Creative Destruction

Geopolitics and Business - The Economist

Jeff Bezos used to run a small firm in 2001, whose share price dropped by 71% in 12 months in a near-death experience namely the dot-com crash. The hubris of Silicon Valley bit dust and the fall of Enron due to a $14 billion fraud led to the collapse in American business confidence. China was struggling to privatize state-owned enterprises while Europe was surging ahead with a unified currency and market.

Today however none of the predictions or expectations stand true. The post-pandemic business world has been 'creatively destroyed' to resemble nothing one could've imagined. Tech firms are 25% of the global stock market valuations and 76 of the top 100 firms belong to the US and China, whereas Europe went from 41 in 2001 to 15 today.

America and China account for 24% and 18% of the Global GDP and 48% and 20% of global business activity respectively. The rest with the 77% population make up 58% of the Global GDP and 32% business activity. A major reason why Europe is not dominating the world is its constant political meddling and the Sovereign Debt Crisis in 2010 - 2012. This caused the integration to suffer and firms in Europe were unable to see the rise of the digital and services sector. Even promising stars like Inia, Mexico, and Brazil was unable to create the global giants that were expected. Only the US and China truly used the ‘creative destruction process. Out of the 19 firms created in the past 25 years that have crossed the $100 billion mark, 9 are American, 8 are Chinese and Europe has none.

Both the US and China have large domestic markets, abundant venture capital, and young talent. Entrepreneurship is encouraged. China has a 996 culture (9 a.m. to 9 p.m., 6 days a week), Elon Musk sleeps on the floor of the Tesla factory and the politicians of both US and China had allowed the job disruption caused by large firms.

This thought process has however changed and changed due to the ominous notion of monopolies, low wages, unemployment, etc. The competition requires more support and social – safety is a Biden administration priority. However, if the US moves towards protectionism, rigid industrial policy, and penal taxation, the consequence may be losing its superpower status. The same applies to China as it can move towards protectionism, due to the feeling of the Communist Party that large tech is direct competition.

Today however we need to focus on the three big battles – vaccine manufacturing, digital rules, and multinational companies.

Europe aspires to be a regulatory superpower but will probably use it for protectionism. India has banned Chinese social media firms and struck American ones with strict rules. This will cause consumers to be deprived of the best of products.

The world needs more corporate champions from different countries and not just two dominating the world. Creative destruction must be adopted throughout the globe.

By - Aindri Abhishek Singh