12: Globalization and Business

Ethics
1. Changes in World Economic Scenario Associated with
Globalization
2. Main drivers of Globalization
3. The Consequences of free market reforms:
4. The Public and Private Costs of Trade Liberalization
5. Look at the Social Dimensions for Sustainable
Solution
6. Structural Adjustment Models
7. Limited Impacts
8. Evidences
9. Rethinking Adjustment

12.1 Changes in World Economic

Scenario Associated with Globalization
Globalization is the expansion of international
trade and foreign investment (by multinational
companies and corporations) and intensification
of links of national economies with global
economy through transactions movements of
capital, labor and technology.
Trade liberalization is the main vehicle of
globalization.

12.1.1 Transformation of the

World Political Map
The post-war world (since 1945) has seen massive
transformation and restructuring of economic activities
in unprecedented scale and speed and in even more
rigorous force in the last two decades:
1. The story of decolonialization;
2. Change in equations of the three centers of imperialism;
3. Fall of USSR;
4. Change in China-US relationship;
5. The emerging East Asia and the newly industrialized
economies;
6. Reorientation of business locations throughout the
world;
7. The electronic revolution in communication, industry
and business)

12.1.2 Shifts in Economic Policy

Shifts in economic policy broadly consistent
throughout the world and restoration economic
equilibrium through
(a) Liberalization of markets
(b) Reduction in state control/intervention in the
economy,
(c) Privatization of a broad range of enterprises and
reduction in government expenditures,
(d) Changes (reductions) in social services and
subsidies on consumer goods, and
(e) Bringing changes under pressure from international
creditors, as well as by domestic designs of
structural adjustment programs

12.2 Main Drivers of Globalization

Transformation of a patchwork of national
economies into a more integrated global
economy
Development of global level institutions to
support and regulate it
Increase in international transactions (scope
and volume) and in a faster rate, especially
with growth of outsourcing

12.3.1 The Consequences of free

market reforms
Globalization has innumerable impacts but in the given
context, the discussion will limit itself within some
aspects of globalization that has relevance with ethics
and CSR.
These impacts are dramatic in the sense that the free
market reform for trade liberalization and globalization
brought economic growth to some countries that could
implement fast reforms/restructuring but growth led to
increasing disparities and the gaps between the rich and
the poor meaning that liberalization may lead to
economic growth but not necessarily to social
development.

12.3.2 The Consequences of free

market reforms
A minority of developing countries (India, China, Mexico,
Chile) and majority industrially developed countries (with
strong initial economic base, abundance of capital and skill
and technological leadership) are well placed and reaped the
benefits of globalization, while the poor, illiterate and
unskilled have lost out
LDCs remain excluded from the benefits of globalization
Indigenous people are particularly vulnerable, globalization
is a threat to local cultures, including indigenous cultures
Women working in rural farms are grossly affected
No universal perception for the best approach to trade
liberalization could be established
Growth benefits from capital account liberalization (FDI,
other capital flows) are small
Short-term speculative flows have been damaging

12.3.3 The Public and Private

Costs of Trade Liberalization
International business, trade and investment create
disparity in income, especially in developing countries:
(a) some countries become more dynamic than others in
taking advantage of global trade opportunities through
stronger investment links that encourage absorption of
new production and managerial skills, improvement in
international competitiveness; and
(b) forces within countries use their growth opportunities
in differentiated pattern. These are public costs of trade
reforms.

12.3.4 The Public and Private

Costs of Trade Liberalization
Adjustment is associated with change, which can be
disruptive and have different impacts on different
groups/communities. Liberalization does not ensure
increase in employment and output since import
competing industries operating behind protecting walls
and government intervention may not be able to sustain
capacity utilization and in such case, both workers and
the entrepreneurs face hardships. These are private costs
of adjustment.
The heavy social costs of globalization are associated with
the gap between the expectations from and the reality of
the process.

12.3.5 The Expectation from

Trade Liberalization
The expectations are: globalization should
a. Benefit all countries and should raise the welfare
of all people throughout the world;
b. Raise rate of economic growth in poor countries,
create new employment opportunities,
c. Increase income and reduce poverty,
d. Reduce inequality,
e. Improve socio-economic security,
f. Speed up development and
g. Ensure economic, social and environmental
sustainability.

12.3.6.1 The Reality against the

Expectation from Trade
Liberalization
But the reality did not match everywhere with the
expectations: despite sustained growth in China, the
country faces transitional unemployment; there was the
Asian financial crisis; imbalances between international
and domestic prices continue to remain, instabilities arise
because of changes in the structure of the government or
interest groups (business people, politicians, government
and military bureaucrats etc) as well as in policies
towards regulation or subsidies; redistribution of income
in favor of those who can successfully manipulate their
role in the globalized environment. Also, there is the
problem of trickling down of the effects of crisis in
big nations like the USA, Japan or even Korea, China
and Thailand.

12.3.6.2 The Reality against the

Expectation from Trade Liberalization
The reality shows that the consequences of
globalization are dramatic:
Primary incomes of the poor are down
Number of people living below poverty went up
Social income (access to public services) has
decreased
Targeted interventions meant to protect the poor and
the vulnerable groups from the worst aspects of
adjustments never reach all the poor and seldom
reach most of the poor
Unemployment rates, inequality and poverty
intensified

12.3.7 Globalization has Affected

Peoples Lives
The demonstrations are: change in economic
structure, relative prices, consumption patterns
(which has a chain effect in terms of affecting
peoples jobs), livelihoods and incomes, and the
like. In many countries some groups of workers
(e.g., in jute and textiles sectors in Bangladesh)
are adversely affected by trade liberalization.
However,
globalization
increases
global
interconnectivity and the awareness of global and
local disparities, improves democracy and forges
a greater sense of global community.

12.4 The Pressure to Resolve the Problems

Awareness development leads to a pressure on the
international community to address the effects of
globalization and an understanding of the facts that
The continuing spread of global market economy and
production system has still to be matched by a parallel
development of institutions for its governance
Globalization had demonstrated great productive
capacity but generated very unbalanced outcomes both
between and within countries (rise of India and China is
now looked at as a threat for the other countries)
The overriding challenge now is the growing inequality
within and among countries an issue that threats
distributive justice

12.5 Look at the Social Dimensions

for Sustainable Solution
Therefore, the social dimensions of globalization have
become prominent part of the inter-regional and
international negotiations and agreements. Little has
been achieved so far. Steps for achieving short-term
equilibrium hardly address social issues and are aimed at
(a) bringing down the demand or (b) expanding the
supply through increased capacity utilization, which
requires more knowledge of the economy and more
reflections of sequencing policy instruments of structural
adjustment measures. The obstacles in the process are:
Lack of global availability of resources
Constraints to investments stemming from
inefficiency in allocation of resources.

12.5.1 Long-term Sustainable Solution

The problem requires addressing the following issues:
Reversing desocialization of social actors and the
community people who turn attention to coping with
growing economic hardship in their individual capacities,
allow (consciously or unconsciously) disruption of social
bonds and live in a situation where social tensions lead to
new forms of intra and inter-group conflicts;
Impact on women such as the loss of capacity of households
to provide safety nets to those who are economically
displaced by restructuring and forced to join labor force
Complying with policy directives of donors and financial
institutions deepening social problems; and
Reversing the damaging trends that widen inequality and
increase poverty.

12.6 Reaching consensus

Reaching consensus on how proceed for changing the face
of globalization is difficult in an environment when
The ideological positions are fragmented in a variety of
social interests, no matter whether one calls the world
unipolaror free of cold war
The will for consensus is still very weak
Key international negotiations are deadlocked, and
International development commitments go largely
unfulfilled.
But reaching consensus is the most important
precondition for effectively addressing the social issues
of globalization.

12.7 The Avenues for Optimism

The avenues for optimism are:
Experience demonstrates the value and power of
dialogue as an instrument for change
There is ample scope of expanding the space for
dialogue aimed at building consensus for action
Common grounds may be achieved through
listening patiently and respectfully to diverse
views and interests, and
Institutional efforts are gradually increasing to
forge agreements among a broad spectrum of
actors on the course of action.

12.8 Structural Adjustment

Models
There are attempts of addressing social problems in
structural adjustment models (SAM) trying to
give restructuring a human face by
Giving increased attention to social issues,
Becoming more flexible in conditionalities
associated with structural lending and
Searching ways for directly alleviate problems of
the most vulnerable groups; social investment
funds were set up to channel funding for
development projects for the most vulnerable
groups

12.9 But SAM has Limited Impacts

Structural adjustment models could so far achieve
only limited impacts because the benefits could
reach a very small proportion of the vulnerable
population and could contribute little in terms of
enhancing sufficient growth to solve the social
problems since the growth, even if has taken place
in some cases, was not accompanied by
More equitable distribution of the benefits of
growth,
Stabilization, and
Increase in efficiency.

12.10 Evidences: Country Experiences

Evidences of the above are demonstrated in countries like
China and Korea and in East Europe. China and Korea
suffer from rapid rise in unemployment and
underemployment of rural population moving to towns
and cities, increase in polarization, spread of crime and
prostitution, including child prostitution, increase in
child labor, withdrawal of girls from schools to do
unpaid family work, worsening of environmental
degradation and the like. People in East European
countries are increasingly becoming victims of
polarization, fiscal crisis, problems of job security and
lack of welfare services under constraints of public
budgets. Industrially developed countries may be better
off in this regard but many in these countries also suffer
from the problem of relative poverty intensified by
restructuring.

12.11 Rethinking Adjustment

The proposals on rethinking adjustment suggest focusing
on reduction of poverty and inequality and to
Promote social development
Set broad international norms and specific targets
Redefine goals of adjustment, and
Establish what are, and what are not the acceptable
social costs of adjustment.
One special proposal is based on the concept of 20/20,
which calls for earmarking 20% of the national budgets
and 20% of the international aid for priority social
needs. However, the developed countries forgot their
commitment of giving 1% of their GDP as foreign aid
to the poor countries.

12.12.1 How to Address Social

Issues in Globalization?
Break the current impasse by focusing on
concerns and aspirations of people and the ways
to better harness the potential of globalization
itself
Change the current path by expanding benefits of
globalization to more people and share them
better between and within countries
Involve many more voices for ensuring share of
benefits of globalization, the resources and means
in hand

12.12.2 How to Address Social

Issues in Globalization?
Seek a process of process of globalization with a strong
social dimension based on universally shared values and
respect for human rights and individual dignity and
create a situation with fair, inclusive and democratically
governed institutions.
Focus on people and respect their rights, cultural identity
and autonomy.
Promote decent work, empowerment of local
communities and gender equity.
Sustain a democratically effective state and manage
integration with global economy keeping an eye on
gaining the most of social and economic opportunities
and strengthening security

12.12.3 How to Address Social

Issues in Globalization?
Try to attain sustainability through strengthening
interdependent and mutually reinforcing pillars of
economic and social development and environment
protection at the local, national, regional and global
levels.
Develop productive and equitable markets through
development of sound institutions to promote opportunity
and enterprise.
Play with fair rules to offer equitable opportunity and
access (to resources) with recognition of diversity in
development needs and capacities of different
countries/nations.

12.12.4 How to Address Social

Issues in Globalization?
Show solidarity to countries and peoples excluded from
or disadvantaged by globalization and assist them.
Establish a greater accountability to people and make the
public and private actors accountable for their actions.
Promote a deeper partnership among IOs, governments,
parliaments, businesses, labor organizations and civil
societies.
Finally, incorporate policies and concrete actions in
national plans and programs a pragmatic focus on
employment, education, environment, human rights,
labor standards, gender equity and other social goals and
make the best use of the available local, regional and
global resources.