journal of business, society and government - bsg consortium
TRANSCRIPT
2010
Society and Government Consortium Midwest Business Administration Association
[JOURNAL OF BUSINESS, SOCIETY AND GOVERNMENT] VOLUME 2, ISSUE 1
2
JOURNAL OF BUSINESS, SOCIETY, AND GOVERNMENT
Executive Editor:
Dr. Steven C. Palmer
Associate Professor of Business
Chair - Business, E-Commerce and
Accounting Department Northwestern
Oklahoma State University 709 Oklahoma
Boulevard
Alva, OK 73717
Editor:
Dr. Don Yates
Assistant Professor of Computer
Information Systems
Louisiana State University Alexandria
8100 Hwy 71 S
Alexandria, LA 71302
Reviewers:
Dr. James Bowen
Northwestern Oklahoma State University
Dr. James Breyley
Northwestern Oklahoma State University
Dr. Michael Daley
University of New England
Dr. Cheryl Evans
Northwestern Oklahoma State University
Dr. David Hemley
Eastern New Mexico University
Dr. George McNary
Creighton University
Dr. Don Morris
University of Illinois at Springfield
Dr. Veena Paraboteeah
Eastern New Mexico University
Dr. Denise Smith
Eastern Illinois University
Dr. John Stockmyer
Eastern New Mexico University
Dr. Lee Weyant
Kutztown University
Dr. Don Yates
Louisiana State University-Alexandria
CONTENTS
The Role Of Technology to Enhance Graduate Business Education:
One University‘s Experience .......................................................................................................4
Going Global: A Look at Corporate Citizenship ........................................................................ 16
Institutional Restructuring Versus Corporate Social Responsibility ........................................... 29
4
THE ROLE OF TECHNOLOGY TO ENHANCE GRADUATE
BUSINESS EDUCATION: ONE UNIVERSITY‘S EXPERIENCE
Lee E. Weyant, DBA
Associate Professor of Management
Department of Management
P O Box 730
Kutztown University of Pennsylvania
Kutztown, PA 19530
610-683-1372 (office)
484-788-4571 (cell)
Steven Palmer, JD
Assistant Professor of Business Law/Management
College of Business
Eastern New Mexico University
Portales, NM 88130
John Stockmyer, PhD
Associate Professor of Marketing
College of Business
Eastern New Mexico University
Portales, NM 88130
ABSTRACT
In Spring 2006 the College of Business at Eastern New Mexico University (Portales, NM)
had to decide whether or not its MBA program was viable. Enrollment was stagnant and the
program, as operated, was draining resources from the college. A solution had to be found that
would allow for growth, especially in the distance education market, and makes the delivery of
the program more efficient for students and the university. Three factors had to be present in any
resolution: 1) involve distance education since it represented the greatest growth potential for
students outside the Portales area; 2) require no additional faculty resources and preferably
lessen the burden on graduate faculty; and 3) meet HLC and ACBSP standards. This case study
looks at the four alternatives that were considered, the benefits and drawbacks of each alternative
and the implementation decision regarding the blended hybrid model that was adopted.
Keywords: Online Learning, Educational Technology, Business Education, Decision Making
In spring 2006, the College of Business
(COB) faculty and administrators at Eastern
New Mexico University (ENMU) faced two
very basic questions regarding the Masters
of Business Administration (MBA)
program. First, how can the program grow
beyond the current enrollment of
approximately 50 students? Just as
importantly, how can the delivery of the
program be made more efficient for students
and the university? If these questions could
not be answered adequately, the next
5
question would be whether or not the MBA
program should be discontinued.
ENMU is a public, regional,
comprehensive, four-year institution of
higher education located in Portales, New
Mexico. Portales is a rural community of
about 12,000 located near the New Mexico-
Texas border. Demographically the eight
New Mexico counties traditionally served
by ENMU are sparsely populated. There are
no cities with a population of more than
50,000 people within the region. As Table 1
shows the combined 2000 census for these
New Mexico counties is less than 300,000
individuals.
Table 1
New Mexico County Population 2000
County (Major City) Population
Chaves (Roswell) 61,382
Curry (Clovis) 45,044
De Baca (Ft. Sumner) 2,240
Eddy (Carlsbad) 51,658
Lea (Hobbs) 55,511
Lincoln (Ruidoso) 19,411
Quay (Tucumcari) 10,155
Roosevelt (Portales) 18,018
Total 263,419
Source: University of New Mexico,
Bureau of Business and Economic Research
(n.d.)
The university offers undergraduate and
graduate courses and degree programs using
a variety of delivery techniques. As noted in
its mission statement, ENMU uses
traditional face-to-face (F2F) classes,
interactive distance education technology,
public broadcast television and community
college campuses to provide educational
opportunities to the people in its service area
(Eastern New Mexico University, 2005).
The ENMU mission statement states the
university ―combines a traditional learning
environment with twenty-first century
technology to provide a rich educational
experience.‖ (Eastern New Mexico
University, 2005, p. 5) A key growth
strategy in the ENMU Strategic Plan is
distance education with expanded and
enhanced online and video-conferencing
courses and programs (Eastern New Mexico
University, 2006).
To meet its mission in this regard, the
university uses several distance education
formats to deliver undergraduate and
graduate degrees, including the Bachelor of
Business Administration (BBA) and the
MBA. For instance, the university
encourages the development and delivery of
courses and programs via online instruction
using WebCT™
. This course management
system provides faculty with the flexibility
to design an online course or to supplement
a traditional classroom instruction.
Additionally, the university uses
instructional television (ITV) and Polycom®
videoconferencing (VC) to broadcast upper-
division and graduate courses supporting
several degree programs. The ITV/VC
courses are generally broadcast from F2F
classes on the ENMU-Portales campus to
various locations in eastern New Mexico.
Table 2 shows the current sites receiving
live ENMU distance education broadcasts.
6
Table 2
ENMU Instructional Television/Video Conferencing Sites
Facility Location
Artesia High School Artesia, NM
Cannon Air Force Base (AFB) Cannon AFB, NM
Clovis Community College Clovis, NM
ENMU-Roswell Roswell, NM
ENMU-Ruidoso Ruidoso, NM
New Mexico Junior College Hobbs, NM
New Mexico State University-Carlsbad Carlsbad, NM
In spring 2006, the ENMU College of
Business offered a BBA degree and a MBA
degree, using a combination of distance
education technologies to deliver the
curriculum to off-campus students. Thus, an
off-campus undergraduate student could
earn a BBA in Accounting or a BBA in
Business Administration by attending the
nearest ITV/VC site. It should be noted that,
at that time, the COB delivered only upper-
division undergraduate courses and graduate
courses via distanced education. Lower-
division courses, such as introductory
accounting or economics were to be
completed at local colleges and transferred
toward the ENMU BBA degree. Table 3
describes the frequency of class delivery
formats used by the COB in academic year
2005-2006.
Table 3
Frequency of Delivery Method Used by COB (AY 2005-2006)
Overall Undergraduate Graduate
Face-to-Face (Portales campus only) 51% 58% 0%
ITV/VC (all ITV/VC classes
included F2F section in Portales) 21% 21% 22%
Online 28% 21% 78%
Total Classes 138 classes 120 classes 18 classes
The ENMU MBA curriculum is a general
management degree accredited by the
Association of Collegiate Business School
Programs (ACBSP). This professional
accreditation requires students to have a
minimum of 30 credit hours beyond a
prescribed common professional component
(CPC) of business knowledge (Association
of Collegiate Business Schools and
Programs, 2004). ENMU‘s MBA requires
33 credit hours beyond the CPC consisting
of 24 hours of required core business
courses and 9 hours of electives. Table 4
shows the MBA course requirements and
course scheduling for the 2002-2004
graduate catalog cycle, prior to the
introduction of the web-based MBA
program.
In addition, Table 4 shows the COB‘s
scheduling practice regarding distance
education resources. Prior to 2005, the
Portales campus had four ITV broadcast
rooms with one-way video and two-way
audio. Five ITV receive sites (Cannon AFB,
Clovis, Hobbs, Roswell, Ruidoso) were
configured to receive three different
broadcasts from Portales. The COB offered
7
MBA courses using a combination of
sixteen and eight-week formats that used an
alternating-year schedule between F2F and
ITV delivery. For example, in the fall of
2002 Managerial Accounting was offered in
an ITV format over eight weeks. In the fall
of 2003, the course was offered using a
Portales only, F2F format. This scheduling
meant that off-campus students had to
carefully plan their course sequence to
match the ITV course sequence, or incur a
delay until the course was offered again in
the ITV format. In addition to being
complicated to schedule and administer, this
―alternating-year‖ sequence was very
confusing to students. MBA candidates
would frequently ask which courses would
be offered in which format.
Table 4
MBA Course Rotation 2002-2004
Course Title Fall 02 Spring 03 Fall
03
Spring 04
ACCT 551 Managerial
Accounting
ITV, 8
wks
F2F,
8wks
BUS 518 Managerial
Research Methods
ITV, 8
wks
F2F,
8wks
ECON 525 Managerial
Economics
F2F, 8
wks
ITV, 8
wks
MKT 517 Marketing
Management
F2F, 8
wks
ITV, 8
wks
BUS 553 Strategic
Management
ITV,
16 wks
ITV, 16
wks
FIN 541 Managerial
Finance
ITV,
16 wks
ITV, 16
wks
MGT 501 Production
Management &
Quantitative
Analysis
F2F, 8
wks
F2F, 16
wks
MGT 513 Organizational
Behavior
F2F, 8
wks
Web, 16
wks
Electives ITV, 16
wks
ITV,
16 wks
ITV,
16 wks
ITV, 16
wks
In 2004, the Higher Learning
Commission of North Central Association of
Colleges and Schools (HLC) accredited the
college‘s on-line MBA program (Seymour
& Nolan, 2004). For the first time the COB
could extend their graduate business
education beyond the traditional ITV/VC
sites listed in Table 2. Initially, the MBA
classes for the 2004-2006 catalog cycle were
alternately scheduled ITV and online. The
online format involved instruction using
WebCT™
to deliver course content using
asynchronous and/or synchronous computer-
mediated communications. Table 5 shows
the planned MBA course rotation for 2004-
2006 schedule.
Table 5
MBA Course Rotation 2004-2006
2004 2005 2006
Spring MGT 513 Web MGT 513 ITV MGT 513 Web
MGT 501 ITV MGT 501 Web MGT 501 ITV
FIN 541 ITV FIN 541 Web BUS 553 ITV
BUS 553 ITV BUS 553 Web BUS 553 ITV
BUS 518 Web BUS 518 Web
Fall BUS 518 Web BUS 518 Web BUS 518 Web
ECON 525 Web ECON 525 ITV ECON 525 Web
MKT 517 Web MKT 517 ITV MKT 517 Web
ACCT 551 ITV ACCT 551 Web ACCT 551 ITV
During spring 2006, it was recognized that the underlying scheduling philosophy was a
barrier to new growth opportunities for the MBA program. Students completing the MBA
entirely online continued to face the problem of delays in their program if they did not maintain
the fixed course sequence. Also, full-time MBA students taking classes in Portales complained
about having to take Web classes when before, they had the opportunity to take all their classes
in a more traditional F2F format. Also troublesome was the fact that professors had to change
their teaching approach every year. One year a class would be a web-class; the next it would be
a F2F class, and so on. Many faculty members did not feel comfortable conducting an MBA
class entirely on the web. Ultimately, the confusion over which courses were offered in which
format remained.
Considerations
In attempting to answer the two basic questions about the MBA program, the COB faculty
and administrators had several issues to be considered:
1. The State of New Mexico funds state institutions of higher education based on
student credit hour production. For Business classes lower level courses received
―X‖ dollars per credit hour in state funding. Upper level courses received 2.2X
dollars per credit hour. Graduate business courses were funded by the state at
4.75X dollars per credit hour. This provided an incentive to grow the graduate
Business program.
2. According to New Mexico Department of Higher Education policies, Texas and
Colorado residents are granted New Mexico resident tuition rates (New Mexico
Higher Education Department). Students taking 6 hours or less of only online
classes in a semester pay instate tuition rates regardless of their residency.
3. The COB was authorized 17 full-time tenured/tenure track lines. Of these, 5 were
in Computer Information Systems, 3 Accounting, 2 each in Economics, Finance,
Management and Marketing and 1 Business Law. Any changes in the MBA
program would have to be accomplished without any additional full-time faculty.
9
4. The COB informal policy was to use only full-time faculty to teach graduate
classes. ACBSP guidelines required at least 90% of the graduate classes be taught
by doctoral or professionally qualified faculty (ACBSP, 2004, p. 17). The
Portales area did not have a significant pool of available, doctoral or
professionally qualified adjuncts to teach at the undergraduate or graduate level.
5. The major growth industries in the traditional ENMU service area are related to
agriculture, hospitality and retail. These employers are not looking for people
with an MBA. Therefore, demand for graduate business education within our
service area probably would not significantly increase in the foreseeable future.
6. Forbes reported in August 2005 that only 20% of graduate business students were
involved in full-time programs. Half of the graduate business students were in
part-time evening or weekend programs. The remaining 30% were enrolled in
distance, executive or alternative programs (Badenhausen, 2005).
7. Each year the COB awarded approximately five graduate assistantships to full-
time MBA students who were in residence on the Portales campus. There were
additional full-time and part-time MBA students attending classes on the Portales
campus and via ITV/VC. For the most part, these students wanted a classroom
experience rather than taking online classes.
8. Additional funds were not available for financing additional technology.
Solution
These constraints presented the COB faculty with various challenges. After much debate, the
faculty agreed any solution about the MBA program had to meet the following criteria:
a. involve distance education since it represented the greatest growth potential for
students outside the Portales area;
b. require no additional faculty resources and preferably lessen the burden on
graduate faculty; and
c. meet HLC and ACBSP standards
The first alternative was to maintain the
status quo. The program had consistently
enrolled approximately 50 students. The
COB had been able to cover the courses
using existing faculty and resources. The
alternating schedule between ITV/VC and
web delivery was established; thus allowing
all students the opportunity to plan their
two-year schedule. A student who did not
take courses in the proper sequence incurred
delays of as much as an additional year in
the program. Of course, not all students
were able to follow the lock-step rotation.
This rotating schedule also caused confusion
with students, faculty and administration as
to when each class would be offered in
which format. Students did not always seek
proper guidance, causing problems for them
to graduate on time. Since the current
alternating scheduling format was seen as a
barrier to growing the program, maintaining
the status quo was not a viable option.
Another proposed solution was to go
100% web based. This option would allow
the COB to expand the MBA program
beyond the borders of New Mexico. This
solution eliminated the confusion caused by
a rotation schedule. Converting to an online
only MBA program would require no
additional faculty resources to deliver the
current curriculum and met the HLC and
10
ACBSP standards. However, offering a
total online program presented several
obstacles. The traditional student base for
the ENMU MBA program would remain the
Portales and ITV/VC students. Anecdotal
evidence suggested these students lacked
enthusiasm for a total online program and
might transfer to competing traditional
programs. Also, students seeking an online
MBA experience would need to perceive the
ENMU MBA as competitive to the myriad
of available online options. Additionally a
conversion to a total online program would
create difficulty recruiting full-time students
to staff the graduate assistantships.
Moreover, some faculty members expressed
serious reservations about losing the
classroom experience, which they perceived
as a major component of their graduate
courses. Although this option met the
minimum requirements, it was not perceived
as viable.
A third option discussed was to change
the program to a one-year, full-time MBA.
Students would be expected to be in
residence in Portales to attend classes. The
program would be reduced to 30 credit
hours, after the CPC was completed. A one
year program might be attractive accounting
graduates who needed additional hours to sit
for the CPA exam. Faculty would always
teach classes in the classroom and web
classes would be discontinued. With these
advantages, a one-year residential program
faced obstacles. Generally speaking ENMU
recruited students from a 120 mile radius of
campus. For the most part, employers in
this area were not looking for students with
MBAs. Other than accounting students
meeting the 150-hour CPA requirement,
there was not a ready market for full-time
MBA students within our traditional
recruiting area. A one-year residential
program would change the pool of potential
students, which raised concern about
ENMU‘s competitiveness in this new
market. Since one of the goals was to
increase enrollment, this option was not
considered practicable.
None of these solutions provided an
optimal approach to the criteria and
constraints. One solution represented
maintenance of status quo, while two
solutions provided distinct points on a
continuum of pedagogical possibilities.
Because of the criteria upon which the
decision would be made, the faculty
considered a blended, hybrid approach (see
Figure 1). This instructional method requires
―some classes or lessons delivered entirely
on the Web and others delivered face-to-
face‖ (Davidson-Shivers & Rasmussen,
2006, p. 24). This format would address
many of the considerations set forth above:
1. No more ITV/Web rotation.
2. Instructors taught the same
format every time.
3. All MBA courses had a
classroom component to the
course.
4. Instructors were free to
include more traditional F2F
methods such as live case
discussions, student
presentations, lectures, etc.
5. Portales students now did not
feel cheated by having to do a
web class when they were on
campus.
6. Distance students could now
be on the same course
rotations as Portales students;
therefore, distance students
would no longer be delayed if
they missed the lock-stepped
online course offerings.
7. The MBA program could be
expanded beyond New
Mexico
8. All students, no matter where
they were located, would
participate in the same class
offerings.
11
This blended hybrid model created a
competitive advantage for the ENMU MBA
program. As the program extended beyond
ENMU‘s traditional service area, the COB
could distinguish its MBA program from the
multitude of online MBA programs.
Figure 1
Blended Hybrid Instructional Model
The blended hybrid model centered on
the incorporation of a classroom experience
into the web class for all students, whether
in Portales, at an ITV/VC site or exclusively
online. Classes were scheduled to meet bi-
weekly throughout the semester. For
students in Portales, it would be a live
classroom experience. These class sessions
would be simultaneously broadcast (i.e.,
synchronous mode) to the ITV/VC sites
using Polycom . The question remained
how to incorporate the classroom into the
online students‘ experience.
The COB began experimenting with
several desktop videoconferencing systems
as a means to incorporate the online students
into the classroom experience. One system
considered was Polycom® PVX
™. This is a
desktop computer version of the Polycom®
video conferencing software. With a
webcam, microphone and speakers, the
Polycom® PVX
™ software allowed the off-
campus student access to the same VC
broadcast that was being transmitted to the
various ITV/VC sites from Portales. The
major advantage to this system was the
ability for off-campus students to participate
in a synchronous classroom experience in
the same manner as the ITV/VC sites.
A disadvantage for the students was the
system requirements. While, at $150, the
software is relatively inexpensive, the
student must have a computer with a
Pentium 4 processor. The software did not
work with processors from any other
manufacturer. Additionally, connection to
the VC broadcast requires the student‘s
computer to have a static IP address from
the student‘s Internet provider, which may
be unattainable or typically involve
additional charges to the student from their
provider.
From the university‘s perspective, the
number of nodes for the ENMU Polycom
connection is currently limited. The
university‘s Polycom bridge was located at
the ENMU community college campus in
Roswell and was shared with other area
educational institutions. For each broadcast
site the bridge must have an available node.
Because of simultaneous VC classes taught
by other departments within ENMU and
other partner institutions, the COB had a
very limited number of nodes available at
any particular time. The ITV/VC locations
listed in Table 2 above would have priority
over the desktop connections.
Despite the limitations of Polycom
PVX a COB professor living in Omaha
during the summer of 2006 made a test of
the software. From his home in Omaha, this
professor joined three class sessions of an
ITV/VC class being taught during summer
school. The first time the video froze on
Web F2F
ITV/VC
12
several occasions interrupting the ability of
the professor to participate in the class. On
the second occasion the connection quality
was good. On the third occasion, the sound
quality was scratchy, making it hard to
understand what was being said in the
classroom. Based on this limited experience
and the other difficulties presented by using
Polycom PVX , the decision was made to
look for other synchronous communications
involving web conferencing systems. A
search of the Internet identified several
alternatives, such as WebEx®,
MegaMeeting®, and Gotomeeting
®.
MegaMeeting® was found to be most
economical for the desired features.
Students pay no additional cost to use
MegaMeeting®. The university pays a flat
monthly fee for a fixed maximum number of
seats that can be used at any one time. For
example, if the university has a 10-seat
license, only 10 people may simultaneously
use MegaMeeting®. The professor serves as
the host and is counted as one of the seats
allowed in the license. Therefore, a 10-seat
license allows an instructor to communicate
with up to nine students simultaneously.
Moreover, there are no per minute charges
associated with the service. A final
advantage is the ease of use by faculty and
students. This issue was confirmed during
demonstration sessions with the faculty to
evaluate MegaMeeting . Although the
video quality was certainly reflective of the
webcam and lighting conditions,
MegaMeeting appeared to be an acceptable
alternative. ENMU administration
authorized the purchase of a 10-seat license.
COB faculty has experimented with
integrating MegaMeeting® into three
ITV/VC based classes. In one class students
from Utah, Kentucky and western New
Mexico attended each class session via
MegaMeeting®. Students made case
presentations and participated in class
discussions. In another class students from
California and central New Mexico were
able to listen live to the lectures, ask
questions and participate in class
discussions. The third class involved a
student in Minnesota who participated in
class with MegaMeeting®
.
As a web-based videoconference system,
MegaMeeting® eliminated the limitation of
nodes associated with the Polycom®
PVX™
system. COB faculty members also used
MegaMeeting® to conduct virtual office
hours and chat sessions for off-campus
students.
The MegaMeeting® solution has several
disadvantages. Students must have a
broadband Internet connection (256 Kbps or
higher), a web camera, speakers, and a
microphone. Sound quality may be
improved if the participants use headphones
with a built in microphone. Off-campus
students using MegaMeeting® during a
synchronous classroom do not see the
ITV/VC broadcast; rather they saw only the
students and faculty member within range of
the webcam at the main campus classroom.
MegaMeeting® does allow for the
participants to see what is on the host‘s (i.e.,
faculty) computer screen. The quality of the
picture is adequate. The view for the off-
campus student is fixed unless the professor
manually moves the webcam‘s position.
The sound quality of class discussion can be
weak depending on how close an in-class
student is to the computer microphone. This
issue is being addressed with conference
microphones placed among the in-class
students. Although there were limitations
with MegaMeeting®, student reaction, both
from the distance students and the F2F and
ITV/VC students, was generally very
favorable.
Before the Fall 2006 semester began,
another video alternative became available.
ENMU, in conjunction with a local
13
community college, had purchased a
StarBak® system. StarBak was able to
capture the videoconference feed sent to the
ITV/VC sites and digitize it for the online
students to view via online streaming
(Figure 2). While the digitized video
created by StarBak is not broadcast
television quality, it is acceptable for a
student to see all aspects of the instructor‘s
presentation. While the system is only
asynchronous delivery, it provides a visual
activity for those visual and auditory
learners. Another benefit to the StarBak
system is the ability to automatically store
live class sessions on the system. These
class sessions can be viewed by anyone with
a broadband Internet connection. In
addition to providing live-class broadcasts to
distance students, the classes may also be
viewed by in-class students who missed
class. Adoption of this system allowed the
ENMU MBA program to expand beyond the
confines of the ITV/VC boundaries. During
the 2006-2007 academic year, students from
New Mexico (outside ENMU‘s service
area), Louisiana, Kentucky, Utah, Nebraska
and Texas enrolled in the MBA program
viewed the StarBak feed for their virtual
classroom experience. To date the only
disadvantage to this streaming video
alternative lies in the technical requirement
that students have a broadband connection.
This is a disincentive for some students
living in rural areas of the country lacking
this capability.
Figure 2
Starbak System
Conclusion
The judicial use of distance education
technology has allowed the ENMU COB to
offer a quality MBA program in a distinctive
format that provides for substantial growth
opportunities. There is evidence that the
new hybrid model has increased enrollment
in the MBA Program. In the two years
following the introduction of the hybrid
model, MBA enrollments have increased
approximately 20%.
The hybrid model also reduces the
burden on faculty, support personnel and
students. This model allows the faculty to
teach their classes using the same format
from year to year. Additionally the faculty
StarBak System -Digitize ITV/VC signal
ITV/VC - Synchronous Broadcast/Videoconference
F2F - Portales
14
can incorporate traditional in-class
pedagogies, such as case discussions, group
activities, and presentations into the courses
that were formerly web only. Support
personnel like the system because it reduces
confusion regarding scheduling rooms and
ITV resources. Students like it because they
can plan their program without fear of
getting out of synch with the rotation —
because there is no more rotation. It also
solved the problem of students that wanted a
more traditional F2F format. All classes
now have a substantial ―classroom‖
component.
In summary, the use of technology in the
ENMU MBA program has created a true
win-win solution. The format allows for a
high-quality student experience, while
reducing faculty preparation time. Finally,
increasing MBA enrollment has created
additional revenue for the university, thus
securing the financial viability of the
program.
15
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(www.polycom.com).
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WebEx is a registered trademark of WebEx Communications, Inc., 3979 Freedom Circle,
Santa Clara CA 95054 (www.webex.com).
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16
GOING GLOBAL: A LOOK AT CORPORATE CITIZENSHIP
Melissa Ann Schmid
Masters in International Business Graduate Student
Saint Mary‘s University of Minnesota
336 Wimbledon Hills Drive SW
Rochester, MN 55902
(507) 261-4586
Lawrence G. Price, J.D.
Saint Mary‘s University of Minnesota
700 Terrace Heights, #1474
Winona, MN 55987
(507) 457-1533
Shelly Y. McCallum, D.B.A.
Saint Mary‘s University of Minnesota
700 Terrace Heights, #1439
Winona, MN 55987
(507) 457-7279
Abstract
Many firms have adopted an organizational mindset which reaches beyond a single profit-
focus to a multi-stakeholder view. They have developed domestic practices that encompass
corporate citizenship practices. However, many of these same firms are unsure how to participate
as a corporate citizen in the global business world. This paper will set out to examine the origins
of corporate citizenship, and will further seek to examine the concept in a global context. One
approach is the global business citizenship model, which will be outlined and connected to the
efforts of businesses to initiate international business activities. The initiatives of two global
firms, DHL and Hewlett-Packard, will be presented in order to illustrate global business
citizenship in action.
17
The relationship between companies
and society has been debated by economists
for some time. For example, Friedman
(1962) has argued that the primary role of a
firm is to generate economic value for
shareholders, while other scholars (Whetten,
Rands, & Godfrey, 2001) suggest that the
interests of various stakeholders, such as
employees, customers, suppliers, and
community members, may take precedence
over profits in some instances. This is a
debate which can be traced back to early
philosophers such as Aristotle (trans. 1932).
It is generally accepted that corporate
citizenship encompasses the recognition of
the interdependence of rights and duties, and
a firm is to act responsibly in its interactions
with humanity in order to ensure that its
rights are preserved (Wood, Logsdon,
Lewellyn, & Davenport, 2006; Crane &
Matten, 2007). But corporate citizenship
should include more than the minimal
voluntary contributions toward corporate
social responsibility and include the
adaptation of citizenship-like behavior
throughout the entire organization and in
every daily transaction (Aguilera, Rupp,
Williams, & Ganapathi, 2007; Mackey,
Mackey, & Barney, 2007; Mcintosh,
Thomas, Leipziger, & Coleman, 2003;
Wood et al.).
In today‘s economic environment, it
is becoming more difficult to find a
company that is not affected by the
globalization of business activities, which
has in turn changed the way many firms
think about citizenship. Whether it is
through the sourcing of raw materials, the
employment of a diverse workforce, the
selling of goods to international buyers, or
partnering with foreign companies (Daniels,
Radebaugh, & Sullivan, 2007), firms and
their managers are operating in a more
global environment than was found in the
past. Moreover, nations throughout the
world are continuing to liberalize their trade
policies, rendering virtually every territory
fair game for the ambitious company. Given
the new realities of doing business globally,
how can companies engage in good
corporate citizenship on a global basis?
To address this question, this paper
will outline the origins of corporate
citizenship and its developed meaning. Next,
the expansion of the concept of corporate
citizenship to accommodate the
globalization of business will be examined
through the lens of the global business
citizenship model (Wood et al., 2006). The
steps taken, tools used, and benefits accrued
through company engagement in a global
business citizenship approach will be
considered. Following this, a review of
some international support mechanisms for
companies interested in developing and
practicing corporate citizenship behaviors is
also presented. Lastly, the approaches taken
by two companies, DHL and Hewlett-
Packard, are highlighted as exemplary cases
of companies engaging in global business
citizenship.
Corporate Citizenship
Consideration of a firm as a ‗citizen‘
first became widespread during the 1980s,
when U.S.-based businesses began using the
term, ―corporate citizenship,‖ the use of
which has since spread to Europe, Japan,
Australia, and Canada (Altman & Vidaver-
Cohen, 2000). However, Altman and
Vidaver-Cohen also note that the term
―corporate citizenship‖ was often used
18
interchangeably with corporate social
responsibility, resulting in much confusion
as to what exactly constituted citizenship-
like behaviors. Corporate social
responsibility (CSR) has been broadly
defined as voluntary actions by firms
designed to enhance social or environmental
conditions (Aguilera et al., 2007; Mackey et
al., 2007). CSR appears to be extrinsic to
the direct interests of the firm, and not a
requirement of law (McWilliams & Siegel,
2001); instead, CSR originates in response
to the expectations of society (Wartick &
Wood, 1998). On the other hand, scholars
such as Mcintosh, Thomas, Leipziger, and
Coleman (2003) note that the rights and
duties associated with citizenship are not
attributable to voluntary, on-the-side, acts,
but rather are a way of doing business:
Corporate Citizenship involves corporations becoming more informed and
enlightened members of society and understanding that they are both public and
private entities. They are created by society and derive their legitimacy from
the societies in which they operate. They need to be able to articulate their role,
scope, and purpose as well as understand their full social and environmental
impacts and responsibilities (p. 16).
Although the authors make a strong
argument for the consideration of firms as
citizens, it remains vague as to what
precisely are the responsibilities of corporate
citizens. The duties of citizenship as
articulated centuries ago by Aristotle
comprise: (1) the participation in the
political process (i.e. to rule and be ruled in
turn); (2) the payment of taxes; and (3)
service in the militia s (trans. 1932). Firms
embrace these duties by participation in the
political process (e.g. lobbying), by acting
with integrity in business transactions, by
paying taxes, by voluntarily supporting
welfare and social justice activities, and by
supporting national defense (e.g. allowing
employees to fulfill service obligations)
(Logsdon & Wood, 2002).
Crane and Matten (2007) have built
upon the concept of firms as citizens by
defining corporate citizenship
responsibilities as directly tied to the
governance of citizenship rights, most
notably social, civil, and political rights.
These responsibilities have to do with how
the firm is involved in governance activities.
Such activities may be either voluntary, self-
interest driven initiatives or in response to
public pressure (Crane & Matten, 2007).
Rights may be defined as ―the freedom to
pursue one‘s interests‖ (Wood et al., 2006,
p. 44). Although this serves as a rich
definition of corporate citizenship, it fails to
address on what scope – local, national, or
international – involvement takes place.
To address this issue of scope, a
firm‘s range of social involvement as a
corporate citizen can be viewed as a
continuum-based concept (Néron &
Norman, 2008). The idea of corporate
citizenship, as proposed by Néron and
Norman, can range from the minimalist
19
conception, whereby a firm engages in
discreet, virtuous acts such as charitable
giving or philanthropic event participation,
to the expansionist conception, whereby the
firm introduces a corporate citizenship
mindset and accompanying behaviors into
every aspect of its business operations and
interactions. Wood and Logsdon (2008)
recast the ends of the continuum such that a
business operating in the minimalist view
associates its rights and duties with respect
to the pursuit of self-interested goals,
fulfilling only those duties that guarantee the
organization‘s rights. Taking this view, a
minimalist firm would only engage in
corporate citizen-like behaviors, such as
donating to charities or participating in
community events, if its shareholders
perceive it to be in their self-interest.
At the other end of the continuum,
firms practicing an expansionist approach,
also known as the universalist approach,
would be thought of as citizens of the world,
participating responsibly in local and global
affairs (Wood & Logsdon, 2008). The
approach accepts the moral claim of all
human beings to liberty rights, as well as a
fair sharing in the benefits and detriments of
membership in society (Logsdon & Wood,
2002). Under this fully embodied concept
of corporate citizenship the firm would
embrace inherent natural human rights and
rely less on overarching governance
structures (Logsdon & Wood, 2002).
Wood, Logsdon, Lewellyn, and
Davenport (2006), articulating this broader
view of corporate citizenship, have
advanced the concept of global business
citizenship (GBC) as ―a business enterprise
(and its managers) that responsibly exercises
its rights and implements its duties to
individuals, stakeholders and societies
within and across national and cultural
borders‖ (p. 40). According to Wood et al.,
practicing global business citizenship
involves four steps: (1) the firm adopts a
simple code of conduct or credo that centers
on the company‘s belief that its activities are
connected to the civil, political, and social
rights of people worldwide; (2) the firm
implements a strategy that considers cultural
differences and maintains the firm‘s core
values; (3) the firm experiments with
various policies and procedures that fit the
local culture, support its code of conduct,
and do not conflict with municipal law; and,
(4) the firm systematically monitors
outcomes to identify the ‗best fit‘ for the
firm and the community. Wood et al.
suggest that as businesses act as agents of
people and societies, certain ethical
qualities, such as loyalty, trust, and the rule
of law, can be used to structure meaningful
relationships with community members,
resulting in reduced uncertainty and
enhanced efficiency. ―The global business
citizen integrates … ethical values and
mechanisms of social control into its
guidance everywhere they operate‖ (Wood
et al., p. 44).
One of the primary attributes of a
GBC company is its acceptance and practice
of citizenship principles in a way that aligns
with the mission, vision, and values of the
organization and its shareholders (Wood et
al., 2006). Once a code of citizenship
conduct has been implemented throughout
the entire organization and in all the
communities where business is done, it must
be tested in actual application. Therefore,
the company must identify any local
customs or norms that are in conflict with
20
the code and decide whether or not these
variances should be resolved in favor of the
code. Such an analysis should include
stakeholder engagement in order to glean
their specific expectations of the
organization. This can be achieved through
identification of the problem(s) and
consideration of possible solutions (Wood et
al.). After a comprehensive experimentation
has been conducted, a process of
accountability should follow. Wood et al.,
recognize general components of
accountability within a GBC company as
stakeholder involvement, organizational
responsiveness, compliance, transparency,
assurance, learning and innovation:
Only through stakeholder engagement can the organization learn what is
expected of it. Responsiveness is the essential illustration to stakeholders of the
extent to which the organization has taken their expectations and concerns into
account to what extent it has incorporated stakeholders into its organizational
and decision-making processes. Compliance demonstrates organizational
commitment to good citizenship by abiding by local, regional, national, and
international regulations and ethical norms. Through transparency, the
organization reveals the impacts of its behaviors on its stakeholders and thereby
builds trust in the intention to do right by them; it also reveals stakeholder-
relevant internal processes such as governance mechanisms and worker safety
procedures. By providing independent verification and assurance of the data it
reports, the organization provides external validation to external parties, which
enhances trust. When it institutionalizes learning and innovation, the
organization translates the totality of accountability components into meaningful
organizational change towards alignment of organizational behaviors with
prevailing stakeholder expectations and societal well-being (p. 84).
This approach suggests that in order to be
a global business citizen, a firm must engage
in the implementation of its code at all levels
of its operations and remain at the forefront
of change to ensure the company meets its
expectations (Wood et al., 2006). Further,
GBC is said to be rooted in and an
outgrowth of a company‘s mission, vision,
and values (Wood et al.).
The benefits that stream from the
GBC framework act as motivators to
continually pursue this way of doing
business. One such benefit is realized
through stakeholder engagement, which
builds trust throughout the local community,
and has financial benefits because of higher
satisfaction, less conflict, and favorable
public opinion (Wood et al., 2006). This
trust level can lead to a competitive
advantage over non-GBC firms (Wood et
al.). A second benefit is leveraging first-
mover advantage through the recognition of
good citizenship behaviors, resulting in an
enhanced corporate reputation and higher
21
consumer approval (Wood et al.). GBC
raises the bar in industry performance as
competitors respond to a GBC company‘s
initiatives. And finally, the political risk of
any given community (i.e. regulatory
constraints and costs) is greatly reduced
when businesses are more self-regulating
and public pressures are low (Wood et al.).
Support for the Global Corporate Citizen
There are several international
sources offering support and guidance to
firms wanting to move forward as global
business citizens. One primary source of
guidance, which enjoys world-wide
recognition and very high international
prestige, is the Universal Declaration of
Human Rights adopted by the United
Nations General Assembly on December 10,
1948. This famous declaration succinctly
describes the fundamental norms of human
rights. It is by way of customary
international law that these rights span
across all nations and borders (United
Nations Human Rights, ―What are human
rights,‖ 2009). The declaration gives a
measurable framework by which the
behavior of international firms can be
judged. It also contains clear language
which admonishes compliance: for example,
Article 30 provides that no State, group, or
person may infringe upon the rights set forth
within the declaration (Universal
Declaration of Human Rights, 2009).
Because the declaration is ―a
common standard of achievement for all
peoples and all nations,‖ it provides a useful
basis for generally measuring the degree to
which international businesses promote
good global business citizenship (Universal
Declaration of Human Rights, 2009). As an
example, consider the following article
taken directly from the declaration:
Article 25 – Everyone has the right to a standard of living adequate for the
health and well-being of himself and of his family, including food, clothing,
housing, and medical care and necessary social services, and the right to security in
the event of unemployment, sickness, disability, widowhood, old age or other lack
of livelihood in circumstances beyond his control (p. 9).
This article not only describes the
obligations of a business towards its
employees, but also outlines obligations to
other stakeholders as well; in particular, its
customers or anyone within the community
who may be directly affected by the
organization‘s actions. For example, a
business that dumps hazardous waste at a
place proximately located near a human
habitat or an area where resources are
extracted for food or housing (e.g. the ocean
or forest), would be in direct violation of
Article 25.
One could question the authority of
the Universal Declaration of Human Rights
in that no private firm has signed the
declaration. Furthermore, no firm can be
forced to follow the requirements in the
Declaration. However, as the declaration
provides a universal language of human
rights, and as stakeholders have come to
expect a respect for human rights in terms of
22
their interactions with business operations
(Logsdon & Wood, 2002), it is in the
company‘s best interest to satisfy
stakeholders‘ expectations by using the
declaration as a broadly accepted textual
measurement in crafting and executing
global business citizenship strategies.
A second international guide for
firms seeking support for global business
citizenship engagement is the United
Nations‘ commitment to its Millennium
Development Goals (MDG), which brings
companies together to combat human rights
issues, environmental issues, and anti-
corruption (Hamann, 2006). The United
Nations views private enterprise to be at the
heart of its goals for sustainable
development (Hamann, 2006). A firm‘s
efforts can contribute to economic and
political stability by providing healthy
working conditions, dependable trading
systems, lowered costs and minimized risks
associated with social issues, and the
development of new opportunities,
corresponding to new markets, products, and
services. The success of a GBC approach
relies heavily on the business‘s ability to
develop a network of stakeholders and
communicate clear objectives to tackle such
issues (Hamann, 2006). The UN MDGs
provide a list of hyper-norms, or those
norms that appear to be widely accepted
internationally, which companies can draw
upon in setting core values. From their core
values and within the parameters of their
strengths, companies are able to develop
feasible codes and implement them in the
local communities in which they do business
while adapting plans which best correspond
with cultural and political norms. Through
feedback channeled from various
stakeholders, firms can test their initiatives
and troubleshoot problems.
A third source of support for firms
engaging in global business citizenship is
the World Economic Forum Global
Corporate Citizenship Initiative (GCCI)
(World Economic Forum, 2008). This
support network, as of 2008, consists of
forty companies aligned to achieve the
betterment of societies. The primary aim of
the GCCI is to work with weakened
governments in those communities where
participating firms do business, and
strengthen public governance (which
encompasses laws, regulations, and
administrative guidance, as well as the
resources and capabilities of administrative
agencies). GCCI members view governance
as the root of all societal issues. Together
with the Organization for Economic
Cooperation and Development (OECD), the
GCCI influences societies to embrace ethics
that preserve human rights. This partnership
in turn enhances human welfare, increases
sustainable growth and makes new markets
accessible.
The GCCI governmental connection
compliments the GBC framework well.
GCCI companies aim to provide leadership
in establishing connections between the
public and private sectors to identify needs
and brainstorm ways of improving public
governance. Through ongoing
communication with local entities and the
GCCI network, companies learn how to
make a positive impact and achieve global
business citizenship-focused goals.
Overall, the global business
citizenship framework works in concert with
the community and each firm‘s core
ideology and core competencies. The four
23
GBC steps, outlined by Wood et al. (2006),
act as a template for businesses to customize
their specific corporate citizenship activities.
The Universal Declaration of Human Rights
and the UN MDGs contribute to the
development of international ethical codes
for GBCs. Forums like the World Economic
Forum and GCCI provide support to
companies implementing GBC approaches.
The resulting networks of meaningful
partnerships are key to successful GBC
implementation as they lead to a higher
degree of trust between the firm and its
stakeholders (Hamann, 2006; World
Economic Forum, 2008).
Global Business Citizenship in Action
As with any model of good practice,
actual examples of those actively engaged
provide unique windows through which to
view the applications of the defined
practices. Two examples of firms practicing
global business citizenship will be
highlighted: DHL and Hewlett Packard.
DHL‘s former CEO notes that in
forming win-win outcomes, it is of the
utmost importance partnerships are
developed with internal and external
stakeholders. DHL views GBC as a
contribution to society through its primary
business activities, philanthropic and social
programs, and its active participation in
public policy via lobbying. DHL operates in
forty-one countries that have been
characterized as ‗high risk‘ by the U.S.
Department of State (Dorken, 2003). Many
people in these high-risk countries are
poverty-stricken. In these countries, fre
market capitalism is often hindered because
of a lack of transportation and technology
infrastructure. In identifying this
community need, DHL has been able to
apply its strengths in establishing the
infrastructure necessary to support business
and governmental operations. DHL
considers two criteria in employing
community investment projects: (1) the
work should support the company‘s
expertise (i.e. humanitarian assistance in
transportation and logistics); and (2) the
company is to engage in capacity-building
(in skills, education, health, and well-being)
that is devoted to future generations
(Dorken, 2003).
DHL‘s sustainability initiatives focus
on positively impacting communities in
connection with climate change, oil tanker
spills, airport noise and urban congestion,
disaster relief, or other community priorities
(Dorken, 2003). Once a project is designed
and implemented, DHL scrutinizes its
performance by weighing the results against
general United Nations Human Rights
Principles and Responsibilities for
Transnational Corporations and Other
Business Enterprises as well as that of the
World Economic Forum Global Corporate
Citizenship Initiative. As a responsible
business citizen in the communities in which
it conducts business, DHL recognizes how
dependent its reputation and competitive
stance are on the activities it takes part in. Its
active citizenship has become a basis upon
which customers decide to do business with
DHL (Dorken, 2003).
Referring to the GBC framework of
Wood et al., DHL‘s business operations
illustrate the practicality of the four steps.
The company has developed a small but
comprehensive code of conduct based on its
seven core values, which act as an ethical
compass and are applied to all regions and
24
divisions. DHL‘s code includes the key
pillars of respect, tolerance, honesty, and
candor as well as a willingness to assume
social responsibility. These provisions are
based on international agreements and
guidelines such as the Universal Declaration
of Human Rights, the conventions of the
International Labor Organization and the
UN Global Compact. These actions reflect
the components in step one of the GBC
model. Through partnerships with local
stakeholders (e.g. non-governmental
organizations), DHL has become fully aware
of its stakeholders‘ expectations and the
cultural norms within local communities.
Such actions exemplify the aspects of a
GBC‘s step two initiatives. As the company
embarks upon its core competencies of
humanitarian assistance in transportation
and logistics in the various communities, it
continuously verifies whether such projects
are a good fit for the culture, ensures they do
not hinder DHL‘s core values, and identifies
any conflicts between the code and
municipal law. This also closely resembles
the behaviors promoted in step three of the
GBC framework. In fact, one of the
provisions of the code empowers local
managers to modify the code to be in
compliance with local law and cultural
norms subject to the approval of the
company‘s Global Values Office (DHL,
2009). In order to maintain accountability
and document needed changes, DHL
releases an annual sustainability report to the
public (DHL, 2009). These accountability
measures represent the components outlined
in step four of the GBC model.
The second example of GBC in
action involves the international expansion
strategy of Hewlett Packard (HP) through its
i-community initiative. HP has sought to
create meaningful partnerships between
public and private organizations in order to
accelerate economic development via
fostering technological infrastructure,
generating market access, and producing
new products and services that fit specific
local needs (Dunn & Yamashita, 2003). HP
has defined its i-community approach as an
initiative to improve the living conditions of
local peoples by using HP‘s core
competency of information and
communication technology. HP‘s i-
community initiative is one facet of its e-
inclusion global citizenship policy.
The first i-community initiative was
launched in Kuppam, India in 2002. The
Kuppam community was challenged by a
thirty-three percent illiteracy rate, a fifty
percent rate of households without
electricity, and a very high rate of AIDS
(Dunn & Yamashita, 2003). To further
complicate the situation, more than half of
the 300,000 citizens in Kuppam lived below
the poverty line.
One way HP decided to fully
embrace its core values was through
establishing a code of citizenship conduct,
entitled the ―Standards of Business
Conduct,‖ which addressed environment,
health and safety, human rights and labor,
data privacy, and supply-chain standards for
the purpose of guiding the day-to-day
business transactions of HP. The code‘s
policies are based on the Universal
Declaration of Human Rights (Hewlett-
Packard, 2008). This code of conduct was
used as the basis for formulating the
Kuppam i-community initiative. HP‘s
Standards of Business Conduct meet the
25
requirements of step one in the GBC
process.
After referencing the code of
citizenship conduct, leaders could formulate
a strategy that fits with Kuppam‘s culture
and the firm‘s core values. This action
represents step two of the GBC model. Next,
a highly skilled team was sent out to
distribute the proposed solution to the
market. HP teammates possessed a solid
business foundation, line management skills,
expertise in government affairs and policy
analysis, and a rich understanding of the
culture. The team implemented a systems
approach; in other words, they utilized a
simultaneous examination of sustainable
development strategy followed by the
creation of a leading value-chain
technological platform (Dunn & Yamashita,
2003). Part of the strategy experimentation
process included building an ecosystem of
partners, including the local government,
municipal leadership, local businesses,
health services, social services, non-
governmental organizations, and individuals
from the community. The objective was to
make certain that the primary policies and
procedures matched the local culture,
supported HP‘s core values and corporate
objectives, and did not conflict with
municipal law. These actions satisfy the
components of step three of the GBC
framework. Leadership set a three-year
deadline to ensure that the various interest
groups remained focused on achieving the
defined goals (Dunn & Yamashita, 2003)
Once the outcomes had been thoroughly
monitored, and it was determined that the
Kuppam i-community was indeed a best fit
for the firm and the community, this
framework became a model for sustainable
and replicable economic growth (Hewlett-
Packard, 2002). HP‘s accountability efforts
correspond to step four of the GBC model.
By the end of 2005, the Kuppam i-
community had established sixteen physical
community information centers where
people could learn skills and access
information and services online related to
government, education, healthcare,
agriculture and small business development.
In addition, three Mobile Solution Centers
offered health and information services to
more than 12,000 people in 150 outlying
villages monthly. Moreover, services
resulting from the Village Photographers
and Entrepreneurs in Residence projects,
which incorporated custom-designed HP
products to meet local needs and generate
entrepreneurial ventures among local
citizens, provided affordable photography
and Internet access to remote villages. HP
management estimated that over 100,000
citizens had used these services since 2002.
By 2005, HP had launched similar projects
in more than 40 countries across six
continents, which the firm continuously
monitors and reports on annually (Hewlett-
Packard, 2006). Overall, the leaders
remarked that creating the i-community in
Kuppam was not about generating short-
term profits, but rather about achieving
long-term growth and improving the human
condition (Hewlett-Packard, 2006).
The full adoption of global business
citizenship practices by HP and DHL
fostered collaboration with governments and
other stakeholder groups in the communities
they operated in by way of focused
integration of their business strengths and a
citizenship mindset. These two company
initiatives serve as examples of good
26
practices that benefited the firms, the overall
business sector, and local societies. Such
partnerships with stakeholders reduce
political and regulatory risk as trust between
the businesses and the communities
flourishes. As industry leaders, these
companies may have also gained
competitive advantage over rivals that have
yet to engage in citizenship behaviors. They
have benefited from an improved reputation
among stakeholders, greater brand
recognition as their GBC initiatives are
reported in the news, the discovery of new
customer bases, a trainable labor force, and
opportunities for new product development
in the untapped markets they enter (DHL,
2009; Hewlett-Packard, 2006). As DHL and
HP continuously implement their codes of
conduct at all levels of their daily
operations, and as they remain open to
adjusting their policies to best compliment
stakeholders and their core ideologies, they
are realizing GBC benefits while improving
the well-being of the global society.
Concluding Remarks
After examining how corporate
citizenship can be translated to a global
level, it becomes evident that it is in a
corporation‘s best interest to recognize the
interconnectedness of its rights and duties in
its international operations. As more and
more people assert their rights under the
parameters described by the Universal
Declaration of Human Rights, businesses
will be held even more accountable by the
general international public to act
responsibly. In return for responsible
actions, businesses will gain trust among
various stakeholders, which may lead to
such outcomes as greater consumer
satisfaction, heightened public image, first-
mover advantages, new product
development opportunities, reasonable
political regulations, and even a competitive
advantage over rivals. Many of these
payoffs have accrued to DHL and HP as
these companies continually approach every
business activity in a citizenship-like
manner. Good global corporate citizenship
should not be viewed as an add-on, like
corporate social responsibility or
philanthropic initiatives, but rather should be
understood as something which is intrinsic
and coextensive with the very identity of a
company, as exemplified by its core values,
core competencies, and daily transactions in
the global arena. As this paper illustrated,
one effective way for a business to integrate
itself as a corporate citizen on a global
platform is through the Global Business
Citizenship model. When a company
composes and implements a code of ethical
conduct which is based on internationally
accepted hyper-norms, complimented by
stakeholder engagement, adjusted for local
cultural and political norms, and followed
by extensive monitoring and accountability
(i.e. responsibly exercising its duties in the
communities it operates in), the company
may guarantee the preservation of its rights
across national and cultural borders. Acting
as a global business citizen paves the way
toward attaining sustainability over the long-
run, which benefits both business and the
well-being of humanity.
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29
INSTITUTIONAL RESTRUCTURING VERSUS CORPORATE
SOCIAL RESPONSIBILITY
S.L. Reiter
Williams School of Commerce, Economics, and Politics
Washington and Lee University
Lexington, VA 24450
(540) 458-8223 (office)
(540) 458-8639 (fax)
Abstract
This paper analyzes the influence economic institutional structures have on corporate
behavior and social outcomes. I look at two institutional structures as they relate to foreign
direct investment (FDI), that of Jamaica and Cuba. I find that in Jamaica, which has
predominantly had a relatively liberal economic system that allowed corporations to freely
pursue corporate objectives, corporate actors often behaved in ways that maximized profits and
achieved corporate concerns, which, at times, came at the expense of social interests.
Conversely, Cuba has had clear social objectives and has structured its economic system to
ensure that those objectives are primary. The corporations that have accepted these constraints
have been profitable, and the government, for the most part, has been able to achieve its social
objectives. These results suggest that researchers should not ignore the role of institutions, nor
should we leave it up to economists to decide what is the most appropriate or optimal system.
Managers‘ behavior is partially a function of the surrounding socially constructed institutions,
and, thus, ethical outcomes can be influenced by how the game is designed and structured.
Keywords: corporate social responsibility, institutional theory, foreign direct investment
Introduction
For decades, management scholars have
debated the issue of how to achieve good
social outcomes from an imperfect free-
market economy in which the invisible hand
as espoused by Adam Smith does not give
way to such outcomes on its own. The
predominant solution for solving this issue
has been to put the onus on corporations,
arguing that they have obligations that go
beyond the interests of the shareholders and
beyond merely obeying the law (Carroll, 1979; Hsieh, 2004, 2009; Jones, 1980; Logsdon & Wood, 2002; Preston, 1975). Most scholars writing on this topic argue that corporations
should voluntarily accept a social responsibility
for ensuring good social outcomes from our
economic system. While there are some
objections to this solution (Jensen, 2002),
they are faint, as evidenced by the fact that
the most cited article articulating the objection
30
is the dated Milton Friedman (1970) article. Given the general consensus that corporations do have a social responsibility, the current on-going debate has shifted to defining exactly what are those obligations (Hsieh, 2004, 2009), how to motivate managers to accept these obligations (Porter & Kramer, 2006; Prahalad & Hammond, 2002), and how to manage such obligations (Basu & Palazzo, 2008). From a practical perspective, however, there is sufficient empirical evidence to suggest that managers do not take on these responsibilities and, thus, regrettable social outcomes as a result of corporate behavior are still all too common. We continue to witness, for example, corporate accounting scandals, questionable relationships of corporate pharmaceutical agents with doctors and researchers, excessive executive pay, and irresponsible behavior of nearly all parties involved in the recent mortgage industry that resulted in our world-wide economic crisis. This raises the question whether voluntary corporate social responsibility is the optimum way to achieve good social outcomes from our economic system.
Even if we accept normatively that corporations do have responsibilities that go beyond the law, if the institutional structure is
designed in such a way that being socially responsible is contrary to corporate self-interest,
then we may need to rethink the assumption
that voluntary corporate social responsibility
is a plausible mechanism to ensure these
responsibilities are fulfilled. It seems, therefore, that we need to understand whether our institutional framework is partly the cause of poor corporate behavior that results in regrettable social outcomes, and, if so, whether modifications to the institutional structure can improve these outcomes.
The aim of this paper is to focus on how the institutional structure influences behavior and
outcomes. I look at two institutional economic systems as they relate to foreign direct investment
(FDI), that of Jamaica and Cuba. I first examine the objectives of the state and the resultant institutional structure and then analyze the resulting corporate behaviors and social outcomes
by looking at a specific case in each country. I
find that in the case of Jamaica, which has predominantly had a relatively liberal economic system that allowed corporations to freely pursue
corporate objectives, corporate actors often behaved in ways that maximized profits and achieved corporate concerns, which, at times, came at the expense of social interests. On the other hand, Cuba has had clear social objectives and has structured its economic system to ensure that those objectives are primary. The corporations that have accepted these constraints have been profitable, and the government, for the most part, has been able to achieve its social objectives. These examples are two cases at opposite ends of the economic-order spectrum, which gives us the opportunity to see more clearly the influence of the institutional structures on the behavior of corporate actors and resultant
outcomes. I conclude with a discussion of the implications of this study.
Analysis
Jamaica and Cuba are both developing
countries, and one could say that development
has been and continues to be the broad objective of both states. Each country, however, has had a different notion of what development actually
entails and how to achieve it. In the case of Jamaica, the state, for the most part, has followed the development model endorsed by the United States, and international institutions, such as the International Monetary Fund (IMF) and the World Bank. This model, a neo-classical
approach, which is often referred to as the Washington Consensus, focuses on achieving economic growth and assumes that development and social welfare will follow. A few key ingredients of the model are privatization of business enterprises, liberalization of trade policies, and deregulation. Additionally, foreign direct investment (FDI) is seen as a vital ingredient. Throughout its history, Jamaica has generally followed this neo-liberal model of economic development, and it has put
tremendous importance on attracting FDI, which
is reflected in its open economic policies regarding FDI.
Conversely, Cuba, since 1959, has resisted the neo-liberal development model, which it sees as simply a foreign-controlled economic system in which an elite minority realizes a majority of the
31
benefits at the expense of the majority of the people. It did not agree that FDI indiscriminately pursued would be wise, and its primary aim in devising the economic institutional structure for FDI was to favor social goals and strongly constrain the behavior of foreign investors. While this has resulted in less FDI for Cuba, it ensured that the interests of the state were met – that is that human development and national sovereignty were not compromised.
Objectives of the State and FDI Policy
Jamaica‘s and Cuba‘s histories greatly
influenced the paths that each country set for
its economic system. In the first half of the
20th
century, both were controlled by foreign
powers: Jamaica by the British as a colony,
and Cuba by the United States with its
strong political, economic and cultural
influence. Each country, however, reacted
differently to this foreign power‘s
domination. Jamaica dutifully fulfilled its
colonial role as defined by Britain until its
independence in 1962, after which it
continued its subservient role but to the
United States and the IMF. Cuba, on the
other hand, resented the U.S.‘s control,
which ended in a revolution in 1959 that
continues today. These different paths and
ideologies help explain the very different
FDI strategies each employed. I begin with
a brief discussion of Jamaica‘s history and
economic objectives as they relate to FDI
followed by a similar discussion of Cuba.
Jamaica
Throughout its history, Jamaica‘s
economic development has been dominated
by external influences. For nearly 200 years
under British rule, Jamaica produced only
what Britain needed (sugar, bananas, and
agricultural products) and imported from
Britain everything that it needed. After
World War II, Jamaica endorsed the Puerto
Rican Model of Development, also known
as ‗industrialization by invitation.‘ The
purpose of ‗industrialization‘ was to
become more self-sufficient and less reliant
on imports. The ‗invitation‘ was to FDI,
which was thought to be a more effective
and efficient method for economic growth,
as domestic resources were either too
meager or ill-equipped to accomplish the
task. When this model failed to raise the
standard of living for the majority of the
people, a new strategy was tried.
Michael Manley became Prime Minister
in 1972 when the People‘s National Party
(PNP) was voted into office. Two of
Manley‘s economic objectives were ―to
create an economy that would be more
independent of foreign control and more
responsive to the needs of the majority of
the people at home‖ and ―to work for an
egalitarian society both in terms of
opportunity and also in the deeper sense of a
society in which people felt that they were
of equal worth and value‖ (Manley,
1982:39). It was not that he was opposed to
foreign investment, but he did not want FDI
―to be the main engine of the economy.‖
(Manley, 1982:41) He wanted to make sure
there were local linkages, both backward
and forward, to foreign businesses,
something that was not happening
previously. He wanted to develop local
sources of raw materials and other inputs, as
well as build up local processes to market
and distribute products. For Manley and the
PNP, foreign investment played an integral
role in development, but FDI should not be
the center of it. While they accepted the
idea that their FDI policy would need to
provide incentives to attract foreign
investment, they also wanted foreign
investors to behave responsibly such that
their actions supported the development plan
of Jamaica. Manley explains it as follows:
We saw foreign capital as part of but not the whole of the development process. In fact in the end we worked out a foreign investment code that spelled out
32
in the clearest possible terms the rights and privileges which would be enjoyed by the foreign investors – and they were considerable; but it also sought to spell out the mutuality of the relationship which we envisaged. It called for good corporate citizenship on the part of the investors; required respect for local conditions and traditions and made it clear that we, as the host country, would wish foreign investments to be consistent with our own national development plans. (Manley, 1982:42)
Along with less dependence on FDI,
Manley wanted a wider sector of society to
participate in the economy, which he
thought could be accomplished by nationalizing
the strategic sectors. This new economic
strategy, along with what appeared to be Manley’s close relationship with Cuba’s Fidel Castro and his public endorsement of Castro’s
actions, made foreign investors hesitant to enter Jamaica. The combination of a lessening of FDI, a softening of world market prices of bauxite and sugar (two key industries for Jamaica), and the oil crisis in the 1970s had a devastating effect on the Jamaican economy. By 1977, Manley and the Jamaican economy were in serious trouble, and Manley was forced to seek help from the IMF. As
a condition of the IMF loans, Manley was required to reverse many of his social programs and institute initiatives that would increase exports and reduce government spending. The tightening of the government’s budget had an immediate negative effect on the people, which left them disillusioned and dissatisfied with Manley and the PNP. By the end of the 1970s, unemployment was hovering around 30%, food and gas were in short supply, and the flow of capital had dried up. Not surprisingly, the Jamaica Labour Party (JLP) was voted into office in the 1980 election, and Edward Seaga became the new Prime Minister.
Seaga returned to the policies of the period
prior to Manley‘s leadership, which reverted back to the open-door FDI policies. He made
friends with the United States, and the IMF and
redirected Jamaica to an economic strategy that
was more compatible with the United States‘s
Washington Consensus ideology. Seaga‘s
goals were to balance the budget, increase
economic growth, and reduce unemployment,
and he expected to achieve this in a way that
was consistent with the philosophy of the IMF and the U.S.; he would limit spending, cut civil
service, end protectionism, limit the role of the
state in the economic sector, and generate
growth through the private sector and FDI. These neo-liberal policies continue to this day.
Jamaica‘s economic institutional
environment from the 1950s to 2005, with the exception of the 1970s under Manley, has been
one that has aggressively pursued FDI. Its
policies do not discriminate against foreign investors or inhibit investment and provide
many financial incentives to encourage
investment. Particularly since the 1990s, the
combination of Jamaica‘s drive to economic recovery and the strong international move
towards globalization, Jamaica has been a strong
advocate of the neo-liberal economic prescription. According to the World Bank,
Jamaica was one of the least-regulated
economies in the world in 2004, and the only
developing country of the top ten countries
ranked for ease of doing business.1 Jamaica
ranked above its regional peers and ranked
favorably with OECD countries in areas such as
starting a business and hiring and firing workers. While it has made significant headway in
reducing the restrictions on foreign investment
in the 2000s, the government historically has created a series of legislation aimed at attracting
FDI, particularly investment that provides access
to foreign exchange or creates employment. In
recent times, Jamaica has been successful in creating a legal and regulatory business
environment that is one of the most attractive in
the world for foreign investors.
For the most part, the same laws apply to
both domestic and foreign investors. The two
exceptions are ones that favor foreign investors:
The International Finance Companies Act of
1971 and the Foreign Sales Corporation Act of
1984, which both provide income tax relief
under certain conditions. In order to be able
to take advantage of these two exceptions, a
corporation must be owned by at least 95%
non-residents of Jamaica. Additionally, there is
no screening mechanism for FDI, and, after the
telecommunications sector opened in 2003, there
are no economic sectors that prohibit or restrict
33
foreign investment. Performance requirements
exist only for companies operating in the Free
Zone, which requires that operators must export
at least 85% of their output.
The Jamaican government has provided
incentives to encourage investment in Jamaica
since the middle of the 20th
century. The types
of incentives used include: remittance facilities
to assist the foreign investor in repatriating funds
to the country of origin; tax holidays that defer
taxes for a period of years; and duty-free access
for machinery and raw materials imported for
approved enterprises. Many economic sectors have been targeted for providing investment
incentives including agriculture, film and
entertainment, manufacturing, bauxite, petroleum, tourism, and information technology.
Free trade zones have stimulated investment by
foreign firms in garment assembly, light
manufacturing, and data entry. Additionally,
there is some investment incentive legislation
that is open to any industry. The government of
Jamaica hopes to encourage economic activity
through a combination of privatization, financial
sector restructuring, low interest rates, and by
boosting tourism and related productive
activities. To specifically draw the attention
of foreign investors when large sectors are
being privatized, advertisements are placed in the Wall Street Journal, New York Times, and
Financial Times. This strategy has paid off as
foreign investors have won most of the
privatization bids in the last five years. Jamaica
also has the benefit of having the endorsement
of the United States, the IMF, and the World
Bank, regarded as a seal of approval to
foreign investors.
The reaction of foreign investors to
Jamaica‘s FDI policies and economic
structure is a very capitalistic one. Investors‘
decisions are financially driven, evidenced by
the ebb and flow of investment as the economic
environment changed (see Figure 1). Generally
speaking, there is no sense of allegiance or responsibility from the investor. The
relationship between the investor and the host
country is strictly financial. In the 1970s,
under Manley, foreign investors were not
attracted to the strong state control. In the
late 1980s, foreign investors flocked to
Jamaica to take advantage of the low costs
in utilizing the textile factories in its Free
Trade Zones. As soon as the North America
Free Trade Act came into affect in 1994,
however, many foreign investors shifted
their operations to Mexico where labor costs
were lower. Foreign investors were looking
for opportunities to make money, and
Jamaica was just one of many countries in
which they could invest. Thus, the onus was
on Jamaica to make itself look attractive.
Figure 1 Jamaica FDI Inflow (US$M)
The FDI policy that provides investors
with incentives to enter and operate,
however, is mitigated by the deep social
problems in Jamaica that impact the stability
and security of the investment. Investors
may feel their investment is secure from
state expropriation but not from social
unrest. If there are other countries that can
offer the same type of attractive FDI policies
but in a more secure and stable environment,
foreign investors, who have no allegiance to
Jamaica, are not hesitant to shift their
investments. When security and stability
negatively affect profitability, the state
succumbs to the pressure by making FDI
policy even more accommodating to foreign
investors, resulting in a race to the bottom
with other developing countries for FDI
dollars.
Cuba
Cuba is an anomaly in many respects due
to its history, its proximity and relationship
to the United States, and nearly five decades
under the long-standing leadership of Fidel
Castro and now his brother, Raul, with their
persistence and dedication to Castro
communism. All three factors had a
significant impact on the terms under which
FDI would eventually exist in Cuba. FDI
was not invited in under terms that were
particularly accommodating to the investor,
even though Cuba‘s economic situation was
such that, one could argue, such terms were
warranted. Cuba, however, would not
sacrifice its principles of social justice and
its national sovereignty for economic
growth. And thus, it is a unique example of
what can result from an environment where
social objectives are primary and not
sacrificed for economic growth or seen as
secondary to economic objectives. In order
to analyze the influence of FDI on Cuban
society, it is helpful to start with a brief
history of Cuba, which will help explain
why Cuba did not have any FDI until 1989
and why, once it did invite FDI in, it did so
very cautiously.
Historically, the United States has always
been a presence in Cuba economically and
culturally. Following Cuba‘s independence
from Spain in 1898 (which the U.S. helped
them win), the U. S. dominated Cuba‘s
economy with an infusion of capital,
resulting in U.S. businesses controlling
-100.0
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
To
tal
FD
I In
flo
w (
US
$M)
-10.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
FD
I In
flo
w a
s %
of
GF
CF
)
Total Inflow (US$M) Inflows as a % of GFCF
35
many of the major industries such as sugar,
mining, banking, utilities, and
transportation. For the next five decades,
the U.S. presence grew rapidly; large U.S.
companies such as Hershey and United Fruit
Company each held a large share of their
particular industry in Cuba. By the middle
of the 1950s, U.S. businesses controlled
more than 90% of the telephone and
electrical services, 85% of the aggregate
network of public service railways, and 42%
of sugar production. 70% of petroleum
imported, refined, and distributed was
controlled by Standard Oil and Texaco
(Pérez, 2003:220).
The export-intensive Cuban economy,
susceptible to the fluctuations of world
market forces, was continually in a boom-
bust cycle. In the 1950s, the Cuban
economy was in a down cycle, the standard
of living was in decline, and unemployment
was high. Revolution was in the air, and the
U.S. government, unlike in previous times,
was unwilling to intervene to keep the
current president, Fulgencio Batista, in
power. January 1, 1959, Fidel Castro and
his followers overthrew Batista.
The changes implemented by the
Revolution were immediate and profound.
The principles of the Revolution were to
redress social injustices, starting with a
redistribution of the income and wealth.
The state would play a much bigger role in
economic strategy and production.
Additionally, part of the strategy of the
Revolution was to reduce the United States‘s
control of and power over Cuba. Cuba
immediately searched for alternative
markets and suppliers, and the relations with
the United States deteriorated rapidly as
Cuba‘s relationship with the Soviet Union
became stronger. The 1961 CIA-organized
attack on Cuba at the Bay of Pigs and the
1962 U.S. economic embargo on Cuba put
the last nails in the coffin of the U.S.-Cuba
close relationship. The U.S. economic
embargo and the strained relationship
continue to this day
Despite the complete severance of
economic ties between the Untied States and
Cuba, the GDP in Cuba grew on average 3%
per annum during the 1960s and 1970s
(Alberro, et al., 2001). There was strong
investment in the human resources,
particularly in health, education, culture, and
the sports sectors. The strong social content
of economic policy during this period led to
substantial advances in the basic services
extended to the Cuban people and in the
literacy and skill levels of its population.
But in 1989, with the collapse of the Soviet
Union, Cuba‘s economy was dealt a serious
blow. At the time, over 80% of Cuba‘s
exports were going to Eastern European
Bloc Countries, and, unlike other communist
countries that were dependent on the USSR,
Cuba had to fend for itself; the U.S
economic embargo and its lack of access to
the International Monetary Fund (IMF) or
the World Bank1 meant it did not have
access to the largest suppliers of
international loans or aid. As a result,
Cuba‘s GDP fell a total of 32% between
1989 and 1993. For the first time in 30
years, Cuba made a serious attempt to attract
FDI, albeit, with a socialist mentality.
Since 1959, Cuba has always viewed the
role of FDI in terms of its contribution to the
principles of the revolution. The
significance of the role of FDI varied over
the last four decades based on how much it
was needed to ensure the viability of Cuba‘s
socialist economy. From the beginning of
the revolution, the goals of the state were
national sovereignty and social justice.
Cuba wanted to be free from U.S. control,
both politically and economically, and to be
in control of its own destiny. Additionally,
it wanted all Cubans to have equal access to
social and economic rights: health care,
education, and income. This required,
according to Castro and his followers, that
Cuba take back control of its natural
36
resources, industries, and property from U.S.
businesses. Secondly, it required an end to
capitalism in Cuba. According to the Cuban
revolutionists, capitalism was inherently
unjust; it rewarded behaviors that were
based on selfishness, egoism, and
individualism and resulted in an unjust
wealth distribution. This was not to deny
that economic development was important,
but development needed to allow all citizens
to share equally in its outcomes. The key
was to find a way to achieve economic
development yet not sacrifice social justice
or national sovereignty, which were
nonnegotiable. While Castro has
experimented over the years with various
programs to find a workable system, he has
never strayed from these goals. The
question with regard to FDI is and always
has been: how can FDI help Cuba achieve
these objectives?
During the first 30 years of the
Revolution, Cuba‘s primary economic
partners were the communist countries of
Eastern Europe and the USSR. But Castro
thought that if Cuba was to have access to
the latest technology and learn the skills
required to run an efficient economic
system, it needed access to those who
operate in the free market. While socialism
is not designed to nurture efficiency, there is
nothing incompatible with socialism and
efficiency. In his address to the 5th
Congress
of the Communist Party of Cuba in 1997, he
stated:
In 1982, we came to the conclusion that the presence of foreign capital was necessary for more integral and more complete development in our country, in order to solve technological problems, to gain experience, to open markets. We clearly saw that with only the technologies coming from the socialist countries we could not develop (Castro, 1997).
Thus, in 1982, Castro, for the first time,
officially invited foreign investors to come
and share its technology and expertise.
In 1989, the reasons for pursuing FDI
were more urgent. Cuba desperately needed
an infusion of capital, and FDI was its only
alternative. Despite these desperate times,
there were limits on how far Castro would
go to bring in foreign investment. Cuba‘s
objectives of the last 30 years would not be
sacrificed simply because the economy was
failing. Castro was looking for foreign
investors willing to work under conditions
that were true to these fundamental
objectives. He would allow foreign
investors from capitalist countries into Cuba,
but he would not let in the free market.
Castro stated: ―Capital and capitalism are
not the same. Capitalists will not be the
owners of our country. The country will
continue to be socialist. Our country knew
capitalism before the revolution and does
not have kind memories‖ (Fraser, 1992).
After the economy began to recover,
however, in the early 1990s, the urgency for
capital receded, and the rationale for FDI
reverted back to technology and efficiency.
In 1997, Cuba‘s Communist Party
mentioned prioritizing tasks such as
boosting food production, achieving the best
possible sugar harvest, cutting costs, saving
energy, substituting imports and introducing
taxes. But it also noted that there would be
no weakening of Cuba‘s identity as one of
the last one-party communist states in the
world (Fletcher, 1997). In 2000, Cuban
Vice-President Carlos Lage2 wrote in a letter
to Cuban company directors: ―[f]or
socialism to be successful, it is essential for
socialists state companies to be efficient.
Today more than ever, I am convinced that a
socialist state company can be more efficient
than the best capitalist one‖ (Fletcher, 2000).
Foreign investors‘ attraction to Cuba was
no different than investors‘ attraction to
Jamaica, which was primarily based on
capitalist reasons: a new market, natural
resources, and cost efficiencies. When Cuba
first opened its doors to FDI, investors saw
Cuba as a market that had been neglected for
37
the last 30 years. After the collapse of the
USSR, investors assumed that Cuba would
very quickly go the way of Eastern Europe
and the Soviet Union and end socialism.
Additionally, foreign investors were free
from U.S. competition due to the hostile
relationship between the two countries. In
the long run, investors believed the Cuban
market would be an extension of the U.S.
domestic market due to Cuba‘s physical
proximity to the United States. But
regardless of investors‘ focus, foreign
investors that went to Cuba did so because
they believed they could make money. They
were not going to save socialism, but rather
hoped that some day socialism would die.
Foreign investors, however, had little
understanding of how difficult it would be to
achieve this objective in a country where
that objective ran contrary to everything the
country stood for.
The intent of the Cuban laws and policies
was not to prohibit investors from meeting
its financial goals but rather to ensure that
the state achieved its objectives.
Additionally, the United States did its very
best to discourage FDI in Cuba.
Consequently, any foreign investor needed
to recognize that the potential for achieving
her objectives will be tempered not only by
the Cuban government but by the U.S.
government.
The first legislation to legalize FDI since
the Revolution, Law No. 50, was enacted in
1982. It only allowed FDI through a
minority share in joint ventures (JVs) with
the state in only select economic sectors. It
so strongly favored Cuba, however, that no
foreign investor accepted their offer for
seven years following its enactment. The
law was problematic for foreign investors
because the state, with a planned-economy
mentality, was in control of the relationship.
The objective of the law was for the state to
gain access to the latest technology and not
for foreign interest to control Cuba‘s
economy, particularly those sectors that
were critical to the state. For example, no
JVs were authorized in the real estate sector.
This also meant that any authorized JV
could not purchase property. (The use of
land and buildings by a JV was temporarily
leased for the duration of the JV.)
Additionally, the law restricted the business
relationships the enterprise had throughout
the vertical value chain of the industry
including the customers of the product. The
JV was required to give the state ―first
priority option‖ for sourcing supplies,
purchasing the finished products, or
shipping the finished products if the state
enterprise was deemed competitive with the
international market (Travieso-Diaz &
Trumbull, 2003). Law No. 50 also limited
the influence of the foreign investor on
human resources. The law required that the
employees must be Cuban except in cases
where a high degree of technical
specialization was required for the position.
The Cuban interest in the JV or a Cuban
employment agency was responsible for
supplying the Cuban workers as well as
paying them. The JV would pay the Cuban
employment agency, which in turn would
pay the workers the amount specified by the
state for the particular profession or skill.
Overall, Law No. 50 was not successful
in meeting the objectives of the state,
because the Cuban economic environment
was clearly not attractive to foreign
investors. Given that the state‘s objectives
at this time in the early 1980s were simply
to improve the efficiency of its economic
operations, there was no need to
compromise further and loosen policy. But
the circumstances changed in the early
1990s, which required the state to be more
willing to give foreign investors greater
control.
In July 1992, Cuba modified its
Constitution to acknowledge the rights and
guarantees of foreign investment. It
recognized for the first time the property of
the JV and abolished the irreversible nature
38
of state ownership by permitting partial or
total transference aimed at developing the
country as long as it did not affect the state‘s
economic, social, or political foundations.
Up until this point, the state enterprise was
the only entity entitled to own property.
In November 1994, Cuba introduced
more policy changes. It allowed foreign
investment in more sectors, including sugar
and real estate, which had previously been
closed. Areas that continued to be off limits
to foreign investors were health care,
education, and the armed services.
Although more economic sectors were
officially opened up to foreign investors,
authorization of JVs in some sectors was
difficult. For example, no joint ventures
were approved for the sugar industry,
railroads, and industrial equipment, which
were still run by the state.
In September 1995, Legislative Decree
No. 77 replaced Law No. 50 and addressed
some of the difficulties with the old law.
First, Law No. 77 allowed for three different
types of foreign investment: mixed-
ownership companies, international
economic association agreements, and
companies with 100% foreign-capital
ownership. It provided more ways for a
foreign investor to enter the Cuban economy
and more sectors in which they could
operate. It reduced the bureaucracy and
increased the transparency of the approval
process. While officially, foreign
investment was more widely welcomed,
unofficially, FDI still had to meet the
objectives of the state: it must contribute to
Cuba‘s socialist ends and not compromise
its sovereignty.
To add to the difficulties foreign
investors had in operating in Cuba, the
United States legislated several laws in the
1990s in an attempt to discourage foreign
investment in Cuba and isolate Cuba even
further. In 1992, the U.S. Congress passed
the Cuban Democracy Act,3 which was
intended to tighten the economic restrictions
on Cuba by prohibiting any foreign-based
subsidiaries of U.S. companies from trading
with Cuba. The bill also bars foreign ships
that trade with Cuba from entering U.S.
ports for a period of six months. A second
piece of legislation, the U.S. Cuban Liberty
and Democratic Solidarity Act,4 was signed
by President Clinton in 1996. The primary
targets are foreigners who traffic in property
confiscated by the Cuban government. It
allows for U.S. nationals to sue foreign
investors in U.S. federal courts for damages
arising from trafficking in property seized
by the Cuban government after 1959. It also
denies foreigners who have trafficked in
confiscated property of U.S. nationals entry
into the United States.
While Cuba wanted to learn from
capitalists and to gain access to their capital,
but it had no interest in adopting capitalism.
In 1995 at the World Economic Forum in
Davos, Switzerland, Cuban Vice-President
Carlos Lage, stated clearly the role of FDI in
Cuba:
We're not trying to fool anybody. We're not offering our foreign partners a transition to capitalism. Cuba is and will continue to be a socialist country. What we are offering for the future is above all stability and continuity in the strategy being pursued, and a more efficient and diversified economy (Fletcher & Fidler, 1995).
Unlike the socialist countries of Eastern
Europe, Cuba‘s institutional reforms in
foreign investment were not driven by social
dissatisfaction but in response to financial
troubles. Castro instituted economic change
in Cuba slowly and purposefully, taking a
step only when it was clear the current
institutional environment could not achieve
his objectives. As he grudgingly opened the
doors to foreign investors when Cuba‘s
economic situation was at its worst, he never
relinquished control of the economy. And
when Cuba started to recover economically,
39
he unofficially became even more
uncompromising in the terms of agreement.
It was clear that Castro was in control and
would never surrender that control to foreign
investors. The intent of the Cuban laws and
policies was not to prohibit investors from
meeting its financial goals but rather to
ensure that the state achieved its objectives.
The Cuban laws and policies only make it
difficult for the foreign investor if the
investors‘ objectives are at odds with those
of the state. Castro was looking for foreign
investors willing to work under these
conditions. The combination of Cuba‘s
strong hand in controlling FDI, the lack of
market forces, and the United States‘
aggressive steps to obstruct FDI from
crossing Cuba‘s borders, made it
exceedingly difficult and frustrating for
capitalists to operate in Cuba.
The restrictive Cuba FDI environment
has had a detrimental effect on the level of
FDI in the country (see Figures 2 and 3).
The amount of FDI is very little compared to
Jamaica or other developing countries that
use FDI to help grow the economy. But
given the environment, it is a wonder that it
has any FDI at all. The restrictions and lack
of concessions that abound in the
environment make it difficult for foreign
investors to come in nonchalantly and be
profitable. But there are companies that
operate in Cuba successfully.
40
Figure 2 Cuba FDI Inflow and Inward Stock (US$M, UNCTAD Country Profile)
Figure 3 International associations active in Cuba in 2000 by year of creation
In summary, Jamaica and Cuba are two
cases that show us very different
institutional environments for FDI. Jamaica
uses a free-market, Washington Consensus-
type of institutional structure that provides
foreign investors with the freedom to
operate through the market. Good social
outcomes, as in any market-based economic
system, are not guaranteed, but it is assumed
they will happen through the invisible hand
or through voluntary corporate behavior.
Cuba, on the other, takes a heavy-handed
approach, and requires that its objectives of
social justice must be met as a part of the
institutional structure. Foreign investors do
not have the freedom to act through a free
market system, but, on the other hand, they
do not have the burden of worrying about
issues of voluntary social responsibility. I
examine next the impact these very different
structural environments have on foreign
investors‘ behavior by looking at a specific
case in each country. First I analyze the
evolution of Jamaica‘s bauxite industry and
how the policy changes influenced the
behavior of the foreign corporations and its
impact on social outcomes. I follow this
with a similar discussion of Sherritt
-12
-8
-4
0
4
8
12
16
20
24
28
1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003
FDI I
nflo
w (U
S$M
)
-10
0
10
20
30
40
50
60
70
80
90
Inw
ard
Sto
ck (U
S$M
)
Inflow Inward Stock
1 1 0
9
19
24
50
39
45
59
5558
33
0
10
20
30
40
50
60
70
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
41
International Corporation‘s activities in
Cuba.
Illustrations of Corporate Behavior
Bauxite Industry in Jamaica
Bauxite is the material that is used to
make aluminum by way of a four-step
process. It is first mined and then, through a
chemical process, turned into alumina,
which, in turn, is made into aluminum by an
electro-chemical (or smelting) process. A
semi-fabrication process shapes the
aluminum into various forms such as sheets,
plates, and rods. It takes four tons of
bauxite to make two tons of alumina, which
then is transformed into one ton of
aluminum. Of these four steps, most of the
value is generated in the final two steps
(smelting and semi-fabrication). Only 2%
of the total value and 1% of the total labor
cost is in mining bauxite, and an additional
10% of the value and 4% of labor cost is
involved in producing alumina (Kaufman,
1985).
From the time that bauxite was first
discovered in Jamaica in the 1950s, foreign
investors controlled the sector. It was at this
time that Jamaica was actively pursuing FDI
under its ―industrialization by invitation‖
development model. The largest aluminum
producers in the world flocked to Jamaica to
invest in bauxite mining and alumina
production. The reserve was plentiful, the
labor was cheap, the harbors for shipping
bauxite were large, and the proximity to
North America made Jamaica extremely
attractive to the industry‘s predominantly
North American aluminum corporations.
The first companies to invest were Alcoa,
Reynolds, and Kaiser from the U.S. and
Alcan from Canada.
Over the next two decades, foreign
investment in this sector was larger than in
any other sector in Jamaica, and bauxite
came to be the number one export for
Jamaica. Between 1950 and 1972, foreign
investment was over $600 million. By the
late 1960s and early 1970s, the bauxite
industry was responsible for 10% of
Jamaica‘s GDP and 64% of Jamaica‘s
exports (Holloway, 1988). While Jamaica
relied heavily on the bauxite sector, the
foreign investors were equally dependent on
Jamaica‘s bauxite, which was the source for
60% of the raw material in its production of
aluminum (Keith & Keith, 1992:10).
While the bauxite sector was important to
the Jamaican economy, its impact on
Jamaican society was relatively minimal.
As part of its development model, Jamaica
was concerned with attracting FDI, and,
thus, few constraints were imposed and
foreign investors dictated the terms of the
contracts. Consequently, the 100% foreign-
owned industry consisted of only the first
two operations in the production of
aluminum (bauxite mining and alumina
production). The MNCs never considered
conducting the more labor-intensive and
value-laden operations of the aluminum
process in Jamaica for several reasons: first,
the smelting process was energy intensive
and not cost-effective in a country where
95% of its energy was imported, and second,
Jamaica, as a single source of bauxite, was
not large enough to utilize the full capacity
of a smelting and semi-fabrication plant.
The structure of the Jamaica‘s bauxite
sector also resulted in a sector that was not
as lucrative as it might have been for
Jamaica. The world demand for aluminum
in the 1950s and 1960s was increasing, and
market prices were rising, but because
Jamaica‘s contracts with the aluminum
MNCs were not based on the price of
aluminum, Jamaica did not realize any of
these gains. Additionally, there were few
spillover effects into other areas of the
42
economy. When the industry was
established in the late 1950s, the foreign
investors came in with few operating
constraints, and, given the infancy of the
local economy, it was more efficient for the
foreign owners to either import or run the
whole value chain themselves. For example,
only Alcan used local companies to
transport the bauxite to the ports; the other
companies owned their own transportation
system (Holloway, 1988). Additionally,
foreign investors‘ heavy reliance on imports
had a detrimental effect on Jamaica. The
state had mistakenly assumed that simply by
bringing in FDI to build up the local
manufacturing it would have a positive
effect on the balance of payments. But with
no requirements on sourcing, imports rose
from $86.6 million to $416.8 million from
1958 to 1968, and, in the same 10 year
period, the value of exports to that of
imports dropped from 83% to 78%; the
balance of payment gap actually widened
(Manley, 1982).
In 1972, Manley wanted to restructure
the bauxite sector so that it became a more
integral part of Jamaica‘s economic
development. He thought it was important
for Jamaica to have more involvement and
control of the bauxite industry operations if
it was to get its fair share of the revenue. As
he put it at the time:
It is only when control and ownership are shared reasonably between those who supply the initial capital and knowhow on the one hand, and those who supply the raw material on the other, that mutuality of interest can exist. (Lipton, 1979:quoted from Foreign Affairs, Oct 1970).
While Manley threatened to nationalize
the enterprises in the bauxite sector, he
opted for asking for a bigger stake of the
MNC-controlled proceeds. He made several
demands on the MNCs. First, in the name
of sovereignty, he wanted the MNCs to
return back to the state the bauxite land (at
the time it was owned by the MNCs) and
51% equity in the mining operations.
Secondly, he wanted to establish a new
formula that determined the state‘s share of
its return, one that was based on the current
prices of aluminum. He initially demanded
8% of the value of aluminum, a considerable
increase from what the state was receiving at
the time, which was equivalent to
approximately 1.5% of the value (Lipton,
1979). All the aluminum MNCs in Jamaica
baulked at his demands, and while the
negotiations with each MNC dragged out for
several years, a 7.5% levy was put in place
with 1974 productions. By that time, the
MNCs had invested nearly $1 billion in
Jamaica‘s bauxite industry (Lipton, 1979),
and thus, the MNCs‘ choice seemed to be to
either lose their investment or give the state
the right to a greater share of the gains.
The increase in the state‘s revenue from
bauxite increased immediately over ten-fold
(US$24.5 million to US$210 million for
approximately 12 million tons). In the 10
years leading up to the levy, Jamaica had
received $69.8 million on 114.3 million tons
of bauxite mined. In the first 10 years under
the levy, Jamaica received $1.81 billion on
118.5 million tons of bauxite mined.
Although Manley carved out a bigger
revenue share from the MNCs, some of the
terms of the negotiated agreement favored
the MNCs, namely security of a long-term
contract and control of the operations. The
MNCs were guaranteed bauxite at the
current production levels for the next 40
years. Additionally, the MNCs were granted
managerial control of the operations (Lipton,
1979). For Jamaica, the concessions made
sense. It wasn‘t interested in finding other
operators (five of the six major aluminum
companies were operating in Jamaica at the
time) or limiting supply in any way; it was
in the state‘s interest not to reduce its
revenue stream. The state also did not have
the expertise to run the operations, thus, it
reasoned that control should be in the hands
of the MNC. This concession would later
43
come back and haunt Jamaica as the MNCs
used its control of the operations as leverage
against the state.
Still, the MNCs were not happy and,
between 1974 and 2002, there was a
constant battle between the government and
the MNCs regarding the levy. The MNCs
argued that the levy amounted to 20% of its
production costs and it made the Jamaican
production 30% higher than the world
average. The Jamaican government claimed
it wasn‘t the levy but the type of energy
used in the facilities that caused its
production to be so much higher (James,
1984). In retaliation for the state‘s
unwillingness to lower the levy, the MNCs
used their control over the operations to
impede the state from meeting its objectives
in various ways. On occasion over the next
several decades, they would run the plants as
less than full capacity and delayed investing
in expansion or modernization of the
facilities. Because of its dependence on the
revenue from bauxite, the state was forced to
renegotiate. In 1988, the government agreed
to drop the levy to 6% of the market price,
and in exchange, the MNCs agreed to run
the facilities at full capacity. In 2002, a
second major change to the revenue
calculation was negotiated with Alcoa. The
government agreed to rescind the levy, and,
in exchange, Alcoa agreed to invest in
upgrading and expanding its facilities in
Jamaica. Up until this time, the Jamaican
operations were the least productive in the
world as the MNCs refused to invest in
modernizing the facilities.
This case illustrates the more typical
relationship between state and business in a
free-market environment. The state was
willing to let the invisible hand of the
market work. While it wanted its share of
the revenue, it did not interfere with the
MNCs running of the operation. It did not
require linkages to the local economy or
dictate terms of employment or wages. It
left production levels and investment
decisions up to the MNCs. The state
assumed that just by attracting FDI, good
social outcome would follow. The MNCs,
on the other hand, have different interests.
Their natural inclination is to maximize
profit. In this case, there is no local market
for their intermediate product, all of which is
being exported. Their operations in Jamaica
are machinery-intensive not labor intensive.
The total supply chain is nearly completely
foreign-owned, so that chances of or the
need to generate technological spillovers is
negligible. Thus, the MNCs have no interest
in bettering the local population – they do
not need a wealthier local market or a more
educated workforce. And the local
community or any other stakeholder has no
leverage in pressuring the MNCs to be more
socially responsible. So the MNCs do what
is natural – they drive a hard bargain and use
their power and control of the operations to
force the state to reconcile. MNCs will do
what they can to maximize profitability.
And the institutional structure for FDI let it
happen.
Sherritt International in Cuba
Sherritt International, a publicly traded
Canadian firm, has done a considerable
amount of investing in Cuba, and is the only
major Western company focused solely on
Cuba. While its major interests are in
mining and oil production (it is the largest
foreign oil producer in Cuba), it has invested
in a variety of other industries in Cuba
including hotels, soybean processing and
cellular telephones. Sherritt CEO Ian
Delaney and Fidel Castro have become
friends, and both parties have indicated that
the financial relationship has been good for
both Sherritt and Cuba. What is known
about Sherritt‘s relationship and dealings
with Cuba comes strictly from newspaper
articles, company press releases, and
corporate financial statements. The U.S.
Helms-Burton Act and the aggressive
posturing of the U.S. government towards
44
any party that associates with Cuba has
resulted in both Castro and Delaney being
very tight-lipped about Sherritt‘s Cuban
operations. But given its large investment in
Cuba and its close ties to Castro, it is an
interesting case, and demonstrates that a
business with roots in a capitalist system can
do well operating in a socialist environment.
I will examine what is publicly known about
Sherritt, how they operate in Cuba, and how
the laws and policies that apply to Cuban
FDI have impacted Sherritt‘s actions
Sherritt Inc. is a diversified Canadian
natural resource company. In the early
1990s, Sherritt‘s Fort Saskatchewan refinery
was sitting idle, and Cuba, which had just
lost its largest nickel and cobalt ore
customer, the Soviet Union, was desperately
looking for a replacement customer. In
1990, Sherritt signed its first contract with
Cuba in oil production, and the following
year, Cuba started to ship nickel and cobalt
ore to the Fort Saskatchewan refinery. The
partnership turned out to be good for both
parties. As Delaney described it, ―[w]e
walked in the front door just as the Russians
were walking out the back door,‖ (Simon &
Fletcher, 1995). Three years later, in 1994,
Sherritt and Cuba signed their first JV in
mining, which gave both parties a 50% stake
in the company. Sherritt‘s contribution to
the JV was the Saskatchewan refinery, and
the Cuban state-owned company, Compania
General de Niquel, contributed its Pedro
Soto Alba mine at Moa Bay plus 50 years of
reserves. The mine at Moa Bay was
operating at just 54% capacity when Sherritt
entered the picture. It was using 1950s
technology and, according to Sherritt, the
―world‘s worst managers‖ (Symonds,
DeGeorge, & Reed, 1997). Sherritt brought
in new equipment including anti-pollution
technology, updated the facility with
showers and lockers, provided steel-toed
boots to the workers, introduced
management techniques, and motivated the
1,720 Cuban workers (Knox, 1995) with an
incentive scheme that provided workers with
the opportunity to make U.S. dollars along
with their peso salary (Kingston, 1995).
Business Week reported that by 1996 Sherritt
was exceeding expectations:
Output is 26,000 tons, twice that of 1994. This has been achieved with fewer than 10 expatriates at the mine, which employs 1,680 workers. Six of Moa's eight division managers are Cubans, as is the CEO, Raúl de la Nuez. Sherritt, which lost $12 million on its metals business in 1993, earned $30 million on sales of $147 million from its half of the joint venture in 1996 (Symonds, et al., 1997).
Sherritt continued to increase its business
relationship with Cuba over the next 10
years: oil exploration, expanding and
modernizing the mining operation; JVs in
mining, oil and gas, electricity, soybean
processing, hotels, and cellular phones. It
even took on the role of a bank and loaned
the Cuban government money.
The Sherritt story in Cuba suggests
several things. Delaney‘s initial actions
were the result of capitalist values and not
his affection for socialism or Castro. The
relationship started because Delaney was
looking to fill an idle refinery. It continued
because Delaney was convinced that Cuba
was a good strategic investment; the U.S.
embargo would soon end, Cuba would turn
to the market system, and the Cuba market
would be huge. Delaney‘s business strategy
for Sherritt International was to have a
strong presence in all the major sectors of
the Cuban economy. Delaney stated that
this new company would be a proxy for
Cuba‘s industrial and economic recovery; he
wanted Sherritt International to be a major
infrastructure company in Cuba. Delaney
called Cuba the ―best investment in the
world‖ (Business Week, 3/17/97). In the
mid-1990s, Delaney predicted that it
wouldn‘t be long before Cuba evolved to be
a regulated, market-oriented system.
45
As Sherritt‘s Cuban investment began to
grow, the relationship between Delaney and
Castro began to grow as well. It helped that
they had a common enemy, the United
States, and both Delaney and Castro had a
personal grudge against the United States,
which may have influenced their willingness
to work together. But it also appears that
both Delaney and Castro saw their economic
relationship as mutually advantageous.
Delaney is known to be a shrewd business
person, and he continues to believe that
Cuba will evolve into a regulated, market-
oriented economic system. Moreover, his
relationship with Castro puts Sherritt in a
unique position. He has stated that ―[t]he
Company‘s greatest intangible asset is its
relationship with the government of Cuba.
For the next four to five years, it has an
opportunity to do things it couldn't do in any
other jurisdiction,‖ (Simon & Fletcher,
1995). With the ineffective state business in
Cuba, there is a tremendous amount of
productivity gains that can be made rather
easily by a firm like Sherritt with its
technology and management skills.
Castro and Cuba have benefitted from
Sherritt as well, providing the Cuban
economy with technology and capabilities it
so desperately needs. Initially, it filled the
void left by the Soviet Union as Cuba‘s
number one nickel customer. Secondly,
Sherritt was in the right industries to help
Cuba out; they were big enough to make a
difference, and they had capital. By
developing a deep relationship with one
man, Castro could safely put his economy
on the right path. But as Cuba‘s history of
dependence, first with the United States and
then with the Soviet Union, makes clear,
being dependent on one economic partner
can be dangerous. This dependence,
however, is different: this is a business
relationship; it involves no subsidies, no
gifts, and no transfer of Cuba‘s sovereignty.
Cuba is able to meet its objectives through
this agreement; Sherritt is providing capital,
modern technology, and management skills
in economic sectors that Castro is trying to
develop. Castro is in control. But both
sides appear to be winning. Both parties are
achieving their objectives. Sherritt
continues to be interested in making a profit
and capturing a market, and Castro will
accept the contractual arrangement with
Sherritt in order to meet his objectives.
For Sherritt, in some ways, Cuba is an
easier environment in which to operate than
in the capitalist industrialized countries.
The obligations that Sherritt might have to
its stakeholders are strictly defined by the
Cuban system. Sherritt need not worry
about serving two masters – that of the
market and society; society is taken care of
by the Cuban system. The Cuban labor
system, for example, does not allow Sherritt
to decide what is a fair wage, fair benefits,
or fair working conditions. The workers are
contracted to Sherritt. The Cuban managers
worry about evaluating workers, and
managing workers. The foreign workers
need to concentrate only on the operational
processes. Additionally, Sherritt does not
have to make decisions concerning other
aspects of corporate social responsibility
that exist in a Western capitalist system.
There is no room for philanthropy, charity,
or community service. Sherritt does not
even need to make determinations as to what
is moral or ethical advertising, because there
is no advertising and there are no direct sales
to the citizens. All goods and services are
supplied to Cubans through the state.
Products that are provided by foreign
investors are first sold to the state, who in
turn sells them to the citizens. And as CEO,
this makes Delaney‘s job easier. In 1995,
Delaney was quoted as saying that as CEO
he only had 2 responsibilities: to keep the
balance sheet solvent and to get the strategy
right. Not having to worry about corporate
social responsibility makes deciding on a
strategic course for profitability much easier.
46
The only relationship that requires attention
is that between Sherritt and the state.
We now have a sense of both Jamaica‘s
and Cuba‘s priorities and the institutional
structure for FDI to help achieve these ends.
We have seen how this structure influences
the behavior of corporations to behave very
differently even though it appears that
corporate objectives are consistent – to
maximize profit. I will next look at the
social outcomes that result from each system
to help us determine which system is more
successful in achieving social welfare.
Social Outcomes
One could look at many different
measures to analyze social outcomes or
human development in a country, such as
demographics, health, education and
literacy, income and economic performance,
poverty and deprivation, rights and liberties,
gender disparities, technology diffusion, and
environmental sustainability. The United
Nations Development Program (UNDP)
uses three aspects of development in the
calculation of its Human Development
Index (HDI): health, education and income.
While this measure does not capture all
aspects of human development, it uses
measures that clearly do reflect human
development and that are accessible. In this
paper, I primarily focus my analysis on HDI
and its components.
The formula for HDI uses four measures:
life expectancy at birth, adult literacy, gross
enrollment ratio of all levels (primary,
secondary, and tertiary) of schooling, and
gross domestic product (GDP) per capita.
The index can range from zero to one, with a
score of one signifying more development.
Overall, Cuba has had a higher measure for
human development than Jamaica, except
during the early 1990s when it was
struggling with its economy after the USSR
collapsed (see Table 1). Because there have
been modifications to the methodology over
the years, year-over-year comparisons are
not entirely significant, but looking at
indices of countries within the same year
gives us a good comparison between the two
countries. In country rankings, Cuba ranks
51st in HDI, while Jamaica ranks 101
st.
Table 2 shows, for each country (and the
U.S. for comparison), trends of two
measures of health and GDP growth rate. In
terms of life expectancy and infant morality,
Cuba has historically been on par with the
U.S., while Jamaica lags behind
considerably. In Table 3, I have the most
recent measures for the components of HDI
for the two countries (and the U.S. for
comparison). Again, both health and
education measures put Cuba in-line with
the U.S., while Jamaica lags behind and
ranks 100 on the HDI country list. It is in
GDP per capita that Cuba and Jamaica have
similar measures, although even here, Cuba
performs better than Jamaica.
Table 1: Human Development Index Trends
HDI 1987 1990 1995 2000 2005 HDI
Rank 2005
Cuba .877 .711 .729 .795 .838 51
Jamaica
.824 .736 .735 .742 .736 101
47
Table 2: Human Development Component Trends
Life Expectancy
(years)
Infant Mortality Rate (deaths per 1,000 births)
GDP annual growth rate (%)
1970-
1975 2000-
2005 1970 2005
1975-2005
1990-2005
Cuba 70.7 77.2 34 6 .. 3.5
Jamaica 69 72 49 17 1.0 0.7
U.S. 71.5 77.4 20 6 2.0 2.1
Table 3: 2007 Human Development Index Components
Life Expectancy (years)
Adult Literacy (%)
Combined Gross Enrollment (prim., sec., tert.) (%)
GDP per capita ($US PPP)
HDI Rank
GDP rank – HDI Rank
Cuba 78.5 99.8 100.8 6,876 51 44
Jamaica
71.7 86 78.1 6,079 10
0 -2
U.S. 79.1 .. 92.4 45,592 13 -4
One measure that is telling and gives one
a sense of how well a country‘s health and
education measures perform relative to its
economic resources as compared to other
countries is the difference between the GDP
per capita rank and the HDI rank. If a
country is ranked high for the level of HDI
and low for the level of GDP per capita, one
could say the country is doing more in
health and education with fewer economic
resources than other countries. If a
country‘s rank does not change between
HDI rank and GDP per capita rank, the
country is doing as well as other countries in
both areas. If, however, a country is ranked
low for HDI and high for GDP per capita,
the country is doing less well in health and
education measures for its level of economic
resources relative to other countries. Figure
4 depicts this relationship. The number
following the country label on the graph is
the difference between GDP rank and HDI
rank. Those countries above the 45-degree
line on the graph do better in health and
education for a given level of GDP than the
other countries, or one could say they ―do
more with less.‖ Of the 177 countries
ranked in the 2003 HDR, Cuba has the
largest positive difference (40) between
GDP rank (92) and HDI rank (52), which
indicates that relative to the other countries
that are measured, it performs better in the
way of life expectancy, education and
literacy given its GDP than the other
countries. At the other extreme, countries
doing the least in terms of life expectancy,
education, and literacy relative to their GDP
are Equatorial Guinea (-93), Botswana (-70),
and South Africa (-68). These three
countries have the largest negative
difference between its GDP rank and HDI
rank (relatively high GDP rank and a
48
relatively low HDI rank). Jamaica has a
positive difference between the two ranks,
which indicates they do slight better with
health and education for its level of GDP.
The United States has a negative difference
between its ranks (GDP rank of 4 and a HDI
rank of 10) and, thus, its performance in
health and education is slightly lower for its
level of GDP than other countries.
Figure 4 HDI Rank vs. GDP Rank, 177 Countries, 2003
Clearly, the one area where Cuba suffers
in human development is in providing civil
and political rights. In 2002, the UNDP‘s
Human Development Report provided a
comprehensive picture of political and civil
freedoms, which include both subjective and
objective measures. The following five
aspects were measured: voice and
accountability, political stability, rule of law,
government effectiveness, and graft. Cuba‘s
composite score was 10.42 (maximum score
possible is 25, and higher score indicates
better performance) as compared to
Jamaica‘s score of 12.89. The indicator in
which Cuba performed the worst was in
Voice and Accountability. This is a measure
of several concepts: free and fair elections,
freedom of press, civil liberties, political
rights, and military in politics, transparency,
and business‘s access to developments in
law and policies, and the ability of business
to express its concerns regarding laws and
policies. The difference between Cuba and
Jamaica in this single measure is 2.27,
which made up nearly the complete
difference in the composite. Cuba‘s one
party system and Castro‘s heavy hand is
reflected in this composite.
Discussion and Implications
0
20
40
60
80
100
120
140
160
180
0 20 40 60 80 100 120 140 160 180
HDI Rank
GD
P R
an
k
Cuba 40
Equatorial Guinea (93)Sweden 14
Jamaica 9
South Africa (68)
Botswana (70)
United States (4)
Doing More with Less
Doing Less with More
49
Jamaica‘s and Cuba‘s institutional
structures with respect to FDI are polar
opposites, and foreign investors adapt their
behavior to their respective environment,
each finding a different way to be profitable.
Jamaica‘s has aggressively pursued FDI
with policies that treat foreign investors
equal to or better than local investors, have
few constraints that inhibit investment, and
provide many financial incentives to
encourage investment. All economic actors
work through the market, and the state relies
on the invisible hand to improve social
welfare. The state‘s objective
(development) and foreign investors‘
objective (profit) will coincide only if the
invisible hand works or investors voluntarily
broaden their aims to those of the state. In
the case of the bauxite industry in Jamaica,
there is no local market for bauxite in which
the invisible hand could do its magic, which
leaves it up to the MNCs to take on some
responsibility for social outcomes. Not only
did the MNCs not comply, they took
advantage of the lack of constraints and
drove a hard bargain to maximize their
return on investment. They limited their
linkages to the local economy and their
operations in the production of aluminum to
those that were less labor and energy
intensive. Additionally, they played
hardball when the state introduced the levy
on bauxite, refusing to run their operations
at full capacity or invest in modernizing
their facilities. The assumption that the
objectives of the state and those of the
foreign investors are compatible was not
true, and, in this case, foreign investors did
not accept responsibility beyond making a
profit.
Conversely, Cuba‘s FDI policies were
designed in a way to ensure its social justice
and national sovereignty objectives would
be met and did not leave it up to chance.
Cuba sees FDI as a cog in the development
system, and FDI is used only where it
contributes to the overall objectives of the
system. It used laws and policies to control
and constrain foreign investors. These
constraints and the aggressive actions taken
by the U.S. towards foreign investors in
Cuba discouraged foreign investors from
entering Cuba at all. The FDI that did enter
Cuba, however, were successful and did not
have to worry about obligations other than
making a profit. The Cuban government
took care of its social responsibilities to its
workers and citizens. Sherritt International
is a good example of how a capitalist
company can work in a socialist
environment like Cuba and be profitable. Its
behavior may be different than what it
would be in a capitalist environment, but its
responsibilities are clear. Additionally, it is
a level playing field for all investors – they
all play by the same rules.
In the end, Cuba has achieved a higher
level of human development than Jamaica
with one glaring exception: civil and
political rights. While we cannot attribute
all these social outcomes to each country‘s
FDI policies, these policies are indicative of
the fuller economic institutional structure in
each country and the state‘s mindset
regarding corporations‘ role in society.
Jamaica assumes either the market will
provide social benefits or corporations will
accept this additional responsibility. In
Cuba, the state accepts this responsibility
willingly; it is the only way it feels confident
that it will be fulfilled. Given these very
different institutional structures and
perspectives, which result in very different
social outcomes, what conclusions can we
draw?
Some concede that the market system
may sometimes produce negative or less
then optimal outcomes. These effects, they
go on to say, can be alleviated through
voluntary corporate social responsibility.
They argue that managers need to recognize
that providing profits to its shareholders is
not their only obligation; managers have an
obligation to society as well. While I would
50
not dispute the truth of this normative claim,
the results of this study suggests that this
obligation is not, in fact, recognized or
fulfilled in practice. If fulfilling social
obligations has a detrimental effect on a
corporation‘s financial bottom line, it seems
impractical to consistently expect such
behavior. In an imperfect market, it requires
corporations to act counter to their self-
interest too often. We continue, however, to
resist prescribing regulation to fix the ills of
the market in favor of encouraging managers
to accept this broader notion of social
responsibility voluntarily. And in the
meantime, the people lose.
This has implications for future business
ethics research. Currently, research is
primarily focused on the behavior of
managers, accepting the capitalist model that
economists put forth as a given. While this
is a very important and worthwhile research
stream, we should not ignore the role of
institutions, nor should we leave it up to
economists to decide what is the most
appropriate or optimal system. Managers‘
behavior is partially a function of the
surrounding socially constructed institutions,
and, thus, ethical outcomes can be
influenced by how the game is designed and
structured. It is not enough to prescribe that
managers act in a way that may be ethical
but contrary to what is rational given the
existing economic system. Additionally, in
practice, managers do influence the rules of
the game, and it is important that we as
scholars do not ignore the moral
implications of their actions.
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1 Other countries in the top ten are Australia, Canada, Denmark, Hong Kong, the Netherlands, New Zealand,
Singapore, Sweden, and the United Kingdom (World Bank, 2005). 1 Cuba was not a member of either organization. 2 Lage is directly involved in setting Cuba‘s economic policy and is often the Cuban representative that visits
foreign countries to discuss trade or foreign investment. 3 The Bill was named after its primary author, Robert Torricelli, a U.S. Representative from New Jersey and is
most often referred to as the Torricelli Act. The bill permits the U.S. President to lift the embargo if Cuba holds free
and fair elections and has moved to establishing a free-market system. 4 It is often referred to as the Helms-Burton Act, after the two senators, Jesse Helms from South Carolina and
Dan Burton from Indiana, who introduced it. It does allow for the U.S. President to suspend this right of action for six-month intervals, which has been the case since its enactment, and, thus, no one has yet been sued.