Does Germany’s politics need a new business model?

Germany has stopped importing Russian energy. The dependency has been broken, albeit at great cost and with some help from a mild winter.

But serious questions about Germany’s business model remain. How did we get so depend in the first place? What does it mean for business with China? What has business to do with democracy?

For more than a decade German politicians assured everyone that the country’s ever-increasing gas and oil imports from Russia were business projects, not political ones.

This line has never been credible. Making yourself energy-dependent on the country that also poses your greatest security threat and is actively trying to undermine your democracy is a political decision — a very bad one, as history has shown.

The deeper questions about business and politics go well beyond Russia. Business leaders like to say that ‘the business of business is business’, suggesting that they are not really concerned with political questions. It’s a nice line, but it’s wrong.

The truth is: Business is not business. Indeed, small businesses tend not to have a political role or influence. They are rule-takers.

But big business is an entirely different animal. Big business invests heavily in lobbying. It is a rule-shaper. Big firms seek political access to influence industrial policy and investment decisions. If big business had nothing to do with politics, why would German CEOs scramble to travel to China with the German chancellor?

Big business is always about politics. The question is only how this relationship should be shaped. In the case of German energy and Russia it was arranged the wrong way round. Big German companies have largely determined government policy in this area. The influence of money was strong.

Many politicians moved from political office to big energy companies. Former chancellor Gerhard Schröder, who until recently worked for Rosneft, is only the most egregious case.

The German idea of Primat der Politik [the primacy of political decisions], especially in matters of national security, was absent.

These were irrational decisions in terms of German and European security. Russia was a serious challenger to European security; that much was clear at least by 2014, after it occupied Crimea and instigated the war in the Donbas. And yet Germany increased its energy dependence and Russia’s war chest grew.

Reliance on one supplier is usually also a bad business decision. Except, if somebody else carries the risks. In the case of Russian gas and oil, it turned out that taxpayers did.

The German government has spent huge amounts of money to quickly build LNG-terminals, to subsidise heating costs and to bail out and take over the gas firm Uniper, which had run massive economic risks by over-relying on Russian gas.

It is the old story of big companies profiting in good times and taxpayers bailing out the too-big-to-fail.

The lesson should be clear in relation to China. Russia’s war against Ukraine was not a ‘black swan’ event. It has been going on since 2014 and Vladimir Putin’s “historic essay” of 2021 was a clear warning that he may escalate it further.

A Chinese attack on Taiwan would be a white swan event. Xi Ping has made clear that he considers a military invasion of Taiwan to be a distinct option.

The Uniper model of how not to do it

Shareholders should ask firms for realistic assessment of political risks. Uniper shows how not to do it. On 23 February 2022 it published a risk assessment in which it identified only “moderate” political risks which it mainly saw in US sanctions against the North Stream 2 pipeline. It “could not identify significant uncertainties” in relation to a Russian war against Ukraine.

A day later Russia started the war and then the company went bankrupt.

The question of dependence on China is much more complex than was the one on Russian energy. Resources play a role (such as rare earths), as well as other features, such as the importance of its big market for revenue and the forced technology transfers. There is a good reason for political decisions to selectively reduce such dependencies, even if it may hurt some firms.

Beyond the question of China, big firms cannot afford wishful thinking about political risks which often result in geopolitical conflicts. They have to navigate in a global environment of political polarisation, a struggle between autocracy and democracy and numerous conflicts.

These factors impact all aspects of business operations. Big businesses will not become human rights NGOs, but they should own up to their corporate political responsibilities. If they do well, they can have positive impacts in their own discrete ways.

This column was inspired by discussions at an event of the Munich Security Conference, which Democracy Reporting International held with Baden-Badener-Unternehmergespräche, a platform for business leaders.