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Executive Interviews: Interview with David Ahlstrom on Global Economy and Global Managers
October 2008
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By Dr. Nagendra V Chowdary
Prof. David Ahlstrom Professor in the Department of Management at The Chinese University of Hong Kong. 
How do you characterize the last
century from the point of view of
business and how do you foresee the
coming century? Can the past
century largely be interpreted as a
Century of Conglomerates and a
Century of Corporate Imperialism
and the next century as a Century of
Emerging Markets? Did the end of
Cold War mean the arrival of
Corporate War?
I would argue that the 20th century
can be divided up into two eras.The
period after World War I and
increasingly after World War II has
often been referred to as the period of
'Big Unit Capitalism.'Big Unit
Capitalism is characterized by stable
economics with large domestic firms,
a
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high degree of central planning
even in many free market economies
such as the US, the UK and India. Big
Unit Capitalismis characterized by an
emphasis on large firms, often
conglomerates, government
ownership and incentives and
powerful trade unions. Taxes were
very high in nearly all countries for
example, in the US marginal tax rates
for the upper income earners were as
high as 94% during this period.
Big Unit Capitalism from the end of
World War II until 1971 produced a
period of unmatched economic
growth. During this time the real
wages of production workers in the
US grew at a steady 2 ½ - 3%
annually and boom and bust cycles
became much less severe than in
prior economic periods. During this
time conveniences once available
only to the rich became accessible to
the middle class and even the poor,
such as quality clothes, food and
housing. In the more developed
countries, this included not only
washing machines and televisions,
but automobiles and air travel. The start of the second period of
globalization can be traced to 1971. In
that year President Richard Nixon
announced that the US would no
longer redeem international dollar
holdings at the rate of $35 per ounce
of gold. This commitment had
formed a central foundation of the
international financial system set in
place around the end ofWorldWar II.
This financial system was referred to
as Bretton Woods System. The result
was a more flexible economic
environment which further aided
international trade. In this new
environment the US rapidly
expanded exports and imports by
over 800% between 1973 and 2002,
while Japan saw a 900% jump in
both items. This increase in free
trade, the movement of capital, and
the spread of information about
lifestyles and middle and upper class
living have led to the decrease in the
emphasis on the Big Unit Capitalism
of large firms and government
planning, and an increase in the
emphasis on entrepreneurship and
freer markets with their proven track
record in increasing the wealth of
societies. I do not agree with the term
corporate imperialism. I do not think
free trade should be labeled with the
term'imperialism.'Nor do I accept the
term 'corporate war.' Business is not
war, but should be characterized by
win-win scenarios, not 'fixed pie'
mentalities. The fixed piementality is
one of the fundamental fallacies of
socialism.
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A lot has changed in the last
hundred years of corporate history.
What according, to you, were the
defining moments of that history? In
other words, what were the strategic
inflection points/touch points during
the last hundred years of corporate
history?
There are many. But I would select
two categories of revolutionary
change to answer that question
technological and political. For
technological change, the information
technology revolution that got radio,
then the movies and television, and
finally computing and the Internet
into the hands of people worldwide
has changed the world significantly. It
is much more difficult today for
dictators and autocrats to incessantly
lie to their populations about what is
going on in the world. People can
now see with their eyes what is
happening around the world, and
they can start demanding better lives
from their leaders and the
organizations and institutions of their
societies. This is a key point of
Thomas Friedman's fine work (Lexus
and the Olive Tree, and The World is
Flat). Related to the improvements in
communications and computing is
the financial revolution which allows
people, even small investors with
only $1000 to make investments
outside of their home country. This
obviously has major implications for
economic systems, capital markets,
and coroporate governance. Firms
can no longer appropriate as easily,
the money of small investors as they
did in the past. Crony capitalism is
getting tougher to get away with as
governments realize it is potentially
quite harmful to an economy. Thus I
cannot fix a particular year for these
technology inflexions, though loosely
I would say that the World War II
period started the communications
revolution, and subsequent change
has happened with the rise of
television in the following decades,
and the Internet in the 1990s. As to political innovation, clearly the
system of free trade that has been
spreading in fits and starts since the
end of World War II is a significant
inflexion point. But this was not
energized until the end of the Bretton
Woods System as noted above. More
and more countries have chosen to
participate (and have allowed their
citizens to participate) in global
markets, and theworld ismuch better
off as a result. -
What lessons do the last hundred
years of business offer to the new
businesses?
Industry leadership cannot be taken
for granted. Leadership will always
be challenged in an industry. Upstart
newcomers are always on the
horizon, even in heavily regulated
communications and postal delivery
networks; disruptive innovation is
here, and it affects business and
industry. Disruptive innovation and
the competition it brings leads to
Joseph Schumpeter's creative
destruction and the renewal and
growth in an economy. Big Unit
Capitalism resists this. Power labor
unions resist change. Government
officials resist change they fear what
will happen to the cozy relation they
have with the big industries in their
country if the upstarts begin to move
in. But disruptive innovation and
creative destruction must be allowed
to continue the major innovations,
both in terms of technology and
management processes have been
disruptive, and have upset industrial
(and sometimes social orders). But
they have been beneficial in the longterm.
The personal computer
revolution has enabled thousands of
new firms and new services.
Fortunately, the disruption that the
PC industry created was not stopped
by some government bureaucrat and
industry union coalition that wanted
to 'avoid confusion' in the
marketplace (the usual stock excuse
given to stop competition and
innovation).
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