When
Jimmy Carter was president of the US, the shadow of recession was
looming on the economy. The president’s advisers feared that even the
use of the word “recession” while explaining the state of the economy
would alarm the bulls, bring out the bears, and deepen recessionary
conditions. So, at a press conference the secretary of commerce said
that since he could not use “the ‘R’ word”, he would refer to what was
happening as “the ‘banana’ thing”. Globalization is going through a
“banana” moment. Cheerleaders of globalization have been reluctant to
admit that globalization, in the form they celebrated it, is in deep
recession already. Some say globalization has merely changed into a “new
globalization”. Some others say that what has passed is
“hyper-globalization” and we are still in “globalization”. There is a
reluctance to let go of the word “globalization” and use another one for
the forces shaping the world now. Though, as Geoffrey G. Jones,
professor of business history at the Harvard Business School, says “we are in a ‘de-globalization’ period”.
Jones’ explanation of why globalization of the sort celebrated in Davos in the last 20 years had to pass is that the gap between globalization’s prime beneficiaries and the rest of humanity had increased too much. Globalization’s elite was “People Like Us” from around the world. They cocooned themselves within ideologically and physically gated communities. They lost sight of those far below them. Meanwhile, surveys (they did not heed) were reporting that people were losing trust in the “Establishment”, which people saw as a nexus between leaders of governments and large business interests. The disconnect between the people and the establishment led to the rise of populist movements in many countries, the election of Donald Trump in the US, and to Indian Prime Minister Narendra Modi’s extreme sensitivity about his government being branded a “suit-boot sarkar”.
Globalization’s
elite was ‘People Like Us’ from around the world. They cocooned
themselves within ideologically and physically gated communities
The
world is not the same as it was 10 years ago. Despite globalization, it
is more divided and less united. Social media, which innocents expected
would unite people who had different histories, cultures and points of
view merely by enabling them to connect with each other on the Internet,
is exacerbating divisions. People band together with others like
themselves on social media and lob hate-bombs across the walls at those
they do not like. Samuel P. Huntington’s prediction of a “clash of
civilizations” seems to be happening. Geopolitics, on the decline after
the fall of the Berlin Wall, is back on stage. The world has changed:
Business corporations must develop new capabilities to succeed in a
post-globalization world.
The
eclipse of globalization requires corporations to be more “local” in
their strategies. They must respond to demands from national governments
to create more jobs within the countries in which they operate.
President Trump and Prime Minister Modi (with the “Make In India”
campaign) are on the same page here. Multinational corporations (MNCs)
will face increasing pressures to pay domestic taxes. Tax avoidance by
shopping among tax jurisdictions will not be acceptable. Nor will
intrusive adjudication of domestic policies with investor-settlement
procedures that businesses were pushing for under international trade
agreements. Business leaders will have to prove that they are aligned
with domestic stakeholders’ needs. To say that they follow international
norms, as MNCs are wont to, will not be good enough. They must listen
better to local stakeholders, to learn local realities and adapt to
them.
Social
media, contrary to perception, is exacerbating divisions—people band
together with others like themselves on social media and lob hate-bombs
across the walls at those they do not like
Multifarious
reactions to globalization from environmentalists and defenders of
human rights are compelling businesses to develop capabilities to listen
to a broad group of stakeholders. The thrust of good corporate
governance so far has been to make business managers more transparent
and accountable to their financial investors, and fairer to their small
shareholders. This will not be good enough. Businesses must be more
transparent and more fair to other stakeholders too—such as local
communities, small suppliers, and those who work in their enterprises
(such as Uber’s drivers, whether or not they are legally “employees”).
Two per cent of profits donated to corporate social responsibility will
not be enough to win society’s trust. Full accountability is required
for how 100% of revenue was obtained and profits made. Donation of a
small sliver of their profits to social causes will not excuse
businesses for the damage their operations may cause to the environment
and the social compact. Therefore, good corporate governance will
require broader score cards.The freedom and the power businesses acquired with hyper-globalization was founded on many ideas. Milton Friedman’s dictum, “The business of business must be only business”, has often been cited to focus business managers on a narrow score card of revenue, profit, and shareholder value. Friedman also expressed his difficulty in accepting the notion that people should desire to speak to make their views known. He would much rather they resorted to “efficient market mechanisms”, rather than to “cumbrous political channels” to make their voices heard.
The
old globalization that sought to tear down national boundaries for the
free flow of finance and trade has passed. In the new globalization,
businesses with global ambitions must learn to be local
A
world that is good for global businesses must be a world that is good
for everyone too. Nations are societies: not merely markets and
economies. In the market, we are customers. In society, we are citizens.
All that citizens value cannot be expressed in monetary terms. Equity,
trust, dignity and compassion are qualities that citizens value in good
societies. Corporations, which claim to be global citizens themselves,
must learn to listen, cumbersome though it may be, to the voices of
citizens within their customers who speak of many things not convertible
into money. The old globalization that sought to tear down national boundaries for the free flow of finance and trade has passed. In the new globalization, businesses with global ambitions must learn to be local. Businesses must adopt broader score cards. And they must learn to listen to the voices of diverse citizens wherever they operate
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