Friday, February 3, 2012

Welcome back home, 'stateless' corporation

Three years ago, I wrote, tongue-in-cheek,  that we may be seeing the beginning of the end of the nation-state.  Because of four decades of relentless globalization, capital was now free to go anywhere in the world, anytime it wanted, instantaneously. One day capital could be rushing towards Brazil, while the next, it's rushing out to speed on to India.  The next obvious goal for the world 'surely' was the global mobility of labour, which would be the final step in dismantling all national borders, and the entire concept of the nation-state.

I wrote: Everything else in the world is mobile – capital, technology, products, entire businesses. But one crucial aspect of enterprise isn’t, and that’s people. This has resulted in a severely lopsided globalization process….people cannot mitigate the effects of a relatively-more benign policy in one region by migrating to it, or mute the harsh consequences of a neighbour country’s (competing or trading partner) actions, by piling on to that country.  Countries currently compete to attract capital and technology, but not a lot also compete to attract labour.

But of course, the world is not yet ready for this step, and all its ramifications. So, the next most logical cure for the large imbalances caused by globalization is its retreat.  We should see a gradual acceptance once again of capital controls and trade controls - capital controls to both keep existing capital in, and to keep new capital out. Too much fleeing capital could collapse a currency, too much flowing in could make it too expensive.   

Obama's most recent state of the union speech is an indication that protectionism and trade restrictions will become more prevalent in the coming years. He's already given the first warning signs to those who continue to choose to outsource American jobs abroad. In a world where the conspicuous consumer has retreated, where everybody is trying to save, or pay down debts, and where jobs are disappearing as a result, barricading jobs  and keeping them from being off-shored has become priority one.  

So what do we expect of this going forward? We'll probably see much of the "stateless" corporations to become once again home-focused businesses. We'll see them retreating from countries where they have no significant consumer toehold, and bring their processes back to where their end consumers live.

We'll see globalization stop dead on its tracks, and both private and public sectors start focusing on their own domestic economies.  Which is probably just as well. With less global linkages, all economies will start decoupling from each other.  Everyone will start focusing their economic development efforts on their own domestic economies, and on where they're supposed to have from day one: not merely on creating jobs, regardless of where its place in the value chain was, but on building prosperous domestic business clusters of their own, ready to hire locals as much as to sell to them.


Added in comments: On a generalized view, I think companies that find they have a stronger demand for their goods and services abroad than locally will start transferring head offices abroad. Those with equally strong local and foreign demand for their offerings will probably have a local presence everywhere. Even if their operations costs will cost more in the US, if the new offshoring tax equalizes overall cost, penalizes not having local presence, they would probably choose to move back a lot of their jobs. Those that only serve locals will probably move everything back.

For example, if Apple, Dell, or JP Morgan find that their main growth would be in Asia, they'll probably move head offices there, and export to the US, or serve the US market from there. They won't be affected by the tax if they are no longer US companies. If they feel that their offerings will be equally as strong both in the US and abroad, they'll probably have local manufacturing/operations both in Asia, and in the US (to avoid any offshoring penalty and taxes). But if they only serve the US public, like your local telecom or cable company, they'll probably begin to rethink having their customer service operations abroad, and bring them all back.


6 comments:

StockManiac2008 said...

Wow. That's a nice way to look at things. You are right, with all these "Arab Springs" all over the globe due to vast majority of the youths unemployed, I think the states will re-look at globalization and get back to Nationalization. I think this time with all the new development in communication technology, nationalization will do well without oppression. We would then enter the New Golden Age.
Looking forward to it, if not for me, but for my children.

Mario said...

as usual....great stuff here rogue.

Putting flesh and blood on this stuff....what types of jobs do you think will be coming back home? Apple, Walmart, Gap, etc.??? And does this really boil down to more employed people but a lower average of earnings per person? And isn't that in the final analysis some weird step-child between a currency war and a deflationary spiral?

It would be great if these stateless corps (and state-full corps too) didn't have to even consider offering health insurance anymore either and that individuals didn't have to have their health issues tied into their place of work. Lower variable costs and ubiquitous health care for all = bigger smiles for everyone involved on the home front (and more good paying jobs and healthy consumption too...no pun intended ;)

Rogue Economist said...

Mario, which jobs come back would depend on how Obama starts off this announced taxation program of offshorers. On a generalized view, I think companies that find they have a stronger demand for their goods and services abroad than locally will start transferring head offices abroad. Those with equally strong local and foreign demand for their offerings will probably have a local presence everywhere. Even if their operations costs will cost more in the US, if the new offshoring tax equalizes overall cost, penalizes not having local presence, they would probably choose to move back a lot of their jobs. Those that only serve locals will probably move everything back.

For example, if Apple, Dell, or JP Morgan find that their main growth would be in Asia, they'll probably move head offices there, and export to the US, or serve the US market from there. They won't be affected by the tax if they are no longer US companies. If they feel that their offerings will be equally as strong both in the US and abroad, they'll probably have local manufacturing/operations both in Asia, and in the US (to avoid any offshoring penalty and taxes). But if they only serve the US public, like your local telecom or cable company, they'll probably begin to rethink having their customer service operations abroad, and bring them all back.

Mario said...

very interesting points. I haven't even watched the state of the union or been plugged into the latest of what obama is saying lately. I have been busy elsewhere personally.

These are very interesting points you are bringing up. How funny and odd would it be for JPM or Apple or something to actually no longer be a US company and be a Chinese company??!! LOL But don't you think that when looking at government oversight and regulatory processes in other countries like China would be a major hindrance or concern for them to literally pick up totally and move out? I mean they really are getting the best of both worlds as it is now in so many ways. A tax restructuring of offshoring is definitely a much needed call. I guess the idea is let the middle years of a president's term "lag" and then go for the gusto in election years. LOL The economy this and the economy that....it all comes down to politics!!! How audacious of them indeed. Cheers mate!

Rogue Economist said...

Yes, Mario, who knows how it all plays out. Some might leave the US, but that in itself will have its own pitfalls, so that decision can't be taken lightly. But likely net net, they'll be forced to bring back jobs if the cost is penalties and high taxes.

And you could also be right. This could be nothing more than election year rhetoric. But if unemployment doesn't improve in a significant way in the next four years, Obama could be held onto his word.

Mario said...

But if unemployment doesn't improve in a significant way in the next four years, Obama could be held onto his word.

And if that looks anything like the way that Bush has been held accountable for going into Iraq then I'd say he's got nothing to lose sleep over. These guys are "safe" from all real accountability.