he newly approved United Nations Pact for the Future includes many groundbreaking commitments, such as efforts to support economic rights and give developing countries a greater voice in global economic norm setting and decision making.
This comes as elected leaders on the ground face increasing pressure to deliver the opportunity for growth and prosperity to their citizens. For decades this meant paying attention to “smart policy” pushes and creating regulatory environments supportive of entrepreneurship and innovation. With the rise of authoritarian mercantilist states, issues around economic security have risen to the top of many agendas. A key question has become how to balance the need for an open economy and pro–growth policies with the need for economic security tools that protect both citizens and the state from coercion and threats. Looking at supply chain trends and efforts to craft security policies in a joint manner may provide a some glimpse of the future.
Supply Chains
Over several decades, which included the collapse of the Soviet Union and the emergence of China in international supply chains, development and production increasingly focused on reducing costs and providing supplies “just in time” for assembly or sale, with parts often coming from dozens of sources. As Covid and other crises made clear, delays of even the smallest necessary components had the potential to halt completion of entire product lines such as automobiles, resulting in scarcity and financial vulnerability.
Many multinationals have been evolving their “just in time” approaches to “just in case” models, attempting to move supply chains closer to manufacturing hubs and building up inventories that were previously kept lean. This shift has contributed to inflation and price increases in numerous categories of goods. It also represents a new type of globalization that includes new threats and demands for increased vigilance.
For example, China, through a system of subsidies and mandates to state firms, has managed to dominate the lithium battery market that powers two–thirds of the world’s electric cars, and is leveraging new forms of economic coercion and “corrosive capital” investments with trading partners. Targeted sectors often include consumer goods, agriculture, energy, and natural resources. Meanwhile, European countries continue efforts to diminish their longtime dependence on Russian gas due to the war on Ukraine.
Strategic Capitalism
Experts in geoeconomics flag that some companies are embracing “strategic capitalism” in response to rapidly evolving state actions that put new conditions on trade and impact local or regional business operations, thrusting them in the middle of rapidly changing situations. This approach can lead to less efficient markets, including excessive redundancy in supply chains, and ultimately a hesitancy of businesses to commit to long term projects in emerging markets. This accompanies concerns about eventual impact on rule of law and limitations on economic freedoms that enable more people to own businesses or hold jobs. For strategic capitalism to work more effectively there must be more institutionalized strategic dialogue between business and government on matters related to economic security.
The European Union, United States, Japan, and others are exploring new ways to address various risks and bolster democratic and free market principles. This includes specific actions to enhance economic resilience, such as U.S.–EU Transatlantic Trade and Technology Council, which works to counter economic coercion and fortify economies against potential disruptions. The council plays a crucial role in fostering cooperation in technical standard–setting, promoting a democratic model of digital governance as an alternative to authoritarian models.
Additional efforts seek to expand related G7 commitments to other democracies, as well as increase public–private dialogue that includes crisis management scenarios. Businesses, particularly those operating in critical sectors such as technology, healthcare, and energy, can play an important role. They are positioned to provide insights into market dynamics and supply chain challenges, as well as contribute to realistic strategies for enhancing economic resilience.
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Balancing economic opportunity and economic security
Photo by Wolfgang Weiser from Pexels.
September 27, 2024
Economic security is reshaping global trade, as multinationals shift from "just in time" to "just in case" models and confront supply chain vulnerabilities. Strategic capitalism is emerging in response to state-driven policies, creating both challenges and opportunities, writes Eric Hontz.
T
he newly approved United Nations Pact for the Future includes many groundbreaking commitments, such as efforts to support economic rights and give developing countries a greater voice in global economic norm setting and decision making.
This comes as elected leaders on the ground face increasing pressure to deliver the opportunity for growth and prosperity to their citizens. For decades this meant paying attention to “smart policy” pushes and creating regulatory environments supportive of entrepreneurship and innovation. With the rise of authoritarian mercantilist states, issues around economic security have risen to the top of many agendas. A key question has become how to balance the need for an open economy and pro–growth policies with the need for economic security tools that protect both citizens and the state from coercion and threats. Looking at supply chain trends and efforts to craft security policies in a joint manner may provide a some glimpse of the future.
Supply Chains
Over several decades, which included the collapse of the Soviet Union and the emergence of China in international supply chains, development and production increasingly focused on reducing costs and providing supplies “just in time” for assembly or sale, with parts often coming from dozens of sources. As Covid and other crises made clear, delays of even the smallest necessary components had the potential to halt completion of entire product lines such as automobiles, resulting in scarcity and financial vulnerability.
Many multinationals have been evolving their “just in time” approaches to “just in case” models, attempting to move supply chains closer to manufacturing hubs and building up inventories that were previously kept lean. This shift has contributed to inflation and price increases in numerous categories of goods. It also represents a new type of globalization that includes new threats and demands for increased vigilance.
For example, China, through a system of subsidies and mandates to state firms, has managed to dominate the lithium battery market that powers two–thirds of the world’s electric cars, and is leveraging new forms of economic coercion and “corrosive capital” investments with trading partners. Targeted sectors often include consumer goods, agriculture, energy, and natural resources. Meanwhile, European countries continue efforts to diminish their longtime dependence on Russian gas due to the war on Ukraine.
Strategic Capitalism
Experts in geoeconomics flag that some companies are embracing “strategic capitalism” in response to rapidly evolving state actions that put new conditions on trade and impact local or regional business operations, thrusting them in the middle of rapidly changing situations. This approach can lead to less efficient markets, including excessive redundancy in supply chains, and ultimately a hesitancy of businesses to commit to long term projects in emerging markets. This accompanies concerns about eventual impact on rule of law and limitations on economic freedoms that enable more people to own businesses or hold jobs. For strategic capitalism to work more effectively there must be more institutionalized strategic dialogue between business and government on matters related to economic security.
The European Union, United States, Japan, and others are exploring new ways to address various risks and bolster democratic and free market principles. This includes specific actions to enhance economic resilience, such as U.S.–EU Transatlantic Trade and Technology Council, which works to counter economic coercion and fortify economies against potential disruptions. The council plays a crucial role in fostering cooperation in technical standard–setting, promoting a democratic model of digital governance as an alternative to authoritarian models.
Additional efforts seek to expand related G7 commitments to other democracies, as well as increase public–private dialogue that includes crisis management scenarios. Businesses, particularly those operating in critical sectors such as technology, healthcare, and energy, can play an important role. They are positioned to provide insights into market dynamics and supply chain challenges, as well as contribute to realistic strategies for enhancing economic resilience.
