In a 2006 movie, Babel, four disparate incidents in four different countries were, at the end, woven together to explain the events.
Similarly, a concatenation of (non-medical) trends has caused the current Covid-19 crisis. These include: a) The institutionalisation of money; b) The shift from stakeholder to shareholder capitalism; c) The ‘world is flat’ effect of globalisation; and, d) The backlash to globalisation and the rise of leaders who promote unilateralism.
This may look too theoretical, but bear with me.
The institutionalisation of money is, basically, the rise of the mutual fund industry, which now controls more money than the banking industry. Prior to this, individuals held two-thirds of corporate equity and institutions one-third; now the trend has more than reversed. The growth of the mutual fund industry was spurred in the late 1980s, following the shift from stakeholder capitalism to shareholder capitalism.
Under the former, which was then followed by Japan and Germany, two rising economic powers in the ’80s, the various stakeholders, viz, employees, customers, suppliers and providers of capital, were given equal importance.
Under the latter, only the providers of capital are given primacy, the others fall into place. This form is more efficient but uncaring. This explains why after the US approved a $6-trillion fiscal and monetary stimulus package last week, Jeff Bezos’s net worth went up by $24 billion even as 17 million Americans lost their jobs.
Or, as reported last week, Mercedes Benz (and, earlier, VolkWagon) was caught using software to fake nitrogen oxides emissions (actually 40 times higher when the software was switched off in normal traffic). VW sold some 11 m. cars with this software, to boost profits, and shareholder value, and damn the environment.
In short, the more ‘efficient’ shareholder capitalism sacrifices the interests of other stakeholders in order to increase shareholder value and protect the interests of providers of capital.
Will this change post Covid?
The focus on shareholder wealth creation led to other practises later found to be unsavoury. For instance, having a larger component of managerial pay linked to the market cap of the company, via employee stock options (ESOPs) which has resulted in the clamour to ‘save’ companies considered ‘too big to fail’.
The ‘world is flat’ globalisation made it possible to squeeze extra profits by extending supply chains to distant locations, with China becoming the world’s manufacturing hub.
The Japanese, after their economy was destroyed post WW II, had rebuilt their industries by concentrating on quality. Their TQC (total quality control), later TQM (management) assured production with zero defects, and enabled, e.g. a company like Toyota (earlier a textile manufacturer Toyoda) with no experience in automobiles, to compete successfully in America. But the Japanese relied on suppliers who were tied to their customers, and, being located nearby, were able to provide Just In Time deliveries.
The risks of stretching of supply chains have been now exposed. Japan’s Government has offered to pay for Japanese companies to leave China and return home. US companies are also leaving China.
The world is not so flat now, after Covid.
The rise of China and its ability to threaten US hegemony resulted in a huge rise in wasteful defence spending, prompted by leaders such as Donald Trump, who is avidly anti-multilateralism and has unilaterally broken several treaties. Countries such as the US, Russia and China are spending larger sums on ever more deadly weapons, and their policies are driven by the Military-Industrial-Complex that benefits from wars. Even whilst the Covid-19 pandemic is on, wars continue to be fought in Syria, Yemen and a US-Iran proxy war in Iraq. And Trump cancels the funding to WHO at this time of global crisis. We have lost all sense of humanity.
Post Covid, will we learn to be more kind, more tolerant of others, rich or poor, humans or animals, or will we go back to be the soul-less creatures we have become?Instead of testing for animal intelligence, shouldn’t we be testing for human stupidity?
Will we learn to respect nature, which is teaching us this lesson, or will we display the same old arrogance and believe we are masters of the universe even after nature has shown man to be impotent in such crises?
Will we learn the need to spend more on basics like education, hygiene, healthcare and less on propounding hate, creating conflict and inventing weapons to kill?
Will we revert to the more benign form of stakeholder capitalism and learn to flatten the inequality of wealth and income distribution?
Will the world cooperate more, and speak with a singular voice. Or will we revert to a Babel?
The writer is India Head — Finance, Asia/Haymarket. The views are personal.