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Multinational corporations aren't about to give up on global business
Today we are talking about the impact that increasing geopolitical tensions could have on big, multinational corporations. In a recent op-ed for the Financial Times, Elisabeth Braw of the American Enterprise Institute, AEI, argues that we could be entering a distinctly new chapter in global business, one in which where a company comes from matters much more. In other words, a move away from borderless companies and toward nationalism.
She cites CEOs like Ramon Laguarta of Pepsi and Satya Nadella of Microsoft, both foreign-born executives leading American companies, as a positive trend of globalization that may come to an end in the current political reality.
It's an extremely interesting and provocative piece. You should definitely read it.
We are not convinced. Let's get out the Red Pen.
First, Braw writes that "the era of borderless enterprise may be past" and argues that "suddenly companies', and executives', nationalities matter again."
So question, when did nationalities stop mattering? Governments have long supported their national champions. In the wake of the 2008-09 financial crisis, the German government spent 1.5 billion euros to bail out their auto industry. BMW, for one, might have had non-German higher ups, but when the rubber met the road, it mattered the most was that BMW was a German company. The era of the globalization never meant an end to national pride or responsibility when things got tough.
Secondly, the number of foreign CEOs of Global Fortune 500 companies has remained pretty constant since the 2008 financial crisis. I'd also point out that as of 2019, the last date we could find good numbers for, 45% of the companies on that list were founded by immigrants or the children of immigrants. No real change.
Next, Braw suggests that Western corporate titans may now conclude that the companies they run "should be loyal not just to their shareholders but to the company's home country if it provides democracy, rule of law and a safe business environment."
I'm not ready to bet on that. Western companies have long done business in nondemocratic countries, and some major US businesses haven't blinked twice in recent years even on issues like Uighur forced labor. In fact, China overtook the United States last year as the top recipient of new foreign direct investment. Goldman Sachs just announced an expansion of its staff there by 2024. Amazon, Apple, Nike, Gap…the list goes on. Still doing business and expecting growth in China.
Finally, Braw writes that "executives may consider themselves citizens of nowhere, but a business can be harmed because of where it is based."
That's true. But is that risk new? There were boycotts of German companies in the 1930s, of course, and the same in South Africa during Apartheid in the 1960s.
Yes, Apple and Google are enthusiastic citizens of nowhere. But not so much for Microsoft and Amazon, which are increasingly US national champions.
In conclusion, do rising tensions between, say, the United States and China mean that a new era of business with borders is on the horizon? A Standard Chartered report, just from a couple of months ago, back in March found that of multinational corporations based in the United States, the United Kingdom, France, and Germany, 42% "see their best growth opportunities outside of their home market." That's actually "5% higher than six months ago."
So…no.
A gentler US approach to China wouldn't fix their relationship
Now, first of all, truth in advertising, Kishore is former ambassador to the UN, former dean of the Lee Kuan Yew School – it's like the Kennedy School but of Singapore, and a decidedly good guy. We've known each other for decades, heck, I even blurbed one of his books. But is that going to stop us from adding red ink to the Pink Paper, the Financial Times? No, sir! Let's get out that pen.
So first, Kishore cites the late American diplomat and strategist George Kennan, always a good thing to do in an op-ed, who wrote during the Cold War that the United States should aspire "to create among the peoples of the world generally the impression of a country which knows what it wants, which is coping successfully with the problem of its internal life and with the responsibilities of a world power." And Kishore says that China is checking all these boxes right now and the United States is not. He mentions things like declining life expectancy and mounting income inequality as woes that are undermining America's standing.
And I admit that China certainly seems to know what it wants. But China has massive internal structural problems of its own, including demographic decline and massively growing pollution. So long as Beijing is interning Uighurs en masse, and cracking down on democracy in Hong Kong, or alienating most of the world's advanced democracies with a belligerent foreign policy, that argument of Kennan's is a tough sell to apply.
OK, next Kishore argues that "the US cold war strategy" won't work to isolate China.
That's right, a cold war strategy won't work. But the United States isn't using one. China is too deeply embedded in the global economy, and the United States isn't expecting China to have a Soviet-style collapse. No one in the Biden administration thinks that. It's actually trying to balance decades of cooperation with growing competition. Now there are some people out there that say the United States is in a cold war with China, like Niall Ferguson. But we're not and they're wrong. And that's a whole different Red Pen. Next week we can cover that one.
Mahbubani, Kishore also writes that "the Chinese people can see that their government has protected them well in the Covid-19 emergency."
Now, it's also certainly the case the United States absolutely blew the pandemic response for some time. But today it is administering far more vaccine doses and far more quickly than has China. And China's vaccines don't work so well. And let's also not forget how one government's mismanagement hastened the spread of a global pandemic. Hint, it's not the United States.
Fourth point, Kishore writes that Biden is "making a strategic mistake" he says, "in carrying on with Donald Trump's policies towards China." He adds that Biden should declare "that Trump was wrong on China."
Never mind that that would be horrible domestic politics for Biden but a broader question, was Trump really wrong about the long-term challenge in the United States-China relationship? I mean sure, his policy implementation was erratic, and Trump's tweets generally sucked. The Biden team realizes it's going to have to compete with Beijing in a much more disciplined and coordinated way than the Trump administration. But China's deepening authoritarianism and increased power and presence on the global stage has meant that the United States was eventually going to recalibrate policy, whoever the president. That's why China policy is one of the very few issues in the United States right now that has broad bipartisan agreement in orientation.
Finally, Kishore says that Washington "should press the pause button on the US-Chinese geopolitical contest."
If only it were that easy, Kishore! It takes two to tango. If China is willing to do so, a pause may be possible. But there's no sign of that at this stage at all.
That's your Red Pen for today, folks. We'll see you again soon with another edition. Have a suggestion for a piece we should take our pen to? Tweet it out to @gzeromedia using #TheRedPen and we'll check it out.
China's EU deal betrays insecurity; not a wedge between US & EU
The op-ed we're marking up is by Gideon Rachman. He's the chief foreign affairs commentator at the Financial Times. And the piece is entitled, "Europe Has Handed China A Strategic Victory." He argues against a recent investment treaty between Europe and China championed by European Commission President Ursula von der Leyen, also heavily supported by German Chancellor Angela Merkel. And it's viewed overall as a deepening of financial ties and commerce between Europe and China.
Now as a little bit of background, the deal, which was several years in the making, boosts market access in China for European firms in sectors such as autos and finance.
Now Gideon argues that the European Union has just handed China a big win despite all of that nation's diplomatic and humanitarian transgressions…and that this is going to further complicate things for incoming President Joe Biden as he tries to figure out how to deal with China.
Now, agree with Gideon, it's a significant development. And also, it's true that Europe does appear to be flexing its muscles a bit here: The US can do a unilateral trade deal with China (Phase One) and so can Europe. But is this going to change the geopolitical landscape? No, and the argument goes too far on that point.
First, Gideon writes, "Ms. Von der Leyen concluded 2020 by sending a truly awful geopolitical message — as her commission signed off on an investment treaty between the EU and China."
Well, the EU also has said it agrees with the United States "on the strategic challenge presented by China's growing international assertiveness." And there are many humanitarian and diplomatic issues Europe as a whole has strongly condemned—from China's attack on democracy in Hong Kong to its treatment of Muslim minorities. This is a fairly narrow deal, not a white flag on the relationship.
Number two, Gideon describes the timing of the deal as "exquisite" for China, driving a wedge between Europe and the US on the eve of Biden's inauguration.
Now you can make that argument, but let's be clear, Beijing was clearly intent on rushing to get the deal done before Biden took office and ended up giving a lot of benefits to the Europeans accordingly. Does that sound like a confident superpower? Or, rather, like an insecure country worried about being out maneuvered by Biden and preparing to face a lot more coordinated and multilateral pressure? In other words, China might have grabbed what it could at a fire sale before Biden comes in to remove the wedge that has existed between Europe and the United States under the Trump administration.
Now on that, Gideon describes this deal as a "kick in the teeth" to Biden, who wants to restore ties to some of our strongest global allies in Europe.
Now, it's a wake-up call. But Beijing keeps digging its own diplomatic hole, from turning away WHO inspectors to conducting mass arrests in Hong Kong. And that's just this week. The new Biden team's commitment to transatlantic cooperation is going to go a long way to repairing the US-Europe relationship.
Finally, Gideon writes that Europe "is naive to believe that China will respect the agreement it has signed…And it is naive to think that the darkening political climate in Beijing will never affect life in Brussels or Berlin."
Now sure, you can point to plenty of examples of China not holding up its end of the bargain. Gideon mentions the WTO agreement in 2001. He's right. Also, in the terms of this EU/China deal, Beijing is expected to deliver on things like climate action, reducing favoritism to state-owned businesses, and improving labor practices. All kind of red lines for the Chinese state capitalist system. Good luck with that. But let's be clear, when China fails to meet those terms, that ends up working in America's favor and makes any EU/China agreement short-lived at best. It gets weaker as a consequence of that.
So, is it the end of the world order as we know it? No. But is China, and how its growing economic influence and power impacts every nation, going to be a big issue for Biden…and beyond? Yes. We just don't think Ursula von der Leyen or the EU did something "truly awful," as Gideon states.
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Trump didn't invent Americans' rejection of US post-war leadership role
First, Martin writes about America's long history as a leading model of functioning democracy, a leader among nations that share its values and essential player in resolving big global challenges. To quote, "The reelection of Mr. Trump would signify a rejection of all three roles by the American people," he writes. Let's bring out that red pen, this misses a larger point. Many Americans have already rejected those roles. Two decades of wars, trade agreements that have left working people behind and a feeling that other nations were just freeloading and letting the US be the world's policemen. That didn't start with Trump.
Irrespective of whether you agree with the perspective or not, it's been growing any United States with massive levels of inequality and large numbers of Americans that feel like the system doesn't work for them, and that includes first and foremost, how America has projected its power internationally. Don't you remember on the other side of this equation just how many US allies were saying that the Obama-Biden team were leading from behind? Again, didn't start with Trump. Martin sees the president as a threat to US leadership in the world. But a lot of Trump's supporters think he's just standing up for them and not letting other countries take advantage of the United States.
Next, is Trump's goal to do whatever he likes, laws be damned? Martin writes, "He wants to be an autocrat. If he wins again, he may largely achieve his aim." Disagree. Trump wanting to be an autocrat and Trump actually having that capacity, not to mention competence, are two radically different things. Trump focuses more on tweeting and petty grievances than actually consolidating power. Heck. Remember, when the biggest crisis of not only his administration, but my lifetime came, coronavirus, that would have given any president the chance to consolidate power, emergency rule, really take control in the United States, President Trump wanted none of it. He said, "Not my responsibility. The states are in charge." That isn't someone who's about to become an autocrat.
Many American political institutions have eroded not only under Trump, but over the past 30 years. Congress, the executive, the bureaucracy, the mass media, and indeed American elections. I'd argue the American judiciary and the military largely are as strong as they have been, and that process has indeed sped up under four years of Trump. It's been a long time since the United States has truly led by example. Other countries don't look at the US today and say, "We want our government to run like that," and that's also true of the United Kingdom, by the way. I mean, we aren't Canada, we're not Germany, we're not the Nordics, and it's true that we will slip further away faster under a potential second Trump term. But autocracy is not a potential outcome of this election.
Finally, Martin writes that Trump is indifferent to pass promises, rejects multilateralism and happily pulls out of commitments, such as the Paris Climate Accord. Sure. Trump has been louder and prouder about this. It's true, though, you can't exactly say that the Iraq War was a group effort. Look, to that larger point, I think that Martin paints an overly rosy picture of American democracy of yore. FDR gets credit for saving democracy globally as the article points out, but systemic racism abounded in the US and still has a ways to go today. During World War II, Japanese Americans were held in prison camps.
Look, a Biden presidency will end up being a lot more similar to Trump on foreign policy than the establishment thinks, both because he'll be in part more aligned than they think, and in part, because he'll be more constrained than they think, and that's in part because the world has changed and in part because the United States has.
Speaking of that, be sure to vote if you haven't already. That's your Red Pen for this week. Stay safe and avoid people.
Calling AMLO authoritarian is a gross exaggeration
The article correctly points out this has not been a good couple of years for Mexico or for AMLO, and we agree with that assertion. But it's time to get out the red pen, because we're not buying a central argument of this piece.
The FT writes that AMLO is an "authoritarian populist," and under his leadership, Mexico is headed for a "more repressive" system. The article cites a litany of aggressive behavior against his critics, such as intimidating the media or calling out environmentalists who don't like his infrastructure projects. "When a president demands 'blind loyalty,' from officials," the FT writes, "alarm bells should ring."
Sure, AMLO is incompetent, his policies are messy, and he uses aggressive rhetoric. But we need to separate his bark from his bite. Is he intolerant and hostile? Yes. Is he suppressing protests, shutting down media outlets, and disrupting the electoral process? No.
Next, the FT writes that while AMLO won a big victory in 2018, he did not win "a mandate to dismantle institutions" in Mexico.
Actually, Mexicans elected him president precisely they didn't trust those institutions and felt they were only there to benefit the rich. Many of those same institutions were already weak or in need of reform. AMLO has accepted limits in congress and the judiciary and has made no mention of broad institutional changes--as other truly authoritarian leaders have done.
Finally, the FT writes that under AMLO, "The golden opportunity offered by the newly-agreed US-Mexico-Canada free trade agreement to lure American companies returning from China to Mexico is being squandered." And that is just wrong.
We definitely need some red ink on this one. USMCA would not have advanced without AMLO's full support. It was approved just last year, and then the pandemic hit the economy. It's hard to say what longer-term impact it will have. But while AMLO could have played hardball with Trump and ruined one of the most positive developments in the Mexican economy, he did the opposite.
There's another point the op-ed misses which better explains why AMLO is president at all—Mexico endured a couple of decades of weak leadership, widespread corruption and the impact of violent drug wars, and disappointing economic growth.
AMLO may not end up being the right guy to turn all that around for a number of reasons, but calling him authoritarian is a gross exaggeration.
There you have it. That's your latest edition of The Red Pen.
Bolsonaro is an incompetent populist, not planning a military coup
We're taking a look at Brazil and that nation's controversial president, by way of a recent editorial from the F.T. The Pinks, as they call them. It's titled, "Jair Bolsonaro sparks fears for Brazilian democracy." Now, Brazil has more than its share of troubles, and especially right now, as they are the epicenter of the global coronavirus epidemic. The shameful mishandling of coronavirus, I mean, truly, even worse than what we've seen in the United States, by the president, has led to an explosion of outbreak there. And Bolsonaro was actually even censored on social media. I don't mean just like, a fact check. I mean, absolutely shut down for promoting false information about the virus. And in general, he's been called the tropical Trump. He's lost two of his ministers of health within four weeks of each other because he's been promoting chloroquine as a miracle cure. He's involved in rallies and occasionally not wearing masks while he's with all sorts of mass public on the streets. I mean again, everything that's been driving people crazy in the United States, take that, multiply it by about 50, and you see what president Bolsonaro has been doing in Brazil.
But the premise of the F.T. editorial is not that Bolsonaro is incompetent or that he's doing a bad job. It's rather that he has the ultimate goal of dismantling Brazil's democracy. The democracy they've had since 1988 when a new constitution brought an end to military rule. And on that, I say not so fast.
First, the Financial Times argues the Bolsonaro is at war with the Supreme Court, with Congress and with the press, all in effort to undermine Brazil's democratic institutions. Now, actually, Bolsonaro is much weaker than any of this lets on. It's less that he's trying to destroy other parts of government and certainly not that he'd be successful. Rather, he's responding to pressure to shrink his already comparatively limited power.
Also, worth noting on that point, the F.T. cites the fact that Bolsonaro has attended rallies where protesters were calling for a shutdown of Congress and the Supreme Court, to return to military rule. But there happens to be record high disenchantment with Brazil's democratic institutions. So, it's no surprise that the president is fanning the flames for political gain. That makes him a populist. That's very different from a would-be dictator.
Which brings us to the military, F.T. writes "Mr. Bolsonaro's fondness for military rule goes beyond words and symbols; a former Army captain, he has packed his government with more than 100 serving and retired military officers, including several cabinet ministers and his vice president." That is meant to bolster the argument that the president of Brazil is looking for a military dictatorship. Now, to be clear, Bolsonaro has a military background. And he has stacked his cabinet with generals. That makes a lot of people queasy in a country that recently had military rule. But there is zero support in the military for actually breaking apart Brazil's democracy. The generals see the military as the protector and not the enemy of the Constitution.
Finally, the F.T. argues that Bolsonaro is trying to provoke a crisis of democracy to get reelected as his nation reels from the pandemic. Now has the third highest death toll in the world and a lot lower population than the United States. And his poll numbers continue to sink. The Red Pen is telling you that the drop in Bolsonaro's approval ratings has actually been pretty modest so far, and he isn't using polarizing language to justify military intervention, he's doing it because it mobilizes his base.
Does that sound like anybody we know? Absolutely. It's exactly what's happening with President Trump in the United States. And the effort of mobilizing the military in the US was, of course, massively constrained by Trump's own generals. The head of the Joint Chiefs writing a memo saying that the generals report to the Constitution. They are loyal to the Constitution, not the United States president. Hundreds of generals, former defense ministers, secretaries of defense and heads of Joint Chief, all saying they feel the president himself is acting in unconstitutional fashion. That doesn't mean the United States on the verge of becoming a dictatorship, but actually shows the United States has much stronger, independent, professionalized military than a lot of people previously believed.
In Brazil, that's the case, too. And so Bolsonaro may need to go. And if it happens, it's going to happen with a democratic election. It's not going to happen on the back of a failed coup attempt and the potential for the military to take over a thriving democracy in the world's largest economy in South America.