Economic models during times of transition

 
Developments in the emerging world have to be interpreted in the face of changes in the general set-up of our world order. Firstly, after the rise of the Western world which started in the 15th century, and the rise of the USA  starting in the late 19th century, we are witnessing the third big power shift in modern times-“the rise of the rest” (Fareed Zakaria) and the emergence of a truly globalized world. For the first time in history worldwide economic development is possible. Secondly, knowledge and the productivity of knowledge have become the most important drivers of development. As Peter Drucker said many years ago, in the age of knowledge societies there are no more underdeveloped countries, just “undermanaged” ones.

 
Up to now, the economic success stories of the emerging world have unfolded on the basis of two specific economic and political models. China has changed the course of development with its state-capitalist system. The liberalization and decentralization of unquestionably confined economic activities within an authoritarian political system have successfully embedded archaic rural structures in the globalized economic system.
On the other end the Anglo-Saxon economic model, particularly in its form of the US-American shareholder value capitalism, has been pivotal for many emerging countries. Profit maximizing, or maximizing the shareholder value of a company, is almost everywhere seen as the purpose of an economic activity. In addition, the reckless pursuit of money by the nouveau-riche in many emerging economies gets extra legitimization through shareholder value thinking.

 
In many cases these two economic models with their inherent worldviews together have shaped the course of development: state-capitalist actions of local governments in combination with short-term profit seeking of state-related private actors.

 
Limits of development

 
Recently, the economic success story has faced limits. Social limits, as in many emerging countries only a few people have exploited the new opportunities that came along with a globalizing world. The “Arab spring” brought an awakening and all of a sudden the upper class in most of the emerging world fears possible uprising and upheaval.

 
Political limits, as the new world of social media and other communication networks doesn’t comply with purely authoritarian ruling. The transition from a society based on traditional relationships to a modern state that is integrated into the globalized economic and political system requires much more than simply enacting new regulations.

 
Add to this the economic limits the world is facing as the fossil fuel era has come to an end. – Technical and social innovations are very much required to overcome these challenges.

 
But neither the authoritarian state-capitalist system-whether it involves Chinese-style authoritarian modernizers or Arab-style military dictators-nor finance-driven shareholder value capitalism is capable of creating the necessary supportive environment. The former has demonstrated its social and political limits; the later has created too many global imbalances.

 
Europe’s chance

 
As the changes in the general setup of our world order have led to an increasing level of interdependencies and networked systems, a new type of communication, and a new increase in the division of labor-in short to a “complexification” of almost all spheres of live (Fredmund Malik) –  our newly globalized world requires a qualitatively greater degree of governance for its political, economical and social processes.

 
Up to now, Europe has not contributed substantially to the recent success story of the non-Western world. But it has been Europe’s diversity and variety which forced Europe to experience and form new political and economic systems which now might be part of the solution.

 
One facet of the European system is the Central-European economic model of “hidden champions”. Hermann Simon, a German management thinker, coined the term. He recognized the fact that the German speaking part of Europe has an unusually large share of companies that are world market leaders in a specific market niche. Although the success story for each of these “hidden champions” is very different, they do have two factors in common.

 
Firstly, hidden champions “create the customer”, as Peter Drucker would have said. They focus on solutions for specific problems of specific customers, worldwide. Therewith they have created new and highly innovative products and services. Secondly, hidden champions pursuit system-oriented management approaches. They work with clear values, goals and strategies and with open communication. Often, they base their activities on self-organized units or teams. This allows effective customer feedback, iterative and network-based approaches, and highly sophisticated forms of organization.

 
Hidden champions – Europe’s contribution to globalization

 
The (Central) European customer-oriented model of hidden champions leads the way to a qualitatively greater degree of governance in economic processes because it has its entry point at company level (as opposed to state capitalism) with “customer value” as the main driver (as opposed to shareholder value capitalism). An economy built on hidden champions automatically builds on strong self-organization. As “customer value” is the main driver for a company, customer feedback drives innovation and development. And as customer orientation remains in the focus of economic activities, the management of a greater degree of complexity and long-term-oriented societal value creation is enabled.

 
Currently, China’s state capitalistic activities creates and changes the non-Western world, and US-American shareholder value philosophy dominates the thinking of the new elites. In contrast Europe, while it advocates humanistic, inclusive, sustainable, and environmentally friendly policies, has very limited impact on the real world through its actions. But it is the Central-European customer-oriented model of hidden champions that might change the situation and bring Europe back on stage.

 
The full blog post can be found at: http://www.hansstoisser.eu/en/hidden-champions/

 
AUTHOR:
Hans Stoisser, entrepreneur and management consultant with long-standing experiences in various African countries, has attended all of the previous Global Drucker Forum events.