, and clear incentives. It need not be a private-sector company.
Some see this development as irreversible. Others see it as a political choice for the present moment, a natural result of the time we are living in and the political, economic, and social conditions from which our current political trajectory has emerged. Whether the phenomenon is temporary or more permanent, it has inaugurated a new era, that of geoeconomics.
The era of geoeconomics does not mean that all social processes are being steered by economic concerns, but many of them are. Moreover it means that economics and corporate interests have the upper hand. This contrasts starkly with the Cold War period, when the focus was on politics and political ideologies. Earlier still, economics and the free market had the upper hand at the beginning of the twentieth century, until the 1929 crash; but in those days economic relationships were more national than global, and regulatory bodies were weak.
The year 1929 marked the first major economic downturn of modern times; we are now living through the second, again partly caused by laissez-faire politics, this time beginning in the 1980s. However, so far at least, the crisis has not been bad enough to change our minds about the direction of politics at large, or even bad enough to make us press for tougher financial laws and regulations to govern the world’s financial markets more effectively.
The main reason for that is that we still think the crisis will pass; but also, the owners of the world’s financial system, who are largely banks and financial institutions in the USA and Britain, fear that tampering with existing rules will weaken their position. Legal initiatives have mostly been a national concern, as we have seen in Germany and France. It will take much greater disorder before we start seriously rethinking the entire economic system, or questioning the concept of progress through material production.
It is possible that the endless struggle to achieve ever-higher standards of living will change once Man sees the consequences of increased materialism, the damage it involves to everyone’s livelihood and to living conditions on this planet. That will probably depend just on how bad things get. Ironically, that may also be when it is too late.
The double irony of this is that we could probably more easily change direction under a system of authoritarian rule. One example pointing that way comes from recent statistics showing that China is planting more trees than any other nation in the world to counterbalance the loss of clean air caused by Brazil and sub-Saharan African countries, most of which are democracies.
Private initiatives are on the world agenda. At the same time it is premature to assume that the nation state will be entirely replaced by private initiatives. We are not experiencing the death of the nation state. Some day we may actually experience its renaissance, but not yet, and probably not for another few generations.
The prevailing agenda: productivity and efficiency
There are no signs that our societies are altering their general plan, which is to strive to become ever more productive and to achieve ever greater efficiencies. On the contrary, we seem to flow with Nature, so to speak, following the clearest plan that Nature has set out for the evolution of our species and our societies. Thus Homo economicus as a player, and economics as a discipline, promise to retain their relevance for the foreseeable future. Is this a desirable prospect for mankind? Yes and no.
We may illustrate this idea with an analogy. Few creatures are known to be as productive and efficient as the ant. However, it is unlikely that mankind will ever become as hard-working as this tiny creature, nor is it likely that mostly of us will ever try. Homo economicus does not work for the sake of working or for the sake of building something in collaboration with others, but for the life that work offers: material wealth, ease, and happiness.
Contributions to the common good are in the main subsidiary effects. Homo economicus cannot create great wealth without co-operating with others, without sharing the wealth; and society cannot do without him, as Joseph Schumpeter was the first to recognize when he described the importance of the entrepreneur. Instead, public management becomes a strategy by which economic agents have to be tricked into doing good.
We do not really want to live the life of the ant. Man enjoys his inefficiencies, his irrational decisions, dreams, and mistakes; we appreciate them as a vital part of what it means to be human. In particular, and unlike the ant, we want to retain the right to make fun of it all. (Thus humour can be seen not only as an essential component of what it means to be truly human, but also as a self-deception mechanism by which Man is induced to accept his destiny, and without which life would be unbearable).
On the other hand we seem doomed to continue to work to become ever more productive and efficient, because we are constantly being seduced into imposing ever higher demands on ourselves in terms of improving our standard of living. Once we have the house, we want the sailing boat, then the sports car, and so on. Our wants never seem to be exhausted (even though our needs remain fairly simple). And between these two ideals, that of following our wants or just our needs, lies our inconsistent productive path: on one side Man, on the other machine. This struggle or dilemma opens up an ocean of corresponding emotions to be delved into by politicians, artists, and philosophers. Just reflecting on the richness of this dichotomy makes you feel alive.
The analogy with the life of the ant is most suitable for private-sector employees. In most of the public sector, work is confined to fixed hours. At four o’clock the civil servant goes home and forgets all about work. He does not live for his work, but at bests fulfills his obligations conscientiously. At home he will have his hobbies, meet up with friends, and spend time with his family – in other words, do many of the things that Homo economicus hopes to be able to do one day, once he has accumulated enough money, only of course he will do them in bigger and better ways. Meanwhile restlessness becomes his habit and nature.
Both Homo economicus and the civil servant, whom we can call Homo bureaucraticus, are aware of the limits to their performance. We can only do so much, the day only has so many hours. Since we do not want to spend all our time working, the solution has been, on the one hand, to have people work faster, and on the other hand to apply new technologies and new management theories to make our existing time more productive.
Then there is the blessing of cumulative knowledge. We learn faster and more easily what others slowly learned before us. Thus we can continually make new contributions, achieve real progress. As a species we have come a long way, from listening to our grandparents’ experience round the fireside, to searching for our own information on the Internet. It represents a gigantic leap forward in the evolution of knowledge.
The search for greater productivity and efficiency continues to drive our development, ideally without giving us too many health problems. We are already performing at the limit of what we can do without incurring severe symptoms of mental stress, stemming primarily from the pressure put on us to keep up with the rest, that is, with the competition, but also from our lack of clearly defined personal and moral ideals. Genetically we seem to be suited more to physical stress. After all, it is only a few generations since we were ploughing the fields with an ox or a horse. Then, we believed strongly in higher goals and aims, so work was more bearable.
Today many of us have no clear purpose beyond our own self-interest. Our bodies consequently take more time to adjust to new work styles and new mental stresses. So-called multitasking is itself a dead end; people who do many things at once are seldom able to do any one thing well. Instead we risk becoming more phlegmatic, shallower. The genetic mutation needed to help us deal with this pressure might take thousands of years to arise, if it ever does.
A more worrying problem is what will happen to the planet if growing numbers of individuals continue to strive to enrich themselves through the production of goods. We are 6.5 billion people on the planet now, up from only 2.5 billion in 1950. In the long run we shall need a more sustainable way of providing a good life for all. This is an idea which by now most political parties have caught up with, but few of them have good answers, primarily because we are locked into a system of continuous growth.
The problem is that sustainability implies drastically limiting consumption, yet our values are based predominantly on material growth. If nothing changes, the history of our species promises to be quite short, relative to other species which have existed in the past but are now extinct. If so, Nature may come to regard the rational-decision variety of animal brain as a failed project. Again, we need to have faith in Man’s ability to rise to a challenge.
That implies a limited duration for the age of geoeconomics. At the same time we have to compete in the world as it exists, if for no other reason than to have a say in how we are governed. In this world there are no more powerful engines for the competitive advantage of nations than multinational enterprises. These multinationals do not have evil plans, they are not out to hurt the planet, and they almost automatically adapt to our needs and demands. So it is our demands that we must change.
The organization as a vehicle for competition
A number of factors have changed since we entered the era of globalization.56 First, we have seen an increase in the free flow of labour and in the quantities of goods and services traded across borders. This has led to an increase in the size and power of the private-sector organization, to the point where it has now outgrown many nation states.
The two organizational forms still depend upon each other, but the change is already a reality, in some countries more than in others. To understand society we need to study how our organizations function as organisms. Our dominant social-science methodologies focus on individual choice and the individual’s perspective. This frequently leads us to draw false conclusions, for instance about unemployment and social injustice.
Has it become harder to find work today than it used to be? Has life become less tolerable? Perhaps so, if we make comparisons with certain special periods, such as times of war or crisis, or times of economic recession, like the decades following the Second World War when we needed to rebuild society, and also like today. But life has not become harder from a long-term perspective; certainly not since Adam Smith wrote TheWealth of Nations.
Child labour and slavery did not raise many eyebrows at that time, nor did the unfavourable position of women, at work and at home. Today we take many of these changes for granted. That is partly because our demands on society have changed so rapidly, in step with our standard of living.
It is true that many individuals and populations in the southern hemisphere are less well off today than they were fifty years ago. There are more people suffering, because the world population keeps growing exponentially. But more people are also better off. Putting it differently, at no other time in the history of mankind have more people lived a better life than today. Life has now become better in Africa, South America, and Asia, just like it did in Europe and Northern America.
For most of us living in the West or in Asia, the new competitiveness primarily affects the organization, not the individual. In these regions it is companies that are “dying”, not people, not nowadays. The distinction is important. Globalization and free-trade initiatives have broken up many of the world’s monopolies.
Private-sector companies have replaced economic initiatives undertaken by nation states. This has been to everyone’s advantage. For one thing, we no longer have to invade a country in order to profit from its resources, establishing colonies and depriving nations of self-rule. Trade has to a large degree replaced physical violence, raids and wars, as a means of creating wealth. That does not mean that the problem of exploitation has disappeared, nor that we have ceased engaging in wars, but the outcome of our conflicts is often – not always – less violent than in the past.
What we are seeing is not so much individual competition, as organizational competition. This is not the same thing: as individuals we can change jobs, or even countries if we need to. Most people who are laid off are able to find new jobs if they are willing to move, so long as the economy is not in crisis. Thus losing your job is not as serious as it used to be only a generation ago because we can find new jobs.
The consequences are not so severe as they used to be, either, as we have developed a welfare system which will help unemployed until they find a new job. We have become more flexible, both more able and willing to change jobs. Now with the Internet we can work from almost anywhere, even on the move.
This does not mean that we can avoid future financial crises followed by mass unemployment, but it does mean that we know such things will be temporary and we normally find a way out of the crisis sooner.
We are turning into a society where it is normal to have many different employers over a lifetime, while our fathers and grandfathers often had only one and it was considered disgraceful to change jobs. We may also have several jobs simultaneously, and work flexible hours. Another point has to do with the efficiency with which the State now allows firms to start and to cease their activities, voluntarily or through bankruptcy. That is, the State’s organizational structure for handling companies’ ups and downs has become more effective.
Companies are not only selling internationally, they are also producing their goods overseas, finding themselves forced to do so because their competitors are doing it or threatening to do it. If firms do not move their production abroad their costs will increase and they will lose customers. This happens not because the firms want it, but because we as consumers are not willing to pay a higher price than we have to. It explains the success of companies like Walmart, IKEA, and Dell.
Even though Walmart faces considerable criticism for its treatment of its employees and for its hard-nosed business strategies in both China and the USA, it continues to gain market share. The whole business of ecological production is facing the same dilemma; so is the petroleum industry. It is the consumer who chooses to move from gas to diesel, or to ethanol, or even better to electricity – not the producing companies. Companies do not have malevolent intentions, they simply adapt to consumers’ choices.
That does not mean there are no moral dilemmas: there certainly are. There are and have been many firms which have known that their products are bad for health or for the environment, and yet have not ceased production. For example, car manufacturers who have decades of investment in fossil-fuel technology behind them and have built up a competitive advantage in their industry do not want to change unless they have to. They want to profit from the investments they have made in the old technology for as long as possible; but, the day consumers change their mind, that ceases to be an option.
The problem, rather, lies with human behaviour. Consumers see ecological issues as important, but (so far at least) they have not been willing to pay higher prices or reduce consumption or their standard of living. The same consumers complain that farmers are mistreating pigs, but they continue to buy the same meat in the same supermarket only a week or two after the scandal has broken.
Consumers are not always willing to pay more for their bacon in order to ensure that animals have enjoyed a good (or better) life. Instead we demand that others, firms or nations, make the changes for us. Thus, we would like China to pollute less. The Chinese reply, “Yes, we will do that, once we have the same living standard as you. We should not have to suffer or be hampered in our development because you have polluted the earth.”
Companies like H&M and Nike are typical global companies in the sense that they produce their goods where they can do so most cheaply. In consequence their business ideas are often more about logistics than about product lines or production techniques. They represent the beginning of phase one in globalization, so to speak. Globalization progresses when smaller companies and individuals are able to do the same thing, exploiting the same logistic principles through e.g. trading via Internet auctions, using sites like Alibaba and eBay.
This is the second phase of globalization, involving micro-multinationals. Larger companies still get the best prices, but globalization means that bigger is not necessarily better. Smaller companies are often more flexible, faster, and quicker to spot and exploit windows of opportunity. If the multinationals are still growing more numerous and more powerful, that is because sizeable capital is still required to engage in large-scale business, and smaller companies quickly grow larger or are acquired by larger companies. It is also because multinationals are coming to realize that they need to organize themselves as sets of smaller independent units in order to remain competitive, so that they can operate like micro-multinationals.
Whether through the use of force or by engaging in commerce, the aim of the individual has always been the same: the production of wealth, primarily personal wealth. Kings and noblemen have always been concerned with questions of wealth. Nowadays this opportunity to build great wealth is open to ordinary people.
Anyone with the means, the ruthlessness, and/or the entrepreneurial spirit needed can become rich in just a short time, as we saw happening in Russia after its privatization schemes were introduced, initiated by Mikhail Gorbachev and implemented by Boris Yeltsin. With globalization it no longer takes generations to become rich, sometimes just a few years are enough (consider Microsoft, Dell, Google, Facebook and Skype). The reason is that globalization yields economies of scale much faster than was possible in the past.
The centre stage has been taken over by the private-sector organization, the corporation. This means that power has been transferred from the public to the private sphere. It means that the nation state is ceding its power to individuals – less in some countries and more in others, for instance less in Sweden than in the USA; but the trend is clear, and it is global. The super-rich today constitute a new social class which has become largely independent of the States where they are citizens.
This trend has been strong in certain countries, such as Russia and the former Soviet bloc, and in certain businesses (those where money is earned internationally without dependence on large-scale production facilities, e.g. the work of pop stars, athletes, and entrepreneurs). These individuals have to a considerable extent been encouraged to operate as they do by their own societies, in school and at university. Our modern democracies, supported by our new-style social sciences, have encouraged people to dispense with the values of their forefathers and with their national and cultural identities, to set themselves free from all attachments.
People have been turned into individualists taught to amuse themselves, for whom responsibility is a lesser consideration. We have produced generations which have avoided becoming passionate about political or philosophical ideas, so that any form of social or collective thinking has been eradicated. These generations have been taught indirectly that they are only really allowed to show actual enthusiasm for things that change nothing, like cheering at a football match.
These are values that go directly against the values dominant today in Asia, and especially in China, even though things have been deteriorating here too, especially along the more economically developed areas along the coastline in the east, far less in the western parts. Ethics is at the heart of Confucianism, as it is of Christianity.
(Of course, the fact that people are members of these religions or faiths is no guarantee of unselfish actions.)
The shift towards a corporate-state system is a change with tremendous consequences, both positive and negative. It means less power for the general public, but it also means that wealth can be produced faster and in all corners of the world. In some cases it takes the form of exploitation, in others that of free trade. Much existing literature sees this as an either/or issue. So for instance many economists refuse to notice the exploitation of workers and land, and many sociologists refuse to notice the higher standard of living given to people by new uses of capital. The reality is an imperfect world, with some good and some bad.
It is a fact that more and more wealth is being placed in fewer hands. The reason is that our economic system is working more efficiently than ever; money yields interest, and that interest in turn is used to make new investments which can easily be diversified, globally, just by pressing a few buttons on a PC.
The PC itself is becoming ever easier to carry around and connect. If you cannot do the economic, technical, and legal stuff yourself you can always hire someone else to do it for you. Thus about two-thirds of all American fortunes are inherited, and the number of millionaires is increasing. Some lose their money when there is a downturn on the stock exchanges, but there are only a few who manage to squander their entire fortune (often deceived by their advisers, as in the case of the unfortunate Mike Tyson).
If the number of billionaires has been drastically reduced in Russia and other new economies during the current financial crisis, that is largely because they became accustomed to running excessively high risks in the financial markets. Others, who invested in real estate (globally), manufacturing, or raw materials have been more fortunate.
A company is not immoral, but amoral. It operates as a two-edged sword. On one hand it creates wealth, primarily for its owners, but also for its employees, allowing them to achieve an increased standard of living. On the other hand the organization exploits workers in other countries, by making them accept working conditions that are deemed unacceptable in its home country.
The company has no human feelings of solidarity: it does not care about people if their performance does not affect the economic performance of the company. On the other hand it does not possess some evil plan to harm people, either. Considered as a legal “person” it is rational, and its actions are highly predictable.
Why, then, do we decide to make our living by joining a company? An individual knows he cannot achieve his goals single-handedly; his time and effort are insufficient. Instead he needs others to work for him, persuading them to work towards the same goals. This is done by offering salaries, recruiting people and placing them in the hierarchical structure we call a company, where each individual is paid proportionately to his or her contribution to the owner’s wealthcreation.
These wealth-building organizations are given legitimacy by national laws and international trade practices. This economic and political system – which we used to call “capitalism”, but which many now prefer to call “the free-market economy” “Capitalism” reflects the machinery of our societies, dominated by the banking and financial sector, better than “free-market economy”, but after the failure of the Communist experiment the former term is difficult to reclaim, at least for the time being. The German economist Karl Marx’s major work Das Kapital provides an excellent historical analysis for unprejudiced minds.
Unfortunately it was a little political pamphlet he wrote together with Friedrich Engels, The Communist Manifesto, for which the postwar intellectual establishment have chosen to remember him. The term “free market” assumes free and fair competition. This is a questionable assumption today, when we see how States and governments are helping “their own companies” (another term which is causing some serious problems, since ownership today is seldom limited to people of just one nationality) to win contracts by passing laws favouring “national businesses”, and supporting them in other ways by passing on useful information and acting as commercial liaisons between overseas governments and private-sector organizations.–justifies its operation by referring to the risk it is taking in its business endeavour, assuming that all agents bear the same initial risk.
Economic theory assumes that all men bear the same initial risk: that they all start from zero and always will start from zero. This fails to take into account the accumulation of wealth and the phenomenon of inheritance. The difference between corporate risk and individual risk in any business is substantial. A person who has millions risks little, compared to a person who has nothing but must borrow to invest.It is said that Napoleon drew a distinction between risk and hazards. Risk occurs when you stand to lose a battle. Hazards
occur when you could lose the entire war. As a parallel in the corporate world, “hazard” could be used for exposure that might lead to bankruptcy. But corporations, abetted by economic theory, have propagated the myth that risks can be diversified, as when we create portfolios of shares. That assumes that not all share prices will fall simultaneously; but occasionally they do.
Most of the success which the free-market system has had in convincing the masses of its intrinsic fairness lies elsewhere, in the nature of honest, hard work, in the competition between equals, and as an engine for wealth creation among a group of individuals who profit from its business endeavours. In reality this fairness of hard work is only partly true, as suggested above.
Most non-democratic countries run on a system of nepotism, quite at odds with any democratic or meritocratic logic. Even within more developed democracies, many people receive occasional gifts and bribes. Still, the doctrine of hard work is evidently true for sufficiently many for it to be accepted by a majority, for a large part of the world’s workforce to be willing to accept the free-market model in one form or another.
Two important cogs in the machinery of our technological–industrial world are higher education and research, and private-sector companies and production. Experience, so far at least, has shown that both areas operate more effectively as private organizations. The Chinese experiment is rather confirming this. The Chinese model builds instead on public ownerships, which must be separated from how things are run. The market economy has an overwhelmingly positive effect on the sciences and on development of new technology. Thus it is no coincidence that among the twenty best-performing universities in the world, eighteen are American.
These private institutions compete keenly to produce results that are useful to industry, so as in turn to make profits and improve the competitive standing of shareholders. But the institutions also function rather like clubs, enabling their alumni to prosper because they gain first-mover advantages and are supported by like-minded fellow alumni. Some of their money returns to their alma mater, further reinforcing its finances and its reputation irrespective of meritocratic considerations, so that more people with ambition try to get in. In this way these institutions have become probably some of the most efficient meritocratic mechanisms we have ever developed.
This is the success story of universities like Harvard, Yale, Princeton, Stanford, and MIT. It is a now a proven winning strategy for countries all over the world, a recipe that Asian countries and regions are already learning how to apply. The China Europe International Business School (CEIBS) in Shanghai is a good example. So may also be the large number of new schools recently built all around China today, many which are privately run.
What is primarily driving the competitive advantage of nations are new technologies, not our political systems are built on social-science findings. It might on the contrary be argued that our competitive advantage has developed more or less despite the latter social systems. Perhaps these are better understood as a part of the general evolution of our societies as we have become more affluent.
The speed at which evolution affects private-sector companies is more dramatic than the evolution of nation states. Who does not remember the glory days of IBM? Unlike States, private-sector companies seldom foresee their decline, in large part because it happens so much quicker. Whereas nation states tend to go about their lives in a rather relaxed fashion, relying on their own stability, private-sector organizations are in constant turmoil, perpetually occupied with questions of prosperity and survival. The nature of their existence reminds one of those tribes back in prehistory which were under attack from all directions simultaneously.
It is not enough to be competitive in one particular area, such as production, recruitment, or marketing: you need to compete on all fronts at once. If you fail in any area at any time, that may be the end of you. Metaphorically speaking this is what we call fierce competition. Thus we say that in economic “war” there is no ceasefire. A private-sector organization can by definition never find that safe haven enjoyed by so many nation states (except in the case of monopolies or oligopolies, which have made a deal with the State to be left alone). That is part of the bargain that private-sector companies make with the nation state: they volunteer to accept vulnerability, in exchange for promise of a life of luxury if they survive.
It is true that nation states evolve and may be absorbed by competitors, but in their case this takes much longer. Just as one-time States such as Hanover, Sardinia, Sicily, Nassau, Frankfurt am Main, Lucca, Parma, Modena, and Tuscany have all disappeared as sovereign entities, so smaller companies are absorbed by larger ones through the mechanisms of merger and acquisition (M&A).
When States like Poland, Persia, and Korea were annexed or broken up at the beginning of the twentieth century, opinion was strongly divided as to whether or not this was “natural” and therefore acceptable. Commercial M&As are looked on much more favourably, as the process has come to be seen as an efficient way of managing resources. They have also been standardized and regulated by law. Furthermore we assume that employees will be able to find new jobs if necessary; so organizational rearrangements occur far more smoothly in the economic domain than in that of politics.
A private-sector organization is not expected to explain to the public why it is expanding. There are no general elections over such questions, no public debates. Nation states on the other hand have to offer excuses for their aggressive actions.
For instance, when Britain took control of parts of Persia it was “not to be forgotten that it [Britain] was the land which brought them the idea of freedom”, and when Japan conquered Korea, the Koreans (the argument went) “should be thankful to be ruled by such a great warrior nation”. Early geopoliticians often portrayed these changes as natural, predictable, and fair, with little or no regard to individual suffering, as for instance when Kjellen describes Persia as old and weak: “It would not have given any surplus to the common assets of humanity”.
According to Kjellen, Persia lacked “a real raison d’etre. [It had] committed a sin which could not be forgiven, the sin against development. In the private sector all this sort of thing is left to the forces of competition, dispensing with most of the moral rhetoric. In the commercial sphere, unlike the sphere of nation states, this kind of activity is perfectly in order, or even encouraged. So we can talk about the growth and expansion of companies, but not of nation states, even though the consequences are much the same. The process still leads to acquisition and accumulation of wealth by particular groups, indeed even the people involved are very often the same.
Those who sought their fortunes in the service of the nation state a century ago often come from the same families which are seeking their fortune in private-sector organizations today. They comprise ambitious risk-takers; often they form the better-qualified and more adventurous section of the population. Sometimes they are clever businessmen, at other times they are just toughs. It is this same group of personalities who have always contributed most to the strength of the nation state. Using private-sector organizations has been a much more intelligent and efficient means of achieving the same goals. That was the model for Dutch sea-power in the seventeenth century, which established the first true corporate state. It was the same model adopted by Britain in the eighteenth century, which was responsible for the foundation of their great empire.
When companies become market leaders and dominant players they use their position to take control of the market, setting industry standards and forcing out competitors. The example of Microsoft is well known, as is that of Standard Oil more than a century ago. The response, from companies found doing this, is standard: to re-establish public confidence you have to give back to the public part of what you gained, in the form of donations to charity and other good causes.
You have hurt the common good, so you have to rebuild the contract by giving something back to the common good. In all these cases the companies only give back fractions of what they earned from their monopoly position, so that in hindsight we can say that it was often a good investment. Numerous American scholarships were financed by the Rockefeller Foundation after the Second World War, and the Gateses have launched a programme to fight AIDS in Africa.
At the same time Microsoft is locking young Africans into expensive software-licence agreements. The effects of both initiatives have been positive, but we ought not to forget how the money was generated in the first place. We should assume that the primary aim of such initiatives is to win public support. Purely altruistic actions are rare exceptions.
The multinationals are the planet’s re-colonizers, carrying out a task to which the nation state is no longer equal. From the same perspective we could say that the nation state needed to create the multinational enterprise. The activities of multinationals are less visible and their intentions remain mostly hidden, even to most of their employees, who find that they are only small cogs in a large machine. It is ironic: the managers really have no intention of becoming colonists, but that is irrelevant to the outcome. A manager just wants to find a good job, earn a good living, live a good life. Meanwhile the organization grows in strength and expands its sphere of influence. Embassies, chambers of commerce, and elected representatives take care of the rest, so that everyone ultimately works for the competitive advantage of the nation.
As with companies, so with cultures. Each culture is like an organism, an organism which is always growing or declining. The result of this evolutionary process is devastating to certain cultures, groups of people, and nations. In Africa, for instance, the main problem is not exploitation by private-sector companies but our non-presence, or lack of long term commitment. Over the past two decades we have seen two episodes of genocide, one in Rwanda in 1994 and one more recently in Darfur in Sudan. It is important to understand why nothing is being done about this.
Possible humanitarian interventions are often suppressed for higher, national interests. The subsequent stream of reports about suffering plays an important role in easing our conscience, a mechanism comparable to confession in the Catholic Church. By subsidizing our own farmers we are denying to Africans today the best chance they have of competitive advantage, in agricultural production. We do not see the consequences of our export subsidies for farmers in countries like Ghana: how they are forced to leave their land and try to make a living as street sellers in the capital, how their families are ruined, how the elders back in the villages are forgotten. Thus poor countries are often threatened from two sides at the same time, by multinationals and by nation states working in an inexplicit form of collaboration for their national advantage.
Even where these external threats are lacking, there are plenty of internal ones: corruption, lack of national identity (since Western colonialists based the national boundaries on political and economic interests rather than on ethnic identities), and a climate unfavorable for developing a strong work ethic. In consequence Africa saw no real substantial economic growth for a decade, until just recently. Of the 700 million people living south of the Sahara, almost all have a problem of either chronic malnutrition or nutritional deficit, the only real exception being the inhabitants of South Africa. Ninety per cent of Nigerians lives on less than two US dollars a day, seventy per cent on less than one dollar.
When nation states succeeded in the past in conquering other countries by force, there was then always the problem of management. The inhabitants quickly turned against their conquerors. This was the story of the British Empire, to a certain extent of the Roman Empire, and of Alexander the Great’s Hellenistic empire. The way that countries are run by private-sector companies today is a very different story. Employees of a company that is acquired by another company will often forget who the ultimate owner is. They do not really care that the majority owner is German or Dutch and sitting on a yacht somewhere in the Bahamas. Their loyalty and identity remains with the local company they are working for.
Unlike under colonialism, the workers are also allowed to retain their national loyalties. Only the profit leaves the country, invisibly, wired to a Swiss bank account. Thus with the commercial company there is much less confrontation than there was when nation states were running things. But the economic consequences are very much the same.
Some things were easier under the logic of nation states. Most employees do not have feelings of pride in working for a particular company, as they might be proud to serve a nation. It does not stir the same high emotions. For most citizens, their national identity is unconditional and for life, whereas their identification with a company is tied up with financial remuneration and is limited.
Companies are aware of this and would like to change the situation, but they cannot. It does not help for them to build strong corporate identities through what is called branding, to hoist rows of colourful flags outside their headquarters, or to send their employees to lavish company celebrations; they never really succeed in winning their employees’ hearts, only their minds, and only for a limited time. Most high-end knowledge workers can see through the corporate loyalty agenda (one reason, of course, being that they are often the same people who created it in the first place and keep it going).
Managers are rather like the condottieri or mercenaries of Renaissance Italy. Our free market system is made up of commercial organizations called companies. These companies comprise managers who will fight on one side one day and on a competitor’s side the next day. The decision about which side they fight for is largely a question of money, as it was for the condottieri; and as in Renaissance Italy these condottieri often become princes and heads of state.
Examples are Berlusconi in Italy, the Bush family in the USA, and the Russian oligarchs before Putin. Loyalty to and identification with one’s company, though always highly praised, is easily abandoned in favour of another company. Also, just like the condottieri, most businesspeople try to avoid hard work when possible. It is not the work itself that attracts them, but the rewards for working hard. It is possible to find managers who work for other motives too, for honour or for the good of society; but they are rare. As a group they are looking for money; the easier the better.
In private-sector companies, especially in the individualistic Western world, we are all individual agents seeking to promote our private self-interest. In Asia, particularly in Japan, that was different for a long while; but Japan too is now moving away from the honour-based model of the samurai, the old warrior class. One reason for that is that Japanese companies are less able now to guarantee secure jobs for life, which is another consequence of global competition and perhaps also of a change of mentality among the new generation.
Those who grew up in comfort in the 1980s and 1990s are less willing to make great sacrifices at work. As the competitive advantage of Japanese firms has weakened, employees are slowly learning that companies are not like people. If they do not make money with you they will let you go, so the social contract is broken. Trust between companies and workers is hard to rebuild. Meanwhile Japan is losing ground to neighbours to its West, and principally to its old arch-rival, China.
Unlike a private-sector company, the nation state does not throw its people out when they are no longer useful, not even when they commit crimes. We can say that a modern welfare state operates on three levels. It prefers all citizens to earn their living, but if not then the State will provide social-security benefits. In between there is a layer of economic support, providing funds for anything from stay-at-home mothers to companies in trouble.
For a company to receive State support it has to demonstrate that its collapse would entail negative consequences for society, for instance if workers in a rural area are unlikely to find new jobs. Otherwise the company is on its own. At the end it all depends the nature of the company, on how it has been designed as an organizational entity; it has limited liability, which means that the owners have limited responsibility. It is a person-like creation without a person’s responsibilities. It is a money-making, wealth-creating machine: for better or worse, an organism adapted to its environment.
Globalization is just another word for achieving Man’s age-old goal of creating more wealth by treating the entire planet as one big opportunity. Those who stand to profit are the same men and cultures as before. The only thing which has changed is the tool or the vehicle through which this happens. The company has now proved to be much more efficient than the nation state. A combination of State and company working together is even more efficient, defining a new formula for success in international business.
Table 4.1: A formula for collaborative success in international business
|Private-Sector Organization||First they try to buy their resources|
|Nation State||If this does not work they send in their diplomats|
|If that does not work they send in the intelligence people (themiddlemen)|
|If that does not work they send in the army|
|What pickings are left they acquire by negotiation, without beingso greedy as to leave the other side desperate (the mistake madeby Napoleon and by the victors of the First World War)|
Iraq is a good example here. American companies were thrown out of that country at the time of the Gulf War, during the administration of George Bush senior. All major oil contracts went to French and Russian companies. But the USA was becoming too dependent on Saudi oil. Iraq had the second largest oil reserves. If the USA could control Iraq, it could also ensure special contracts to control the supply of oil. However, events are often surprisingly unpredictable, thanks to the sheer complexity of social actions. The US army had no difficulty in defeating the Iraqi army, but it failed to create stability.
For one thing the majority population are Shia Muslims, who are arch-rivals of the USA in that region. On the other hand the Americans could not trust the Sunnis, whose armies they had just defeated. By the time the oil fields were finally secured, the US had forfeited its special relationship with Iraqi leaders. Instead the contracts have now gone to the highest bidders, companies from other countries.
The withdrawal of US troops from Iraq in December 2011 was acknowledgment of a de facto defeat. If the US oil industry lost out, the same was not true for all American industries. The US military–industrial complex accounts for more jobs and profits than the oil industry, and it won, in the sense that it gained new orders, signed new contracts, and made higher profits. Also, some American officials and businessmen looted the country’s resources.
See Harriman (2005). According to Harriman, 8.8 billion American dollars had disappeared after the eight months that Bremer was in office, including $6bn left over from the UN Oil for Food Programme. This money, together with $10bn from resumed oil exports, was transferred to the New York Federal Reserve. Thus it was a financial win for some, but not for the country as a whole, and certainly not for Iraqi citizens. Unofficial figures talk about a million casualties.
American soldiers never had the will to win in Iraq. The Shias, supported by Iran, did have that will, as Hezbollah has in its war with Israel. Military strategy tells us that the strength of your competitor can be defined as a combination of three factors: his material resources, his intellectual abilities, and his willpower and determination. These three factors together will determine the competitive advantage of any (public- or private-sector) organization in any market.
The Prussian general Karl von Clausewitz, who taught strategy at the military academy in Berlin and learned much by contemplating Napoleon’s success and the failures of the Prussian army, defined the ability to win a war as a combination of total available resources with willpower, itself a function of the motive for going to war.
Business education today neglects the factor of willpower, in favour of reckoning only with general intellectual abilities or formal competence, education, and training. At the same time many practising businesspeople, especially entrepreneurs, tell us that success is before anything else a matter of willpower, of not giving up. Percy Barnevik, former chairman and chief executive of ASEA Brown Boveri, said in a recent interview that ninety per cent of business success is the ability to see projects through, to be persistent.
The thing is never to give up, to take the pressure. You also need to know where you want to go. If your focus is clear and your will is strong enough you will sooner or later find a way. Peter Drucker talks about “concentration”, but by this he seems to mean the same thing. Thus an organization can be seen as the collective willpower of numerous individuals, all pulling in the same direction. That is also what produces the competitive advantage of a nation.