Why does a state succeed?

A well-managed state remains the sine qua non of a successful economy, says Professor at IMD and the University of Lausanne Stéphane Garelli.

In fact, it is one of the fundamental problems of the modern economy. On the one hand, Western states are on the brink of financial collapse, with debts of USD 36,000bn. On the other hand, companies are doing fairly well and swimming in cash: USD 2050bn in the United States (USD 137bn for Apple alone...) and nearly USD2500bn in Europe.

The management of states has become the Achilles heel of advanced economies. The reasons are many: pension systems ill-adapted to an aging population, health care costs, bureaucracy -- but also a change in the value system. Today, the equality of results has replaced equality of opportunity.

The problem is that we cannot ignore politics. Keynes wrote that “all issues are economic and all answers are political…” Today, this statement is hardly an exaggeration.

A well-managed state remains the sine qua non of a successful economy. For, in the end, economics is always hostage to politics. The so-called emerging economies have realized this and are investing heavily in training public service managers. At IMD, we see a constant procession of these young officials with sharp teeth, from China, Singapore, Russia, Brazil, Korea, etc. And from Europe and the United States? Almost none...

Everyone wants to know what makes a state successful. Is the answer in corporate management? Partially, but there is more to it than that. Decision-making in states, especially democratic states, happens at a different pace than in companies.

In a company, it is the CEO who decides and his decision is applied immediately. Those who balk are ejected from the system. But in a state, the “leader” does not decide, he persuades; there are no such things as decisions, only compromises. Those who object remain in the system and “pollute” it from the inside. This is why CEOs often make bad politicians: they cannot handle ambiguity.

The ability to cooperate is important

Yet, competitiveness remains part of Darwin’s great theory of survival of the fittest... In his “other” major work, The Descent of Man, Darwin reiterates his credo: “There should be open competition for all men; and the most able should not be prevented by laws or customs from succeeding best...”

But if this is the case, where do our “high moral values” come from: compassion, pity and assistance to the poorest and weakest among us -- the very values that characterize civilization? At the end of his life, Darwin imagined the possibility of group -- not individual -- competitiveness. An extremely cohesive group without a great leader is more likely to survive than is a group fully controlled by a leader who, subsequently, disappears.

This ability to cooperate, which explains anthropologically the success of the human race, is at the heart of state competitiveness. Switzerland is successful because, as a group, it is an “intensive” democracy based on a multitude of interactions and checks and balances. Its energies are concentrated. In France, people are smarter than us (or so they say...), but their energies are scattered and contradictory.

In Switzerland, we have no charismatic leader (sorry) because we do not need one. France sometimes has them, but they are no longer able to bring order to a system where the individual takes precedence over the collective.

Ultimately, Darwin was right. States, like groups, survive over the long term when they have a strong internal capacity to cooperate. The others disappear…

 

BIO

Stéphane Garelli is a professor at the International Institute for Management Development (IMD), and professor at the University of Lausanne (HEC). His research focuses on the competitiveness of nations and firms in international markets. He is Director of the World Competitiveness Yearbook, a study in the field of competitiveness of nations, published by IMD. This annual report compares the competitiveness of 46 nations using 250 criteria

Chairman of the Board of Directors of the Swiss daily, Le Temps, he is also a member of the China Enterprise Management Association, the Board of the Jean Monnet Foundation for Europe, the Swiss Academy of Engineering Sciences, the Royal Society for the Encouragement of Arts, Manufactures and Commerce, and the Mexican Council for Productivity and Competitiveness (COMEPROC).

 

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