Published in the Financial Times
Martin Wolf makes some powerful points on the progressive loss of faith in free markets and free trade (Conservatism buries Ronald Reagan and Margaret Thatcher. May 23rd, 2017). He makes only passing reference to the fundamental dysfunction underpinning the major shift in the popular mood and the consequent shift in political stance. The progressive dissociation between democratic accountability and economic power.
As Mr Wolf notes, politics is largely a national affair. In spite of grand notions of global governance, the nation state remains the primary locus of democratic legitimacy. Economic and financial activities have, on the other hand, become largely transnational or global. Should transnational economic forces continue to become more powerful than elected national governments, then we will have slipped seamlessly from democracy to plutocracy.
These shifts drive the political responses that Mr Wolf describes. But business also has a role to play. Leaders of global and transnational corporations need to decide whether their primary loyalty is to themselves and their shareholders. They should therefore continue to act as agents of international arbitrage in investment, jobs and taxes to maximise returns. Or whether they would rather use their global reach to be responsible local citizens in all countries in which they operate. A choice for the former inevitably leads to a continued rise in nationalist and protectionist politics as citizens resist the undermining of their democracies and elect those who seem willing to take on narrow financial interests – by whichever means. The consequences for business will be substantial.
Business leaders are very used to evaluating the impact of politics on their business. They should also consider carefully the impact of their business practices on politics itself. It’s not a one way street.