2019 in review: coping with geopolitics and anti-capitalism

THE LOT OF the company is never easy. It must juggle the demands of shareholders, employees, customers, politicians and regulators. In 2019 the juggling act may have become a bit harder. Besides bracing itself for the inevitable next downturn—and, especially in America, declining profits—in the past year the corporate world has had to contend with two new, or newly salient, sets of challenges.

The first has to do with the rebirth of geopolitics. In the decades after the second world war the world globalised broadly within the two warring ideological camps. Supply chains fanned out across the democratic West or the communist East but seldom straddled the two. This began to change when China opened up in the late 1970s, and accelerated as communism crumbled in Europe a decade later. With cold-war divisions a thing of the past, multinationals let themselves be guided by the profit-maximising logic of commerce.

No longer. From trade wars to Brexit, geopolitical barriers are going up again, cutting across the globe’s supply chains. Technology firms, which obtain critical components from a surprisingly small number of manufacturers, many of them in vulnerable Taiwan, are particularly exposed. Western firms such as Apple continue to rely heavily on Chinese manufacturers. Even though Westerners increasingly covet Chinese technology, many Chinese companies still rely on Western know-how. When America’s government barred its companies from doing business with Huawei on national-security grounds in May, some predicted that the Chinese maker of telecommunications gear might collapse.It didn’t. But foreign suspicions of Huawei are hemming in the global rise of China Inc. Perhaps in an effort to allay them, Huawei’s boss told The Economist in September that he would consider selling its foreign business to a Western buyer. Expect geopolitical preoccupations to hang over boardrooms in 2020.

The second set of problems for chief executives stems from a backlash against capitalism—or at least the version of it practised so far this century. Companies are increasingly urged to find purpose beyond maximising profits. They are expected to be more diverse, greener and generally kindlier. Internet companies in particular are being hounded by authorities on bothsides of the Atlantic for playing fast and loose with user data and fuelling political polarisation. Calls to break up Big Tech are growing louder. This has not yet affected their juicy profits. But it has led Mark Zuckerberg to consider a new business model for Facebook less dependent on online advertising (even if Facebook’s nascent crypto-currency has gone nowhere fast). It may also have prompted Google’s founders, Sergey Brin and Larry Page, formally to hand over the running of its parent company to Sundar Pichai, boss of its core search business.

Nor is it just corporations. In both America and Asia, business schools are likewise reinventing themselves for the new era. Billionaires are in the crosshairs of millennial socialists. Even reclusive German business barons are finding it harder to keep a low profile and the high priests of management consultancy at McKinsey are rethinking their role.

Yet 2019 has also seen plenty of examples of capitalism’s capacity for self-correction. Companies are evincing greater awareness of the risks from climate change, to their reputations and operations alike (even if too few still do anything about it). True, plenty of money is still chasing carbon-cuddling industries, as Saudi Aramco’s $25.6bn initial public offering in December attests. But a clutch of climate tycoons is also putting serious money into planet-healing investments—hoping for a healthy return.

Stockmarkets may be frothy but throughout the year they have shown less patience for loss-making unicorns such as Uber and Lyft than gung-ho venture capitalists did. WeWork, an office-rental firm masquerading as a tech company, imploded after investors raised questions about its billions in losses and shabby corporate governance ahead of its abortive initial public offering (giving a black eye to its main backer, Masayoshi Son, and to VCs more broadly). As long as competition and capital markets work properly—as in the thriving entertainment industry—capitalism can, 2019 has shown, serve consumers and shareholders alike.

This post was originally posted at https://www.economist.com/business/2019/12/27/2019-in-review-coping-with-geopolitics-and-anti-capitalism.

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