Platt Perspective on Business and Technology

Macroeconomics and the fallacy of a pure meritocracy system – 7: taking a global perspective

Posted in macroeconomics by Timothy Platt on October 14, 2012

This is my seventh posting to a series that can perhaps best be seen as addressing the longer term and macroeconomic impact of business ethics, and of what happens when they fail (see Macroeconomics and Business, postings 108 and loosely following for parts 1-6.) And in a fundamental sense, this is the posting that this entire series has been leading up to. One of the defining points of this 21st century is that globally we are all interconnected, and with real time local-anywhere to local-anywhere immediacy and impact. So short term benefit-driven predatory behavior on the part of business people or government leaders anywhere have direct impact upon and consequences towards all.

The Libor, or British Bankers’ Association London Interbank Offered Rate officially comes out of London and the United Kingdom, but as its recent scandal of 2012 illustrates, the impact of bad business and economic practices can and do reach far and wide (and also see Addressing a Common Thread Running Through our Recent Economic and Marketplace Challenges – 1.)

Not to single out the United Kingdom, I also note the multiple-billion dollar write-offs that JP Morgan Chase caused in 2012, when reckless trading practices carried out by this multinational corporation imploded, starting with losses of billions of dollars from high risk trades made through their London office. Their systems and practices could have unraveled starting anywhere and the results and impact from them would have been the same with the same deleterious global reach.

I cite both business practices here and economic practices and policies, in effect conjoining them and that is for a reason – several reasons actually:

• Businesses, and both collectively and individually can and do influence and even shape government policy. And I find myself thinking of lobbying in the United States as I write that, with the 2010 Citizens United v. Federal Election Commission, US Supreme Court decision.
• Large corporations with their funding capacity can in effect buy elections under the terms of this ruling and that simply adds to the influence and voice they have traditionally had, and both separately and through trade groups through their more standard ongoing lobbying efforts.
• Businesses can and do shape government policy and law in many ways and in many countries and regions. And this all has direct globally reaching impact that goes way beyond the specific pressures of influencing regulatory law and its formulation and enactment per se (see my series: Considering a Cost-Benefits Analysis of Economic Regulatory Rules as can be found at Macroeconomics and Business, postings 64 and following.)
• Along with this, governments directly set trade policies, and both through establishment of trade sanctions (e.g. against countries such as Iran and North Korea as of 2012) and through preferential trade agreements (e.g. the North American Free Trade Agreement (NAFTA) and the European Economic Community (EEC) with its common market.) And these all influence and shape economies, national and global even as they set limits and parameters to business decisions and activity. And all of this, of course is also considered fair-game target for business and business group lobbying too, and globally.
• To round this out it is also important to note that the lines between government and business can blur and even disappear as to control and even ownership too. The Russian Federation’s control over its nation’s petrochemical industry through control of Gasprom comes immediately to mind here, as does the Chinese government’s control and even direct ownership of many businesses and even entire industries within their country. In this, the People’s Liberation Army of the People’s Republic of China is the single-most powerful participant in business and industrial production in all of China, dominating both directly state-owned and private sector owned businesses and economies. Those two countries simply comprise perhaps extreme examples of a more wide-spread pattern of government or joint government and private sector ownership and of government control, or at least strong influence – and with regulatory oversight sometimes being very broadly interpreted and enforced in that.
• So private sector participants influence government and even shape its policies, and government authority shapes and influences and at times even fully controls what would at least nominally be considered private sector business enterprises. And the boundaries between the two can be difficult to discern, and certainly free of “marketing” from the involved parties.
• And finally, with the interactive internet an increasingly ubiquitously connecting real-time presence, whatever is done anywhere immediately has impact everywhere, and certainly as local and national marketplaces merge online into a single global entity, and the communities that comprise them connect and merge too. As of today, mid-October 2012, Facebook as a single social media site has over 900 million members. Google, as the world’s leading online search engine is routinely used for navigating the internet and for connecting and doing business, from virtually anywhere to virtually anywhere and it is currently listed as managing over 1 billion search queries worldwide every single day.

What I am writing about here is a tightly integrated and interconnected single system. And as noted above, bad business practices do not necessarily stay limited in impact when they occur anywhere in this system, and certainly where leadership of major corporations or of government – or of the blurred interface between them act out. The term “too big to fail” comes immediately to mind in this context. And with the above thoughts and with this and related postings and series in mind, I functionally reframe and rephrase that to state that “too big to fail” means “too big to fail as a local and localizable event, where any significant downturn can and will take a great many other stakeholders down too.”

I stated at the end of Part 6: adding in supply chain and related systems 2 that I would address at a more global level the issues of leadership and responsibility, and of the qualities that need to be included along with more technocratic hands-on skills in selecting and grooming leaders. I said that I would discuss this in terms of the overall business and marketplace ecosystem. And that is what this closely interconnected system is, with its individual business and consumer participants and its aggregations, groups and networks within the whole.

What constitutes the qualities and capabilities needed for effective leadership have to work effectively for the individual business or organization and within its context. But they have to work effectively and as a positive force in this larger context too. And what we are currently seeing and from the years leading up to the Great Recession on, has been in large part the failure of business (and of governmental) leadership to take that conceptual leap and consider the impact that one major corporation’s leadership decisions can and will have everywhere and for all of us. Business failures that begin within the walls of one organization cannot and will not automatically and by default simply stay there.

I am going to end this series here but I am certain to come back to the basic issues and challenges that I have been writing of here, in future postings. Meanwhile, you can find this and related postings at Macroeconomics and Business.

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