European Multinationals and the Art of War
This column was previously published in Le Monde on september 14th 2024, as part of the special feature: “Businesses and Geopolitics”.
With systemic rivalry between Washington and Beijing, European companies are having to “wake up”. The only solution for them is to completely rethink their relationship to geopolitics.
Of the three things that will disrupt the next decade — artificial intelligence, climate change and geopolitical change — it is without doubt the third that will prove the most surprising, because of both its magnitude and the immediacy of its impact. During the 30-year period of “joyful globalisation” that began in 1989, European multinationals got into the habit of ignoring politics. Any government with deviant behaviour, such as the one under Liz Truss in the United Kingdom in October 2022, could only hold out for a few weeks in face of market pressure. But geopolitics isn’t politics!
Ever since two major events occurred in 2022 — the war in Ukraine and the 20th Congress of the Chinese Communist Party — geopolitics has burst upon the scene with a new era of “war economy” in which fundamental principles are reversed: trust gives way to mistrust, arbitrariness cuts across the rule of law, there is a return to structural inflation, and the balance of power is replaced by relationships based on dependency.
These new game rules reveal Europe’s relative disadvantage in terms of competitiveness. China is opting for the “neo-Marxist-Leninism” of state capitalism; the United States is strengthening its technological hegemony by regulatory favouritism directed at the “Magnificent Seven’ (Alphabet, Amazon, Meta, Apple, Microsoft, Nvidia and Tesla), whose cumulative stock market capitalisation is almost on a par with the gross national product of the European Union; Brussels remains locked in a system of governance — including the veto right for each of its 27 members — that, with its revolving presidency, means that Hungary can mock the other member states in Moscow and Beijing. Furthermore, Europe is the prisoner of some disastrous choices — as in the case of solar panels and electric vehicles — like inadequate import taxes that cynically favour the populist protection of consumer purchasing power at the expense of its own industries. With such a narrative that heralds decline, the only solution for European multinationals is to completely rethink their relationship with geopolitics.
Every multinational must appoint a “Director of geopolitical risk” to its Board
The paradigm change
To start with, they must demand the setting-up of the major reform proposed by the man who saved the euro, Mario Draghi, who was put aside in the recent European elections campaign. There are three sides to this. First of all, the imposition of a qualified majority governance to conduct an industrial policy that can face up to Beijing, as opposed to the policy of competition that is penalising European companies in this war. Secondly, Brussels must make a more significant adjustment to the way in which any Chinese product that receives state subsidies can gain access to the European market, and must systematically tax their carbon footprint. Thirdly, a pan-European consolidation must be forced upon the four key industries in a war economy: defense, energy, finance and telecommunications.
Furthermore, every multinational must appoint a “Director of geopolitical risk” to its Board. His or her task will be to understand to what extent the company’s future will be impacted by the emergence of “ChinAmerica”. The tacit agreement between the two giants, whose annual trade in goods and services still amounts to $700 billion (€635 billion), gives the United States leadership in 21st century technologies in exchange for China’s rising importance regarding 20th century technologies, traditionally dominated by Europe. How to play this “ChinAmerica” will guide the decisions to be taken: in anticipating the obsolescence of certain assets, reinvesting in production capacity, rebalancing supply chains, reconstituting key stocks, indexing costs involved in rising inflation, and in giving privileged access to sources of finance.
New regime of interdependency
Unlike the sovereignty pointlessly talked about by political leaders, geopolitics will mean the configuration of a new regime of interdependency, behind which Europe, as the world’s main customer of international trade, should theoretically be the driving force. It is up to European multinationals to take advantage of any occasions that may arise, counter-intuitively, from the emergence of “ChinAmerica”. Firstly, by making a profit from re-exporting to the rest of the world those products sold at a loss because of the excess capacity resulting from Chinese neo-Marxist-Leninism. Secondly, by using American high-tech to define our new way of life post-Covid: for our well-being in a sustainable world, creating a healthy balance between real life and connected life, and working for freedom of thought and action — a far cry from American wokism or the disconnection of young Chinese claiming the right to be lazy.
In realistic terms, this requires a huge paradigm change. By voting with their cheque books for Beijing and Washington rather than for Berlin, the German multinationals are a reminder to us of the dangers of Berlin’s inability — just like Brussels’ inability — to at long last institute a war economy and act on the new systemic rivalry with both China and the United States.
The survival of European companies depends on replacing the ESG (Environmental, Social, Governance) framework, whose intention was commendable but totally unnatural, by ESW (Energy, Security, War). Energy has to be placed at the heart of environmental strategy; Security of supply chains has to be re-established in a chaotic world; and War is a tool to confront a world that is no longer a world of plenty but of penury.
