international financial and trade institutions the world bank provides economic development loans to...

International financial and trade institutionsInternational financial and trade institutions

The World Bank Provides economic development loans to its member nations. Funds used mainly for roads, dams, power plants, pipelines, and

other infrastructure projects. International Monetary Fund

Purpose is to make currency exchange easier for member countries so that they can participate in global trade.

Lends foreign exchange to member countries. World Trade Organization

An international body that established the ground rules for trade among nations.

Its major objective is to promote free trade.

Benefits and costs of globalizationBenefits and costs of globalization

Benefits of globalization

Increases economic productivity.

Reduces prices for consumers.

Gives developing countries access to foreign investment funds to support economic development.

Transfers technology.

Spreads democracy and freedom, and reduces military conflict.

Costs of globalization

Causes job insecurity.

Weakens environmental and labor standards.

Prevents individual nations from adopting policies promoting environmental or social objectives if these discriminate against products from another country.

Undermines cultural, linguistic, and religious diversity.

Is just as compatible with despotism as it is with freedom.

Figure 7.3

““Finding Lessons of Outsourcing in Four Finding Lessons of Outsourcing in Four Historical Tales”Historical Tales”

Losing skilled jobs to low-wage foreign competition is as old as Industrial Revolution

Trade and technology can boost living standards for many, by creating lower-priced goods But same forces can destroy skilled jobs

Competition from foreign labor hurt huge classes of American workers in 19 th century, but eventually helped ease wage disparities between nations

History shows that politics can arrest seemingly unstoppable technological progress With what consequence???


One lesson (or implication): “It takes away jobs from Americans and gives them to people who will

work for less” Questions for your consideration:

Do you as a consumer maximize your utility by choosing lower-priced good of equal quality, regardless of where that good is made?

Does firm maximize profits by employing lowest-cost resources of sufficient quality?

Does firm have ethical obligation to employ higher-cost domestic resources, even if result is lowered profitability?


Lessons Even high-skilled, good-paying jobs are vulnerable Trade liberalization often works w/ technology to undermine

powerful interests


Lessons Domestic workers are always vulnerable to competition from foreigners willing to

work for less Between 1870 and 1910, 60m Europeans, mostly young males w/ few jobs skills,

emigrated Boosted U.S. labor force by 24% Sent industrial wages tumbling

Wages declined 1-1.5% for every 1% increase in immigration during 1890s and early 1900s Wages dropped even more steeply in fields dominated by immigrants

U.S. labor unions turned against immigration in 1890s In 1870, wages were 136% higher in U.S. than in Europe, by 1913 gap closed by half

By 1921, when U.S. limited immigration, flow of immigrants was easing due to increase in European wages


Lessons Politics can slow down transforming effects of new technology

Transportation revolution of late 19th century every bit as life-changing as advent of Internet and high-speed data communication today

Cost of shipping wheat between New York and Liverpool fell by half between 1830 and 1880, by half again between 1880 and 1914

Industries and workers hurt by imports assembled coalitions that persuaded politicians to erect high tariffs

U.S. remained high tariff country for much of early 20 th century In Germany, political reaction was more radical

Result: militarism and economic isolation mounted


Implications: Labor rates in India one-third those in U.S.

Cost advantages likely to last for decades History of immigrations suggests that if outsourcing spreads, wages of U.S.

workers who compete with Indians and Chinese will suffer Salaries of U.S. computer programmers flat between 2000 and 2002, after inflation Number of U.S. programming jobs declined 14%

See BW cover story, “Software”; WSJ article, “Lessons in India – Not Every Job Translates Overseas”

Behind Outsourcing Debate: Surprisingly Behind Outsourcing Debate: Surprisingly Few Hard NumbersFew Hard Numbers

Economists influenced by theories of David Ricardo, 19th century economist who laid out principles of free trade Ricardo believed countries should specialize where they have ‘comparative advantage’

When countries lower trade barriers, everyone benefits because able to buy and produce goods more cheaply

In political terms, easy to see why outsourcing debate is dominated by critics of practice Cost to individuals who lose jobs is obvious, while benefits of outsourcing (lower prices

for goods and services and increased exports) less tangible (and accrue to society as whole or other individuals)

In 1980s and ’90s, two-thirds of workers who lost jobs in manufacturing industries facing overseas competition earned less on next job

One-quarter of workers who lost jobs saw income fall 30% or more when re-employed Need for ‘Pareto optimization’ analysis

Source: Wall Street Journal, 4/12/04

““The Future of Jobs: New Ones Arise, The Future of Jobs: New Ones Arise, Wage Gap Widens”Wage Gap Widens”

Will there be good jobs left for next generation? The good news: U.S. almost certainly isn’t going to run out of jobs, even

though history shows it’s impossible to predict what new jobs will replace those that are destroyed For example, in 1988 travel agents projected to be among fastest-growing

occupations, but instead number fell due to online booking In 1988 electronics assemblers projected to decrease, but grew as outsourcing

and robotics had less effect than expected


The bad news: Outsourcing overseas and technology could widen gap between wages of well-paying knowledge work and poorly paid manual work Jobs that can be reduced to series of rules likely to go – either to

computers or workers offshore Jobs that stay or are newly created likely to demand the more complex

skill of recognizing patterns or will involve human contact Tax preparation example – distinction between routine and complex returns USI 2004 grads w/ A.S. in Nursing, mean salary of $37,200; Radiologic

Technology, $34,400; Dental Hygiene, $56,500 (cf. BUAD(Mngt area), $27,300)

Community colleges excel at responding to shifting vocational demands in labor market


Forces of economic change favor workers w/ education and skills Unemployment among college grads 3%, high school grads 5.5%,

high school dropouts 8.5% In 1980s and 90s, demand for educated workers grew more quickly

than supply, leading to increased pay Wages of men over age 25 w/ four-year degree now 41% higher than

similar men w/ HS degree, compared to 21% higher 25 years ago For women, 46% today compared to 25%

Notion of career ladder becoming “rock climbing”


MIT economist refers to two kinds of lies politicians tell about outsourcing First, we can turn it all back

No, because even if trade cut off, technology can do same thing to workers

Second, education is all that matters May be true, but only in long run

Wo/ better elementary and high schools, wider access to college and more training of mature workers, wage gap is certain to grow

Source: Wall Street Journal, 4/2/04

Global codes of corporate conductGlobal codes of corporate conduct

The United Nations Global Compact A values-based platform designed to promote institutional

learning. Corporations are invited to voluntarily endorse core principles

covering labor, human rights, and environmental standards.

The OECD Guidelines for Multinational Enterprises Code of conduct for corporations developed by member nations

of the OECD. The guidelines are voluntary, address employment relations,

information disclosure, environmental stewardship, consumer interests, and the management of technology.

Global codes of corporate conductGlobal codes of corporate conduct

The Global Sullivan Principles The objectives are to support economic, social, and political

justice by companies where they do business. Calls on companies to support human rights and to encourage

equal opportunity at all levels of employment.

The Caux Principles Emphasizes working for the common good and respect for human

rights.

Distinctive attributes of the three major sectors: Distinctive attributes of the three major sectors: BusinessBusiness

Figure 7.4a

Organizational form For-profit

Goods produced Private

Primary control agent Owners

Primary power form Money

Primary goals Wealth creation

Assessment frame Profitability

Resources Capital assets, technical knowledge, production skills

Weaknesses Short-term focus, lack of concern for external impacts

Source: Adapted from Steven Waddell, “Core Competences: A Key Force in Business-Government-Civil

Society Collaborations,” Journal of Corporate Citizenship, Autumn 2002, pp. 43-56, Tables 1 and 2.

Distinctive attributes of the three major sectors: Distinctive attributes of the three major sectors: GovernmentGovernment

Figure 7.4b

Organizational form Governmental

Goods produced Public

Primary control agent Voters/rulers

Primary power form Laws, police, fines

Primary goals Societal order

Assessment frame Legality

Resources Tax revenue, policy knowledge, regulatory and enforcement power

Weaknesses Bureaucratic, slow-moving, poorly coordinated internally



Distinctive attributes of the three major sectors: Distinctive attributes of the three major sectors: Civil SocietyCivil Society

Figure 7.4c

Organizational form Nonprofit

Goods produced Group

Primary control agent Communities

Primary power form Traditions, values

Primary goals Expression of values

Assessment frame Justice

Resources Community knowledge, inspirational leadership

Weaknesses Amateurish, lack of financial resources, parochial perspective



GlobalizationGlobalization

Overemphasized benefits of free movement of capital, underemphasized risks

Countries that do best don’t simply open markets and wait for trade to work its magic; they use trade as part of strategy that includes building sound political and legal institutions

Growing evidence that free trade increases income disparities within countries

NGOs accountable to no one but themselves Source: Fortune, 11/26/01

The American WayThe American Way

In business world, globalization has meant Americanization Foreign companies adopting American business practices, esp. following

fall of Berlin Wall and Japanese economy, U.S.-led tech boom English is increasingly the language of global business International accounting standards dovetailing with those set by FASB 80% of faculty at Insead got degrees from U.S. business schools In past decade, proportion of foreign graduates of Harvard and Wharton

has doubled, to one-third of class But, ongoing resistance to some American values and practices For American business values to continue to thrive, they will

have to take into account stakeholders beyond shareholders Source: Fortune, 11/26/01

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