The World Economic Forum meeting in Davos, Switzerland, each year brings together leaders of business, government, media and the arts. This year, the meeting also attracted about 125 parka-clad protesters. They clogged the streets of the resort, railing against the global leaders like a herd of King Lears in apres-ski wear.
“Down with Homo Economicus,” a sign read. “Freedom not free trade,” they chanted. “Down with World Leaders,” they printed on confetti. When they weren’t pelting the Swiss security force with snowballs, they busied themselves with speeches blaming the world leaders for everything from civil strife in Mexico to economic collapse in Malaysia.
Half a world away a few days earlier, Pope John Paul II in his visit to Mexico City and St. Louis had inveighed against many of the same ills. The protesters in Switzerland wore ski hats, the pope wore a miter, but philosophically, they were of one mind. And so far, at least, they have had about the same effect. Which is to say, not much of one.
The Davos protesters caused the city’s transportation system to shut down, and inconvenienced the world leaders. The pope’s appeal on behalf of the the world’s poor and powerless may prompt some soul searching in the corporate suites. But there is no sign the pope has registered any real impact on the future course of world economic development.
Much has changed since capitalism trampled through the Berlin Wall in 1989. Then, capitalism was hailed as a liberating force. Today, in the face of a global economic malaise, capitalism is blamed for a growth in joblessness, corruption, economic collapse and illiteracy in countries around the world.
The globalization of business is making big business a convenient scapegoat. Two uniquely 1990s developments–the rise of predatory “hot money” investing and trans-global megamergers– have made big business a particularly handy target.
The calls of the protesters and the pope for social justice in the midst of unfettered capitalism may have repercussions that cut short the age of free-market expansion.
This is an era in which places as seemingly unrelated as Wall Street’s canyons and the harbors of Malaysia are linked together for good and bad. Decisions made in one place affect what happens in another. Scores are settled, alliances shift, and all too often, the people who live in the streets suffer from actions taken in skyscrapers half a world away.
That’s certainly the case in Malaysia. Remember the Petronas Towers? They’re the twin monuments to hubris built in Malaysia’s capital city, Kuala Lumpur, that are now the world’s tallest buildings, taller than the Sears Tower.
Guess what paid for them? Western capital–pension funds, growth funds and other money that bought into the seductive image of fast-growing Asian “tiger economies” during the early 1990s.
But what Western capital gives, it also takes away. Hot money appears in a number of guises–the funds jumping in and out of currencies, often in the form of sophisticated futures or options contracts, or the money lent on cheap terms to build unnecessary housing projects or office buildings. In a borderless world connected by electronic communications links, it can and does flow in and out in a cyber-second.
Malaysian leaders blame an attack by speculative Western investors last summer for a run on the Malaysian currency that devalued it by 50 percent and caused a 70 percent decline in the Malaysian stock market. Unemployment and poverty rose as the economy went into deep recession.
Unlike Thailand and Japan, where government mismanagement helped exacerbate the economic implosion, Malaysia effectively struck back. The government imposed capital controls that prohibited investors from taking their invested funds out of the country.
The Malaysian government fixed the exchange rate on its currency. And Malaysians stridently criticize the hot-money speculators whom they blame for their economic troubles. “How do 20-year-old boys buying and selling futures on options in New York and Singapore help the real economy?” scoffed Malaysian banking adviser Nor Mohamed Yakcop at the Davos meeting. Financial markets are designed to create wealth, he said, “not take on a life of their own and become a monster.”
Some Wall Streeters seem at least mildly chastened by the Malaysia experience. Jon Corzine, the recently ousted co-chairman and managing partner of Goldman, Sachs & Co., denounced the Malaysian capital controls. “No one will invest in a country where they can’t get their money out,” he warned. Even so, Corzine acknowledged a role for government by citing the example of Chile, where the government imposed restrictions on incoming investment. The Chile effort is designed to prevent a speculative bubble like the kind that nearly wiped out Malaysia.
Corzine believes the time has come even for Wall Street to acknowledge its impact on social progress around the world. “Global capital must have a visible heart as well as a visible hand,” he said. “It must be more than just about making money. It must enrich and serve every sector of society.”
The rhetoric sounds good, even statesmanlike. But keep in mind that when Corzine still was running Goldman Sachs, he made a strenuous effort to acquire Long-Term Capital Management, the speculative trading firm that nearly collapsed because of some wrong bets on currencies of Third World countries. In places like Thailand and Malaysia, Long-Term Capital is used as an epithet, because the trading firm last summer staged raids on their currencies that destabilized their national economies.
That’s always the trouble, isn’t it? The things people say in seminars and speeches is often at odds with the decisions they make in the boardrooms, and the impact they have in the field.
Then again, the Wall Street crowd does not have a monopoly on hypocrisy in the game of global fingerpointing that has accompanied the world economic downturn. Sometimes, big investors and companies are blamed for transgressions they did not commit.
Economist Paul Krugman last week was forced to withdraw charges he had published just days earlier in the on-line magazine Slate, wrongly accusing financier George Soros of insider trading in the Brazilian currency collapse. In a bigger and lengthier case, McDonald’s Corp. had to fight for three years in a British court to clear the company of charges that its business practices are responsible for everything from starvation in Third World countries to rain forest destruction in Brazil.
Consumer-oriented companies are particularly vulnerable to such attacks. Perhaps that is why Coca-Cola has supported academic studies that seek to credit Coke for causing huge economic benefits in countries where it operates, such as Poland and South Africa. And McDonald’s, besides working with local governments on waste and recycling programs, also sponsors Ronald McDonald Houses in countries where it does business.
Jack Greenberg, who became chairman of McDonald’s last year, said that social involvement needs to become part of a company’s business strategy. “You don’t pigeonhole social responsibility or doing the right thing,” he said. “They have to be part of your basic values.”
Still, the tradeoffs are not always easy to understand in a world where cultural variations, political dynamics, geographic distance and the demands of business often make it difficult to truly know what is the right thing to do.
Consider the troubles of Sears, Roebuck & Co. In 1992, the Hoffman Estates-based retail giant responded to the pressure brought by the Amalgamated Clothing and Textile Workers Union and stopped obtaining apparel from Chinese production plants that employed prison labor. But now Sears is facing sweatshop charges in a place closer to home, Saipan, a U.S. protectorate in the South Pacific.
Last month, human-rights groups brought charges against Sears and a host of other retailers and apparel marketers for purchasing products manufactured in sweatshops on Saipan where people were forced to work in virtual slavery. Sears says it follows all applicable laws in the countries where it does business, and is expected to contest the charges in the lawsuit.
There are no simple solutions. The most obvious approach– pulling out of countries where corruption and abuse take place–is not necessarily the right move. Corporate executives argue forcefully that disinvestment does not work, that they can serve as islands of civility and a behind-the-scenes force for change.
Human-rights activists in Davos pointed to South Africa as a case where a worldwide business boycott succeeded. But most noted that South Africa was an exception, and that engagement is a more realistic and effective strategy.
But to make engagement work, companies must push to make certain that they are forces for positive change. They cannot actively or unwittingly serve as forces of corruption and abuse. Oil companies have come under particular attack in the last decade, with such well-known names as Amoco, Royal Dutch/Shell and Unocal Corp. facing charges by human-rights groups of abuse in Third World countries. Amoco pulled out of Burma (now known as Myanmar) in 1994, after facing heated attack from human-rights groups that claimed Amoco’s presence supported the repressive Burmese regime.
Amoco cited economic reasons when it pulled out, not human-rights abuses. But rights activists nevertheless took comfort when Amoco left.
With Amoco gone, increasing attention has focused on Unocal, and the California-based company’s continued participation in a Myanmar pipeline project. The company faces severe criticism from human-rights sources and even the U.S. Department of Labor, which charge that Unocal has employed slave labor to build the pipeline.
When the Labor Department brought the charges last fall, Unocal countered through a political and public-relations efforts. The company defends what it sees as the economic benefit of its involvement: lower infant mortality among children of its workers, higher education, better medicine and, it claims, higher pay. It hired a team of otherwise independent auditors to do field research of its operations, and Unocal played domestic politics by publicizing a U.S. State Department statement of skepticism about the charges of rights abuses.
The controversy has had a positive impact at Unocal. As a result of the Myanmar fracas, the company has developed a company-wide human-rights policy and created a committee of its board of directors that focuses specifically on the question of social responsibility.
The Unocal approach is a good move, but it’s really only a half step. A Social Responsibility Committee of the board cannot have any real power unless it is given some form of investigative staff and an ability to hold management accountable for any shortcomings. Its chairman should sit on the board’s executive committee, to ensure that the Social Responsibility Committee is in the loop on major corporate decisions.
Armed with a staff of outside auditors, a board-level committee could truly police activities of the company. It could research questions such as whether it would serve the company to be bound by the Universal Declaration of Human Rights, a United Nations-sponsored set of standards for humane working conditions. The board committee would also provide a venue to which whistleblowers could turn and know they would get a fair hearing.
Globalization makes it easier to conduct business anywhere in the world. It also makes it easier for mistakes and abuse to be uncovered and broadcast as quickly as a satellite beam can circle the earth.
It’s not just good business to conduct business in a socially responsible manner all around the world. It’s also a good idea.
Companies that take social responsibility seriously can rest at ease the next time the pope, or the protesters, grab a microphone.
