More coming

I am planning posts on implications of the emerging world order on business. Looking forward to new posts! Sphere: Related Content

Implications for Global Businesses of the Emerging World Order

It appears, on occasion, that we may be seeing the arrival of some new “epoch”, some unpremeditated discontinuity. Socio-political, climactic, natural—all sorts of signals of potentially discontinuous change setting in …

I am not thinking “end of the world”, but fundamental changes to “environment,” that force large adaptive responses across economics, politics, business, etc.

One example, from business world—as “fixed” costs of doing business go up, and products get commoditized, Industries tend to consolidate. I think we are seeing the cost of “Sovereignty” go up, of information go down. Driven by this, we should expect significant impacts on our business model.

Sovereignty is about handing over capital to another entity, which then allocates it, per agreed upon rules, to attain a contracted end, and enjoys complete authority for the period of that contract.

It is said that institutions (Firms, Governments, Military, or Church) exist to allocate knowledge; while transactions serve to allocate capital. An election (or a revolution, as in Egypt) is a transaction in which the rulers are granted the capital to rule. An exchange is where a firm is allocated capital to acquire resources. Investors and electorate hand over direct control of capital because it is more efficient to allocate knowledge (make decisions) within a firm, than in a transactional environment. At the heart of it is the “cost” of making decisions—information gathering, comparison of options, organization of effort, accountability, etc.

Sovereignty produces efficiency when decision costs are high in the absence of that organization.

I think what might be happening is that cataclysmic changes are rendering sovereign organizations inefficient, and stake holders are finding the need and means to directly participate in change. The “complete authority” clause is being supplanted by a “participatory authority” paradigm.

In a world of growing food shortages, direct communication of commodity prices to farmers in India is so valuable, that current systems that restrict such dissemination of information (under the guise of “planned economy”) are becoming too costly for that society. Expect a farmer’s revolt. The demands of Sovereignty to keep China and Taiwan separate are straining under the economic efficiency of value-chain integration. Lincoln’s “emancipation”, and Reagan’s “Freedom” might have been other words for the efficiencies promoted by abrogation of non-economic sovereignties.

I think the changes we are seeing—revolutions, with the demos (people) asserting their opinion directly on the cratos (power/rulers), versus through the controlled cadence of elections—are a signal of the impending cataclysm. But in our case, I feel, there is a Tsunami of change immanent—wrought by natural disasters, food shortages, water scarcity, unemployment, political crises, climate change, all accelerated to warp speed by mutual reinforcement and INFORMATION. (See how, strangely, Wisconsin and Egypt got conflated.)

As costs of sovereignty go up, as they seem to be trending, groupings of states would seem to be indicated to emerge. Unwilling, but economically beneficial groupings are often enforced by war—e.g., the American Civil war, or the WW II (Germany looking to consolidate Germanic people, and access the ports via Lorraine). Arab nations are sub-optimally formed. I’d say regional wars are not out of question, as the economic rational for combining labor and capital-- labor in oil-poor countries chasing capital in oil rich ones, and vise versa. The border with Mexico is better enforced by a recession, and more weakened by a booming economy, than can be explained by Sovereign effort. American Sovereignty is not strong enough to curtail immigration in the long run.

What will test American power more might be the unraveling of the middle-east, because that is where energy and feed stocks lie. Not this year, but over the next decade, America will intervene in the Middle East, Korean peninsula, Indian subcontinent, Africa, Eastern Europe, South China Sea—i.e., EVERYWHERE. UN will lose more credibility. New capital systems will need to be erected (who will buy Afghan bonds?). Information will be key.

Information is a key ingredient of this change. Business in the "Information" value chain, would benefit from this accelerating change, as would businesses and business models that mitigate uncertainty.

Current business model will have to adapt. For example, for business in "Information value chain", with information becoming critical, governments will step-in to their areas of business. These businesses will need to build a strong government-affairs arm to help develop PPP (public private partnerships)-- something they cuurently do, but in a more institutionalized and systematic way. There is a lot of money and power at stake. Also, multinational character might become a liability. Like Unilever, whose local subsidiaries are indistinguishable from local businesses, firms need to learn the art of strategic camouflage, and promote indigenization of resources. It will prove to be a competitive strength. Finally, global firms need to work to promote informational platforms that help sovereign interests—like electronic passports, e-Government, etc

Provided my little theory, that the defining cataclysm of our time is an assault on Sovereignty, is true.

Sphere: Related Content