Patriotic Capitalism, Geopolitics and the Boardroom

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Should directors consider devotion to country when making decisions that affect their companies?

No human-designed process, system, service or structure is infallible; by definition, a construct like capitalism is imperfect. Comparatively, however, it has an impressive track record of proven success as an economic model with many more pluses than minuses. The plusses include reduced poverty, elevated material well-being, increased national competitiveness and general societal prosperity. No other economic system has done or can do that.

We witnessed this system reach its zenith in the decades since the end of the Cold War (until very recently). In an environment that many assumed was geopolitically risk-free, David Ricardo’s theory of comparative advantage flourished. Business activity went to where it could most efficiently be conducted and laissez-faire globalization — global free trade based on unimpeded flows of inexpensive capital, labor and energy — gave us an unprecedented period of rapidly expanding and broad-based prosperity where the world economy tripled, almost every country grew richer and more than 1 billion people escaped extreme poverty to join history’s first global middle class.

Suddenly and sadly, the unprovoked attack on Ukraine by Russia on Feb. 24, 2022, shattered that peaceful paradigm, altered the rules-based global order, reintroduced great-power competition and ushered a transition from a unipolar world to a multipolar structure of blocs. It was a rude awakening reminding many that history — expressed as great-power rivalry — never really ended after the first Cold War. Capitalism, expressed as globalization, is again evolving and entering a new and riskier phase because nationalities matter once again as they did decades ago. Nations are taking sides.

Meanwhile, there has been much recent discussion and commentary in the United States about capitalism’s most recent expression — stakeholder capitalism and its close cousin, ESG — catalyzed partly by environmental concerns. These concepts generally maintain that employees, customers, suppliers and communities merit as much consideration as do shareholders. While fiduciary duties still require a focus on shareholders, it seems prudent and reasonable to consider other key constituents who contribute to a corporation’s success, particularly when those interests align with shareholders.


The Post-Neoliberal World

Enter the post-neoliberal world that is taking shape. Geopolitics is once again unmistakably center stage, a game-changer that is prompting capitalism’s next manifestation and taking the stakeholder debate to the next level. “Patriotic” capitalism — the principle that what’s good for the country is also good for the bottom line, and that the nation and its citizens are as much a key constituency as any other — is the construct’s latest iteration and one that is arguably eclipsing, or at least supplementing, the stakeholder debate. Indeed, the ultimate sustainability imperative in a volatile, uncertain, complex and ambiguous world is the country’s national security underwritten by all the elements of national power — economic, technical, military, diplomatic and educational.

For U.S.-based boards and management teams, patriotic capitalism in practice is about helping secure the vitality and vibrancy of the American economy — one company at a time. It also acknowledges that public officials and business leaders are in both the global-security and the domestic-prosperity business, which requires that they act as mutual force multipliers and avoid working at cross-purposes. In that context, it’s prudent for the business community to engage regularly with policymakers, be part of a coordinated leadership effort with government leaders domestically and globally, inform public officials about diligently thinking through the potential consequences of their decisions, and create an economic strategy that aligns with our diplomatic and national security policies. In effect, good governance at the board level supports a strong economy in the aggregate. By extension, a strong economy enables a strong America. That’s important because our ability to be influential in supranational matters we care about — whether it’s human rights, climate change or many other topics — depends greatly on our geopolitical power. We as business leaders, government officials and citizens must get the geopolitics right. 

This is not a novel concept but one that has returned to prominence, the denial by some notwithstanding. We saw it on full display during World War II and the Cold War when we strategically applied our military, economic and diplomatic might in a coordinated manner and in concert with our allies to defeat our adversaries. These historical examples were classic case studies in patriotic capitalism. Then as now, in eras defined by great-power competition, this concept recognizes the interrelationship between economic security and national security, and the fundamental principle that we don’t have the luxury of compartmentalizing and condoning bad actor behavior — as some governments and businesses have in recent times, which, by the way, likely incentivized more hostile acts. It will require the united front we displayed decades ago if we are to succeed in this post-neoliberal world and prevail in a potential Cold War II scenario. To paraphrase, the 1980s did get their foreign policy back and we in the 2020s had better take notes. In short, practicing patriotic capitalism — a timely framework for the age we live in — enables us to get the geopolitics right so we can successfully deter bad actors. 

This will not be easy, because: 

  • Defense spending today is only 3% of GDP vs 5% to 9% during the Cold War. 
  • Our military is no longer equipped to prevail in two major regional conflicts at once and, according to some scenarios, it is unlikely to handle one.
  • The U.S. weapons inventory is depleting because of our support of Ukraine. 
  • Our open markets have helped adversaries build capabilities that threaten American interests and friends. 
  • Our supply chains are vulnerable and our intellectual property is helping our adversaries. 

All these geopolitical challenges require significant defense investments that are competing with domestic investments — something to think about during this year’s Memorial Day as we remember and pay tribute to the ultimate sacrifice so many of our citizens made to defend our nation.


Business Engagement

How can the business community help? Through tactical moves like friend-shoring, nearshoring and reshoring that reroute supply chains to increase resiliency and protect our needs for critical materials. These are prudent measures that help secure the flow of business. Another way is to take a fresh look at the energy challenge through a geopolitical, patriotic capitalism lens. Geopolitics dramatically changes the risk equation, considerably raises the stakes and exacerbates all the risk types in a director’s risk bucket. In particular, geopolitics widens the aperture and places the debate around energy in a much broader context and a different, more pragmatic perspective. It provides clarity on how to responsibly address and balance energy and environmental demands that boards, companies, regulators and governments are wrestling with.

In this neo-era of great power competition, energy security — quite plainly — is economic and national security because it is a critical component of national and geopolitical power. The challenge, however, is that we’re attempting to transition our energy sourcing with siloed solutions right when we need to rely on it the most. We — companies, boards, regulators and policymakers — need to do this transition smartly, being mindful of the bigger picture and larger imperative, namely, our national security. We need to craft a prudent, thoughtful and balanced “all of the above” transition approach with reasonable trade-offs that ensure reliability of supply, affordability for households and businesses, and environmental sustainability. Such an approach could, arguably, enable us to pragmatically address climate issues without undermining our economic and national security and our ability to win geopolitical battles. Getting the energy puzzle right enables us to get the geopolitics right because, if we don’t, nothing else matters.

Michael Montelongo is a director of Civeo Corporation and Conduent Inc., president and CEO of GRC Advisory Services LLC and former assistant secretary of the U.S. Air Force. The views expressed in this article are those of Mr. Montelongo in his personal capacity. 

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