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SAVING GLOBALIZATION

AND TECHNOLOGY FROM


THEMSELVES
IMPERATIVES FOR CORPORATE LEADERS

By Rich Lesser, Martin Reeves, and Johann Harnoss

W hat does Brexit, together with the


political environment in many developed
nations, tell us about the sustainability of two
world, we enjoy better medicines, educa-
tion, information, connectivity, and mobili-
ty than most of us could have imagined a
of the major drivers of global economic quarter century ago.
progress: globalization and technology?
These achievements have many fathers
This piece offers a personal perspective on the and mothers. Human inventiveness, politi-
root causes and implications of the current cal leadership, social activism, and entre-
turmoil and what corporate leaders can do preneurship have all contributed to what
to shape conditions for continued prosperity. Nobel Prize winner Amartya Sen described
Given the tough constraints that CEOs face in as human freedom.4
attempting to transcend the intense focus on
short-term returns, the how is at least as Carefully crafted policies for the free ex-
complex as the what. Nevertheless, we hope change of goods, services, capital, and la-
that this article will stimulate discussion on borcommonly known as globalization
the business and society agenda for major cor- and the march of technology have played
porations in developed countries and beyond. essential roles. These two forces have in-
creased productivity, opened up markets,
and created opportunities for billions of
We Live in a Time of people to improve their lives.
Unprecedented Prosperity
We have had a great run. The world has
never been more prosperous than it is to- We Also Live in a Time of
day.1 People around the world live longer, Growing Economic Inequality
healthier lives than ever before.2 In emerg- and Uncertainty
ing markets, billions of people have moved Societies in the United States and Europe
out of extreme poverty.3 In the developed are being fundamentally challenged in ways

For more on this topic, go to bcgperspectives.com


we have not seen for decadeswith na- globally, with around 1% of people con-
tionalistic rhetoric and agendas from the trolling 50% of the worlds assets.11
far right and a deep distrust of business,
globalization, and technology from the
far left. Many worry that such a polari- The Consequences for Business
zation of public opinion and policy making Are Real
could introduce new risks and uncertainties What if Brexit was only the beginning? In
that would deter investment (which is polls, sizable majorities in the United States
already far too low, judging by current and key European countries now demand a
interest rates) and undermine the basis for reorientation around narrow national inter-
future prosperity. ests, proclaiming, Let other countries deal
with their own problems.12 As more people
Why this polarization? While there are feel left behind by economic progress, this
many causes, and they vary from country to sentiment could grow and percolate into
country, it reflects in large part widespread politics and then policy. And such policies
and growing dissatisfaction with entrenched could prove to be contagious across nations.
economic and social inequality and greater
personal uncertainty in a fast-changing glob- Firms could soon find themselves in an
al economy. It also reflects peoples mistrust environment of escalating political risk in
of political and corporate elites, who are terms of trade, access to talent, regulatory
seen as the architects of this state of affairs.5 rules and constraints, and restrictions on
Economic inequality within our societies is a new technologies. Political uncertainty
byproduct of the way we have managed the could become the major business risk, com-
past three and a half decades of global eco- promising firms ability to innovate, to ac-
nomic integration. At the same time, tech- cess markets and talent, and to invest and
nologyin particular, recent advances in ro- create wealth.
botics, machine intelligence, and distributed
ledgers (blockchain)could replace human In short, it appears that many are so dissat-
labor in many areas, further compounding isfied with the current game that they are
dislocation, inequality, and discontent.6 threatening to end it, even at significant cost
to themselves, thereby jeopardizing two ma-
Brexit was a watershed. The British vote jor drivers of global economic prosperity:
to leave the European Union was motivated globalization and technological progress.
in large part by frustration with economic
stagnation and inequality, and it has creat-
ed fertile ground for nationalistic, anti- Business Sits on the Twin Fault
immigrant sentiment. The English West Lines of Globalization and
Midlands, the region with highest leave Technology
vote, has experienced stagnating median Todays economic inequality is a result of
household incomes for nearly two decades.7 how we have chosen to manage globaliza-
tion and technology.13 These two drivers
The division between those who have cap- have always been latent fault lines. Wealth
tured the vast majority of the benefits from creation does not automatically result in a
global integration and technological prog- fair distribution of rewards. Freedom of
ress and those who havent runs between trade, capital, and labor movement creates
major cities and smaller communities, be- winners and losers, as does the advent of
tween young and old, and between people new technology. Popular support for global-
with different levels of education.8 And its ization has always rested on the premise
not just Great Britain70% of the US that most would benefit, many could suc-
workforce has experienced no real wage in- ceed through their own efforts, and a social
crease in the past four decades.9 Similar safety net would protect temporary losers.
patterns can be observed in Canada, Ger- Traditionally, it has been governments role
many, and other European countries.10 to provide equality of opportunity (particu-
Wealth concentration has also increased larly through education), an effective safety

| Saving Globalization and Technology from Themselves 2



net, societal balance, and political and eco- shied away from controversial societal
nomic stability. Meanwhile, business could issues like the sustainability of the current
focus on generating growth, productivity, in- economic system, preferring to entrust
novation, and, ultimately, societal wealth. them to government. In this environment,
we believe that corporate leaders can no
Governments now find it harder and hard- longer afford to stand by as observers.
er to play their role. Reshaping policies to
help struggling individuals and communi-
ties in times of transition requires political A Corporate Leadership Agenda
stability and consensus, both of which are to Shape the Future
lacking right now. Broader economic reali- Our societies need the voices and efforts
ties are not helping, either. The ability of of corporate leaders in order to tackle the
governments to intervene is constrained by inequality and social dislocation caused by
feeble macroeconomic growth in the Unit- technology and globalization. An incremen-
ed States and Europe, which greatly limits tal extension of corporate social responsibil-
the scope of fiscal and monetary policy. ity activities will not be sufficient. The grow-
ing divide between winners and losers has
The cracks are beginning to show. Many become a specter that haunts both business
people now think the game is biased (two- and societyand it is time to confront it.
thirds of Americans say that the economic
system is not fair).14 Some conveniently Business leaders need to balance two ap-
blame immigrants and foreigners for their parently conflicting objectives. First, they
woes. Others appeal to moral notions of need to secure the sustainability and pros-
fairness and demand distributive justice.15 perity of their own companies. This re-
mains a CEOs prime responsibility, and it
Moral questions aside, addressing the distrib- has become much harder in an era defined
utive challenge in our societies is in busi- by lower growth, impatient investors, geo-
nesss best interest. It is hard to imagine that political uncertainty, and extremely rapid
business has anything to win from ending to- technological change. Second, they need to
days game and replacing it with one charac- shape the conditions for continued and
terized by restricted trade and access to tal- more inclusive economic prosperity and, in
ent, a backlash against technology, and particular, for global economic integration
persistent political and economic uncertainty. and technological progress.

Searching for practical solutions to hard To achieve those ends, we propose that
challenges is precisely the forte of business. business leaders embrace a new agenda
Yet business leaders have traditionally comprising seven areas of opportunity. (See

Seven Opportunities for Corporate Leaders to Improve the Economic


Landscape
Economic 1. SHAPE THE NEXT WAVE OF
inequality GLOBALIZATION
2. SUPPORT ENTREPRENEURIAL
Technology Unequal BUSINESS ECOSYSTEMS
3. LEVERAGE TECHNOLOGY FROM
Economic FRONT TO BACK
Distribution
benets
4. INVEST IN HUMAN CAPITAL
Globalization Broad 5. APPLY A SOCIAL BUSINESS MINDSET

6. REBALANCE AND ALIGN REWARDS


Shared
prosperity 7. RENEW AND OWN THE NARRATIVE

Source: BCG Henderson Institute.

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the exhibit.) It will not be easy, and it will thousands of individuals and enterpris-
entail unfamiliar and uncomfortable choic- es in dynamic ecosystems, could help
es, including, in some cases, deemphasizing restore balance and sustainability. Such
short-term returns in order to support eco- ecosystems make it possible for individ-
nomic and societal progress and strengthen uals and small firms to participate in
the enterprise for the longer term. But we technological progress, catalyzing both
see this as a tradeoff worth making. employment and innovation.

1. Shape the next wave of globalization. As corporations rethink their global


Globalization has been fluid across its supply chains and business models,
several centuries of development and creating ecosystems of suppliers and
will almost certainly continue to evolve. aspiring entrepreneurs could be part of
Whereas the last wave of globalization the journey. Take, for example, provid-
centered on accessing foreign markets ers of cloud-based web services, which
and creating low-cost global supply give young companies access to scale
chains, the next wave could follow a very benefits and flexibility previously
different pattern.16 In his 2016 com- unavailable to them. Such ecosystems
mencement speech at New York Univer- are not just the purview of web compa-
sity, GE CEO Jeff Immelt described what nies. Leading energy companies are
this could look like: more decentralized, investing in decentralized energy grids,
more geographically differentiated, more demonstrating the broad feasibility of
digitally interconnected, more cognizant such approaches. Toyotas integrated
of social impact and the importance of and highly collaborative supply net-
building capabilities rather than exploit- work, much celebrated for both its
ing labor cost differentials. leanness and resilience, illustrates that
ecosystems are also important for
Business leaders can take an active role traditional manufacturing companies.
in shaping the next phase of globaliza-
tion, looking beyond cost-based offshor- 3. Leverage technology from front to
ing and emphasizing the benefits of back. Technologys effect on humans
trade and technology across a wider depends on how we choose to develop
geographic and demographic base. and use it. If we leverage it from the
Technology will be crucial. For example, back office forward, focusing mainly on
the use of analytics and robotics could increasing efficiency and optimizing
bring manufacturing closer to target internal processes, then our use of
markets. We already see companies technology will result primarily in the
shaping the next wave of globalization displacement of labor. We will miss
by reshoring time-sensitive and highly opportunities not only to enhance value
customizable forms of production, for customers but also to create innova-
particularly in the fast apparel and tive jobs and improve peoples lives.
automotive industries, thus turning glob- Instead, businesses should start from
al supply chains into two-way streets. the front, with a clear focus on solving
unmet customer needs and delivering
2. Support entrepreneurial business tangible new value.
ecosystems. Several decades of economic
progress have resulted in a concentration Using technologies to spur innovation
of economic activity in larger enterprises and give people more fulfilling lives is an
and a decline in startup activity.17 De- opportunity in nearly all sectors of the
pending on how we harness it, further economy. But this inclusive approach
technological progress could either may require some uncomfortable
exaggerate or ameliorate this divide. choices. Take emerging blockchain
technology applications, which could
The emergence of platform businesses, have vast potential in financial services
which facilitate the collaboration of (currency, payment solutions, digital

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assets), insurance (contract and identity support, businesses must be deeply
management), entertainment (perform- embedded in it. One way corporate
ing rights management), and many other leaders can achieve this is to establish
sectors. The benefits could be extracted social businesses that are adjacent
either primarily through efficiency to their core business models. This
enhancementsby eliminating interme- puts corporations in a position to solve
diaries and probably shedding many jobs some of societys most fundamental
in the processor through the creation problems by leveraging their core
of valuable services and markets. skills, not by making tangential and
ultimately unsustainable philanthropic
Could we imagine that those who contributions.
originate and develop new technologies
take some responsibility to apply them Nobel Prize winner Muhammad Yunus
in an inclusive manner, creating new has been a passionate champion and
benefits and services while addressing advocate of social business and its ability
transitional frictions? to create sustainable value for challenged
communities. He defines social business-
4. Invest in human capital. An increase in es as those that provide clear benefits to
the dynamism and diversity of business underserved populations, return the
environments means that people need initial invested capital, and reinvest
to adapt their skills at a faster pace. This dividends to create sustainable enterpris-
includes their ability to take part in the es. Social businesses founded by Danone
production as well as the consumption (small, low-cost portions of vitamin-
of new goods and services. enhanced yogurt produced in small
community factories) and Essilor
Finding effective and affordable ways to (affordable vision care for millions of
help people acquire transferable skills low-income individuals around the
during their careers, not just before they world) show the feasibility and potential
start out, is a large social challenge. of such approaches. Social businesses can
Education is critical in creating career also build capabilities inside the sponsor-
mobility and equality of opportunity, ing corporation and surface innovations
which are at least as important asand that can be deployed more broadly.
closely tied toincome gaps. But it
takes too long for new work skills to Financial inclusion is often pivotal in
become codified and for the education making social business models work.
system to deliver them. Giving underserved groups access to
payment and money transfer services,
Firms can help close the loopfor deposit accounts, credit, and other
example, by working with online financial tools can have a far-reaching
education providers or taking direct impact on well-being. It has been cited
responsibility for reskilling. As new tools as an important factor not only in
become available to build or rebuild poverty reduction and economic growth
human capital more effectively and but also in gender equality.
efficiently, corporations could seek to
broaden their mandate in this area, both While governments can lay the ground-
with their own staff and in the communi- work for financial inclusion, the private
ties where they operate. We also see it as sector can play a major role in driving
paramount that business leaders be rapid innovation and expanding access
consistent, passionate advocates for in a sustained and scalable way. Just
improving access to high-quality educa- four years after telecom company
tion for all ages and income levels. Safaricom launched the mobile-phone-
based money transfer service M-Pesa in
5. Apply a social business mindset. To Kenya, for example, 70% of adults had
contribute to society, and to gain its adopted it.18

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A social business mindset can also lead stories appealing to instinct, fear, and
to meaningful progress on hard-to-crack emotion take hold.
issues like long-term youth unemploy-
ment. In Europe, business-led alliances This matters. Narratives shape percep-
work closely with public agencies, tions and political reality, which in turn
thousands of volunteers, and employers shape economic reality. Business leaders
to offer structured education and skill have traditionally avoided broader
building programs.19 These social societal issues and have focused on their
business vehicles have been three to narrower role. In the coming years, we
four times more effective than standard believe that they will need to take a
programs in re-integrating young more active stanceto play offense and
Europeans and immigrants into labor not just defense. It is time for a credible,
markets, thus helping companies tap inclusive, and trust-inspiring narrative,
new pools of talent. both for the direction of our societies
and the sharing of benefits and opportu-
6. Rebalance and align rewards. Peoples nity within them.
sense of self-worth is closely linked to
the nature of their work and their Defining what needs to be done is a first
relative compensation. This is especially logical step, but it is only a start. In conver-
true when we consider not only wages sations with CEOs about their role in sup-
and benefits but also career mobility, porting economic and societal progress,
merit-based recognition, and the intangi- many pointed out the challenging context
ble value of purpose (often related to in which they operate. Between boards,
some higher social goal) in work. major investors, activists, and potential
acquirers, there is tremendous pressure to
Mismatches between rewards and focus on short-term profitability and value
performance along the entire pay scale, maximization. The regulatory frameworks
from entry-level workers to leaders, in many markets do not make a broader
undermine perceptions of fairness and focus any easier.
faith in the system. Aligning perfor-
mance with rewards presents an
opportunity for corporate leaders to A Positive Future Is Ours to
directly shape peoples perceptions of Shape
self-worth, fairness, and access to Resist the beginnings, and consider the
opportunity. Many companies are end.20 Many business leaders are begin-
starting to increase remuneration and ning to see the plausible endpoint of the
support for lower-paid employees. In current political polarization in our societ-
the years ahead, more will be needed. ies. Many privately confide that they dont
like what they see, and they are open to
7. Renew and own the narrative. The considering novel measures to address the
current crisis is as much about inspira- new challenges. The opportunities we pro-
tion and ideas as it is about economics. pose are intended to soften globalizations
The case for globalization is a hard sell and technologys sharpest edges, thereby
if it doesnt address the obvious distrib- perpetuating a more balanced game that
utive side effects of overall economic creates broader prosperity and greater soci-
advancement. The same goes for etal openness to change.
technology, in which the absence of a
more inclusive narrative has already This is not an easy mandate. But if we, as
sparked vigorous backlash (for example, business leaders, dont step up to shape a
taxi strikes in France and elsewhere). more positive future, it is increasingly clear
Whats more, the storytellersthe that we risk a backlash that will limit our
elites of business and government ability to create value in our own enterpris-
are increasingly mistrusted and have es and for our customers. Now is the time
lost their audience. In this vacuum, to take on this broader agenda.

| Saving Globalization and Technology from Themselves 6



Notes 13. For a deeper analysis, see Branko Milanovic,
1. IMF, World Economic Outlook, January 2016. Global Inequality, Harvard University Press, 2016.
2. United Nations, Human Development Report 2015. 14. Hannah Fingerhut, Most Americans say US
3. Francisco Ferreira et al., A Global Count of the Economic System Is Unfair, but High-Income
Extreme Poor in 2012, World Bank Policy Research, Republicans Disagree, Pew Research, February
7432, October 2015. 2016.
4. Amartya Sen, Development as Freedom, Oxford 15. What is just is a philosophical question. In
University Press, 1999. A Theory of Justice (Harvard University Press, 1971),
5. See, for example, analyses from VoteView, reported John Rawls suggested that a society should aim to
by Philip Bump in Political Polarization Is Getting improve the well-being of its weakest members.
Worse. Everywhere, Washington Post, 9 April 2016. 16. See What You Need to Know About Globaliza-
6. Max Roser and Jesus Crespo Cuaresma, Why Is tions Radical New Phase, BCG article, July 2016.
Income Inequality Increasing in the Developed 17. BCG Henderson Institute analysis based on US
World? Review of Income and Wealth, March 2016. Census Bureau, Business Dynamics Statistics; OECD.
7. BCG Henderson Institute analysis based on UK 18. See The Private-Sector Opportunity to Improve
National Statistics, Department of Work and Well-Being: The 2016 Sustainable Economic Development
Pensions. Assessment, BCG report, July 2016.
8. EU Referendum: Full Results and Analysis, 19. See for example a BCG co-initiated one: Joblinge.
Guardian, June 2016. 20. Attributed to Roman poet Ovid and to Greek
9. BCG Center for Macroeconomics. fabulist Aesop. The saying suggests gauging
10. Based on Luxembourg Income Study data for the unsettling developments by assessing the ultimate
middle four deciles of income distribution. consequences andif neededstopping the
unfolding of events early.
11. Credit Suisse Research, Global Wealth Report 2015.
12. Richard Wike, Where Americans and Europeans
Agree, Disagree, on Foreign Policy, Pew Research,
June 2016.

About the Authors


Rich Lesser is the president and CEO of The Boston Consulting Group. You may contact him by e-mail at
lesser.rich@bcg.com.

Martin Reeves is a senior partner and managing director in the firms New York office and the director of
the BCG Henderson Institute. You may contact him by e-mail at reeves.martin@bcg.com.

Johann Harnoss is a project leader in BCGs New York office and an ambassador to the BCG Henderson
Institute. You may contact him by e-mail at harnoss.johann@bcg.com.

The Boston Consulting Group (BCG) is a global management consulting firm and the worlds leading advi-
sor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all
regions to identify their highest-value opportunities, address their most critical challenges, and transform
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achieve sustainable competitive advantage, build more capable organizations, and secure lasting results.
Founded in 1963, BCG is a private company with 85 offices in 48 countries. For more information, please
visit bcg.com.

The Boston Consulting Group, Inc. 2016.


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