Capitalism: Which way forward?

Global corporate giants need to learn from their mistakes.

Globally, most corporations are undertaking rightsizing in some form or other. Retaining profitability, for them, means optimising on costs, budgets, headcounts and allocations.

In the end, a successful entity will take up survival strategies; either by reducing direct costs as compared to its competition, or reducing the number of competitors by actively seeking mergers and acquisitions. Such measures are of course, are accompanied by the biggest fear – that of the creation of monopolies.

However, too big a size leads to dangerous domination tactics that are not easily tackled. Powerful companies tend to bend the rules to their own competitive advantage.

Corporate consolidation has been a key part of the story of contemporary capitalism, and helps explain why it has the character it has. The degree of consolidation is indeed striking, particularly as regards to older capital-intensive industries such as car manufacturers, shipbuilding or steelmaking.

Take cars for example. In the post-war period, there were literally hundreds of manufacturers in Europe. Now we can count them on our fingers. The last of the French car brands collapsed into Renault, in a classic case of high-powered accelerated consolidation. Look around into other sectors like media , software, beverage companies, luxury goods and banking. Wherever you look, a similar situation persists – mergers, acquisitions, strip downs and streamlining. Rightsizing does not always mean downsizing for the world’s corporate elite.



Between Unilever and P&G alone, there are thousands of brands of soaps and dishwasher detergents. The fact is that the shelves of our supermarkets are handling a tremendous weight of extensive product ranges, but the big giants are the ones that shape up the market place by gobbling up what they want to suite their own interests.

Another significant factor that fuels this phenomenon of contemporary capitalism is that it operates within the legal and political framework, reflecting its global dimension. International trade is what drives it. Their aim – to maintain all control over financials and trade around the entire world. Countries that set up these global giants did so to ensure significant clout of their own, nationally and economically, to help assist their ‘free’ markets get even ‘freer’.

This effort is highly-respected in capitalists circles, as this is what business means for them – the ability to make capital move freely and to promote and facilitate the ability of capitalists to move freely, compete on a level playing field, open up markets, unlock competition, bring about currency reforms, ensuring labour markets are flexible, and then make abnormal profits.

Corporate contemporary capitalism is indeed a powerful animal. Imagine being able to dump your products at your price and your costs at will. Sugar produced in the EU states, for example, trades for less in many of the markets in the developing world than the sugar produced at home; putting locals out of business despite the fact that they produce cheaper sugar than their EU counterparts in real terms.

However, the trend seems to be reversing, as the poor nations of yesterday are not as poor as they appear, and the formerly ‘rich’ nations are not as filthy rich anymore. It is amazing how quickly the tides turn. As the economic depression submerges most major powers today, smaller pockets are rising up and are trying to carve out the new world trade map among themselves.

The shifting fault lines make on ask: do we still love capitalism? If you look at major financial institutions today, they plan to lay off around 10,000 people by 2015, replacing investment banking with wealth management, as the latter is more prudent risk-wise. Barclays has seen a change in its top management, while HSBC and Citibank have shut off part of their global consumer operations and are heading towards consolidation.

Are we all slowly moving towards a superior form of capitalism, through better customer services, operational excellence and conservative lending? I believe so. I think we are slowly realising the negative effects of capitalism and its impact on our society and spending patterns. As the economic trajectory of the world shifts towards a different horizon, I think that those at the top would do well to revisit their past strategies and learn from mistakes so that the corporations of tomorrow are better and more consumer-savvy than solely interested in making profits only.

THE WRITER COMMENTS ON INTERNATIONAL RELATIONS AND PUBLIC POLICY AND IS ALSO A BANKER AND BROADCASTER FOR FM 91

Published in The Express Tribune, February 25^th, 2013.

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