When government calls the shots

(Fortune Magazine) -- Forget about the debate over stimulus "coordination" coming out of the March G-20 meeting, or whether some countries, like France and Germany, should do more. The fact is, between China's $586 billion stimulus, Japan's $200 billion, and U.S. government outlays that will soon be the highest share of GDP since World War II, we're already looking at more than $2 trillion of added government spending worldwide in response to this recession. That's an unprecedented global wave, and it means that government will soon be exerting more influence over business than it has in decades.

Culturally, it is the reverse of the Katrina effect. Then government looked incompetent while business rode to the rescue, with Wal-Mart, FedEx, Home Depot, and others sweeping in to offer victims well-organized help. This magazine's cover line: GOVERNMENT BROKE DOWN. BUSINESS STEPPED UP.

Now it's the opposite. Business looks inept or worse, and we turn to government to punish the guilty, help the suffering, and fix the economy. The new view: Business screwed up; government steps in. Sir Martin Sorrell, chief of giant communications company WPP, recently told me, "Government is the only growth industry in the world right now."

The best companies and managers will figure out how to profit from this shift. The opportunities are many - and they go well beyond the obvious. Trying to cash in directly on government spending will provide short-term benefit for some, though any who are new to government transactions will be staggered by how cumbersome, slow, and uncertain they are. The better bet for most businesses will be to observe a few general principles.

Some steelmakers have cranked up production in anticipation of a major jump in demand from government infrastructure projects. No doubt they're right, but those projects haven't started yet, so for now the supply surge is actually sending steel prices down. The low-price buying window will close when infrastructure spending takes off. A different example: Consider that Brazil's stimulus package consists entirely of tax cuts, with no additional spending, while Argentina's is all spending with no tax cuts. Companies with operations in South America can start responding now to more consumer spending in Brazil - and more capital spending in Argentina.

We haven't seen government as hero in the U.S. since the 1960s. No one knows how long the new perception might last, but for the moment this is the worst possible environment for any business to claim it's burdened by overregulation (as the airline industry arguably is) or is overtaxed, as corporations in general are.

Worldwide, we're likely to see heavier taxes on high earners and greater benefits for low earners. In the U.S., for example, now is the best possible moment for labor to be pushing the Employee Free Choice Act, legislation that would make labor union organizing far easier; as Washington funnels hundreds of billions into giant corporations like GM and AIG, a Democratic administration probably can't deny labor its top priority. That will hurt some businesses and help others. The chief of a major grocery chain tells me it would help him because it will probably raise the costs of Wal-Mart and other non-union competitors, while his company is already unionized.

Not all stimulus spending will be major; the Italian and French programs amount to less than 1% of GDP, for example. But China's program not only is large - about 7% of GDP and growing - but is also structured to redirect the Chinese economy. Spending on R&D and worker training are intended to build the country's stock of intellectual capital, making it more attractive for high-tech and information-based businesses and eventually less inviting for lower-value businesses, like toymaking, as worker pay levels rise. Similarly, subsidies for wind, solar, clean coal, and nuclear power in the U.S. stimulus could reshape the energy sector for years or decades.

Government is now the world economy's driving force. Not many businesspeople will like that. But it's reality, and the best leaders will face it - and find a way to profit from it.