2021 is unfolding as anticipated at the beginning of the year (see ‘Think Big’). With the global PMIs at a ten-year high, even the typically doomy IMF has turned optimistic. In its April assessment of macroeconomic trends, it made positive revisions to 2021 and 2022 after a better-than-expected 2020.
Confidence is running at a record high, and global M&A activity is having a fast start of the year, on track to surpass $4 trillion annually as it did in 2007 and 2015. Considering the stock market inflation since then, M&A has room to double to $8 trillion to achieve a historical peak. This trend opens up a world of possibilities for bold strategic moves.
If there is some disappointment, it comes from Continental Europe. Mobility restrictions are going up as the vaccination rollout has been calamitous. A comprehensive investigation published in Politico shows how the European Union succumbed to a lack of coordination across countries and departments, noble but unrealistic political objectives, protracted decision-making processes, inadequate technological bets driven by special interests, and a misguided determination to negotiate off-market terms with vaccine suppliers.
In his works, Franz Kafka, a Bohemian writer (1883-1924), famously described bureaucratic nightmares. Whether in ‘The Trial’ (1925) or in ‘The Castle’(1926),he shows how powerless his main character is when faced with an absurd bureaucratic machine that drowns in laws and regulation.* Because it is perceived to be almighty, bureaucracy is rarely, if ever, challenged and eventually accepted as a fact of life. The dark maze becomes comfortably familiar, almost protective. Citizens cede power and develop a bureaucratic mind which kills entrepreneurship and innovation. Those keen to understand why global productivity has dropped over the last decades do not need to look beyond the damage caused by growing bureaucracy.
Based on these considerations, it is doubtful that national governments worldwide will succeed in tackling sustainability challenges with more fiscal policies, more industrial policies, more laws and more regulation. The global financial markets, however imperfect, represent a safer bet. Over the last eighteen months, their accelerated evolution towards sustainable finance has been nothing short of magnificent.
The ‘government versus market’ decision does not need to be an ‘either-or’ proposition. Collaboration can yield substantial benefits, as argued in ‘Jump-starting America’(2019), a book by two M.I.T. professors. They remind readers that the private sector is most effective when the public sector supports science, citing jet aircrafts, vaccines, and computers as examples.
Perhaps, but the emphasis must be on the markets. For this to happen, outdated political molds must be broken. The conventional political choice is essentially between conservative values and faith in the markets on the one hand; and progressive values and trust in big government on the other hand. To save the world, a reconciliation between progressive values – those underpinning sustainability from an environmental and social perspective – and faith in the markets must be engineered.
* Unsurprisingly, there is a demonstrated positive correlation between the number of laws and government inefficiency