Thursday, December 05, 2013

America Inc dominates the world

America in decline? Certainly not true if you look at the world's leading corporations. Nine of the top most valuable corporations in the world today are American, the Economist reports. This is a significant increase from the figure of three in 2009. Post-crisis, it is American firms that have come out smiling. One reason is that the problems in the Eurozone have meant that the challenge from Europe has dimmed. The Economist lists other factors at work in driving the American resurgence:

Two deeper factors are also at play, though. First, America’s mix of resilience and renewal. Three of its nine biggest firms have their roots in a 16-year period in the late 19th century—Exxon, General Electric and Johnson & Johnson. Their durability reflects their powerful corporate cultures. But the country still does creative destruction, too. IBM and Intel have slid down the rankings to be replaced by Apple and Google. Chevron, an energy firm, has gone from a laggard to a world-beater. Success has been anything but parochial. Six of the nine biggest firms sell more abroad than at home.

Second, the old rule that buying shares in state firms is investment suicide has reasserted itself. The world’s ten biggest state firms in 2009 have lost $2.2 trillion of value, or 60%, from their peaks. Lower commodity prices are only partly to blame. Investors now award most state firms stingier valuations than their private peers. Gazprom is worth three times its profits, versus Exxon’s multiple of 11. And although emerging economies have slowed, nimble private firms are doing fine. In 2007 investors gorged on shares in PetroChina when it listed in Shanghai, briefly making it the only firm ever to be worth over $1 trillion. Now China’s hottest corporate property is Alibaba, a private internet firm plotting a huge flotation.

The point about American capitalism being vibrant is well taken. But it would be too early to write off  state-owned firms. The problem with many state-owned firms is not state ownership per se but lack of exposure to competition and lack of stock market discipline. Combine the two and state ownership is seen to do much better. It is useful also to build in incentives for management and workers. State-owned firms can have some advantages: no accounting jugglery, changes in top management from time to time, and a long-term view. Combine all this and you may still not be able to match the best in the private sector. But you can certainly do better than the average.

The Economist takes note of some signs of change:
Petrobras has allowed minority investors to appoint a director to its board. Maria das Gra├žas Foster, its newish boss, has indicated it will be more careful with its investments. Russia’s government has talked about making state firms pay higher dividends, in part to force greater discipline upon them. China’s reformers signal that they would like to confront its mighty industrial lobby. A 2012 semi-official report called “China 2030”, written in conjunction with the World Bank, says that allowing state firms to act in a more commercial manner is a key objective. The hybrid model which makes firms answerable to both investors and politicians may never be satisfactory, but it can be improved.


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