Sunday, 21 June 2015

Can Corporate Control or the "China Model" Heal the World?

by Dirk Helbing

It seems the world is changing at a rapidly increasing pace and getting ever more complex. This calls for a new and more efficient approach to decision-making. However, today's democratic institutions are slow, and they are expensive, too. In the meantime, most countries have piled up debt levels that can hardly be dealt with. In order to cope with this, two concepts have been around for some time: (1) the "China model", as China has developed much faster than Western countries recently,[1] and (2) giving more control to multi-national corporations, as they tend to be more efficient than government institutions.

The China model

Has the French Revolution been a tragic historical accident that is now making our lives more difficult? Are democratic decision-making procedures outdated and blocking our way into a better future? Would it be favorable to have more top-down control? This might certainly accelerate decision-making, but would the resulting decisions be better and sustainable, too?

If we implemented the Chinese approach in Europe or the USA, we could easily decide to build a road over here, a shopping mall over there, and even new city quarters or entire towns. Moreover, these projects could be realized in just a few years. This may sound tempting to decision-makers. However, improving a system becomes more difficult the better it is, and given the many interdependencies, any improvement in one part of the system comes with undesired side effects in another part. Over time, many decisions turn out to be less favorable than expected, and quick decisions often result in mistakes. For example, there are many "ghost malls" in China, which almost nobody wants to use, and empty "ghost towns", too. Moreover, environmental pollution has become a serious issue. Some cities are now suffering of smog levels that imply considerable risks to health and make them almost dysfunctional.

At the same time, even though China has quickly developed, the satisfaction of its people with politics has not everywhere increased. Due to the world economic crisis, China is even seeing a dangerous reduction in its economic growth rate, and it must reorganize its economy. To reduce the likelihood of protests, information flows to and from the country are increasingly controlled by the government. In other words, China shows worrying signs of destabilization.[2] India's democracy, in contrast, is doing increasingly well.[3] Also in Europe, federally organized systems such as Germany and Switzerland are performing better than more centrally governed countries such as France and Spain. In fact, it can be said that the most advanced economies in the world are the most diverse and complex economies.[4]

Can corporate control fix the world?

As the governments around the globe have often failed to find solutions to problems such as climate change, companies are often demanding more control. This is probably what the free trade and service agreements, which are currently under secret negotiation, are about: governments will give up some of their power and hand it over to corporations.

Would it be better to run the world by multi-national companies? In fact, companies are often more efficient than governments in accomplishing specific tasks that can be well monetized. However, if we look at maps of what regions of the world are controlled by what companies, it does not look less fragmented than the map illustrating the hypothetical "clash of cultures". So, can we really expect that corporate control would result in more agreement in the world?

While large corporations have certainly a lot of power to move things ahead, they often have low innovation rates and tend to obstruct innovations of others. It even happens that the value of own inventions isn't recognized. For example, Xerox did not see the value of the Windows software they invented. The value of the mp3 music file format was underestimated, too, and nobody expected text messaging to become important. To compensate for their innovation problem, large corporations often buy small and medium-size companies. Nevertheless, this typically does not help them to stay on top for a long time. Within a period of just 10 years, 40 to 50 percent of top 500 companies disappear. Given such high takeover and "death" rates, societies would be extremely unstable if run by corporations. In contrast, countries and cities persist for hundreds of years, exactly because they are governed in a more participatory way, unlike corporations.

In summary, there is little evidence that companies would solve the problems of the world. I don't deny that many companies have laudable goals. The use of self-driving cars, for example, intends to eliminate accidents, which have killed a lot of people in the past. Moreover, by means of personalized medicine, genetic engineering and biological enhancements, some companies want to overcome death altogether. However, none of these ambitious goals have been accomplished yet. I might start to believe in corporate control of our globe, if we had a perfect world everywhere within a 100 kilometer radius of Silicon Valley, but this is far from being true. There is a lot of light, but a lot of shadow too. So far, not a single city in the USA is in the top 20 list of most livable cities. In other words, we need new approaches to solve the world's ills. Will an evidence-based approach using the wealth of today's data be able to heal the world?

[1] D.A. Bell (2015) The China Model. Political Meritocracy and the Limits of Democracy (Princeton University).

[2] Based on a statistical analysis of J├╝rgen Mimkes, China will now undergo a major transformation towards a more democratic state in the coming years. First signs of instability of the current autocratic system are visible already, such as the increased attempts to control information flows. The following recent articles support the conclusion regarding increased instability in China (please use, for example, Google Translate where needed):

[4] C. Hidalgo et al. (2007) The product space conditions the development of nations. Science 317, 482-487.

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