IBT News Blog

Responsibility in International Trade

A Blog Entry on: Ethical Capitalism: How Good Should Your Business Be? The Economist January 17, 2008.

http://www.economist.com/opinion/displaystory.cfm?story_id=10533974&CFID=5938976&CFTOKEN=29e4ce11f0b96ea8-B6B9B970-B27C-BB00-012B08BB51E4E225

Globalization is a broad topic in the realm of international business and trade. While there are many positive aspects to the vast increase in trade and communication capabilities throughout the world associated with globalization, there are just as many negative ones. The International Forum on Globalization’s (“IFG”) expounded some of these negative impacts in its position statement. See Text, p. 24-25. The idea of corporate social responsibility (“CSR”) fascinates me for a variety of reasons; primarily because of my highly cynical view of free market enterprise selflessness. A successful business must more often then not keep the shareholder happy. The article from The Economist describes a popular business mantra adopted by many corporations today: “Doing well by doing good” while raising the issue of whether corporations can actually act for the well being of society yet satisfy the need for a robust bottom line. I write to discuss the need for governmental intervention and oversight in light of this emerging free market mechanism.

The idea of “good corporate citizenship” is discussed at length by The Economist. While the article suggests that the idea of CSR is merely another form of corporate self-interest, it is proposed that multinational firms engaging in CSR can bring about many societal benefits in the face of globalization. I wholeheartedly concur but with the caveat that CSR must be carefully monitored and regulated. There should be little doubt as to the power of consumers operating in free market economies – in their ability to choose what to buy and invest in, the buyers and sellers can shape global trade. Consumers responding to responsible and carefully monitored CSR campaigns may even help to effectuate “equitable, democratic, and ecologically sustainable” goals discussed by the IFG in its position statement. However, I propose that the buck should not stop with the consumer as private business does not exist to solve world problems.

Developing a strategy for and engaging in CSR does not mean a company must automatically eat the costs typically associated with “doing good.” A Harvard University experiment was conducted with the product of towels in upscale New York stores. Researchers labeled the ordinary towels with a “Fair and Square” (F&S) label, increased the price and depicted the following message for consumers to read:

These towels have been made under fair labour conditions, in a safe and healthy working environment which is free of discrimination, and
where management has committed to respecting the rights and dignity of workers.

After keeping the towels on the shelves of an upscale department store for a few weeks, the results showed that the quantity of towels with the F&S logo sold increased despite the higher price. Moreover, even when the price was increased further, the quantity sold increased. While a variety of reasons exist to explain this somewhat backward economic result, what is clear is the existing potential for deceptive marketing practices. The deception here is marked by a corporation’s ability to take advantage of CSR – leaving only the company itself to truly understand if and how the benefits described by the label’s message were ever accomplished. On a tangential note, this example also helps to illustrate some of the benefits to having responsible social change led by non-profit organizations.

Some of the IFG’s basic goals must be focused at assuring that the multinational corporations that rely on and/or engage less developed countries do not destroy the various unique attributes of the local economy, culture and society in general for the sake of profit. Similarly, like other human rights groups around the world, the IFG is concerned with the exploitation of the working class in poorer countries. These goals, while unique, may be difficult to effectuate without some form of altruism. Corporate altruism may exist only in pure theory but for the purposes here I propose is stands for the idea that a government would spend its resources with no realistic expectation of recovering them. Except when used to elevate a corporation’s status or reputation, these altruistic actions fly in the face of the need to satisfy shareholders, the board of directors and so on. Corporations will rarely act in complete disregard for monetary considerations. I think this notion echoes particularly true in the case of developing nations. By way of expression, I suggest that unsupervised big business may sooner give the third world farmer/worker a fish to satisfy his hunger then spend the time and money necessary to teach him how to do it himself. Therefore, because government is said to exist for the people, it is still in the best place to curb the potentially devastating effects of irresponsible globalization.

Given these basic notions of free market enterprise and the CSR theory, I believe governmental entities must keep pace with the large private entities in the face of globalization. While the idea of CSR may help effectuate some of the IFG’s goals, governments and non-governmental organizations (“NGOs”) cannot shy away from their responsibility to help assure peoples' natural sovereign rights in developing nations don’t take a back seat to cleaver marketing strategies. One mechanism to effectuate this plan is through governmental oversight of CSR campaigns via enactment of laws and regulations. The negative outcomes of globalization, as discussed by the IFG’s position statement, cannot and must not be primarily fought by private entities operating for profit in the free market. To the contrary, such multinational firms must have greater checks placed on them.

Taken one step further, in the case of developing nation, local governmental bodies may be ill-equipped to set up the potentially strong rules needed to check corporate abuse. It is for this reason that developed nations must help play a role in providing guidance within the international community. Like our various consumer protection and anti-fraud statutes in the U.S., developing nations should play close attention to the private multinational actors in their state. Because such laws may not be easily implemented in the country that seeks to bring money in, the developed nations in which these multinational firms are domiciled are in better position to take action.

submitted by: PT

This article discusses the actions of the British government to intercede in and investigate an arms transaction between a UK company and Saudi Arabia. Although this happened in the UK, we've read at least one case involving a somewhat similar scenario in the US. What does this say about the role of governments in regulating transactions involving arms and general defense items not only in terms of protecting national economic knowledge but also in terms of protecting national security? Which of the two, if any, seems to be the better argument for this type of government intercession? See http://news.bbc.co.uk/go/em/fr/-/2/hi/business/7244051.stm

The Federal Reserve Chairman recently issued a warning that the US economy is still in a state of projected decline. See http://news.bbc.co.uk/go/em/fr/-/2/hi/business/7245312.stm

The US has announced that its trade deficit decreased last year. See http://news.bbc.co.uk/go/em/fr/-/2/hi/business/7244993.stm

In yet another follow-up to the Exxon/Mobil dispute with Venezuela, Venezuela has issued statements casting doubt on the amount of monies involved in the dispute. What do these statements do to potential arguments over jurisdiction and the application of either the FSIA or act of state doctrine at later points in the litigation? See http://news.bbc.co.uk/2/hi/business/7246586.stm

Despite recent headlines regarding contaminated products, China has a higher than expected trade surplus for January, 2008. See http://news.bbc.co.uk/go/em/fr/-/2/hi/business/7246256.stm

This article discusses the economic policy statements made by Dmitry Medvedev, who is expected to be Vladimir Putin's successor to the Russian Presidency after the March 2nd elections. See http://news.bbc.co.uk/go/em/fr/-/2/hi/europe/7246161.stm

The Bank of Japan has announced that it will not alter its interest rates. See

http://news.bbc.co.uk/go/em/fr/-/2/hi/business/7246151.stm

The WTO recently announced the negotiation plan it intends to implement for the upcoming Doha round of talks regarding tariffs and other issues. Although the intent of the negotiation plan was to appease developed and developing countries, it has met with mixed review, most recently from the European Union. See http://www.iht.com/articles/2008/02/14/business/doha.php

and

http://www.iht.com/articles/reuters/2008/02/15/business/OUKBS-UK-TRADE-EU-WTO.php