Missing Links

New Economy, Old Politics

Why libertarian dot-coms must learn to love multilateral organizations.

Eighty years ago, Standard Oil of New Jersey went overseas in search of crude oil. In the late 1990s, America Online went around the world in search of subscribers. In 1899, the United Fruit Company needed to be in Central America because of that region’s advantages in the cultivation of bananas. Nowadays, Yahoo needs to be everywhere because the more visitors it attracts, the higher its stock price.

While the rules and technologies of the new economy may have altered some of the modalities of international business, the key motives pushing companies abroad remain unchanged. Corporations still expand globally to increase their profits or to respond to the competitive moves of their rivals.

In considering where and when to go abroad, companies are also driven by the unique imperatives of their businesses. Gas and mining firms look to geology; agriculture and tourism companies consider the weather; consumer-product corporations search for big markets; and export firms pursue low-cost labor. Of course, political conditions and regulatory environments also matter.

While all these factors continue to shape the internationalization of business, a new calculus has also emerged, especially for the technology-based companies that form the backbone of the new economy. Fundamentally, a company no longer needs to go abroad to be abroad. Online brokerage firms conduct business globally without ever shipping anything overseas or even establishing a physical presence beyond their own country. Yet globalization also means that even companies without a foreign presence must now contend with a wide variety of overseas challenges to their operations. And so, just as the first multinationals needed government help in advancing and protecting their interests, their new-economy successors depend on a new kind of corporate diplomacy. Indeed, one of the ironies facing today’s nimble, high-tech companies — many of which pride themselves on their libertarian spirit — is that their global success may depend in no small measure on the slow, lumbering process of multilateral negotiations.

Consider the way that companies must protect their most valuable assets. In the old days, multinationals like Citibank, Shell Oil Company, or Procter & Gamble always had to bear the risk that their oil fields, plantations, mines, or factories could be seized by foreign governments in outbursts of nationalism. Today, the main risk for many high-tech companies is not that populist politicians will expropriate their assets, but that hackers and counterfeiters spread around the world will appropriate their trade secrets. A stern protest from the trade representative or ambassador isn’t of much use against this kind of threat. Witness the continuing saga of U.S. and Chinese efforts to negotiate and enforce contentious intellectual-property agreements, which have done little to beat back a virtual army of copyright pirates, trademark tramplers, and patent predators.

Companies also face a vastly different international antitrust landscape. In the past, threats to the likes of Standard Oil only came from trustbusters in the U.S. Justice Department. Today, as America Online, Time Warner, and Microsoft can attest, challenges also emerge from the European Union in Brussels, the World Trade Organization in Geneva, and a host of specific national jurisdictions. In fact, after America Online and Time Warner announced their merger plans last January, reported the Washington Post, "a virtual hot line" was established between the U.S. Federal Trade Commission and the European Union’s commissioner for competition affairs. Today’s global companies may have as much to fear from the cooperation of regulators in different countries as from the collusive practices of rival firms.

Finally, new-economy companies must look beyond Washington to ensure uniform international technological standards. The more that standards for information technology vary across borders, the harder it is for these companies to maximize revenues worldwide. That explains the army of lobbyists that U.S. companies have in Brussels and Geneva as the European Union, the World Trade Organization, and the International Telecommunication Union shape new global rules. Other important multilateral issues include those governing consumer privacy, cross-border e-commerce, encryption, and tax harmonization.

For all its power and influence, the United States has not been able to impose its preferences in these areas, not just because of its spotty record of support for multilateral organizations, but mostly because no government, no matter how powerful, can unilaterally impose or enforce its will on these issues. They embroil too many actors and interests in too many countries to be susceptible to brute, hegemonic force.

Instead, challenges such as protecting intellectual property and establishing uniform technological standards can only be met through what perhaps is the slowest, most inefficient way of solving human problems: multilateralism. And that reality presents new-economy companies with an uncomfortable paradox: Few of the traits they prize are found in institutions where governments converge to negotiate and organize their doings. Technology firms favor speed, decentralization, individualism, transparency, and a disregard for geography, borders, and sovereignty. In contrast, multilateralism normally involves slow decision making, centralization, free riders, unclear goals, and hypersensitivity about any real or symbolic erosion of national sovereignty.

The clash between the spirit of the new economy and the culture of multilateral decision making will do much to shape the way the digital revolution spreads around the world. Innovations in how countries organize to collectively define and enforce the rules that govern the new economy will be as critical in determining its future evolution as the technological innovations that drive it.

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