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”.
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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”.
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.
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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.
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.
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.
Arun Maira served in the erstwhile Planning Commission.