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 / First Quarter 2002 / Issue 26(originally published by Booz & Company)


From New Economy to Siege Economy: Globalization, Foreign Policy, and the CEO Agenda

Trade tensions loom, too. Japan is looking for a depreciating yen, but the U.S. and other countries are not able to take a flood of imports from Tokyo. China’s entry into the WTO isn’t the end of the China trade problem. There will be many challenges to China’s policies within the WTO, and China will also play a powerful political role in championing the causes that developing countries have pushed, not very effectively, for several years. (See “Profits and Perils in China, Inc.,” First Quarter 2002.)

America’s ability to lead the global economy out of such quagmires may well be compromised by the war on terrorism. The G8, readily persuaded during the 1990s toward liberalization by the strength of the U.S.’s hyper-strong New Economy, could well begin to dismiss any new efforts as disingenuous attempts by Uncle Sam to offset the costs of America’s campaign against terror. It’s one thing to share intelligence information; it’s another to change budgetary and monetary policies.

Costs for Companies
These and other changes in the global economic environment will affect American firms directly and indirectly. Companies will get less support from U.S. government economic agencies, whose activities will be distorted by the fight against terrorism. The Treasury and Commerce departments, which led the successful battles for commercial diplomacy and trade liberalization, will begin to focus more on monitoring and surveillance of finance and trade with terrorist networks. The Export-Import Bank and the Overseas Private Investment Corporation will be preoccupied with helping frontline states in the antiterrorism campaign, largely by gearing their lending and guaranty programs to companies integral to U.S. foreign policy priorities, not global trade and investment in general. It is hard to believe that these and other agencies will have the time and energy to pursue normal commercial goals.

The probable remilitarization of U.S. foreign policy may also prompt a political backlash against the United States, which could undercut corporate activities abroad. The situation may be similar to that faced by American firms overseas during the height of the Cold War, when many embassies were the object of political attack, and military-to-military links counted more than commercial connections. The stationing of military forces in Central Asia, the increasing interaction between the Pentagon and its counterparts in various countries, and the need to build up clandestine intelligence capabilities all point in this direction. If we align ourselves with repressive regimes abroad to achieve our ends, we would be opening the U.S. and, by extension, its companies to hostility of significant proportions.

We should not underestimate the problems all of this can cause for American firms. Even before September’s terrorist attacks, in many quarters “globalization” was synonymous with “Americanization.” To many, this had a positive meaning; both terms connoted openness, opportunity, and a market orientation. But to others, “Americanization” implied a harsh form of capitalism, one dismissive of local needs, environments, and traditions. With the U.S. pursuing a high-profile military policy around the world, identification with “Americanization” is unlikely to help U.S. firms, except in those nations that also find the very fabric of life threatened by actual terrorist assault.

At the least, American companies will bear real costs. High on the list will be the cost of security. U.S. companies are prime targets for terrorism overseas — and it shouldn’t be forgotten that Wall Street and the very idea of world trade were specific targets of September’s attacks. Firms will need to increase protection of their physical facilities (including the building of redundant capabilities), their communications infrastructure, and their people. They will need to vastly enhance security checks of all employees. American executives will have to take more care in traveling. All this is expensive, and will cause U.S. companies to stand out in ways that can only impair their competitiveness. (See “Security and Strategy in the Age of Discontinuity,” First Quarter 2002.)

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  1. Joel Kurtzman, “An Interview with Rosabeth Moss Kanter,” s+b, Third Quarter 1999; Click here.
  2. John Micklethwait and Adrian Wooldridge, “Globalization Is No Fait Accompli,” s+b, Third Quarter 2000; Click here.
  3. Randall Rothenberg, “Jeffrey E. Garten: The Thought Leader Interview,” s+b, First Quarter 2001; Click here.
  4. Jeffrey E. Garten, The Mind of the CEO (Perseus Books/Basic Books, 2001)
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