Tuesday, March 03, 2009

Protectionism Leads To Conflict

Protectionism is in the news. As the global economy continues to slow, politicians are uttering protectionist rhetoric, some of which may make its way into legislation. I happened to be in Ottawa during Barack Obama's visit in February 2009. Despite his soaring popularity north of the 49th parallel, the shadow of protectionism could not be avoided. If held to the letter, the US Administration's "Buy American" statements produce a grim scenario for Canadian trade. On further reflection, I wonder what it actually means to "Buy American" anyways. The flat world scenario suggests that the interconnectedness of supply chains and strategic initiatives extinguish national boundaries. Protectionism is unlikely to be able to roll back that train: it has already left the station.It seems that the US Administration understands this, based on promises to soften the language. Economic officials worldwide are breathing a cautious sigh of relief (e.g., see this Reuter's article).

Regardless, protectionism is dangerous. That's why, especially in Europe, there has been such an uproar against it: Idealogical protectionism is verboten. I was reminded of this while reading Tony Judt's Postwar: A History of Europe Since 1945. The nationalist fervor and concomitant protectionism that characterized Europe at the end of the 19th century eventually led to the 30-year conflict that encompassed both WW1 and WW2. Judt writes:

The internal conflicts and inter-state antagonisms of the years between the world wars were exacerbated — and in some measure, provoked — by the accompanying collapse of the European economy. [Those countries that were able to rebuild following WW1] were brought low by The Slump of the Thirties, when deflation, business failures and desperate efforts to erect protective tariffs against foreign competition resulted only in unprecedented levels of unemployment and wasted industrial capacity but also the collapse of international trade [...] accompanied by bitter inter-state competition and resentment.(p4)

Europe's experience with the direct catastrophe of the wars fostered an economic pessimism (realism?) that shaped the second half of their 20th century. American lessons were considerably more optimistic, at least until late 2007.

OK, enough history. But I do have a point.

Norman horses
Protectionism is also at work within our organizations. The classic inter-state conflict occurs between business and IT ("If only we could just align", he lamented). But, I see it just as often (and with more venom) in the relationship between lines of business. As the economy constricts and budgets atrophy, it is typical for groups within an organization to protect what is theirs: Hold on to those discretionary initiatives! Shield the cuts!Let your business peer take the fall! My priorities are paramount!Better them than us! (Note the dead guys in the margins of the Bayeux Tapestry.)

But, a corporation is not a collection of fiercely independent nation states. It is a collection of highly dependent nation states. The effective corporation (or government entity, etc.) balances centralization with autonomy. and makes it easy to accomplish horizontal goals without sacrificing vertical advantages. The verticals within the organization provide a variety of experiences for the consumer (i.e., appropriate for their needs), while the horizontal efficiencies drive down cost and minimize conflict. In the end, everyone benefits.(This has been the promise of the European Union, for example.)

Protectionism within an organization sets up dangerous dynamics that are harmful to the overall health of that organization. In these economic times, it is essential to reduce risk by encouraging pervasive trust within our corporations. People are nervous, and isolation is no solution.

Despite its intentions, protectionism is a risky proposition.


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