Government’s work gets tougher as power moves to the periphery

17 May 2010

Big organisations are under pressure as technology challenges the global balance of power

World events in the past month are open to many interpretations, but there are lessons for those seeking to make the GCC one of the world’s top 10 economies.

Riots in Greece about planned public spending cuts and the mounting dissatisfaction among German voters about the cost of propping up the eurozone have bemused governments in both countries. Depending upon your viewpoint, the culprit is either the idea of forcing economies with little in common into currency union or the imprudence of Greek workers and householders, though it could be a bit of both.

In the UK, elections on 5 May produced the first hung parliament since 1974 and Britain’s first peacetime coalition for more than 70 years. There is no single explanation. One is that the electoral system is defective. But it may also be because the British people have no idea what they want.

Energy company BP is on the rack as a result of oil in the Gulf of Mexico and is blaming offshore oil driller Transocean. American politicians and many US voters, in contrast, are holding the British oil behemoth responsible.

All three events reflect different aspects of a crisis in confidence affecting big organisations since global financial services firm Lehman Brothers, once considered too good to fail, went bust in September 2008. The challenge facing the leaders of BP, the British government, the eurozone and other monster institutions is convincing sceptics, of whom there are now many more millions, that they, despite recent evidence, know what they are doing and where they are going.

These problems have echoes in the GCC. Large organisations seem to have done worse during the economic downturn that smaller ones. Dubai World is seeking to finalise a $28.4bn debt restructuring deal with its creditors. Size and diversification, once seen as the best way of dealing with financial risk, definitely did not work for the conglomerate.

The experiences of the past two years inevitably raise questions about the future of GCC currency union, the region’s most ambitious convergence project, originally scheduled to have come into effect this year. Oman and the UAE have said they will not be part of it. The rest are still sticking to the plan, though when it will come into effect has become less clear.

And yet, there are signs that enthusiasm for mergers and acquisitions, the quick way of becoming big, remains largely undimmed. The value of GCC deals completed in 2009 collapsed, but a recent survey suggested that it could rise to $25bn this year and to $100bn in 2011. Areas seen as being ripe for consolidation include GCC banking. Big, despite the self-destructive recent behavior of many of the world’s largest business corporations, still looks beautiful to bankers. It makes you wonder what lessons have been learned from the credit crunch.

Rattled by a sequence of setbacks since the summer of 2008, leaders of government and business, nevertheless, appear to be convinced that what has happened is either an exceptionally severe cyclical shock or the result of a technical problem that can be resolved. Changes at the top in government; action, such as the coming of the Conservative-Liberal coalition in Britain; action to set up a system of global financial regulation and a bit of reorganisation in the corporate world will be sufficient in their eyes to restore the steady growth seen after the early 1990s.

But if what is happening is more than part of the natural rhythm of life or a sign that the world needs a makeover, including a bit of surgery? What if the future is going to be radically different from the past and that the volatility of the last two years is simply a taste of what is to come?

Optimists argue that there is nothing in conventional economic and political theory to support that line of thinking. But conventional thinking has yet to catch up with the impact of instant electronic communications. Hundreds of millions of people around the world today are better informed and better educated than ever before. It is increasingly difficult to convince them that what they see on satellite television and read on the internet is wrong and that the government and corporation are right after all.

The big change in British politics is not a hung parliament. That’s happened before, though not often. And it is not a coalition. It is the fact that manoeuvrings, previously hidden, were acted out live for every voter to see. It is unlikely that they will be quickly persuaded to return to relying on official announcements.

It is a story repeated across the globe that will have profound implications for the state and business everywhere. Power to control events is irreversibly leaching away from the top. Management and government need a new way of thinking in an era where certainty is a rarity of limited longevity.

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