Globalization and its Discontents-“Life of Living” but not “Life of Consuming”- Case study

Prepared by Prof.K.Prabhakar Director, KSR College of Technology, Tiruchengodu-637209 kprksr@gmail.com

“Life of Living” but not “Life of Consuming” –A Case study
World Bank economist John Page told in a meeting of Middle Eastern officials that the global economy is like the bullet train. If you miss it, it is gone and there is no way to catch up. He urged them to get on board quickly by restructuring their economies. Harvard Business School professor Rosabeth Kanter, in her book World Class, tells us that the future belongs to those who are willing to give up their loyalties to community and nation to seek personal financial success in the global economy. She warns that those who remain loyal to people and places will be left behind. Business Week tells us that East Asia-where the number of non-Japanese multimillionaires is expected to double from 400,000 in 1993 to 800,000 in 1996-is the leading example of what a global free market economy has made possible. Scant mention is made of the fact that free market economies have also left 675 million Asian is living in absolute deprivation. We should be more than skeptical of an economic model that calls on us to give up all loyalty to place and community, says we must give free reign to securities fraud and corporate monopolies and deny workers the right to organize, and tells the poor to run faster and faster after a train they have no chance of catching-so that a few hundred thousand people can become multimillionaires by destroying nature and depriving others of a decent means of livelihood. . We are coming to realize that the extravagant promises of the advocates of the global economy are based on a number of myths that have become so deeply embedded in Western industrial culture. These myths are fed to people in developing countries like India. It appears as if we have no other option except to be a global player. We are fed with the option known, as there is No other Alternative. (The concept of TINA). The policy makers of the developing and 2

underdeveloped countries are constantly made to believe that Global Integration is the only way to be in the economic space of the world. Myths 1. The myth that growth in GNP is a valid measure of human well being and progress. 2. The myths that free unregulated markets efficiently allocate a society's resources. 3. The myth that growth in trade benefits ordinary people. 4. The myth that economic globalization is inevitable. 5. The myth that global corporations are benevolent institutions that if freed from governmental interference will provide a clean environment for all and good jobs for the poor. 6. The myth those absentee investors create local prosperity. We will examine these statements and say why we are calling them as myths. The GDP measures only the rupee value or monetary value of goods services. Increased use of cigarettes, alcohol and Gutka increases economic output both, as a direct consequence of their consumption and because of the related increase in health care needs. Therefore, if more alcohol is produced and more tobacco is cultivated the GDP increases! Welfare increases and you become a better economy. Incredible to think. Thus, we find that the need to clean up oil spills generates economic activity. A divorce generates both lawyer’s fees and the need to buy or rent and outfit new home-increasing real estate brokerage fees and retail sales; therefore a stable society with no divorce will not increase GDP! What is the quality of life index that is given by World Bank and other organizations? Do they take into consideration the aspects relating to the social harmony and individual enlightenment and frugal living? Since 1950, the world's economic output has increased approximately seven times in the 2000. . That growth has already increased the human burden on the planet's regenerative systems-its soils, air, water, fisheries, and forestry systemsbeyond what the planet can sustain. Continuing to press for economic growth beyond the sustainable limits of the planet does two things. It accelerates the rate of breakdown of the earth's regenerative systems-as we see so dramatically demonstrated in the case of many ocean fisheries-and it intensifies the competition between rich and poor for the resource base that remains.

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The disparities in this competition are visible. In 1960 the annual compensation of the average CEO of a major US. Company was 40 times that of the average worker. In 1992, it was 157 times as much. The average CEO of a large corporation now receives an annual compensation package of more than $3.5 million-their reward for growing company profits by destroying millions of jobs. We all had great admiration for Jack Welsh for his great ability to create wealth. However, at what cost? Three lakh workers are laid of even when GE was making profits. At the same time Jack Welsh’s every need has been taken care by the severance package until end of his life to live like Modern Maharaja, who has nothing else but money to spend on fancy things in life. Not to talk of the corporate frauds such as Worldcom and Enron. Recently Prime Minister of India, Dr. Manmohan Singh, has talked about vulgar display of wealth and disproportionate compensation packages to CEOs. We all know that one lakh (100000) farmers committed suicide in India due to debt burden for the past six years. This by simple calculation will make 6, 00,000 Indians destitute. Do you know the cost of debt of all these farmers it is not more than five hundred million. Which is a combined package for one CEO for one year? Over the past 3 years, the profits of the Standard and Poors 500 largest corporations have grown an average of 20% a year. Stock prices are at record highs. For the most part, these gains went to people who play global casino; we call stock markets. All too often what growth in GNP really measures is the rate at which the economically powerful are expropriating the resources of the economically weak in order to convert them into products that all too quickly become the garbage of the rich. MYTH OF FREE UNREGULATED MARKETS. It is almost inherent in the nature of markets that their efficient function depends on the presence of a strong government to set a framework of rules for their operation. For example we know that free markets create monopolies, for which government must break up to maintain the conditions of competition on which market function depends. Free markets do not mean that there is no role for government. It has a different role to play. We also know that markets only allocate efficiently when prices reflect the full and true costs of production. Yet in the absence of governmental regulation, market incentives persistently push firms to cut corners on safety, pay workers less than a living wage, and dump untreated toxic discharges into a convenient river. In our present competitive context if management does not take 4

such measures, they are likely to be replaced by the owners or bought out by someone with less moral values. Once upon a time local communities looked to corporations not only as sources of jobs, but as well of tax revenue to help cover the costs of essential local infrastructure and public services. However, the organizations started being self-serving by leveraging various tactics such as transfer pricing get out of the tax net. We saw the raise of tax heavens in various parts of the world. In the process, we have “global prosperity and local misery”. In India we have spent around 58,000 crores to create Special Economic Zones. What is the cost benefit analysis? In our country the GDP produced by all the listed companies, generate 2% of GDP of our country. The remaining 98% are produced by so called unorganized sector. It is unorganized sector as the present day economists are not in a position to bring nuances of local economies in to theory. For example in Tiruppur of Tamil Nadu, the local community crated a cluster of knitwear industry that is not supported by government but had a place in the world bank report of a successful cluster of enterprises promoted by local entrepreneur. The Dubbawallas of Mumbai has made is proud to be a Six Sigma organization while no organization in our country is yet to achieve that status. Mostly illiterate or semiliterate persons hailing from Uthar Predesh of our country are managing the Dabbawalla. They use color visual signs on the boxes and identify the products. The Indian postal system is so robust that it is a one of the largest retail outlets in the world. The number is more than one lakh and fifty thousand. (if we consider each of the outlets in thecountry) and provides services at lowest costs. It accounts tally with in one day of closing of accounts with out Mckinseys or any accounting firms help. Ordinary people working in post offices maintain it. State governments in our country are now forced by the dynamics of global competition not only to give most large corporations tax breaks, but as well to directly subsidize their operations with public funds. Each state in our country is vying with each other to get the multinationals to our country. However, at what cost? They want no labor laws, no supervision. The argument in favour of Coke, when it is supplying Indians with pesticide liquid, that it has invested large sums in our country? Investment for what and for whom? Is it to get its younger generation degenerated with diseases? This is what global competition is really about - local 5

communities and workers competing against once another to absorb more of the production costs of the world's most powerful and profitable corporations. The ways in which the poor often bear the majority of the burden is highlighted by the case of the Benguet Mining Company in the Philippines documented by Robin Broad and John Cavanagh in their book Plundering Paradise. In the quest for gold, Benguet Mining cut deep gashes into the mountains, stripped away trees and topsoil, and dumped enormous piles of rock and soil into local rivers. With their soils and water sources depleted, the indigenous people in the area can no longer grow rice and bananas and have to go to the other side of the mountain for drinking water and to bathe. The cyanide used by the Benguet Corporation to separate the gold from the rock poisons the local streams, kills cattle that drink from the streams, and reduces rice yields of people in the lowlands who use the water for irrigation. When the tailings and cyanide empty into the oceans they kill the coral reefs and destroy the fishing on which thousands of coastal people depend. The company reaps handsome profits. The local people bear the costs. Economists applaud the company's contribution to national output and export earnings. In addition, the winners in the global economy are able to buy their gold trinkets at a more attractive price. The one thing at which free, unregulated markets are truly efficient is in transferring wealth from the many to the few. MYTH OF FREE TRADE. Many so-called trade agreements, such as the North American Free Trade Agreement (NAFTA) and the General Agreement on Tariffs and Trade (GATT), are not really trade agreements at all. They are economic integration agreements intended to guarantee the rights of global corporations to move both goods and investments where ever they wish-free from public interference and accountability. GATT is best described as a bill of rights for global corporations. While goods and services can move freely, natural persons cannot move inorder to earn a better living. MYTH THAT ECONOMIC GLOBALIZATION IS INEVITABLE. Many of the people who claim globalization is a consequence of inevitable historical forces are paid to promote that message by the same global corporations that have invested millions of dollars in advancing the globalization policy agenda. Economic globalization is inevitable only so long as we allow the world's largest corporations to buy our politicians and 6

write our laws. Most of the intellectual property documents are prepared by American Drug companies to be signed by all countries at World Trade Organization.

MYTH THAT CORPORATIONS ARE BENEVOLENT INSTITUTIONS. The corporation is an institutional invention specifically and intentionally created to concentrate control over economic resources while shielding those who hold the resulting power from liability for the consequences of its use. The more national economies become integrated into a seamless global economy, the further corporate power extends beyond the reach of any state and the less accountable it becomes to any human interest or institution other than a global financial system that is now best described as a gigantic legal gambling casino. In the case of East Asian crisis, there was flight of capital and the economies collapsed due to artificial rise of prices of real estate and investment in real estate. Let us consider the example of Bhopal. Even after twenty years after the world’s most deadly disaster, the victims are yet to receive any appropriate compensation. There are one-lakh persons in Bhopal, who lives in acute poverty caused by the disaster. Do we have any evidence of global corporations taking care of these persons? The answer is no. MYTH THAT ABSENTEE INVESTORS CREATE LOCAL PROSPERITY. Absentee investors are attracted by perceived opportunities to turn a quick profit-not to benefit a worthy local community. Though they do have real world consequences, most of what we call "international capital flows" are little more than movements of electronic money from one computer account to another in a high-stakes poker game. From 1990 through 1994, Mexico became touted as an international economic miracle by attracting $70 billion in foreign money with high interest bonds and a heated stock market. As little as, 10 percent of this foreign money went into real investment. Most of it financed consumer imports and debt service payments or ended up in the private foreign bank accounts of wealthy Mexicans-including the accounts of the 24 Mexican billionaires the inflows helped to create. The bubble burst in December of 1994 and the lot of money flowed out even faster than it flowed in. Mexico's stock market and the value of the peso dwindled. Mexican austerity 7

measures and a sharp drop in U.S. bilateral trade to Mexico resulted in massive job loses on both sides. Foreign investment seeks to extract local wealth - not create it. Global Economic Statistics Economic globalization expands the opportunities for corporations to go about their business of concentrating wealth-and from the corporate perspective; it has been a brilliant success. The Fortune 500 corporations shed 4.4 million jobs between 1980 and 1993-while increasing their sales by 1.4 times. Their assets by 2.3 times. Moreover, CEO compensation by 6.1 times. These same corporations now employ only 1/20th of 1 percent of the world's population, but they control 25 percent of the world's economic output and 70 percent of world trade. According to The Economist magazine in each of seven major industries (consumer durables, automotive, airliners, aerospace, electronic components, electrical and electronic, and steel) five firms control more than 50 percent of the total global market-which qualifies them for the label highly monopolistic. In addition, the consolidation continues. The value of worldwide corporate mergers and acquisitions completed in 1995 exceeded the total for any previous year by some 25 percent. Do we have really a free economy under present era of Globalization? LOCALIZE ECONOMIES TO EMPOWER PEOPLE All over the world people are needed to wake up to the truth about economic globalization and are taking steps to reclaim and rebuild their local economies. Communities that embark on this path face basic choices as to how they will divide their efforts between competing for a share of the declining pool of good jobs that global corporations offer and working to create locally owned enterprises that sustainable harvest and process local resources to produce the jobs and the goods and services that local people need to live healthy, happy, and fulfilling lives in balance with the environment. Experience with the real consequences of economic globalization is pointing to many important lessons. One such lesson is that economies should be local, rooting power in the people and communities who realize their well being depends on the health and vitality of their local ecosystem. If it is protectionist to favor local firms and workers who pay local taxes, live

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by local rules, respect and nurture the local ecosystems, compete fairly in local markets, and contribute to community life-then let us all proudly proclaim ourselves to be protectionist. Our development models-and their underlying myths-are artifacts of the ideas, values, and institutions of the industrial era. Corporations and the modern state have been cornerstones of that era, concentrating massive economic resources in a small number of centrally controlled institutions. These institutions brought the full power of capital intensive technologies to bear in exploiting the world's natural and human resources so that a small minority of the world's people could consume far more than their rightful share of the world's real wealth. Now as we push the exploitation of the earths social and environmental systems beyond their limits of tolerance, we face the reality that the industrial era is exhausting itself-because it is exhausting the human and natural resource base on which our very lives depend. We must hasten its passage, while assisting in the birth of a new civilization based on life affirming rather than money affirming values. Citizen initiatives all over the world are creating the building blocks of the new civilization. For example, the idea that economies should be local, rooting power in the people and communities who realize their well being depends on the health and vitality of their local ecosystem. A global economy empowers global corporations and financial institutions. Local economies empower people. It is our consciousness- ways of thinking and our sense of membership in a larger community-that should be global. Perhaps the most important discovery of all is that life is about living-not consuming. A life of material sufficiency can be filled with social, cultural, intellectual, and spiritual abundance that place no burden on the planet. It is time to assume responsibility for creating a new human future of just and sustainable societies freed from the myth that greed, competition, and mindless consumption are paths to individual and collective fulfillment.

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Questions 1) Do you agree with the Myths projected in the case study? Please justify your answer. 2) Do you think that the ideas such as empowered local communities given in the case are practical or utopian ideas that can never happen? If it can happen how? If it cannot happen how? 3) There is a strong argument to be “protectionist” in economic sense. Is it possible to be protectionist in the present economy? 4) Please do study an organization (preferably a small and medium scale Unit) of any industry in your vicinity and prepare a report on the strategies used by them to face competition. Note Please go through various Websites and books on Globalization. A good reference for you is Nobel Prize winner the book written by Joseph. E. Stiglitz. (Stiglitz Joseph E: Globalization and It’s Discontents (published by Penguin 2002) and then answer these questions.

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Teaching Notes: Over View: This case study is a complex case that requires understanding of world trade and other aspects relating to globalization. The reader is expected to do secondary research to validate or not to validate various statements made in the case study. In addition, the reader is expected to visit any small and medium enterprise to find the strategies used by him to survive in the given environment. The case study raises fundamental issues relating to globalization by giving a dim view of globalization. The reader is expected to study relative merits, demits of the Globalization process, and develops appropriate opinion on various issues. The reader is also made to think interms of micro level effect of globalization process by studying a Small and Medium Scale Enterprise. Application The case study is meant for final year students of MBA (generally in the last semester when Strategic Management is thought). It may be used for working executives to sensitize them towards the issues relating to globalization and as an introduction to corporate responsibility course. Objectives of the case The major objective of this case study is to sensitize readers with respect to issues relating to globalization. The case study provides only one-sided view of the Globalization. The reader is expected to fill the gap in information by 1) Making further study through material pertaining to globalization. 2) Look for its impact in the neighborhood for developing a micro perspective of issue.

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This case also focuses on the need for corporate responsibility and corporate governance if globalization needs to be acceptable to human society it thinks of serving.

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