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Indian Express
6 days ago
- Business
- Indian Express
What Trump America needs to understand: A country is not a corporation
Several years ago, Nobel-Prize-winning economist Paul Krugman wrote an insightful article, 'A Country is not a Company', in which he argued that business leaders need to understand the difference between economic policy on the national and international scale and business strategy on the organisational scale. In other words, and to put it bluntly, CEOs who do not understand economic policy are ill-suited for the role. Little did many realise, including perhaps Krugman himself, that an article written in 1996 would command such resonance almost three decades on. After all, CEOs of firms that have enjoyed unbridled monopoly power — especially after the emergence of the modern corporation around the turn of the last century — have shown more than a passing tendency to use that market power to their advantage. Examples abound from Standard Oil, Exxon Corporation, IBM, Microsoft, and, more recently, big-tech companies to name a few. Firms engaged in market-based competition play a 'zero-sum game' — one gains at the expense of the other. Disciplining errant firms has been accomplished by a combination of market creativity and intervention of anti-trust authorities, but it has been a hard task. Do nations jostle for competitive advantage on the global stage the same way that firms do locally? Krugman thinks not. International trade, significantly, is not a zero-sum game. According to him, 'If the European economy does well, it need not be at US expense; indeed, if anything a successful European economy is likely to help the US economy by providing it with larger markets and selling it goods of superior quality at lower prices.' Historically, that has been the case for all economic development, and most recently in East Asia. Global interdependence and the emergence of deeply integrated value chains are proof that trade increases the size of the global economic pie. The whole point of modern trade is not to impoverish either partner(s), it is to enrich both; or else why trade at all? Colonists engaged in coercive trade; today's trade is entirely voluntary. A popular phrase attributed to George Mallory, a British mountaineer of the 1920s, captures the core motivation behind mountaineering. Why do people climb mountains? 'Because they are there,' he is famously believed to have retorted. Monopolies exploit their power because it's there; CEOs have the clout along with the capacity to get away with it. Doing the same as a country — that is, flexing muscles on the global economic stage because you have power — is entirely different. Because modern trade is a matter of choice, no one holds a gun to and forces nations to trade. Blaming 'unfair' foreign competition, therefore, for trade deficits as Donald Trump has been relentlessly doing, is politically expedient but economically disingenuous. Are trade deficits the right measure of a country's competitiveness? Krugman ponders that competitiveness cannot simply be measured by staring at trade balances and their changes. If you do that, the implications are quite dangerous — they lead to harmful steps like trade wars to promote so-called competitiveness. Trade wars often make the situation worse. Evidence of the recent madness emanating from the US in the form of tariff impositions on countries that it runs a deficit with shows that contrary to expectations, the tariffs actually weakened the US dollar. It lost nearly 10 per cent of its value since January, with over half the decline in April. The tariffs also disrupted the bond market by triggering a sell-off in the US treasuries, spiking yields and challenging its safe-haven status. This volatility forced a temporary tariff pause, highlighting the bond market's power. Interestingly, on May 28, the US Court of International Trade struck down Trump's 'Liberation Day' tariffs, ruling that they exceeded presidential authority under the International Emergency Economic Powers Act (IEEPA) of 1977. According to the verdict, these tariffs involved significant economic and political issues, requiring explicit congressional authorisation, which was absent. Poignantly, on the same day, Elon Musk officially quit his advisory role in the US administration, concluding his tenure at the Department of Government Efficiency. Even so, looming on the US horizon are inflation, recession and policy unpredictability. The Trump administration has already appealed the decision (it has been stayed by the appellate court) and the case may progress to the US Supreme Court, by which time data on the impact on the US trade deficit will be available. Economists refer to this lag as 'the J-curve effect', reflecting a nuance where financial markets adjust almost instantaneously to shocks, while goods markets adjust with a lag. In all likelihood, with the tariff retaliations we have witnessed from China, Canada, and Mexico among others, the US trade deficit could become worse. Own goal, anyone? Besides, the Triffin thesis suggests that the US must run trade deficits to provide the necessary dollars for global liquidity. So, if the US wishes to remain the hegemon and continue to enjoy the exorbitant privilege of printing dollars and importing goods and services for a song, it will need to run deficits. In fact, since 1971 when the US dollar was brusquely decoupled from gold by President Richard Nixon (the so-called 'Nixon shock'), effectively ending the gold standard and the Bretton Woods system, the US dollar has continued to meet the bulk of the global demand for liquidity. In only two years since 1973 has the US trade balance been positive. In this half-century, the US has been a most productive nation, innovation-intensive, 'competitive' and creative, enterprising and illustrious, all achieved in the presence of growing trade deficits. Blaming trade deficits for unemployment and low wages is therefore ineffective and, in many cases, unequivocally wrong, especially when they are caused by domestic factors. The US is a services-based economy — education, insurance, healthcare, banking, real estate, information technology, among other sectors contributing almost 80 per cent of GDP. Getting manufacturing back by erecting tariff walls is a futile scheme, destined to fail. The CEO of a country running economic policy must, therefore, distinguish between politically expedient rhetoric and the harms of making policy decisions based on careless arithmetic. The existence of trade deficits (or surpluses) reflects a complex interaction of many factors, especially for a country that provides global liquidity. These need to be understood clearly. Krugman's warning and the embedded advice, therefore, must be taken seriously, above all by the country that nurtured his clarity of thought. (The writer is dean, School of Humanities and Social Sciences at Shiv Nadar University, and professor of Economics. Views are personal)
Forbes
23-04-2025
- General
- Forbes
Slow Down To Speed Up: Problem Identification Drives Transformation
Slowing down to define the problem may feel counterintuitive when urgency is high. Yet, it is the clearest path to long-term success. getty Most managers are both excellent and flawed problem solvers, depending on the context. They have remarkable cognitive skills, but being human, they also suffer from a broad range of innate biases and limitations. There's an old story of a man searching for his keys one night under a streetlight. Eventually, a handful of good Samaritans join the search. After some time with no success, someone finally asks the man, 'Are you sure this is where you lost them?' The man replies, 'No, I lost them in the park.' The helper, confused, asks him why he is looking for them here. The man replies, 'Because this is where the light is.' This scenario is more common than many people realize. In business, the data we collect and the way we interpret it can sometimes be like the streetlight in the parable. People tend to look for answers in the most familiar or obvious places rather than digging deeper. In organizations, this type of problem-solving can lead to wasted resources, lost time, and mounting frustration. Consider the case of a food manufacturing company we recently worked with. This company had a specialty line of allergen-free food products, which required rigorous testing to ensure that trace amounts of peanut residue were not present in their facilities. Despite the fact that their workers diligently cleaned and re-cleaned the lines, testing after each cycle, their production lines repeatedly failed quality control tests. Production was backlogged, costs were up, and workers were frustrated. How could even the slightest trace of residue remain? Someone finally asked a key question: 'Have you tested the testing room?' It turned out that the testing room—not the production line—was contaminated with peanut residue. This type of situational tunnel vision is often heightened when problems arise in routine tasks or familiar environments. Thinking outside the box becomes increasingly challenging when you spend all your time inside it—whether that box is your role, company, or industry. Nobel-Prize-winning psychologist Daniel Kahneman introduced the concept of two types of thinking in his book Thinking, Fast and Slow. His theory breaks down human thought processes into two systems. System 1 thinking is fast, intuitive, and handles routine tasks. It's very efficient but prone to errors and biases because we all tend to jump to conclusions based on patterns we recognize. Within familiar settings, we often rely on mental shortcuts and routine assumptions. This is efficient for everyday tasks but can create blind spots when tackling unique or complex problems. System 2 thinking is more deliberate and analytical. It requires effort, attention, and reasoning, and we use it for complex problems or unfamiliar situations. It might be more reliable, but it's definitely more taxing and slower. A simple example might be when you're driving a familiar route home. You primarily use System 1. You basically operate on autopilot, checking your mirrors or changing lanes without much conscious input. But if something unexpected happens, you're low on gas, or a detour sign forces you to find a new route, your slower and more conscious System 2 thinking kicks in. Seasoned managers and experienced consultants can sometimes fall into the same trap. Familiarity with a topic is not always an advantage for solving complex problems, particularly if your experience leads you to think the problem is not complex. With our own consulting teams, we try to stem this tendency to jump to conclusions by relying on a structured problem-solving methodology designed to reveal problems that are baked into routine operations. But the real secret to this is that we force System 2 thinking on bright people who might otherwise believe they can jump to a solution. This is particularly important at the front end of an engagement, to make sure we properly understand what the actual problems are that we, and the client, need to solve. System 1 and System 2 thinking is well worth considering for companies rushing to take advantage of the many benefits of artificial intelligence (AI). While AI offers enormous potential, it is often treated as a solution in search of a problem. What we currently observe with many organizations is a rush to apply the solution without carefully and thoughtfully understanding the underlying problems that need to be fixed. One company invested heavily in an AI tool to speed up customer support response times. The system performed well, but customer satisfaction scores did not improve. It turned out that customers valued resolution accuracy more than speed. The company had wasted considerable resources applying an elegant fix to the wrong problem. Another recent client believed their challenges stemmed from outdated technology. A deeper analysis revealed that the true cause was poor interdepartmental communication. Fixing the miscommunication saved significant time and money, while the assumed 'solution' (investing in new technology) would not have addressed the underlying issues and may have baked the problems deeper into the routine process. I asked one of our managers, Caleb Emerson, for his thoughts on AI integration. He had three points: Whether it's AI or any other tool, solutions are only as effective as the value of the problems they address. A key constraint that hinders capturing AI's value is the integrity of the underlying data. Unless that is addressed, automation and increasingly sophisticated algorithms will struggle to deliver meaningful results. Slowing down to define the problem may feel counterintuitive when urgency is high. Yet, it is the clearest path to long-term success. Proper problem identification saves time, money, and frustration by focusing resources on effective solutions instead of misguided assumptions. When you take the time to identify the real problems, you accelerate the pace of meaningful change. Instead of spinning your wheels, you are better equipped to drive progress where it counts most.
