Coping with globalization fears

The World Trade Centre was perhaps the most powerful symbol of economic globalization, and the U.S. has long been seen as the champion of a free-trade, high-technology and democratic, secular society. The destruction that rained down on the streets of Manhattan was an attempt to reverse the trend toward a world where goods, services and ideas are exchanged with increasing ease.

Ironically, the stupidity and cruelty that a horrified world witnessed on their television screens could serve as a reminder that, whatever the problems associated with globalization, the alternatives proposed by the opponents of globalization are unacceptable. As we count the economic and human damage, we realize how much we have taken the social and economic benefits of globalization for granted.

September 11 has important lessons for business. One is that the public sees large companies as agents of globalization and that this perception imposes obligations on those companies. They must accept the environmental, social, political and cultural impact of economic activity.

The second lesson is about understanding what feeds the passion of our critics. To do that, we have to see the world through their eyes. Understanding starts with listening to what the anti-globalization lobbies have to say. These voices are often united against the institutions and companies that symbolize globalization.

The third lesson is to realize that it is short-sighted and profitless in the long term for business to engage in confrontation with the shock troops of the anti-globalization movement. To do so may afford combative individuals and organizations ideological satisfaction, but it will not change public attitudes. In a war of words and demonstrations choreographed for the media, business will always be on the backfoot.

It is therefore imperative that we show the global corporation for what it is: a vehicle for ideas, opportunities, jobs and technological progress that is part of the broader community. What it is not is a bunch of suits in plush offices, totally divorced from the realities of the world around them. We must engage.

However, before looking at how our critics see the world, let’s look at how corporations view globalization. Just taking parts of globalization — be they good or bad — is self-defeating and doesn’t advance the debate. But an important part of globalization is global standards and comparisons, and so our domestic businesses cannot avoid the debate. They, too, are compared and contrasted with global best practice.

Most agree that the corporate view of globalization is essentially positive. To business people who have reached a certain age, it is self-evident that the confluence of technology, economic deregulation, geography and political change that we call globalization has raised the standard of living of most people in most parts of the world.

Not in all parts — no one seriously makes that claim. But where poverty persists, it is likely to be in spite of globalization, not because of it.

As for the member nations of the Organization for Economic Co-operation and Development (OECD), there is no argument that people live longer, more comfortable lives than did their ancestors. Globalization has helped free countless people from having to scrape a subsistence from the soil. For the first time in recorded history, the populations of countries such as China and India no longer live with the constant threat of famine and disease. Global trade has put cheaper, better products and services within the grasp of millions.

Not only do more people live longer, healthier lives but, for many, those lives have greater potential. A more informed world facilitates the growth of democratic institutions and spotlights the inadequacies of dictators.

If this is so obvious to people like us, why isn’t it so to every one else? Why do we witness noisy, and sometimes violent, demonstrations in cities around the developed world that depict globalization as a selfish and dangerous development that benefits only a minority?

The street theatre of those demonstrations is passionate and noisy. There are those, for example, who argue strenuously that globalization weakens the rights of workers and is a threat to organized labour movements. Some of them have a genuine concern that a faster, more competitive economy marginalizes the less skilled and less educated.

A common thread unites the environmental movement: nearly all view the globalization of commerce in a negative light, believing that the term global corporation signifies an entity that has the financial, political and technical capacity to wreak great damage on the environment. And, in fairness, who can deny that in the past there have been examples of poor environmental practice on the part of business? The causes or responsibilities are rarely as clearcut as the environmental lobby would suggest; nevertheless, they do have a case.

The sustainable development debate has gone some way to making environmentalists aware that wealth creation is essential if the world is to pay off its debt of past environmental mismanagement and neglect. It is obvious to most that only science and its handmaiden, technology, will provide solutions to problems that previous generations either did not understand or did not anticipate. But to apply that science and technology, wealth has to be created.

People who demand socially responsible behaviour tend to distrust large companies with operations in developing countries. To them the power equation is lopsided, with all the knowledge, wealth and political clout being with the company. It’s a view that ignores the risk profile of investing overseas.

The opinion that large companies are too smart, too powerful and too well-resourced is not confined to those concerned about the social and environmental impact corporations make in Third World countries. Because of the emotion generated in this debate, there are people who see globalization so differently that they cannot conceive that a global company would voluntarily behave responsibly and embrace accountability.

In the West, examples of corporate misbehaviour are widely publicized. Sections of the media and the performing arts routinely depict the corporate world in unflattering terms. Whether couched in terms of a threat to the sovereignty of nations, or as simply as economic dominance, the perception is as dangerous as it is wrong.

The quality of the criticism aimed at corporations is varied. Some is logical and thoughtful and deserves our close attention; some is scurrilous and does not. But there is a large middle ground where the anti-globalization banner appears to be kept aloft by the heirs of those who once preached the evils of capitalism.

Today a company must gain the respect of a wider, more diverse audience. Today openness and transparency are the traits that appeal to that audience. Being able to identify and communicate effectively with stakeholders is essential if a company wishes to establish public credibility. Instead of confrontation, good companies must seek engagement. This involves introspection of motives, values and corporate culture. It involves the patient building of relationships with communities and stakeholders. No other way will serve to demonstrate corporate responsibility to a suspicious world.

There are those who will claim that this approach is an expensive diversion of corporate resources and from the real business of business. Done well, it is not. Done poorly, it can be. For any business that decides to ignore this imperative there is, in my opinion, simply no future.

All business needs to realize that the most profound effect of globalization is that it has changed the way people think about the process of wealth creation. The choice is therefore between ignoring the change and anticipating the challenge, between confrontation and constructive engagement. In the long term, the latter route is the only way to go, because any other choice threatens the very survival of the business.

— The preceding is from a speech presented to the
Brisbane Institute in Australia. The author is the former chief executive officer of London-based Rio Tinto.