Capitalisn’t: Ukraine—The Privatization of Sanctions
- March 21, 2022
- CBR - Capitalisnt
As the war in Ukraine continues, the world is responding not just with various government sanctions on Russia, but also with a voluntary exodus of private corporations from the Russian market. To discuss these “private sanctions” and possible motivations behind them, Capitalisn’t podcast hosts Bethany McLean and Luigi Zingales speak with Richard Edelman, the CEO of one of the largest public-relations firms in the world.
Richard Edelman: I just think that business has fundamentally come to a place, because of government’s weakness, that it’s sort of the last man or woman standing. Therefore, the remit is expanded. I don’t know the logical endgame.
Bethany: I’m Bethany McLean.
Phil Donahue: Did you ever have a moment of doubt about capitalism and whether greed’s a good idea?
Luigi: And I’m Luigi Zingales.
Bernie Sanders: We have socialism for the very rich, rugged individualism for the poor.
Bethany: And this is Capitalisn’t, a podcast about what is working in capitalism.
Milton Friedman: First of all, tell me, is there some society you know that doesn’t run on greed?
Luigi: And, most importantly, what isn’t.
Warren Buffett: We ought to do better by the people that get left behind. I don’t think we should kill the capitalist system in the process.
Luigi: As the war of Russia against Ukraine is continuing to create enormous damage and loss of lives, there is a debate about not only the sanctions that governments are imposing on Russia, but the actions of private businesses that have voluntarily withdrawn from the market, stop selling. Basically, they have introduced their own sanctions.
Speaker 8: Many businesses are leaving Russia in protest.
Speaker 9: Companies like McDonald’s, Starbucks, Intel, and Apple. An estimated 300 companies have withdrawn or significantly reduced their operations.
Luigi: This is probably the first modern war in which big companies are geopolitical entities that impose sanctions like governments.
Bethany: I would just add to that by saying that I don’t think there actually is much of a debate.
Speaker 10: One professor at Yale has been keeping track of who is doing what. He also found several dozen companies have not pulled out of Russia, and they continue to operate there. Now, since the list has become so public, the “Remains in Russia” list has shortened with more companies withdrawing from Russia because of public backlash.
Bethany: And so, I don’t think there’s much debate about it. I think it’s become very non-politically correct to say that you support a company still doing business in Russia.
Speaker 11: Yeah, certainly pressure, especially consumer-facing companies here in the US. We know from previous polling data that so many American consumers really care about what the companies that they consume are doing in terms of geopolitics.
Luigi: We wanted to discuss this topic with somebody who is really touching the pulse of all the large corporations that are making these decisions and who will infinitely know more than us about this topic: Richard Edelman, who is the CEO of Edelman, probably the most famous PR company in the world.
I would like to start with a very general question. What are the main motivations that push people to leave? Are they trying to protect their money? So, are they profit-maximizing, or are they responding to employees or customers? Or are they responding to the pressure of the US government, or is it simply a manifestation of the CEO’s desire to avoid public embarrassment?
Richard Edelman: You have to start with the data from the Edelman Trust Barometer, which establishes that business is the most trusted institution. And this is only for the last two years. The second point is that trust is most in my employer, so trust is local, and it’s substantially higher than for business in general. And then, third, that there’s a huge expectation for CEOs to speak up on issues of the day; 80 percent of people want this. And fourth, that government is seen as so incompetent, 50 points less competent than business on issues of the day, of sustainability or DE&I, or reskilling or things like this.
Sixty-plus percent of employees say, “I only will work for a company where the values are equal to my own.” Sixty-five percent say, “As consumers, I’m only going to buy brands where they stand up for things I believe in.” That’s the context. Geopolitics has now entered the equation.
Geopolitics used to be something that business avoided like the plague, but now it’s the new trust test. With 300-plus companies, according to Professor Sonnenfeld, already out of Russia, that’s a stunning change in the corporate ecosystem.
Luigi: I understand that if you are selling guns to Russia, you want to stop selling them. I’m not so sure that the gun companies would stop selling them, but I understand that. But if you are Bumble, the dating service, why do you want to stop dealing with Russians? First of all, you’re not dealing with the government, and I’m sorry if I’m too ’60s here, but make love, don’t make war. So, why do you want to prevent the poor Russian people from having a life in this moment?
Richard Edelman: I think the argument would be, I can’t profit from a country which has violated postwar norms in such a clear way and is invading another country with no provocation. “I’m making a hundred million in profit, and I’m going to donate that to civil society so that they can take care of the people who are displaced” doesn’t sound like a good excuse.
Luigi: You think that this strategy of rebating the profits . . . If I’m McDonald’s, and I don’t want to be seen as profiting from the Russian market, I still operate in the Russian market, and then I give my profits to Ukrainian victims. To me, it seems like a much better strategy. Why is this not feasible?
Richard Edelman: Because you can’t explain it. From a communications point of view, are you in Russia or are you not? “Oh, no, I donate all my profits to the Ukrainian victims of the Russians who . . . I’m feeding the parents, and the son is a soldier, a paratrooper, shooting Ukrainians.” It’s a hard logic.
Luigi: All the values of the West are about diversity, tolerance, openness to different ideas, and now we’re going in the opposite direction. We have shut down Russia Today like we fear the Putin news, like Putin fears our news. I don’t think we should be fearing his news, because if you are of the conviction that we have a superior system, we can afford to have other ideas. We think the better ideas prevail. I think that we are really lacking that conviction these days, and we are using the companies to really punish the Russians, as if this was the fault of the Russians.
Richard Edelman: Luigi, on the matter of Russia Today, I can tell you that disinformation is a clear objective of that media outlet, that we are very vulnerable on information quality at the moment. And so, I hold no candles up for the passing of Russia Today. On your broader theory of let the best idea win, I think that’s a great Silicon Valley idea that doesn’t work. People are very vulnerable to sexy misinformation. It’s shared 10 times more frequently than quality information.
Luigi: It’s not shared. It’s amplified on purpose by the very tech companies that are now withdrawing from Russia.
Richard Edelman: But it’s shared by their participants.
Luigi: No, some of it is promoted.
Richard Edelman: Yeah. But your point is algorithmically.
Richard Edelman: That’s fair.
Luigi: I think they’re trying to protect their image when they’re making money from precisely pushing those ideas. I don’t fear having access to Russia Today, as long as there is not somebody that is making a lot of money pushing it through everybody’s inbox.
Richard Edelman: The first point of pressure is definitely the employees, who are in short supply and, especially in tech companies, very clearly activist and willing to stand up. The pyramid of authority has been flipped on its head, and those on the bottom feel as if they have a mandate for change. And then consumers about brands, there are probably 10 percent of any consumer group, maybe 5 percent, who are deeply activist. And then they stir up the others.
Bethany: What’s the tipping point where the pressure from one’s peers also becomes a factor? And I’m thinking specifically of some of the companies early on, like Burger King, that said, “We’re staying put. We’re not doing this.” And then, one by one—maybe that’s an exaggeration—but they have capitulated. And so, in the work you do, how much do companies care what their peers are doing?
Richard Edelman: I think the peer group matters, because there is safety in numbers. The tipping point happened last weekend when there was the bombing of the hospital. And there was a clear sense of, “The Russians aren’t holding back here.” It’s not like some kind of clean war or whatever. This is going to be reduction of a city like Kyiv. And the companies do worry about having stranded employees. They do worry about loss of IP and factories and franchises. But I suppose they’re prepared to write off their Russian business, because it’s not a big part of their portfolio generally.
It’s 1 percent of sales, something like this. You know, the obvious question is, what happens if it’s a bigger country that they’re involved in that has a similar confrontation? Are we moving to a world of blocs? You know, as we had when I grew up in the ’60s.
If we’re clear about the role of business, it is interesting to see that Republicans trust business less than Democrats now in our recent study. That’s a stunner. And it’s because Republicans think business is too woke. So, there is clearly a line between policy and politics that business has to walk. And was Disney correct the other day or not in trying to walk away from the legislation in Florida about gay people? And the CEO said nothing, and then his employees were really angry. So, he pushed publicly for the governor not to sign it. But you know, too late then, maybe. Businesses increasingly are being pushed by their employees.
Bethany: Has your survey ever returned that result before, since you’ve been doing it?
Richard Edelman: No. Nope, this is a first and it’s a stunner. And it’s also stunning that the most credible source of information today is “my company newsletter.” That’s amazing. More than mainstream media, more than government. So, it shows you trust is local, and then it puts big responsibilities on the companies.
Bethany: What do you think of the companies that are continuing to operate? What’s their long-term game plan, that we’ll forget about it and people won’t pay attention? I’m thinking specifically, although it’s a little bit complicated, but Philip Morris, the old Philip Morris, I think is continuing to sell its products in Russia, even while they say they have suspended any new investments.
Are you doing business there or are you not doing business there? And what’s the thought process of a company like that? And then I wanted to get to the drugmakers, which are in a different category, I guess, although I’m not sure.
Richard Edelman: Well, the food companies I’ve spoken with make the case that they have a responsibility to enable normal people to get along in their lives. And the pharmaceutical companies make the case that they’re selling medication that preserves life, and that that’s a sacred responsibility. The problem is, the longer this goes on and the bloodier it gets, I just think that the pressure, even on the food companies, is going to grow substantially because there will be a cold war.
And I don’t think the American government literally told companies to get out. Maybe the energy companies they had a discussion with, but ones in consumer products or Apple or something, I don’t think that happened. I think it was just on the basis of, “This is inconsistent with our values and being part of a system where the global order works.”
You may differ, but the comparison to companies speaking up after January 6th or after the election and saying, “Look, Trump, he won. Let the Electoral College proceed.” I think that was entirely within the remit of companies. Luigi, you and I have had this debate. I’m not sure you agree with me, but I feel that it is part of business to want to have a system that works.
Luigi: I understand that they want to have a system that works in the United States, because this is their base. And if we don’t have democracy here, it’s very hard. But I’m just trying to figure out what their objective is in being so fast in withdrawing there. Is it really to punish bad behavior? Or is it to not be caught on the wrong side of the political cycle? Is it just a marketing point of view?
Because what I learned from being on some boards is that, actually, CEOs are very insecure people, and they are terrified to have an event that might coalesce the board against them. So, they are very carefully managing public relations mostly for themselves, not for any ultimate purpose. My fear is that this is just—I’m sorry to call it a negative term—PR and not really substance.
It’s not that they want to create a better world, because many of these companies have sold opioids. They’ve done a lot of terrible things. They’re not all like these saints that they want to preserve their souls. They are basically trying to look good and make money.
Richard Edelman: I mean, let’s change venue for a second. So, Xinjiang and the sourcing of cotton from that disputed area in China and forced labor and human-rights violations. Some companies just closed their manufacturing. Some companies stopped the purchasing of cotton. And some companies explicitly went with the NGOs and said, “There’s violations here.” And the ones that stuck their heads up and said with the NGOs, “We are with you,” those are the ones that the Chinese took off the websites and did all sorts of things to them and caused their sales to collapse—Adidas being the most obvious example—and the local Chinese brands took up the market share.
The lesson from this is, you can’t resolve the geopolitical without an action. You can’t just fake it and keep going. So, we worked with one client where our solution was, “Do not back the NGOs, but also stop your sourcing. Do something legit, get your cotton from somewhere else.” That was enough, and the Chinese left him alone. This is not something that’s going to end for business. This is going to continue. And it would be good to have made your policy determinations before the clock strikes midnight about what you can do and what you should do.
Luigi: But I see a big difference between not sourcing textiles in Xinjiang and withdrawing from Russia if you are McDonald’s. In one, I clearly see a theory of sanctions. I want to punish a behavior, and the behavior is the use of forced labor. And because I cannot be reassured that my product does not use that forced labor, I stop buying the product from that source. I see in this a very clear theory with the hope of success. When you are McDonald’s and you withdraw from selling hamburgers to Russians, what is your theory of sanctions?
Netflix announced that they’re going to put on hold the adaptation of Tolstoy’s Anna Karenina. For Christ’s sake, Tolstoy was a pacifist. He was one of the inventors of nonviolence. Why is he punished because of what Putin does?
Richard Edelman: Look, I can’t comment on the specifics about Anna Karenina, but we don’t actually appreciate the extent to which Americans have a deep, long-lasting loathing of Russia going back to 1945. I put my hand up for that one, because I do, because I’m a Cold War kid and I had to practice duck and cover in my school. And I lived through the Cuban missile crisis when my dad said, “We’re probably going to have a war.” You know, the Russians are a historic enemy of the United States.
And, listen, a lot of the CEOs are younger than me now, but I heard Obama on Thursday night in Chicago talk about, “We have a fundamental conflict of systems. And any notion that we’re at the end of history and all that stuff from the early ’90s is now passé, and this is a global struggle, and you have to choose.” So, their business is confronted with an existential question. Is it going to be a world of blocs, or are we going to be able to have multinational businesses as usual? And if Robert Gates is correct, he said, “We’ve had a 30-year hiatus, but we’re back to normal now.”
Bethany: It sounds like, Richard, that you are saying both that Russia is indicative of this larger trend in corporate America, but it also is its own unique thing. In other words, it’s indicative of all these issues about what customers want and what stakeholders want. But it also is unique in that the United States’ relationship with Russia is unique. And it’s also unique, because company sales just aren’t that big in Russia yet.
So, this is meaningful. It’s very meaningful. But in a way, it also doesn’t necessarily mean anything for the future with other countries that misbehave. Is that a fair interpretation, or do you think what’s happening with Russia will be indicative of things that happen in the future?
Richard Edelman: Well, the obvious question is, if China invades Taiwan, what would an American company do that has a serious business presence in China? Would they divest that business and call it XYZ China? Possible.
Bethany: Which, maybe, Luigi, actually answers part of your question that you began this with, about what the motivation is for doing this. It’s not as if the corporations that have pulled out have taken a courageous moral stand in the face of public pressure to do the opposite. They’ve done the popular thing, and they’ve done the thing in many cases that doesn’t cost them all that much in terms of actual profits.
This isn’t a case where a corporation making 75 percent of its profits in Russia or corporations supplying necessary products to the Russian people has said, “I’m going to keep doing this in the face of public pressure to do the opposite.”
Luigi: I think you’re right, because when it came to Hong Kong, for example, nobody died to defend Hong Kong. Nobody withdrew to defend Hong Kong, because there was too much money at stake. And if this was Taiwan, they would probably ignore it and move on. Because, at the end of the day, we love that big market too much. It’s not worth sacrificing it for a little bit of upset.
Richard Edelman: By the way, Luigi, I’m not sure that’s the outcome. I actually believe if there is an invasion of Taiwan, American companies are going to have to consider not just the Chinese market, but also the Japanese and the Korean and the surrounding places and even Europe. Because the choice will be, “Are you going to put up with this tyranny?”
Companies are moving away from sole reliance on Chinese manufacturing. They are insourcing to the US; they’re insourcing to Mexico. They are changing how they do business, because they’re afraid of overreliance. I’ve seen this with our tech clients, I’ve seen this with the CPGs. They’re changing.
Bethany: Is it because they’re afraid of overreliance on China as revealed by supply chains getting crushed in the pandemic? Or is it because they’re opposed to political practices in China? In other words, is it a decision made out of practicality, or is it a decision that in any way presages or echoes the geopolitics involved in Russia?
Richard Edelman: I think it’s the former, Bethany. I think it’s clearly, “Jesus, we couldn’t get these products for PPE during COVID, and we can’t do that.” And, by the way, also there’s this 35 percent tariff that makes the price for batteries uncompetitive. We can source them in the US, or we can source them in Mexico. The global supply chain is a real question mark now. You need to be closer to your end user.
Luigi: Yeah. But this is a business proposition, nothing to do with moral values. It’s a business proposition.
Richard Edelman: Yeah, but you have to forecast to the further complication of geopolitics. Leave aside tariffs and leave aside shipping issues. That’s going to look like chicken feed compared to if there’s a shooting war.
Bethany: It’s actually interesting, and I don’t know if the two of you would agree with this. But wasn’t it Arthur C. Clarke who argued first, or was it somebody else, that closer economic ties between nations were going to make war less inevitable? And so, rather than seeing what’s happening with China and with onshoring of production as totally different from the Russia situation, the very onshoring may make it easier, if the time comes with the US and Taiwan, for US companies to say, “We’re out.”
Because the groundwork will already have been laid, albeit for a different reason. The groundwork will have been laid for nothing to do with what’s right or wrong, but purely its practicality. But that also might make it easier when the time comes for companies to react.
Richard Edelman: But the question is one not just of production, but of demand in local markets. So, you could have those delinked. You could keep selling in China, for instance, you don’t have to make it there. And, by the way, wage levels are going up, and so there’s offshoring to Vietnam and Myanmar and all these other places, too.
Luigi: Which are fantastic democracies where there are no problems, right? Richard, we’re reaching your time limit. So, I want to make sure, did we ask you about everything you wanted to say, or is there something else you want to add?
Richard Edelman: I just think that business has fundamentally come to a place, because of government’s weakness, that it’s sort of the last man or woman standing. Therefore, the remit is expanded. I don’t know the logical endgame or the final point. It maybe comes when government improves. It maybe comes when there are more people like Luigi who say, “That’s too much. Just go back and make me my peanut butter. I don’t need you changing the world.” But in the moment, it’s the one institution both ethical and competent that seems able to manage change. And that’s significant.
The two weeks of Russia have shown the extent to which geopolitics is the new bar, on top of the already long list of things that businesses are expected to do on sustainability, diversity and inclusion, reskilling, and supply chain and human rights. So, being a CEO is complicated enough, but now more, I’m convinced.
Bethany: They might even start to earn their pay packages.
Richard Edelman: There you go. I remember your stories in Fortune on that. Anyway, thank you both.
Luigi: No, thank you. This was fantastic. Thanks a lot, Richard.
Bethany: That last observation Richard made about business stepping into the vacuum created by government, I thought was really interesting. It is, and perhaps it’s causal. Perhaps the lack of government action and the lack of trust in government makes employees be far more demanding of what they expect of their businesses.
And, therefore, employee demand creates this sort of action, but it is also because of the vacuum created by government. But it’s an interesting dual-pronged way of thinking about what’s happening.
Luigi: It is. But I thought it also was very interesting what he said, that this response is the result of a deep hate that Americans have vis-à-vis Russians that goes back to the Cold War. It becomes difficult for business to even be nuanced, in a sense. He is the king of communication, and if he says he cannot explain, “I’ll stay in Russia, but I’ll give money to the Ukrainian people,” nobody can.
It is pretty stunning to me that this not particularly sophisticated message could not come across. And I think it’s a bit like, when there is a mob wanting blood, you can’t be too sophisticated.
Bethany: Well, I was thinking when he was talking about demands from employees that, yes, on the one hand, it’s really lovely. Employees get to shape the company at which they work in a way that was never possible in the past. That’s marvelous.
On the other hand, it is mob rule, right? Get enough employees to join the mob of saying, “This is the behavior we want to see from our corporation,” whether it’s short term, whether it’s long term, whether it’s lurching in response to something that appears to be popular now but might be very damaging later, it is mob rule. And there’s a reason we’ve resisted that for a long time in all sorts of other forms, right?
Luigi: It is also GDP rules, because while at the electoral booth, we are all equal, in business we’re not. I have heard a lot of statements that, oh, the Democrats represent the most productive part of the country. Like, oh, we need to weight people by GDP? So, if you are a poor person, you don’t count, but if you’re a rich person, you count a lot. Is that what we’re saying? And with companies, that’s also true, because if I’m an employee of Google, which last time I checked, is not exactly a poor job, I get a lot of influence.
But if I am an employee of the laundromat at the end of the street, I don’t have a lot of influence. And so, in elections, our vote counts the same, but in this particular game, the employee of Google counts a lot and the guy at the laundromat, nothing,
Bethany: I think that’s a really good point. I think that speaks, though, less to what business is doing right or wrong and more to what government is very definitely doing wrong. Because it’s government that’s creating that vacuum that business is then stepping into.
I was thinking, to change gears a little bit, Luigi, I do think the point you raised about Russia Today and about information being a different product than say, selling food in Russia, I do think they’re two different things, and I’m not quite sure how to articulate what the line between them is.
I am less upset, and in fact, in favor of companies suspending operations in Russia. I’m quite a bit more mixed about us banning Russia Today or about playing the misinformation game. And I’ve been upset about it all along. I think, basically, a people that can’t take responsibility for distinguishing between information and misinformation are screwed from the get-go.
Luigi: I’m a consequentialist. I would like to see what my action does. I don’t think that the action is moral or immoral. Selling meat or hamburger, whatever, to Russians is not per se an immoral act, in my view. And so, the question is, are we really helping the Russians be more aggressive and kill more Ukrainians and do more harm, or are we not? For the hamburger case it’s pretty obvious, to me, that it is not.
And if you are concerned, again, about making money with Russians, you can donate it to the Ukrainians, and they all need it. Now, if I’m producing guns, that’s a different story, or if we trade oil and gas, I think that there is no question that the gas is the blood supply of the Russian economy. So, if I really want to turn off that spigot, then it’s a different ball game.
But, by the way, the Germans, the Italians, the Europeans are not doing that. That could probably put Russia on its knees tomorrow—now, with dangerous consequences, because as we discussed last time, when you are against the wall and you have terrible weapons, you can end up using them.
So, all this is extremely complicated. And that’s what I fear, that business is brought into this picture and does not have the knowledge and the strategy and the coordination. To run a boycott and sanctions campaign, you need a lot of coordination. Done on a wave of emotional feeling, it can really backfire in a way that we’re going to suffer the consequences for decades.
Bethany: I think you might be convincing me. And I think the contrast between what’s going on with oil and gas and what’s going on with other products is very telling, in that, in a sense, corporations are doing, as we discussed with Richard, something that doesn’t matter very much to their own bottom line. It hurts mainly Russians who depend on these products. And then, when it comes to the one big thing that we really could do, we’re all afraid to do it, because we’re actually too dependent on that big thing to do it.
And I think the emotional appeal to me of not selling products in Russia anymore, I’ve been a little bit of a sucker for that. And, as I think through it, you’re right. We don’t know what the consequences of that are. We don’t know if it does what corporations are telling us it does. Does it put pressure on Russia, such that the people of Russia put more pressure on Putin to capitulate? Does it do nothing? Does it backfire? We don’t actually know.
And the corporations who are making these decisions are not thinking it through from that standpoint. They’re thinking it through from a purely public-relations standpoint. “This is what everybody else is doing. This is what my employees are telling me I must do. Therefore, I’m doing this.” And they’re making it, per Richard’s point, so that geopolitics are the new ground for this movement. Corporations are also playing in an area that they have no expertise in and don’t understand. And they’re not even trying to think through the consequences.
OK, there. I just articulated your point of view, because I think I’ve come around to it.
Luigi: So, we call it diplomacy by the mob?
Bethany: I’d like to believe it’s sending a message to China that the worldwide business community may do the same thing to them. And it may make actions like the takeover of Taiwan less likely, but I’m not even sure that’s the case. Because it’s sending a message that if you matter enough, if your industry matters enough, we won’t do that much about it. So, I’m not even sure you can take that point of view. I’m not even sure you can argue, like jail for white-collar criminals, that it’s a deterrent to the way we would like it to be.
Luigi: I would like to discuss one last point, given that the moment I started reading this book called The Economic Weapon, which is a history of sanctions by Nick Mulder, one thing that I realized is, what are the long-term consequences of these sanctions? The boycotting or the naval blockade that France, England, and then the United States, and Italy, did of the Central Powers in World War I. First of all, I didn’t realize this, but it was extremely deadly. People died by the hundreds of thousands in the Central Powers.
And, second, it lasted longer than the end of the war, because they wanted to keep pressuring Germany to do some things at Versailles, and so on and so forth. It really generated in the Germans a sense of, number one, abuse by the Western powers. And, number two, they felt that, basically, they would never be secure if they didn’t control enough supply, which led straight into the aggressiveness of Germany in World War II.
Hitler was not born in a vacuum. I think Germany and the German people felt that they needed to have an empire to protect themselves. Why? Because the market was not open for business. It was literally a vital issue for them.
So, what are the effects of these sanctions on the Russians for the next 20 or 30 years? And, particularly in a world in which the Chinese are going to start to trade with them, it’s going to send Russia straight into the arms of the Chinese.
Bethany: Well, I think that point is very good, and I think it augments two points you’ve made earlier, one today and one in our previous podcast, which is that there’s no way to really understand the consequences of what we’re doing now. So, this sort of blind cheering and applauding is a dangerous response.
But it also echoes the point you made in our earlier podcast, which is that desperate people do desperate things. And we don’t know what the effects of making the Russian people desperate are going to be. Are they going to be to turn the Russian people against Putin, or are they going to be to turn the Russian people toward him or toward another type of leader like him, or perhaps more dangerous?
I would take it even one step further and wonder more broadly about the whole question of globalization. Some of the pieces I’ve read recently, one by Niall Ferguson in Bloomberg . . . We tend to think of everything as linear, as a straight line of progress. And if you think of globalization as progress—I always tended to think of globalization as a straight line, and it really isn’t. Globalization was abruptly halted by World War I. And so, now we’re in another period where globalization might be ending or changing. And what does that really mean? Because it’s not just the economic impact of supply chains. It’s geopolitics as well.
Because, for sure, the more tightly the world is economically entwined, that has an effect. It has lots of effects. We’re not quite sure what all of them are good, and if they’re good effects or bad effects, but it’s got an effect. And if the world becomes less economically entwined, that has an effect, too. And what that is, I don’t know, but we really are entering into a very different world.
Luigi: Absolutely. And the moment you cannot trust that your suppliers will be there when you need them, you need to secure different suppliers. To the extent you don’t feel a foreign supplier to be reliable because it’s foreign, you get straight into autarky. And maybe it’s not the autarky of a single nation. It’s the autarky of a group of nations. But the world is going straight in the direction of two, maybe three separate blocs and very little in between.
Bethany: I had to Google “autarky” this morning, because I actually didn’t know. I had never seen that word before, and I didn’t know how it was different from autocracy. So, for our listeners, would you like to explain it? It’s something I just learned.
Luigi: Bethany, you asked an excellent question, and at the cost of being a bit professorial, but after all, I am a professor, the term autarky means two different things, depending on the way you spell it. There is the autarchy with a “ch,” and there is the autarky with a “k.” The autarchy with a “ch” has the same root as the word monarchy. It comes from the Greek word arkhein, which is taking the lead. So, monarchy is when one person takes the lead. Autocracy is when you have yourself taking the lead. So, you’re self-independent, so it is autonomy in a political sense.
On the other hand, autarky with a “k” comes from the Greek arkéo, suffice. And so, autarkane means you are self-sufficient, and that is economic independence. And so, what Mussolini proclaimed was autarky with a “k.”
And, as I was saying in our last podcast, it was very popular. He gained a lot of momentum on that basis, because, after all, when you feel humiliated is really the moment when your national identity rises up and when you are prepared to do anything to get revenge. And that’s really, really dangerous.
Bethany: This conversation made me think about the ways in which war in Ukraine and the change with Russia feels like it has nothing to do with the pandemic. And yet, they are related in a way, right? Both events are reshaping the economic makeup of the globe. And so, in some ways, these two very disparate events are both remaking our world in ways that are intertwined.
When you think about the effect that the COVID-19 pandemic had on the realization that global supply chains aren’t all they were cracked up to be, that it’s important to have a supply of certain critical ingredients at home, and then you think of what’s happening with Russia as a furtherance of that, it’s interesting.
Luigi: Definitely. And I think that there might also be the fact that Putin did not handle COVID particularly well. No country did, but I think that even within the feasible set, Putin did not do well at all. And that must have undermined a lot of the support internally.
Unfortunately, external wars are a good way to rally the troops and rally the people around you. So, this might really be a restarting of an initiative to try to regain popularity as he was losing it.
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