Category Archives: Emerging Markets

Unilever and the confused priorities of the Davos elite

If Angela Merkel epitomises the overrated in terms of international statesmanship, her equal in corporate terms must be Paul Polman of Unilever. As is true with the German Chancellor, it us unfathomable to me that the leader of a major corporation with a record this hapless should be lionised. For the larger point is that both are symbols of a world that has forgotten that, in healthy societies, recognition must coincide with a record of real accomplishment.

In Polman’s case, his peculiar talent is to perfectly talk the talk of Davos Man, the globe elite who–despite foreign policy disasters in Iraq and economically running the world into a ditch post-Lehman—somehow still thinks they are the repository of global governance wisdom. Since taking over Unilever in 2009, Polman specifically has talked sonorously about water conservation and the dangers of global warming, decreasing the Anglo-Dutch company’s carbon footprint, using more sustainable materials in making the Dove soap and Lipton tea that are two of Unilever’s core brands, and promoting global health.

All of these are worthy causes, and if I were looking for the new head of Oxfam I might well consider Polman for the job. The problem is that a fixation on these societal goods does not necessarily dovetail with a passionate commitment for maximising shareholder value that is the ultimate moral duty of any company chief.

In line with the general philosophical confusion of much of the Wilsonian centre-left, Polman ignores the fact that, in the real world, trade-offs amongst positive goals are merely a fact of life. When asked how much time he spends on specific Unilever business compared with cajoling politicians around the world to sign onto the Davos wish list, Polman tellingly has replied, ‘To me it is the same. I don’t separate that.’

But of course it is not the same. By refusing to prioritise between maximising shareholder value and saving the world, Polman is likely to do neither. For a man who loves everything loves nothing and helps nothing. Life is about priorities, about making choices, not ducking them.

Of course, setting the bar so morally high also leaves you open to endless charges of hypocrisy. In Unilever’s case its global reach has, under Polman’s watch, led it to reaching a settlement over allegations of mercury poisoning in India, while being accused of monopoly practices in South Africa, being slow to halt sexual harassment on its tea plantation in Kenya, and poor labour practices in Vietnam. While Unilever has moved to correct the abuses, in practical terms the company can never be as saintly as Polman’s rhetoric.

But it is Polman’s business record that is perhaps the greatest cause of concern, flowing as it does from his confused all-things-to-all-men Davos philosophy. Banishing reporting of quarterly returns (I would too if my record were as poor as his), Polman urges the world to take the long view. Let us take him at his word.

In the 12 months to 15 February 2017, just before Kraft Heinz announced a $143 billion takeover bid, Unilever’s share price rose some 10 percent. The wider FTSE 100, however, soared by some 28%. In the fourth quarter of 2016, Unilever’s sales missed expectations globally, while falling 2.3 percent in Europe, with many forecasters expecting even worse times ahead in 2017. Defending these poor recent results, Polman blamed both the ‘shock’ of Brexit, wherein the pound fell by 20% against both the euro and the dollar. He also pointed to Prime Minister Modi’s ‘surprise’ anti-corruption campaign, where the Indian government withdrew 500 and 1000 rupee notes, which undercut Unilever’s business there.

But, as regular readers of this column well know, neither of these events should have been surprising (as they have not been to me), and the possibility of both should at a minimum have been planned for. Instead of doing this, the lure of attending another development conference with the great and the good seems to have been to much of a temptation for Polman. For he has certainly taken his eye off the analytical ball.

There only so many hours in the day. And where you put your time in life, there also shall be your treasure. Polman–mindlessly lauded by the city elite—has made it unambiguously clear where his priorities lie. He has straightforwardly said, ‘I am really more interested in development.’ There is nothing at all wrong with this. But it is not overmuch to point out that a company as important as Unilever (with 168,000 employees in 2016) deserves a full time chief executive.

In the wake of the crash caused by many of his Davos colleagues, Polman has earnestly called for ‘a better form of capitalism.’ My gentle suggestion is that Unilever deserves a better form of capitalist.

Published in City AM, March 20, 2017

America would gain nothing from cosying up to Putin’s declining Russia

It has been three years since Russia’s stunning annexation of Crimea. It is the worst kept secret in Washington that the new administration of Donald Trump would like to turn the page on the US-Russian hostility that followed, in a transactional effort to remake US foreign policy.

At the heart of Trump’s Jacksonian nationalism is his transactional view of the world, a state of mind that is confounding allies and enemies alike. Unsentimental in the extreme, the President is singularly unimpressed by alliances in both Europe and Asia (held in almost sacred awe by the discredited America foreign policy establishment) that he senses may be past their sell-by dates if they don’t deliver in terms of immediate American interests.

In the same vein, the Trump White House has not let a long history of US-Russian bad blood get in the way of his desire to pursue closer ties with Vladimir Putin’s Russia, if doing so—and despite Putin’s well-deserved reputation for thuggery—serves American goals. And oddly enough–for all that readers of this column know I am no friend of the current President–I have absolutely no problem with his more transactional approach to foreign policy, as it amounts to a breath of fresh air, rightly questioning intellectual sacred cows that ought really to have been thought through again following the debacle of the Iraq war.

The problem with President Trump’s outreach to Russia is not that he is attempting to work with a far from savoury (alright let’s admit it, Putin is my favourite Bond villain) partner to further American interests; it’s that he will receive almost nothing for his bold efforts. And getting a good deal– which is largely the basis of Trump’s popularity and narrative—is, after all, the point of the whole exercise.

But what does America get from such a shift in its foreign policy? ISIS is already on its last legs, with Mosul in Iraq—by far the largest city the caliphate controls—set to fall later this year. Its capital (Raqqa in Syria) will surely be next. The key strategic point remains what it has always been: in both Iraq and Syria disaffected Sunnis must be included in the governing process, or there will surely be another—and perhaps even more hideous—vampire-like rising of radical Sunni Islam, following on from Al-Qaeda in Iraq and ISIS. And absolutely none of this is affected in any material way by whether Trump and Putin reach an understanding or not.

Nor is there an obvious economic reward flowing on from a rapprochement with the Kremlin, as there would be say, if Trump and Xi Jinping (another strongman nationalist) reached a broad accord. Russia is an aging, corrupt gas station with nuclear weapons, with its economy wholly precariously tethered to the spot price of oil and natural gas. Russia’s economy is merely the size of Texas. The country is a great power in decline, not one on the rise. There is simply no economic pot of gold at the end of the rainbow for Trump here, either.

As for Russia and the US more broadly sharing intelligence and in some sort of coordinated way working together to combat global terrorism, that will happen in any event, if it suits the eminently rational Putin’s interests, and will not happen if it does not. Reaching a Grand Bargain has nothing to do with what amounts to a rational second order decision the Kremlin will make, based on an evaluation of its own interests.

So, closer ties with Putin does not dramatically change the facts on the ground over ISIS in Syria, facilitate a new economic renaissance for the US (as such a deal with China or, better, India, would do), or cement a joint front in the global war against terror. In other words, at the end of Trump’s transactional approach to Russia, there’s nothing there. In hard-headed realist terms, there simply is no deal available that makes calling NATO into question, or abandoning with the embattled (but getting better) Ukrainian government of President Poroshenko, worth it.

For on its own self-interested terms, this dreamed-of alliance simply makes no sense, in terms of America’s basic interests. A declining Russia simply does not offer the US anything remotely strategically attractive enough to ignore Russian adventurism in Crimea and eastern Ukraine. By all means, let’s move away from the gormless era when American neoconservatives and liberal hawks fought wars that had almost nothing to do with direct American interests. But any cursory glance at those interests means that this putative deal is merely intellectual fool’s gold.

Published in City AM London, February 27, 2017

Putin is dangerous not because Russia is strong–but because it’s so weak

Putin isn’t dangerous because Russia is strong—but because it’s so weak

“Some people without brains do an awful lot of talking.”

-L. Frank Baum, The Wizard of Oz

As a child, I remember being fascinated by the populist allegory The Wizard of Oz. My favourite part of the story—sure to cause me to burst out laughing even when I knew what was coming–came when the supposedly omnipotent Wizard was humiliatingly revealed to be a mere mortal, and a terrified one at that. It was an early lesson for me that things are not always as they seem in terms of power, and that conventional wisdom could (and often was) entirely off base.

Recently I have thought of the unmasked Wizard in the context of the seeming rise and rise of Vladimir Putin’s Russia. Having decisively intervened in the Syrian Civil War, ruined for all time through military meddling Ukraine’s efforts to join the West (in the guise of EU and NATO), and being seen as playing a nefarious and important role in President Trump’s shocking victory (though for all the hyperventilation I am still waiting to hear how these dark arts actually determined the election), Putin bestrides the world like a colossus. Or so the gormless global commentariat would have you believe.

In actuality, even at this surface level, the Kremlin sees the world more as the hapless Wizard might do. In the Middle East, it has one war-ravaged ally (Syria); the US has literally a dozen. Ukraine may have been decisively prevented from joining the western bloc, but it is not safely the Russian satellite it used to be. And while the Trump administration is likely to reach out to Russia in search of some sort of geopolitical accommodation over ISIS and radical Islam, it is hard to think of any other major policy areas where the interests of the two powers actually line up. So much for the Kremlin’s Oz-like omnipotence.

But graver, more intractable problems lurk just beneath the surface. Russia’s economy amounts to an ageing petrol station, a one trick pony wherein nearly two-third’s of Russian exports are oil and gas. While oil prices have gotten off the floor, the miracle of America’s shale revolution (a great curse to the Kremlin) provides an enduring new ceiling for oil prices, preventing Russia merely riding out bad times, waiting for the oil price to ride to its rescue.

The lack of economic diversification when times were good is Putin’s original sin, as Russia’s economic woes over time will directly threaten its continued great power status. And if Russia did not manage to fix the roof when the sun shined in terms of the commodities boom, now is the rain. In 2015, Russia’s GDP actually shrunk (hardly the calling card of a great power) by 3.7%.

While Russia has stagnated, others have moved ahead. Calculated on a current dollar basis, Russia’s GDP is puny, less than seven percent of America’s, roughly the size of the state of Texas. Between 1992-2016, the real compound annual growth rate of Russian per capita GDP has been 1.5%; over that period of time it was a healthy 5.1% in India and an eye-catching 8.9% in China. Other rising powers are running rings around the Kremlin.

So let us be crystal clear in a Wizard of Oz type way; Russia is a great power in all kinds of long-terms trouble. However, the peril it poses stems from its weakness, and not its supposed strength. Wounded animals are often dangerous, and the bear did strike out—especially in Ukraine—to secure its primary interests when it felt itself under threat. While this make keep the wolf away from the door now, structural economic decline (there is no movement toward systemic reform) awaits the former superpower.

Yet in the short to medium term, the Kremlin still has some good cards to play, even if it is on course to lose the trick in the end. Putin’s approval rating remains a stratospheric 82%. As such, he remains the undisputed master of the country, capable of acting quickly and decisively and of using an army (compare all this with the neutered, divided EU in the Ukraine crisis) to further his immediate interests. Weakened and wounded, in terms of hard power Russia does remain a force to be reckoned with.

At the end of the Wizard of Oz, the chastened real-world shell of Oz does cause some unwitting mischief, as the balloon designed to send Dorothy home flies off with the Wizard instead. But Dorothy surmounts this obstacle, at last making it back to Kansas. The Wizard, like Russia, is a wrecking power, capable of upsetting aspects of the present order. But in their weakness that is all they are; neither the Wizard nor Russia can create anything like a new order in place of today’s imperilled world.

Published in City AM London, January 30, 2017