Q&A On the Role of Government in the Economic Crisis

PwC partners Mark Elliott and Michael Jordan discuss the recently released report “Government and the Global CEO: Redefining Success”

In the wake of the global economic crisis, governments around the world are no longer passive regulators of businesses; they are now intimately invested and active participants in them. With massive bailouts of such industries as the financial services and automotive sectors, taxpayers have now become financial guarantors of large swathes of the corporate community.

This new reality will fundamentally change the role of governments and place increased importance on business-to-government collaboration and smarter regulations. In response to this shifting landscape, PricewaterhouseCoopers has released a new report entitled Government and the Global CEO: Redefining Success. To provide further insight into the findings of the report, we sat down for a Q&A with Mark Elliott, National Public Sector and Government leader for PwC in Canada, and Michael Jordan, PwC's national leader, Public Sector Performance Improvement.

Why did you feel the need to produce this report?

Mark Elliott: CEOs currently face the dual challenges of a slowing global economy and a growing scarcity of natural and other key resources. In this year's PwC CEO Survey, we explored how management teams are responding to the opportunities and risks that this represents. We investigated whether they are becoming more short-term in their outlook to deal with the current period of economic flux or whether resource scarcity is forcing them to think about the durability and long term success of their businesses.

In parallel with our survey of CEOs, we wanted to obtain the views of a selection of government officials (at supranational, national and regional/local levels) to understand the policy/delivery responses to these challenging conditions. We wanted to explore how government at all levels is playing a role in developing and sustaining business success and the process of wealth creation and, in particular, how governments can best assist CEOs to:

• Navigate the uncertainty facing their businesses in the current economic climate; and
• Make their businesses durable over the long term including dealing with the longer term scarcity of resources (natural resources, talent or capital).

What does the report discuss?

Michael Jordan: This report sets out the views of CEOs and of government officials at an historic moment in time. It considers the implications of the global financial crisis and ensuing global recession for government in its role as a stakeholder in business, as a 'smarter' regulator and as a collaborator with business. And it considers the implications for mitigating systemic global risks, for instance, through the elevation of importance of the G20.

The report says that governments around the world must act as the runway for future growth. How can this be done?

ME: By investing in, and strategically managing, the 'capitals' needed by any society for long-termprosperity — financial, intellectual, social, environmental, technical and political capital. And of course all of this must done in a way that is sustainable. If this is successful, public trust will increase and help us towards future growth.

What should government be asking for and what obligations should companies that take public money have to the community?

MJ: Public expectations of the role of the state have increased — government is no longer a last-resort option, but on the front line. Governments need to find ways to manage expectations and ensure cost-effectiveness, efficiency and value for money in the use of public finance.

ME: In our view, governments must therefore make early decisions on their exit strategies for businesses that they have backed through the current crisis, but which ultimately must stand alone, and communicate when and how that exit will happen to taxpayers and companies. Up to this point, governments have had to react, rather than lead the way. Decisions now need to be made on whether governments' newly acquired stakes in business are permanent or only transitional during the current crisis, recognizing that this will vary by country: some nations expect their governments to be more involved in business.

How can governments work better together?

ME: Governments must establish real-time, virtual processes to enable effective collaboration and create new ways for CEOs globally to collaborate and address systemic risks. Globalization 2.0 needs legitimate global leadership, which resists the threat of protectionism, and is supported by better, more transparent information to mitigate systemic risks and rebuild trust.

The report discusses the globalization of government. What does this mean?

MJ: One of the key challenges for governments and global businesses as they work through the downturn is to establish smarter regulations and governance arrangements that encourage effective collaboration and clear accountability to address global risks and opportunities in future.

ME: Already there is evidence of more collaboration internationally between governments and increasing recognition of the need for more global governance, such as the proposal in the November G20 communique, calling for a 'college' of national financial supervisors to oversee the biggest cross-border financial institutions.

Governments and businesses need not only to collaborate, but to innovate. Governments are seeking to be a strategic player, facilitating collaboration across businesses and sectors (public, private and not-for-profit) and putting in place more effective global governance to safeguard the fundamentals for the world economy, particularly human capital, financial capital and natural resources. In our view, however, we are still some way from government itself becoming globalized. This is a matter for politicians together with business people and civic society to debate.

The report shows that overregulation is still a top-three issue for CEOs, even in such dire times. Yet there is also greater recognition that there is a legitimate role for government intervention in markets. Care to comment?

MJ: There are important implications of our results for the nature and scope of regulation. Many of the principles of better regulation are already known: regulation needs to be proportionate, accountable, consistent, transparent and targeted. Yet there is a missing ingredient — stability — and a rapidly changing context — globalization — as well as a renewed purpose — to stop players in markets behaving irresponsibly.

What implications do you foresee for governments emerging from current crisis?

ME: We see three implications for government:

1. 'Glocalization' — we see national governments having to balance much more explicitly the viewpoints of their local and national communities with those of the international community and expect multilateral institutions.
2. 'Co-opetition' — the increasingly interconnected state of the world means that we are moving increasingly from a competing society to a collaborating society, with businesses and nations competing within an increasingly global set of governance arrangements. Real value can be created between sectors collaborating in a new creative way — a 'between management' approach — requiring a new type of leadership and management of complex processes with a mix of stakeholders from all types of sectors and industries.
3. 'Raplexity' — government faces making decisions more rapidly and in a more complex environment. As a result, it needs agile management mechanisms to cope with the speed and complexity of decision-making in a modern global economy.