Does 'The End Of The Free Market' Mean The End Of Big Oil And The Multi-National Corporation?

A corporation that finds itself at war with a state these days is in big trouble. We've had one such conflict so far this year, and it's China 1, Google 0. More of these confrontations are coming.
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Last week, I posed the question that serves as subtitle for my book: who wins the war between states and corporations?

The answer is pretty simple. A corporation that finds itself at war with a state these days is in big trouble. We've had one such conflict so far this year, and it's China 1, Google 0. More of these confrontations are coming.

It's happened before. Decades ago, a multinational oil company could cut a quick deal with a dictator, stick a straw in the ground, suck out the oil, and reap the lion's share of profits. Then states went into the energy business with the construction of national oil companies. "Big Oil," at odds with state governments, had few choices. Fight, flight, or adaptation. If you fight, you're going to lose. If you flee, you may miss potentially lucrative opportunities--though in some cases, an exit strategy is the only real option. Then there's the option of embracing change.

This is happening now. As increasingly capable state-owned oil companies and privately owned firms with financial and political support from their governments threaten to crowd out more of the multinationals, the latter know they can either close up shop or find new ways to make themselves indispensable for oil production. In some cases, that means partnerships with state-owned rivals. In others it means investing more heavily in parts of the business where they still outperform the state-owned competition--deep water exploration, management of complex projects, etc.

But this familiar story is playing out in new ways as states now move into telecoms, power generation, shipping, aviation, arms production, and other sectors. There are plenty of industries where privately owned companies are still state of the art, but the list of industries where state domination brings political rewards for governments is growing. Here, the old way of doing business won't work.

During her recent visit to China, Secretary of State Hillary Clinton told her Chinese interlocutors that it was in their interest to create and maintain a level commercial playing field within China on which Chinese and foreign companies can compete. Good luck making that sale. Foreign companies hoping to thrive in China will have to recognize the new threat from government-backed local competition (they're often slow on that) and then adapt to exploit their advantages (here they're usually faster and stronger).

During World War II, the US Navy used small, agile PT boats to frustrate the progress of enormous Japanese destroyers. It's the same principle here. Companies move faster than governments. Some will survive. Others will get crushed. Many will learn valuable lessons in the power of adaptability.

Speaking of Google, one sector, in particular, faces an unprecedented challenge. Information technology companies have grown enormously over the past several years as the cross-border flows of ideas and information opened access to customers, capital, and labor all over the world. Borders seemed to matter less than ever. But as cyber-security surges to the top of the list of 21st century national security concerns, borders are back with a vengeance, and governments are involving themselves as never before any many aspects of the IT business. Nowhere is the need for adaptability greater than for those entrepreneurs looking to make their money in the information-sharing business.

It's a good thing corporations adapt more quickly than governments do. They'll have to.

Ian Bremmer is president of Eurasia Group and author of The End of the Free Market: Who Wins the War Between States & Corporations? (Portfolio, 2010)

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