Thursday, June 13, 2019

CPE Working Group on Empire: Anticipating Empire and Reorganizing Multinational Enterprises--the View From the Economic Sector

(Pix © Larry Catá Backer 2019 (Fringes of Hong Kong Harbor))

This post continues the Coalition for Peace and Ethics Working Group on Empire examination of the question of paths to empire performed through the choices being made by the U.S. and Chinese leadership cores [领导核心] within the theater of the U.S.-China bilateral trade negotiations.  

The Working Group on Empire (WGE) of the Coalition for Peace and Ethics looks to study and theorize the construction of systems of management and control of human activities, that is of empire in the 21st century. In a series of essays that will be made available form time to time (CPE EmpireSeries), WGE considers the re-construction of Empire that has shed its old glosses (which elites everywhere have been taught to conflate with the form and thus to amalgamate a normative judgment about technique with an evaluation of the form of empire) in the context of the now heated contest for the control of the structures of global economic trade within which these new forms of empire might be developed (first described in Economic Globalization Ascendant: Four Perspectives on the Emerging Ideology of the State in the New Global Order). What will emerge is something quite distinct--a form of organization and management of institutions and individuals within a "leadership center" network that will be quite distinct from what preceded it. WGE is composed of members of the Coalition for Peace and Ethics of whom Flora Sapio, Larry Catá Backer, and James Korman have taken a leading role; its work product is collaborative. 

Here we briefly consider what may be evidence of the way in which economic actors within critical production chains are reacting to (and hedging against) the disengagement of the United States and China  from their respective economies and they each approach distinctive paths to empire within multinational and multi-enterprise networks of production. The ramifications for corporate law--and especially the legal organization of economic production across national territories,  will pose significant challenges for lawyers and compliance managers. What is clear, though, is that the new era is arriving (Ruminations 86: An Elegy on the 75th Anniversary of the Allied Invasion of Normandy).

What does the fracturing of the unitary global production system, which was the ultimate objective of the post 1945 global trade order, mean for the organization and operation of production?  That fracturing is becoming a recognized reality as neither China nor the US can hide much longer the agendas behind their bilateral trade negotiation strategies. 
Full disengagement is impossible, leaders on both sides acknowledge. But the plans being developed in Beijing and Washington anticipate a time when the economic engines of China and the United States are not so closely linked, particularly in high-tech industries. “In the next step of tackling technology, we must cast aside illusions and rely on ourselves,” President Xi Jinping of China said last month after visiting a new computer microchip factory in the country’s center. . . The United States has outlined its own strategy of sorts to wean itself from China. Should the Trump administration enact its threatened tariffs on $150 billion in Chinese-made goods, the thinking goes, American corporations would begin to reduce their reliance on Chinese-made small components, machinery and other dull-but-essential parts in the global supply chain. (On Trade, the U.S. and China Consider the Unthinkable: Breaking Up)
The question is especially important with respect to the way in which control and management structures are organized mostly around legally constructed non state institutions whose purpose is to manage production within markets.  For one important subcategory of those institutions--corporation that serve as the apex managers of global production--it may well mean the need to reorganize production in line with the fracturing of production. That, in turn, may require the transformation of strategies for corporate organization, and with it, a distinctive engagement with the laws of the territories within which activities are undertaken within and through these corporate entities.  

These abstract notions are materializing in quite recognizable form even as the Belt and Road Initiative and the America First Project begin to emerge the the forms within which empire will operate in globalized economies.
Nokia and Ericsson, two of Europe’s biggest technology titans, are weighing drastic changes to their corporate structures, including setting up separate units in the Eastern and Western Hemispheres, in a bid to protect themselves against the escalating global trade war. Both companies, which make equipment used to run 5G networks, have started drawing up emergency plans to move some of their most sensitive operations out of China and split up their supply chains to counter increasing national security concerns, sources have told The Sunday Telegraph (Exclusive: Nokia and Ericsson plan emergency break-up over trade war and security fears).
The response is logical.  It suggests that the legal structures of economic production will begin to mirror the fractures of that production.  Where that fracture produces irreconcilable demands, then the legal structures of non-state institutional organization (through law) will begin to build operational walls just as effective as the territorial and control barriers being built by state actors directing their respective "leadership center" production networks (“领导中心”生产网络). "Nokia is considering setting up an EU only operation for its 5G supply chain so that there can be no quesiton of interference or security breaches resulting from its Chinese activities (Exclusive: Nokia and Ericsson plan emergency break-up over trade war and security fears). On the other hand, Ericsson has focused its planning on separating its component and software development for the Eastern and Western Hemispheres (Ibid.).

These are not the only ones--Oracle has appeared to choose a different path--to exit from one of the leadership centered networks )China) and enhance their presence in the other (Ibid.).  Huawei, for its part, is pursuing a similar approach--but in their case by substituting components from within the BRI zone (Huawei Testing Russia's Aurora OS As Complete Android Replacement, Report Claims "Huawei needs an alternative to Google's full-blown Android operating system, software and services—that much is certain, but it seems that little else is. Somewhat surprising reports from Russia on June 11 suggested that the "Android operating system in Huawei smartphones can be replaced by the Russian 'Aurora'."")

These strategies have been criticized by those who make their living at criticism as inefficient and as innovation drags.  That criticism makes sense only as long as one privileges the ideology of a unitary global production space and the principles of global free movement of goods, investment, and markets. Where, however, those organizing principles are jettisoned and replaced by organizing principles grounded on the unity of politics and economics in separable societal spaces, then the possibilities of enhanced efficiency and innovation in the fraction that occurs at the borders of the emerging systems might produce greater efficiencies and quicken the pace of innovation as competition is sharpened between empire spheres. Indeed, if one considers globalization in its post 1945 form as producing a monopoly market space where competition (and the workings of "markets" were only possible within the singular space (the way that large enterprises seek to create markets within the production space they control  and within which they have authority to plan and manage the allocation of resources), then the fracture of that space creates exogenous competitive spaces that might produce in the irritations (and rivalries between them) an accelerated pace for innovation and sharper efficiencies to the extent that consumers and investors may move between these "leadership center" production networks.  But this is just a guess.  Yet it is a guess, the underlying economic value of which appears to be accepted as plausible by some of the largest economic actors in a portion of the tech sector.

More importantly, these transformations will necessarily affect a number of important areas of corporate law and policy.  Principal among these would be the way in which hard and soft law approaches are being constructed for managing the human rights and sustainability effects of corporate activity.  The use and reach of blocking statutes will likely acquire a quite potent dimension.  And the nature and breadth of compliance within complex organizations operating within and between leadership-network groups will require rethinking of the nature of risk and the operationalization of compliance under public law and in the construction of internal rules. 

These fractures, of course, are undertaken within the premises of global production.  As a consequence, when one speaks to disengagement and fracture, one ought not to envision the return of a dark ages where nations turn in on themselves.  Global production, and the underlying principles of free movement of goods, capital and investment, remains a strong organizing principles of economic interaction.  But it may be reorganized along public actor rather than private actors lines.  That means, in part, that rather than a single global economy within a fractured political global order, that economic interactions will better align production chains across states with emerging state-production blocks. These blocks, though, will continue to interact with each other.  However, the political objectives of each, and their use of economic power to protect political and cultural ideologies deemed threatened by a singular world economic order, will change way in which production is organized. Let's see what happens.  

No comments: