Missing Links

Megaplayers Vs. Micropowers

Rising instability is good news for the little guy -- and bad for everyone else.

Royal Dutch Shell is one of the world's largest and most powerful corporations. Bolivia is one of the planet's poorest countries; its economy is a mere 3 percent of Shell's annual revenues. Recently, Shell CEO Jeroen van der Veer noted, somewhat meekly, that his company was resigned to accept Bolivia's decision to break the contracts it had signed.

Further, he said, it was no longer a good idea for oil companies to put up a legal fight against the nationalistic policies of countries like Bolivia. Once upon a time, giant multinational corporations did not bend to the will of tiny governments. The behemoths of industry did not just stand by as their oil, gas, or mining fields were seized under a national banner. They fought back, and not just rhetorically.

In another part of the world, a ragtag militia equipped with small arms and improvised explosive devices is denying the most powerful military in history control of the territory it swiftly conquered. This same pattern, in which small "micropowers" are successfully contesting the dominion of traditional "megaplayers," is also in evidence in a far more cerebral market: encyclopedias. The survival of the world's oldest and most respected source of information, The Encyclopaedia Britannica, is threatened by strange newcomers. One of them, Wikipedia, though just five years old, is already 12 times larger than the Britannica that sits on your bookshelf. Wikipedia is free, exists only on the Web, can be read in 229 languages, and is expanded daily by unpaid volunteers. A recent study published in Nature magazine found in a random sample of entries that, despite its far larger size, Wikipedia had 162 errors, whereas Britannica had 123.

Britannica is not, of course, the only business whose survival has been threatened by improbable new rivals. The New York Times, founded in 1851, now thinks of eight-year-old Google as one of its most serious competitors. All large companies are under pressure, and the trend is accelerating. According to professors Diego Comin and Thomas Philippon of New York University, a company in the top 20 percent of its industry in 1980 faced only a 10 percent chance of no longer being an industry leader five years later. By 1998, that risk had more than doubled. In fact, 39 of the top Fortune 100 companies in the United States were not on that list last year. A high turnover of industry leaders means a high turnover of CEOs, too. Of the world's 2,500 largest companies, 383 lost their CEOs in 2005; almost half of them were fired. According to the consulting firm Booz Allen Hamilton, the turnover last year was the highest since it began keeping track in 1995, and the number of CEOs dismissed because of poor performance quadrupled. Surprisingly, CEO turnover was highest among Japan's largest companies, once considered safe havens for mediocre performance.

Shorter tenures at the top, unexpected new challengers, and tighter margins to maneuver also describe political life today. For starters, landslide electoral victories, though still occurring -- Jacques Chirac's in 2002 or Junichiro Koizumi's in 2005 -- have become the exception rather than the rule. The trend instead is for presidents and prime ministers to win national elections with smaller margins. Razor-thin victories such as Germany's Angela Merkel, Italy's Romano Prodi, or Costa Rica’s Óscar Arias epitomize a pattern whereby leaders elected with weak popular mandates are forced to govern by cobbling together fragile coalitions. These political partnerships are easily upended by microplayers who can use their ability to veto, stall decisions, or apply popular pressure on more powerful actors. Naturally, this trend has also shortened the tenures of cabinet ministers, which in most countries are now more accurately measured in months than in years.

The proliferation of new microplayers capable of constraining their mega-sized rivals is a rising trend everywhere. The United States is constrained by Islamist terrorists. Central banks are threatened by hedge funds. Control of large swaths of territory, critical government agencies, or the nation's most lucrative business activities rests in the hands of criminal organizations that are part of sprawling global networks. Gigantic media companies are besieged, exposed, and sometimes crippled by the daily postings of 40 million bloggers whose ranks double every five months. Latin American governments have been overthrown by indigenous groups that only a few years earlier were politically insignificant. Even the Vatican is facing stiffer competition. Fifty years ago, 90 percent of Latin Americans were Catholic. Today, 20 percent of people in the region identify themselves as Evangelical or Pentecostal Christians.

This trend, where players can rapidly accumulate immense power, where the power of traditional megaplayers is successfully challenged, and where power is both ephemeral and harder to exercise, is evident in every facet of human life. In fact, it is one of the defining and not yet fully understood characteristics of our time. Today, scholars are arguing whether the international system, once divided in half by the Cold War, is transitioning into a unipolar one where the United States is the sole superpower, or whether we may be moving toward a multipolar system centered on the United States, China, and other powerful nations. It may be neither. What may be coming -- and in some ways is already here -- is a hyper-polar world where many large, powerful actors coexist with myriad smaller powers (not all of which are nation-states) that greatly limit the dominance of any single nation or institution. Such a world opens many new attractive opportunities for the little guy, whether a small country, a new company, or a talented individual. But those opportunities must come at the expense of something -- and, in this case, that is stability. Whether you prefer cheering for David or Goliath, the complex interplay of megaplayers and micropowers portends a more volatile, fractious world.

Missing Links

Our Inequality Anxiety

Economic disparities have not changed. Our tolerance for them has.

What should be a higher priority: reducing inequality or alleviating poverty? It is, of course, tempting to answer that they are equally important. Or, that the question is moot because reducing poverty will automatically shrink income disparities; or that policies that lower inequality will inevitably reduce poverty.

These answers may be tempting, but they are also wrong. Although China and India's economic booms have lifted millions out of poverty, they have also led to markedly greater disparities in income. Cuba's economic inequality is perhaps less severe now than when Fidel Castro took power 47 years ago, but the average Cuban is far poorer today. In the United States, poverty has not risen substantially, but the gulf between haves and have-nots is much wider.

For most of the past 50 years, global poverty was a chief concern for politicians, academics, and the media. Today, it is global inequality. The gap between rich and poor is constantly in the spotlight. And for good reason: The wealthy seem to be leaving the impoverished further and further behind. Twenty years ago, Forbes, in its first ranking of wealth, found 140 billionaires worldwide. Today, the total is 793, with an increase of 102 from just last year. The number of millionaires in Asia grew by some 700,000 between 2000 and 2004. In the same period, North America's population of millionaires shot up 500,000, and Europe's increased by 100,000. According to Merrill Lynch, China could become the world's leading source of luxury shoppers by 2009.

The world has always suffered from acute economic inequality. But, despite all the conspicuous consumption, global inequality has not changed significantly. According to some measures, it may have even declined. The World Bank recently announced that "since the [Second World] War, international inequality between countries has decreased immensely." This conclusion will come as a shock to many, especially those who point out -- correctly -- that a century ago rich nations, which were nine times more affluent than poor countries, are now 100 times wealthier than their poor counterparts. This question is hotly debated among economists, and it is probably best left to them. (The problem is that the statistics tell different stories depending on the methodology one prefers.) In truth, in some places inequality has become far worse, and in other places the changes are fairly minor. But what is most clear is that whereas the statistics about inequality do not show major variations, our collective awareness about it has changed substantially.

There are several reasons for the world's newfound anxiety over inequality. The most obvious is that we are all better informed today of the economic differences that divide us. You need only turn on a television or pick up a newspaper to be reminded of where you stand in the global economic pecking order. Inequality anxiety is heightened further by people's fears of terrorism or booming illegal immigration; in both cases, someone else's inequity, so the theory goes, may eventually pose a direct threat to your well-being. Furthermore, in the United States, inequality is increasingly dominating political debate. Thanks to its immense ability to spread its dilemmas to the rest of the world, America's inequality anxiety has been exported to countries where inequality has not changed much at all.

The democratic wave that has swept the world since the 1980s has also pushed inequality toward the center of many national conversations. More democracy has meant freer media, which are prone to document economic disparities and expose public corruption. For politicians, few messages are as likely to gain the favor of voters as promises of redistributing a nation's wealth from those who have too much to those who have too little. As a result, almost everywhere -- from Hungary to Mexico, from Iran to the Philippines -- denouncing inequality has become a surefire ticket to electoral success.

And herein lies the danger. Yes, inequality is morally repugnant and politically corrosive. But it is also stubbornly immune to direct government interventions. The world has a long history of failed attempts at fighting inequality, including changing the tax system, labor market interventions, reform of property rights, massive subsidies, protection from foreign competition, and price controls; the list is endless. Nothing has worked. Countries that are unequal have stayed unequal. In the last 25 years, no country that suffers unequal distribution of wealth has succeeded in permanently decreasing its inequality. Worse, more often than not, good intentions have led to waste, corruption, and even more inequality.

What to do, then? Let’s stop fighting a battle we can't win and concentrate all efforts on a fight that can succeed. The best tools to achieve a long-term, sustained decline in inequality are the same as those that are now widely accepted as the best available levers to lift people out of poverty. Provide access to better education and healthcare, clean water, justice, steady jobs, housing, and credit. The recipe is well known, even boring. These goals are not good fodder for a rousing speech. And they will not bring down inequality as quickly as one would wish. But focusing on these indispensable goals will certainly close one important gap: the gap between our good deeds and our best intentions.