Big business, small government

Governments increasingly pale in comparison to business but this is about more than size

The title of this post is not a slogan but a mere statement of fact. Globalization has resulted in businesses spanning borders and increasing in clout, whereas governments seem to, if anything, have become more diminutive. This trend not only stems from the bulking up of global multinationals but is also due to changes in the nature of both business and government. The potential solution to weakening powers of government might come from a change in size but to being smaller rather than bigger.

More than ever, bigger is better when it comes to business. With companies able to operate on a global scale, a wider scope of business means that more running costs can be spread over a large volume of sales. Size can bring heft in other ways such as big retailers like Amazon or Walmart being able to get better deals from their suppliers. And for some companies such as banks and many online businesses, their size is the big drawcard with network effects playing an important role in their business models.

Having operations spanning across borders gives companies greater leverage in terms of where to locate. Governments, on the other hand, like business to set up shop within their borders to provide jobs for their citizens as well as to pay taxes. Yet, governments often struggle to get much out of multinational companies. International firms from Amazon to Starbucks are known for managing to get out of paying much tax. Many businesses such as banks or online business also have a habit of getting their own way in terms of regulation. And with lots of funds to spend on lobbying, it is easier for big business to keep government onside.

As the scales have tipped in favour of big business, governments have struggled to get on the front foot. The current fractious nature of politics in many countries means that it is more difficult to form a general consensus about how governments should act. Without a clear sense of direction, governments often seem as if they are flailing. And with higher taxation or more regulation typically involving more government action, such policies make for a tough sell when governments seem so out of sorts.

With politicians finding it difficult to enact policies within their own borders, international cooperation as a means to deal with big business seems well beyond reach. Elites across different country often see the world in similar ways but only because the rise of business works in their favour, which puts them at odds with their many of own countrymen and women who are on the economic backfoot. Any response is further hampered by global firms often being the source of the good jobs that are so prized by both workers and their government.

The solution may not be in bulking up in size to compete with the heft of business but instead in making countries smaller. A smaller nation would likely to have a stronger sense of identity and higher degree of social solidarity, thus helping to facilitate government action. It would also make democracy function better due to politics being less remote while also enabling more grass-roots participation and policies better fitted to the smaller economy. And smaller political units would allow for greater experimentation of different policies rather than a one-size-fits-all measures within the system of globalization. Small might also be better in terms of more pragmatic politics rather than falling back on ideology as a means of governing.  

Part of the argument behind smaller political units is that globalization has done away with many of the function of what a state might have done in the past. The main reason behind bigger being better for countries was in terms of defense, but the interconnectedness created through the global trade system has made it much less likely that trading partners will go to war. Global flows of money and goods also dwarf even the biggest national economies so that even the US government struggles to bend international economic forces to its will. And national prosperity no longer means wealth for the majority of its citizens as it might have done in the past, with regional economic differences within countries becoming increasingly pronounced.

These old elements of the nation state could be realised in new ways with smaller countries. Even though trade might reduce the possibility of war, it would still be prudent for likeminded small countries could band together their less considerable resources to man their mutual defense. And groupings of similar countries might have more success in clubbing together to influence global rules in the same way that the European Union has made some progress on data protection. In this manner, the larger collections of countries could provide the proverbial “night-watchman” role on international matters, while leaving governments free to focus on domestic issues.

While seeming to be optimal in theory, it is still unlikely that anything like this will be put into practice anytime soon. But still, the idea in itself can be used as a reference point to evaluate our current circumstances. One particular conclusion could be that local government will likely help in the implementation of policy. For example, regional leaders did seem to garnish more authority when dealing with the COVID pandemic compared to national politicians who were trying to manage measures over larger range of diverse areas. And a further step in this direction would involve giving more regions the possibility of moving towards outright statehood.

Business is only likely to get bigger as the global market continues to expand and prosperous companies take an expanding share. Instead of trying to compete on size, a multitude of small governments might be the best way to balance out big business.