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From Yale Center for the Study of Globalization

The globe has entered an era of instability according to Moisés Naím, editor in chief of “Foreign Policy,” and that has opened opportunities for small, but highly competitive forces in the business, political and financial worlds. Some examples: Multinational corporations like Royal Dutch Shell no longer protests movements toward nationalization of oil supplies in small Latin American countries like Bolivia, and the 155-year old “New York Times” suddenly regards eight-year old Google as a major competitor. Incumbent candidates of government elections in the free world used to win by a landslide, but more elected government officials face precarious futures, with leadership gained by razor-thin victories over their opponents. A new state of global disarray allows increasing visibility and power for many small companies, candidates and governments, yet also accounts for much of the current chaos. – YaleGlobal

Megaplayers Vs. Micropowers

Rising instability is good news for the little guy – and bad for everyone else

Moisés Naím
Foreign Policy, 12 July 2006

Royal Dutch Shell is one of the world’s largest and most powerful corporations. Bolivia is one of the planet’s poorest countries; its economy is a mere 3 percent of Shell’s annual revenues. Recently, Shell CEO Jeroen van der Veer noted, somewhat meekly, that his company was resigned to accept Bolivia’s decision to break the contracts it had signed.

Further, he said, it was no longer a good idea for oil companies to put up a legal fight against the nationalistic policies of countries like Bolivia. Once upon a time, giant multinational corporations did not bend to the will of tiny governments. The behemoths of industry did not just stand by as their oil, gas, or mining fields were seized under a national banner. They fought back, and not just rhetorically.

In another part of the world, a ragtag militia equipped with small arms and improvised explosive devices is denying the most powerful military in history control of the territory it swiftly conquered. This same pattern, in which small “micropowers” are successfully contesting the dominion of traditional “megaplayers,” is also in evidence in a far more cerebral market: encyclopedias. The survival of the world’s oldest and most respected source of information, The Encyclopaedia Britannica, is threatened by strange newcomers. One of them, Wikipedia, though just five years old, is already 12 times larger than the Britannica that sits on your bookshelf. Wikipedia is free, exists only on the Web, can be read in 229 languages, and is expanded daily by unpaid volunteers. A recent study published in Nature magazine found in a random sample of entries that, despite its far larger size, Wikipedia had 162 errors, whereas Britannica had 123.

Britannica is not, of course, the only business whose survival has been threatened by improbable new rivals. The New York Times, founded in 1851, now thinks of eight-year-old Google as one of its most serious competitors. All large companies are under pressure, and the trend is accelerating. According to professors Diego Comin and Thomas Philippon of New York University, a company in the top 20 percent of its industry in 1980 faced only a 10 percent chance of no longer being an industry leader five years later. By 1998, that risk had more than doubled. In fact, 39 of the top Fortune 100 companies in the United States were not on that list last year. A high turnover of industry leaders means a high turnover of CEOs, too. Of the world’s 2,500 largest companies, 383 lost their CEOs in 2005; almost half of them were fired. According to the consulting firm Booz Allen Hamilton, the turnover last year was the highest since it began keeping track in 1995, and the number of CEOs dismissed because of poor performance quadrupled. Surprisingly, CEO turnover was highest among Japan’s largest companies, once considered safe havens for mediocre performance.

Shorter tenures at the top, unexpected new challengers, and tighter margins to maneuver also describe political life today. For starters, landslide electoral victories, though still occurring—Jacques Chirac’s in 2002 or Junichiro Koizumi’s in 2005—have become the exception rather than the rule. The trend instead is for presidents and prime ministers to win national elections with smaller margins. Razor-thin victories such as Germany’s Angela Merkel, Italy’s Romano Prodi, or Costa Rica’s Óscar Arias epitomize a pattern whereby leaders elected with weak popular mandates are forced to govern by cobbling together fragile coalitions. These political partnerships are easily upended by microplayers who can use their ability to veto, stall decisions, or apply popular pressure on more powerful actors. Naturally, this trend has also shortened the tenures of cabinet ministers, which in most countries are now more accurately measured in months than in years.

The proliferation of new microplayers capable of constraining their mega-sized rivals is a rising trend everywhere. The United States is constrained by Islamist terrorists. Central banks are threatened by hedge funds. Control of large swaths of territory, critical government agencies, or the nation’s most lucrative business activities rests in the hands of criminal organizations that are part of sprawling global networks. Gigantic media companies are besieged, exposed, and sometimes crippled by the daily postings of 40 million bloggers whose ranks double every five months. Latin American governments have been overthrown by indigenous groups that only a few years earlier were politically insignificant. Even the Vatican is facing stiffer competition. Fifty years ago, 90 percent of Latin Americans were Catholic. Today, 20 percent of people in the region identify themselves as Evangelical or Pentecostal Christians.

This trend, where players can rapidly accumulate immense power, where the power of traditional megaplayers is successfully challenged, and where power is both ephemeral and harder to exercise, is evident in every facet of human life. In fact, it is one of the defining and not yet fully understood characteristics of our time. Today, scholars are arguing whether the international system, once divided in half by the Cold War, is transitioning into a unipolar one where the United States is the sole superpower, or whether we may be moving toward a multipolar system centered on the United States, China, and other powerful nations. It may be neither. What may be coming—and in some ways is already here—is a hyper-polar world where many large, powerful actors coexist with myriad smaller powers (not all of which are nation-states) that greatly limit the dominance of any single nation or institution. Such a world opens many new attractive opportunities for the little guy, whether a small country, a new company, or a talented individual. But those opportunities must come at the expense of something—and, in this case, that is stability. Whether you prefer cheering for David or Goliath, the complex interplay of megaplayers and micropowers portends a more volatile, fractious world.

Moisés Naím is editor in chief of “Foreign Policy.”

Foreign Policy

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