Globalization: Do We Have it Right?
Is Global Capitalism Working?
Business Ethics

Globalization. The very word makes one want to read no further. Seldom has a buzzword gained so much attention with so little agreement on its importance or meaning. This is but one of the reasons I have left the word out of the title of this lecture. The other reasons have to do with the inadequacy of the concept itself, its comprehensive nature, and its uncanny ability to account for everything and nothing. What I want to do in this lecture is examine one aspect of the globalization craze—economic integration. More specifically, I want to examine what the process of global economic integration means in terms of social justice. Is global capitalism working in terms of improving the well-being of all who are affected by it? How is this "new" world economy governed? Are new structures needed to support, direct, and perhaps redirect it? And finally, how do we account for the increased importance of non-state actors, especially non-governmental organizations and multinational corporations? Do these non-state actors have a role in promoting a more just world economy?

In terms of an ethical evaluation, we must keep in mind two potential targets of our investigation. First, there is the system of global capitalism itself—the structure of its markets, its institutions, its rules and regulations. Are these structures and rules fair? Do they produce ethically desirable results? Do they need reform? Second, there are the actors within this system—here I mean international agencies, national governments, businesses, labor groups, and NGOs. Do these actors act in an ethically desirable way, given the structures within which they are operating? By what standards should we judge their behavior? We should understand going into this discussion that both the structure of the world economy as know it today and the actors within it are deserving of careful ethical evaluation and scrutiny. Globalization: Do We Have it Right?

One can compile all sorts of statistics to show how the world is integrated today in ways that are unprecedented. Information (abetted by the technology of the media and Internet), health risks, pollution, transportation, popular culture—all have combined to shrink the world in terms of time, space, and perception. This integration is also felt in the economic sphere. Interest and exchange rates are no longer controlled exclusively by national governments. Capital flows move with ever greater intensity, unchecked in many instances by any force greater than that of investors seeking to maximize returns. Economies are tied together in new and intricate ways that may in fact be irreversible.

It is the speed, depth, and irreversibility that may be what is so new and intriguing about globalization. For as we all know, globalization itself is certainly not a new development. The maritime explorers of the 15th and 16th century could have rightly pointed to a shrinking world, the spread of a common culture, and the end of geographic and political isolation. What is different today may be the sheer magnitude of the shift. In his recent book on U.S. foreign policy, Six Nightmares, former Clinton national security advisor Anthony Lake writes, "Globalization is like the weather. It simply is. We can try to understand it better. We can work to predict its course. But if we don't make the best of these forces of change, they will get the best of us."

Lake's point is that we can, if we try hard enough, steer and harness the forces of globalization—if not to "do good," at to least build shelters to get out of the inevitable rain and cold it will produce. But, Lake also claims that we cannot essentially change the fundamental nature of globalization. We may want to ask ourselves if this is the right perception. Do we want to cede the point that the forces of globalization—especially the economic aspects of it—are essentially irreversible and unchangeable? Lake's view represents the conventional wisdom of Washington and Wall Street today. It was also an important underlying premise of the Clinton's foreign policy (more on this in the next lecture!).

The journalist Thomas Friedman explains the nature of the world economy with an analogy to the Internet. He says, "Everyone is connected, but no one is in charge." In an indirect way, Friedman introduces the ethical question of agency. Where does responsibility lie? Who is responsible for the structure of the institutions of the world economic system? Can anyone identify the pressure points in the system? Here we circle back to the questions I just raised in the introduction. How do we evaluate the system itself, and how do we evaluate the actors within it?

Friedman makes an effort at answering these difficult questions by giving us two examples of how the world economy is currently operating. In a New York Times article titled "The Man From Moody's," Friedman explains how the most important foreign visitor today to a developing country is no longer likely to be a representative from a powerful nation like the United States or an influential member of the European Union. No, the most important visitor is likely to be a delegate from Moody's investment service or Standard and Poors—credit rating agencies that will research the current economic situation in that country and then issue a credit rating. That credit rating will then determine whether that country will be able to attract capital on the open market. It is this ability to attract capital that is most important. And it is the world economic market that determines this, not necessarily the decision of governments.

In a second article along these lines, Friedman discusses another powerful force, that of multinational corporations. He begins the column by discussing his recent trip to Washington to meet a powerful executive named Bill. Bill has unprecedented power to direct capital and affect business developments. Governments around the world seek his favor, and his decisions as to where to engage and where not to engage have long lasting effects on local business development. The places where Bill decides to do business inevitably do better than those places he decides to bypass. Those on his list become part of a worldwide network of relatively prosperous economies. Those who are left out are left behind. The Bill from Washington that Friedman refers to is not Bill Clinton in Washington, D.C. No, the Bill he is interested in is Bill Gates, chairman of the Microsoft Corporation, in Redmond, Washington. The unmistakable implication of the piece is that Bill Gates as chairman of Microsoft may have as much if not more power than Bill Clinton as president of the United States. Hyperbole perhaps, but he does point to an important trend in how the locus of power may be shifting away from government and toward business, especially large, corporate, multinational business.

The anxiety of the shifting locus of power is reflected in the title of a new book by Anthony Giddens, Runaway World: How Globalization is Reshaping our Lives. Some of you may recognize Giddens as the force behind British Prime Minister Tony Blair's so-called "third way"—an effort to navigate between unmitigated free market capitalism and old style socialism. The political economist Robert Gilpin addresses the key point in his new book, The Challenge of World Capitalism. Here is his essential point, and in fact, the bottom line of my presentation here to you today: "Markets by themselves are neither morally nor politically neutral; they embody the values of society and the interests of dominant actors." Perhaps this is obvious, but it needs to be restated: markets are socially constructed. Markets reflect and embody the values of the societies that produce and maintain them. As such, they should also be subject to moral scrutiny and revision where necessary. Markets are adjusted continuously, often decisively affected by exogenous forces such as government regulation. Rules are established and changed; incentives are provided through mechanisms such as tax breaks, and disincentives are provided by punishments such as assessments and fines.

As Gilpin points out, the challenge of finding a workable—and more just—condition for global capitalism is a political one. If markets are indeed socially constructed, then it is up to society to set up rules that produce fair and just results. In other words, global capitalism should not be seen as a machine that goes by itself. It needs to be attended to. Gilpin's main concern about the current world economy is a concern shared by many others. Is the current system exacerbating global economic inequality? Is the gap between rich and poor, haves and have nots, becoming ever wider and deeper? And if so, is this not both unjust and unwise? Won't a radically divided world of those who are rich and connected and those who are poor and left out be ultimately unsustainable? This is the thesis of the journalist Robert D. Kaplan who sketches a frightening picture of this problem in his book, The Coming Anarchy. For Kaplan, the problem is not just one of geography. Rich and poor exist side-by-side, as you see in any urban setting today. But you can see the divide now is between those who are connected to the riches of the globalized, connected world economy and those who are not; those who have access to wealth, power, education, and information, and those who do not.

In evaluating the moral standing of the current world economy, the major is issue is global inequality. As Gilpin puts it, "Although capitalism eventually distributes wealth more equally than any other known economic system as it does tend to reward the most efficient and productive, it tends to concentrate wealth and power." So here we have the central problem. While the integration of the world's economy may in fact be helping more people in the aggregate by dispersing more wealth to more people more equally than any other system known to man, it is also concentrating wealth and power in the hands of the relatively few at the same time. This is an inherent tension or paradox that needs attention, as does the fact that these forces of integration are also exacerbating the differences between those who are connected and those who are not, with unknown consequences for the future.

In terms of our ethical analysis, the points raised above point to the need for further evaluation of the structure of the newly integrated, globalized world economy. How might the system be revised? Are new financial/economic architectures needed to produce a more just system? First, we must take a closer look to see if the current system is working. Is Global Capitalism Working?

Gilpin answers "yes, but"… Others like political economist Ethan Kapstein say "no." Kapstein sees a double failure. The first failure, mentioned above, is the problem of worsening global inequality. But Kapstein's main concern is a systemic one focused internally. He examines what globalization means within the industrialized countries, specifically for the working class. Again, we have the problem of winners and losers, and who is going to look out for the losers?

In his often-cited Foreign Affairs article "Workers and the World Economy," and in his recent book Sharing the Wealth, Kapstein writes, "Just when working people need the nation-state as a buffer from the world economy, it is abandoning them." In the United States especially, the drive of the government has been to promote the globalization of the world's economy, while at the same time it has neglected the needs of those who stand to suffer from this process. Kapstein harks back to the last great transformation of the global economy, the end of World War II and the implementation of the Bretton Woods system. At that time, Kapstein points out, a grand bargain was struck between governments and workers. Free trade would be established, yet along with it would come the social safety net of the social welfare state. In this way, a newly globalized world economy was promoted, yet it came along with the establishment of structures that insured relief for those who would be negatively affected by it. Kapstein fears that recent new initiatives in promoting global economic integration have not been attentive to the other half of the old grand bargain of Bretton Woods.

Reminding us that economic systems and markets are socially constructed—that they are not pre-ordained, inevitable, or God-given like the weather—Kapstein writes, " the starting point for any policy effort is the normative assertion that the appropriate goal of economic policy is to improve the lives of the citizenry." He goes on to say that each country must find its own effective mix of policies to address this, given its current condition. In a sense, Kapstein is urging national governments to reassert themselves in this process of global economic integration. He wants these governments to go beyond just facilitating integration as an unmitigated good, to perhaps shape and control the process to establish more positive, more just outcomes. Governance

Our discussion so far could be summarized by the phrase, "the market is a good servant but a bad master." Kapstein, Gilpin, and others want to remind us that it is a mistake to see the market as anything but a servant. They want to reassert the notion that markets need to be governed. Markets need rules, as well as the means for enforcement of those rules.

The ethical problem with the world economy as we see it today is, as World Bank economist Wolfgang Reinecke puts it, "inherited inequalities of wealth and asymmetries in the division of labor continue to structure the world's markets, and hence the world's outcomes." The natural first course of regulation and possible reforms of this structural deficiency is the state. Reinecke reminds us that more than just "the preeminent instrument of coercion" and order in a society, the state "also has the potential to be a powerful instrument of equity, justice, and fairness." Like Kapstein, he argues that states must assert themselves. Yet he also shows us that inequality is not just a national affair. Inequality is now a truly international phenomenon, and no state can go it alone. It is impossible now for any national government to pursue a national economic policy that does not account for the very real presence and pressures of the world economy of which it is a part.

Dealing with the newly globalized world economies requires new ways of doing business. Reniecke argues that new institutions are needed. New actors have new powers, and therefore, we need to have them play a newly enhanced role in the process of governance. For example, private sector agencies such as the World Bank, the IMF, business, labor, NGOs, are sometimes in a better position than national governments to implement global public policies.

So here is the crux of a new problem. How to govern this new economy? Can we imagine governance without government? That is, can we cede authority to entities outside of the state, or at least several steps removed from the state? How then would we deal with the need for accountability, transparency, and democratic representation? What is the authority and democratic legitimacy of some of these groups? These questions were at the heart of the arguments offered by the more reflective of the protestors seen as the Seattle meeting of the WTO, and subsequently at the Davos Economic Forum and follow up WTO meetings in Prague.

Political theorist Anne Marie Slaughter says, in effect, not so fast—the state is not disappearing. She prefers to see the current situation as one where there is a disaggregating of functions, yet the ultimate authority for most regulation still resting in the state itself. So, for example, courts, regulatory agencies, and even legislatures might get together to address specific issues—taking into account the concerns of business, labor, and NGOs—but regulatory power is never actually ceded outside government itself. She calls this process one of transgovernmentalism. Transgovernmentalism exists between a liberal internationalism that features an emphasis on new, supranational structures and a new medievalism that emphasizes the end of nation-state dominance and a balkanization of power. A simple diagram would show transgovernmentalism as a middle position:

Liberal Internationalism


New Medievalism

(new, supranational institutions)


(end of nation-state)

Slaughter explains her concept like this: "Liberal Internationalism poses the prospect of a supranational bureaucracy answerable to no one. The new medievalist vision appeals to state's rights enthusiasts and supranationalists, but could easily reflect the worst of both worlds. Transgovernmentalism, by contrast, leaves the control of government institutions in the hands of national citizens, who must hold their governments accountable for their transnational activities and for their domestic duties."

Slaughter ends her argument with the phrase, "governance without government is governance without power." She is right to point out the importance of accountability, transparency, and legitimacy. By emphasizing the notion that governance ultimately must rest on legitimate power, she brings us back to the basic ideas of the realist vision of world politics. What is new here is that as problems become increasingly global and increasing complex (in areas such as environmental protection, for example), there may be room for a functional approach to the solution of these problems. That is, certain government agencies might do well to cooperate directly with their counterparts—as well as with non-governmental actors such as business and NGOs—to hammer out solutions. This does not necessarily mean that power has flowed away from the state, but it does mean that the state must account for more countervailing pressures than ever before, and that the state might not act as unilaterally or as monolithically as it might have in the past. Powershift?

If the rules and laws of the world's economy are in fact socially constructed, as we have argued, then we must address the problem that Slaughter raises of who will govern and who will enforce? The point about the possibility of the waning power of the state is most famously raised by Jessica T. Mathews in her article "Powershift" where she highlights redistribution of power between states, markets, and global society. In the piece, she argues convincingly that there are indeed new centers of power to contend with. She cites facts such as, "today, NGOs deliver more development official assistance than the UN system." She also points out the increased political weight of NGOs, as we have seen in the successful campaigns waged on behalf of human rights causes, arms control (including most notably the treaty to ban landmines), and the recent movement to establish an International Criminal Court.

It seems to me uncontroversial to argue that these new centers of power have real weight in determining the structure of our global society as we know it today. In other words, in addition to the state, we have actors that have new power in their ability to set norms and affect the course of activity. Mathews puts it this way: "Whether the rise of non-state actors ultimately turns out to be good news or bad depends upon whether humanity can launch itself on a course of rapid social innovation as it did after WWII. Needed adaptations include a business sector that can shoulder a broader public policy role, NGOs that are less parochial and better able to operate on a large scale, international institutions that can efficiently serve the dual masters of citizenry and state, and above all, new institutions and political entities that will match the transnational scope of today's challenges while meeting citizens demands for accountable democratic governance."

Mathews leaves us pondering the two questions with which we began. How does the new reality of a new constellation of actors affect our evaluation of the global economic system as we observe it today? Do we evaluate it differently because it is functioning differently? And second, how then do we assess the choices of these new actors themselves as they shape and participate in this new world economy? Can we judge their actions according to some set of ethical standards? Business Ethics

How much of a normative role can we expect from non-state actors? Can we really expect private groups such as corporations to help set and enforce human rights, labor rights, and environmental rights? Corporations are unique social actors. They are formed to pool capital and reduce risk. Their purpose is to make profit by providing service. As one commentator has put it, corporations are not like individuals; they have "no soul to damn, and no pants to kick."

Yet as those who study business ethics point out, corporations are agents. They receive from society certain rights and privileges. They have a certain standing before the law. Therefore, it seems logical to demand in return for these rights certain responsibilities. Rights engender responsibilities. They are not granted freely.

To begin, it would seem uncontroversial to argue that in today's globalized world economy, multinational corporations have enormous latitude in setting, enforcing, and even promoting normative standards as they relate to issues such as wages or environmental protection. This would be especially true in relatively uncontrolled areas where corporations might work, such as in less developed countries. In fact, no entity other than the multinational corporation has the flexibility, capital, and reach to affect so many people in so many places. Two questions are immediately raised. First, how do corporations go about the setting of standards? What role do they play in the process, and to what effect? And second, do corporations have non-legal responsibilities to uphold certain standards even where the laws are unclear or non-existent?

Here we come to the previously discussed distinction between law and ethics. In my view, law is the codified moral minimum. It provides helpful and importance guidance, but it doesn't do the entire job if you are concerned with ethics. To be legal is not necessarily to be ethical. Think, for example, about the recent controversy over the Clinton pardons. From all accounts, the pardons granted were entirely legal. Yet many would argue that they were not ethical. There is a gap here between law and ethics that should not be overlooked.

Corporations consistently face choices where the law is unclear, not helpful, or just not existent. For example, a corporation might possess materials that are considered hazardous waste in this country and not in another. It would be legal to export them, but would it be ethical? One can think of numerous examples where home county/host country standards are different. The dilemma for the decision maker is which set of standards should apply. This problem is particularly acute in wage issues, as well as environmental issues. Very few would argue that a U.S. company must pay U.S. wages when operating in a less developed country. Nor perhaps, should they abide by EPA and OSHA standards regarding environmental and labor standards. Yet we are left with the problem, which standards should apply? How can we be assured that differing standards do not slip into exploitation? This is particularly important in areas where local governments are ineffective, corrupt, or just plainly unhelpful even to the corporation who seeks a well-regulated society in which to operate.

The field of business ethics has given us a few concepts and benchmarks by which to make some distinctions. One of the most basic and most important is the shareholder/stakeholder distinction. In making the point, most business ethicists give us a way to think of the corporation as a social actor, responsible for non-legal matters that are within their scope of activity. It is commonly understood that corporations have responsibilities to their shareholders. As we stated, corporations exist to make profit, and shareholders are the foundation upon which the corporation exists. But it can also be argued that corporations have obligations beyond those they owe to their shareholders. These obligations would be to stakeholders - those who are affected by the activity of the corporation in question. Stakeholders would include employees, neighbors, consumers of the corporation's product, and anyone else who is directly affected by what the corporation does. Therefore, those living downstream from a polluting plant, or employees who service that plant, would be considered stakeholders. What obligations corporations have to stakeholders is much debated. But that fact that stakeholders are seen as a legitimate object of ethical duty is an advance in thinking about business responsibility. As we think about a globalized world economy, the concept of stakeholder is becoming stretched. How far we can and should stretch this concept is yet another subject for debate.

A second useful category for analysis, building on the shareholder/stakeholder distinction, as well as the home country/host country distinction, is the concept of positive and negative duties. What should corporations be required to do, as opposed to what should they be required not to do? Negative duties refer to the obligation to do no harm. This is fairly straightforward. There are obligations not to exploit workers (although the standards as to what in fact constitutes exploitation might be debated) and not to pollute. Positive duties are more difficult to account for and to deliver on. For example, when corporations go into communities, is there an obligation to "do good," to make a positive difference? Does the corporation have an obligation to be a good citizen in the community by giving something back beyond the business it brings in and the taxes it pays? If so, how would one go about setting standards or guidelines for this?

Business ethicist Thomas Donaldson argues that business executives must account for poverty, injustice, and discrimination as it relates to their decision-making. In other words, they cannot escape the consequences—direct or indirect—of their choices. In all of his writing, he seeks to sensitize business leaders to their role as both actors within a system, and the shapers of the system within which they act. At a minimum, they must be aware of and account for the consequences of the decisions they make. The more latitude they have, the more responsibility they have. If they have the ability to effect change for the better, they have a responsibility to pursue it. In those areas where choice is squeezed out by necessity, they are not absolved of responsibility, but mitigating factors must be accounted for. Conclusion

The world economy of the early twenty-first century is one that features many newly empowered actors. These include international organizations (World Bank, IMF, WTO), regional blocks (EU, NAFTA), national governments, business, labor, and NGOs. Our task is to interrogate this new system on two levels. How is the system itself performing, and how can it be improved structurally? And second, how are these newly empowered actors behaving given their limits and possibilities as prescribed by the system within which they are operating?

There is a real danger, I believe, in subscribing to the view that globalization and economic integration are inevitable, and beyond the reach of real people who might affect change. If there is any message in my message to you today it is, let's try to rescue choice in this process. Let's try to see where choices can be made, and how those choices might be implemented to make a positive difference in terms of producing justice in our world economic system.