The International Business System, Globalization, & Multinational Corp.s

& Global Issues and International Obligations

Issues Related to Globalization

• How to address the unequal distribution of wealth.

• How to deal with the fact that national systems of free enterprise are situated in a framework of their particular national legal, political, & social system.– There is no comparable international framework for

international business.

• How to ensure that both capital and labor can move freely — a necessary component of capitalism.

• Assuming ethics is important in international business, whose ethics should business follow?

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The Globalization of Business

• Although the internationalization & globalization of business is not a new idea, globalization in its current meaning is of fairly recent vintage.

• Internationalization focused on MNCs insofar as they operated in a number of countries.

• Globalization involves the notion that firms not only operate in a variety of countries but they functionally divide their activities in different countries.

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The Role of the WTO in Global Bus.

• The central role of the WTO in global business is undisputed, but it is not without controversy or complaint. The major complaints are basically that:1. Conditions of trade are unfair to less developed nations,

2. The trade which has developed is actually detrimental to the development of LDCs and is in fact exploitation, and,

3. The WTO process is undemocratic & lacks transparency.

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Multinational Corporations & Ethics• Multinationals operate extensively in more than one

country, & there is no effective way to prevent firms from forming cartels & controlling prices & production.

• The main criticisms of MNCs in the developing world:– MNCs operate immorally in LDCs by exploiting workers,

exploiting natural resources, and reaping exorbitant profits;

– MNCs compete unfairly in the LDCs, to the detriment of the host countries; and

– MNCs are a major cause of the impoverishment of the LDCs and of the unrest found there.

• Each of the charges has some basis in fact & history.

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Multinationals and Exploitation

• Multinational corporations operate in LDCs for a variety of reasons. – They seek cheap labor, available resources, tax shelters

& relief, & markets.

• In such circumstances, the opportunities for exploitation are numerous.

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MNCs & Less Developed Countries1/3

• The charge that MNCs compete unfairly in the LDCs has two major components.– MNCs are able to operate on especially favorable and

uncompetitive terms.– MNCs do not carry their fair share of social development,

cost which imposes greater burdens on local industries.

• The charges that MNCs use advanced technology, are more productive, & undercut local firms are in part true.

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MNCs & Less Developed Countries2/3

• The charge that developed countries caused LDC impoverishment & unrest rests partly on these ideas: – Colonialization contributed to the impoverishment of LDCs.

– LDCs are also impoverished in a comparative sense.

Poverty is not only an absolute condition; it is also relative.– Improvements in LDCs caused by developed country

involvement is partly responsible for LDC impoverishment:• Increase in life expectancy has contributed to population growth,

which poses problems that lead to increasing poverty & starvation.

– Several MNCs have directly helped produce starvation in some countries. The typical scenario is this:

• An MNC goes into a country and buys up large portions of the productive land. It then grows cash crops for export, whereas, before, local farmers grew food for local consumption.

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• The abuses by MNCs in LDCs need not, and should not, be denied, ignored, or excused.

• But even taken at their worst, and as a whole, they do not establish the case that the Western free-enterprise system rests on the exploitation of LDCs.

• The US, because of its size, wealth, and global importance, intervenes in the economy of many nations even if it does nothing to them directly.

MNCs & Less Developed Countries3/3

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Ethical Guidelines for MNCs1/2

• The most striking structural difference between the Western & international business system is the lack of background institutions on the international level. – Which include laws & accepted practices, moral norms, &

social demands, to control or guide international business.

• The situation is doubly bad with respect to LDCs, which tend to have inadequate background institutions internally as well.

• This situation makes possible many great abuses.

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Ethical Guidelines for MNCs2/2

• The following norms, or rules, could eliminate many of the abuses in LDCs:1. “The moral minimum,” is to do no intentional direct harm.

This applies to actions of all people, corp.s, & countries.

2. If the multinationals activity is to be morally justified, it must benefit the host country. 

3. To respect the human rights of the workers, consumers, and all others in the host country.

4. To promote development of just background institutions internally in the country as well as internationally.

5. Multinationals should respect the laws of a host country, as well its culture and local values, providing these do not violate human rights or impose immoral laws. 

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Multinationals & Human Rights

• The UN Universal Declaration on Human Rights is a widely accepted starting point to establish the obligations of multinationals regarding human rights. 

• The multinational has the obligation to respect the human rights of all those with whom it has contact.– Its employees, suppliers, customers, the people in

communities who are affected by its actions, and so on.

• MNCs must be regulated in the use of contractors or suppliers or engaging in partnerships / joint ventures.

• The multinationals must take into account the level of operation in countries whose governments engage in egregious violations of human rights.

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International Codes1/3

• The best starting point in the further development of international business standards is self-regulation within the guidelines & standards that already exist.

• UN Global Compact with business was proposed by the UN secretary-general in January 1999. – It challenges business to work with other companies, UN

agencies, & nongovernmental organizations (NGOs) to support & implement ten basic principles in the Compact.

– The basic principles deal with respecting human rights, labor standards, protecting the environment, and eliminating corruption.

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International Codes2/3

The UN Global CompactHuman Rights1 Support protection of internationally proclaimed human rights; 2 Do not comply with others in human rights abuses.

Labour Standards3 Uphold the freedom of association;4 Eliminate forced labour;5 Abolish child labour; and6 Eliminate discrimination in employment.

Environment7 Support precautionary approach to environmental challenges;8 Promote greater environmental responsibility; and9 Encourage development of environmentally friendly tech.

Anti-Corruption10 Work against all forms of corruption, extortion and bribery. 

http://www.unglobalcompact.org/AboutTheGC/TheTenPrinciples

International Codes3/3

• The ILO is a specialized agency of the UN that has set up principles governing labor standards.

• The Caux Principles were launched in 1995. – These principles emerged from a series of dialogues among

a group of European, Japanese, & North American firms. – The principles are rooted in two basic principles:

• The Japanese principle of working together for a common good;

• The Western notion of the dignity & value of each human as an end & not simply as a means to be used by others.

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Cross-Cultural Judgments

• A cross-cultural judgment concerns practices, institutions, general systems, or theories other than those of one’s culture, society, or system.

• These judgments are the product of a country’s own point of view or concept of justice inasmuch as it is impossible to adopt all points of view at once or to make judgments from no point of view.

• Different systems can be just, and justice does not require that all countries adopt equal views of justice, changing their political, social, and economic systems to match or suit those of the any other country.

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Cross-Cultural Negotiation

• Negotiation and compromise are ingredients in the notion of transactional international justice.

• Negotiation in business sounds political and therefore many treat it as having little to do with justice. – Nonetheless, negotiation is morally justifiable and

is often the proper procedure to follow.

• To say a transaction or practice is just if all those importantly affected by it freely agree to it as just is to characterize justice by a procedure rather than by a specific outcome determined by substantive principles.

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International Justice• Exchange and trade are dominant forms of

interaction on the international level, and transactional justice governs such activities.

• It requires that equals be exchanged for equals and that those who enter into a transaction enter freely, with each seeking to secure its own good.

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Debate

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Global Issues & International ObligationsFamine, Malnutrition & Obligation1/3

• There is a difference between a country suffering from a temporary famine due to an unusual / devastating drought & a country whose people suffer from chronic malnutrition.

• Nation-states are not moral beings. The international arena is not one of total anarchy because there is cooperation & some agreed-upon rules of interaction.

• And although all peoples of the earth form a moral human community, the nations of the world form an ambiguous moral community. – Although each of us has the obligation to help people in dire need,

governments come and go and national boundaries change.20

Famine, Malnutrition & Obligation2/3

• Multinational corporations have increased obligations because of their international activity. – It is more closely tied to foreign peoples & nations than

are businesses that operate only in one nation.

• Multinationals are ‘citizens’ of more than one country and hence have obligations to the people of all the countries in which they operate.

• The general principles of morality will require different specific actions by particular corporations in particular countries. – But the obligations of these corporations directly involved

in a foreign country are greater to that country than are the obligations of corporations not so involved.

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Famine, Malnutrition & Obligation3/3

• MNCs have the following moral obligations:– The obligation to pay their fair share of taxes in each

country is clear. – The obligation not to harm is also clear. – Agricultural multinationals have the obligation not to

contribute to starvation and malnutrition by buying up farmland for export crops with no concern for the effect of this action on the local population.

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Property & World resource allocation

• Resources can be categorized in several ways. 1. In one category we can place natural resources:

air, water, minerals, land, and trees.

2. Natural but developed resources: cultivated fruits and vegetables, domesticated animals and their products (milk, meat, wool, eggs, and so on).

3. In a third category we can place manufactured goods,

4. Social, non-manufactured goods: knowledge, technology, organization, talents, skills, & even language.

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The Status Quo View of Resources• The world is divided into countries, each of which

makes territorial claims. • Each of the countries has within it a government

and an economic order.

• The status quo view resists any claims by resource-poor countries on the resources of other countries.

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The Universal-Ownership View

• Resources belong to everyone and each person (or nation) has a right to their use, and no one has a right to exclude anyone else from their use.

• Each person (or nation) has the equal right to appropriate & use (and in the process, consume) the resource in question.

• Garrett Hardins Tragedy of the commons aside.

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The Right to Universal Access• According to proponents of this right, riches of the

earth should be used for the benefit of all. • The moral concern of most people is related to the

standard of living of those in a country, or in the world. • All nations have the right to develop and not be

prevented by other nations from doing so.• Developing nations have the right to receive from

nations that have them the wealth and resources that the first country needs in order to develop as it wishes.

• All nations have the right to the knowledge (technological, scientific, social, & organizational) necessary for development.

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Oil & Natural Resource Depletion1/2

• The Morally Justifiable Use of Oil– Since people in industrialized countries are dependent for

their well-being on a continuing supply of oil, it would cause serious harm & so be morally improper, for oil producers to suddenly stop producing & selling oil.

– The price for oil is determined by the market, just as the price for other goods is determined.

• But when oil becomes very expensive, those who depend on it and cannot afford it must be taken care of by others.

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Oil & Natural Resource Depletion2/2

• The Needs of Future Generations– There is a moral obligation to preserve

oil for future generations.

• The Needs of Developing Countries– Each person has an equal right of

access to the oil that he or she needs.

• Sustainable Development– Development must “meet the needs of the present

without compromising the ability of future generations to meet their own needs.”

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Case Analysis

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CASE ANALYSISCASE ANALYSIS

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