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 / Spring 2004 / Issue 34(originally published by Booz & Company)


Philip Bobbitt: The Thought Leader Interview

Business in the Market-State

S+B: What’s going to be different about the rules of the game for a business executive in such an environment?

BOBBITT: Businesses will move in two opposite directions simultaneously. First, businesses that depended on funding from large government budgets — and I include in this large research universities, military contractors, and many traditional businesses — will find that they have to move more smartly into a deregulated market. They will not be able to rely on the sort of defense expenditures, for example, that sustained them in the past, even if the defense budget itself grows.

At the other end of the spectrum, private businesses and their leaders will find they are given more public and political responsibilities. They are not trained to handle them; their leaders often do not seek them; and they are not comfortable being made responsible for them. But they cannot avoid them. The media is probably the most obvious example of a private-market operator that takes on many of the functions of government. But this will be true of other groups, as well. It’s becoming obvious to executives at some oil companies, like Shell, for example, that they must be identified with sustainable development and environmental protection if they’re going to succeed as a market actor.

That’s a new role for executives. I know many very successful business executives who hate this idea. It’s not because they are arrogant; just the opposite. They recognize that they don’t have the accountability that elected officials do — or the mandate to draw upon.

S+B: Can you give us more of a sense of what living in the market-state might be like — for either businesspeople or their customers?

BOBBITT: Consider, for instance, the growing trend toward privatizing Medicare. About 40 percent of all insurance premiums now are paid by businesses. This represents a tremendous cost; it is soaring, and making the labor market far less competitive; people stay with jobs that they are unsuited for rather than risk losing their insurance.

All of this stems from the highly regulated forms of health insurance that functioned very well under the 20th-century nation-state. But in the 21st century, voucher systems will replace many of the employer-governed insurance systems now in place, as well as Medicare and Medicaid, which are classic nation-state programs. This will make business much more competitive and labor much more efficient. But it will also put a tremendous burden on individuals: How do you navigate between the hundreds of different carriers that will bid for your business? The state will still have a regulatory role. It will have to ensure that insurance companies don’t spin off the weakest and most genetically marked individuals from coverage. But it will no longer substitute for market-generated outcomes. It will mitigate those outcomes to make them fairer and more efficient.

S+B: What relationship do you see between corporations and the military in this new kind of state?

BOBBITT: Well, in the humdrum activities of the defense establishment, you’re going to see a lot more outsourcing. It’s silly to have highly trained enlisted men peeling potatoes. It makes more sense just to buy the damn things from McDonald’s. The same is true for many intelligence functions, or for protecting the infrastructure, most of which, though critical to defense operations, is in the hands of an increasingly decentralized private sector.

I don’t think we’re going to go back to the days of mercenary soldiers. But conceivably the United States itself could become a kind of mercenary. The American state may actually have made some money on the first Gulf war, depending on how you do the Pentagon accounting. We certainly didn’t have to finance it ourselves. And even in the current war in Iraq, we are going to get some kind of support from other states, although the degree of its depth is still very much a matter of negotiation. This means that the military itself will have to change quite a bit. The movement to “effects-based warfare” reflects this.

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