The Third world and Business ethics

Ethics in third world Main stakeholders in the third world Corporations: (TNCs) State: International trade, development Organisations; Civic organisationsCase Study : Free trade v fair trade,

Ethics in the Third World

Poverty in Third World - moral questions re inequality

1990s, 54 countries became poorer than they were in 1990, with life expectancy falling to 34 (UN Development Programme, 2003 ) In Africa approx half population live in extreme poverty , one-sixth children die before age of 5,

5mill before 5th birthday from malnutrition & preventable threats to health (UNICEF, 2003).
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Ethics in Third World

Yet improvements in India & China

1990s no. people living on $1 a day was halved in East Asia & Pacific (UNDP, 2003)

Nevertheless, significant numbers of world population still live in abject poverty Recurring argument re Business, free market

reinforces unequal distribution of wealth between (minority) industrialised countries & majority undeveloped countries (southern hemisphere)
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Ethics of third world

absolute poor severely deprived human beings struggling to survive in a set of squalid /degraded circumstances .. Beyond the power of our imaginations and privileged circumstances to conceive McNamara (former US govt. Defence Secretary) Consider the policies and activities of the three main stakeholders in third world

Market - Corporation State International Development & trade agencies Civil society NGOs, labour, community orgs..

1. Corporations in third world

Globalisation chain of reasoning

economic globalisation , free trade, deregulated markets, neo-liberal ideology Multi-nationals central to this

large corporate enterprises spread across no. of nations, via subsidiaries & holding cos term interchangeable with MNCs, MNEs Developed in first world, trade domestically & overseas .

Transnational Corporation (TNCs)

Largest TNCs, Exxon, Ford, Royal Dutch Shell, Microsoft, vodaphone have turnovers larger than the GNP of 80% of world countries Increase profitability of TNCs by opening up bases in undeveloped country- considered good business practice as well as socially responsible
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TNCs - advantages

Intro new technology, factories & equipment to under-developed countries Provides much needed capital investment Helps develop & build infra-structures provides employment and training Open up new markets enhances quality of life in host country - see China, India
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TNCs disadvantages

Seek to gain control over supply of resources in host country Pursue competitive advantage by lowering labour costs Reduce prod costs by avoiding more rigorous labour/ Health & safety laws Pay lower tariffs on both imported by/exported from host country
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Disadvantages:

Pay reduced taxes in hosts country & avoid paying corporation tax in home country by transferring profits to a shell co in third tax haven country Rarely reveal transaction costs incurred from overseas investments so that profits are maximised by minimising tax payments As resources diminish or labour costs rise, they often close down operations :& move on to another developing country
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2. State : International development & trade organisations in the third world

Richer countries response poverty in third world

Create international, government agencies to accelerate development

United Nations development agencies: economic

development Programmes - aid poorer members

coordinated by United Nation Economic & Social Council (UNESC), monitors UN Development Programme (UNDP), & inter- & non government orgs UNDP funded by voluntary contributions from richer countries ,

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International development & trade organisations

All UNESC policies funded by International Bank of Reconstruction & Development (IBRD), commonly known as World Bank & IMF, UNESC also holds joint consultations with World Trade Organisation which represents the interest of first world founder nations & transnational corporation (TNCs)
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World Bank (IBRD)

Approved by Bretton Woods Conference 1944, formed 1946 Self supporting, obtains funds from capital paid by member-states, sales of its own securities, factoring its own loans, & repayment by beneficiary nations Loans made to members countries against bonds backed by pledges from other govts & repayment of previous loans to members Criticism discriminatory polices against the poorest
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International Monetary Funds (IMF)

Approved by Bretton Woods, established 1945 independent international org in agree. of mutual cooperation with UN but funded mostly by the US, followed by UK, Germany, Japan, France, Saudi Arabia Aims to promote monetary co-op by expanding international trade & exchange rate stability , removal of barriers through multilateral payments systems

These subject to strict IMF ec. Conditions To qualify for loans member states must demonstrate a willingness to change from a command to free market ec, subject to stringent controls 13

Other agencies

Organisation for Economic Cooperation (OECD) Organisation of the Worlds richest nations World Trade Organisation (WTO) increases in international trade led to formation in 1995 . It succeed the General Agreement on Tariffs & Trade (GATT)

Ec purpose of GATT was to expand non-discriminatory international free trade, replaced by WTO as legal/institutional trading system for creating binding trade policy Adjudication (arbitration) accepted as means of settling trade disputes between nations
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Washington Consensus

Since 1980 financial problems of developing countries - handled via the W.C,

enshrined in twin global regulatory bodies of IMF & W.B

Favoured remedy: financial support in return for acceptance liberal economics.

reduce inflation by de-regulation - cuts in public spending (Health & Education), cuts in food subsidies,

Sub-Saharan Africa recipient of 29 IMF/WB packages during 1980s , but per capita incomes declined by 30% over same period (Hoogvelt, 1997)
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Washington Consensus

End C.20th under increasing criticism. Reasons included

Pace of global development in poorer countries remained slow/non-existent Continuing instability of global financial system meant urgent re-structuring was required Significant sections of the elite financial speculator George Soros (2002), economist Jospeph Stiglitz (2002) began to publicly challenge Washington Consensus precepts Pressure from below street protest- helped transform the 16 agenda of the debate on global economy.

Civil society organisations

Newly emerging organisations - spontaneous coming together of individuals and groups , around summits such as Seattle WTO, 1999, street protests in G8 Birmingham (1998) Edinburgh 2005 What probably unites them is opposition for Neo-liberalism The radical global NGOs & social movements have changed the agenda bringing issues of corporate abuse into greater focus

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International Non-Government Organisations (INGOS)

Becoming increasingly important because of this

Head quarters INGO heavily concentrated in northwestern Europe, yet its membership grown both in & outside northern hemisphere

Latin America, sub-Saharan Africa

Among large INGOs (Amnesty/Oxfam) see range of North-South connections

Oxfam International is a confederation 12 orgs in 100 countries, several thousand partner orgs in South. Amnesty - 1.5 mill members in 150 countries, with 85,000 volunteers able to respond rapidly

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Case study: Free Trade & Fair trade

Evidence to support free trade and FDI with the export-led development of no of developing countries Yet concerns over environmental abuses, use of cheap labour, (lack of TU & human rights, child labour race-to- the-bottom labour standards) Call by orgs like Oxfam, replace free trade by fair trade, to help gain necessary skills & knowledge, lift themselves out of poverty
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Fair trade

Increasing no of cos include this in purchasing polices and agreements ,

most tend to focus almost exclusively on environmental issues B&Q (1990) expects all its suppliers provide inform on environmental performance as part of Supplier Environmental Audit More recently Nike, Reebok & Puma intro ethical code,

intended to prevent labour & human rights abuse in suppliers operations

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Free Trade

Threat of being de-listed by major customer act as powerful force for change, Body Shop operated Trade Not Aid programmes assist small-scale indigenous communities Many coffee, tea, cocoa growers live in poverty

international commodity markets, fail to provide living wage free trade protects & empowers

Systems implemented by fair trade orgs, ensure that growers get minimum price not the whim of market Many growers organise themselves into local co-ops & share the benefits
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Free trade

Movement initially operated through charitable organisations such as Oxfam, & Alternative Trade orgs (ATO) - found in supermarkets Recent move away from charity to commercial position private sector for profit fair trade cos Day Chocolate Co. But commercialisation can put pressure on ethical standards

Davies & Crane (2003) activities in early stage of chain of supply strongly protected, but marketing, sales, retail more vulnerable to 22 ethically dubious practices

Conclusion

Policies & activities of three main stakeholders in third world, Corporation, State, civil society orgs all influence & shape the agenda in the third world. Increasing number of companies are realising the importance of fair trade in the third world

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