Globalization: where do we go from here?

Citation

Ali, A.J. (2008), "Globalization: where do we go from here?", International Journal of Commerce and Management, Vol. 18 No. 4. https://doi.org/10.1108/ijcoma.2008.34818daa.001

Globalization: where do we go from here?

Article Type: Editorial From: International Journal of Commerce and Management, Volume 18, Issue 4

Current global business events and the severity of the credit crisis prove without doubt that the invisible hand, the market mechanism, is not as beneficial as it was once thought. Adam Smith, who coined the term “invisible hand,” assumed that when an owner or an entrepreneur pursues “his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.” This implies that in a capitalistic society, economic activities which are driven by self-interest by necessity are those which are most efficient and most beneficial to the society.

In a globalized world and under certain conditions, this principle is impossible to defend. To begin with, the market does not operate independent of its actors. Marketing actors, due to their varying motives, directions, and interests, logically intend to operate in ways which either further their benefits or minimize damages to their interests. In the process, they may engage in activities which either jeopardize the interest of others or that of the society as a whole. The actions of Enron’s senior executives harmed the company’s employees and resulted in consequences which adversely affected many other stakeholders. Similarly, the crisis of the mortgage giants, Fannie Mae and Freddie Mac, has created hardships for their stockholders, the majority of their employees, and most likely, also, the American taxpayers.

The seizing of these two mortgage giants by the US government evidences that the invisible hand can be manipulated or influenced directly by market actors and that the forces of invisibility, if left without proper monitoring, can lead to undesired consequences. Indeed, the intervention by the federal government has purposefully sought to create conditions necessary for containing damages which could engulf various players in the market. This might be the very reason which also motivated the US Federal government to summon the executives of major Wall Street firms to a meeting in Lower Manhattan on September 12, 2008 to address the financial crisis at Lehman Brothers and other major institutions, including Merrill Lynch. The federal government insisted that the industry, as a whole, must come up with a rescue plan for the stricken investment bank and that, in the meantime, the executives must collectively consider plans to stabilize the financial markets. In Europe, major central banks announced (September 15, 2008) plans to inject billions into global money markets to limit the spread of US financial crisis to the rest of world’s financial systems.

The intervention of the US and other governments in the market, while intended to ensure confidence in the financial market and limit the spread of the financial and credit crises, demonstrates that market actors are not solely confined to suppliers and customers but include governments, super-national organizations, and NGOs. While the last three players may enter the market as customers or suppliers, they have increasingly assumed significant roles in intentionally or unintentionally shaping market mechanisms. The invisible hand principle assumes that market actors act independently. But in today’s business world, all players attempt to predict or at best have reasonable knowledge of what other actors might do in the market. Under these conditions, the market mechanism may lose its unique characteristics as an unguided and instantaneous process.

Globalization has altered many economic assumptions. Chief among them is the ability of the market to regain its balance, recover its health, and optimally create wealth for its participants. Perry (2008) in the Wall Street Journal reported that Nobel Laureates in economics have argued that governments should intervene to help those at the bottom. It quoted Robert Fogel stating, “Governments in wealthy countries like the US are obligated to improve conditions of life for the poor.” Likewise, Finn Kydland, underscored the disruptive nature of economic globalization when he highlighted that the benefits of economic globalization is not shared responsibly across the globe and that “globalization ought to be good for all countries.”

There is no question that globalization has been responsible for the flourishing of international trade and foreign direct investment (FDI) and subsequently for delivering benefits to areas which were until recently untouched by economic prosperity. Likewise, globalization has contributed significantly to economic growth in countries like China, Brazil, India, and Turkey, to name a few. But globalization, as a process, has generated imbalances in the market and has resulted in disastrous consequences both in developing and developed worlds.

The rapid integration of many countries in the global economy and the emergence of MNCs as unrivaled wealth-generating global actors have redrawn the economic landscape on a global scale. In developing countries, politicians, newly emerging entrepreneurs, and established business classes and bureaucrats have rushed to take advantage of opportunities resulting from liberalization, privatization, and openness. Many of them, motivated by selfish interests and operating where legal guidelines and institutions are either weak or do not exist, engage in questionable practices and have, occasionally, opted for fraud and bribery to accumulate wealth at any expense. This has not only undermined government institutions but has become a destabilizing force which poses a threat to market functions and to an otherwise normal integration of the world economy. Likewise, the gap between the rich and poor has become even wider, feeding popular resentments and inciting political and social unrest.

In the developed world, liberalization and deregulation have put pressure on executives to deliver quick returns on investments and to focus on short-term performance. Faced with mounting pressures to make profits and take advantage of relaxed regulations, some executives have had difficulty in resisting temptations to engage in or tolerate corrupt practices. This has resulted in major corporate scandals and court indictments of leading executives. Likewise, the offshoring of production activities is blamed for deteriorated living standards for a large segment of workers.

Whether in developing or developed countries, critics of globalization point to the fact that unbridled market mechanisms and rapid globalization have led to disastrous outcomes. Furthermore, there has been a growing concern among activists and people from developing nations that developed countries are not pursuing globalization for the sake of sharing economic prosperity and providing greater benefits for people across the world. Rather, the leading developed nations are accused of being motivated by purely nationalistic interests and the quest to recolonize poor countries.

The collapse of the WTO’s negotiations in Geneva in July 2008 to open world markets, the phenomenal worldwide increase in food and basic commodities prices, the spread of financial and credit crises, and the unfolding revelations of major corporate scandals, along with rising militaristic attitudes among the world’s powerful nations, give credence to the voices which call for rethinking globalization and market mechanisms. The proposition by Wall Street Journal (August 25, 2008) that free markets aren’t always fair and the call by the New York Times (2008) for the need for better regulations underscore the urgency to rethink globalization and how to proceed into a better future.

Critics and supporters of globalization, whether they are in developed or developing nations, understand that in today’s world, no country can achieve economic prosperity by barricading itself from the rest. World interdependence and connectivity have become the hallmarks of the last and this new century. This reality offers hope that the future will be better for all citizens, and that human ingenuity will creatively address the shortcomings of globalization.

There are certain conditions for sustaining global economic integration and substantially minimizing its negative consequences. These conditions are:

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  Developing countries must be assured that their concerns and needs are incorporated into any global framework or trade regime.

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  Developing nations should be an integral part of the world system and that neither their resources nor national sovereignty are taken advantage of.

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  Developing nations, in their search for healthy integration into the world economy, should independently design their own growth strategies by focusing primarily on upgrading and enhancing their domestic institutions capabilities.

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  Super-national institutions have to be apolitical actors and transparent in their operations and management.

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  Global economic and political challenges are interdependent. Both should be addressed collectively. That is, the actions must be perceived as legitimate by all concerned parties.

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  WTO and other super-national institutions should be instrumental in broadening global benefits and should be concerned with the creation of tangible and intangible wealth on a global basis.

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  Super-national institutions, in cooperation with NGOs, should set general guidelines and rules for governing business conduct and that of MNCs.

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  Rules and regulations might be important for minimizing frauds and preventing corruptions. Nevertheless, in the absence of a business culture which sanctions and reinforces ethical conduct and the virtue of pursuing self-interest within the context of corporate and societal interest, corruptions and scandals may find fertile soil in which to multiply.

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  Super-national institutions, governments and MNCs have to promote and observe social and economic justice, basic human rights, and non-discriminatory conduct.

In their rush for globalization in the 1980s and early 1990s, MNCs and their respective home-country governments ignored two facts: business and societal issues are highly interwoven and neither should be treated separately, and globalization benefits and responsibilities go hand in hand. The negligence of these two facts has hindered the ability of many societies and actors to optimally develop the capacity to deal with globalization and reap its benefits. It will undoubtedly take prudent and ethical discipline to behave responsibly in an open and dynamic global marketplace.

Abbas J. Ali