Compliance and the decline of the West

DEI regulations compliance and procurement law exist because they are an uncommonly effective instrument for consolidating market share by big multinationals.

It's an extremely regressive tax and for big multinationals it means lebensraum.

In Romania as throughout the EU the future of compliance is a fully automated, algorithmic control.

The introduction of the SAFT digital tax reporting system caused many small Romanian companies to suspend operations due to the implementation costs.

Another consequence of modern compliance law is ESG audits. Multinationals have to satisfy their institutional investors, who enforce strict and expensive vetting down the entire supply chains. A small, agile supplier in Cluj can't compete.

This is not a new phenomenon. It's the secret of success for example of Philip Morris in Africa 20 years ago in lobbying successfully for more regulation and squeezing out their local competitors.

Philip Morris killed its competitors and is now killing their customers. 

With increased automation and increased use of AI, the problem changes exponentially.

Business is a Darwinian world, always was and must be. What is remarkable is how many people come from nowhere, such as Jeff Bezos of Amazon, and create vastly successful and powerful companies, which then, in turn, may fall apart, as some people think Amazon might. 

Creativity and creative destruction are what make a country in economic terms just as in any other terms, including political and artistic terms. European countries are in decline in terms of innovation, not just in economics but also in politics and in the arts.

The most worrying thing, as far as I can see, is that, by excluding nimble small firms from competing and forcing them to work as subcontractors or to live off the largesse of the bigger companies, the room for innovation is moved from small individuals to big organisations. 

An analogy is with the world of scientists. Some decades ago, scientists were independent operators trying to invent things. Now they work in large teams and often in large organisations. The room for the brilliant mad professor is very limited now. The tolerance for counterintuitive and dissident ideas in science and in business is also more limited.

In the next few years, we're going to see very much more competition from the Far East. 

The G7 countries' success rests on the innovations and ingenuity of people a hundred years ago who founded highly successful companies.

Volkswagen's success is largely based on the work of its founders. 

It continued to be very successful until it became faced with the exigencies of being forced to use expensive energy in place of Russian energy and other problems of the age in which find ourselves like bewildered travellers. 

Meanwhile, where are the small German companies like Volkswagen was 100 years ago?

New companies are constantly needed, and anything that prevents them from growing and making money is bad, not only for the economy but also for the culture of Europe. 

America, with its free market laws, is much less at risk which is why most of the big tech companies of the last many years have been American, though some have been Eastern European or Chinese. 

Tennyson said long ago, "Better a year of Europe than a cycle of Cathay." 

But now it looks as if the boot is on the other foot, Cathay is the innovator, and Europe is going to be the stagnant bureaucratic place that 19th century China was.

You might imagine that the defence sector is overwhelmingly dominated by big multinational companies like Lockheed Martin, but in fact a lot of small, originally very tiny companies in Romania have been very effective at producing drones for sale to the Ukrainians, something which the Ukrainians want and which makes money for Romania. 

They may be good at making drones, but now they have to be good at compliance. 

It is hard to imagine how the garage-built drone operation will continue to exist in 10 years' time. Let's hope the war is will be over by then but drones will still be needed and important innovation and competition will be needed.

Not having any expert knowledge in this field, my default setting is to believe that state regulation is almost always a bad thing unless it can be proven otherwise. This is the exact opposite of the Napoleonic philosophy that animates the European Union.

We don't know how long the European Union will last, but it will last for quite a long time. The regulatory superpower will do a lot of harm to a continent which is already in steep relative decline, despite or because of being richer and more comfortable than it ever was in its history. 

I said in another blog post a while back: one of the reasons why Spain ceased to be the most powerful country in the world (there were a number of others) was because she had far, far too many priests. Europe will have far too many lawyers, far too many compliance specialists, far too many human resources people, and not enough people who come up with creative ideas for the real world, as opposed to legal stratagems, HR strategies and financial engineering. 

As Europeans are not having children (I am to blame here too) perhaps it doesn't matter anyway.