Schumpeter Death and transfiguration The golden age of the Western corporation may be coming to an end Sep 19th 2015 | From the print edition · EDWARD GIBBON, the great English historian, begins his “Decline and Fall” with a glowing portrait of the Roman Empire in the age of Augustus. The Empire “comprehended the fairest part of the earth”. Rome’s enemies were kept at bay by “ancient renown and disciplined valour”. Citizens “enjoyed and abused the advantages of wealth and luxury”. Alas, this happy state of affairs was not to last: the Empire already contained the seeds of its own destruction. Gibbon soon changed gear from celebrating triumphs to chronicling disasters. Perhaps the history of the Western corporation will one day be written in much the same vein. Today’s corporate empires comprehend every corner of the earth. They battle their rivals with legions of highly trained managers. They keep local politicians in line with a promise of an investment here or a job as a consultant there. The biggest companies enjoy resources that have seldom been equalled; Apple, for instance, is sitting on a cash pile of more than $200 billion. And they provide their senior managers and leading investors with “wealth and luxury” that would have impressed even the most jaundiced Roman.   A new report by the McKinsey Global Institute provides some invaluable statistics for any future Gibbon, which MGI calculated by crunching data from nearly 30,000 firms across the world. Corporate profits more than tripled in 1980-2013, rising from 7.6% of global GDP to 10%, of which Western companies captured more than two-thirds. The after-tax profits of American firms are at their highest level as a share of national income since 1929. Yet the men and women from McKinsey change gear as quickly as Gibbon. The golden age of the Western corporation, they argue, was the product of two benign developments: the globalisation of markets and, as a result, the reduction of costs. The global labour force has expanded by some 1.2 billion since 1980, with the new workers largely coming from emerging economies. Corporate-tax rates across the OECD, a club of mostly rich countries, have fallen by as much as half in that period. And the price of most commodities is down in real terms. Now a more difficult era is beginning. More than twice as many multinationals are operating today as in 1990, making for more competition. Margins are being squeezed and the volatility of profits is growing. The average variance in returns to capital for North American firms is more than 60% higher today than it was in 1965-1980. MGI predicts that corporate profits may fall from 10% of global GDP to about 8% in a decade’s time. Two things in particular are shaking up the comfortable world of the old imperial multinationals. The first is the rise of emerging-market competitors. The share of Fortune500 companies based in emerging markets has increased from 5% in 1980-2000 to 26% today. These firms are expa.

1. Schumpeter
Death and transfiguration
The golden age of the Western corporation may be coming to an
end
Sep 19th 2015 | From the print edition
·
EDWARD GIBBON, the great English historian, begins his
“Decline and Fall” with a glowing portrait of the Roman Empire
in the age of Augustus. The Empire “comprehended the fairest
part of the earth”. Rome’s enemies were kept at bay by “ancient
renown and disciplined valour”. Citizens “enjoyed and abused
the advantages of wealth and luxury”. Alas, this happy state of
affairs was not to last: the Empire already contained the seeds
of its own destruction. Gibbon soon changed gear from
celebrating triumphs to chronicling disasters.
Perhaps the history of the Western corporation will one day be
written in much the same vein. Today’s corporate empires
comprehend every corner of the earth. They battle their rivals
with legions of highly trained managers. They keep local
politicians in line with a promise of an investment here or a job
as a consultant there. The biggest companies enjoy resources
that have seldom been equalled; Apple, for instance, is sitting
on a cash pile of more than $200 billion. And they provide their
senior managers and leading investors with “wealth and luxury”
that would have impressed even the most jaundiced Roman.
A new report by the McKinsey Global Institute provides some
invaluable statistics for any future Gibbon, which MGI
calculated by crunching data from nearly 30,000 firms across
the world. Corporate profits more than tripled in 1980-2013,
rising from 7.6% of global GDP to 10%, of which Western
companies captured more than two-thirds. The after-tax profits
of American firms are at their highest level as a share of
national income since 1929.
Yet the men and women from McKinsey change gear as quickly

2. as Gibbon. The golden age of the Western corporation, they
argue, was the product of two benign developments: the
globalisation of markets and, as a result, the reduction of costs.
The global labour force has expanded by some 1.2 billion since
1980, with the new workers largely coming from emerging
economies. Corporate-tax rates across the OECD, a club of
mostly rich countries, have fallen by as much as half in that
period. And the price of most commodities is down in real
terms.
Now a more difficult era is beginning. More than twice as many
multinationals are operating today as in 1990, making for more
competition. Margins are being squeezed and the volatility of
profits is growing. The average variance in returns to capital for
North American firms is more than 60% higher today than it
was in 1965-1980. MGI predicts that corporate profits may fall
from 10% of global GDP to about 8% in a decade’s time.
Two things in particular are shaking up the comfortable world
of the old imperial multinationals. The first is the rise of
emerging-market competitors. The share of Fortune500
companies based in emerging markets has increased from 5% in
1980-2000 to 26% today. These firms are expanding globally in
much the same way as their predecessors from Japan and South
Korea did before them. In the past decade the 50 largest
emerging-world firms have doubled the proportion of their
revenues coming from abroad, to 40%. Although the outlook for
many emerging markets is more mixed than it was just a couple
of years ago, troubles at home may push rising multinationals to
globalise more rapidly.
The second factor is the rise of high-tech companies in both the
West and the East. These firms have acquired large numbers of
customers in the blink of an eye. Facebook boasts as many users
each month as China has people: 1.4 billion. Tech giants can
use their networks of big data centres rapidly to colonise
incumbents’ territories; China’s e-commerce giants Alibaba,
Tencent and JD.com are doing this in financial services. Such
firms can also provide smaller companies with a low-cost

3. launching pad that allows them to compete in the global market.
MGI does not dwell on it, but the political environment is also
becoming more hostile. Populists on both the left and the right
rage against corporate greed. In America, presidential hopefuls
Bernie Sanders and Donald Trump both criticise companies for
exploiting tax loopholes. Even middle-of-the-road politicians
are sounding a more anti-corporate note. Angela Merkel
introduced Germany’s first minimum wage in 2014; and in
Britain David Cameron is phasing in a “living wage”.
Companies may find themselves under pressure to “give back”
to wider society.
How can Western companies navigate these threats to their
rule? MGI advises them to focus on the one realm where they
continue to have a comparative advantage—the realm of ideas.
Many companies in labour- and capital-intensive industries have
been slaughtered by foreign competitors, whereas idea-intensive
firms—not just companies in obvious markets such as the
media, finance and pharmaceuticals, but in areas such as
logistics and luxury cars—continue to flourish. The “idea
sector”, as MGI defines it, accounts for 31% of profits
generated by Western companies, compared with 17% in 1999.
Capitalist redemption
The relative decline of the Western corporation could also lead
to a rethinking of some of the long-standing assumptions about
what makes for a successful business. Public companies may
lose ground to other types of firm: in America the number of
firms listed on stock exchanges has fallen from 8,025 in 1996 to
about half that number now. The cult of quarterly earnings may
lose more of its following. A striking number of the new
corporate champions have dominant owners in the form of
powerful founders. They are willing to eschew short-term
results in order to build a durable business, such as Mark
Zuckerberg at Facebook, the Mahindras and other assiduous
families in India, and private-equity firms. Gibbon’s great work
was a tale of decline and fall, as classical civilisation gave way
to barbarism and self-indulgence. With luck, the tale of the

4. relative decline of the Western corporation will also be a tale of
the reinvention of capitalism as new forms of companies arise
to seize opportunities from the old.
Curve-fitting Project - Linear Model
Instructions
For this assignment, collect data exhibiting a relatively linear
trend, find the line of best fit, plot the data and the line,
interpret the slope, and use the linear equation to make a
prediction. Also, find r2 (coefficient of determination)
and r (correlation coefficient). Discuss your findings. Your
topic may be that is related to sports, your work, a hobby, or
something you find interesting. If you choose, you may use the
suggestions described below.
You may submit all of your project in one document or a
combination of documents, which may consist of word
processing documents or spreadsheets. provided it is clearly
labeled where each task can be found. Be sure to include your
name. Projects are graded on the basis of completeness,
correctness, ease in locating all of the checklist items, and
strength of the narrative portions.
A Linear Model Example and Technology Tips are provided in
separate documents.
Tasks for Linear Regression Model (LR)
(LR-1) Describe your topic, provide your data, and cite
your source. Collect at least 8 data points. Label
appropriately. (Highly recommended: Post this information in
the Linear Model Project discussion as well as in your
completed project. Include a brief informative description in the
title of your posting. Each student must use different data.)
The idea with the discussion posting is two-fold: (1) To share
your interesting project idea with your classmates, and (2) To

5. give me a chance to give you a brief thumbs-up or thumbs-down
about your proposed topic and data. Sometimes students get off
on the wrong foot or misunderstand the intent of the project,
and your posting provides an opportunity for some feedback.
Remark: Students may choose similar topics, but must
have different data sets. For example, several students may be
interested in a particular Olympic sport, and that is fine, but
they must collect different data, perhaps from different events
or different gender.
(LR-2) Plot the points (x, y) to obtain a scatterplot. Use an
appropriate scale on the horizontal and vertical axes and be sure
to label carefully. Visually judge whether the data points
exhibit a relatively linear trend. (If so, proceed. If not, try a
different topic or data set.)
(LR-3) Find the line of best fit (regression line) and graph it on
the scatterplot. State the equation of the line.
(LR-4) State the slope of the line of best fit.
Carefully interpret the meaning of the slope in a sentence or
two.
(LR-5) Find and state the value of r2, the coefficient of
determination, and r, the correlation coefficient. Discuss your
findings in a few sentences. Is r positive or negative? Why? Is a
line a good curve to fit to this data? Why or why not? Is the
linear relationship very strong, moderately strong, weak, or
nonexistent?
(LR-6) Choose a value of interest and use the line of best fit to
make an estimate or prediction. Show calculation work.
(LR-7) Write a brief narrative of 2 paragraphs. Summarize your
findings and be sure to mention any aspect of the linear model
project (topic, data, scatterplot, line, r, or estimate, etc.) that
you found particularly important or interesting.