The Schumpeter page of the Economist this week has a subtitle “The golden age of the Western corporation may be coming to an end” and refers to a major review by McKinsey Global Institute (MGI) of 30,000 firms around the world over a 30 year period. What it says in brief is that the extraordinary success of the typical ‘imperial’ Western multinational is now coming to an end.
Muscling in are now a new breed of high-tech firms from both the West and Asia, particularly China, that start out as high-tech from their inception and achieve massive sales in the blink of an eye so that, unlike the older sort, the dominant owners are not wide swathes of shareholders so much as their original founders with more political power than even the robber barons of a century ago.
So far so good but, as to political power of the modern firms, the MGI doesn’t mention what I’ve referred to several times in these blogs, that it’s much more than that of influencing governments these days, but of facing up to them if necessary — such as Google, Apple and others are doing today in flatly challenging the power of governments on matters of the privacy of their customers’ communications. Furthermore, what is also happening as a correlate is that advanced government corporate tax-takes have declined to a half in the same 30-year period.
Another big deficiency of the McKinsey report is that when trying to suggest what the more traditional advanced countries should do in retaining former shares of global trade and thus prosperity, all it can suggest is to continue cultivating their existing success in the “ideas sector”. By way of examples, it gives our present apparent predominance in financial services, the media, pharmaceuticals, logistics and luxury goods. Well, I’m not so sure that Asian firms, particularly Chinese, are not already catching up fast in these more ‘refined’ areas.
It is astonishing that McKinsey doesn’t mention the two fastest growing consumer sectors of them all — education and health. And in these two areas, the West has a distinct advantage in the necessary scientific research underlying them — brain-mapping and gene-mapping. Eastern Asia, steeped as it is in Buddhism (fatalism) and Confucianism (deference), won’t be catching up anytime soon until its culture changes greatly. The scientific rigidity and the social isolationism of Japan, despite 150 years of industrialism and international trade, is a very good example of how slowly such a culture changes.
But there’s another characteristic of education and health that’s quite unlike the ‘imperial’ firms, youthful high-tech corporations and the supposed ‘ideas sector’ firms. Whereas their goods and services are mass producible good education and good health care depend very much on the individual — his or her unique blend of genes, unique upbringing in childhood and, thus, unique needs. The very best education and health care have to be individually delivered.
And it is in these areas where capitalism breaks down completely. Whereas business investment hitherto in goods and infrastructural services can be assessed against likely, or possible, future profits, investment in the training of educational and medical service professionals cannot be assessed. Training is very long and expensive and while it lasts there can be no guarantees of what by way of skills is going to emerge at the other end — if indeed those who were trained remain in them. There can be only one investment source for this unknown return — governmental.
Mass production for standard consumer goods will continue, of course (we all need some physical signs of our social status!), but what is already beginning to follow are educational and health care services which are already taking up a larger proportion of personal expenditure. For nation-state governments (or regions, or cities or whatever governmental domains there may be in future years) a great deal of present expenditures will have to be skimmed away and applied to investment in vocational training in the two new growth areas.
And, in future years, when global competition has driven most businesses down to near-zero profit margins, there’ll be no further need for business consultancy firms which are presently in the business of advising others how to maximise profits by various methods of physical efficiency in mass production and delivery.