An Agenda for the Future of Global Business9 March, 2017 / Articles
For all of the uncertainty and anxiety in headlines today, the world is a much better place than it has ever been. In emerging markets, billions of people have moved out of extreme poverty. In the developed world, we enjoy better medicines, connectivity, and mobility than most of us could have imagined even 20 years ago. The promise of global progress has become a reality for many — but not for all.
Our global narrative of progress, the implicit case for embracing change in exchange for its fruits, is being increasingly called into question by economically marginalized groups and populist politicians across the globe. This narrative has rested on three propositions: that globalization is a major driver of growth and prosperity; that technological progress enriches our lives; and that shareholder returns reflect businesses’ contributions to societal progress.
Those who question the continued applicability of this narrative have a case. While globalization has increased aggregate prosperity and reduced inequality across nations, it has also created winners and losers within nations.
Rising income inequality has become a driver of the widening trust gap between the elites and everyone else, which has helped fuel the rise of populism.
And there is an increasing fear that technology could make matters worse by displacing jobs on a large scale. With policy makers distracted by political polarization and limited fiscal and monetary room to maneuver in, one thing seems certain: Global businesses must advance a new, credible narrative for globalization, technology, and the role of corporations — and support it with purposeful action.
Where Did the Existing Narrative Break Down?
Popular support for globalization has largely rested on the premise that most people would benefit, many could succeed through their own efforts, and a social safety net would temporarily protect the disadvantaged. Traditionally, it has been government’s role to provide equality of opportunity (particularly through education), an effective safety net, and social, political, and economic stability.
Meanwhile, business was free to focus on generating growth, productivity, innovation, and, ultimately, societal wealth. This approach was credible as long as economic inequality was kept within reasonable bounds. Persistent and growing income inequality in many Western societies and elsewhere around the world suggests these bounds have been passed. While we can disagree about how to fix the problem, we must acknowledge that globalization is a hard sell if it doesn’t address these distributive issues.
The same goes for technology. At the current moment, enthusiasm about the new possibilities opened up by artificial intelligence is increasingly tempered by fears of unequal gains and potential job losses. The focus on the functionality of new technology and the absence of an inclusive narrative that emphasizes equality of opportunity is already stoking a backlash. Here, again, the case for technological progress can be a hard sell if wider criticisms are answered mainly with historical analogies purporting to demonstrate that everything will work itself out in the end.
Lastly, the corporate focus on maximizing shareholder value has certainly advanced productivity and created growth, wealth, and employment, but now it needs to contend with slow productivity growth, stalling global trade, and a growing awareness of unintended social and environmental side effects. So far, corporations have mainly reacted by increasing share buybacks, accumulating corporate cash mountains, and driving dividends toward historic highs. Meanwhile, investment rates are in decline, despite prevailing low interest rates.
As a result, more companies are being valued based on their current earnings than on their growth potential.
Our research shows that many companies are increasingly geared toward the short term. Such companies tend to generate less growth and value in the long run.
What’s required for a new narrative to be credible? “Business as usual” will not be sufficient, even with an increased emphasis on corporate social responsibility. Cosmetic course corrections will not restore trust and credibility. We believe a compelling story will require reworking both the plot and the roles of the key actors. Business leaders, along with the companies they lead, will need to take an active stance, shaping the conditions for future success, rather than merely reacting to twists in the plot.
To preserve global progress, this new narrative will need to place increased emphasis on equal access to economic opportunity. But a better narrative alone will not be enough. Business leaders will need to visibly embrace and take action on a new agenda to shape the future, both for the direction of our societies and for the sharing of benefits and opportunity within them.
Toward a New Leadership Agenda
To do so, business leaders must balance two apparently conflicting objectives. First, they must secure the prosperity of their own companies. This remains a CEO’s prime responsibility, and it has become much harder in an era defined by lower growth, impatient investors, geopolitical uncertainty, and rapid technological change. Second, they must secure the conditions for sustained prosperity, which requires a more inclusive model for global economic integration and technological progress.
To achieve those ends, we propose that business leaders support a new agenda, comprising seven areas of opportunity. The agenda goes far beyond political activism; it attacks root causes by committing to sustaining an inclusive model of economic growth. This action will entail making unfamiliar and uncomfortable choices, including balancing short-term returns with supporting economic and societal progress to strengthen enterprises for the long term. These are the seven areas:
1. SHAPE THE NEXT WAVE OF GLOBALIZATION. While the last wave of globalization centered on accessing foreign markets and creating low-cost global supply chains, the next wave could follow a very different pattern. In his 2016 commencement speech at New York University, Jeff Immelt, the CEO of GE, described what it could look like: globalization that is less centralized, more geographically differentiated, more digitally interconnected, more cognizant of social impact, and focused on building local capabilities rather than exploiting labor cost differentials.
Business leaders can take an active role in shaping the next phase of globalization by looking beyond cost-based offshoring and emphasizing the benefits of trade and technology across a wider geographic and demographic base. Advanced manufacturing technologies, for example, are starting to reshape the supply chain road map that’s been in place for the past few decades by reducing the importance of scale in production, increasing flexibility, and enabling production to move closer to end markets. Software, sensors, and analytics are shifting value creation from stand-alone products to combinations of products and services.
Businesses can use these trends to reconnect with their customers and their communities. We already see companies localizing time-sensitive and highly customizable forms of production to move closer to customer demand, particularly in the fast apparel (Adidas, Zara) and automotive (Tesla) industries, thus turning global supply chains into two-way streets.