In this issue of IRConcepts, we shall examine globalization—its roots and nature, and the roles of private companies, governments, and international agencies in its spread and governance, or lack thereof. We shall analyze both the good—rising living standards, life expectancy, educational levels—and the bad—some of the externalities arising from the process. Finally, we shall attempt to show why the benefits far outweigh the costs, and also consider how society might better deal with the negative aspects. Our review of the subject should point to new roles for business, national governments, and international bodiesin what begins to resemble one world.
Globalization is the hot issue from Seattle to Prague, from boardrooms to Internet chat groups, among world and corporate leaders and among throngs of street protesters. Variously, in these places and among these interests, globalization is seen as the inevitable expansion of corporate capitalism—as a prime example of the “creative destruction” of the capitalist system, as a force for economic growth and development—and as a force that exacerbates income inequality and physical and cultural pollution.
On a practical level, globalization is the term that encompasses a host of interrelated forces at work in the world economic environment. It is characterized by expanded international trade, regional common markets, and the movement of resources—capital and labor—more freely across borders. All of these forces have grown with often-unsettling speed as technological innovation burgeons.
The information and communication revolution allows capital, data, ideas—and decision making—to flow instantaneously throughout the world, simply ignoring national borders. An organization based in country X can shift resources and make decisions at its headquarters governing the operations of its subsidiaries in a host of other countries without a time delay. People in any country may work for an organization based in another one and even the most homogeneous populations have to deal with the arrival of foreigners into their countries and cultures.
As a result, great changes are being wrought in the increasingly intertwined daily lives of people across the world, and this is an unsettling phenomenon to many. The switch to a service/information-based economy arouses alarm about job losses for those in the goods-producing sectors. For people concerned with the environmental impact of economic development, its spread heightens fears of deforestation, pollution, and the like. Others believe that multinational corporations (MNCs) are able to operate beyond the control of national governments and engage in policymaking that is harmful to the local situation or is the rightful preserve of electorates.
While globalization seems to be a natural outgrowth of technological development, it is not inevitable. Forces inimical to it do have the potential power to curb its inroads into national and traditional preserves. And there is historical precedent for this kind of reversal.
Historical Roots of Today’s Globalism
Global Expansion from the Mid-19th Century to World War I. In the second half of the nineteenth century, industrialization spread fast among European and European-settled nations, thanks to both their growing market economies and advances in transportation, which were the key to the widening of markets from local, to regional, to national, and to international.
The glass industry in Pennsylvania in the first half of the nineteenth century in the United States serves as a microcosmic example of the impact of improved transportation on the extent of a market. Glassmaking started as a local industry; manufacturers in Philadelphia and Pittsburgh were not in competition, because it cost too much to ship glass that distance. Shipping a hundredweight of glass from Pittsburgh to Philadelphia cost $10 in 1800—but only $1.25 after the completion of the Pennsylvania Canal System in the 1830s, and only about $.45 by 1853, with the building of the railroad. The result was that Philadelphia and Pittsburgh were now in the same market, and the firms located in them had become competitors.
As transit improved and the industrial revolution spread outward, capital, primarily British, crossed borders and spurred development in many nations, including the United States. Not only goods and money flowed across borders, but human beings as well. According to the chroniclers of this earlier globalization, Kevin H. O’Rourke and Jeffrey G. Williamson (Globalization and History: the Evolution of a Nineteenth-Century Atlantic Economy, MIT, 1999), this led to a convergence of living standards between poor countries on the European periphery and rich countries in Europe and North America. As markets broadened, competition thrived—along with many of the same socially challenging side effects we see today.
Markets were growing in other developed nations and multinational companies were born. Both Ford and General Motors, for example, opened facilities in Britain and Germany after World War I, and Canada, right next door, always drew U.S. companies. In turn, companies based in Britain, Germany, and elsewhere operated facilities in the United States.
Even so, through the first half of the 20th century, few U.S. companies ventured abroad. Given the importance of economies of scale to many manufacturing industries, the smaller size of markets abroad, even in many advanced countries, were insufficient to attract them.
This first era of global expansion came crashing down, however, as World War I, its residual hatreds, and then the Great Depression and World War II reversed the worldview of the major powers. During this part of the 20th century, nationalism was the most powerful force, and the most economically developed countries of the world, including the United States, erected trade barriers against the free movement of goods and sealed their borders against immigration. Indeed, the period from 1914 to 1950 can be viewed as one of deglobalization.
Mid-20th Century Expansion. The World War II Allies established new institutions to create a freer and more prosperous post-war world. They set up new international bodies—the International Monetary Fund and the World Bank to prevent international economic crises, and the United Nations to deal with political issues. Probably the most important step toward moving to a more global economy was the U.S. Marshall Plan, which provided aid to Japan and the European nations —both vanquished and victors—to rebuild their shattered economies.
As these countries recovered, they once again became attractive to investment, foreign as well as domestic, and they began to trade with each other. To avoid the renewal of the animosity engendered by the world wars, France and Germany established an iron and steel community, which eventually evolved into the European Union.
With the recovery of Western Europe and the development of the European Common Market in the 1950s, market size suddenly increased and this began to entice some U.S. companies to open facilities in Europe to take advantage of that larger and growing market.
And with changing technology, economies of scale became less crucial and so companies found even less developed nations to offer market potential; as those countries’ living standards rose, their markets became even bigger.
The foreign policy of the U.S. government also played a role. The Cold War thinking was that if the United States helped nations to raise their living standards, that would counteract any attraction to communism. The government, therefore, encouraged American companies to invest in less developed nations, through the guarantee of such investments against possible expropriation.
This post-World War II era saw the spread of free market economies and the creation of societies in which innovation thrived. There was an explosion of technological change that encompassed new products, new ways of making them, and new ways of carrying them to potential consumers. Just as transportation advances in the 19th century lowered delivery costs, so today we are witnessing the same type of phenomenon in terms of transaction costs, stemming from the communication/information revolution.
Globalization of Trade and Investment
Current globalization has featured a tremendous expansion in world trade, with all nations, large and small, exchanging goods and services. U.S. involvement in world trade has increased significantly in recent years. From 1990 to the present, exports have almost doubled, rising two and a half times faster than total GDP, which is up 39 percent. (Imports, however, have increased faster than exports and the U.S. balance of trade has deteriorated.) But, the combination of imports and exports describes the globalization of the U.S. economy for better or worse.
Despite this growth, trade is still much less important to the United States than it is to other advanced nations. The value of the U.K.’s exports, for example, is generally equal to one quarter of Gross Domestic Product, and of the Netherlands’, a whopping two thirds—but for the United States exports are equal to only 12 percent of GDP.
Traditionally, globalization has been seen in terms of industrial markets. What has also happened over the past ten to 20 years, however, has been an unprecedented globalization of capital markets, made possible by technology. Investors have always sought profit opportunities wherever they could; now they can find them—and immediately participate in them—literally anywhere in the world. Capital can flow in different ways: loans and aid from one government or international agency to another nation, loans by foreign banks to domestic companies, the purchase by foreigners of the stocks and bonds of domestic companies (or the government of a particular nation), or direct investment—i.e., the erection of productive facilities by foreign companies in the country. It is now flowing all those ways—at the click of a mouse.
By 1992, the United States had taken first place in the amount of outward foreign direct investment (FDI), followed by Japan and the United Kingdom. However, outward FDI flows as a proportion of country GDP in the period between 1981 and 1991 were much higher in the United Kingdom, France, Germany, and Japan.
In 1992, the United States also was first in inward foreign direct investment, followed by the U.K. and France, but when inward FDI is viewed as a proportion of GDP, the United States significantly trailed the U.K. In that year, 43 percent of the United Kingdom’s foreign direct investment was in North America, one fifth of all French FDI was in the United States (more than in any other nation), and 13.5 percent of German FDI was in the United States. Indeed, in recent years, the United States has been growing more rapidly than other developed nations, and so it has been most attractive for foreign investors—particularly since the huge United States trade deficit has provided other countries with dollars to invest. (Indeed, foreign direct investment in the U.S. reached one trillion dollars last year.)
Today, however, looking at trade and investment solely in terms of individual countries can be misleading, for there has been a significant development of regional free trade groups: the European Community (EC) in Western Europe and on the verge of expanding eastward; the Association of South East Asian Nations (ASEAN); MERCOSUR, involving Latin America; the North American Free Trade Association (NAFTA), encompassing the United States, Canada, and Mexico; and a growing number of subregional trading groups.
The development of regional trading blocs can be a positive force on world trade, with greater cooperation and multiregional trade and investment, or it can be disruptive to the world economy, with regional trade and investment protectionism, but they are more formidable forces than are individual nations. Either way, the United States, the world’s only superpower at this moment, will not be able to maintain hegemony over the world economy and will have to cede to others a greater share in decision making that affects their destinies. This will create more domestic problems, since opponents of globalism on the right resent any power sharing as a threat to U.S. sovereignty, while those on the left want the United States to impose labor and environmental standards on other nations in exchange for freedom of trade.
The Role of International Agencies
Underpinning today’s globalization are the international agencies established to coordinate various aspects of the world economy. The United Nations and its specialized agencies are important players, as is the Organization for Economic Cooperation and Development (OECD), which represents the major industrial nations.
The International Monetary Fund (IMF), established at the 1944 Bretton Woods conference of the Allied powers, is charged with administering the international monetary system, acting as a central bank for central banks. Originally, it set rules for the maintenance of fixed exchange rates: member countries lent their currencies to the IMF, which then re-lent the funds to nations experiencing balance-of-payments problems. In 1971, the U.S. and its trading partners adandoned fixed exchange rates and moved to a managed floating exchange rate system.
The IMF continues to be of crucial importance in helping nations encountering difficulties, but the conditions it attached to the loans extended during the recent Southeast Asian economic downturn have drawn criticism. (The region, however, has recovered.) Further criticism of the IMF flows from the fact that it is not operated on the basis of one member, one vote, but more like a corporation, with votes determined by the number of shares (contributions). The United States is allocated 17.35 percent of the total votes, followed by Japan, 6.22 percent, Germany, 6.08 percent, U.K. and France, 5.02 percent each, and the rest of Europe, including the former Soviet Union, 24.76 percent, leaving just over one third to the entire rest of the world.
The International Bank for Reconstruction and Development (World Bank), also established at the Bretton Woods conference, provides loans to developing countries for the construction of large-scale infrastructure projects such as dams and roads, which are essential for economic development. It is funded primarily by bonds sold in the capital markets of the developed nations.
The International Development Association (IDA), established in 1960 as an affiliate of the World Bank, provides very attractive loans to developing nations, the funds for which come from direct contributions of member nations. The World Bank also has drawn criticism for favoring projects that damage the ecosystem or that do little to directly relieve poverty in less developed countries, and it has modified its policies so as to also sponsor more socially oriented projects such as education.
The General Agreement on Tariffs and Trade (GATT), headquartered in Geneva, sets rules for international trade. It has sought to liberalize and lower trade barriers, force nations that unduly raise their tariffs to compensate their trading partners, and settle trade conflicts by consultation and arbitration. Periodically, the major powers meet under the auspices of GATT to identify trade barriers and seek means of removing them.
The World Trade Organization (WTO) was established at a 1994 GATT meeting, known as the Uruguay Round, to strengthen enforcement of agreements by issuing penalty rulings that member countries are supposed to obey. Presumably the WTO, with its rule setting, is the type of organization that critics of an unregulated global economy would desire. Instead, however, it became the focal point of violent protest at its 1999 meeting in Seattle. The protesters want environmental and labor rules inserted into international trade agreements. The developing nations stand solidly against such rules being established at the GATT or WTO level, believing them to be designed to stifle their development.
Some people who are not anti-global do have concerns, a major one being that a world economy, in which everyone is tied together, carries the danger that the economic collapse of an important player could lead to an international depression, such as that of the 1930s. The major economic powers claim that they would act to prevent any such domino effect, as they did to arrest the spread of the Southeast Asian recession. Furthermore, they say, the answer to such a possibility is greater international cooperation, not isolation.
The Role of Nongovernmental Organizations
In the past decade, we have witnessed the rise of nongovernmental organizations (NGOs) as important players in world political and economic affairs. These groups raise their voices concerning all sorts of issues, including investment and trade policies, and each of them champions the issue to which it is devoted. Amnesty International, for example, focuses on human rights while Greenpeace worries about the environment.
The world’s labor unions are involved, particularly with respect to labor standards and the right of workers to organize. The Communist Manifesto proclaimed that “workingmen have no country” and Marxists have formed “Internationals” ever since. But these bodies have done little to advance supranational causes and organized labor is most vehement in its criticism of globalism. Everywhere, rather than being a revolutionary force, workers have been a conservative one, resisting change as upsetting their lives. Unions that have arisen to represent workers, therefore, have been essentially conservative, seeking to protect their members from persistent change.
Globalization and New Technology
Today’s globalization is directly related to revolutionary developments in information and communication technologies, which have massively increased the ability to collect, analyze, and transmit data, and to coordinate activities worldwide, while dramatically reducing the costs of doing so. A small but representative example of this is the fact that a typical bank transaction costs $1.25 when handled by a teller, $0.54 when done by phone, and only $0.24 at an ATM. Processed over the Internet, the cost plummets to $0.02. More than one third of capital spending in the United States today is devoted to information technology.
The changes wrought by information technologies have been supplemented by those in transportation. Containerization, massive increases in ship size, and fast jumbo cargo planes have so reduced transportation costs that a product can be economically produced anywhere, from parts made in countries scattered over the globe. The new information and communications technologies permit worldwide coordination of that production.
With the growing importance of intellectual capital, both work and workforces also are becoming global. Many types of activity, such as software programming, may be designed in one country, implemented in another, and applied worldwide. And, as work is finding people, people themselves are moved among countries based on company needs and their special abilities.
The information revolution also affects the demand for products and services, as ideas are transmitted quickly throughout the world. Markets become worldwide as consumers everyplace become enamored of new products, from fancy sneakers to CDs, and both CNN and Mickey Mouse literally span the globe. A combination of computerized manufacturing and computerized marketing, moreover, makes it feasible to customize products for individual consumers.
With instantaneous communication and the ability to rapidly make and coordinate decisions, service industries, too, are globalizing. This has already occurred in financial markets, and accounting, legal, and consulting firms are also fast becoming international in scope.
The spread of the market-based economy and technological innovation means that almost every aspect of world society is in transition. Some observers believe that the days of repressive governments are numbered as ideas from abroad cannot be kept out of a country and, with the spread of the PC, the flow of information internally cannot be controlled. The historic configuration of the world economy in which manufactured goods flowed almost entirely from the advanced nations to the less developed ones has been reversed as the latter now export many manufactured products to the more developed ones. In just a few decades these nations have enjoyed incredible advances in living standards and some, e.g., South Korea, have become major economic powers.
Diverse Impacts. Technology, however, has not been a boon to all less developed nations and Jeffrey Sachs of Harvard believes that it is the force dividing the haves and have-nots today (The Economist, June 24, 2000). His argument is a variation of the technological-dependence theory advanced by developmental economists, such as H.W. Singer, decades ago. According to this idea, new technologies emanate from the already-developed countries and are designed to fit their resource endowments, that is be labor-saving, rather than those of the less developed nations, with abundant supplies of labor. Sachs divides the world into three groups: (1) the most developed, with 15 percent of world population, which is responsible for almost all technological innovation; (2) those, with about half the world population, that are able to adopt these technologies; and (3) the rest of the world, with about one third of the population, which is technologically disconnected and caught in a poverty trap.
In order to improve the situation, Sachs advocates more aid to the poorest nations, greater emphasis on public health, and cooperative projects between rich and poor nations to bring technologies to the latter. We would add the need for greater stability in many of these areas, in which so much scarce resource is squandered in civil wars, and a reduction of corruption, which steers foreign aid away from its purposes and into the pockets of corrupt public officials. More stable societies are always more attractive to foreign investment.
The poorest nations also must be given the opportunity to use their factor endowments, including labor, to penetrate world markets. Despite textile industry and AFL-CIO opposition, the United States did move in that direction with the passage in 2000 of the African Growth and Opportunity Act, which would remove the current 17 percent import tax on clothing from Africa.
The Good and Bad of Globalization
The major economic benefit of trade is that it leads to a more efficient utilization of world resources. Efficiency, of course, is measured in terms of costs of production, and factor endowments—land, labor, and capital, plus the technology utilized, determine those costs. For example, the United States, with lots of capital and technology, is a relatively low-cost producer of goods, such as electric turbines and medical instrumentation, but a relatively high-cost producer of goods that are labor-intensive, such as clothing. And so the United States exports primarily airplanes and complex industrial equipment to China—and then imports from China large amounts of inexpensive, labor-intensive goods, such as toys and games, helping China develop economically.
Globalization has led to a spread of economic development. A number of less developed nations, particularly in Southeast Asia (the “Tigers”) adopted export-oriented economic development strategies based on their comparative advantages. At the start, this meant goods that were labor-intensive, such as clothing and electronic assembly. They became manufacturers of these products, which they could sell in more advanced nations because they were cheaper than domestic goods. As the more advanced nations lost some of this type of manufacturing, they shifted to more capital and technologically intensive lines of production. Similarly, as the newly industrializing nations gained experience and improved their human resource inputs, they were able to shift away from merely labor-intensive production.
Globalization, thus, is not a zero-sum game, but a win/win one. As development has spread, living standards have gone up. Newly developed nations used their trade surpluses to purchase still more technologically advanced goods from the previously developed nations. The process goes on. Today’s less developed nations also are seeking to develop by building on their factor endowments, some natural resources, e.g., petroleum, and an abundance of labor. As they do so, everyone else moves up a notch to more capital/technology-intensive production, and as standards of living rise in more countries, world markets grow for everyone—and consumer prices shrink from the efficiencies of global production.
While individuals and certain groups may be adversely affected by globalization, low-income countries gaining jobs by their new ability to manufacture and export products do add to their overall national well-being. With large proportions of their labor forces underemployed or totally unemployed, jobs are crucially needed. Thus, if plants are built and workers get industrial jobs, albeit low-paying ones by Western standards, these jobs are contributing to national well-being because something is greater than nothing.
There is no purpose to economic development but to improve the human condition, and the gains from globalization have been dramatic. Except for portions of Africa, famine has almost disappeared and people are eating better and have more goods and services than ever before.
Life expectancy has risen dramatically, and not just for the richest nations. In China it is now 68.3 for males and 71.1 for females, in Ecuador, 69.2 for males and 74.5 for females, in Egypt, 60.1 for males, 64.1 for females—again, it is sub-Sahara Africa that trails. Nor has the increase in life expectancy been limited to the rich within each nation, as medical insurance, government-subsidized health care, and a lowering of the costs of medicines have made adequate health care widespread within the population of most advanced and advancing countries. The rise in life expectancy, of course, is linked with the virtual elimination of some deadly killer diseases and the tremendous improvements in health throughout the world, due to more nutritious diets and improved sanitation. The spread of AIDS in Africa and other economically poor areas, however, runs counter to these trends.
There has been a sharp rise in educational levels throughout the world, as fewer children than ever go to work at young ages, and stay in school instead. We have moved from a situation in which few people could read and write to one in which most can. In this case, even Africa has shared: literacy rates are 68 percent in Tanzania, 78 percent in Kenya and in Zambia, 82 percent in South Africa, and 85 percent in Zimbabwe.
Political benefits, too, have flowed from globalization. Although wars, most of which could be described as “tribal,” persist within and between nations in the Balkans, Asia, the Middle East, and Africa (and even Western Europe, e.g., Northern Ireland, the Basques in Spain), there has been no armed conflict between the major powers since the Korean War. Instead of viewing each other as enemies, nations are tied together economically and are partners. Europe, the source of the two great 20th century wars, is not only joined economically, but the European Community is developing into a political union and people have begun to consider themselves “Europeans.”
The people of the world also have been enriched culturally, becoming familiar not only with their own cultures, but also those of other societies. Today’s technology permits everyone with a modem access to an almost overwhelming variety of cultural information.
While globalization of trade and investment benefits society as a whole, particular sections of it may bear the costs, and though benefits may far exceed costs, those who are adversely affected are not happy. In terms of economic theory, this is a problem of “externalities”: an effect of an activity is felt by some who are not direct parties to that activity and costs involved in that activity are borne by third parties, rather than those involved.
There are externality problems involved in globalization, too. Businesses that heretofore had made a product that is now imported suffer decline. In fact, O’Rourke and Williamson, in their review of 19th century globalism, concluded that it sowed the seeds of its own destruction because of the effects on the distribution of income; farmers in some countries were losing out to imports from others and workers’ standards of living were threatened.
It could happen again. Unions are vociferous critics of trade because workers in the affected industries lose jobs. Work may be portable, but workers are much less so. While it is true that the vast majority of displaced workers do find new jobs, it takes time to find them, there is usually a period of unemployment, and the new jobs do not always carry the pay and benefits of the lost ones.
Protesters against what they call a “corporate-dominated world economy” focus on “low wages” paid by MNCs in less developed countries, but on this issue, they are very wide of the mark. Compensation may be low in comparison with the United States, but so is income in general, and MNCs invariably are the highest-paying firms in a country. Indeed, many a government has protested the too-generous pay of MNCs as upsetting the local labor market.
Even so, we must recognize that some plants in less developed countries turning out sneakers and cheap clothing have been “sweatshops,” employing children, and forcing employees to work long hours under horrible conditions at extremely low wages, even by those countries’ standards. The nature of apparel manufacture explains the reasons for the sweatshop problem. Some clothing firms, e.g., Levi Strauss, operate their own plants abroad and there have been no complaints about conditions. More often, however, American companies use the contracting system and the facilities abroad are almost always locally owned and managed. Under pressure from the needletrades union (UNITE) and various protest groups, American companies contracting with local manufacturers have been correcting the most flagrant violations of decent working conditions.
The apparel industry, however, is atypical of American plants abroad, and few MNCs are interested in cheap labor, but seek literate, educated, and reliable workforces. The typical American-owned plant abroad is modern and clean, has very good working conditions, and pays well above average, yet all MNCs get tarred with the apparel industry brush.
Another major concern is that globalization causes environmental degradation. As a speaker at a recent Forum on Globalization, a counter meeting to the United Nations Millennium Summit, stated, “What is the global economy doing to the earth? It’s killing it.” Obviously, the spread of economic development from today’s advanced nations to less advanced ones intensifies environmental problems, but the latter countries insist on their right to raise their living standards.
The environmental question is a classic case of externalities: Those causing the pollution do not fully bear its costs. The problem is more complicated when it must be dealt with on an international basis, because there is no institution that can promulgate environmental standards for all the nations of the world. Once more, the protesters who attack every international agency are trying to undermine the very bodies that might deal with environmental concerns. The world needs cross-border harmonization of standards, which can be achieved only through negotiations among sovereign nations. The United Nations’ treaty on global warming, the Kyoto Protocol, signed by 85 nations in 1997, demonstrates that progress can be made, but its success is in doubt as nations wrangle over how to make and measure cuts. (Indeed, the 2000 United Nations global warming talks, the “Hague summit,” achieved little, as the U.S. offered only minimal cuts in carbon dioxide emissions, but Western Europe demanded more.)
This is most unfortunate, since one source of opposition—major MNCs—has been blunted as many of them have come to recognize that environmental concerns such as global warming have merit, and to support efforts to deal with them. Many companies, moreover, have shifted from a policy of adhering to the standards of the nation in which a facility is located to establishing global minimum standards of health, safety, and the environment. The nations of the world must not only negotiate environmental standards, but also find an international body to administer those standards and adjudicate disputes.
A final externality resulting from globalization is cultural fallout. In addressing the U.N. Millennium Summit, President Mohammad Khatami of Iran pleaded that, “Global culture cannot and should not overlook characteristics and requirements of local cultures with the aim of imposing itself on them.” Not only less developed nations that are anti-Western espouse such views. A common complaint of French intellectuals is the dominance of American movies and television and what they call the “CocaColanization” of world culture. Although the United States is not responsible for the fact that many French citizens prefer Hollywood films, it is clear that a problem does exist. No one wants a totally homogenized world culture and, therefore, there is a latent desire to preserve local distinctiveness in a world in which new ideas spread instantaneously.
Globalization—Summary and Conclusions
This review of the issues involved in globalization points to the definitive conclusion that, even though there may be costs involved, they are far outweighed by the benefits. Looking at globalization from a U.S. point of view, we see that, while some jobs have been lost, the nation has enjoyed a record period of prosperity, with very low unemployment. The heaviest job losses, moreover, have been in apparel and footwear, industries that always were low paying. Our exports—such as aircraft and machinery—are from high-wage industries.
Looking at globalization from the vantage point of less developed nations, the benefits are enormous, as investment and trade provide them with jobs and income. What may look like low wages to Americans are not for them, and the opening of manufacturing plants and the ability to export labor-intensive products raises their living standards. Most importantly, it sets them on the road to further development and increased participation in a growing world economy. In this respect, the East Asian experience is paramount. All this represents a win/win situation: people’s lives have been improved in both the developed and less developed nations as a result of the spread of a global economy.
Dealing with Problems
This does not mean that we give short shrift to the problems stemming from globalization, for to do so not only is wrong, but fans the flames of opposition. Vast differences between rich and poor countries persist and the advanced nations should be moving to extend participation in the world economy to those that have so far been largely left out. Greater concern with the plight of the poorest countries involves more aid from the richer ones, debt reduction, allowing them to trade with us, and having private investment in them.
We also must deal with the externalities arising from globalization. At home, this means providing aid to those adversely affected by imports. Indeed, we have been doing that since the Trade Expansion Act of 1962, which provided for up to 78 weeks of retraining for workers affected by the results of national trade policy, and relocation allowances for those who had to move to find new jobs. A reaffirmation and an expansion of such approaches should be considered.
Of paramount importance is to deal with the environmental externalities of the spread of development across the globe, but it is immoral and can be perceived as imperialistic for the United States to claim the right to impose its standards on other nations. Both labor and environmental standards must be negotiated among sovereign nations, which will involve trade-offs, some of which we may not like as the less developed nations insist on what they perceive as their rights.
Some Industrial Relations and Human Resources Issues
Let us now focus on human resources and industrial relations matters involved in globalization. One can justify the transfer of low-paying work to less developed countries on the basis of comparative advantage, but the shift of high-skilled jobs abroad is particularly disturbing to many people. While companies do this because of a domestic shortage of workers, they should make greater efforts to recruit and train Americans for such jobs. This is an area in which business and the educational community can cooperate. But the government must also override union opposition to immigration to help the country import highly skilled workers.
At the same time, American corporations using the contracting system cannot remain oblivious to conditions in their contractors’ plants, but must take responsibility for their standards. Some of the major ones have begun to do this, but much more appears to be needed. Poor conditions in plants abroad supplying large companies taint all MNCs in the public image.
The paramount rule is that companies must be good citizens in each of the nations in which they operate, adhering to their laws concerning workers’ rights, whether to join unions or to have holidays off with pay. Companies, however, also have the right to voice their opinions concerning government regulations, but they must not be seen as trying to play one country off against another in order to gain special favors. On the contrary, they should be in the forefront working toward improving human resources in host nations through support of and aid to education. Special efforts may be required in many less developed nations, in which schooling levels are very low and technical education barely exists. Companies also will have to stress internal training, including programs to help individual employees develop skills on their own. Compensation systems should facilitate redeployment in line with market and technological changes and reward workers for their efforts and motivate them to improve their skills.
With a rapid transition from a rural agricultural society, in which the extended family was the chief source of help in bad times, many newly developing countries also often lack sufficient safety nets, as we discovered during the recent Southeast Asia recession. MNCs can help them to erect such safety nets and to see to it that measures are not adopted that would unduly restrict labor market flexibility. At the same time, larger employers should consider fashioning their own safety nets, not only for humane reasons, but also to be able to retain scarce skilled workers during slow periods.
Finally, there are new roles for all the players in the game—national governments, regional groupings, international bodies, business, labor, and nongovernmental agencies concerned with human and ecological matters. (Just as nations get together in common markets, so corporations from different countries are forming worldwide alliances to pursue projects that no one can do on its own.) These new roles are not easily defined and we are hardly in a position in this short paper to attempt to do so. We agree, however, with John H. Dunning (ed., Governments, Globalization, and International Business, Oxford, 1997) on his conclusions on globalization that “governments and firms are best considered as partners in the wealth-creating process.” Our major guide would be to expand that concept to all the various players in the globalization process—by working together they can advance the well-being of humanity throughout the world.