Special report Business and the state The Economist January 15th 2022 3

The new interventionism

After a long liberalising era, the state has bounced back. That is not a good thing, argues Jan Piotrowski

A s with all history, capitalism’s may not repeat but it does

rhyme. Periods of freer enterprise give way to ones with a
more meddlesome state. When change comes, it is after crisis, oc-
their own devices could lead to ruin. Stagnant real wages in large
parts of the free world encouraged the perception that the market
was not delivering for ordinary people, instead leading to more in-
casionally exogenous (war, pandemic), at other times provoked by equality, especially of wealth. In 2016 Brexit and the election of Do-
excesses (financial crash, depression, stagflation). Yet the metre is nald Trump offered proof that too many people felt left behind by
irregular in time and space, differing from decade to decade and globalisation. Growing worries about markets’ unwillingness or
country to country. inability to avert climate change fuelled demands for more state
After 1945 Americans realised that, as Alan Brinkley, a histor- involvement in promoting greener energy. Similar concerns moti-
ian, put it, “State power could be used not only to assist but to de- vated China’s president, Xi Jinping, in his campaign for greater
ny.” Western Europe’s mixed economies embraced elements of self-reliance and “common prosperity”.
central planning—partly as a hangover from the war, partly to The resurfacing of geopolitical rivalry, pitting liberal democra-
stave off communism. Even as Margaret Thatcher battled unions cies against Chinese authoritarianism, has also prompted govern-
and privatised state-owned companies in Britain in the 1980s, in ments to try to align business interests with national strategic
France François Mitterrand was vowing to “break with capitalism” ones. And this was before covid-19 made meddling in corporate af-
and nationalising banks and big firms. In Beijing Deng Xiaoping fairs—from lockdowns and bail-outs to vaccine and mask man-
was dismantling Chinese collectivism just as, in Tokyo, a suppos- dates—look more justified than ever to voters and their political
edly free-market government was using the Ministry of Interna- representatives. The world is entering “a political cycle where gov-
tional Trade and Industry to foster national champions. ernment has to be responsive to an increasingly fickle and opin-
It is no easier to predict the timing of capitalism’s swings today. ionated electorate”, says one asset manager. Public opinion has, in
But as globalisation has knitted together world markets, govern- general, turned against business.
ments have moved in a more synchronised fashion. In the 1990s, Part sincerely, part no doubt smelling the wind, bosses and big
after the collapse of Soviet communism exposed the bankruptcy investors acknowledge the need to refurbish the capitalist model.
of its command-and-control model, they largely retreated from Jamie Dimon, chief executive of JPMorgan Chase, America’s big-
business. Now the state is again resurgent. Public spending is ris- gest bank, has expressed worries about the “fraying” of the Amer-
ing as the welfare state expands. Government is becoming bossier, ican dream. Ray Dalio, founder of Bridgewater, the world’s largest
especially to business. And the bossiness is manifesting itself in hedge fund, calls for “a reformation of capitalism” to avert over-
new as well as old ways. indebtedness, flagging productivity and voter polarisation. Doug
The first ripples of this wave appeared a decade ago. The finan- McMillon, boss of Walmart, a supermarket behemoth, says “it’s
cial crisis of 2007-09 persuaded many that leaving markets to time to reinvent” capitalism. Paul Polman, former head of Uni-
4 Special report Business and the state The Economist January 15th 2022

firms, and guided by a desire to promote

Proprietors’ profits jobs or secure inputs needed for national
security (computer chips) or the energy
Share of state-owned enterprise assets among Public-sector holdings at market value transition (batteries). Next is the expand-
the world’s largest non-financial firms*, % By investor type, end-2020 ing ambition of trustbusters that, tenta-
20
Governments Public pension funds
tively in America, slowly in Europe and al-
Sovereign wealth funds State-owned enterprises
most overnight in China, are moving from
Other emerging markets a focus on prices to a broader assault on
15 0 20 40 60 80 100
Advanced economies corporate power to defend anything from
China China
small businesses to government itself.
10 Japan Third is the growth of regulation, par-
Asia† ticularly over the environment, labour
Europe
standards and corporate governance,
5 which cut across sectors and affect all large
Other advanced
economies firms. And fourth is an inflection point in
0 United States what had seemed an irreversible trend to
2000 02 04 06 08 10 12 14 16 18 Others lower business taxes, as politicians have
followed voters in seeing unloved big busi-
ness as a convenient source of revenue.
Market value of holdings, end-2020 This report concludes by arguing that
Public-sector stake Number of companies Investment, $trn greater state involvement in business is
Less than 10% 11,652 2.28 unlikely to lead to better outcomes than in
the old days, when similarly intervention-
10-29% 1,191 0.98 ist tools were deployed. They may well be
30-49% 584 1.08 worse. Earlier episodes of post-war med-
dling were at least tempered by a near-uni-
50% and over 1,076 6.39
versal consensus in favour of freer trade.
Sources: IMF; OECD; FactSet; Thomson Reuters; Bloomberg *2,000 largest firms by market capitalisation †Excluding China and Japan The new interventionism, by contrast, co-
incides with barriers to international trade
going up not down and a pervasive sense
lever, the Anglo-Dutch soap-to-soup group, wants to “save” it. that globalisation and fragile supply chains must be reined in, for
Yet seen from one vantage point, capitalism seems hale and both economic and national-security reasons.
hearty. In contrast to their Marx-curious 20th-century forebears, A strong reminder is in order that the four vintage tools—in-
today’s governments mostly eschew common ownership of the dustrial policy, trustbusting, regulation and taxes—were gather-
means of production. From 1990 to 2016 states around the world ing dust for a reason. And it is not just politicians and bureaucrats
sold assets worth some $3.6trn. A database compiled by Katarzyna who should pay attention. So, too, should business leaders licking
Szarzec, Akos Dombi and Piotr Matuszak, three economists, lists their fingers at the prospect of more state support—especially at
1,160 privatisations in 30 European countries between 2007 and the carrot of subsidies. 
2016, and only 61 nationalisations. According to the oecd club of
mostly rich countries, the public sector owned $11trn-worth of
shares in listed companies at the end of 2020, equivalent to 10% of
The new industrial policy
total market capitalisation. That is down from 14% in 2017.
Roughly two-fifths of state holdings by value represent minor-
ity stakes in some 13,400 businesses. In 12,000 of these the hold-
ing is below 10%. The 1,000 or so majority-owned firms are bigger
Return to picking winners
on average but they are often professionally run by experienced
managers to maximise returns, not by bureaucrats eager to boost
employment or national pride. A fifth of the public sector’s listed
assets are held by sovereign wealth funds and another 13% by pen-
A previously discredited approach has found new believers
sion funds. Saudi Aramco, the kingdom’s oil colossus, is one of the
world’s most profitable companies. The world’s four biggest banks
by assets are fully or part-owned by the government in Beijing. A s national economies and international trade were liberal-
ised after the stagflation of the late 1970s, governments
Plenty of other Chinese state-run firms are at least modestly prof- increasingly decided to allow corporate behaviour to follow com-
itable—how else would 82 have entered the Fortune Global 500 list mercial logic. Multinationals set up shop where it made most
of the world’s biggest companies between 2000 and 2019? sense, allocating resources, outsourcing labour and automating
factories to minimise costs and maximise profits. The reforms
Not ownership, but influence lifted hundreds of millions out of poverty even as they delivered
On the surface, then, the state appears to be more hands-off. Yet fat returns for shareholders.
direct ownership is not the only way to influence businesses. But the less-state-is-better consensus is fraying. The crash of
Rather than own the means of production, governments increas- 2008, the loss of middle-class jobs to foreigners or robots and the
ingly use other levers of control. This special report will explore climate crisis have led many to believe that markets cannot be
the four most important old tools that are being dusted off and re- trusted. Economists like Mariana Mazzucato, of University Col-
purposed for the 21st century. lege London, believe that firms are losing the ability to innovate,
First is a renewed enthusiasm for industrial policy, defined as weighing on future prosperity. National-security hawks on both
state support for favoured industries, technologies or specific sides of the Sino-Western divide fret about reliance on adversaries
 The Economist January 15th 2022 Special report Business and the state 5

for critical resources, from semiconductors to pharmaceuticals.

And Western bosses complain about “unfair competition” from
China’s state-backed behemoths.
“We have been destroying our national champions while China
has been nurturing its own,” laments Michael Pillsbury, who
helped craft Donald Trump’s hawkish China policy. Siemens and
Alstom cited the threat from crrc, a Chinese trainmaker, to de-
fend the planned merger of their rail divisions, which the Euro-
pean Commission blocked because it would hurt competition in
the eu. “Before the ink was dry [on the commission’s decision]
crrc was signing contracts [with European railways],” fumes a
former Siemens executive. “Do you have the right [these days] to
avoid picking winners?” asks a Brussels lobbyist.
“Markets are good at allocating resources efficiently on a nar-
row understanding of efficient…What delivers highest returns to
an individual investor is not necessarily in the economic interest
of a nation,” says Oren Cass of American Compass, a right-leaning
think-tank in Washington. Like Ms Mazzucato, who leans left, Mr
Cass blames the innovation drought on governments abandoning
their role as midwife to technological breakthroughs, as they were
for the internet and biotechnology.

Remembering Apollo
In China, the answer to such concerns is simple: more state. Liu
He, the vice-premier, has said that the country is moving into a
new phase that prioritises social fairness and national security,
not the growth-at-all-costs mentality of the past 30 years. Else-
where, the model is often China. Some Western analysts point ap-
provingly to its ability to set strategic missions and co-ordinate
the public and private sectors. There is a sense that China has
learned what America has forgotten since the Apollo programme. the opposition of Joe Manchin, a Democratic senator from West
Since the covid-19 pandemic, many countries have tried to em- Virginia, was peppered with business incentives.
ulate elements of the Chinese playbook. In Japan 57 Japanese com- You might expect Republicans, historically sceptical of govern-
panies will get around $500m in subsidies to invest at home. The ment, to recoil. In the case of Build Back Better, they have done. Yet
country’s newish prime minister, Kishida Fumio, has created the elsewhere a reinvigoration of American industry is one of the few
job of economic-security minister, with a mandate to intervene in areas where Democrats and Republicans agree. When a $25bn
matters ranging from cybersecurity to chipmaking. handout for semiconductor firms to make more advanced chips in
The eu has doubled down on a consortium to make batteries, America came up for a vote in the Senate in July 2020, 96 of the
earmarked some €160bn ($180bn) of its covid-19 recovery fund for chamber’s 100 members voted in favour.
digital innovations, especially chips, and, inspired by Ms Mazzu- The chip provision has since grown into $52bn and been folded
cato, launched five “missions” (they include such diverse goals as into the $250bn Innovation and Competition Act, which includes
to improve the lives of more than 3m people at risk of cancer, re- $80bn for research on artificial intelligence (ai), robotics and bio-
store “our ocean and waters” and achieve 100 climate-neutral technology, $23bn on space exploration and $10bn for tech hubs
smart cities by 2030). Thierry Breton, the single-market commis- outside Silicon Valley. The Senate approved it by 68 votes to 32—a
sioner and a former French finance minister, is dirigiste at heart. huge level of support by today’s standards (the House will now
In October President Emmanuel Macron unveiled the “France pick it up). Conservative senators like Josh Hawley, Marco Rubio,
2030” programme, which will spend €30bn over five years on ten Tom Cotton and Ted Cruz talk of a manufacturing renaissance.
areas from the specific (small nuclear reactors, medicines) to the “The right of centre is learning a new vocabulary,” observes Mr
vague (cultural and creative content production). Cass. It sounds remarkably, well, French.
In the same month Rishi Sunak, Britain’s Conservative chan- Western leaders justify this revived industrial policy in two
cellor, proposed to funnel billions to the private sector. Tax relief ways. One is to do with preserving countries’ rightful place in the
for research and development, nearly half of which firms claimed global pecking order. The second is about domestic economic de-
for work done outside Britain in 2019, will be “refocus[ed]…to- velopment. Politicians often trot out both at once. Presenting his
wards innovation in the uk”. One former senior official describes “France 2030” vision, Mr Macron spoke of “a fight that is both civi-
Boris Johnson’s Tory party as “neo-Gaullist, if anything”. One bank lisational and a value creator”. No speech by Mr Johnson seems
boss thinks “Britain is closest to Chinese thinking.” complete without a nod to “global Britain” or “levelling up”, a neb-
In Washington the words “industrial policy”, once taboo lest ulous idea to improve the lot of new Tory voters in the Midlands
the speaker seem a European socialist, reverberate in the White and north. After Mr Biden signed the $1.2trn infrastructure bill,
House, Congress, think-tanks and among k Street lobbyists. In one studded with goodies for American business, Nancy Pelosi, the
of his first acts as president, Joe Biden issued an executive order House speaker, said: “These investments in working families are
instructing government agencies to review supply chains, critical to delivering economic growth at home while ensuring
stretched to breaking point by the pandemic, to make them more our ability to outcompete China now and in the years ahead.”
“resilient”—which is to say more American. His signature $2trn On national-defence grounds, a dose of self-reliance may make
Build Back Better climate and social-spending bill, which passed sense. Advanced microchips are as critical to today’s warfighting
the House of Representatives only to be blocked in the Senate by as missiles. A large chunk of the world’s cutting-edge chips are
6 Special report Business and the state The Economist January 15th 2022

manufactured in Taiwan, which is both an American ally (which clusion,” says Mr Rodrik. He points to South Korea and Japan,
troubles Beijing) and claimed by China (which worries Washing- where the share of manufacturing in gdp has risen at constant
ton). Adversaries understandably covet at least some independent prices even as the share of manufacturing employment has kept
chipmaking capacity, just in case. falling, owing to automation. According to Ro Khanna, a Demo-
Like all insurance, this is expensive. For a narrow selection of cratic congressman, the goals of fostering inclusion and jobs on
critical resources the price is worth paying. But politicians tend to one hand and national assets on the other “won’t be harmoniously
inflate the word “strategic” to cover cases where it is not. Mr Rubio aligned. That would be wishful thinking.” That he helped to craft
thinks sugar counts. Mr Macron apparently believes cinema does. the innovation-hub provisions in the $250bn Senate innovation
The costs rise because, as a British business grandee notes, bill shows how politically attractive bundling them together is.
“Everyone has the same list of sexy stuff.” Peruse government
plans and most feature ai, biotech, clean energy, semiconductors Winners and losers
and quantum computing. “It is not efficient for everyone to have a Companies are following the industrial-policy debate with a mix
wind industry,” jokes Jason Furman, Barack Obama’s former chief of zeal and alarm. Less favoured firms or sectors grumble about
economist, now at Harvard. In the short run extra demand risks being left out. A Brussels lobbyist criticises the eu battery consor-
bidding up the cost of inputs. In the long term it could mean a sup- tium for “going much too radically in one direction” by focusing
ply glut. The “industrial-policy arms race” may turbocharge the on lithium-ion technology, which is useful in some areas like pas-
boom-and-bust cycles that characterise capital-intensive indus- senger electric cars but less so in others. What about fuel cells,
tries, notably chipmaking, warns Scott Kennedy of the Centre for which may be better suited for heavy transport, or more efficient
Strategic and International Studies, a think-tank. combustion engines as a bridge to a cleaner future, he asks. Brit-
Some public money will also bankroll projects that the private ain’s creative industry looks longingly at Mr Macron’s pampering
sector would have developed on its own. Carmakers already prefer of French filmmakers. Some British airlines, which unlike their
to make or procure bulky electric-car batteries near their factories, European peers were left out of pandemic relief support, feel “bug-
given how costly they are to ship. Technology firms have every rea- gered”, says the business grandee.
son to keep on perfecting ai because of its Neil Bradley, at the us Chamber of Commerce, has no qualms
moneymaking potential. about industrial policy that backs basic research or improves se-
China also shows that, as ever, much curity and diversity of supply chains. But he is wary of “using gov-
government cash can simply go down the Companies are ernment policy to manipulate the market”. “You can see hints of it
drain. Some of its most innovative compa- following the in discussions of onshoring and reshoring,” he says. “The middle-
nies, including tech giants such as Alibaba class foreign-policy or worker-centric trade policy is basically pro-
industrial-policy
and Tencent, have thrived at arm’s length tectionism,” says Hank Paulson, a former Goldman Sachs boss and
from the state. Where the government has debate with treasury secretary under George W. Bush and founder of the Paul-
been actively involved, by contrast, the re- a mix of zeal son Institute for Sino-American business relations. Both Republi-
sults look “varied and often unimpressive”, and alarm cans and Democrats “want to tell business what to do”, he sighs.
says Felix Oberholzer-Gee of Harvard Busi- Companies which may benefit from government largesse are
ness School. The Chinese state has poured naturally more enthusiastic. Pat Gelsinger, boss of Intel, wel-
more than $70bn into developing a rival to comed the news of impending semiconductor splurges with con-
Boeing and Airbus with only limited success so far. Its biggest gratulatory tweets. The American giant is one of the first in line to
chipmaker, smic, was years behind the cutting edge even before receive a handout at home as well as in Europe, which lacks ad-
Mr Trump’s sanctions deprived it of the latest chipmaking vanced chipmakers of its own. The 500 or so corporate members
technology. And for all the Western handwringing over superior of the European battery consortium are hardly complaining about
Chinese ai skills, these are mostly confined to unsophisticated too much eu cash.
tasks such as image labelling. Even beneficiaries air gripes, however. A well-connected lob-
To be fair, academic proponents of the “venture-capitalist byist in Washington reports that carmaking clients are furious
state”, like Ms Mazzucato and Mr Cass, are not fans of wasteful about the union-labour and local-content requirements for ev
pork-barrel spending. They would like governments to back genu- subsidies in the infrastructure package. Wind-power developers
inely out-there ideas ignored by the private sector, to set clear per- have lashed out at “Buy American” provisions attached to tax cred-
formance yardsticks and, critically, to be as ruthless as Silicon Val- its. Elon Musk, boss of Tesla, has also panned Mr Biden’s ev subsi-
ley at pulling the plug on failures. “You don’t need the ability to dies. An American chip entrepreneur, T.J. Rodgers, has argued
pick winners. You need the ability to let losers go,” says Dani Ro- against subsidies to his sector, noting that in 1987 the Sematech
drik of Harvard, whose paper in 2004, “Industrial Policy for the consortium began spending $500m in government funds “that
21st Century”, helped to seed new interest in the notion. did zero for the industry”. “‘Free government money’ induces hor-
In practice, political incentives make governments, even Chi- ribly inefficient spending and undeserved payouts to executives
na’s, worse at withdrawing support from duds than at identifying and shareholders,” he writes. Mr Gelsinger dislikes the flipside of
the next big thing. The Apollo model may be ill-suited to today’s being part of a sensitive industry—being barred by his govern-
complex challenges. Ms Mazzucato herself concedes that sending ment from selling products to China. “If Chinese customers want
the man to the Moon was primarily a technical problem. Decar- more chips from the us, we should say yes,” he suggests.
bonising Europe or vaccinating America involve an awful lot of A consultant close to Mr Johnson reports that some British
tricky social engineering, as well as the physical kind. bosses are wondering how becoming wards of one government
Even some proponents of industrial policy doubt that the goals will go down in other capitals. Becoming too cosy with the state
of boosting innovation and creating lots of well-paying jobs com- can leave you nobbled elsewhere. More chief executives face this
plement each other. If your goal is to cure cancer, you should in- dilemma today than in the heyday of industrial policy 40 years
vest in an existing biotech hub like Boston not a provincial town, ago, when companies were less multinational and multinationals
says Mr Furman. And if it is to shore up the middle class, there are less global. The ultimate choice will differ from boardroom to
better ways to do it. “Technological change means that promotion boardroom. But one consultant has a warning to those business
of manufacturing is not going to do much for employment and in- leaders who lap up the largesse: “Be careful what you wish for.” 
 The Economist January 15th 2022 Special report Business and the state 7

Competition policy became more concentrated between 1997 and 2012. In half of these
concentration has edged up further in the subsequent five years.
In the two decades to 2017 the weighted average market share of
Antitrust redux the top four firms in each industry increased from 26% to 32%.
The four biggest British firms accounted for a larger share of rev-
enue in 2018 than a decade earlier in 58% of 600-odd subsectors.
Concentration in the eu has been going in the same direction, al-
Greater concentration of market power is leading to beit more slowly.
a trustbusting revival Another good reason to bin Bork was technological change.
The world’s biggest tech giants charge consumers either nothing

O bservers of china’s rise have grown used to seeing old edi-

fices bulldozed to make way for the new. As with bricks and
mortar, so with intellectual constructs. In just 12 months Presi-
(Alphabet, Google’s parent company, and Meta, formerly Face-
book) or as little as possible (Amazon). Critics say this does not
stop them abusing their dominance. Amazon is attacked for its
dent Xi Jinping has replaced a “cautious and tolerant” approach to treatment of workers, suppliers and third-party sellers. Google
the private sector with something much less so. Nowhere has the and Apple are accused of monopolistic practices against develop-
shift towards tougher rules and enforcement been more striking ers in their app stores. Facebook is taken to task for “killer acquisi-
than in competition policy. tions” aimed at neutralising innovative challengers such as Insta-
A year ago the Communist Party’s body for political and legal gram and WhatsApp. (All four companies deny all these claims.)
affairs vowed to take trustbusting more seriously. Within months
China revised its antitrust law of 2008, increasing sanctions and Choice and quality
agencies’ discretion. The State Administration for Market Regula- “We need to push for a broader notion of consumer harm,” de-
tion (samr), the antitrust watchdog, has blocked mergers and, clares Margrethe Vestager, the eu’s competition commissioner. It
says Angela Zhang of Hong Kong University, levied fines totalling is no excuse that “the econometrics of price may be more straight-
$3.7bn on tech giants for sins ranging from price discrimination to forward than the econometrics of quality and choice”, she adds.
merchant abuse. The agency’s antitrust bureau is more than dou- Britain’s Competition and Markets Authority (cma) has made sim-
bling in size, from 40 to 100 officials, and it plans to expand to 150. ilar noises. Like China’s samr, it is staffing up fast, going from
Chinese bureaucrats have used state media to arouse outrage around 650 officials to 850 in the past five years, catching up with
against firms’ abuse of market power, enough to clobber a miscre- Ms Vestager’s directorate-general.
ant’s sales and share price. Despite having no overt antitrust role, Antitrust voices in America go further, arguing that the con-
the People’s Bank of China uses financial regulation and its bully sumer-welfare standard was never as scientific as its advocates
pulpit to cow payments firms. Tencent and Alibaba, two tech ti- claimed and that Brandeis’s vision deserves a second look. Mr Bi-
tans with a payments duopoly, are being forced to drop the model den has installed “neo-Brandeisians” in senior trustbusting roles.
in which shopping and payments are exclusive to one platform. In Lina Khan, a 32-year-old academic, chairs the Federal Trade Com-
moves ostensibly aimed at curbing big tech, the National Press mission (ftc). Jonathan Kanter, a long-time Google-basher, heads
and Publication Administration has prohibited children from the Department of Justice (doj)’s antitrust division. Tim Wu, a law
playing more than three hours of video games a week most of the professor whose books include “The Curse of Bigness”, is the
year. Another agency barred Didi Global from Chinese app stores
for data violations, days after the ride-hailing firm went public in
New York before later shifting to Hong Kong.
Such actions mark a departure from the antitrust philosophy
that has dominated regulatory thinking and judicial decisions in
the past half-century. Associated with Robert Bork, an American
judge from the late 1970s, it held that consumer welfare and the
protection of competition, rather than of particular competitors,
should be the only goals of antitrust law. Business practices were
deemed fine so long as they did not result in harm to consumers
from excessive prices. Most mergers were either competitively
neutral or enhanced efficiency, even if they led to oligopoly; only
those creating a dominant firm or monopoly were likely to be bad
for consumers.
Bork’s work was itself a reaction to an earlier approach linked
to Louis Brandeis, a former us Supreme Court justice. Brandeis be-
lieved that size was nefarious in itself. Curbing market power was
a tool to fight other ills, such as mistreatment of workers, the stiff-
ing of suppliers or even threats to democracy. This may have led to
some perverse outcomes. In one notorious example in 1966, the
Supreme Court blocked a merger between two grocers in Los An-
geles with a combined market share of 8%.
Chinese trustbusters are now the most enthusiastic in dis-
avowing the price-centricity of Bork’s “consumer-welfare stan-
dard”. But it has fallen out of favour everywhere, gradually in Eu-
rope and now, tentatively, in America. One reason is a global trend
towards greater corporate concentration, from medicines to
manufacturing. According to The Economist’s calculations, two-
thirds of 900-odd sectors covered by America’s economic census
8 Special report Business and the state The Economist January 15th 2022

White House adviser on technology and competition. “The speed The 107-year-old ftc Act grants Ms Khan wide latitude, so long
of the takeover by the neo-Brandeisians of the regulatory appara- as her rules are designed to forestall “conduct that is unfair or de-
tus has been extraordinary,” says one big asset manager. ceptive”. Congress may grant her even more power. Several pro-
This new competition doctrine remains a work in progress. But posals would outlaw practices deemed anticompetitive. One
its contours are becoming sharper. It expands the goals of anti- would treat Amazon’s marketplace or Google’s search engine as es-
trust policy in two main areas: merger control and business-mod- sential to commerce, rather like a dominant railway operator, pro-
el regulation. For most mergers and acquisitions (m&a), regula- hibiting them from favouring their own products over others. An-
tors used to restrict scrutiny to a small number of “horizontal” other would force Apple and Google to open up their app stores to
deals between firms active in the same market that, if combined, alternative in-app payment methods and search results. A third
could reduce competition and allow incumbents to raise prices. would shift the burden of proof from regulators to dominant com-
Today all these tenets are going out of the window. panies, which would need to show that any merger or acquisition
Trustbusters now investigate “vertical” integrations between does not hurt competition, rather than the other way around. All
companies with separate lines of business, as well as horizontal three have Democratic and Republican co-sponsors.
ones with combined revenues that would not historically have Other places are further along the regulatory route. The eu is
warranted attention. A new procedure allows eu regulators to ask preparing to adopt two laws, the Digital Markets Act and the Digi-
national authorities to submit deals that are potential killer acqui- tal Services Act. South Korea has enacted one that eliminates app
sitions, particularly in the digital, pharma and biotech industries. stores’ monopoly on payments. Britain is considering new rules,
They have used this to investigate Meta’s $1bn acquisition of Kus- including on self-preferencing by large platform companies.
tomer, an American business-software firm with low European
sales, and the purchase by Illumina, a gene-sequencing giant, of If in doubt, litigate
Grail, a developer of diagnostic tests that does no business in the Unlike their Chinese counterparts, Western businesses will not
eu. Germany’s competition authority has been pushing cases like take this lying down, let alone vow “comprehensive self-examina-
Illumina “to test its jurisdiction”, says an eu official. Britain’s cma tion and rectification”, as Meituan, a food-delivery giant, did after
has demanded that Meta undo its recent takeover of Giphy, a data- being fined $530m by samr in October. America’s tech giants are
base of animated gif files. deploying high-powered lobbyists to scupper or water down rules
In America the ftc and doj are making merger guidelines more before they see the light of day. In November the us Chamber of
stringent. m&a lawyers say the agencies are asking more ques- Commerce sent three strongly worded letters to the ftc accusing
tions, including about the impact of deals on the labour market. Ms Khan of overstepping her brief and dismantling procedural
They already look beyond direct pecuniary harm to consumers. safeguards at the agency. It will be “active in litigating”, vows Mr
The ftc is backing a suit that seeks to break up Meta into Face- Bradley, its policy chief.
book, Instagram and WhatsApp, even though earlier regulators Meta, Illumina and Penguin Random House are fighting regu-
waved these takeovers through. Justifying its challenge to a merg- lators in court. Judges used to the consumer-welfare standard may
er between Simon & Schuster and Penguin Random House, the doj resist attempts to redefine it. Corporate lawyers will remind them
said it would give the new entity “outsized influence over who and that, by prioritising outcomes other than price, the neo-Brandei-
what is published, and how much authors are paid for their work”. sians “want people to pay for [their] policy preferences”, as the
Ms Khan is expected to oppose Amazon’s $8.5bn purchase of mgm chief counsel at a big tech firm puts it.
Studios, arguing that it would further strengthen the e-empire’s Big firms argue that, as they expand into adjacent markets, they
online hegemony. The fact that the entertainment market is frag- increasingly compete with one another. This is especially true of
mented and Amazon lets Prime-subscription customers binge- big tech, whose rise has fuelled the Brandeisian revival. Amazon is
watch its videos for a fixed fee is, on this expansive view of anti- the third-biggest online advertiser behind Alphabet and Meta. Ap-
trust, beside the point. ple is building a search engine to challenge Google. Google’s
The second avenue of antitrust expansion—dictating what cloud-computing division is taking on Amazon Web Services and
dominant businesses can and can’t do—is more inchoate than Microsoft’s Azure. Meta is getting into e-commerce. The research
tougher merger control. But it could prove more consequential. papers cited in Mr Biden’s executive order date back half a decade.
Especially for America’s trillion-dollar tech giants it would be the Concentration in America may since have plateaued.
first serious constraints on their activities since the internet made This resistance ensures that the competition authorities’ mul-
them the world’s most valuable companies. tipronged assault on big business will take time to play out. The
Some edicts come from regulatory agencies. White House staff new trustbusting zeal also rubs up against a rekindled affection
look on antitrust as a “Swiss-army knife”: a tool to fix lots of differ- for national champions, which are by definition big and powerful.
ent problems, including such ills as inflation. It is early in Mr Bi- European bosses urge Ms Vestager to take into account how com-
den’s term and they are still revving up, says one lobbyist. But petitive global markets are, not just the eu’s, when deciding on
“once they start going, they will be pretty muscular.” Last July Mr mergers. The single-market commissioner, Mr Breton, is recep-
Biden issued an executive order, written by Mr Wu, instructing tive to such ideas. Even Ms Vestager, who ignored Franco-German
more than a dozen agencies vigorously to calls to permit the creation of the Alstom-Siemens rail champion,
curb anticompetitive behaviour across the now speaks warmly of the battery consortium.
economy. It encourages agencies to create That may be why, for all the antitrust commotion, m&a activity
rules from weeding out “unfair methods of White House remains strong in Europe and America, as companies take advan-
competition on internet marketplaces” to staff look on tage of cheap capital and a surfeit of pandemic-distressed targets.
requiring railway owners “to provide Chinese tech titans have shed a collective $1.4trn in stockmarket
antitrust as a
rights of way to passenger rail”. In a memo value since China started turning the screws on them in earnest
outlining her priorities, Ms Khan declared “Swiss-army last February. America’s five biggest tech firms have added $2.1trn
that she would look into whether private- knife”: a tool to in the same period. The neo-Brandeisians may have “achieved po-
equity firms contribute to extractive busi- fix lots of differ- litical success prematurely”, suggests Mr Furman from Harvard.
ness models in which companies raise Yet bosses, lobbyists and corporate lawyers acknowledge that a
ent problems
prices or muscle out rivals. chill has descended as regulators test their powers. The dealmak-
 The Economist January 15th 2022 Special report Business and the state 9

ing frenzy may partly reflect a desire to get in under the wire. adopted, take on lives of their own as they are translated into na-
Without clear rules, companies no longer know when to notify tional law. Although their toughest provisions target the tech
regulators about a deal and must think about competition from giants (few of which are European), any big organisations that
the outset. One lobbyist claims that clients with deals pending at peddle data can expect to be caught up in red tape. That happened
the ftc are not getting answers. They may face an investigation with the eu‘s General Data Protection Regulation in 2016.
halfway through a deal or even after it closes—and in a growing The scope of regulatory agencies can broaden even without
number of jurisdictions. Just one hold-out can put paid to a merg- new statutes, if regulators reinterpret old ones. That appears to be
er. In March 2021 Applied Materials, an American semiconductor happening at the ftc. Mr Biden’s federal vaccine mandate, requir-
company, scrapped its acquisition of a Japanese rival, which had ing companies that employ 100 or more to ensure that workers are
been approved in America, Europe and Japan, but not in China. jabbed or regularly tested, is based on powers of the Occupational
Boeing got clearance to merge parts of its business with Embraer, a Safety and Health Administration. The Consumer Financial Pro-
Brazilian planemaker, everywhere except Europe. tection Bureau, created by Dodd-Frank, could in 20 years be as
The uncertainty over mergers and rules that might curtail cer- large as the Environmental Protection Agency is now, predicts Mr
tain practices adds hassle, risk and cost to potential deals. Some McLaughlin. Many new instructions come not as formal rules but
business decisions that might once have been made will now nev- in ancillary guidance, which Wayne Crews of the Competitive En-
er be considered. Value not created as a result is impossible to terprise Institute, a think-tank, terms “regulatory dark matter”.
quantify, but it is surely there.  In environmental, social and governance (esg) practice, com-
panies and rulemakers are moving in the same direction. Indeed,
business may be ahead. Many firms have embraced diversity and
inclusion. Corporate carbon-cutting goals often exceed national
Government regulation
ones. Partly this is a response to demands from consumers and
potential hires. Partly it is a cynical effort to show that soft self-
Rules just keep on growing regulation obviates the need for government rules.
Regulators are catching up. “ Tenets of esg are becoming hard
law,” says Mr Rodrik of Harvard. A draft eu directive would require
firms to monitor, identify, prevent and remedy risks to human
rights, the environment and governance in their operations and
business relations. France’s “Duty of Vigilance Act” of 2017 already
Red tape continues to spread inexorably
requires French companies with over 5,000 employees in France

A corollary of Leviathan’s growth is rising bureaucracy. Once

a regulator is created, it is never defunded. As the state be-
comes more involved in citizens’ lives and agencies expand, so do
or over 10,000 worldwide to monitor their firms, contractors and
suppliers for potential abuses. By mid-2023 a Dutch law aimed at
stopping child labour will take effect, after a three-year grace per-
rulebooks. And a lot of their dos and don’ts apply to business. iod. A similar supply-chain act has been passed in Germany.
Patrick McLaughlin of the Mercatus Centre at George Mason America’s Build Back Better bill is dotted with requirements for
University has tracked the number of prescriptive words such as companies to employ unionised workers. The House of Represen-
“shall” and “must” in America’s federal code and its equivalents in tatives has passed a bill that would reverse many constraints on
Australia, Britain and Canada. They have become more pervasive. union power, some dating from 1947. It will stall in the Senate be-
In another example, the number of similar prescriptions in Amer- cause of opposition from Republicans and centrist Democrats. But
ica has swelled from 400,000 in the 1970s to 1.1m today. Many may it is a statement of intent. Companies are braced for executive ac-
be out of date: an analysis by Deloitte, a consultancy, found in 2017 tions. A group chaired by Vice-president Kamala Harris has in-
that 67% of sections in the us code had not been edited since they structed every department and many agencies to come up with
were drafted. plans to push unionisation without congressional action. Some
Purported bureaucracy slayers, such as Mr Trump, who prom- 400 ideas have been submitted.
ised to axe two rules for every one introduced, or conservative
Australian prime ministers, have left more regulations than they
inherited. Mr McLaughlin does not know of similar studies of the
eu or Japan, let alone China. But it is a fair bet they are on a similar
trend, he says. And that is without state, regional or local rules.
The pace may even be speeding up. Governments are regulat-
ing in new areas such as the climate or data protection. They are
telling businesses how to treat workers, women, ethnic and racial
minorities, and even shareholders. Rules are multiplying about
what information companies must disclose, how to allow inves-
tors to challenge management and who should sit on boards. And
as the rift between the West and China deepens, both are con-
straining firms’ choices of business partners. Asked whether all
this presents risks for companies and investors, one big asset
manager responds: “Yes, absolutely.”
One sign is the arrival of big laws. The federal code ballooned
after the passage in 2010 of the Dodd-Frank act to regulate the fi-
nancial industry. In the past two years Congress has passed two
huge covid-19 stimulus bills (335 and 243 pages) and the $1.2trn in-
frastructure plan (1,039 pages). Mr Biden’s Build Back Better ex-
travaganza ran to 2,468 pages in the House-approved version.
The eu’s Digital Services and Digital Markets acts will, once
10 Special report Business and the state The Economist January 15th 2022

can technology now contains over 1,600 “entities”, including affil-

Lengthening red tape iates of such large multinationals as Huawei and smic. Another 27
Laws, cumulative, m were added in November, in aerospace, chips and quantum com-
puting, including two affiliates in Singapore and Japan. Deals in-
Regulatory restrictions* Statutes* volving Chinese companies are routinely screened by the Com-
1.4 0.7 mittee on Foreign Investment in the United States. The Holding
Canada 1.2 0.6
Foreign Companies Accountable Act of 2020 requires firms traded
Australia on American exchanges to submit to audits (which Chinese ones
1.0 Canada 0.5
are barred from doing by Beijing on national-security grounds) or
0.8 Australia 0.4 face delisting within three years.
0.6 0.3 Things could get rockier. The international chief of a big Amer-
United States 0.4 Britain 0.2
ican asset manager says Wall Street sees China as “essentially un-
investable”. He puts the probability of it becoming impossible for
0.2 0.1
American finance to operate in China at 30%. That is alarmingly
0 0 high and could even mean the Western, dollar-centric, financial
2006 10 15 21 2006 10 15 21 system is severed from the world’s second-biggest economy.
Source: RegData, Mercatus Centre *Mentions of “shall” or “must” in regulatory texts China’s response has not been to bar firms from doing business
with the West—they are too reliant on Western consumers, tech-
nology and capital markets. Instead, it wants to reduce this depen-
Governments everywhere seem suddenly to have become dence. The “dual-circulation” strategy in its latest five-year plan
much keener on labour protection. Mr Biden’s bid to raise the fed- aims to keep China open to the world (the “great international cir-
eral minimum wage was foiled by moderates but the idea is far culation”) but bolster its own market (the “great domestic circula-
from dead. The European Commission wants common rules on tion”). As China has closed borders to suppress covid-19, domestic
minimum pay and “platform workers” who ferry passengers for circulation has gained in prominence.
Uber or meals for Deliveroo. Meituan, the food-delivery giant, is in The Communist Party is bossing companies around with a zeal
hot water with Chinese authorities for mistreating drivers. Labour not seen since Mao: witness a crackdown on tech and anticompet-
standards are being slotted into trade deals, including the United itive practices and a ban on profitmaking by online tutors. Beijing
States-Mexico-Canada Agreement that replaced nafta. has made it harder for Chinese firms to float shares on American
exchanges by cracking down on the convoluted legal vehicles they
Fighting for workers—and investors used to circumvent Chinese limits on foreign shareholders. In No-
Financial regulators are also becoming more intrusive. The Bank vember it forced Didi Global, the ride-hailing giant, to delist from
of England is conducting climate-risk stress tests. The European New York and move to Hong Kong. Chinese initial public offerings
Central Bank is considering requiring firms to disclose exposure in America have all but dried up.
to climate-related risks, including assets that may become strand- The economic toll of continued Sino-Western decoupling may
ed by tougher climate legislation. A vocal American champion of be counted in the trillions of dollars. Nasdaq’s Golden Dragon Chi-
this idea, Lael Brainard, has been made vice-chair of the Federal na Index, which tracks Chinese firms listed in New York, fell by
Reserve. In October the Securities and Exchange Commission 43% in 2021. The unseen costs of unconsummated business rela-
(sec) said it was working on requirements for firms to include tions are incalculable. “At a stroke of a regulator’s pen, 60-70% of
such disclosures in public filings. your investment can be eroded,” says an executive at a big invest-
The sec is also making it easier for investors to hold manage- ment fund.
ment to account. In November it simplified rules for elections to Complying with domestic regulations is less costly but harder
corporate boards. Dissident shareholders seeking to appoint di- to escape. Some economists reckon it may shave several points off
rectors will no longer need to go through the hassle and expense of gdp in America. In one British survey, fewer than one business in
sending out rival ballots. A new “universal proxy”, which will three thought regulation enabled innovative products and servic-
come into force later this year ensures that board candidates ap- es to be brought to market efficiently. In another, 69% of firms felt
pear on all ballots at annual general meetings, giving shareholders that regulators did not work closely enough with each other. Gov-
the choice. Another new rule makes it harder for companies to ernments’ management of new and existing regulations is still far
block shareholder resolutions on climate change and human from optimal. “Little information exists on whether they actually
rights. Both changes will empower activists. The senior lawyer at work in practice,” observes Christiane Arndt-Bascle, who moni-
one big tech firm reports that 2021 was the first year when activists tors regulatory regimes at the oecd.
tried to ram through appointments and resolutions without seek- Comments to regulators about proposed rules are published
ing compromise with managers. 85% of the time but sent to decision-makers in just 41% of cases in
A final set of rules encumbering business reflects strained Si- oecd member countries. Less than a fifth of oecd members sys-
no-Western relations. In Tokyo Takayaki Koyabashi, the econom- tematically reflect international dimen-
ic-security minister, has hinted that his mandate might extend to sions in domestic rule-making. Both the
decisions under the Foreign Exchange and Foreign Trade Act, re- British and the American governments
vised in 2019 to tighten rules on foreign investment in Japanese Governments lack senior officials with extensive private-
companies, which it ranked in three tiers of security-related sen- everywhere seem sector experience. A consultant close to
sitivity. The eu is getting more assertive. The European Commis- Downing Street sees “very few, if any, es-
suddenly to have
sion is working on an instrument to let Brussels impose economic tablished lines of communication be-
pain—from trade and investment restrictions to sanctions on in- become much tween the government and business”. This
tellectual-property rights—on any country that tries economic keener on labour means that new rules tend to be more
blackmail. The eu is often inadvertently snarled by American protection onerous. And it comes on top of another
sanctions applying to products made with American technology. business cost that is about to rise after dec-
The blacklist of Chinese firms with restricted access to Ameri- ades of decline: corporate taxes. 
 The Economist January 15th 2022 Special report Business and the state 11

Corporate taxes sity’s Said Business School. Some estimates put it at a trifling
$5bn-12bn a year worldwide. Mr Devereux reckons the global
minimum may raise an extra 4-5% on top of what companies al-
To tax or not to tax ready pay, or around $100bn annually.
Yet this underplays the significance of the shift. The realloca-
tion affects some 110 multinational groups says David Bradbury of
the oecd. Most are American. They probably include the usual
suspects such as Apple and Amazon, which have perfected the art
After falling for decades, taxes on companies are rising again of tax optimisation. These firms face a costly and tedious unwind-
ing of their tax arrangements—and a higher overall bill. As for the

F or world peace, the League of Nations was an abject failure.

For companies, it has proved a great success. In the 1920s it set a
basis for corporate taxation that has endured ever since. Recognis-
global minimum, Mr Bradbury expects countries and companies
to alter their behaviour. Switzerland, which supports the pact, is
murmuring about new tax incentives to remain attractive. “It will
ing that taxing profits in different places can hurt trade and be messy,” sums up an executive at one American multinational.
growth, rights to tax were allocated first where profits are generat- Companies might once have kicked up a fuss over the oecd
ed and only second where a company sites its headquarters. deal. They have thought better of it, given intensifying anti-busi-
This principle has now been enshrined in bilateral tax trea- ness sentiment. Some have even praised the harmonisation effort.
ties—with unintended consequences. Governments have realised In private, though, executives grumble that the oecd plan is “a
they can lure investment with lower tax rates. Between 1985 and convenient vehicle” to raise taxes at home. That, says one tech
2018 the average corporate-tax rate fell from 49% to 24%. Many tax boss, is what Mr Biden is doing. Neil Bradley of the us Chamber of
havens charge zero. The idea has grown that collecting taxes from Commerce warns of moving from a race to the bottom to “a race to
rapidly growing, efficient firms is “whipping the fast ox”. the top”. If tax authorities believe they will avoid leakage, he says,
Companies have also learned to pay less tax by shifting report- they may conclude “We can tax as much as we want.” Mr Devereux
ed earnings, which is easier with the rise of intangible assets such would not be surprised if corporate taxes creep up.
as brands. Although only 5% of American multinationals’ foreign There may be more unintended consequences. One mysteri-
staff work in tax havens, they book nearly two-thirds of foreign ous feature of the 40-year slide in corporate-tax rates has been that
profits there, twice as much as in 2000. In 2016 around $1trn of glo- companies’ contribution to public coffers has remained flat in
bal profits were booked in “investment hubs” such as the Cayman rich countries, at about one-tenth of the tax take, or 2-3% of gdp.
Islands, Ireland and Singapore, whose average effective tax rate on In poorer ones the figures are slightly higher but equally steady.
profits is 5%. According to an oecd study in 2015, this robbed pub- Analysts put this down to more firms paying tax, corporate profits
lic coffers of $100bn-240bn a year, equivalent to 4-10% of global growing and wealthy individuals using companies to reclassify
corporate-tax revenues. highly taxed personal income as lower-taxed corporate income.
Some action to improve and simplify corporate taxation was The base of payers looks unlikely to dwindle. Once known to
long overdue. But with business fast going from sacred ox to whip- taxmen, firms rarely extricate themselves from their grasp. How
ping boy, governments have become less concerned with creating the changes affect profits is harder to judge. Experts do not expect
a better system and more with just getting firms to pay more tax. the overhaul to dampen pre-tax profits, though that could happen
Britain has decided to raise its corporate-tax rate from 19% to 25%, if higher rates discouraged investment. Some signatories to the
becoming only the second oecd country to do so since 2000 (the deal may retain their edge with offsetting sweeteners such as low-
first, Chile, has reversed its decision). In America moderate Demo- er taxes on individuals or property.
crats stopped Joe Biden undoing his predecessor’s tax reform, There are also unknown unknowns which may become clearer
which cut the corporate-tax rate from 35% to 21%. But his Build only once firms have adjusted. Two things can be predicted. A bo-
Back Better bill floated a tax on share buybacks and an excise tax of nanza awaits tax lawyers and accountants. And the new equilibri-
95% on sales of drugs for which drug firms refused to negotiate um will be less favourable to companies. One boss of a big multi-
prices with the Medicare system. national company suggests that the tax system is the ultimate test
The bill would also have raised the minimum rate that Amer- of what countries care about. The implication is that they care less
ican multinationals pay on global profits from 10.5% to 15%. This than before about keeping business happy. 
could have raised an extra $30bn a year. It
would also have aligned America with a
new tax pact negotiated through the oecd.
Fully 136 countries have signed up to a 15% Inflection point
global minimum rate, and allocated more
taxing rights from where companies book Statutory corporate-tax rate*, % Share of multinational enterprises’
profits to where they make sales. The oecd foreign activities by location, 2016, %
hopes to get this deal into force in 2023. Mr 50 Low-income countries Middle-income
Furman, the former economic adviser to Germany High-income Investment hubs‡
United States France 40
Barack Obama, calls it “a real sea change” in
0 0.16 10 20 30 40
how companies are taxed. Others throw 30 Tax
around terms like “once in a century” and † 0.07
Britain 20 Profit§
“revolution”. OECD proposed
minimum
The reallocation of taxing rights will Total revenues
0.06
10
apply only to companies with global turn- Ireland 0.14
over above €20bn ($24bn), and only on Tangible assets
0
pre-tax profits exceeding 10% of revenues. 2000 0.21
05 10 15 21 Employees
It is likely to raise a “modest amount”, *Includes central and sub-central rates †Proposed for 2023 ‡Countries with inward investment
thinks Michael Devereux of Oxford Univer- Source: OECD exceeding 150% of annual GDP §Profits could double-count intracompany dividends
12 Special report Business and the state The Economist January 15th 2022

The future

The liberal fightback

It is time to reassert the case for less state intrusion

O n the surface business has seldom had it so good. Profits

and share prices are near record levels. Pandemic-relief pack-
ages have involved little arm-twisting by governments, and lots of
corporate welfare. Megadeals are at an all-time high in America
and plentiful elsewhere. What’s not to like?
As this special report has argued, quite a bit. Today may turn
out to be a high-water mark for business. Almost everywhere peo-
ple are becoming more mistrustful of it. So are their political rep-
resentatives. The upshot is that the state wants a greater say over
what firms do, where they operate and how they are run. The anti-
corporate sentiment makes it harder for businesses to defy calls
for new rules or higher taxes. nomic failings in the West and the bankruptcy of the Soviet sys-
Some of these are reasonable enough. Profit-seeking enterpris- tem both became undeniable, that liberal remedies or freer mar-
es cannot be expected to volunteer to pay more tax or to deal by kets, lower taxes and greater openness proved more attractive.
themselves with such huge challenges as climate change and in- China is not doomed to failure as the Soviet Union was. Its
come inequality, still less geopolitical squabbles. Milton Fried- economy is more sophisticated and, in pockets, genuinely inno-
man is reputed to have said that the business of business is busi- vative: look at Alibaba and Tencent, its digital titans. Yet its model
ness. Companies may need incentives to do the right thing. is not a superior form of capitalism. For all its progress, China is
But the incentives must spurn favouritism, spur dynamism poor by Western standards, leaving room for state-directed catch-
and maintain openness. And many now being bandied about or up growth. The most impressive Chinese businesses, including in
enacted do not. Having buried the age of big government under big tech, have thrived in markets that the state until recently kept
Bill Clinton, Democrats are enthusiastically exhuming it, with mostly at arm’s length. In focusing attention on China’s top-down
even some Republicans cheering them on. Britain’s ruling Conser- policymaking rather than its bottom-up entrepreneurial efferves-
vatives have lost their Thatcherite moorings. The eu, a project cence, some in the West draw the wrong lessons.
with a strong interventionist reflex from its inception, is giving in China’s course seems set for the foreseeable future. But a swing
to it. China has moved decisively away from liberalising its econ- away from today’s interventionist mood remains possible in the
omy into a new era of overt state guidance and control of business. West. The Tories may rekindle their inner Thatcher. As a club gov-
Political leaders again believe they can pick winners, and some erned by consensus, the eu may listen more to Nordic liberals
bosses are only too happy to be chosen. Regulators are introduc- when they say “strategic autonomy” is little more than a cloak for
ing ever more rules, and using those designed for one goal (pro- protectionism. Clintonian small government may seem a lost
moting competition or good corporate governance) to achieve cause among Democrats, but Republicans’ pro-market memory
others (data privacy or workforce diversity). Governments see may kick in if they can only disavow Trumpian populism.
friendless corporations as a handy piggy-bank. And countries are The broad liberal principles rediscovered in the 1980s remain
turning inward, giving international trade the cold shoulder. as powerful as they were 40 years ago. For that reason alone, politi-
cal and business leaders mess with them at their peril. The pre-
Dangerous shifts cepts are also valuable in themselves, as expressions of freedom:
These changes carry two dangers. As the state becomes more in- for entrepreneurs to invent, consumers to choose and citizens to
volved in business, however well-meaning its motives, compan- live as they see fit. That is why it is essential to defend them
ies’ focus tends to shift from satisfying consumers towards curry- against attacks from populists, opportunistic cronies in the priv-
ing favour with political leaders. Preferred firms grow flabbier and ate sector and those who have lost faith in free markets. For all its
less innovative. Regulations dampen animal spirits. Cronyism imperfections, liberal capitalism remains a vital force for good. 
rears its head. A chosen few win big. Everybody else loses.
The second danger is subtler. As some firms and governments
become chummier, others may conclude that they have no choice acknowledgments A list of acknowledgments and sources is included in the online version
but to do the same—especially if cosiness seems to work. This of this special report
could lead to a soft, self-imposed decoupling, even as traditional offer to readers Reprints of this special report are available, with a minimum order
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spired by the belief that only governments could rebuild societies
after 1945 and by the apparent success of central planning, led to more special reports Previous special reports can be found at
flagging dynamism and, by the late 1970s, out-of-control prices Economist.com/specialreports
and stagnant living standards. It was only in the 1980s, after eco-