Friday, January 25, 2008

Globalisation debate

The World is Flat, Thomas Friedman: Argues that globalisation is essentially a good thing.
I haven´t read this book. However, a fellow Inca Trailer last weekend wished to take issue with this central premise. I´d be interested in further comments on the debate, the beginning of which is documented below.

Chris: Communications globalisation brings huge benefits accross the globe. Most recent and extreme example is the Burmese revolts. Compare the global awareness in 2007 to the quiet and brutal repression of 1988.

Siri: Uncontested. Have to define globablisation. She sees it as companies exploiting developing countries. For example, soda companies causing environmental destruction in the Bengal district.

1) This is not a new phenomenon associated with 'globalisation'. Companies can, and do, exploit weaker classes of society/cause environmental damage in their own backyard.
2) The parameters of discussion do need to be defined. However, submitted that globalization simply describes global growth. It is difficult to separate the wrongs of companies executed in the name of globalization from the fact that we have heard about these wrongs and that action is being taken to prevent them. For example, the isolationism of China has disguised an exceptionally poor human rights record for decades. It is only following the harsh glare of the Olympics that this has become a global issue and China is forced to take steps to make the situation better.
3) Suggested that globalization of regulations helps the situation as well. For example, the century of industrialization in the UK saw tremendous injustice (child labour, slavery, extreme poverty, poor sanitation/living conditions etc), but by the beginning of the 20th century, law and regulation had caught up with the new developments.
4) Where does the actual benefit come from? Infrastructure development, raised sanitary standards to accommodate foreign workers, and FDI. In addition, it allows market forces to work. For example, (with acknowledgments to Nat Kent for this example) the ability of Ethiopia to diversify their exports. Previously one of the world’s largest coffee exporters, it is no longer as able to compete on a global scale. As a result, it is now fulfilling a different import demand in the form of fresh flowers.

S: Specific answer to (3) above, this happened a long time ago. We should have learnt from that example and deal with the evolving situation.

C: The new situation is inherently difficult to regulate. Look at more recent developments in the past 15 years that have had huge consequences because of the law’s failure to anticipate them: dotcom bubble, huge derivatives-related global market crashes, 2007 credit crunch etc. These were all as a result of new ways of working that had not been tried before. No-one is going to stop trading in derivatives or the mortgages market, despite the 1998 crash and the one last year, respectively. However, what will change will be new regulations and monitoring for similar events in the future.
This is what should be expected with globalization. It is a new development, and an inherently enormous one that global regulation and even the foundations of company law are having difficulty dealing with. However, change is occurring. In the Companies Act, 2006, directors have a duty to the company which has been redefined. Previously, it was to ‘act in the best interests of the company’. In the recent statute, passed in October, 06, the duty is much more extensive. The new duty is ‘to promote the success of the company’ but with regard to a list of factors external to the company, including the surrounding environment and community (see section 172 of the Act). It remains to be seen how much this will affect this debate, but it is an example of the world adapting to the new development in order that as many people as possible might benefit.
Further reading that may be of interest:

For an interesting, although unfortunately American, view on changes required in company law, see Kent Greenfield’s The Failure of Corporate Law. A large problem currently seems to be the combined attributes of a company: having a separate legal personality and limited liability. This leads to parent companies being able to absolve themselves from riskier group companies’ actions in developing countries. See Adams v Cape Industries as the seminal case on this point.

A good summary read in this area is Companies, International Trade and Human Rights, Janet Dine.

A few years ago, Linklaters compiled a report on social entrepreneurship and the other side of the legal element of this argument, that is, regulations hindering charitable work in certain countries: for a summary,

1 comment:

Nat Kent said...

This is a really interesting debate, but as with most things the answer is somewhere in between whether it's a good thing or a bad thing. When you refer back to the debate on definitions, though, it becomes clear that it's not something that's going to go away.

Globalization can be defined as the set of processes associated with increasing amounts of interconnectedness. To put it simply, the world is getting smaller: this has to do with the increasing speed of communication over great distances, and the decreasing amount of time it takes to physically traverse such distances. Quicker movement and communication open up opportunities which people will, rationally, move to exploit, whether that means outsourcing corporate functions, setting up international non-governmental organizations, going on vacation in Spain instead of Cornwall, or just keeping in touch with friends via Facebook. There is nothing new or special about this phenomenon - the technology of the age of the internet is simply a quicker, more efficient version of the technology of the age of the jet plane and the telephone, or the telegraph and the railroad, or the horse-drawn carriage and the courier. This process is continuous going right back to the invention of the wheel and the domestication of the horse. It may be speeding up more recently, but globalization as a phenomenon has always been with us, and taking advantage of what new technology enables is the very definition of progress.

It simply doesn't make sense to blame underlying historical trends for specific unsavoury actions that they enable - wanting to roll back globalization because of its negative outcomes is like wanting to abolish the internet because it facilitates child pornography. The correct response is to identify the problems of a globalizing world and seek to rectify them, which is precisely what the better NGOs seek to do. Defining themselves as being "anti-globalization" is simply nonsense, however.

If anyone is in doubt of the clear benefits that globalization has brought to the world, then this article in last week's Economist will put you straight!