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Is it time for business and government to reconsider their relationship?


Roger Trapp


31 August 2014 

This article first appeared on Forbes.

It is admittedly sometimes hard to tell from the rhetoric, but governments actually have a lot in common with business. In particular, both are keen to promote prosperity and growth. Yet the fact that both sectors are finding these goals elusive seems to be creating more tension between them rather than – as might be expected – encouraging greater co-operation.

Of course, much of the criticism of business by politicians can be put down to populism. If, for example, there is a “cost of living crisis”, as Ed Miliband’s Labour Party claims is the case in Britain, it is easier to blame companies for their supposedly exploitative prices than to look for wider structural factors. Equally, there are some in the business community who seem only too ready to beat an anti-big government drum as if to suggest that all regulation amounts to an insufferable burden.

Fortunately, there are some on both sides of the divide who doubt whether there should be such a divide at all. They are realising that each sector stands to do better with a little help from the other. Some illustrations of how this can work appeared in a book published a few months ago by William D. Eggers and Paul Macmillan of the international consultancy Deloitte. The Solution Revolution (Harvard Business Review Press) describes how – as the subtitle puts it – “business, government and social enterprises are teaming up to solve society’s toughest problems”. The authors describe how growing fiscal restraints, particularly since the financial crisis, have reduced governments’ abilities to deal with all the issues in their countries and beyond. “Citizens, businesses, entrepreneurs and foundations often turn to each other rather than relying solely on the public sector to co-ordinate solutions to every problem,” they write.

But the trend is not limited to solving societal problems. A wide-ranging report soon to be published by another consultancy, PA Consulting, suggests that the business world is undergoing such profound change that a fundamental rethink of the relationship between companies and governments is required. Colm Reilly, head of PA’s economic development team and managing director of UK Trade and Investment’s inward investment services, says in the report, The New Nature Of Competitiveness: Beyond a culture of contest, that governments need to formulate strategies that help industry deal with the huge changes affecting global business. They should intervene at certain points and then step back when their job is done, he adds. This might sound like a regressive step when the world has become used to deregulation, but Reilly points out that governments have historically played key roles in the development of industries, notably the high-tech sector based around California’s Silicon Valley, which in its early years was substantially boosted by the US military.

The report calls for three key next steps from governments:

  1. Build an education and training system that combines hard engineering with industry-leading creativity and design;
  2. Find niche areas of the economy in which the country in question can become a world leader and then give it flagship status to sustain growth;
  3. Improve services that enable a better quality of life, reflecting the factors that businesses consider important for their employees and so make a country more attractive. 

Just as the Deloitte team saw a blurring of boundaries between the public sector and others in dealing with societal issues, so Reilly and his colleagues see a shift in the shape and definition of sectors. In particular, the crossover between sectors is becoming more important. For example, car companies are investing in healthcare while social media companies are buying into drone technologies. At the same time, companies are becoming less associated with one country or another. The 300 businesses surveyed by PA saw themselves as belonging to industries and supply chains, such as automotive or life sciences existing on a global scale, rather than coming from anywhere in particular. They also employ “global citizens” who are often affiliated more with their industries or technological trends than with where they come from.

The research indicates that international companies are seeking “progressive structures” through which co-operation is endorsed and regulations are created to engender higher levels of trust and mutual interest between companies, sectors, supply chains and markets. There is also evidence in such developments as Open Innovation, 3D Printing, Big Data and the Sharing Economy that businesses are prepared to co-operate in certain circumstances and want to move beyond the often inefficient and ineffective “culture of contest” between companies and countries.

There are clear challenges for governments here, not least because shifting from the current belief in the power of competition would be difficult to sell to the public. But if – as the PA team suggests – the current contract between government and business is indeed broken, companies need to be clear about what they expect from a replacement. Reilly lists the key actions for business as:

  1. Collaborating with government on specific flagship projects and recognising that combining strengths to meet the Power Law (whereby a small number of winners capture most of the economic returns from a development, leaving a long tail to be shared among the rest) allows for a return but missing it means no return at all;
  2. Recognising that in each sector there will be a power law for each area of focus and that this will require sharing and compatibility of certain components;
  3. Contributing to open government-based research programs on the basis that this is where the future lies. 

Obviously, this requires a different form of leadership than the adversarial style on which so many of today’s incumbents thrive. But at a time when the traditional business models do not seem to be getting results it must make sense for companies and governments alike to contemplate a fresh outlook. They could both become better off as a result.

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