Business can benefit from more Government

Business can benefit from more Government

Lines representin Government and Busiiness running together

In our previous article, we concluded that overnight government became a more critical stakeholder to business due to the pandemic. The way governments reacted to the crisis has been subject to extensive analysis and critique by the public, experts, politicians and the media. This article will not engage in that debate. However, we noticed that the pandemic drove governments to expand their role as shapers of national development. We will argue that this shift is here to stay and requires businesses to reassess their capability to engage productively with the government. The sooner, the better.

To respond to the challenges of the pandemic, governments quickly intervened. They became crisis managers, limited the freedom of movement, restricted business activity, and cushioned the consequences to people’s livelihoods. They built emergency infrastructure to test citizens and care for patients, such as China did with Huoshenshan Hospital, completed in nine days. Western and large emerging economies sponsored urgent research to develop vaccines. The U.K. temporarily banned bailiffs from evicting struggling tenants between March 2020 and June 2021. In the U.S., the federal government passed legislation to protect employees, extend unemployment benefits and support business. Several states, such as Virginia, Oregon, and California, issued emergency executive orders, forcing employers to improve working conditions to minimize the risk of infections. By May 2020, most central banks had intervened and printed extra money, purchased public debt and lowered interest rates or announced plans to do so, and this policy has continued to date. Thus, through trial and error, governments built a crisis management capability.

Besides curtailing the immediate effects of the crisis, most governments seized the opportunity to make structural changes as well.

Many democratic governments promoted large-scale recovery plans to stimulate the economy. Take the EU’s economic relief package of €750B, which bails out Southern European countries. It also helps finance the Green Deal (e.g., Hydrogen funding) and was backed by the first-ever EU bond program. It is not unthinkable that this is the first step to a shared budget and closer fiscal union. In October this year, French President Macron unveiled a €30B to drive the country’s high-tech industries. South Korea set up a US$140B New Deal that targets green mobility, energy transition and digital infrastructure. Japan announced US$380B in fiscal spending to curb emissions and invest in digital innovation. The Biden Administration earlier this month secured bipartisan support for a U$1.200B (of which U$550B is new spending) infrastructure bill; Another U$1.900B of new spending is proposed under the Build Back Better Act, which is pending final negotiations. Most programs aim to increase productivity (e.g. digital transformation), innovation (e.g. energy transition) and redistribute wealth (e.g. minimum wage and tax code changes, even internationally). In addition, more progressive movements in society have seen an opportunity to advance their agenda (e.g. Black Wednesday) and drive governments to invest in economic and social renewal (e.g. Spain’s €3B minimum income scheme).

Other government leaders combined spending with actions to cement their grip on power. In February 2021, China approved its 14th five-year financial plan, which commits over U$1.000B to advance its technology industries. Since then, President Xi has also clarified that the Party takes precedence over domestic businesses and foreign financial markets. Both the crackdown on tech billionaires and the actions to shield Chinese banks from the Evergrande fallout appear to usher in a new era that sacrifices economic growth to protect the Party’s control and Xi’s legacy. In Russia, the economic fallout from COVID-19 forced President Putin to re-draft the country’s U$360B National Development Plan while also approving constitutional reforms that allow him to remain in office until 2036. Likewise, Viktor Orban pushed legislation that allowed him to sidestep parliament and rule by decree in Hungary. The government leaders of Venezuela, Turkey, and Egypt took advantage as well.

Other than Central Banks lifting their foot from the money supply accelerator, we believe governments are likely to continue to play an expanded and more influential role in society. Consider, for example, the additional interventions governments will undertake to address climate change. Businesses operating across the globe have taken this new reality into account. For instance, government relations leaders were given more airtime to showcase their function’s added value with the board. Public Affairs firms in Washington DC and Brussels tell us new clients are knocking on their door and asking for support. Executive search firms are busy defining and filling government relations and corporate communications positions that didn’t exist before.

With more value dependent on how business deals with government than ever before, companies should not ask themselves if they should invest in building government relations capability, but where and how they should do so. Doing so, we believe, allows businesses to benefit from more government.

Posted on November 11, 2021.