On my trip to Hong Kong in December 2005, the taxi could go no further beyond the edge of Causeway Bay because of protests by South Korean farmers. I walked the rest of the way to my hotel, witnessing rage and ferocious outbursts. Livelihoods were on the line.
The farmers’ plight related to the World Trade Organization (WTO) agreement that would increase rice imports by South Korea from 4 percent to 8 percent in the next decade without additional compensation to the farmers. Bold characters on protesters’ banners read, “Globalization kills farmers.”
Through the years, demonstrators who gather at the WTO meetings in various cities have protested their grievances against globalization in dramatic gestures and scorching accusations. The issues are diverse: protestations of the shift of jobs to low-wage countries; condemnation of environmental degradation; censure against fast-food restaurants for spreading unhealthy lifestyles; concern over the loss of local cultures; assertion of threats to national sovereignty; and moral indignation about export subsidies enjoyed by developed countries that depress both the price and vitality of agricultural sectors in developing regions.
An overarching vision of the issues of globalization can be seen in Caritas in Veritate, the 2009 encyclical by Pope Benedict XVI, which declares that economic activities are inherently human with profound moral consequences for people’s well-being, and should entail justice for those who are most vulnerable.
Charity, the encyclical states, “gives real substance to the personal relationship with God and with neighbour; it is the principle not only of micro-relationships (with friends, with family members or within small groups), but also of macro-relationships (social, economic and political ones).”
As one of the key principles of Catholic social teaching, the notion of the common good, which is given explicit attention in Caritas in Veritate, stipulates our responsibility to contribute to the whole society. The rectitude of any economic activity must be assessed by the extent to which it advances or threatens our life together as a community. In this current encyclical, Pope Benedict XVI sets a high bar, noting that our global economic interactions should not only bring us into close proximity as neighbors but also bring us together in solidarity as brothers and sisters.
It is difficult to imagine any response to Caritas in Veritate that does not embed a healthy dose of skepticism about whether globalization can deliver on the vision of the common good. Can free markets extending across the world and integrating all forms of cross-border trading activities — an impersonal force motivated by financial gains — truly consider and advance the welfare of all people? Is this a call from the wilderness so far from the realities of our economic life as to have no resonance, and thus no enduring power to grip our hearts and motivate our actions? Or is this a call that recognizes the potential of globalization that is not only reachable, but is the raison d’être of its very promulgation, and the absence of which would diminish our ability to serve each other?
Such questions were on my mind when, during a 2008 trip to Ethiopia as a board member of Catholic Relief Services, I visited what seemed like miles of greenhouses established by conglomerates from Europe. Such farms provide jobs in this desperately poor region and are supported with tax breaks from the local government.
But there are drawbacks to these operations. These greenhouses drain the river — the lifeblood for local families, as well as for their farms and cattle. Chemical fertilizers and pesticides are deployed in poorly ventilated spaces, putting workers at a higher risk for developing cancer. I also learned about differential regulation between Kenya and Ethiopia, whereby the former sets higher regulations for worker safety.
I love flower arranging and have enjoyed the bounty of roses available back home for as low as $15 for two dozen blooms. But from that day on, I have not been able to bring myself to reach for these roses.
At home in the United States, it is sobering to note that after the last 15 years of unprecedented prosperity and economic growth, income inequality has risen to alarming levels. The income of the top 1 percent of earners has risen from 8 percent of total income in the 1960s to 20 percent today. This gap is the highest among advanced countries. At the same time, unemployment has risen to a rate not seen in the last 30 years. A day at a Catholic Charities office brings us face to face with some of the 44 million Americans living in poverty. In such stark differences, where is the vision of the common good?
A child of globalization
While being as open-eyed as possible about these miseries, I cannot shake from my mind my first-hand experiences of the benefits of globalization while growing up in Hong Kong. My parents were refugees from China. As land and business owners, they would have no future in Mao’s Communist regime. They left behind all possessions and the ancestral home passed down through generations to start a new life in Hong Kong.
I am an offspring of globalization: born ethnic Chinese in a British colony to a father whose profession was shipping; taught by American missionary nuns, the Maryknoll sisters, who offered instruction in English starting in the second grade as their Cantonese could carry them no further; nurtured throughout my life by Catholic institutions, which are among the oldest global organizations; educated in the United States on scholarships provided by American donors and the government; married to a U.S. citizen of Irish and Lithuanian descent; given a Chinese name, Yan, that stands for Confucius’ canons for human relations, and an English name that supposedly came from my father’s fascination with Irish names (and maybe Irish dames) when he studied in Europe.
My story is the norm, not materially unlike my classmates or the 1.5 million refugees who relocated to Hong Kong from 1945 to 1950. Without global trading, what would we have become, in a colony of 426 square miles, with no natural resources except a deep harbor and an overwhelming influx of refugees? Hong Kong could not supply its own food and had to purchase water from China. It had little habitable land and was not endowed with deep deposits of valuable carbons, metals or minerals. Yet it not only provided a shelter but helped newcomers achieve prosperity. Today, with a population of 7 million, Hong Kong continues to have, as the U.S. Department of State says, “one of the world’s most open and dynamic economies.”
Behind that general statement are the stories of many I knew who gained better lives through a rising economy.
One, my distant cousin Choi, came to Hong Kong with only the proverbial suitcase and no money. What I remembered most was his recounting of how, when a person was called to report to the prefect in charge of his neighborhood in China, shoes would be the give-away of “despicable, bourgeois” tendencies. This character flaw subsequently was punishable during the Cultural Revolution by the donning of a dunce cap and kneeling on broken glass. Since then, I have never taken the ownership of shoes for granted.
Once in Hong Kong, Choi showed his own bourgeois tendencies by starting a little store that sold and repaired transistor radios in a dingy landing of a multistory residential building. He eventually parlayed this skill into a small job shop that sold components to local assemblers and later as exports to Japanese manufacturers as he improved the quality of his products.
Our family driver, Mr. Lai, was an educated man from China who spoke no English, Hong Kong’s official language. He tutored me in Chinese for my Primary Six public exam, while I corrected his pronunciation as he struggled with his “Rs” and “Ls.” Eventually, Mr. Lai’s ability to speak English enabled him to qualify for a taxi license and save enough capital to acquire his own taxi. Both assets — which were subject to government quota and could be traded in the market — appreciated significantly during the tourist and industrial boom in Hong Kong. Mr. Lai’s abode, which started as a lean-to on the hillside, was finally upgraded to a private condo by way of a one-room apartment in public housing. All of his three children graduated from the University of Hong Kong with professional degrees.
Last but not least, our amah — a maid/nanny of sorts — would stop into the bakery to buy a few fractional shares of multinational companies on her daily visit to the market. As the prices of the shares appreciated, she eventually became a lender, making loans to other amahs at loan shark rates.
A rising tide
In Asia, the city of Hong Kong’s ascent is shared by six countries that are collectively known as the “seven tigers”: Indonesia, Malaysia, Singapore, South Korea, Taiwan and Thailand. Today, Vietnam and Cambodia, re-grouping after war and coups, are industrial cubs mimicking the example of the big tigers.
In other parts of the world, information technology and liberalization of trade have opened up a variety of markets. At Notre Dame, for example, jewelry made from recycled magazines by women’s co-ops in Uganda was sold during a Christmas fundraiser in the lobby of the Mendoza School of Business. And a women’s collective in Colombia, through the Clinton Foundation, has engaged Notre Dame MBA students for an analysis on how they can increase demand and prices for their spices.
Despite the unevenness in income benefits, U.N. reports show that infant mortality worldwide has dropped from 12.6 million in 1990 to 9 million in 2007. Access to education has climbed noticeably over the last 20 years in sub-Sahara Africa, from 58 percent to 78 percent of all children who receive some primary schooling. The prediction that parents would place their children into the labor force when jobs are created in developing countries produced the opposite results. Parents with opportunities want a better life for their children.
In Afghanistan, I witnessed how the success of women in enterprise groups triggered the desire for more education for both themselves and their daughters. Development experts repeatedly note that education for women is the most effective approach to addressing the millennium challenges.
It has been shown that direct foreign investments, market economies and participation in the global economy can increase prosperity. Benefits to citizens include employment, job training, higher standards of living and financial stability. Even for nonprofits, I saw how global interactions can improve life. In a clinic in Kenya, nuns transmitted X-rays through a computer to Italy, where physicians in a Catholic hospital diagnosed the problem in real time.
Participation in markets plays a significant role in setting conditions for trade, stimulating savings as well as developing infrastructures for roads, ports, rail, information systems, monetary policies, regulatory frameworks, education and financial institutions. Multinationals with operations in developing countries can set requirements for revenue distribution and reporting protocol that promote transparency and multi-lateral collaboration between local governments, non-governmental organizations and transnational agencies such as the United Nations, the International Monetary Fund and the World Bank. The countries that had the lowest corruption scores are also those with the most open economies.
Considering that the three primary causes of conflict are corruption, poverty and social inequality, it is not difficult to see that commerce can enhance peace. Few think of this, but the most valuable export from America to the rest of the world is civil society. Universal suffrage was not a feature in any nation in 1900; by 2000, it is present in 62.5 percent of all countries.
Clearly the outcomes of globalization depend on the global actors, particularly large multinationals. According to author Bruce Piasecki, of the world’s 100 largest economies, 51 are corporations. In addition, 300 multinationals account for 25 percent of the world’s total assets.
Whether globalization can contribute to the common good is a question that has been answered by evidence: Yes, it can, some of the time. The more pertinent question, I believe, is how globalization, through business, can serve society.
Socially responsible conduct
In 2000, U.N. Secretary General Kofi Annan called upon corporations to become voluntary signatories of a new program, the United Nations Global Compact (UNGC), by which they would abide by 10 principles. These pertain to the advancement of human rights, labor rights, environmental sustainability and anti-corruption.
Now, in the compact’s 10th year, signatories have grown from 50 inaugural members to more than 5,000 businesses and 1,500 non-business organizations in 135 countries. The most active country is France with 512 organizations. The United States ranks sixth with 203.
Signatory organizations have the flexibility to create their own implementation plans. Most companies have enacted policies focusing on nondiscrimination and workplace safety, as well as restrictions on child and forced labor. Sustainability practices have become central to corporate operations, and, to fight corruption, some companies have established oversight systems that include hotlines and sanctions for breaches.
Many believe that budget-conscious but socially responsible conduct will become the “new normal” expected by customers, governments and civil society. In a 2010 Accenture survey of more than 700 CEOs from UNGC-participating companies, 81 percent reported that they have incorporated environmental, social and governance issues into their core strategy, up from 50 percent in a similar survey in 2007.
Many other companies, large, small, private or public, also abide by socially beneficial practices similar to the UNGC. New business models that explicitly align profit and social objectives include micro-ventures (made famous by Nobel Laureate Muhammad Yunus), fair trade (which apportions greater bargaining leverage and profits to local growers and producers), and B Corporations (based on formal corporate charters that specifically include social responsibility as their objective). Note that these socially oriented business models stand on, and do not depart from, the foundations of capitalism: protection of property rights, voluntary transactions and contracts enforceable through rule of law.
Businesses do not operate in a vacuum but achieve success and make contributions within a certain regulatory, political and social context. Relaxing in my hotel room in London in the summer of 2002, I sprang to my feet for a straight-back salute when Queen Elizabeth II came on television for her golden jubilee celebration. It was not an instinct from my days as a colonial citizen but a deep appreciation for how the British government, despite the way it came into possession of Hong Kong, enabled an economic miracle that lifted up the lives of about 5 million people. By then, I had seen enough of the contrasting consequences between good and corrupt government; intelligent and nonsensical rule; and government for and against the people.
“Free market” is a misnomer; no markets are even close to free. Taxes, regulations, standards, tariffs, investment incentives, trade agreements, social institutions for education and health, physical infrastructures for transportation and communication, all come together to shape, enable, restrict, facilitate and hinder the activities and competitiveness of business. Whether or not globalization works for a country depends critically on the prudence and fortitude of its government in formulating corresponding strategies, policies and programs.
Company sourcing decisions, while often characterized as a race to the bottom toward the lowest wage countries, are actually critically affected by a host of other factors, such as political and economic stability, availability of skilled labor, literacy rates, protection of property rights, sound macro-economic policies, local infrastructure and quality of local institutions. Asia receives 20 times more foreign direct investments than sub-Sahara Africa because of strong showing on these criteria.
More, not less globalization
Clearly the benefits of globalization are uneven, and substantial variation in socially responsible behavior among companies exists. Yet we should heed the observation in a recent International Monetary Fund issues brief that “the biggest threat to continuing to raise living standards throughout the world is not that globalization will succeed but that it will fail. It is the people of developing economies who have the greatest need for globalization, as it provides them with the opportunities that come with being a part of the world economy.”
We must recognize that the engines that propel globalization are operating with full steam. For centuries, trade has been going on between tribes, societies, countries and continents. Globalization is a historical process of increasing integration of economies around the world and cross-border movements of goods, services, information and capital (including financial, labor, knowledge, know-how) enabled by technologies and policies. What is different today is the scale. The amount of foreign exchange transactions is approximately $2 trillion a day versus only $80 billion in 1980.
The sense of my own country versus yours has certainly dulled in light of Foreign Direct Investments, which have surged from 6.5 percent of world GDP to more than 30 percent in the last 30 years. Capital, as in your and my pension investments, certainly seems to cross boundaries without hesitation toward the pull of opportunities. And information is easier to share. I could not make a phone call to Hong Kong from Purdue University in 1972 without decimating my monthly allowance. Now it is free on Skype.
Pertinent to the success of American companies is the fact that almost all sectors — such as health-care technology, auto manufacturing, aircraft, electronics — now include leading competitors outside of the United States. The rules and playing field for business are global in nature with attendant challenges and opportunities that transcend the resources of any single company, as well as the jurisdiction of an individual nation-state.
Should this intimidate or energize us? Should we reject the future because we cannot traverse the familiar paths of the past to get there? Will the common good be better served if we retreat?
Papal teachings remind us that markets can serve society. As Pope Benedict writes, “The Church has always held that economic action is not to be regarded as something opposed to society. . . . Society does not have to protect itself from the market, as if the development of the latter were ipso facto to entail the death of authentically human relations.”
On prosperity achieved through development, the encyclical makes clear that more, not less, trade is needed: “the principal form of assistance needed by developing countries is that of allowing and encouraging the gradual penetration of their products into international markets.”
A vital key lies in differentiating the instruments of the global marketplace from the actors who direct it. As Caritas in Veritate states, “Instruments that are good in themselves can thereby be transformed into harmful ones. But it is man’s darkened reason that produces these consequences, not the instrument per se.”
According to the 2009 U.N. report on its Millennium Development Goals, while the percentage of people in the world living on $1.25 a day or less has dropped from 42 percent in 1990 to 25 percent in 2005, some regions such as sub-Sahara Africa have not enjoyed this progress. More sobering are the percentages of people living at this level of income while employed: 64 percent in sub-Sahara Africa and 44 percent in South Asia. Food insecurity in the world remains staggeringly high, with about one billion people suffering from chronic hunger and two billion people living with malnutrition. Together, these represent about half of the world’s population.
Globalization has eased some of these problems, and I believe proper business practices followed by men and women of moral character with a people-centered sense of responsibility can indeed deliver on the vision of the common good. I see the recurrent worldwide miseries as a call to make globalization work for more people, not as a justification for retreat. The latter is neither feasible nor effective in raising the quality of life.
Trade is a necessary good, not a necessary evil. However, the “invisible hand” of markets cannot become “fists” — “handshakes” must prevail as the most common form of interaction. The solution for the Ethiopian flower farms is not to stop operation but to adopt strict environmental controls that safeguard worker health and safety, invest in water recycling methods to preserve the water table, develop effective irrigation approaches to increase crop yield, raise prosperity for the villagers and offer opportunities for children, particularly girls, to get an education.
I want to enjoy the roses, yes, at a higher price, and know that I am part of a global supply chain that lifted people out of poverty rather than exploited their lack of bargaining leverage.
Carolyn Woo is the Martin J. Gillen Dean and Ray and Milann Siegfried Professor for Entrepreneurial Studies in the Mendoza College of Business.