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26-Jan-15

Berle and Means (1932)
• The corporation is potentially the dominant institution of the
modern world
• Managers are princes of industry, their companies akin to feudal
fiefdoms
– Separation of ownership and control is a challenge
– Unchecked corporate power could undermine democracy

• Because corporations have amassed so much power, they should
be “balancing a variety of claims by various groups in the
community and assigning to each a portion of the income
stream on the basis of public policy rather than private cupidity.”

Sorry! Says Milton Friedman

And Regulation Can Affect Strategy

• There is one and only one social
responsibility of business
• To use its resources and engage in
activities designed to increase its profits
• So long as it stays within the rules of the
game

• For companies in many nations, regulatory policy
increasingly shapes the structure and content of
industries and sets in motion major shifts in economic
value.
• In network industries such as airlines, electricity, railways
and telecommunications, as well as in banking,
pharmaceuticals, retailing and other businesses,
regulation is the single biggest uncertainty affecting
capital expenditure decisions, corporate image and risk
management

– i.e., engages in open and free competition
without deception or fraud

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– Beardsley, Bugrov & Enriquez, McKinsey Quarterly

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Dodd (1932)

Friedman’s Rationale

So what should businesses do?

• “Modern large-scale industry has given to the
managers of our principal corporations enormous
power.
• “Desire to retain their present powers accordingly
encourages [them] to adopt and disseminate the
view that they are guardians of all the interests
which the corporation affects and not merely
servants of its absentee owners.”
• Corporations risk losing their legitimacy if they do
not ‘appear’ to care about society

• Corporations are not persons
• Employees have a fiduciary responsibility to owners
of corporation—shareholders
• Employees & shareholders free to be socially
responsible with their own money
• Employees spending shareholder money on CSR
equivalent to a tax
• Unless you can make a business case for it

• Make sure social issues are discussed at highest levels as
part of overall strategic planning
• Actively manage societal issues

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• Relationship of business & society is a Social Contract
– Obligations
– Opportunities
– Mutual Advantage

• Companies have to take on a social responsibility
– Show that they deserve to be free of governmental constraints
– Need to behave as corporate citizens of the world
– Need to respect communities in which they operate
assume

self-discipline, previously

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Reconciling Diverse Perspectives:
The Social Contract

Therefore …

to

• Profits are not an end in themselves—they are a signal
from society that the company is providing something
people want, and doing this in a resource-efficient way
– Corporate leaders should articulate this, inside & outside

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– Need

– GE: more research on environmentally friendly tech
– Transparency in reporting
– Voluntary standards of behavior

required

by

governments. Avoid corruption.

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• Businesses do not have an unquestioned right to operate in
society
• Those managing business should recognise that they depend
on society
• Business relies on inputs from society and on socially created
institutions
• There is a social contract between business and society
involving mutual obligations that society and business
recognise that they have to each other—Ian Davis
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• CEOs should take the lead in socioeconomic debates that
may alter industry structure and rules of engagement in
the long term
• Business, in essence, involves a series of complex &
continually evolving social trade-offs.
– In the power sector, the goals of low prices, energy security, and
environmental friendliness are in permanent tension.
– So are the affordability of drugs, product safety, and innovation
in pharmaceuticals.

• Business leaders need to raise the public's understanding
of these unavoidable trade-offs.
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26-Jan-15

Source: Zadek, 2004

Orgnl
Learning
Civil

Beyond CSR

Higher Opportunity
Green Zone

The Ten Principles
Human Rights

Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and

Principle 2: make sure that they are not complicit in human rights abuses.

• Triple bottom line – Profits, Social and
Environmental goals
• Corporate Social responsiveness - changing
due to policies and circumstances
• Corporate social performance – responding to
social pressure

Strategic

Managerial

Compliance

Labour Standards

Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to
collective bargaining;

Principle 4: the elimination of all forms of forced and compulsory labour;

Principle 5: the effective abolition of child labour; and

Principle 6: the elimination of discrimination in respect of employment and occupation.

Environment

Principle 7: Businesses should support a precautionary approach to environmental challenges;

Principle 8: undertake initiatives to promote greater environmental responsibility; and

Principle 9: encourage the development and diffusion of environmentally friendly technologies

Risky Red Zone

Defensive
Latent

Emerging

Consolidating

Anti-Corruption

Principle 10: Businesses should work against all forms of corruption, including extortion and bribery.

Institutionalised

Issue Maturity

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Civil
“We need to make sure everybody does it”

Porter & Kramer (2006)
advocate Strategic CSR

Strategic
“It gives us a competitive edge”

• When looked at strategically, CSR can be a source of tremendous
progress & can have great impact
• Corporations should look at where they should intervene for strategic
gain and make max impact
• CSR activities should be focused not on

Managerial
“It’s the business, stupid”

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Govt

– Generic social issues, but on
– Value chain social impacts (where company affects society in the
ordinary course of business), and on
– Social dimensions of competitive context (factors in the environment
that affect a company’s competitiveness in the places where it operates)

Compliance
“We’ll do just as much as we have to”

• Choose CSR initiatives that provide shared value—good for society
and good for business
• In some cases, industry-wide efforts needed

Defensive
“It’s not our job to fix that”
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The Global Compact - 2000

Dimensions of CSR

Libertarianism

• Economic - responsibility to earn profit for owners—
shareholders
• Legal - responsibility to comply with the law (society’s
codification of right and wrong)
• Ethical - not acting just for profit but doing what is right,
just and fair
• Voluntary and philanthropic - promoting human welfare
and goodwill
• Being a good corporate citizen contributing to the
community and the quality of life
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Libertarian
One who advocates maximizing individual rights and minimizing the
role of the state.
– One who believes in free will
Libertarianism is a political philosophy maintaining that all persons are
the absolute owners of their own lives, and should be free to do
whatever they wish with their persons or property, provided they allow
others the same liberty
Libertarianism draws on classical liberalism, that arose from
Enlightenment ideas in Europe & America, including the political
philosophies of John Locke & Montesquieu, and the moral and
economic philosophy of Adam Smith.

• The Global Compact is a voluntary initiative that seeks
to advance universal principles on human rights, labour,
environment and anti-corruption through the active
engagement of the corporate community, in
cooperation with civil society and representatives of
organized labour.

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man is healthy. Governments must be designed to protect the people from themselves. namely man’s property and liberty.” means there should be no government interference in what a person wishes to do. Civilization is what corrupted him. brutish. • “By pursuing his own interest he frequently promotes that of society more effectively than when he really intends to promote it” – Thus we have one justification for government— supported by all citizens to increase their own welfare • Historical Context: 23 – By punishing defection and rewarding cooperation – By 25 24 27 3 . & possessions (private property!). 2. Hobbes supported the restoration of monarchy. and danger of violent death. • In such condition there is no place for industry. not institutions. no one is really free. since even the “weakest” could kill the “strongest”. Everyone lives in constant fear. So. Representation ensures that governments are responsive to the people. no knowledge of the face of the earth. Governments must be designed to protect the people from the government. No morality exists. They must be actively involved. nasty. [Government] can never have a right to destroy. not to their humanity but to their self-love. Liberal Locke Rousseau Adam Smith on Laissez Faire • An individual. To unite them under the “General Will”. We address ourselves. Individual wills are subordinate to the general (collective) will. enslave. is “led by an invisible hand to promote an end which was no part of his intention” Rousseau favors a more direct democracy to enact the general will. and which is worst of all. men ARE equal. no commodious building. justice. then it might be deposed. no instruments of moving and removing such things as require much force. or the baker. inequality increases and large numbers live lives of misery • To create an ideal society. Natural Rights must be secured. nor use of the commodities that may be imported by sea. liberty. To bring people into harmony. but he is everywhere in chains. and short. no letters. intending his own gain. no arts. . some did not – Hence Smith built an alternative theory starting with … • The Role of Self-Interest: – It is not from the benevolence of the butcher. – Smith felt evidence did not support mercantilism—some countries with activist governments did well. Purpose of Government To impose law and order to prevent the state of war. Governments must be responsive and aligned with the general will. or designedly to impoverish the subjects…” • Hobbes. this is an obligation! • • Adam Smith: Markets Work Best. To secure natural rights. people are the sovereign • Backdrop: Before the French Revolution 20 Hobbes’s Solution: People choose a strong central authority to rule them • How does a king solve the problem? – By changing the rules of the game establishing a framework—the Hobbes Locke Rousseau State of Nature The state of nature is a state of war. no society. not necessarily represent.26-Jan-15 John Locke: 1690 Consent of the Governed is Key Political Philosophy & Government: Social Contract Theories • The Economic Rationale for Government Man is moral. Rousseau Government's power was best limited by dividing government up into branches. that we expect our dinner. Limit the Role of Government Backdrop: Glorious Revolution of 1688. Representation is not enough. Liberal/Moderate 26 • Laissez Faire. It is chaotic. and such a war as is of every man against every man.” • In the state of nature. The state of nature is not necessarily good or bad. Rise of parliamentary power & constitutional monarchy 19 Thomas Hobbes—Leviathan (1651) • … during the time men live without a common power to keep them all in awe. solitary. equality for all • General Will emphasizes public welfare > personal interests • Works as people will not make unjust laws for themselves • Prefers direct democracy. happy. Men exist in the state of nature in perfect freedom to do what they want. Governments are designed to control... French for “to let to do. 22 Jean-Jacques Rousseau 1762 Adam Smith 1776 • “Man is born free. men are “Noble Savages”. • The invisible hand is market competition 2. continual fear. Natural Justice exists • Man gives up some rights to pursue welfare more efficiently • Government power is “limited to the public good of the society. poor. good and free (a “noble savage”) • But as society develops (and private property). but from their regard to their own interest. health. indeed. Has inalienable rights to life. with each branch having only as much power as is needed for its proper function • If a government subverts the ends for which it was created. law—which Impact on Founders encourages cooperation 1. Men in a state of nature are free and equal. Political Environment Conservative Hobbes 21 – Counter to Mercantilism—which argued for an activist role for government in trade to increase gold reserves. but. People make a nation. they are in that condition which is called war. • Backdrop: The English Civil War saw Parliament taking over government and executing King Charles I. Locke. Citizens cannot delegate their civic duties. etc. 3. the brewer. no navigation. men do give it up to secure the advantages of civilized society. people form a Social Contract • They give up natural for civil rights & submit to a “General Will” which will secure freedom. • Division of Labour: – Smith showed how industry could be organized—through specialization—to yield maximum output => eco growth 1. and never talk to them of our necessities but of their advantages. Owing to this fear. and the life of man. because the fruit thereof is uncertain: and consequently no culture of the earth. Representation Representation is a safeguard against oppression. In a state of nature. no account of time.

the duty of erecting and maintaining certain public works and certain public institutions. and without any assistance.. • first. enterprises are collectives) • • • • 29 • 1848: Karl Marx—The Communist Manifesto • On the other hand. is so powerful. the duty of protecting. every member of the society from the injustice or oppression of every other member of it. so far as possible. that it alone. and Money – – – – General Theory Macroeconomic failure during Great Depression Government needed to jump start the economy Deficit financing OK Justifies an activist role for government of neglects both the broader costs and the potential benefits that do not figure in individual tallies of profit and loss • The rules that define the market fail to induce profit-seekers to take such effects into account • Government is needed to bring about balance through the right regulatory framework Reich Of Markets & Myths 32 But Adam Smith Recognized… 35 What is the Choice? • According to the system of natural liberty. unchecked profit seeking inherently – Focuses on unfairness arising from exploitation of labour and increased concentration of wealth among capitalists – Proposes alternative economic arrangement – 20th century substantially involved conflict between Smith’s & Marx’s views • 1936: John Maynard Keynes—The Employment.I • Market Failures: – The natural effort of every individual to better his own condition . • Government – Under certain conditions free markets are unable to provide an efficient allocation of resources – Failure of Competition—Monopolies – Externalities – Public Goods • The Rule of Law – Incomplete Markets efforts to dictate economic outcomes are inherently inefficient • They stifle innovation and concentrate decision- • Other Rationales – Promote macroeconomic stability and growth – Adjust for undesired market results. but of surmounting a hundred impertinent obstructions with which the folly of human laws too often encumbers its operations.. which it can never be for the interest of any individual. Interest. or the duty of establishing an exact administration of justice • thirdly. the duty of protecting the society from the violence and invasion of other independent societies • secondly. or small number of individuals.II Challenges to Adam Smith’s Views Market is a great coordinator in society Liberty and Property are the foundations Quid pro quo (voluntary exchange) Money (helps overcome need for coincidence of wants for barter) • Activity (performances and objects) for sale: do different things to make money • Entrepreneurs create enterprises to scale beyond individual capacity • (Ironically.. to erect and maintain • So the choice is not between government and market The real problem is Reich of markets and myths • Bad choices about rules • Flawed procedures for making such choices • Complicated laws and regulations Reich Of Markets & Myths 30 33 36 4 . making • Income Distribution • Demerit and Merit goods within imperfectly accountable bureaucracies Reich Of Markets & Myths 28 31 How do Markets Work? Lindblom 34 Two truths . the sovereign has only three duties to attend to .26-Jan-15 Thus. not only capable of carrying on the society to wealth and prosperity.. Rationales for Government … Two truths .

We will: • Identify and spread best practice through the new Centre for Management and Policy Studies • Bring in joint training of Ministers and civil servants • Introduce peer review of Departments Modernising Govt . high quality public services and will not tolerate mediocrity. Patel. websites and call centres • Benchmark progress against targets for electronic services Lobbying • It refers to advocating a position to government • Different methods of lobbying are Contact lobbying and Background lobbying • Contact lobbying refers to direct interaction with government officials or staff in meetings. revise performance management arrangements. rather than trying to dictate the right market results • Market is a human creation: the shifting sum of a set of judgments about individual rights and responsibilities … As a culture accumulates answers to these questions. through local partnerships. We will: • Develop an IT strategy for Government which will establish cross-government co-ordination machinery and frameworks on such issues as use of digital signatures and smart cards. We will: • Gandhi. state's) role in a society – Principal agent of social transformation – Principal agent of national integration Reich Of Markets & Myths 37 Modernizing Governments – UK .Key Commitments Policy making: we will be forward looking in developing policies to deliver outcomes that matter. and other means • Involve and meet the needs of all different groups in society • Modernize the civil service. or email • Background lobbying refers to indirect lobbying activity designed to build friendly relations with officials and staff Modernising Govt . focusing on real improvements in the quality and effectiveness of public services • Monitor performance closely so that we strike the right balance between intervening where services are failing and giving successful organizations the freedom to manage the vanguard of Indian politics gave two very (then novel) normative justification for a government (and more broadly.1999 .2 43 Modernising Govt . not simply reacting to short-term pressures.26-Jan-15 The Third Alternative • Reorganize the market to account for broader effects as private agents decide on transactions • Government should concern itself with designing the right market rules. We will: Public service: we will value public service. phone calls. Nehru. and not trail behind technological developments. We will: • Deliver a big push on obstacles to joined-up working.3 Summary  Quality public services: we will deliver efficient. ethnic minorities and people with disabilities and build the capability for innovation • Establish a public sector employment forum to bring together and develop key players across the public sector Govt regulations 45 5 . tackle underrepresentation of women. Ambedkar and others at • Review all central and local government department services and activities over the next five years to identify the best supplier in each case • Set new targets for all public bodies. one-stop shops.5  Responsive public services: we will deliver public services to meet the needs of citizens. not the convenience of service providers.4 Information age government: we will use new technology to meet the needs of citizens and business. not denigrate it. it creates its version of the market Modernising Govt .

• The Act also covers issues such as auditor independence. and the prohibitions against insider trading have been corrupted. and enhanced financial disclosure. including modern accounting rules. public morals • Redistribution and Equity that would otherwise not fully consider public interest. internal control assessment. the US Congress passed a tough new law. regulate. corporate governance. • Considered among the most significant changes to US securities laws since the New Deal in the 1930s. & discipline accounting firms in their roles as auditors of public companies. of emissions.g. drug safety. And the system didn’t fail through carelessness or laziness. • Control of quantity – Universal service obligation. FDA regulations and drug approval) • “Captured” regulatory bodies like CAB got eliminated • Look back at origin of regulation. – Minimum wage or rent controls 46 Paul Krugman Economics Guru … Techniques of Regulation • “The Enron debacle is not just the story of a company that failed. securities and financial market regulation. • The Act establishes a new quasi-public agency. safety etc. quality health care (American Medical Association)] 50 Public Interest Theory of Regulation: Pigou • As a direct result of Enron and other scandals. called Sarbanes-Oxley Law. it is the story of a system that failed. • Control of entry – e. inspect.’ • Regulating Actions of Natural Monopolies • Regulation can be defined as government intervention in – Utility Pricing • Merit Goods and Setting Standards markets to influence those decisions of private agents – Health care related areas. it was corrupted. • “Crony Capitalism: American Style” independent auditors.26-Jan-15 Regulatory Capture & Rent Seeking Justifications for Government Intervention and Regulation What is Regulation? • ‘A government imposed limitation on the behavior of • Correction of Market Failures George Stigler: The Economics of Regulation – Correcting Externalities like Environmental Pollution individuals or organizations. maximum production limits. environmental protection. which imposes stricter rules on auditors & makes corporate directors criminally liable for lying about their accounts. customer service levels.” 47 Regulatory Reactions to Enron (and Other Corporate Scandals) • Regulation is actively sought by the regulated party • Rational political class provides it • Concentrated interests provide votes and resources to political sector to attain goals • Preferred over direct transfer of resources to industry as subsidies encourage new entrants • Diffuse nature of loss ensures no significant opposition • Methods: tariffs. occupational licensing • Capture: information for regulator comes from regulated • Justifications: public interest [oil security (Oil Import Quota). including lack of competition (monopoly) – Assumptions: • Government are benign and capable of taking care of these market failures effectively • This justification for Regulation is seen as promoting growth of government. in long distance telecoms and NYC taxicabs • Control of quality – e. EPA regulations & auto industry. typically in public interest & large coalition support (Civil rights. to oversee. quotas. etc) • Lots of opponents out there in society to counterbalance concentrated economic interests 54 6 . 48 52 Stigler’s Economics of Regulation • Control of price – Aimed at preventing predatory pricing and over charging.. • Counterarguments: – Private players will behave well—Reputations matter – Cartels usually collapse – Markets subject to potential entry by competitors 51 • Economic arguments interesting but too simple • World is full of regulatory activity that affects concentrated economic interests harshly (e.” • “The Enron affair has revealed that the institutions governing the capitalist economy. helping airlines grow (Air Mail Subsidy).g. 49 53 Wilson’s Critique of Economic Analysis of Regulation • Regulation needed to correct for market failures.g. the Public Company Accounting Oversight Board.

or to the permanent and aggregate interests of the community. They have an interest in cornering a bigger share of an existing pie rather than contributing to enlarging the economic pie. ◦ No group wins or loses all the time. whether amounting to a majority or minority of the whole.” • Madison therefore saw the need to limit the negative effects of faction by promoting competition among groups • Thus created the concept of ‘checks and balances’. ◦ Groups provide the key link between the people and the government. • Actual Reality – Regulations emerge through a political process of negotiation among a wide range of actors in multiple sites … an uneven compromise based on technical. Federalist #10 • “The causes of faction… are sown in the nature of man. ◦ No one group is likely to become too dominant. Key Designer of United States Constitution Mancur Olson: The Logic of Collective Action “By a faction I understand a number of citizens. 59 56 James Madison. operating in a hybrid world that straddles science.26-Jan-15 Rational vs Hybrid Regulation: Scoones (2005) Theories of Interest Group Politics: Pluralism  Definition: • Professed Ideal – Rational. business. public-benefit-oriented interest groups – E.. whereby guidelines developed centrally by experts are enshrined in law and implemented by bureaucrats with assent of politicians ◦ Politics is mainly a competition among groups. social. and government interests 55 58 61 Olson’s Challenge to Pluralists  The Pluralist Assumption: ◦ People with like-minded interests will form groups to pursue their common goals ◦ Policy is a result of market clearing (comprehensive bargaining) between such interest groups Interest groups  Olson’s challenge: ◦ Small groups have disproportionate power to organize—form special interest groups ◦ The world is run by such special interest groups. tax breaks for special interests. ◦ Many centers of power and many diverse. science-based process.” ◦ Groups weak in one resource can use another—there are different ways to influence the system. 57 62 60 • Collective action leads to benefits that have a public good nature – Therefore leads to free riding (example of organizing local neighborhood watch) – Free riding can be overcome in small groups because of monitoring ability • These small groups dominate and take bigger share of economic pie compared to general. each one pressing for its own preferred policies. no national taxpayers’ union to protest against this 63 7 . political and sometimes moral considerations • Thus – There is a process of ‘co-construction’ of regulatory policy. ◦ Groups usually play by the “rules of the game. or of interest. who are united and actuated by some common impulse of passion.g.” --James Madison. adverse to the rights of other citizens. competing groups.

time. one person's contribution is unlikely to be important – No enforcement mechanism against non-cooperators – If an interest group fails in one arena. e. tax breaks Rent seeking through action in political process: – Lobbying – Political contributions: votes. – Actual group: The part of the potential group consisting of members who actually join. – Interest groups can file amicus curiae briefs in court cases to support their position.g. and The Problem of Collective Action Interest Group Tactics: e. money. – Collective or public good: Something of value that cannot be withheld from a group member • Individuals are tempted to free-ride (receive benefits without contributing) • Large groups are difficult to organize – Individuals in large groups are anonymous – In a large group.. Judicial Arena • Litigation • The Surprising Ineffectiveness of Large Groups – Potential group: All the people who might be interest group members because they share a common interest. who benefits from Fertilizer Subsidies in India? 66 69 72 8 . personalized benefits to individuals who participate in collective action • Positive Selective Incentives – – – – 70 Informational benefits like an exclusive magazine Monetary benefits like travel or insurance discounts Solidaristic benefits—participation in groups/network Inspire members to think their agenda is important • Negative Selective Incentives – Threats of Violence or Noncooperation • Social Selective Incentives – Boycotts (possible even among countries!) 65 68 71 Collective Action & Rent Seeking • • • • Rent seeking through regulation Rent seeking through tariffs and quotas Rent seeking through subsidies. 64 67 The Iron Triangle Enabling Collective Action: Personalized “Selective Incentives” Rent Seeking • The government can help create or protect a group’s monopoly position • Thus the government increases the monopoly rents of the favoured groups. – Class Action lawsuits permit small groups of people to try and correct a situation on behalf of a much larger group. Free Riders. to get a sense of how rent seeking is going on. follow the money! • Often well hidden and difficult to decipher.. info • In any political dispute. the courts may be able to provide a remedy. at the expense of buyers of the groups’ products • The monopoly rents that the government can help provide are a rent worth pursuing • The pursuit of these rents is called Rent Seeking • Smaller groups are better at Rent Seeking • Selective Incentives – Overcome free riding by providing private.26-Jan-15 Olson.g.

and people compete to maximize their own interests. perfect and available to everyone • In the polis. and how people make claims about • The cultural belief that everyone succeeds or fails on the • basis of individual efforts and abilities. 73 How the Indian state stumped unions • Indian government supported labour welfare but often sided with employers in major industrial disputes. he also pointed out how in Iraq even if US built infra but social capital was lacking. others do not trust each other 78 81 9 .S. how people gather and use information strategically. • The sum of these individual decisions—one-on-one market transactions— is claimed to yield overall social benefit. increase industrial democracy and often raise productivity.“ "In the U. most middle class dead. Freedom of Information Bills • Media. • Markets. tax compliance is powerfully predicated by the level of social capital in a community. gender etc. promote and fight for the collective interests and rights of workers or a group of workers. to the risk a country will go down in corruption or blow up in civil war. • Unions mostly fought over economic issues and the limited economic agenda led to competition between groups and fragmentation. information is – Interpretative • Therefore politics all about controlling interpretation – Incomplete • Full context of Advani speech on Jinnah in Pakistan – Strategically withheld or manipulated • Therefore. is about the public interest.. and that the • functioning of the social system consists of the The Market vs. or relating to citizens") is the practice and theory of influencing other people on a civic or individual level.26-Jan-15 Deborah Stone – Rationality Project THE MYTH OF INDIVIDUALISM: Wayne E.. meaning "of. for. aiming for efficiency all the time • People do not interact with other people in market contexts alone • People are part of communities • Therefore. but also in relation to the state and civil society. Politics. “People tend to obey the rules not because they are worried about cops but because they have obligations to other people. • • “This fiction is that society consists of a set of • independent individuals.Institution Building in Iraq by US Robert Putnam Information in Polis :- • • • • • • • • • • Social Capital 75 In a rational world. as well as for their own members. due to its biases 10 • Social capital refers to: how responsible people in a community feel for each other. they are living and acting in a Polis (Aristotle’s democratic city-state) • Politics (from Greek: politikos. – Unions did not seize the initiative on other major societal issues (on caste. Baker • Deborah Stone compares the “market” and “polis” models of political decision making to explain why economic logic has dominated policy and political analysis. information is complete.. how closely people in the community are interconnected. Stone argues that we cannot conceive of politics this way. The Polis: Deborah Stone Putnam Trade Unions – Freeman & Medoff  “Unions reduce wage inequality. •Social capital Has Three Components – Moral obligations and norms (cooperation) – Social values (especially “generalized” trust) – Social networks (esp. she argues. each of whom acts to achieve • goals that are independently arrived at.“ Levels of social capital predict everything from the quality of schools and local government. on the other hand. • Stone’s model appears to point to the essence of 76 politics: how groups form. not necessarily helpful. in the political sphere. and to explain the significant shortcomings of that approach. these are the result of • the region’s successful accumulation of social capital • • • • • 77 74 79 80 Social Capital Gap . unions are an important voice for some of society’s weakest and most vulnerable groups. • Stone argues that analysts who adopt the rationality project assume that people are utility maximizing rational actors with a great deal of good information at hand to make decisions. are competitive. especially in relation to employers. Unions emerge from and are a product of the fundamental difference of interests which exists between workers and employers.) • • • • • • • • • • • • Standard economic analysis of people and society too limiting and misleading • People are not just self-interest maximizing individuals.” (Freeman and Medoff)  Unions are organizations which define. voluntary associations) • If a region has a well-functioning economic system and a • high level of political integration.

there is interposed a whole series of secondary groups near enough to the individuals to attract them strongly in their sphere of action and drag them. leads him to share in the collective energy and supports his own when exhausted” • • • • • • • • • • • • • 84 89 Symbolism • Social capital can lead to exclusive in-groups – Racist and casteist exclusion – Old boys clubs and glass ceilings • Family values & social norms can hinder growth – Women’s participation in society and work may be blocked by tradition. where a community is united by demonizing the “other. norms. • Social capital can be built using hatred. religion. low frequency meeting – Linking capital: u and ur CEO. cultural. e.g. Hyderabad vs Lucknow • Key are Intercommunal Interactions & Networks • Intercommunal Interaction: – Quotidian or everyday interaction. other does not. especially through associational networks (formal social capital) • Countries with high levels of inequality magnified these differences between classes. these serve as channels of participation for the collective good. the “banality of evil. • And lastly. competitive ways of joining upper class networks!) tradition of organized cooperative efforts constitute a form of capital. of give and take and responsibility for the well-being of others. civic networks • Associational Interaction Key to Defusing Tension – Integrated civic groups quash rumors & prevent riots – Can construct politically: Gandhi. and social • Social networks. – Free speech and creativity may be curbed by the pressure to conform. no meeting but some heirarchichal reln between them Brands should build bonding capital – since this is comfort zone. so that a history of civic engagement builds on itself. in this way. and ppl want that 3 things need to do to get social capital – – – • • • • 88 Building social n/w Like other forms of capital. Transactional relationship with brands – community based Engagement trust 83 86 Durkheim (1893) • • • • • • • • • • • One set has communal riots.. which instead of throwing the individual on his own resources.. that accrue to an individual or a group by virtue of possessing a durable network of more or less institutionalised relationships of mutual acquaintance and recognition. like physical assets or material wealth. 82 • • Coleman 3 types of social capital – value locked in relationships – Bonding capital: exist between u and friends.” Can lead to horrible effects.g.” which.” Caveat: -ve Aspects of Social Capital 87 90 10 . Congress “big tent” 85 Champniss on social capital • • • • • • • • • • • Ashutosh Varshney on Communal Violence and Social Capital Studies pairs of similar Indian cities (minority %) -ve aspects of social capital • A nation can be maintained only if. shops – Associational interaction. • Communities are best able to overcome the barriers tocollective action when they have a large stockpile of these attitudes. – Holocaust & Hitler. making possible the achievement of certain ends that in its absence would not be possible • Build connections • Enable and reward trust • Foster cooperation – reward cooperation Talk. can be used to harness individual energies for the common good. Acknowledging that capital can take a variety of forms is indispensable to explain the structure and dynamics of differentiated societies • Capital: economic. between the state and the individual.26-Jan-15 • • • • • • • • • Summarizing Social Capital— Deborah Stone Relations of influence and loyalty. • All of these factors create “social capital. Why? – Ahmedabad vs Surat. social capital is productive. norms of altruism and participation. • Norms of reciprocity. • A widespread sense of trust comes from shared experiences with other members of the community and encourages people to participate in collective efforts. e. • Upper layers of society have higher levels of social capital. into the general torrent of civic life • Societies with high levels of social cohesion and solidarity have less suicide than those with social dislocation and loose social bonds. high frequency of meeting – Bridging capital: between u and other company folks similar work. • Society can support individuals through “mutual moral support. if a community has a dense network of voluntary associations. actual or virtual. giving the upper classes further advantages • (The CAT and IIM are open. encourage civic engagement as well. can produce or reproduce inequality. and a past Bourdieu • Social capital is the sum of the resources. norms and existing groups.

Actually.10% = 90% has more psychological impact than 50% .10% = 40%. 80% & 90% all mean the same: not certain.Lichtenstein. The zero price has greater certainty. • There is also a pseudo-certainty effect. Slovic. losing $100 produces more pain than gaining $100 produces pleasure. not Optimise • This may be a generally efficient strategy." Used to judge likelihood or frequency of event. To most people. Thus we would rather eliminate risk than reduce it. Fischhoff. or recent People tend to be biased by examples that they can easily retrieve: they use these search examples to test hypotheses People tend to correlate events that occur close together 26-Jan-15 91 Rhetoric is the art of persuasion • Aristotle argued that good rhetoric involved: probability of an event. 70%. and Combs • The availability heuristic is judging the frequency or Aristotle on Rhetoric 26-Jan-15 26-Jan-15 93 26-Jan-15 95 Other biases & gambler falacy • Confirmity – I favor a decision then I will pick data that favors it • Overconfidence • Anchor – I evaluate my next option on initial impression • Representative – ppl ignore sample size – 4/5 & 100/101 same!! • The Gamblers Fallacy . 96 26-Jan-15 99 11 . Dalits have placed Ambedkar at the top of the world.actions which have often led to severe rioting and police firing. or judging which of two dangers occurred more frequently. • Overall. • Gain and loss satiation: The values of the outcomes for both positive and negative consequences of the choice have the diminishing returns characteristic. • Subjects thought that accidents caused about as many deaths as disease. Fischhoff. and Combs. by the ease with which examples of the event come to mind. Thus 100% .We have an inappropriate tendency to assume that random and non-random events will balance 26-Jan-15 97 Certainty Effect When an outcome is certain and it becomes less probable. diseases cause about 16 times as many deaths as accidents. preferring the better-known. • When in the domain of gains. this works because of our preference for absolutes and our inability to really understand the meaning of the difference between different probabilities. With all of this. thought that homicide was a more frequent cause of death than suicide. • Loss aversion: The resulting value function is steeper for losses than for gains. this has a greater impact than when the outcome was merely probable before the probability was reduced by the same amount. – "The raising of the statues has represented a claim to pride and public space. Layman. Layman. it is clear that in the "politics of flags and statues". which is usually that individual's status quo. • Example – Most people would pay more to remove the only bullet in the gun in a game of Russian Roulette than they would to remove one bullet when there were four in the gun. people were more risk averse. they Satisfice. incumbent candidate People tend to be biased by information that is easier to recall: they are swayed by information that is vivid. offer one free with three 26-Jan-15purchased. 98 • Major features of prospect theory • Reference level dependence: An individual views consequences (monetary or other) in terms of changes from the reference level. studied errors in quantifying the severity of risks.26-Jan-15 Social scientist Gail Omvedt: Quattrone and Tversky: Risk Seeking in the Domain of Losses Availability Heuristic – Statues play a major role in political assertion in contemporary India. "Judged Frequency of Lethal Events". hence safer. • So what? How do we use this information? – Instead of offering four for the price of three. given time & resources 26-Jan-15 94 Availability Heuristic . occurrence • Quattrone and Tversky: • People who see themselves to be in the domain of losses—due to deteriorating economic conditions—are more likely to support the riskier (less well-known) challenger in a hypothetical election. Their opponents also take them as such and express their hostility to Dalit assertion by putting "garlands" of chappals around such statues . • A famous 1978 study by Lichtenstein. Slovic. – Pathos: appeal to the emotion of the audience • Through passion of delivery or metaphor or story telling – Ethos: a sense of credibility and “moral competence” • Sense of weight of the argument and expertise of arguer – Logos: good logical structure • Well structured and based on sound data and evidence 92 Herbert Simon: Human Beings are Quasi-Rational • Bounded rationality—Herbert Simon – People do not optimise in the “rational” manner described by economists – They conduct a less than complete search for alternatives – They then choose an option that meets a certain threshold of satisfaction • That is. but fairly likely. wellpublicized. where the certainty is only perceived. and suicide is twice as frequent as homicide.

– Reporters see themselves as guardians of the public’s right to know – Racial. human interest. but favours simplicity. Then reconcile the differences. driven by the profit motive. have to sell advertising to survive • Coverage increases with audience interest • Treatment will be chosen to appeal to and retain an audience • Political constraints – Reliance on official sources – Symbiotic relationship with political elites • Perceived societal significance – Journalists need to focus on their professional growth. it must be important • Limited number of issues can be dealt with at a time – media selects which ones – Primes viewers by affecting: what springs to mind and what is forgotten or ignored • Media ‘herding’ pushes stories up agenda • Criticism: Not always easy to see where an agenda is coming from 105 Moderate coverage Interpretation & advocacy Extensive coverage Position taking & advocacy (Poverty) (Health risks) (Environmental protection) (Individual rights) Societal Significance 26-Jan-15 (Economic regulation) Low Low coverage Factual treatment Moderate treatment Factual treatment & Interpretation (Most business issues) (Sports. i. 2003] Agenda-setting Theory • Confirmation trap: – Get someone you respect to play devils advocate to argue against the decision you are making (or build these arguments yourself) – Be honest about your motives. problems. but do tell them what to think about – If media covers it. also trivia But when subjects actually given one item. have greater coverage • Professional constraints 101 Bias Strategies (2) 26-Jan-15 106 Constraints to fulfilling role Availability: – Check assumptions. avoid being swayed by memorable distortions. man-made risks.e. motives. – Don’t confuse one type of probability with another. etc. Knetsch & Thaler (1990) • Media ‘frames’ reports. – Expose yourself to conflicting information. only 10% traded • Promotes cynical view of politics 100 Bias Strategies • • • Media coverage is influenced by… • Intrinsic audience interest in the subject • Economic constraints – Principles: – News organizations are commercial organizations.26-Jan-15 Endowment Effect Framing Theory Kahneman. and then given the opportunity to trade.) – Seek opinions from a wide variety of people to push your mind in new directions. Don’t go soft on the disconfirming evidence. moral concerns. 50% prefer mug) Media • Frames designed to make news stories into ‘narratives’ • Contain protagonists. try to build up an estimate with indirect statistics and other data. consider base rates explicitly. Representativeness: – Don’t ignore relevant data. – Try to get statistics. consequences • Frames need not support single ideology • Frames => media ‘bias’: bias isn’t ideological. causes. emotions. Are you really gathering evidence to inform your choice or justify it. weather) (Working conditions at overseas suppliers) (The economy) (Medicare) (Corruption) (International trade) Low Intrinsic Audience Interest High 108 12 . – Substitute facts for opinion whenever possible. presents them in ways that influence people’s understanding Pilot studies showed the pen and mug to be equally preferred (50% of people prefer pen. – When seeking advice. people > institutions • Political coverage often focuses on ‘bad news’ – scandals. using alternate starting points and approaches. – Think about the problem on your own first (to avoid being anchored by their perceptions. – Challenge an experts estimates in a similar manner. • Overconfidence: – Try to challenge your own extreme figures.) Anchoring: – Always view the problem from different perspectives. Try hard to imagine how they might be exceeded. – If you don’t have direct statistics.) 26-Jan-15 103 High • Media don’t tell people what to think. hence need to get print space/air time 104 102 107 Theory of Media Coverage and Treatment [Baron. (Probability that an arts manager would be like Mark with the probability that someone like Mark would be an arts manager. Don’t rely on your memory if you don’t have to. (Don’t share your estimates or you’ll anchor them. don’t ask leading questions.

.. These innovations take just as much skill and daring as does the process of invention. skills. Basic research: chemistry. Science base: state of the art in chemistry." • Competition from innovation was an "ever-present threat" to monopolies that "disciplines before it attacks. microbiology. genetics Applied research: synthesize and screen compounds Invention: Identify compound with desired effect in lab Prototype: Compound formulated for lab testing Development • Phase I clinical trials • Phase II clinical trials • Phase III clinical trials 7. 4. Diffusion • Sponsor trials.. led to gales of "creative destruction" as innovations caused old inventories. but also by introducing new means of production. marketing 8. competition which. 5. conferences. no capitalist returns and no capitalist propulsion. ideas. the new source of supply. • Creative destruction leads to continuous progress and improved standards of living for everyone.26-Jan-15 Innovation Typology CHOMSKY: Media Not Neutral Implications for Markets • Manufacturing Consent – Edward Herman and Noam Chomsky • Perfect competition is not the way to maximize economic well-being. etc. Epstein &Shelton.. Commercialization • Formulation." • Schumpeter pointed out that entrepreneurs innovate. dosage choices. sell it for the same price. • Schumpeter wrote: "[What counts is] competition from the new commodity. biology. Under perfect competition all firms in an industry produce the same good. new products. not just by figuring out how to use inventions. packaging. and have access to the same technology. technologies. consumer advertising 116 Source: Davila. 2. 3. Product / Offering • The role of the media is to socialise people into the institutional structures of society (that basically reinforce powerful interests) through systematic propaganda Business Model Types of innovations Process Customer Experience 109 112 Media Coverage can Affect Corporations by… 115 Example of Traditional Linear Model: New Drug The Six Levers of Innovation • Alerting different stakeholders to ways the corporation affects society • Raising concerns about practices of firms • Providing information about alternate courses of action." • But the prospect of getting a monopoly spurs innovation. detailing MDs. the new type of organization. have their trademarks protected from infringement. and obtain patents. the new technology. 6. 2006 Joseph Schumpeter: Innovation & Economic Growth Innovation • Innovation is “the fundamental impulse that sets and keeps the capitalist engine in motion" • "Without innovations. 111 114 117 13 . strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives. • Innovation by the entrepreneur. and new forms of organization. • Thus companies should be able to keep their production processes secret. without entrepreneurial achievement. no entrepreneurs. and equipment to become obsolete. for and against the firm • Reducing the costs of collective action by corporations and other stakeholders • Facilitating strategy in non-market settings—the court of public opinion • Representing certain interests & principles Business Model Value Proposition Product & Services Supply Chain Process Technologies Target Customer Enabling Technologies 110 Technology 113 1.

Enhance the technological capability of existing micro. 120 123 125 Strategy: Impact • The five-pronged focus will foster innovations by: – Democratizing Information – Identifying and empowering domain experts at National. Create supportive societal conditions for industrial innovation. and 7. Create a critical mass of new. accountability and transparency – Increasing community and public participation at all levels – Improving Governance & Planning 126 14 . 2. diversification. 6. flexibility. freedom. Transform large enterprises. • Poor teamwork • Enduring importance of upward hierarchical progression • A weak systems and strategic orientation (and the resulting paucity of appropriate change paradigms) • Low tolerance of failure • A lack of confidence in innovation capabilities • A failure to positively reinforce innovation efforts • A strong need for control that comes in the way of joint working with other organisations. 3. technology & capital flows People Funding Knowledge Infrastructure • Reservation for small sector • Government dominance of R&D activity Innovation by Firms – Source of finance & location of R&D work – Good institutions of higher technological learning Benefits Competition Appropriability Rewards Political Environment • Strong technological capabilities but little benefit to industrial sector 119 Barriers to Innovation in Indian Organisations International Environment Technology Environment 122 From Jugaad to Systematic Innovation Originate from Indian society and culture 1. Create a new incentive system for universities and other institutions of higher education. 4. and medium enterprises. without compromising quality • Need innovation processes that are ‘frugal’ in terms of the resources required & have a ‘frugal’ impact on the earth’s resources • Based on individual ingenuity • Inadequate scientific or engineering base – More craft than science • Difficult to solve complex problems • Not scalable 118 Indian Innovation System Before 1991 121 Government Policy Social Environment • Self-reliance became an end in itself Economic Environment 124 Innovation Strategy – Efficiency & productivity ignored Capacity to Innovate • Public sector as fountainhead of industrial dev – Allowed to acquire complex technologies • Incentive to Innovate Inputs Private sector allowed – But restrictions on growth. State & District levels – Ensuring institutional autonomy. technology-driven firms. innovative. Continue and enhance the process of dynamic reform of public R&D organisations. 5.26-Jan-15 Inclusive Innovation: The Indian Model National Innovation Council and Sam Pitroda The Problems with Jugaad • Innovation paradigm to focus on inclusive innovation for/of & by the people at the Bottom of the pyramid • Focus on ‘frugal innovation’ that produces products and services that are affordable by more people at low levels of income. Change the structure of government involvement in supporting industrial R&D. small.

excel & collaborate • All universities will be included in this • First phase of NKN is operational with 2.26-Jan-15 Pilot Activities U. funding people • “Silicon Valley Model” fit with changed environment 130 National Knowledge Network 133 US vs. Resurgence: The New Economy The System 1. sensitization. at industry association or university facility 2. flat. models 3. a young man in his 30s was struck by the gap between the informal world of innovations (in India) and the formal world of management and business. connectivity & channel established at local cluster level  Managed by “insiders” of cluster. Kenya. cross ownership.S.Cluster Innovation Center”  Leadership. product innovations. • The Honey Bee newsletter is today available online and published in six Indian languages. Uganda. 129 • Strong national universities • University autonomy low • Scientist mobility low • Very little VC • Academics not allowed to be entrepreneurs • Patents based on date of submission • Limited claims accepted 131 Japan 134 language • Catch-up after World War II MITI Strategy: • Import foreign technology (allocate foreign exchange to those firms who can adapt. ideas. Ecuador and North America. • He began the Honey Bee Network to gather innovation and inventions from the small manufacturers who relied on local and indigenous knowledge to create products in the modern world • It contains some 12. Execute 1-2 Pilot Innovation projects / initiatives  Conducted under auspices of industry assn and few cluster units  Showcase the results of collaboration and cooperation @ cluster level • GIAN [Grassroots Innovation Augmentation Network]. including several from Mongolia. management. English and Spanish and read in 75 countries.5 gigabits and 405 nodes are connected • NKN to consolidate multiple networks in the country • NKN to provide new virtual network facilities • NKN to be the backbone for the Education.000 entries. acceptance of failure • Failures allowed new combinations of technology. Conduct “Innovation Enabler/Training Sessions”  To build capability in innovation. negotiate with foreign companies) • Protect & nurture domestic production • MITI plays central coordinating role Japanese approach: • Improve process technologies • Vertical networks • Close relationship between parent & affiliates (keiretsu). techniques. Research and multiple applications for the future • Strong state and private universities • Universities work autonomously • Scientist mobility high • Active VCs • Aggressive scientific entrepreneurship • Patents based on date of invention • Broad claims accepted 128 Protecting social innovations amongst the poor – Honey Bee n/w-Anil Gupta • In the late 80s. improve. IPR  Provide best of breed Indian innovation training. It comprises heirloom knowledge. 1997: Connecting inventions to Venture Capitalists who will potentially fund them • NIF [National Innovation Foundation] in association with CSIR [Council for Scientific and Industrial Research]: Evaluate and prioritise worthwhile ideas • SRISTI [Society for Research & Initiatives for Sustainable Technologies & Institutions]: Umbrella organisation that co-ordinates all these activities. trial-and-error. external expertise (thru VC). 127 • Rapid technological change • Institutional factors & cultural forces had always supported entrepreneurship • Start-ups: flexible. health. Create “CIC . Japan • Government building IP Network with multi-gigabit capabilities to connect 1500 plus nodes across the country for Education and Research to expand. Vietnam. knowledge-sharing • Capital flow through close relationship between banks and business networks 132 135 15 . consensual. Colombia. folklore.

• JIHAD VS. – Defined by language. history. religious. 16 . capitalism on the global level is rapidly dissolving the social and economic barriers between nations. entertainment. • There is no universal civilization. MCWORLD is the term that Barber has coined to describe the powerful and paradoxical interdependence of these forces. • Information-technology imperative: New technologies allow access to information worldwide. Their primary attachment is to their religion. transforming the world's diverse populations into a blandly uniform market. ethnic. as American when they visit other countries. • American culture includes: – American appetites. there are these cultural blocks. institutions. • On the other hand. customs. each within its own distinct set of values. • But McWorld only cares about are free markets. • Culture. piety & promiscuity—all the things that Americans recognize. • Ecological imperative: Global environmental problems create common problems and risks. is the most troublesome. democratic societies McWorld or the Homogenization of Politics and Culture Jihad • McWorld – A worldwide cultural integration based on global markets and corporate-led consumerism • • • Driving Forces – Globalization – Westernization – Americanization McWorld & Interdependence • On the one hand. – “Brands not Products” (Klein) • Resource imperative: Rising demand for scarce resources ties diverse peoples together. by their absence. Hindu and so on. and racial hatreds are fragmenting the political landscape into smaller and smaller tribal units. • People in the Arab world do not share the general suppositions of the Western world. McWorld What is Culture? • Benjamin Barber (1992) • Two major competing forces on the world stage: Jihad and McWorld • Jihad—centrifugal—breaking up • McWorld—centripetal—coming together • Neither respect nor nurture democratic values! • Market imperative: MNCs and global markets generate a common consumer culture. Islamic. not to their nation-state. he wrote.26-Jan-15 Jihad vs. focused on the administration of things & people • Jihad—tribalization and dictatorship • “Culture” embraces collective beliefs & assumptions that may not be explicit. not what you believe in or what you can become What did Huntington say? • Human beings. enabling aspirations. selfidentification of people – It’s what you are deep down. Implications – Smaller communities of common identity – Growing intolerance for “outsiders” – Revival of old local or ethnic identities Politics of McWorld & Jihad • Antipolitics really • McWorld—globalism: bureaucratic. or – to struggle against worldly injustice Barber’s usage of the term: – A worldwide cultural fragmentation stemming from attempts to reconstitute personal identities around old local and ethnic traditions. is everything that is not nature. are divided along cultural lines — Western. technocratic. ultimately. dress. not free. at least for consumer goods. civilizations – A self-fulfilling prophecy? • A civilization is the highest cultural grouping of people and the broadest level of cultural identity people have short of that which distinguishes humans from other species. religion. it’s an expansive notion. • The Islamic civilization. Instead. Huntington on “The Clash of Civilizations” • Fundamental source of conflict in future will not be ideological or economic • Conflict will be between cultures. • Original meaning: – to strive for inner spiritual purity. work etiquette. meritocratic.

important and dangerous conflicts will not be between social classes. like pluralism. He argued that they do not hunger for pluralism and democracy in the way these things are understood in the West. and “liberalization” (i. individualism and democracy. Elites 2. • Over the next thirty-plus years “globalization” (a polite term for big companies setting up in places free from environmental restrictions or pesky unions). That line has moved several hundred miles east. “fiscal reform” (aka tax cuts for the rich balanced for the sake of fairness by welfare cuts for the poor). • Their culture is inhospitable to certain liberal ideals.” “Torn Countries” Definition: Countries trying to change from one civilization to another.26-Jan-15 It is the setting! A more combative definition by Professor R T Naylor Edward Said • He argued that people in Arab lands are intrinsically not nationalistic. respond to and respect the will of the people. Governments. It is now the line separating peoples of Western Christianity. “Civilizations are the ultimate human tribes.e. one of the few North American economists who valued social reality ahead of mathematical mumbo jumbo. led by those in English-speaking places. Success depends on: 2. Women attain literacy and educational opportunities. Host Civilization Modernization is really the issue: Norris and Inglehart Why Civilizations Will Clash 3. Over half of the world has not yet entered this phase. rich and poor.. 1. but between people belonging to different cultural entities. Examples: Turkey and Mexico 17 . but still have far less power than men. crossfertilization and sharing. someone who wants to make "civilizations" and "identities" into what they are not: shutdown. • This far less visible history is ignored in the rush to highlight the ludicrously compressed and constricted warfare that "the clash of civilizations" argues is the reality. “In the new world…the most pervasive. from Muslim and Orthodox peoples on the other. or other economically defined groups. • Huntington ignores internal dynamics and plurality of every civilization • Ignores the major contest in most modern cultures [that] concerns the definition or interpretation of each culture • A great deal of demagogy and downright ignorance is involved in presuming to speak for a whole religion or civilization. differences Processes of economic modernisation are separating people from their local identities  nation-state weakened as source of identity  religion filling gap • Industrialization brings women into the paid work force and dramatically reduces fertility rates. and that over centuries have made it possible for that history not only to contain wars of religion and imperial conquest but also to be one of exchange. on the one hand. Public 3. started to adopt what John Kenneth Galbraith. but underneath cultural differences there are these universal aspirations for dignity. • Ultimately qualities of a people are actually determined by context. only the more advanced industrial societies are currently moving on this trajectory. • The post-industrial phase brings a shift toward greater gender equality as women move into higher status economic roles in management and the professions. 1.” They represent the immutable psychic need people have for a shared belief system World is becoming smaller  more interaction between peoples  more consciousness of civilizations. • Culture is important. Tribal wars and ethnic conflicts will occur within civilizations…And the most dangerous cultural conflicts are those along the fault lines between civilizations… For forty-five years the Iron Curtain was the central dividing line in Europe. • But it now appears as though they were simply living in circumstances that did not allow that patriotism or those spiritual hungers to come to the surface.(for Huntington) the West is West and Islam is Islam Fault Lines of the Future Huntington’s Thesis • Edward Said … • Huntington is an ideologist. for political systems that listen to. • Alas. Differences between civilizations are real and basic. turning financial predators loose to do what they wanted with other people’s money) interacted to pave the way for a new “parasitocracy”. • In the mid-1970s. and gain political influence within elected and appointed bodies. Women are enfranchised and begin to participate in representative government. called the “horses-and-oats” principle – feed a horse enough oats and it will leave something behind on the road for the sparrows to eat. sealed-off entities that have been purged of the myriad currents and countercurrents that animate human history.

which have McDonalds) will not go to war – Ahistorical. • second. – organic fruit and vegetables through global retailers (Carrefour) • New opportunities for firms. • But Huntington is essentially mistaken in assuming that the core clash between the West and Islamic worlds concerns democracy. be less corrupt. and tolerate divorce. • But the world has been globalized for a long time. let companies hire and fire workers more easily • Too Hagiographic? – Every CEO he interviews is brilliant.26-Jan-15 Norris and Inglehart: The True Clash of Civilizations • Huntington is partly right: culture does matter. and IF can upgrade over time 18 .0 (1800-2000) – Companies globalizing for markets & labour • Globalization 3. • and third. is defined as: relatively free flow of goods.. Telephone and satellite technology improvements at a dramatic pace during the second wave. and the like. provided that they trade along the lines of "comparative advantage. services. clamor for protectionism from businesses.0 (1492-1800) – Countries globalizing for resources & imperial conquest • Globalization 2. right quality. lists fall of Berlin Wall & Open Source as equally revolutionary. Thomas Friedman’s Three Phases of Globalization • Globalization 1. The process has speeded up since the advent of industrial revolution and has been accelerating ever since. • The clash is about whether societies are willing to accept a more permissive and liberal sexuality. allow the countries to trade freely thereafter." • The Ricardian model shows that if we want to maximize total output in the world then. and indeed matters a lot. brand?) IF enterprise can deliver right product. create institutions of good governance. e. • first. Dell and its suppliers… • “map” of relationship among a specific set of firms Implications of GVCs/IPNs for Enterprises • Global export markets increasingly involve exports of parts/components within GVCs – Even small components can be produced for regional and global markets within framework of GVCs • Sundram Fastener’s generator caps for GM • Niche markets can be regional/global – Bharat Forge — world’s largest factory for forgings. Samuelson’s View Ricardo and Comparative Advantage • David Ricardo’s central idea is that – two countries can obtain mutual gains from trade. • The values separating Islam and the West revolve far more centrally around Eros than Demos. at right time. he quickly responded with. A similar decline in communication costs: Cable and telephone cost during wave one.0 (2000. • Comparative advantage is a bit more subtle … – opportunities for mutual gains from trade arise from differences in the conditions of production in the two countries. Causes of Increased Trade Flows • Transportation and Communication Costs: – Continuous cost decline due to better technology: Ocean shipping and railroads during the first wave Declining ocean and air freight costs during the second wave. • Post-WW II. partner. • To illustrate.10 today • • • • • • Communication cost improvements have been instrumental in the transmission of ideas. even if one country can produce everything more cheaply than the other. niche. In Sum: International Production Network • IPN describes the relationship among specific set of enterprises that jointly produce particular set of products/services – Examples: Levi and its suppliers for jeans. right quantity." (absolute advantage not needed) and that – ideally a market system with profit-seeking enterprises will lead them to do so. so that religious legacies leave their distinct imprint on contemporary values.) – Individuals & small groups globalizing What do we mean by economic globalization? Criticisms of Thomas Friedman • Global economic integration.g. including SMEs. people. to enter global markets (components. • The primary cultural fault line between the West and Islam concerns modernization and its impact on social issues of gender equality and sexual liberation. – so long as there are differences. etc. abortion and homosexuality. • When an economics skeptic asked Nobel Laureate Paul Samuelson to provide a meaningful and non-trivial result from economics. the process got disrupted due to a variety of reasons: two world wars. technology & ideas across national borders. and that. • Too breathless & without perspective. e. allocate those resources within countries to each country's comparative advantage industries. fully employ all resources worldwide. there will always be opportunities for trade. bad policy mistakes. for auto parts -engines. axles. • The post-industrial revolution globalization: – Wave I: 1820-1914 – Wave II: 1950-present. a three minute telephone call between New York and London cost $ 250 in 1930 and $0. lots of wars between countries with cross-investments and extensive trade relations • Simplistic Prescriptions: – Open up your economy. "comparative advantage. • Offers Dell Theory of Conflict Prevention (earlier McDonald’s) – Two countries that are part of the Dell global supply chain (earlier. called Globalization. Toyota and its suppliers for particular products. Nilekani’s line • Between 1914 and 1950. the international economic integration has been accelerating.g. capital.

9-to-5 job – Confrontation with increasingly repressive states: Using “terrorism” to muzzle dissent . spirit of individuality. poor countries offer: tax breaks. • As bait. at what cost. international instruments of trade and finance oversee a complex system of multilateral laws and agreements that have entrenched a system of appropriation that puts colonialism to shame. The Dangers of Globalisation • Loss of national sovereignty – TRIMs: Trade policy no longer tool for industrialisation – TRIPs: Innovation monopolies to MNCs – WTO: Trade placed above environment. cheap non-union workforce assembles it and finished products or garments are shipped out. beyond the jurisdiction of sovereign governments. and poor increased in absolute numbers. which then effectively dictates their economic policy” • Mostly. This system allows the unrestricted entry and exit of massive amounts of speculative capital – hot money – into and out of third world countries. a global race to the bottom. reasonable. Having established the “soul”.g.Arundhati Roy 19 . corporations and markets • It has caused—and is causing—mass destitution and increased inequality within and between nations • It is destroying the livelihood of peasant farmers • It is depriving the poor of affordable medicines • It is lowering real wages and labour standards and increasing economic insecurity everywhere … So who does the dirty work? The Major Critiques of Market-Driven Globalization Arundhati Roy on Globalisation • … It is destroying the environment.310 employees in two years. Cheaper production => more money for advertising-marketing. all highly globalized networks!) • The dangers faced by dissent: – The media: The tyranny of crisis reportage & its fear of the mundane – The NGO-ization of resistance: Threatens to turn resistance into a well-mannered. • Multinationals focus on brand’s deep inner meaning – athleticism. but described as consensus • Threats to local cultures. and low wages are imposed on every country • It is permitting global financial markets to generate crises that impose heavy costs particularly on the less advanced economies • It enshrines greed as the motive-force of human behavior • And it is destroying the variety of human cultures • “On the global stage. wilderness or community. • Companies don’t employ labour anymore. • Nike: • nike/en-US/video • “Brands not products” may be a brilliant conceptual strategy. equity. it is people who will work for low rates and not complain about work conditions. • It destroys the ability of states to regulate their national economies. imposing in its place the rule of unaccountable bureaucrats.26-Jan-15 Zero Risk Globalization— Naomi Klein The Major Critiques of Market-Driven Globalization • We are witnessing the age of the super brand. with adverse impacts on economies & currency rates – e. ways of life • Source: Martin Wolf—Why Globalization Works The Dangers of Globalisation Is there hope? • Public Power: The Globalization of Dissent • Hot Money – Speculative capital can flow in and out of economies quickly. yet someone has to make the products. Asian Financial Crisis • ‘One size fits all’ approaches to economic policy – Structural adjustment & free-market policies advocated by World Bank & IMF: rich got richer. in which low taxes. launched an ad campaign costing $90 million. low regulatory standards. they seek to get rid of cumbersome bodies. lax regulation and cheap labour force – each country and each manufacturer falling over themselves to offer cheaper and cheaper labour. it undermines democracy. with no export tax. decision-making by a few countries. eliminating species and harming animal welfare • It is causing. • Naomi Klein terms this “Zero-risk globalization”: companies ship in material. • In 1997. imposition of rich country agenda  loss of legitimacy of IMF & World Bank – Through organizations like World Social Forum – The success of the anti-big-dam movement – (Incidentally. salaried. community. instead subcontract out: no need to find out who is doing their work and in what conditions. Levis had just laid off 16. • Free trade zones: offer tax holidays to foreign investors. in these various ways. raise taxes and spend money on public goods and social welfare • In the process. no representation to poor countries. justice.

was inefficient – MNCs negotiate tax concessions – MNCs want codes that prevent government restrictions but don’t mind subsidies & tax breaks for themselves! • Large corporations are not as large as is made out – Compare with GDP. • Networks are the means by which globalization proceeds. they face an acute dichotomy. Jagdish Bhagwati Defends Globalization • Countries gain from investments by MNCs even though: – In the past foreign aid. similar activities unlikely” (Bhagwati): – Spread of democracy – Reach of media • Today. other agencies pushing for greater transparency. • All networks have standards embedded in them. for someone who wants to participate in the global economy – which is to say. economic and non-economic • The Windows operating system • The ISO 9000 standard of industrial control • Britain’s adoption of the metric system. not any more • In the 1960s & 70s. they continue to seek a global regime which will deliver to them the resources and the instruments to tackle significant domestic challenges relating to balanced socio-economic development. not sales • Countries can play one MNC against another • Size ≠ Power: Power depends on barriers to entry. the unfolding of diversity &freedom of choice • So why is it experienced by so many people as a constriction. • But. and politically explosive.26-Jan-15 Grewal . MNCs used to interfere in local politics. corporate governance 20 . many non-native speakers have freely chosen to speak it. with tied supplies. the economy – to what extent is this really a choice? • As the emerging economies (basically fast-growing developing countries) play a global role. MNCs got involved in regime change to protect their interests – Killing of Lumumba in Congo – Coup against Allende in Chile • “Today. • In theory we can choose among the standards and become more free. • Since English has become the first global lingua franca. mystery • Globalization proceeds through the breaking down of boundaries.on the one hand they are expected to take on greater responsibility and make a larger contribution to the management of what are called the “global commons”. • Finding the right balance between the demands of a global role and the imperatives of domestic challenges of is the essence of the globalization process that faces India. extent of competition • Countries with poor governance vulnerable • NGOs. need to use value-added. • In practice. • At the same time. so that standards are imposed on us. our choices tend to narrow over time. MNCs accused of not standing up to politicians! (Shell in Nigeria) Grewal (continued) The Role for countries like India • Grewal sees such a “merger of reason and force” in many areas. an oppression and a loss of freedom? • David Singh Grewal believes the answer lies in something called “network power”.Are these concerns really about Network Power? • At the heart of globalization is a basic.