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12: Globalization and Business

Ethics1. Changes in World Economic Scenario Associated with

Globalization

2. Main drivers of Globalization

3. The Consequences of freemarket reforms:4. The Public and Private Costs of Trade Liberalization

5. Look at the Social Dimensions for SustainableSolution

6. Structural Adjustment Models7. Limited Impacts

8. Evidences

9. Rethinking Adjustment

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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 globaleconomy through transactions movements of

capital, labor and technology.

Trade liberalization is the main vehicle ofglobalization.

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12.1.2 Shifts in Economic Policy

Shifts in economic policybroadly consistent

throughout the world and restoration economicequilibrium 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 ofstructural adjustment programs

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12.2 Main Drivers of Globalization

Transformation of a patchwork of nationaleconomies into a more integrated global

economy Development of global level institutions to

support and regulate it

Increase in international transactions (scopeand volume) and in a faster rate, especiallywith growth of outsourcing

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12.3.2 The Consequences of freemarket reforms

A minority of developing countries (India, China, Mexico,Chile) and majority industrially developed countries (withstrong initial economic base, abundance of capital and skilland 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 tradeliberalization could be established

Growth benefits from capital account liberalization (FDI,other capital flows) are small

Short-term speculative flows have been damaging

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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 throughstronger 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.

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12.3.4 The Public and Private

Costs of Trade Liberalization

Adjustment is associated with change, which can bedisruptive and have different impacts on differentgroups/communities. Liberalization does not ensureincrease in employment and output since import

competing industries operating behind protecting wallsand government intervention may not be able to sustaincapacity utilization and in such case, both workers andthe 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 ofthe process.

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12.3.6.2 The Reality against theExpectation from Trade Liberalization

The reality shows that the consequences ofglobalization are dramatic:

Primary incomes of the poor are down

Number of people living below poverty went up

Social income (access to public services) hasdecreased

Targeted interventions meant to protect the poor and

the vulnerable groups from the worst aspects ofadjustments never reach all the poor and seldomreach most of the poor

Unemployment rates, inequality and poverty

intensified

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12.3.7 Globalization has Affected

Peoples Lives

The demonstrations are: change in economicstructure, relative prices, consumption patterns(which has a chain effect in terms of affecting

peoples jobs), livelihoods and incomes, and thelike. 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 globalinterconnectivity and the awareness of global andlocal disparities, improves democracy and forgesa greater sense of global community.

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12.5 Look at the Social Dimensions

for Sustainable Solution

Therefore, the social dimensions of globalization havebecome prominent part of the inter-regional andinternational 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 thesupply through increased capacity utilization, whichrequires more knowledge of the economy and more

reflections of sequencing policy instruments of structuraladjustment measures. The obstacles in the process are:

Lack of global availability of resources

Constraints to investments stemming from

inefficiency in allocation of resources.

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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 tonew 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.

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12.7 The Avenues for Optimism

The avenues for optimism are:

Experience demonstrates the value and power ofdialogue 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 diverseviews and interests, and

Institutional efforts are gradually increasing toforge agreements among a broad spectrum ofactors on the course of action.

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12.8 Structural Adjustment

Models

There are attempts of addressing social problems instructural adjustment models (SAM) trying togive restructuring ahuman faceby

Giving increased attention to social issues,

Becoming more flexible in conditionalitiesassociated with structural lending and

Searching ways for directly alleviate problems of

the most vulnerable groups; social investmentfunds were set up to channel funding fordevelopment projects for the most vulnerablegroups

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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 socialproblems since the growth, even if has taken place

in some cases, was not accompanied by

More equitable distribution of the benefits ofgrowth,

Stabilization, and

Increase in efficiency.

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12.10 Evidences: Country Experiences

Evidences of the above are demonstrated in countries like

China and Korea and in East Europe. China and Koreasuffer from rapid rise in unemployment andunderemployment of rural population moving to townsand cities, increase in polarization, spread of crime and

prostitution, including child prostitution, increase in

child labor, withdrawal of girls from schools to dounpaid family work, worsening of environmentaldegradation and the like. People in East Europeancountries are increasingly becoming victims of

polarization, fiscal crisis, problems of job security andlack of welfare services under constraints of public

budgets. Industrially developed countries may be betteroff in this regard but many in these countries also sufferfrom the problem of relative poverty intensified by

restructuring.

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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 acceptablesocial costs of adjustment.

One special proposal is based on the concept of 20/20,

which calls for earmarking 20% of the national budgetsand 20% of the international aid for priority socialneeds. However, the developed countries forgot theircommitment of giving 1% of their GDP as foreign aidto the poor countries.

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12.12.1 How to Address Social

Issues in Globalization?

Break the current impasse by focusing onconcerns and aspirations of people and the waysto better harness the potential of globalization

itself Change the current path by expanding benefits of

globalization to more people and share thembetter between and within countries

Involve many more voices for ensuring share ofbenefits of globalization, the resources and meansin hand

12 12 2 H t Add S i l

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Seek a process of process of globalization with a strongsocial dimension based on universally shared values andrespect for human rights and individual dignity andcreate a situation with fair, inclusive and democraticallygoverned institutions.

Focus on people and respect their rights, cultural identityand autonomy.

Promote decent work, empowerment of localcommunities and gender equity.

Sustain a democratically effective state and manageintegration with global economy keeping an eye ongaining the most of social and economic opportunitiesand strengthening security

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Try to attain sustainability through strengtheninginterdependent and mutually reinforcing pillars ofeconomic 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 opportunityand enterprise.

Play with fair rules to offer equitable opportunity andaccess (to resources) with recognition of diversity indevelopment needs and capacities of differentcountries/nations.

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Documents

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