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“TINA” and Global Responsibility

How can companies promote sustainable globalization?

September 6, 2004

How can companies promote sustainable globalization?

As UN Secretary General Kofi Annan said in early 2004: "In just a few short years, the prevailing atmosphere has shifted from belief in the near inevitability of globalization to deep uncertainty about the very survival of our tenuous global order."

While the reasons for uncertainty are many, what's the real problem today? The 20th-century's grand bargain was one where all sectors of society agreed to liberalize markets. But they agreed also to have government play a significant role in compensating for the social adjustment costs that open markets inevitably produce.

The 20th-century bargain also presupposed an international world — becasue it was rooted in the existence of national economies engaged in external transactions. Governments could mediate these transactions at the border by tariffs and exchange rates, among other instruments.

But since that time, markets have gone truly global, which diminished the effectiveness of border measures — and put enormous pressure on merely national grand social bargains.

Meanwhile, international governmental institutions, like the UN, have been kept too weak and fragmented to compensate for this powerful shift.

And with a few notable exceptions, most developing countries have lacked the institutional capacity to fully exploit the opportunities offered by international openness — or to manage its adverse domestic effects.

Now, I am not suggesting that globalization today will end as badly as its 19th century predecessor did. Some of the fundamentals are very different. But I would venture two predictions.

One is that the present state of affairs is not sustainable. The gap between market and community will be closed. The only issue is how — and in what direction.

I believe that the world needs open markets. Business needs it to maximize its opportunities, the industrialized world needs it to sustain prosperity — and the developing countries need it because an open world economy provides the best hope of pulling billions of poor people out of abject poverty.

But my second prediction is that rollback, a shift away from globalization, is the more likely outcome — unless we manage to strengthen the fabric of global community.

Ironically, nobody is better positioned — or has greater capacity — to play the lead role today than business itself.

Not surprisingly, the expansion in the global rights and reach of firms over the past generation has generated escalating social demands that private enterprise also should create greater public value, beyond traditional forms of compliance and philanthropy.

Corporate social responsibility has emerged as the private sector's response to those demands, intended to establish the firm's social license to operate in the new global economic space.

How far has it come — and how far can it take us? Three dimensions of corporate social responsibility have attracted the greatest attention.

The first is accountability: the idea that firms — having created the new global economic space that is transforming how people live and work the world over — ought to be held accountable not only to their shareholders, but to the broader community of stakeholders who are affected by their decisions and behavior.

A new reporting industry is slowly developing, providing information on the social and environmental performance of firms. The voluntary codes of conduct and social and environmental reports involved in this reporting represent a modest step in the direction of accountability.

A second critical social challenge for the global corporate sector is the fact that globalization delivers such unequal benefits.

National firms in the industrialized countries are used to the idea of giving back to the communities in which they operate. Multinational firms have begun to do the same in developing countries, initially led by the extractive industry and consumer products companies.

The past few years have witnessed a growing number of partnerships between firms, civil society organizations, governments and international organizations in support of broader development goals.

Great care must be taken, however, to ensure that these efforts actually build indigenous social capacity for the long run — and are not simply one-off projects. Otherwise, they will end in frustration and disappointment all around.

A third major challenge — and by far the trickiest — is the fact that the system of global rule-making has become increasingly imbalanced, privileging capital and global market expansion over social concerns like labor standards, human rights, environmental quality or poverty reduction.

The 1999 "Battle of Seattle" was all about imbalances in global rule making. And so were the subsequent clashes — in the streets and in the courts — over the price of drugs to treat HIV/AIDS patients in Africa.

Environmental and labor side agreements to trade pacts may be inefficient and ineffective. But they, too, reflect social demands for a rebalancing of the power to make global rules.

What makes this issue so tricky is that the imbalances in global rule-making reflect asymmetries of powe, and no government exists at the global level to compensate — as is the case within democratic societies.

Asking the corporate sector to impose self-restraint in exercising its own power seems naïve. But business can help by adopting practices that make the imbalances less relevant.

The pharmaceutical industry, for example, has come a long way towards accepting the principle that poor people in poor countries must be treated differently when life or death are at stake.

In conclusion, if globalization cannot be made to work for all, in the end it will work for no one — because it will be socially unsustainable.

The business community has it within its hands to promote a more inclusive globalization because it has the scope and capacity to act globally far more than the highly fragmented system of global governance.

Thus, corporate social responsibility is not merely a matter of metrics and not only a business challenge.

Far more important, it concerns the changing relationship between business and society — and the recalibration of the respective rights and obligations of different social sectors and actors for meeting social needs.

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