tag:theconversation.com,2011:/id/topics/mckinsey-11408/articlesMcKinsey – The Conversation2022-04-27T12:18:55Ztag:theconversation.com,2011:article/1807412022-04-27T12:18:55Z2022-04-27T12:18:55Z‘Great resignation’ appears to be hastening the exodus of US and other Western companies from Russia<figure><img src="https://images.theconversation.com/files/459922/original/file-20220426-20-s6ka67.jpg?ixlib=rb-1.1.0&rect=190%2C60%2C6494%2C4560&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">McDonald's said it is losing $50 million a month by keeping its Russian locations closed. </span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/APTOPIXRussiaEconomy/1c71cd548f5649a8934ac9e835c479f0/photo?Query=russia%20mcdonalds&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=165&currentItemNo=1">AP Photo</a></span></figcaption></figure><p>Companies across the globe are fleeing Russia in an unprecedented display of corporate solidarity with their governments, appalled over the invasion of Ukraine. Over 750 multinational businesses so far have said they’re <a href="https://som.yale.edu/story/2022/over-750-companies-have-curtailed-operations-russia-some-remain">curtailing, suspending or severing ties to Russia</a>, more than triple the number that <a href="https://www.latimes.com/archives/la-xpm-1988-05-31-fi-3494-story.html">abandoned South Africa over apartheid</a> in the 1980s.</p>
<p>Many corporate statements announcing the decisions have emphasized humanitarian aspects and unity with the Ukrainian people. For example, Pepsi suspended soda sales in Russia, <a href="https://www.pepsico.com/news/press-release/pepsico-suspends-production-and-sale-of-pepsi-cola-and-other-global-beverage-brands-in-russia">describing events in Ukraine as “horrific”</a>; Ford Motor Co. cited Russia’s “threats to peace and stability” in <a href="https://www.nytimes.com/2022/03/01/business/boeing-ford-russia.html">pausing operations</a> at its three plants in the country; and Ikea <a href="https://about.ikea.com/en/newsroom/2022/03/03/ikea-pauses-operations-in-russia-and-belarus/">closed its stores</a> there and called the war a “human tragedy.”</p>
<p>Detractors of <a href="https://www.spectator.co.uk/article/i-invented-virtue-signalling-now-it-s-taking-over-the-worl">this type of corporate do-goodery</a> have dismissed it as “virtue signaling,” implying there is an <a href="https://theconversation.com/virtue-signalling-a-slur-meant-to-imply-moral-grandstanding-that-might-not-be-all-bad-145546">ulterior motive to the grandstanding</a>. As <a href="https://theconversation.com/why-ford-chanel-and-other-companies-pitch-in-during-a-crisis-without-the-government-ordering-them-to-135170">scholars of corporate social responsibility</a>, we believe altruism can play a role in corporate decisions like these, but – as virtual signaling suggests – other more <a href="https://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-of-business-is-to.html">profit-focused drivers</a> are usually at work, especially given the stakes when deciding to abandon an entire country. </p>
<p>In this case, the common theme we see for many companies is the “<a href="https://theconversation.com/us/topics/great-resignation-112723">great resignation</a>” – and the fight to attract increasingly picky, younger <a href="https://www.ypulse.com/article/2021/10/19/how-gen-z-millennials-are-fueling-the-great-resignation/">Gen Z and millennial</a> workers, who say <a href="https://www.fastcompany.com/90740920/want-to-attract-and-retain-gen-z-talent-respect-them">they want to work</a> for <a href="https://www.zenefits.com/workest/corporate-social-responsibility-and-the-rise-of-the-gen-z-worker/">socially responsible brands</a>. </p>
<figure class="align-center ">
<img alt="A white boy with a blue stocking hat and coat looks at a toy tank on a box on a table next to several glass Pepsi bottles" src="https://images.theconversation.com/files/459897/original/file-20220426-20-2amyq2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/459897/original/file-20220426-20-2amyq2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=389&fit=crop&dpr=1 600w, https://images.theconversation.com/files/459897/original/file-20220426-20-2amyq2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=389&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/459897/original/file-20220426-20-2amyq2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=389&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/459897/original/file-20220426-20-2amyq2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=488&fit=crop&dpr=1 754w, https://images.theconversation.com/files/459897/original/file-20220426-20-2amyq2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=488&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/459897/original/file-20220426-20-2amyq2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=488&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Pepsi, which has been in Russia for over 60 years, suspended soda sales, calling the invasion ‘horrific.’</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/RussiaPeople1992/9eb3bf55726540e196f3e3276573dd58/photo?Query=pepsi%20russia&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=10&currentItemNo=3">AP Photo/Alexander Zemlianichenko</a></span>
</figcaption>
</figure>
<h2>A weighty decision</h2>
<p>A company’s decision to entirely sever its operations in a country is seldom taken lightly.</p>
<p>In leaving Russia, <a href="https://www.reuters.com/business/companies-count-cost-ditching-russia-2022-04-22/">companies will incur significant costs</a> from abandoning equipment, stores and factories, or even an entire workforce. For example, Exxon said it <a href="https://www.reuters.com/business/energy/exxon-mobil-begins-removing-us-employees-its-russian-oil-gas-operations-2022-03-01/">expected to lose US$4 billion</a> in assets over its decision to exit Russia, while <a href="https://www.reuters.com/business/mcdonalds-says-russia-store-closures-cost-50-mln-per-month-2022-03-09/">McDonald’s restaurant closures will cost the company $50 million per month</a>. </p>
<p>And there’s no knowing when the <a href="https://www.ft.com/content/86144c9c-2258-4b9c-a0ad-ea8d63b7000f">companies leaving Russia</a> will be able to return – if ever. </p>
<p>Yet that isn’t stopping hundreds of companies from making the difficult decision to back away. Amid their condemnations of the invasion and expressions of solidarity with the Ukrainian people, many companies have also acknowledged clear business-related reasons. Appliance maker Whirlpool cited the <a href="https://whirlpoolcorp.com/statement-from-whirlpool-corporation-on-ukraine/">security of its workers</a>, Japanese automaker Toyota blamed <a href="https://www.reuters.com/article/ukraine-crisis-honda-idCNL1N2V50NI">logistical and supply-chain hurdles</a>, and video streaming company Netflix said <a href="https://www.americanbanker.com/payments/list/these-payment-companies-are-cutting-off-russia">troubles with payment processing</a> will <a href="https://www.wsj.com/articles/tiktok-and-netflix-pull-back-from-russia-adding-to-its-tech-and-media-isolation-11646606867">strain operations</a>.</p>
<h2>Growing power of workers</h2>
<p>While these practical reasons, along with the moral concerns, could be enough to drive the exodus, we believe the great resignation, in which record numbers of workers are quitting their jobs, is amplifying all these other risks of staying in Russia.</p>
<p><a href="https://www.cnbc.com/2022/02/01/roughly-47-million-people-quit-their-job-last-year.html#:%7E:text=Another%20historically%20high%204.3%20million,the%20pandemic%20and%20Great%20Resignation.">Roughly 47 million</a> U.S. workers <a href="https://fred.stlouisfed.org/series/JTSQUL">voluntarily left their jobs</a> in 2021, accounting for well over a quarter of the <a href="https://fred.stlouisfed.org/series/CLF16OV">civilian labor force</a>, according to the Bureau of Labor Statistics. Over 4.5 million quit in November alone, a single-month record, and nearly that many continued to hand in their notices in early 2022.</p>
<p>It’s not just a U.S. phenomenon. Many other countries <a href="https://www.washingtonpost.com/world/2021/10/18/labor-great-resignation-global/">are experiencing similarly high rates</a> of workers voluntarily quitting their jobs. </p>
<p>This trend has <a href="https://www.vox.com/recode/22841490/work-remote-wages-labor-force-participation-great-resignation-unions-quits">shifted bargaining power to employees</a>, and companies are struggling to <a href="https://www.forbes.com/sites/forbescoachescouncil/2022/04/01/how-to-keep-or-find-the-best-employees-in-the-great-resignation/?sh=6a86e8ba6737">acquire skilled workers</a> to fill vacant positions. Employees are <a href="https://www.cnbc.com/2022/03/22/great-resignation-continues-as-44percent-of-workers-seek-a-new-job.html">demanding higher pay and more benefits</a>, and <a href="https://www.forbes.com/sites/forbescoachescouncil/2021/10/18/the-great-resignation-is-here-how-to-find-purpose-in-the-next-stage-of-your-career/?sh=1d4c59651739">some are rethinking their careers</a> so that their work is more aligned with their values.</p>
<p>Another sign of the shift in power is the recent success of youth-led labor organizing efforts. A growing number of Starbucks locations are becoming unionized, while <a href="https://www.nytimes.com/2022/04/01/technology/amazon-union-staten-island.html">Amazon got its first U.S.-based union</a> after workers on Staten Island in New York City voted to form one in April 2022. <a href="https://www.linkedin.com/news/story/holdout-brands-suspend-russia-ops-4701985/">Starbucks</a> and <a href="https://www.retaildive.com/news/amazon-halts-sales-in-russia-amid-ukraine-invasion/620160/">Amazon</a> have both suspended operations in Russia. </p>
<p>Some industries <a href="https://sloanreview.mit.edu/article/toxic-culture-is-driving-the-great-resignation/">are experiencing especially high employee attrition rates</a>, including <a href="https://www.linkedin.com/pulse/talent-recruitment-dilemmas-facing-consulting-firms-caburlotto/">management consulting</a> and <a href="https://hiring.oilandgasjobsearch.com/energy-outlook-report-2021-22">oil and gas</a>, according to a recent article in MIT Sloan Management Review. The attrition rate measures how many workers are lost and not replaced over a period of time.</p>
<p>Management consulting, in which a <a href="https://www.sourceglobalresearch.com/the-next-crisis-in-consulting-people">talented workforce is vital</a>, for example, saw an attrition rate of 16% over the six-month period researchers looked at, or over five times the national average. </p>
<figure class="align-center ">
<img alt="a red sign with white letters reads 'now hiring!'" src="https://images.theconversation.com/files/459898/original/file-20220426-26-3rqdm8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/459898/original/file-20220426-26-3rqdm8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/459898/original/file-20220426-26-3rqdm8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/459898/original/file-20220426-26-3rqdm8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/459898/original/file-20220426-26-3rqdm8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/459898/original/file-20220426-26-3rqdm8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/459898/original/file-20220426-26-3rqdm8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The number of open positions has exploded as a record share of workers quit their jobs.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/UnemploymentBenefits/fb5c5d61436a4a649ff7382d1a0b05c7/photo?Query=hiring&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=15506&currentItemNo=20">AP Photo/Matt Rourke</a></span>
</figcaption>
</figure>
<h2>Employees demand solidarity with Ukraine</h2>
<p>This is why it wasn’t a surprise to us that companies in these labor-strained industries either were among those that severed ties with Russia or quickly did so after facing criticism from employees. </p>
<p>IT consultant Accenture, with nearly 700,000 employees, seemed to set the tone for what would be expected of companies in its industry when on March 3, 2022, it said it was <a href="https://newsroom.accenture.com/news/accenture-to-discontinue-business-in-russia.htm">discontinuing all business in Russia</a>. </p>
<p>“Accenture stands with the people of Ukraine and the governments, companies and individuals around the world calling for the immediate end to the unlawful and horrific attack on the people of Ukraine and their freedom,” it wrote. </p>
<p>Competitors <a href="https://www.mckinsey.com/about-us/media/mckinsey-statement-on-russias-invasion-of-ukraine">McKinsey</a> and <a href="https://www.bcg.com/en-us/press/4march2022-bcg-statement-work-in-russia">Boston Consulting Group</a> initially planned more timid withdrawals by cutting ties with the Russian government but continuing to honor existing private contracts. But after current and former employees of both companies took to <a href="https://www.linkedin.com/feed/update/urn:li:activity:6903755488790421504/?commentUrn=urn%3Ali%3Acomment%3A%28activity%3A6903755488790421504%2C6904390111434285056%29">social media</a> to <a href="https://www.bloomberg.com/news/articles/2022-03-03/mckinsey-staff-alumni-pushed-firm-to-cut-ties-to-russia-after-ukraine-invasion?sref=Hjm5biAW">call out their perceived soft stance</a> and even cowardice on Russia, the <a href="https://www.consulting.us/news/7315/big-consultancies-move-to-cut-ties-with-russia-after-backlash">companies quickly reversed</a> course by <a href="https://www.mckinsey.com/about-us/media/mckinsey-statement-on-russias-invasion-of-ukraine">announcing</a> they were pulling out completely. <a href="https://www.wsj.com/livecoverage/russia-ukraine-latest-news-2022-03-04/card/big-consulting-firms-pull-out-of-russia-UGnj9ebn0TFu3RtwYcCF">All the other consulting giants</a> have done the same, including <a href="https://www.linkedin.com/posts/manny-maceda_today-i-shared-a-note-with-my-global-colleagues-activity-6903871483840471040-0qOW/?utm_source=linkedin_share&utm_medium=member_desktop_web">Bain</a>, <a href="https://www2.deloitte.com/global/en/pages/about-deloitte/press-releases/deloitte-statement-on-ukraine-deloitte-global.html">Deloitte</a>, <a href="https://www.ey.com/en_gl/news/2022/02/ey-statement-on-ukraine">EY</a>, <a href="https://home.kpmg/ua/en/home/media/press-releases/2022/03/kpmg.html">KPMG</a> and <a href="https://www.pwc.com/th/en/press-room/press-release/2022/statement-on-pwc-russia.html">PwC</a>.</p>
<p>The big Western oil companies have similarly <a href="https://oilprice.com/Energy/Crude-Oil/Employees-Are-Pressuring-Big-Oil-Firms-To-Pull-The-Plug-On-Russia.html">faced employee pressure</a> to exit Russia, with workers going so far as to refuse to offload Russian oil and gas onto their docks. This comes on top of governments <a href="https://www.wsj.com/articles/bp-faces-pressure-from-u-k-government-over-stake-in-russias-rosneft-11645817245">pushing companies to take steps</a> that go beyond the sanctions. In severing ties, companies such as <a href="https://www.washingtonpost.com/business/2022/02/27/bp-russia-rosneft-ukraine/">BP</a>, <a href="https://www.reuters.com/business/energy/shell-withdraw-russian-oil-gas-2022-03-08/">Shell</a> and <a href="https://corporate.exxonmobil.com/News/Newsroom/News-releases/2022/0301_ExxonMobil-to-discontinue-operations-at-Sakhalin-1_make-no-new-investments-in-Russia">Exxon</a> have <a href="https://www.forbes.com/sites/sergeiklebnikov/2022/04/08/heres-how-much-major-energy-companies-are-losing-by-exiting-russia/?sh=5f75753b7e49">abandoned significant assets</a> in Russia, which will result in <a href="https://www.npr.org/2022/03/01/1083659975/oil-majors-pull-out-of-once-promising-russia">huge losses</a> on their balance sheets. </p>
<h2>Short-term costs for long-term gains</h2>
<p>But accepting these short-term losses appear to be worth it to avoid larger ones down the road.</p>
<p><a href="https://doi.org/10.1108/SRJ-07-2015-0095">Recruiting and retaining a talented workforce</a> <a href="https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter">is an important driver</a> of a company’s long-term profitability. </p>
<p><a href="https://www.statista.com/statistics/738519/workplace-training-spending-per-employee/">Training new workers is costly</a>, and the <a href="https://trainingindustry.com/articles/strategy-alignment-and-planning/how-to-survive-the-big-quit-winning-the-war-for-talent-in-2022/">best talent is always hard to recruit</a> – a challenge made worse by the great resignation. <a href="https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/digital/ey-the-business-case-for-purpose.pdf">Survey</a> after <a href="https://www.porternovelli.com/wp-content/uploads/2021/01/02_Porter-Novelli-Tracker-Wave-X-Employee-Perspectives-on-Responsible-Leadership-During-Crisis.pdf">survey</a> has shown workers are increasingly driven by a sense of purpose and expect their companies to <a href="https://doi.org/10.1016/j.jvb.2018.10.001">reinforce their values</a>. </p>
<p>No company that we know of explicitly cited issues related to the great resignation as a driver of its decision to leave Russia. And industries with high attrition rates and vocal workforces such as <a href="https://www.nytimes.com/2022/02/16/magazine/tech-company-recruiters.html">Big Tech</a> haven’t seen complete withdrawals. In some cases, such as with <a href="https://www.cnbc.com/2022/03/01/apple-halts-product-sales-in-russia-.html">Apple</a>, <a href="https://www.reuters.com/technology/google-pauses-all-ad-sales-russia-2022-03-04/">Alphabet</a> and <a href="https://about.fb.com/news/2022/02/metas-ongoing-efforts-regarding-russias-invasion-of-ukraine/#latest">Meta</a>, they’ve suspended some operations <a href="https://www.nytimes.com/2022/03/02/technology/russia-tech-companies.html">but are trying to keep doing business</a> in part because they play important roles in providing free information to Russian citizens to counter <a href="https://www.voanews.com/a/diaspora-media-work-to-counter-russian-propaganda/6538089.html">Kremlin propaganda</a>.</p>
<p>Every company and every industry has its own unique analysis to go through based on exposure to business and reputational risk in Russia. We believe the great resignation compounds this risk, in some cases significantly. And employees are increasingly <a href="https://fortune.com/2022/04/06/war-reaches-workplace-ukraine-invasion-is-unsettling-stress-american-workers-workplace-careers-leadership-mental-health-cheryl-naumann/">reporting feeling stressed out</a> over Ukraine. </p>
<p>Russia’s aggression against Ukraine <a href="https://www.cnbc.com/2022/04/01/russia-and-the-west-battle-to-get-china-and-india-on-side-in-the-war.html">has been condemned almost universally</a> in the West. Given that, many of the companies that severed ties – while <a href="https://www.nytimes.com/2022/04/11/business/costs-companies-leaving-russia.html">sacrificing short-term profits</a> – likely knew that staying would have been <a href="https://corpgov.law.harvard.edu/2022/03/16/the-russian-invasion-of-ukraine-a-lesson-in-stakeholder-capitalism/">far more harmful for their brand</a>, not only with customers <a href="https://www.forbes.com/sites/jenamcgregor/2022/03/08/there-isnt-a-both-sides-anymore-with-russia-customers-and-employees-demand-action-from-corporations/?sh=163de80c5246">but their employees as well</a>.</p>
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<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Two scholars of corporate do-goodery suggest a hidden driver of corporate decisions to leave Russia is the global trend in which record numbers of workers are quitting their jobs.Steven Kreft, Clinical Professor of Business Economics and Public Policy, Indiana UniversityElham Mafi-Kreft, Clinical Associate Professor of Business Economics, Indiana UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1785162022-03-09T18:09:49Z2022-03-09T18:09:49ZWhy Apple, Disney, IKEA and hundreds of other Western companies are abandoning Russia with barely a shrug<figure><img src="https://images.theconversation.com/files/450817/original/file-20220308-17181-yumwpg.jpg?ixlib=rb-1.1.0&rect=134%2C239%2C3761%2C2354&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Muscovites rushed to buy furniture and other goods from IKEA before it closed its Russian stores.</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/RussiaWarUkraineEconomy/bfef81caccce40939ef2963011fdafb2/photo?Query=russia%20close%20store&mediaType=photo&sortBy=creationdatetime:desc&dateRange=Anytime&totalCount=10&currentItemNo=7">AP Photo/Vladimir Kondrashov</a></span></figcaption></figure><p>Many companies in the U.S. and elsewhere have been quick to sever ties to Russia – going well beyond applying the <a href="https://www.bloomberg.com/news/articles/2022-02-28/sanctions-imposed-so-far-on-russia-from-the-u-s-eu-and-u-k">sanctions ordered by their governments</a>. </p>
<p>IKEA, Nike and H&M are <a href="https://edition.cnn.com/2022/03/03/business/ikea-h-and-m-russia/index.html">temporarily closing their Russian stores</a>. Disney, Sony and Warner Bros. <a href="https://www.theguardian.com/film/2022/mar/01/disney-and-warner-bros-pause-film-releases-in-russia-over-ukraine-invasion">paused the release of new films</a> in Russia. Apple, Samsung and Microsoft <a href="https://www.cnet.com/news/apple-microsoft-and-other-tech-companies-stop-sales-in-russia/">stopped selling their products there</a>. McKinsey, Ernst & Young and many other top <a href="https://www.wsj.com/articles/big-auditors-to-leave-russia-amid-invasion-of-ukraine-11646666419?mod=djemCFO">accounting</a> and <a href="https://www.ft.com/content/6c412673-d65e-4e75-adbb-08146c42387c">consulting firms</a> said they are leaving the Russian market – possibly for good. </p>
<p>In all, <a href="https://som.yale.edu/story/2022/over-200-companies-have-withdrawn-russia-some-remain">over 300 companies have announced plans</a> to close stores, reassign staff or stop selling products in Russia since the invasion began on Feb. 24, 2022, according to a running tally by Yale management professor Jeffrey Sonnenfeld. Most recently, <a href="https://www.cnn.com/2022/03/08/business/mcdonalds-pepsi-coke-russia/index.html">McDonald’s</a>, <a href="https://www.nytimes.com/live/2022/03/08/business/stocks-economy-inflation-ukraine">Starbucks</a> and Coca-Cola joined the list on March 8, 2022, announcing they would close stores and cease sales.</p>
<p>In some ways, these decisions fit in with a <a href="https://theconversation.com/how-corporate-ceos-found-their-political-voice-83127">recent trend in which companies have increasingly staked out</a> public positions on often controversial social and political issues, such as restrictions on trans rights and ability to vote. As <a href="https://business.rice.edu/person/douglas-schuler">business professors</a> <a href="https://scholar.google.com/citations?user=k7slUggAAAAJ&hl=en&oi=ao">who study why</a> companies engage in activism, we feel the same factors that have driven those decisions to speak out are at work over Ukraine. </p>
<p>But we also believe Ukraine stands out for one important reason: For many of these companies, it may have been one of the easiest stands they’ve ever taken – even if there is a financial cost.</p>
<h2>Taking a stand</h2>
<p><a href="https://www.doi.org/10.1177/0022242920937000">Corporate sociopolitical activism</a> – the technical term we use – entails companies making public declarations or taking actions about significant social or political issues that extend beyond their core business. </p>
<p>Until relatively recently, <a href="https://theconversation.com/how-corporate-ceos-found-their-political-voice-83127">companies rarely took stands</a> on social or political issues. </p>
<p>That didn’t really change until the 2000s, when LBGTQ rights were under attack and major companies such as <a href="https://www.reuters.com/article/us-walmart-arkansas-analysis-idUSKBN0MT13E20150402">Walmart spoke out</a> against bills that would have allowed discrimination.</p>
<p>Since then, there’s been a <a href="https://qz.com/work/1797058/2020-is-the-year-corporate-activism-and-global-political-risk-converge/">surge in companies taking proactive stands</a> on issues ranging from climate activism and racism to abortion and voting rights. </p>
<p>For example, in the wake of the murder of George Floyd by police in Minneapolis in 2020, hundreds of CEOs <a href="https://www.cnbc.com/2020/06/11/ceos-unveil-plans-against-racial-inequality-after-george-floyd-death.html">signed a pledge</a> against racial discrimination and <a href="https://www.ceoaction.com/purpose/">created an organization dedicated</a> to diversity, equity and inclusion. In 2021, the CEOs of Dell, American Airlines, Southwest Airlines and AT&T <a href="https://www.npr.org/2021/04/02/983709091/these-are-the-businesses-speaking-out-against-texass-newly-proposed-election-law">spoke out against a Texas bill</a> aimed at making it more difficult for citizens to vote. </p>
<p>Others have taken more decisive action. <a href="https://www.npr.org/2021/09/08/1035045952/lyft-uber-will-pay-drivers-legal-fees-if-theyre-sued-under-texas-abortion-law">Uber and Lyft</a> said they would pay to defend their drivers if they got sued under a Texas law that allows anyone to sue a person who helps someone get an abortion. And in 2016, <a href="https://www.cnbc.com/2017/03/27/bathroom-bill-to-cost-north-carolina-376-billion.html">PayPal and the NCAA pulled business</a> from North Carolina after the state passed a bill limiting LGBTQ protections.</p>
<p><a href="https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/great-expectations-navigating-challenging-stakeholder-expectations-of-brandsexpectations-of-brands">Surveys show</a> <a href="https://www.ipsos.com/sites/default/files/ct/publication/documents/2021-11/ipsos-global-trends-2021-report.pdf">today’s consumers expect</a> <a href="https://www.5wpr.com/new/wp-content/uploads/pdf/5W_consumer_culture_report_2020final.pdf">companies to live up</a> to the <a href="https://certusinsights.com/wp-content/uploads/2019/10/Markstein-Social-Responsibility-_-Certus-Insights-Research-_.pdf">values they espouse</a> in their press releases, and big corporate groups such as the Business Roundtable even began <a href="https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans">urging companies</a> to focus on creating value for everyone – not just shareholders. </p>
<figure class="align-center ">
<img alt="a crowd marches in a city street behind a banner that reads justice for George" src="https://images.theconversation.com/files/451007/original/file-20220309-20-12axmhb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/451007/original/file-20220309-20-12axmhb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/451007/original/file-20220309-20-12axmhb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/451007/original/file-20220309-20-12axmhb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/451007/original/file-20220309-20-12axmhb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/451007/original/file-20220309-20-12axmhb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/451007/original/file-20220309-20-12axmhb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Many companies spoke out against racism after George Floyd’s murder inspired months of protests, like this one on the first anniversary of his death.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/RacialInjustice-MinnesotaProtests/b9a714aa8e5c4a0d8981cff7ae70176f/photo?Query=George%20Floyd%20protest&mediaType=photo&sortBy=creationdatetime:desc&dateRange=Anytime&totalCount=11555&currentItemNo=113">AP Photo/Christian Monterrosa</a></span>
</figcaption>
</figure>
<h2>Why companies speak out</h2>
<p>More specifically, <a href="https://www.econbiz.de/Record/don-t-mix-business-with-politics-understanding-stakeholder-reactions-to-corporate-political-activism-appels-moritz/10012303252">research</a> has identified <a href="https://www.doi.org/10.5465/amr.2018.0084">three major factors</a> that typically drive a company’s decision to pursue corporate activism: employee beliefs, consumer pressure and the <a href="https://hbr.org/2018/01/the-new-ceo-activists">CEO’s personal involvement</a> or conviction. </p>
<p>It’s not always clear what is driving corporate decisions to suspend operations in Russia, but it seems as if all three factors are at play. </p>
<p>IKEA, for example, <a href="https://about.ikea.com/en/newsroom/2022/03/03/ikea-pauses-operations-in-russia-and-belarus">cited the support and security</a> of its workforce in announcing its “pause” in Russia and a donation of 20 million euros for humanitarian assistance for those displaced by the war. After a #BoycottMcDonald’s <a href="https://www.mashed.com/789748/heres-why-boycott-mcdonalds-is-trending-on-twitter/">began trending on Twitter</a> to protest its presence in Russia, the fast-food chain said it was temporarily closing its stores there. And Tesla CEO Elon Musk <a href="https://www.vox.com/recode/22958373/ukraine-russia-starlink-spacex-elon-musk">agreed to provide Ukraine</a> with free satellite internet after a Ukrainian official requested it on Twitter. </p>
<figure class="align-center ">
<img alt="People stand outside a restaurant-looking building with yellow arches spelling an M as they wait to eat McDonalds for the first time." src="https://images.theconversation.com/files/450993/original/file-20220309-13-1co2myw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/450993/original/file-20220309-13-1co2myw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=387&fit=crop&dpr=1 600w, https://images.theconversation.com/files/450993/original/file-20220309-13-1co2myw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=387&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/450993/original/file-20220309-13-1co2myw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=387&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/450993/original/file-20220309-13-1co2myw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=486&fit=crop&dpr=1 754w, https://images.theconversation.com/files/450993/original/file-20220309-13-1co2myw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=486&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/450993/original/file-20220309-13-1co2myw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=486&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">McDonald’s has been in Russia since it opened its first store in Moscow in 1990.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/RussianMcDonalds1990/bdb02160f3c742118e8ef29ed8288b48/photo?Query=McDonald%27s%20russia&mediaType=photo&sortBy=arrivaldatetime:asc&dateRange=Anytime&totalCount=159&currentItemNo=3">AP Photo</a></span>
</figcaption>
</figure>
<h2>A corporate no-brainer</h2>
<p>But ultimately, the decision whether or not to sever a relationship with a country – even if temporarily – is very different from taking a stand on an anti-trans measure.</p>
<p>Even so, the speed with which U.S. and other Western companies have abandoned Russia is something we’ve never seen in our lifetimes. And it suggests the decision was likely a no-brainer. </p>
<p>For one thing, Russia’s invasion has been met with widespread revulsion in the West. And even before the war, the public’s perception of Russia in Western countries <a href="https://www.pewresearch.org/fact-tank/2020/02/07/russia-and-putin-receive-low-ratings-globally">was very low</a>. </p>
<p>[<em>Over 150,000 readers rely on The Conversation’s newsletters to understand the world.</em> <a href="https://memberservices.theconversation.com/newsletters/?source=inline-150ksignup">Sign up today</a>.]</p>
<p>One post-invasion poll found that 86% of Americans <a href="https://poll.qu.edu/poll-release?releaseid=3837">saw the invasion as unjustified</a> – with broad bipartisan agreement – and another showed that half of the respondents would <a href="https://www.live5news.com/2022/03/07/poll-finds-majority-want-russian-oil-ban-divided-biden/">compare the actions of Vladimir Putin</a> with those of Adolf Hitler. </p>
<p>And governments including those like <a href="https://www.dw.com/en/german-chancellor-olaf-scholz-announces-paradigm-change-in-response-to-ukraine-invasion/a-60932652">Germany</a> that have close commercial ties to Russia have strongly condemned its actions and joined unprecedented sanctions. About 80% of Germans said they approved of their government’s decision to sanction Russia and export weapons to Ukraine – or said it didn’t go far enough.</p>
<p>Ultimately, the Russian market is just not that big for companies in the U.S, such as <a href="https://appleinsider.com/articles/22/03/04/what-apple-risks-by-stopping-all-sales-operations-in-russia">Apple</a> and <a href="https://deadline.com/2022/03/disney-ukraine-theme-parks-disneyplus-1234973007/">Disney</a>. For others, such as McDonald’s, which has been <a href="https://www.bloomberg.com/news/articles/2022-03-08/mcdonald-s-faces-tough-questions-with-large-exposure-to-russia?sref=Hjm5biAW">in Russia since 1990 and has about 850 locations there</a>, days of pressure finally persuaded company officials they had to pull out. </p>
<p>On many hot-button social issues like <a href="https://news.gallup.com/poll/350174/mixed-views-among-americans-transgender-issues.aspx">trans rights</a> and <a href="https://www.pewresearch.org/fact-tank/2021/09/13/key-facts-about-americans-and-guns/">gun control</a>, the general public is split almost right down the middle, meaning taking a stand could alienate a lot of consumers. </p>
<p>But on the issue of Russia’s invasion of Ukraine, many companies likely were more worried about the <a href="https://www.nbcnews.com/business/consumer/mcdonalds-us-brands-pressure-stop-business-russia-rcna18990">risks to their reputation</a> were they to do nothing. With so many other companies pulling out, it likely seemed better to explain to shareholders and customers back home <a href="https://edition.cnn.com/2022/03/02/business/companies-pulling-back-russia-ukraine-war-intl-hnk/index.html">why they’re leaving</a> than <a href="https://www.bbc.com/news/business-60660006">why they’re staying</a>.</p><img src="https://counter.theconversation.com/content/178516/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Over 300 companies so far have closed stores, reassigned staff or halted sales in Russia in the two weeks since the invasion began.Douglas Schuler, Associate Professor of Business and Public Policy, Rice UniversityLaura Marie Edinger-Schons, Professor of Sustainable Business, University of MannheimLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1764322022-02-22T19:13:02Z2022-02-22T19:13:02ZWhy the cost of climate change can’t be boiled down to one right number, despite some economists’ best attempts<figure><img src="https://images.theconversation.com/files/445776/original/file-20220210-24693-1m5bgil.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C7662%2C5104&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Renewable energy prices have fallen faster than predicted.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/wind-turbine-at-motorway-a8-baden-wuerttemberg-royalty-free-image/1210777997">ImageBROKER/Lilly</a></span></figcaption></figure><p>A group of economists has issued a new estimate of the future cost of climate change that is grabbing headlines. The consultancy Deloitte estimates that unchecked climate change could cost the global economy <a href="https://www2.deloitte.com/content/dam/Deloitte/global/Documents/gx-global-turning-point-report.pdf">US$178 trillion</a> over the next 50 years.</p>
<p>While climate change does harm economies, there are a lot of problems with long-term estimates like this.</p>
<p>New technologies arrive and evolve. Human behaviors shift. For example, who would have thought before the COVID-19 pandemic that a large percentage of the population would stop driving to the office and work from home instead?</p>
<p>I am a microeconomist who investigates the <a href="https://escholarship.org/uc/item/3qp74527">causes and consequences of climate change</a>. When I think about the climate change challenge in 2040 and beyond, I anticipate many “known unknowns” about our future. Thus, I am amazed to read precise climate cost estimates like those published by economic consultants like Deloitte and <a href="https://www.mckinsey.com/business-functions/sustainability/our-insights/the-net-zero-transition-what-it-would-cost-what-it-could-bring">McKinsey & Co</a>.</p>
<p>Deloitte’s <a href="https://www2.deloitte.com/global/en/pages/about-deloitte/articles/global-turning-point.html">new estimate</a> predicts that the damage from unchecked <a href="https://www.c2es.org/content/international-emissions/">greenhouse gas emissions</a>, with global temperatures rising 3 degrees Celsius (5.4 F) over pre-industrial times, would slow growth in every region and could shave 7.6% off global GDP in 2070 alone compared to a world without climate change. That includes harms such as lost productivity during heat waves and crop failures.</p>
<p>Numbers like these are widely used to encourage action by governments, companies and individuals. Economists agree that climate change, left unchecked, will harm economies. But these estimates are produced using formal models that feature many assumptions, any one of which could throw off the accounting in a big way, leaving the estimates either wildly high or low. </p>
<p>While people might think they want “precision,” precise predictions <a href="https://www.nber.org/system/files/working_papers/w28472/w28472.pdf">raise the risk of conveying too much certainty</a> in a constantly changing world. </p>
<h2>The prediction challenge</h2>
<p><a href="https://www.nobelprize.org/uploads/2018/10/nordhaus-lecture.pdf">Climate economic models</a> seek to answer several prediction questions, such as:</p>
<ul>
<li><p>“What will we gain economically by reducing greenhouse gas emissions?”</p></li>
<li><p>“What will be the economic and quality-of-life impact if we do nothing and just allow greenhouse gas emissions to rise under ‘business as usual’?”</p></li>
</ul>
<p>To answer these complex questions, climate economists make a series of assumptions that are “baked” into their mathematical models.</p>
<h2>Known unknowns</h2>
<p>First, economists must predict the world’s average income per person for each year in the future. </p>
<p>Macroeconomists have faced challenges <a href="https://www.philadelphiafed.org/the-economy/macroeconomics/why-are-recessions-so-hard-to-predict-random-shocks-and-business-cycles">predicting the timing and duration of recessions</a>. Predicting future <a href="https://doi.org/10.1073/pnas.1713628115">economic growth over the course of 30 or 40 years</a> requires predicting how the quantity and quality of the world’s workforce and our technology will evolve over time. Predicting the world’s population growth is also a challenging exercise, as increases in <a href="https://link.springer.com/article/10.1007/s11113-012-9230-0">urbanization</a>, <a href="https://faculty.wcas.northwestern.edu/%7Emdo738/research/Doepke_JODE_15.pdf">women’s access to education</a> and improvements in birth control are all associated with reductions in fertility.</p>
<p>Second, they must make an informed guess about what technologies will exist in the future concerning our sources of power generation and the energy we use in transportation. If they can estimate the future world population level, income level and technology, then they can measure how much extra greenhouse gas emissions the world produces each year.</p>
<p>Third, they use a climate science model to estimate the extra climate change risk caused by the production of greenhouse gas emissions. This is typically measured by the increase in <a href="https://climate.nasa.gov/ask-nasa-climate/3017/making-sense-of-climate-sensitivity/">the world’s average surface temperature</a>.</p>
<p>Fourth, they must take a stand on how our future economy’s production will be affected by rising climate change risk. Ideally, these models also tell us how releasing more greenhouse gas emissions increases the <a href="https://scholar.harvard.edu/files/weitzman/files/fattaileduncertaintyeconomics.pdf">likelihood of disaster scenarios</a>.</p>
<p>By combining all of these equations with their own respective assumptions, a research team generates a single number.</p>
<h2>The ‘art’ of predicting future emissions</h2>
<p>Economists estimate future global greenhouse gas emissions by multiplying the predicted global gross national product – the total value of goods and services – by the average emissions per dollar of gross national product. </p>
<p>If the world succeeds in ending fossil fuel use, this latter figure could be close to zero. The innovation and deployment of low-carbon technologies – think electric vehicles and solar farms – can significantly shift the costs and benefits that economists are trying to quantify.</p>
<p>Many factors determine this path of technological advance, including investment in research and development. International politics also don’t always factor into climate economic models. For example, if China chooses to become more insular, will it increase its coal consumption because the nation is endowed with coal? Conversely, could <a href="https://www.nytimes.com/roomfordebate/2011/01/18/can-the-us-compete-with-china-on-green-tech/how-we-gain-from-chinas-advances">China choose to use its powerful state</a> to push the green tech sector to create a booming future export market that greens the world’s economy? </p>
<h2>Forecasting future climate change impacts</h2>
<p>Economic mathematical models boil down the impact of climate change into a single algebra equation called the “climate damage function.” In <a href="https://yalebooks.yale.edu/book/9780300246711/adapting-climate-change">my book “Adapting to Climate Change,”</a> I provide several examples for why this function is continually changing and thus is very difficult to predict. </p>
<p>For example, many companies are developing <a href="https://theconversation.com/a-new-ratings-industry-is-emerging-to-help-homebuyers-assess-climate-risks-171898">climate risk ratings systems</a> to educate real estate buyers about the different future climate risks specific pieces of real estate will face, such as wildfires or flooding.</p>
<p>Suppose this emerging climate risk rating industry makes progress in identifying less risky areas to live, and zoning codes are changed to allow more people to live in these safer areas. The damage that Americans suffer from climate change would decrease as people literally “move to higher ground”.</p>
<p>The confident climate modeler cannot capture this dynamic with inflexible algebra.</p>
<h2>Prediction under uncertainty</h2>
<p>Climate economics models can play a “Paul Revere” role – educating policymakers and the public about the likely risks ahead. As economists build these models, they must be <a href="https://doi.org/10.1093/reep/rew012">honest about their limitations</a>. A model that generates “the answer” may lead decision-makers astray. </p>
<p>As much as everyone might like a concrete answer to how much climate change and acting on climate change will cost, we’ll have to live with uncertainty. </p>
<p><em>This article was updated May 24, 2022, with Deloitte’s new estimate.</em></p><img src="https://counter.theconversation.com/content/176432/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Matthew E. Kahn does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Human behaviors shift. Policies change. New technology arrives and evolves. All those changes and more are hard to predict, and they affect tomorrow’s costs.Matthew E. Kahn, Provost Professor of Economics and Spatial Sciences, USC Dornsife College of Letters, Arts and SciencesLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1717432021-11-12T07:13:18Z2021-11-12T07:13:18ZHow government modelling found net-zero would leave us better off<figure><img src="https://images.theconversation.com/files/431643/original/file-20211112-17-9qabyq.jpg?ixlib=rb-1.1.0&rect=624%2C432%2C2894%2C1784&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Perutskyi Petro/Shutterstock</span></span></figcaption></figure><p>The government’s decision to target net-zero emissions by 2050 will leave each Australian nearly A$2,000 better off by then compared to no Australian action.</p>
<p>That’s what we were told in a six-point summary of the government’s economic modelling released at a press conference on <a href="https://www.pm.gov.au/media/press-conference-canberra-act-27">Thursday October 26</a>, days before the prime minister left for the Glasgow climate talks.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/431644/original/file-20211112-15-rs752r.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/431644/original/file-20211112-15-rs752r.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/431644/original/file-20211112-15-rs752r.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=315&fit=crop&dpr=1 600w, https://images.theconversation.com/files/431644/original/file-20211112-15-rs752r.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=315&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/431644/original/file-20211112-15-rs752r.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=315&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/431644/original/file-20211112-15-rs752r.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=396&fit=crop&dpr=1 754w, https://images.theconversation.com/files/431644/original/file-20211112-15-rs752r.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=396&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/431644/original/file-20211112-15-rs752r.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=396&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Slide from the prime minister’s October 26 press handout.</span>
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<p>Prime Minister Scott Morrison said at the time the actual modelling would be released “in due course”, later clarifying that it might not be released for a fortnight, after which the Glasgow climate talks would be almost over.</p>
<p>The 100-page summary of modelling prepared by the Department of Industry, Science, Energy and Resources and the consultancy McKinsey & Company was released on <a href="https://www.industry.gov.au/sites/default/files/November%202021/document/australias-long-term-emissions-reduction-plan-modelling.pdf">Friday afternoon</a> as the climate talks were concluding.</p>
<p>The document tells us both how the $2,000 figure was arrived at and the question that was asked.</p>
<h2>The question that was asked</h2>
<p>McKinsey and the department were asked to compare economic outcomes in 2050 after 30 years of “no Australian action” with economic outcomes in 2050 after 30 years of “the plan”.</p>
<p><strong>“No Australian action”</strong> meant that every developed country other than Australia cut its emissions to net-zero by 2050, and all of the world apart from Australia did whatever else was needed to hold global warming to 2°C.</p>
<p>Australia would find it harder to raise money because of its reluctance to commit to net-zero (meaning its borrowing costs would incorporate a “risk premium”) and would get access to only those improvements in technology that were available elsewhere.</p>
<p><strong>“The plan”</strong> involved Australia continuing “to invest in technological breakthroughs,” acting as an “enabler to support consumer choice and voluntary adoption of other technologies”.</p>
<p>Australia would adopt a target of net zero by 2050, escaping a risk premium. </p>
<p>The government would invest more than A$21 billion to support the development and deployment of low emissions technologies including clean hydrogen, ultra low-cost solar, energy storage, low-emissions materials, carbon capture and storage and soil carbon to 2030, and continue to play a “direct role” beyond that.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/between-the-lines-the-plan-has-coal-on-the-way-out-the-future-bright-170643">Between the lines, the plan has coal on the way out, the future bright</a>
</strong>
</em>
</p>
<hr>
<p>Otherwise, emissions would be reduced on “a voluntary basis”.</p>
<p>Importantly, and so the size of the voluntary action can be incorporated into the modelling, the voluntary emissions reductions are assumed to be the same as what would be expected if Australians faced a carbon price (or tax) that climbed to A$24 per tonne of carbon dioxide equivalent by 2050. </p>
<p>Emitters finding it hard to cut emissions as much as they or consumers or investors wanted would be able to buy international “offsets” (overseas emissions reductions) at a price that would climb to A$40 per tonne of carbon dioxide equivalent by 2050.</p>
<h2>$2,000 per person better off</h2>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/431641/original/file-20211112-19-1gsbp9r.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/431641/original/file-20211112-19-1gsbp9r.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/431641/original/file-20211112-19-1gsbp9r.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=970&fit=crop&dpr=1 600w, https://images.theconversation.com/files/431641/original/file-20211112-19-1gsbp9r.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=970&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/431641/original/file-20211112-19-1gsbp9r.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=970&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/431641/original/file-20211112-19-1gsbp9r.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1220&fit=crop&dpr=1 754w, https://images.theconversation.com/files/431641/original/file-20211112-19-1gsbp9r.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1220&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/431641/original/file-20211112-19-1gsbp9r.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1220&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="source" href="https://www.industry.gov.au/sites/default/files/November%202021/document/australias-long-term-emissions-reduction-plan-modelling.pdf">Australia’s long-term emissions reduction plan: modelling and analysis, November 12, 2021</a></span>
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<p>The modelling concludes that under “the plan” each Australian would be almost A$2,000 better off in 2050 compared with under “no Australian action”.</p>
<p>That’s $2,000 per year in so-called gross national income per capita, but it’s less impressive than it sounds. The <a href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release">latest stats</a> have gross national income per capita approaching A$80,000. </p>
<p>That’s not what’s received by any one individual, but what’s received by businesses and all sorts of other entities averaged across the population.</p>
<p>Compounding economic growth means that by 2050 that dollar sum will be two to three times as big, against which (and given all the uncertainties) a projection of an extra $2,000 amounts to little difference.</p>
<p>A reasonable way to interpret the modelling is that, compared to “no Australian action”, the “plan” won’t impose significant costs on Australians.</p>
<h2>Where the $2,000 comes from</h2>
<p>Which isn’t to say that there won’t be big costs.</p>
<p>The world will move away from coal and liquefied natural gas – two of Australia’s biggest exports – but what is assumed is that will happen in any event, under both “the plan” and the “no Australian action” scenarios. </p>
<p>Unless you were to assume that the rest of the world won’t pull its weight in getting to net-zero (and the modelling does not assume this) Australia not pulling its weight does almost nothing to rescue its exports.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/cop26-what-the-draft-agreement-says-and-why-its-being-criticised-171632">COP26: what the draft agreement says – and why it's being criticised</a>
</strong>
</em>
</p>
<hr>
<p>The $2,000 comprises two parts. $375 is the benefit to Australia of avoiding investors being less keen to invest in a country that isn’t pulling its weight.</p>
<p>The modelling says Australia would score an average of 5.5% less investment per year under the “no Australian action” scenario compared to under “the plan”.</p>
<p>The other $1,625 derives from the development of new industries, spurred in part by the government’s $21 billion, the most important being hydrogen production which by itself would lift national income per person by about $1,000 of the $2,000.</p>
<p>What was released Friday afternoon is not the modelling itself but a government-authored “summary”.</p>
<p>Although it is difficult to compare the <a href="https://www.industry.gov.au/data-and-publications/australias-long-term-emissions-reduction-plan">McKinsey</a> modelling with the <a href="https://treasury.gov.au/sites/default/files/2019-03/Australias_Low_Pollution_Future_Summary.pdf">Treasury</a> modelling prepared for the Gillard government ahead of the 2012-2014 carbon pollution reduction scheme, it is notable that both arrived at a similar conclusion: that over time, action to reduce emissions will cost Australia little.</p><img src="https://counter.theconversation.com/content/171743/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Most of the $2,000 per year increase in income by 2050 is due to the success of a new hydrogen industry.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1301362020-01-23T10:25:44Z2020-01-23T10:25:44ZCorruption in South Africa: echoes of leaders who plundered their countries<figure><img src="https://images.theconversation.com/files/311158/original/file-20200121-117921-1a946yj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Anti-corruption protesters march on Parliament in Cape Town in 2017.</span> <span class="attribution"><span class="source">shutterstock/Aqua Images</span></span></figcaption></figure><p>One of the shameful achievements of the African National Congress (ANC) in its 25 years of governing post-apartheid South Africa is that it’s living up to the political stereotype of what is <a href="https://www.harpercollins.com/9780060934439/in-the-footsteps-of-mr-kurtz/">wrong</a> with post-colonial Africa – unethical and corrupt African leaders who exercise power through patronage. </p>
<p>The widespread corruption in post-apartheid South Africa is epitomised by what is now referred to as <a href="https://beta.mg.co.za/article/2018-09-14-00-definition-of-state-capture/">“state capture”</a>. The effects of the entrenched corruption are exemplified by frequent power cuts <a href="https://www.moneyweb.co.za/news/companies-and-deals/this-is-how-eskom-throttles-the-economy/">devastating the economy</a>. Another example is the government’s failure to <a href="https://www.news24.com/SouthAfrica/News/watch-three-hour-train-delay-for-ramaphosa-during-anc-election-campaigning-20190318">keep the trains running</a>.</p>
<p>Democratic South Africa appears to have morphed into a fully fledged predatory state. The lobby group Corruption Watch <a href="https://www.corruptionwatch.org.za/global-corruption-barometer-africa-2019/">reported last year</a> that more than half of all South Africans think corruption is getting worse. They also think the government is doing a bad job at tackling corruption.</p>
<p>Characteristics include using public office and resources to promote the private interests of ANC politicians and those connected to them. It also includes an entrenched culture of being <a href="https://www.dailymaverick.co.za/article/2019-03-01-state-capture-wipes-out-third-of-sas-r4-9-trillion-gdp-never-mind-lost-trust-confidence-opportunity/">untouchable</a>.</p>
<p>Events in South Africa have echoes in countries across the continent. These range from the <a href="https://www.bbc.com/news/world-africa-51128950">Dos Santos family in Angola</a> to <a href="https://www.africanexponent.com/post/8617-mobutu-sese-seko-was-a-heartless-dictator">Mobutu Sese Seko’s</a> decades of thieving in Zaire. Mobutu is <a href="https://www.harpercollins.com/9780060934439/in-the-footsteps-of-mr-kurtz/">credited</a> with the invention of modern African kleptocracy.</p>
<p>Of course, African leaders are not the only corrupt political leaders in the world. For example, Noah Bookbinder, a former trial attorney for the US Justice Department’s Public Integrity Section, <a href="https://www.newsweek.com/trumps-alleged-abuses-power-make-2019-one-most-corrupt-years-history-former-federal-1479715">recently argued </a> that US president Donald Trump’s </p>
<blockquote>
<p>increasingly egregious abuses made 2019 one of the most corrupt years in US history.</p>
</blockquote>
<p>But the fact of the matter is that sub-Saharan Africa is in a league of its own. In the <a href="https://www.transparency.org/cpi2018">2018 Corruption Perception Index</a>, published by Transparency International, it appears at the bottom. The report released with the index stated that <a href="https://www.transparency.org/files/content/pages/2018_CPI_Executive_Summary.pdf">the region had</a> “failed to translate its anti-corruption commitments into any real progress”. In 2019, the region again appears at the bottom. Transparency International <a href="https://www.transparency.org/files/content/pages/2019_CPI_Report_EN.pdf">remarked</a>: </p>
<blockquote>
<p>Sub-Saharan Africa’s performance paints a bleak picture of inaction against corruption.</p>
</blockquote>
<h2>Moral decay</h2>
<p>The ANC once represented a political tradition of opposition to apartheid <a href="http://www.mandela.gov.za/mandela_speeches/before/6105_nac.htm">rooted in altruism</a>. But the events that have unfolded since it took over running the government in 1994 suggest that it has become a corrupt machine. </p>
<p>It seems the party appears intent on following in the footsteps of the likes of the late Mobutu. </p>
<p>State corruption has taken hold with utter disregard for ethics and democratic norms in a cynical exploitation of the post-apartheid transformation agenda. For example, large-scale corruption is often framed around the liberation struggle rhetoric of <a href="https://theconversation.com/why-corruption-in-south-africa-isnt-simply-about-zuma-and-the-guptas-113056">empowering black people</a>.</p>
<p>The reality is that the black elite enrich themselves and their families through government tenders and other questionable and unethical means.</p>
<p>Former president Jacob Zuma is the “poster boy” for this black kleptocracy. He and his associates, the <a href="https://www.timeslive.co.za/sunday-times/opinion-and-analysis/2017-07-22-how-to-be-a-gupta/">Gupta family</a>, captured the post-apartheid state with the sole purpose of exercising power <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=240555">to shape</a> policy making, and to control political institutions to their own advantage.</p>
<p>Dishonest politics has become a defining feature of post-apartheid politics while the legitimate fight against corruption is being made <a href="https://city-press.news24.com/News/zondo-commission-targets-blacks-20190629">analogous to racism</a>. It is a politics that is characterised by lack of ethics, morals, and logic, and has no legitimate place in a democratic society. </p>
<p>Yet it continues to trickle down to other societal institutions. Transport minister Fikile Mbalula recently <a href="https://www.heraldlive.co.za/news/2020-01-16-broken-organisation-prasa-lost-r1bn-in-two-years/">described</a> the Passenger Rail Agency of the country as a</p>
<blockquote>
<p>broken organisation, struggling to provide an efficient and committed passenger rail service.</p>
</blockquote>
<p>Meanwhile, South African Airways has been forced into a voluntary <a href="https://theconversation.com/south-african-airways-is-in-business-rescue-what-it-means-and-what-next-128409">business rescue</a> after its working capital dried up and the national treasury refused another bailout. </p>
<p>Of course, the private sector is not corruption free. Corporate businesses that have been associated with state capture <a href="https://www.dailymaverick.co.za/article/2020-01-16-the-dirt-on-deloittes-consulting-deals-at-eskom-part-two/?tl_inbound=1&tl_groups%5b0%5d=80895&tl_period_type=3&utm_medium=email&utm_campaign=Business%20Maverick%20Thursday%2016%20January%202020&utm_content=Business%20Maverick%20Thursday%2016%20January%202020+CID_282a9da853386128d4e197c64e93802c&utm_source=TouchBasePro&utm_term=The%20dirt%20on%20Deloittes%20consulting%20deals%20at%20Eskom%20Part%20Two">include</a> Deloitte, McKinsey, KPMG, Bain & Company.</p>
<p>The breakdown in social order reveals a dysfunctional political system that rewards sycophants, con artists, thugs, greed, and antisocial attributes. The development of this patronage network is the product of the ANC’s <a href="https://www.researchgate.net/publication/321223498_The_African_National_Congress_ANC_and_the_Cadre_Deployment_Policy_in_the_Postapartheid_South_Africa_A_Product_of_Democratic_Centralisation_or_a_Recipe_for_a_Constitutional_Crisis">cadre deployment policy</a>. This values party membership over ability and probity.</p>
<h2>Lessons from history not learnt</h2>
<p>The history of democratic South Africa shows that the ANC has failed to learn from the experiences of post-colonial Africa, and thus avoid its unsavoury parts.</p>
<p>Instead, it has chosen to walk in the footsteps of other corrupt post-colonial African leaders. Small wonder that its frustrated citizens have turned to the courts to force the government to govern in their interests.</p>
<p>The latest example of this the Makhanda High Court ruling that the Makana Municipality be dissolved and placed under administration for failing to carry out its constitutional obligations to its citizens. The court <a href="https://theconversation.com/landmark-court-ruling-highlights-crisis-in-south-africas-cities-and-towns-130140">found that </a> the ANC-run municipality had failed to “promote a healthy and sustainable environment for the community”, as required by the country’s constitution.</p>
<p>More such political collisions between the country’s cherished democratic norms and the corrupt post-colonial political elites are needed to change the current political trajectory of corruption and incompetence. That is the only antidote.</p><img src="https://counter.theconversation.com/content/130136/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mandisi Majavu does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In South Africa, state corruption has taken hold with utter disregard for ethics and democratic norms in a cynical exploitation of the post-apartheid transformation agenda.Mandisi Majavu, Senior Lecturer, Department of Political and International Studies, Rhodes UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/819052017-08-02T15:45:52Z2017-08-02T15:45:52ZSouth African business must own up to its part in the corruption scandals<figure><img src="https://images.theconversation.com/files/180705/original/file-20170802-6912-ryzxrt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p><em>South Africa is reeling from a string of scandals involving state owned enterprises and the Guptas, a family with close ties to President Jacob Zuma. A trove of recently <a href="http://www.huffingtonpost.co.za/2017/06/01/the-new-gupta-emails-are-a-lot-heres-what-they-say-in-5-quick_a_22120706/">leaked Gupta emails</a> exposed the involvement of prominent businesses in the extensive corruption networks. Sibonelo Radebe asked Mills Soko to explain the implications of the scandals.</em></p>
<p><strong>What do you make of the situation?</strong></p>
<p>If nothing else, the Gupta leaks have shown us how perilously close South Africa is to losing everything so many people fought so hard for. Not only does corruption divert capital allocated for public services away from the poor, it hollows out important state institutions and, ultimately, frays the social and economic fabric of the country. It threatens the hard won democracy and political stability.</p>
<p>The ongoing revelations around state capture and patronage are giving South Africans an unprecedented and frightening glimpse into the machinery of corruption. The most unnerving element of the emails is how many of the transactions appear blatant and almost casual. The absolute cynicism and lack of ethics revealed in this correspondence is breath taking.</p>
<p>What we do with this knowledge as a country is going to count for everything. As a business community we can look away and call these tales of corruption isolated incidents – or we can step up to ensure that our organisations hold themselves to a higher standard. Most critically the law must take its course.</p>
<p><strong>What does it tell us about the role of business?</strong></p>
<p>The emails remind us that in any corrupt interaction it takes two to tango. And while governments and public money are so often at the centre, the enablers of corruption are not in government but in the private sector. </p>
<p>With the Gupta’s at the centre of the rot, <a href="http://m.news24.com/news24/SouthAfrica/News/guptaleaks-kickbacks-for-transnet-crane-contracts-20170717">prominent international companies</a> like accounting firm KPMG, consulting giant McKinsey, ICT player SAP, engineering company Liebherr and capital equipment manufacturer Shanghai Zhenhua Heavy Industries have been implicated in the mounting scandal. It’s worrying to see that companies of such calibre can be involved in such nefarious activity.</p>
<p>Corruption is, of course, not a new phenomenon – and nor is it unique to South Africa, as the <a href="https://www.transparency.org/news/feature/corruption_perceptions_index_2016">Global Corruption Index</a> shows. But certainly, the scale of what is going on in South Africa right now is unprecedented. </p>
<p><strong>How do you rate the responses by the implicated businesses?</strong> </p>
<p>Companies have scrambled to distance themselves from the reputational firestorm that the Gupta leaks have unleashed. McKinsey acted promptly to <a href="https://www.businesslive.co.za/bd/companies/2017-07-09-now-mckinsey-sa-director-vikas-sagar-has-been-suspended-over-the-gupta-scandal/">suspend</a> Vikas Sagar, a director in its South African office, to allow an internal investigation to proceed. For its part SAP, which originally denied the allegations, has similarly suspended South African staff while launching a full anti-corruption <a href="http://www.reuters.com/article/safrica-eskom-idUSL5N1KA2KE">investigation</a> , which is to be carried out by a multinational law firm and overseen by its executive board member Adaire Fox-Martin.</p>
<p>It’s convenient to blame these incidents on bad apples. But this doesn’t get below the surface of what is really going on. The scale of the corruption and the apparent ease with which it has been unfolding speaks to the fact that something is very wrong with the system. And it highlights an utter lack of business ethics and governance failures. This isn’t something the country can afford. </p>
<p><strong>What should be done to root out the corruption?</strong></p>
<p>While all of this may seem overwhelming, what is unfolding also presents the business community with an opportunity for some introspection. Calls have been made for greater purpose and responsibility on the part of South African leaders.</p>
<p>But how can we make sure these fine words and intentions are internalised? How do we make sure as a country that our business as well as our state institutions are committed to not allowing this to happen ever again?</p>
<p>Educational institutions, business schools in particular, are positioned as a first-line duty in making sure that graduates are equipped to recognise and reject corruption in any form. The country needs business leaders who are committed to building sustainable and profitable businesses but who are also mindful of their social and ethical obligations.</p>
<p>Citizens as workers and consumers also have a significant role to play. As individuals working in companies and purchasing goods and services from companies, they can condemn unethical behaviour from companies. This was partly reflected in how the general public put pressure on <a href="https://www.timeslive.co.za/news/world/2017-07-20-watch-the-bell-pottinger-gupta-saga-captures-attention-of-world-media/">Bell Pottinger</a> the UK based public relations firm which did work for the Gupta’s. </p>
<p>By <a href="https://www.theguardian.com/uk-news/2017/jul/10/bell-pottinger-pr-firm-apologizes-south-africa-campaign">rounding on Bell Pottinger</a>, effectively causing the company to lock its Twitter account and issue a formal and unprecedented apology to the country (even though they also blamed the fiasco on bad apples rather than the system), South Africans have shown the power they can wield when united against wrongdoing.</p>
<p>But the country needs to go further. While government and business have not enjoyed the best relationship in recent times, they need to bury the hatchet and come together to fix the inequalities in this country. Deep divisions have laid South Africa open to the kind of racist exploitation that Bell Pottinger unleashed. </p>
<p>Until the country rights this situation, it will continue to remain vulnerable to these kinds of nefarious influences. South Africa needs to be united in the spirit of building a country that works for everyone – not just a select few. Things are broken, yes – but it’s not impossible to repair the damage.</p><img src="https://counter.theconversation.com/content/81905/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mills Soko does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Gupta email leaks have exposed the involvement of some big private corporations. in the unfolding corruption scandal thus challenging the private sector to do some introspection.Mills Soko, Associate Professor, Graduate School of Business, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/295212014-07-23T06:46:59Z2014-07-23T06:46:59ZHost City Glasgow: out with shipyards, in with business services and technology<figure><img src="https://images.theconversation.com/files/54549/original/vztpv98y-1406032138.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Glasgow's Broomielaw district plays host to call centres and financial services</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/gee01/4270200298/in/photolist-6tPXGq-8c4eJp-7vkTM5-bEeatu-37Dpyn-bEe9g7-rhBhq">Graeme Maclean</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>Glasgow is Scotland’s largest city and the centre of its only true metropolitan economy, with a population of around 1.2m. As governments worldwide recognise -– including those in Scotland and the UK – cities and city regions <a href="http://www.espon.eu/main/Menu_Publications/Menu_TerritorialObservations/TO6_May_2012.html">are increasingly</a> the drivers of economic growth. This is true of Glasgow, which has posted significantly higher population and working-age population growth than Scotland since 2008, as the following table shows. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/54471/original/kkypymjn-1405959824.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/54471/original/kkypymjn-1405959824.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/54471/original/kkypymjn-1405959824.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=268&fit=crop&dpr=1 600w, https://images.theconversation.com/files/54471/original/kkypymjn-1405959824.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=268&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/54471/original/kkypymjn-1405959824.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=268&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/54471/original/kkypymjn-1405959824.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=336&fit=crop&dpr=1 754w, https://images.theconversation.com/files/54471/original/kkypymjn-1405959824.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=336&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/54471/original/kkypymjn-1405959824.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=336&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">ONS 2011</span></span>
</figcaption>
</figure>
<p>The Glaswegian economy of old is as well known as its subsequent decline. <a href="http://www.glasgow.gov.uk/index.aspx?articleid=3475">The city’s strength</a> in British Empire-era products such as tobacco and cotton gave way in the second half of the 19th century to heavy industry, including steel, chemicals and, in particular, shipbuilding. </p>
<p>The Govan shipyards that made the one-time second city of the empire the envy of the world <a href="http://www.bbc.co.uk/news/uk-scotland-glasgow-west-24820573">went into decline</a> after World War II. This was thanks to Asian rivals such as Japan and South Korean, who began producing ships at prices against which the Scots could not compete. Fast-forward several decades and Glasgow had become a byword for rapid decline in manufacturing; a decline faster than any other city in Western Europe, which was mirrored in both its employment and subsequent health statistics. </p>
<p>The turnaround in the Glasgow economy was partly thanks to a McKinsey report in the late 1980s commissioned by the Scottish Development Agency, entitled <a href="http://books.google.co.uk/books?id=sobYAgAAQBAJ&pg=PA97&lpg=PA97&dq=McKinsey+Glasgow+1980s&source=bl&ots=r_NihmkkhA&sig=YUDMp2Z4wxMhIn0J_ns7MMvnBOY&hl=en&sa=X&ei=vlXNU8uCBsOp0QWgnoGYCA&ved=0CFcQ6AEwCQ#v=onepage&q=McKinsey%20&f=false">The Potential of Glasgow City Centre</a>. It was a blueprint for a new phase of economic activity to be based on services, particularly financial services, software and tourism. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/54550/original/b5t5pw9j-1406032285.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/54550/original/b5t5pw9j-1406032285.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/54550/original/b5t5pw9j-1406032285.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=436&fit=crop&dpr=1 600w, https://images.theconversation.com/files/54550/original/b5t5pw9j-1406032285.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=436&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/54550/original/b5t5pw9j-1406032285.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=436&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/54550/original/b5t5pw9j-1406032285.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=548&fit=crop&dpr=1 754w, https://images.theconversation.com/files/54550/original/b5t5pw9j-1406032285.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=548&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/54550/original/b5t5pw9j-1406032285.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=548&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The international financial services district.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/gee01/4270200298/in/photolist-6tPXGq-8c4eJp-7vkTM5-bEeatu-37Dpyn-bEe9g7-rhBhq">Jeroen Mul</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>It led for example to the creation of the city’s <a href="http://www.ifsdglasgow.co.uk">international financial services district</a>, which has attracted a number of big blue-chip players such as Tesco Bank, Shell, Morgan Stanley, JP Morgan and Direct Line Insurance. They initially set up call centres, though several have developed global IT, software and other specialist functions (JP Morgan has one of its global software centres in the city, for example). Business services now makes up 35% of the city’s economy. </p>
<p><strong>Glasgow’s economic activity</strong></p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/54547/original/b7dkcmfx-1406030029.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/54547/original/b7dkcmfx-1406030029.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=364&fit=crop&dpr=1 600w, https://images.theconversation.com/files/54547/original/b7dkcmfx-1406030029.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=364&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/54547/original/b7dkcmfx-1406030029.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=364&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/54547/original/b7dkcmfx-1406030029.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=457&fit=crop&dpr=1 754w, https://images.theconversation.com/files/54547/original/b7dkcmfx-1406030029.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=457&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/54547/original/b7dkcmfx-1406030029.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=457&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
</figcaption>
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<p>Glasgow is also home to the headquarters of a number of major international companies, a fact that is too often overlooked. There are FTSE 100 companies such as engineers Weir Group and temporary power specialist Aggreko; big internationally-owned players such as Scottish Power and Clydesdale Bank; and private groups such as industrial manufacturer and venture capitalist Clyde Blowers Capital and whisky (and now premium rum) maker Edrington. Partly thanks to the presence of Edrington, Whyte & Mackay and Chivas Regal, Glasgow ships more Scotch whisky through its docks that anywhere else in the world. </p>
<p>There are also a significant number of smaller high-growth companies such as components maker Castle Precision Engineering and luxury hi-fi specialist Linn Products. These kinds of companies link Glasgow firmly to international markets and use and develop Glasgow’s enviable skills and graduate base as well as attracting global talent to the city. Glasgow has a higher number of graduates in its workforce and <a href="http://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&ved=0CDAQFjAC&url=http%3A%2F%2Fwww.ons.gov.uk%2Fons%2Frel%2Fregional-accounts%2Fregional-gross-value-added--income-approach-%2Fdecember-2012%2Frft-gva-nuts3.xls&ei=N03OU9eyK-2p7Ab-5YDYBQ&usg=AFQjCNEvyuzEIDw6Hgn91JEyls7zc0M7aQ&bvm=bv.71198958,d.ZWU">significantly higher levels of productivity</a> than many of the large UK cities and city regions with which it compares itself. </p>
<p>On the eve of the Commonwealth Games, there is a feeling that the city has moved past the first wave of regeneration foreseen in the McKinsey report and into a new second wave. This builds on the previous advances while refocusing on the wider city region’s historic role as Scotland’s engineering and technological heartland. The city has become a base for renewable energy technologies, not least after becoming the headquarters for the UK government’s <a href="https://ore.catapult.org.uk/">renewable energy catapult</a>. It has also become important in life sciences, especially stratified medicine and medical technologies, while in the engineering sector it boasts both manufacturing and engineering services (the Jacobs group is a good example of the latter). It is also Scotland’s pre-eminent centre for the creative industries, particularly print, broadcasting and film-making. </p>
<p>Working hand-in-hand with the city’s colleges and universities (which educate a third of Scotland’s students) is seen as vital to these developments. It will help to bring the innovation to the table seen as necessary for long-term growth across all sectors – including digital and web-based technologies. The city also houses by far the biggest shopping district in Scotland, the most recent addition to which is the Forever 21 mall in the centre, completed several years ago. It also goes without saying that the city has also received a major boost from the Commonwealth Games. <a href="http://www.scotsman.com/news/scotland/top-stories/extent-of-glasgow-2014-economic-boost-revealed-1-3390997">According to the Scottish government</a>, getting the city ready has created about 6,000 jobs and boosted the economy by about £52m. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/54552/original/cn5dsz98-1406032550.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/54552/original/cn5dsz98-1406032550.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/54552/original/cn5dsz98-1406032550.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/54552/original/cn5dsz98-1406032550.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/54552/original/cn5dsz98-1406032550.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/54552/original/cn5dsz98-1406032550.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/54552/original/cn5dsz98-1406032550.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/54552/original/cn5dsz98-1406032550.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Forever 21: Glasgow’s latest church for retail worshippers.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/gee01/4270200298/in/photolist-6tPXGq-8c4eJp-7vkTM5-bEeatu-37Dpyn-bEe9g7-rhBhq">Lis Ferla</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>Naturally there is still <a href="http://www.understandingglasgow.com/indicators/economic_participation/overview">much needing to be achieved</a> in the city. Glasgow still only employs 63% of its working-age adults, eight points lower than the Scottish average. It also pays out on higher rates of unemployment and incapacity benefit, albeit these rates have fallen sharply in recent years (unemployment benefit from 29% in 2000 to 20% now; incapacity from 18% in 2000 to 12% now). </p>
<p>Another useful indicator is house prices. According to the <a href="http://www.nationwide.co.uk/%7E/media/MainSite/documents/about/house-price-index/Q2_2014.pdf">latest figures</a> from Nationwide, Glasgow’s average house price of over £169,000 is nearly £30,000 above the Scottish average, though still well behind the likes of Edinburgh and Aberdeen and somewhat below big English cities like Manchester, Liverpool and Birmingham. This has the advantage of making the city attractive and affordable to investors and their workforces.</p>
<p>But while there are challenges ahead, it is impossible to argue that the Glasgow economy of 2014 is the same as it was 30 or 40 years ago. The city can now speak to a large, strong and deepening financial and business services sector alongside ongoing strengths in innovation, technology, engineering, life sciences and tourism and events. The Glasgow economy is rebalancing and arguably is returning to its economic roots as a global trading city – trading on its skills and talent, innovation, technologies and business acumen. In many ways this was the vision of Glasgow’s Victorian business and civic leaders. It is a reality that they would recognise in Glasgow today. </p>
<p><em>You can read previous parts of our Host City Glasgow series <a href="https://theconversation.com/topics/host-city-glasgow">here</a>.</em> </p><img src="https://counter.theconversation.com/content/29521/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kevin Kane does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Glasgow is Scotland’s largest city and the centre of its only true metropolitan economy, with a population of around 1.2m. As governments worldwide recognise -– including those in Scotland and the UK…Kevin Kane, Business Director, Strathclyde International Public Policy Institute, University of Strathclyde Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/289422014-07-09T05:16:08Z2014-07-09T05:16:08ZWhat Scotch whisky and Silverstone have in common, and how to make them better<figure><img src="https://images.theconversation.com/files/53332/original/t7yjb7nz-1404835511.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Silverstone is at the heat of the UK's Motor Valley cluster</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/silverstonecircuit/7414421936/in/photolist-PPGgU-7N6kCN-4Yuy8L-8HY4Xd-azEVbX-fJrZm8-8HP7zj-8HNW2J-8HNHqo-9owk8y-dcQXK-aBhhzC-fJJF8f-fJrZy6-nEAU9q-fJJHGS-cibRjY-eB2r87-8bRBAZ-fJJyyA-9vyzFY-eAU9Di-eAU8Le-fDU4t-fDU4n-fDU4q-fDU4u-fDU4o-fDU4r-6zNjTr-6zNjUB-fJJvT7-fJs1YM-cYsYJ7-aJ6uQB-fJs42K-fJs4gH-ebnZF3-3uWC3-ebbCRD-fJs9gR-fJs9xe-8hoQHg-fJJBe9-7nZFu7-fJJzxd-cXNQjA-fJs19V-eZyaQK-eAYiFt">Silverstone</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>Silicon Valley is the classic example of a business cluster. Less well known but also very successful are the machinery and agriculture clusters <a href="http://cordis.europa.eu/emilia-romagna/intro_en.html">in Emilia-Romagna</a> in northern Italy. Naturally the UK also boasts a fair few of these too – groups of businesses in the same or related sectors which are concentrated in a particular location. The Square Mile in London, for example; the Yorkshire metals industry and the so-called Motorsport Valley hub around Silverstone in the Midlands. </p>
<p>Clusters <a href="http://www.centreforcities.org/40/press/press-releases/2014/07/03/industrial-revolutions-%E2%80%93-unlocking-potential-in-the-uk%E2%80%99s-thriving-cluster-se/">were the subject</a> of a new 86-page report by the Centre for Cities think tank and McKinsey, the management consultancy. Commissioned by former science minister Lord Sainsbury, it identified the UK’s 31 most economically significant clusters and underlined their ongoing importance to the economy: they account for 8% of UK businesses yet generate 20% of national output. They employ more than four million people, typically with higher average salaries than their neighbouring (non-clustered) regions. </p>
<p><strong>The UK’s Top 31 Clusters</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/53340/original/bdcfh6xr-1404840511.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/53340/original/bdcfh6xr-1404840511.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/53340/original/bdcfh6xr-1404840511.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=410&fit=crop&dpr=1 600w, https://images.theconversation.com/files/53340/original/bdcfh6xr-1404840511.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=410&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/53340/original/bdcfh6xr-1404840511.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=410&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/53340/original/bdcfh6xr-1404840511.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=516&fit=crop&dpr=1 754w, https://images.theconversation.com/files/53340/original/bdcfh6xr-1404840511.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=516&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/53340/original/bdcfh6xr-1404840511.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=516&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<p>Research into clusters is not new. Since the late 1980s our understanding of them and how they operate has developed significantly. Largely due to the influence of the <a href="http://www.hbs.edu/faculty/Pages/profile.aspx?facId=6532">Harvard professor Michael Porter</a>, the concept has assumed an important place in the policy domain. </p>
<h2>Curious phenomenon</h2>
<p>Academics were originally interested in answering why we still observe specialised clusters of economic activity in developed countries, when you might have thought it would make sense in a globalised economy to relocate them to places where the labour costs were lower. In fact they seem (relatively) immune to these cost competitive forces. </p>
<p>The answer is that clusters have inherent competitive advantages. These typically include a set of interlinked institutions, facilities, skills, informal networks and critically, knowledge bases. You end up with an “industrial atmosphere” where the firms can benefit from knowledge spillovers. This encourages them to experiment, innovate, and gain competitive advantage through higher value-added activities. In turn this helps them to exploit new market opportunities. </p>
<p>By the late 1990s, countries like the UK were developing policies that promoted clusters with a view to boosting regional growth. This became one of the key remits of New Labour’s regional development agencies in England and Wales and in 2001, the department for trade and industry <a href="http://webarchive.nationalarchives.gov.uk/+/http://www.dti.gov.uk/regional/clusters/clusters-assessment/page17380.html">published the first</a> systematic mapping and assessment exercise into the phenomenon. </p>
<p>The EU also began to earmark significant funding for cluster development through the framework programme and structural funds. Clusters remain a priority for the coalition government, although policy has become more fragmented. It is now managed through <a href="https://www.gov.uk/government/policies/supporting-economic-growth-through-local-enterprise-partnerships-and-enterprise-zones/supporting-pages/local-enterprise-partnerships">local economic partnerships</a>, while the funding is allocated through the <a href="https://www.gov.uk/government/publications/city-deals-wave-1">City Deals programme</a>. </p>
<h2>Do clusters pass muster?</h2>
<p>The new Centre for Cities/McKinsey report focuses largely on the barriers to future cluster growth, many of them identified from conversations with business leaders in several leading clusters. A major weakness appears to be a lack of identity. While the UK has some internationally recognisable clusters such as London’s financial services, <a href="http://www.bbc.co.uk/sport/0/formula1/23048643">Motorsport Valley</a>, the Scottish whisky industry, and even the re-emerging North Staffordshire ceramics cluster, many others are not well known as clusters – sometimes even among those companies who are part of them. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/53333/original/c9p4ndy5-1404835849.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/53333/original/c9p4ndy5-1404835849.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/53333/original/c9p4ndy5-1404835849.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/53333/original/c9p4ndy5-1404835849.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/53333/original/c9p4ndy5-1404835849.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/53333/original/c9p4ndy5-1404835849.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/53333/original/c9p4ndy5-1404835849.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/53333/original/c9p4ndy5-1404835849.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Even the Scotch whisky industry is one big cluster, really.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/49522551@N00/6778015093/in/photolist-bjX6Kc-agj1jF-agCg6y-8vRPwV-agmJW9-afS1Sh-4ysQhG-fFwV42-8TBHPo-dSFyiB-b2giz-QHV9-sxGF8-b4LbyK-aZKUWt-5UWb9g-UJkE-c5aARb-8TBHWQ-abf8JE-6U9daZ-7trMw8-7pHDcc-c5d7xj-c5aXv5-2gV7P-54WJ86-8VJ5Jc-GP7us-agCfRq-7JGDHb-eVNfiG-agCfZJ-GUmym-93AG39-e2bM4G-5NFLKo-48Wvq1-2eWSL-2eWS1-2hGbR-7RijGa-eqUkKW-8VJ5Mg-c5awy5-necVta-7Rmz2u-7Rik9D-7RmBwm-7Rijae">Milos Kravcik</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
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<p>This can mean that firms miss an opportunity to market themselves as part of a branded cluster. Lack of identity can also reduce clusters’ potential to attract inward investment and the ability of firms to act in unison, including gaining the necessary recognition to successfully bid for state support. </p>
<p>This largely reflects the problems in actually defining a cluster, as the report acknowledges. The academic literature is not particularly helpful here. It sometimes focuses on the spatial boundaries of the industrial activity, rather than the extent to which firms in related sectors are embedded in localised networks. This distinction is important, since potential cluster benefits may not be realised if there is not a good network. </p>
<p>The new report’s mapping exercise appears to adopt this spatial boundaries approach. Thus there are two aerospace clusters (in north west and south west England) and several tourism clusters. In other cases it gives clusters generic labels such as “high tech”, “electronics” and “industrial manufacture”, even though each of these covers numerous different firms and sub-sectors. </p>
<p>Yet it is unclear to what extent these clusters are actually networked. In the aerospace and automotive industries, for instance, it might be more appropriate to think in terms of a pan-European wide cluster of (networked) activity. Getting your cluster boundaries right is vital for policy, particularly in light of the report’s other suggestions to establish a minister for clusters, with associated cluster league tables, and the implications these have for the allocation of state resources. </p>
<h2>Network links</h2>
<p>Nevertheless the report does highlight some longstanding weaknesses in UK policy regarding local and external networks. It usefully suggests strengthening local networks and fostering greater external links; creating new links between UK clusters and possibly creating “global peer clusters” to foster mutual learning and share best practices. </p>
<p>This is designed to combine external knowledge with the “local buzz” of a cluster, which helps the firms involved to avoid becoming over-embedded and locked in to redundant ideas and technologies. There are numerous international examples of successful cross-border cluster links that are mutually beneficial. One is the ceramic tile clusters of Castellon (Valencia in Spain) and Sassuolo (Emilia-Romagna), which share technical knowledge, machinery and materials.</p>
<p>The report also calls for universities to play a larger role in cluster dynamics by commercialising their innovations and encouraging spin-off companies. The US has long been a leader in this regard, although the UK has some notable successes, such as Cambridge’s <a href="http://www.siliconfen.com/sfstory.php">Silicon Fen</a>. </p>
<p>The report proposes that other local education institutions work more closely with clustered firms to tailor courses and training schemes to reduce skills gaps, alongside mentorship programmes to assist new local entrepreneurs. It also rightly stresses that any policy responses need to be tailored to suit local circumstances and avoid the dreaded “one size fits all” approach. </p>
<p>Both the leading parties have been emphasising the importance of local economic development lately. Ed Miliband <a href="http://www.bbc.co.uk/news/uk-politics-28098586">has been promising</a> to focus on localism, while David Cameron has been talking about <a href="http://www.bbc.co.uk/news/business-28190016">extra investment for the regions</a>. In this climate, and with manifestos for next year’s general election around the corner, the new report will certainly provide plenty of food for thought. </p><img src="https://counter.theconversation.com/content/28942/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Phil Tomlinson is a member of the Regional Studies Association
</span></em></p>Silicon Valley is the classic example of a business cluster. Less well known but also very successful are the machinery and agriculture clusters in Emilia-Romagna in northern Italy. Naturally the UK also…Phil Tomlinson, Associate Professor in Business Economics, University of BathLicensed as Creative Commons – attribution, no derivatives.