SOCIAL IMPLICATIONS OF BUSINESS GLOBALIZATION

By: Iraj Mahdavi, Ph.D.

National University, San Bernardino, CA.

ABSTRACT

Social implications of globalization of business are studied within the framework of the historical development of capitalism in the Western countries, wherein; it was strongly influenced by cultural, social and political institutions. It is surmised that the same will happen in the emerging democracies. In the absence of strong, fully developed democratic institutions, international groups and organizations will check and balance globalized business. It is this globalize social concern, which, in the long run will have fundamental ramifications for globalized business.

INTRODUCTION

Globalization of business is one of the most controversial topics since the last decades of the twentieth century. It is referred to as the means of salvation for the poor masses of the developing countries as well as the mother of many evils that have fallen, or will be falling over the very same people. It is blamed as the most visible source of resentment against the United States, and simultaneously regarded as the channel through which rich countries are expected to assist the poor one (See among others, Dollar; Gill and Law; Lechner and Boli; Ohmae). It has been singled out as the most blatant inhumane profile of the American companies abroad. Globalization of business has been regarded as the symbol of all that is undesirable about “the new world order” around which international protests are organized.

The reality of the globalization of business and its future expansion cannot be denied. However, its consequences are not as hard and fast to predict as are claimed by either of the two extreme adversaries. An examination of the history of growth and development of business, especially capitalism in the Western countries, will paint a picture in which many non-economic variables have contributed to forging its present, “less perfect” form. Among these, perhaps social and political institutions of the Western countries are most prominent. The author believes that the same will be true in the emerging democracies. It is also pointed out that even if similar institutions do not currently exist in these countries, or are not developed to the same degree in these and other developing countries, there are many global, international institutions that can, and will play decisive roles in the check and balance of undesirable consequences of capitalism that may follow globalized business practices.

International and Global Business Relations

Rapid and extensive quantitative growth in international business and commercial exchange has in recent decades reached qualitatively different dimensions. Even new terminology is being developed to describe and explain, as well as facilitate, this new pattern of economic relationships. “Global”. Used as an adjective modifying such terms as economy, business, corporation, market, etc. indicates a new approach to these concepts, which is fundamentally (qualitatively) different from the international variations used previously.

In its most basic definition, globalization of business refers to a qualitative departure from traditional approaches to doing business internationally. An important distinction if the size of the new business entities.* Another, and significantly more interesting aspect is the attempt to set up such entities in various countries functioning as single, “seamless” business operations. For example, while a corporation’s market in the international trade is usually considered to be composed of many, country-defined markets, in the globalized approach it is defined as one, huge globe-encompassing mammoth. Closely related to this notion is global business corporation’s approach to management of business operations in various countries, as elements of a unified system, regardless of the location and the national boundaries.

A significant implication of this approach is the expected ease of transfer of goods, services, capital and labor across the globe, unencumbered by excessive local and national regulations. It is perhaps this aspect of globalization of business that has attracted the most attention, analysis and criticism. It brings to fore many, if not all hidden apprehensions that are connoted with raw capitalism: colonialism; exploitation of the masses; total disregard of the environment and human rights; consumerism as a way of life (Noble,1984). This Dickensonian picture of global business, as one of unbridled capitalism in full fury, however naïve, is probably the main cause of recent protests against the expansion of world trade. *

Business corporations  -domestic, international or global- and the people working for and controlling these entities are by no means the benevolent humanists that many social activists would like them to be. They function in an atmosphere in which environmentalists, human-rights groups, economic and business regulatory agencies, labor and consumer advocates have also been functioning and growing, not only in extent and expanse of their concerns, but also in sophistication and in socio-political clout. These groups are effective check and balance entities that are increasingly responsible in reining-in of unbridled business and at times even controlling the ravages of raw capitalism. It is impossible to study globalization and its social impact without a close examination of the development and roles of these powerful bodies. They are significant players in the business game played on the global arena.

Roles of National and International Regulatory Bodies

Even Adam Smith recognized that capitalism, as an economic system, could not be sustained without extensive help from the political bodies of a polity. A system based on appealing to individual and corporation’s self-interests in an economy carries the seeds of its own destruction, through the rewards offered to the players to develop and expand monopolies. Thus, it was recognized that the economy had to be regulated to ensure not only fair business practices, but also to prevent monopolies to form, flourish and thus destroy the system.

Nevertheless, by the first quarter of the twentieth century, it had become clear to many economists that laissez-faire capitalism was not capable of delivering all that was theoretically expected. Even some of the most basic premises that formed the foundations of capitalism were questioned.

As early as 1926, Maynard Keynes declared that:

It is not true that individual’s posse a prescriptive “natural liberty” in their economic activities. There is no  “compact” conferring perpetual rights on those who have of those who acquire. The world is not so governed from above that private and social interests always coincide. It is not so managed here below that in practice they coincide. It is not a correct deduction from the Principles of Economics that enlightened self-interest generally is enlightened; more often individuals acting separately to promote their ends are too ignorant or too weak to attain even these. Experience does not show that individuals, when they make up a social unit, are always less clear than when they act separately. 

Maynard Keynes, “The End of laissez-faire”, 1926. Italics and capitalizations in the original.

Economic history of the Western countries since the middle of the nineteenth century can be summarized as the social and political struggle to rein-in the capitalist system and to inject social and ethical consideration in the workings of the economic system. (Noble, 1977; 1992) Most attempts, such as laws and regulations regarding child labor, unions, number of hours of work and conditions of work were made in the name of fairness and humaneness. Many others, such as anti-trust regulations and many business contract laws were made in order to prevent the system from collapsing. All of these, it should be noted, assumed the form of public policy.

At the same time many advocacy groups developed. Their role, in effect, was to check the economic entities in the system in order to protect their ideas, ideals and other social and cultural elements of the society from the ravages of capitalism. Significant examples of these groups in recent decades include groups advocating environmental protection, and protection of the rights of women, minorities and other under class groups.

The result is a complex economic system in which players are allowed to function in pursuit of their self-interests, checked by an intricate network of social and political regulating forces (Wilson and Lombardi). To discuss capitalism in the latter part of the twentieth century without adequate attention to understanding of these networks presents an unrealistic view which has little semblance to the reality. It is unfortunate that most discourses about the future expansion of globalization of business are based on this incomplete and perhaps distorted view of how capitalism works in Western countries in the first decade of the twenty-first century.

Capitalism in the Developing Nations

At this juncture in the history of the world it can be argued that capitalism, as practiced in the United States and the Western Europe has proved itself to be an economic system most capable of providing dramatic results as far as economic development and growth are concerned. Business, once globalized, should be able to make this system available to developing countries, thus helping them in their attempts to improve the living conditions and living standards for their peoples.

What is important to keep in mind is the fact that capitalism, and thus globalized business, operates within a social and political environment wherein many socio-political institutions are also present and function together to enhance, regulate and control the economic system (Norbert Wilson). The objectives served by these entities include creation of an atmosphere in which all players in the business arena are given a chance to pursue their self-interests to the extent that they do not endanger the foundations upon which capitalism is based and operates. Many of the social, political and ethical ideals and aspiration of a society are also reflected in the functioning of these institutions.

A socio-political regulation of the capitalist economic system is a major force in the system as applied and observed at the present time (Spaargaren and Mol). Many institutions that developed in the past two centuries, from the regulatory agencies, to the stock market; and from the anti-trust regulations to the labor unions, have all developed to control dysfunctional tendencies of the system, to enhance its effectiveness or to inject the society’s concerns and values into the functioning of the economy through public policy. Thus there are observable variations in the working details of the capitalist systems in the different countries of the West. These differences reflect, besides the fundamental regulations of the system, the social concerns of the different countries, based on each country’s historical and social development. Environmental concerns and advocacy of the rights of minorities are probably the latest of such developments that have assumed distinctive national hues within the general framework of regulating capitalist self-interests of their citizens.   

 Pure Capitalism is a Myth

The reasoning put forth above indicates that unbridled capitalism can, and does lead to many types of social ills. Capitalism as practiced and preached at the beginning of the twenty-fist century, includes most, if not all, the other social institutions and regulating entities that are present in the Western countries.

Unfortunately, when importing the market economic system, most of the emerging democracies and other developing countries either totally ignore these regulatory systems, or do not pay them the attention they deserve. What is probably equally crucial is the fact that these institutions require time and nurturing to develop to the extent that they can play the roles assigned to them, at levels similar to their counterpart in the West. In their haste to catch-up with the West, developing countries cannot help taking short-cuts that will prove to be detrimental to their long term economic, political and social growth.

Democracy and Capitalism

What is necessary, therefore, in order to take advantage of all that globalized business can offer, is that developing countries need to establish fundamental social, political and economic institutions that support, regulate and enhance the effectiveness of a capitalist system, as well as steer them towards the achievement of national, regional and international objectives, ideals and aspirations. However, a basic requirement of setting up such systems is the existence of democratic attitudes among the majority of the citizens, and nationally recognized, respected and enforced civil rights, liberties and the institutions (Raval and Subramanian). Together, these provide, enforce and protect the fundamental elements necessary for a civic society.

Essentially, capitalism is an economic system. But for it to function correctly, and to avoid the real and/or imagined ills of the system which is based on recognition and enhancement of self-interest of the economic players, other social and political institutions need to be present and functioning properly in order to give voice, recognition and sanction to the national aspirations, objectives and interests. It is through the proper functioning of these institutions that a developing nation can, nay must, express and enforce its values and aspirations. The coming together of these public policies and the functioning of the economic institutions and systems modifies capitalist system in such a manner as to reach a compromise between what is desired as a social value and what is possible as a practical, socio-economic policy.

Many prominent non-democratically elected leaders of developing nations claim that they are capable of reflecting and enforcing, in their fiats, their people’s values, aspirations and sentiments; thus, they need not establish democratically elected political bodies in order to benefit from the introduction of globalized business in their countries. The fallacy in such an argument lies in the short-term view of these leaders who cannot envision the future of their countries beyond the few decades they are alive and in power. Even in this short span of time, social sentiments, values and aspirations do change. In the absence of a viable system that truly reflects such change as it happens there is always a high likelihood that the non-democratically elected leaders and their allies substitute their personal interests for national goals and objectives. This is not a rare phenomenon. It is the rule rather than the exception in developing nations of the world.

The other argument put forth in order to justify foregoing establishment of the necessary institutions, is that developing nations do not have the time to wait for democratic institutions to develop before they can take advantage of opportunities offered them by globalized business entities to improve their economies. While it can be said that, indeed, these countries cannot afford to wait, there are short-term alternatives that must be seriously and closely examined. There are many organizations which function internationally within and sometimes outside the political and social arena of formal international political and economic organization which can also function as alternatives to fully developed national institutions

International Organizations

There are perhaps hundreds of organizations, formed especially during the latter half of the twentieth century whose goals and objectives transcend international boundaries. These entities, which assume a wide array of forms and cover a vast range of objectives, include international organizations with governments as members, such as the United Nations, World Trade Organization, World Bank, International Monetary fund, International Labor Organization, etc. There are also hundreds of nongovernmental organizations (NGO’s) that pursue a spectrum of objectives, from human rights to charitable causes to economic and social development of various parts of human societies. Among the latter, some very vocal and visible groups have demonstrated their effectiveness as well as their political savvy in pursuit of their global objectives. Prime examples are the Green Peace and similar groups in the field of global environment and global warming. These two groups have already demonstrated their effectiveness in many arenas with or without legitimate international support.

While most of the attention gained by these organizations seems to be limited to the international political arena and manipulation of the media, the fact remains that the very threat of action by these groups increasingly becomes as effective tools of political and social action by national groups to further their local agenda. Close relationship with such international groups is proving to be an effective tool of social and political action especially where national counterparts to these international groups have formed.

In the absence of effective democratic institutions in many developing countries to promote and protect many of the human rights and values of the citizens of these countries against the ravishes of the globalized business, many local groups turn to these governmental and/or non-governmental entities to exert pressure on the political institutions of their own countries. In addition, similar groups in the Western countries perform check and balance function for the business practices of global corporations. Good examples of this point include the U.S. laws prohibiting bribery of high government officials in other countries and successful efforts of the rainforest preservation and protection groups to exert pressure on such global corporations as the Home Depot making it refrain from purchase and sale of lumber from old growth forest.

The future of globalization of business and the form that this phenomenon assumes will depend, in the long run on the reaction and response of the global business corporation to the ever-expanding number and effectiveness of the international groups and institutions. The world is moving towards a more unified and cohesive community in which social, economic and political concerns of nation-states are increasingly overlapping. Social values and concerns are assuming new international dimensions. Although it is a long way to establishing a world government, these international groups will be expanding both in their numbers and in the areas of their concern. It can be said that we are witnessing accelerated emergence of a movement that can best be described as the early stages of globalization of social concern.  As this movement gathers momentum the central issue will also change. Soon the scholars will be wondering what implications social globalization has for the globalized business.

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