【Valdai Club Expert】Wang Wen: While Companies Are Rising, Countries Are Weakening

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【Valdai Club Expert】Wang Wen: While Companies Are Rising, Countries Are Weakening

2020-10-09


By:Wang Wen    Source: Valdai Club   Published: 2020-10-08



The COVID-19 outbreak is disintegrating the original governance system, and the international power structure is further fragmented, stratified, and regionalized. As I mentioned in an article I once wrote, the era of globalization dominated by one country or group of countries has come to an end. The international order cannot be dominated by G2, G7, or G20. Instead, “n” forces may influence or dominate different global events at different levels, which we call “Gn”.


In other words, the power of “Gn” is not limited to traditional powers, but also regional powers, international organizations, non-governmental institutions, financial institutions, multinational corporations, opinion leaders, think tanks, and media, forming an overlapping international power network, blurring the ownership of global authority, breaking the ownership of sovereignty and weakening the traditional political structure. Globalization presents a more complex situation than in the past. Among those, the most important one is the rise of multinational companies.


The rise of “the Company” maybe the other side of the horror and negativity that has gripped the past eight months. The COIVD-19 epidemic has caused 30 million infections and 1 million deaths till September 2020. Governments of all countries are under great pressure. Many countries have fallen into economic recession, political difficulties, and social chaos. However, most multinational companies have benefited from it.


The market value of large companies increased by more than 80% in the first decade of 2020. Take September 17 as an example, Apple’s market value was $1.9 trillion, an increase of 210% over the $896 billion in 2019; Microsoft’s market value was $1.55 trillion, an increase of 165% over $905 billion in 2019. This growth trend continues.


GDP, by contrast, is a different picture. According to the World Economic Outlook released by IMF at the end of June, the global GDP growth rate is expected to be −4.9% in 2020, while it was previously expected at −3%; the GDP growth rate of the United States is — 8.0%, which is lower than the previous expectation of −5.9%; GDP growth of the euro area is −10.2%, which is lower than the previous expectation of −7.5%. Except for a few countries such as China and Vietnam, the GDP of more than 170 countries will show negative growth in 2020.


There is no denying that the greatest human crisis since 1945 has led a K-shaped division of economic growth. Profits have been skyrocketing in the financial industry, the Five American technology giants (FAANG), logistics, consumer goods, and online education, while tourism fell by 79% in 2020 and luxury goods (including cosmetics and ornaments), entertainment and sports continue to slump.


Unfortunately, the state as an organization is in the lower half of the K-shape. According to the previous WTO forecast, global trade will fall between −13% and −32% in 2020. The purchasing managers’ index (PMI) will be below the 50% prosperity and decline line for a long time.



A new thing we have to think about is that companies may be more resilient in a crisis than countries.


In human history, there are at least three companies with a history of more than 1,000 years. They are Keiunkan restaurant in the West Mountains, Japan, which was founded in 705; St. Peter Stiftskulinarium restaurant in Salzburg, Austria, which was founded in 803; and Sean’s Bar in Athlone, Ireland, which started in 900 AD. There are countless companies with hundreds of years of history, and family businesses with more than 200 years are not a few as well.


But imagine, how many countries have a history of more than 500 years? What about the governments of more than 200 years? Maybe we can count them with our fingers.


The academia has paid attention to the corporate bankruptcy and the rise and fall of the state, but they have been discussed in different disciplines. The business arena pays more attention to the operation and success of the company, while the international political science circle is discussing the rise and fall of the state. But it seems that people have not discussed what companies and countries, as organizational forms of human civilization, mean to human development.


The emergence of the company is later than that of the country, but the vitality of the company is becoming stronger and stronger in the future. At present, the market value of the top multinational companies far exceeds the economic scale of most countries. The market value of the top five companies in the world can be ranked in the top 20 of the national GDP.


An obvious phenomenon of the weakening of the state is that the companies with the top 100 market value can be ranked in the top 65 of global GDP. However, the economic scale of the countries with the GDP ranking lower than 65 is even inferior to the market value of the world’s top 100 companies. In other words, the size of about two thirds of national economies is less than that of the 100 global companies.


What’s worse, globalization is driving the “fragmentation” of countries. In 1945, there were only 51 member states of the United Nations. In 2009, it became 192. So far, there are more than 200 countries or international actors who claim to be “states” but have not been widely accepted. After the end of the Cold War, the information revolution, the spread of transnational culture and ideology, and the development of the shipping network have greatly shortened the physical distance between people and countries, but the national division is still continuing. In the past 30 years, the Soviet Union, Yugoslavia, Sudan, Czechoslovakia, and Ukraine have all split up. The next wave may be Britain, Spain, and even the United States. There are calls for state independence.


There are about 4000 ethnic groups in the world. Only half of the countries’ population is composed of more than 75% of single ethnic groups. There are about 90 countries with a population of less than 5 million and 30 countries with a population of less than 500,000. Most of the ultra-small countries, such as Luxembourg, Seychelles and Dominica, are essentially small companies.


It is clear that companies will become stronger and the country more fragmented. Through the merger, reorganization, and investment, there are now companies with a market value of more than 2 trillion US dollars. It can be imagined that the market value of the world’s largest company will certainly exceed the GDP of the world’s largest economy within 20 years. And small countries are likely to be increasingly controlled by companies.


We still need to think deeply about this issue. Through the pandemic situation, we can find that the speed of adjustment and reform of the company is obviously faster than that of the state in the crisis. In our era, the company should be more enterprising than the country. Of course, the cruelty of competition and upgrading of the company is faster than that of the state.


More than 200 years ago, Rousseau, a French thinker, thought about “the demise of the state.” Later, Karl Marx firmly believed that the state and class would eventually die out. Twenty years ago, Alexander Wendt and other international relations scholars discussed “will a state be like a human being?” What he means is that, will a country live, grow old, ill, or die? At present, it seems that a country has a life span.


The life expectancy in the Soviet Union is only 69 years; in Yugoslavia, it is only 74 years old. If the American society continues to split like this, it may be necessary to consider the issue of the United States of America (1776 -?).


From this perspective, the COVID-19 is prompting people to think about the organizational governance model. Theoretically speaking, most companies implement the equity governance and performance evaluation system under the principle of elitism. Those who have more shares will be elected by the shareholders to govern the company. Most countries, led by the Western electoral democracy more than 200 years ago, have become equal rights governance and procedural evaluation system under the principle of populism. Who gets the vote will be the leader of the country, and usually needs to do things according to the procedure. The procedure is placed first, but whether the he/she is a good leader or not is placed second.


Quantitatively, there are many good companies, but lesser and lesser good countries. Comparing companies with countries is certainly a new topic and a controversial one. But there should be no controversy at all, when the COVID-19 outbreak inspires us to think about the mode of human governance. History just begins again, but not ends.



The author is professor and executive dean of the Chongyang Institute for Financial Studies at Renmin University of China, and executive director of China-US People-to-People Exchange Research Center. wangwen2013@ruc.edu.cn


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