Globalist Perspective

Europe and VISA: Separated at Birth?

Is the European Union more like a credit card network than a traditional state?

The world's real strategic alliance?

Takeaways


In 1968, Dee Hock, a middle manager in a bank in Seattle, started a commercial revolution. His story illustrates a powerful lesson. You can take over the world — without developing a centralized bureaucracy.

Like the European Union, VISA grew out of a crisis. Hock’s journey started when his bank’s headquarters appointed him to a committee working on a business strategy for its ailing credit card, Bankamericard.

The backdrop was bleak back in 1968. In order to build a market for credit cards, the banks had sent millions of unsolicited cards to an unsuspecting public with no experience with managing credit facilities of this kind.

In the ensuing chaos, the banks racked up losses worth hundreds of millions of dollars. Card owners were bankrupted, politicians were alarmed and the media launched a feeding frenzy of blame calling.

Instead of developing a new business strategy, Dee Hock had a revolutionary idea. He persuaded his superiors to start a new kind of organization: VISA.

Hock was determined to move beyond the hierarchical companies that were products of the industrial revolution. In this place, he wanted to create an organization based on biological concepts — a network.

He envisioned a franchise that would have global presence, but maintain competition between individual banks — so that they would be driven to innovate.

The basic principle was to create a company that did not have shareholders — but members. These members would own the company forever, but could not buy or sell their part of the company.

That meant it would be impossible for any individual member to gain control of the overall organization. Hock aimed at creating an organization that would be both highly decentralized — and highly collaborative. Decision-making and power had to be in the hands of the members — rather than the center.

What began with just a handful of modest banks in just 12 states soon enough grew into an organization that is now owned by over 21,000 financial institutions in 150 countries.

Today, VISA is responsible for the largest single block of consumer spending ($2.7 trillion annually) — far bigger than hierarchical companies like American Express. The organization services 600 million people — and continues to grow at a rate of 22% a year.

In spite of this enormous economic power, VISA is effectively a skeletal organization — with a tiny central administration and only 3,000 employees in 21 offices around the world.

It was able to outgun centralized hierarchies because its goal is not to grow itself, but to enable others to flourish. As Hock says: “The better an organization is, the less obvious it is. In VISA, we tried to create an invisible organization and keep it that way. It’s the results — not the structure or management — that should be apparent.”

Though very few people realize it, the European Union is already closer to VISA than it is to a state. It is a decentralized network that is owned by its member states.

Although some federalists still dream of a country called Europe and the European Union sometimes pretends to be a state with its flag, passport and anthem, it is fundamentally different from a state.

Like VISA, the EU is a decentralized network that exists to serve its member-states. With a total staff of 22,000, the European Commission has less people working for it than most city councils. It has barely half a civil servant per 10,000 citizens, compared to 300 or more per 10,000 for most national civil services.

The real power — over taxation, health, education or policing — is left to its member-states alone.

They are the ones responsible for making decisions, as well as implementing and overseeing the vast majority of the European Union’s activities.

The fact that Europe does not have one leader — but rather a network of centers of power united by common policies and goals — means that it can provide its members with the benefits of being the largest single market in the world, without compromising their independence and national identity.

The headquarters of the EU Council says it all. This anonymous rectangular building covers some 215,000 square meters, circling a mammoth atrium with 24 kilometers-worth of corridors of power.

Like a Russian doll, the marble shell of the Justus Lipsius Building has replicated itself infinitely inside, housing dozens of rectangular rooms. Each room contains a rectangular table set up for European negotiations — with place names for the 25 member states, long, thin microphones, notepads and bunches of red pencils.

In some of the rooms, there are booths for interpreters to translate between the 20 EU languages. This building is like a factory for European agreements.

And because the EU is a network rather than a state, negotiation is not a part-time activity: it goes on every single day, around the clock.

This revolutionary structure has allowed the European Union to grow with the support of its members. But it has also allowed it to make friends abroad.

Henry Kissinger allegedly said that Europe would never be a player on the world stage until it got a “single phone number.”

But it is Europe’s structure as a network that has allowed it to grow bigger than the United States — without drawing the same hostility as the hyperpower.

In the history of the formation of empires and states, every major power — from Spain in the 16th century through France, Britain and the United States in the 19th century to Germany, Japan and the Soviet Union in the 20th century and the United States in the 21st century — has provoked its neighbors to unite against it.

But as Europe’s strength grows, its neighbours want to join it — rather than balance it. How has Europe pulled this off?

A network is a voluntary club held together by a rule book. When it expands or deals with other countries, it is just asking them to obey the same rules as its members.

The dynamic of asking others to follow rules that you obey yourself is intrinsically different from a superpower exerting control over the world — or asking smaller countries to change their policies. Where one smacks of bullying, the other looks like fairplay.

However, ‘Network Europe’ has not come about as a result of a conscious plan. It is the product of an uneasy truce between the traditional visions of a European superstate and a European free-trade area — but no single vision has managed to achieve unanimous support. And it never will.

As Europe develops in the future, Europeans should embrace its unique structure — and reform it to make it work to their advantage.

Adapted from the book “Perpetual Power: Why Europe Will Run the 21st Century” by Mark Leonard (to be published in September) Copyright © 2005. Reprinted by arrangement with PublicAffairs, a member of the Perseus Books Group.

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