Categories
Globalization

Basic Global Business Ethics in 20 Minutes

Basic Global Business Ethics in 20 Minutes

Note: This is a very academic approach. Users who want quick and easy answers will be disappointed. It usually takes several weeks of undergraduate training and reading for students to be able to use the principles described here effectively. Please provide a comment if you would like to see more materials added. There are 10 slides with an audio commentary for each.

Overview of Business Ethics


Definition of Business Ethics


Immanuel Kant Overview


Utilitarianism


Virtue Theory and Aristotle


Ross and Prima Facie Duties


Summary of Duties in Business Ethics


Example of Plant Closing


Example - Ford Pinto Case


Summary of Business Ethics



Created on December 22, 2018

 

Categories
Globalization

The Moral Responsibilities of Multinational Corporations

Use this link to take you to a YouTube video on the moral responsibilities of multinational corporations.

This presentation is academic in nature, using a style that is appropriate for a college classroom. Business majors, students working on an MBA, and persons involved in direct sales in international trade will benefit from exposure to the ideas, laws, and principles discussed here. The video is about 20 minutes.

 

Categories
Globalization

Calculating GDP

By studying this page, you will learn

  • How to calculate the GDP
  • How to understand money flow in the GDP – Exercise 1 includes 4-question GDP Money Flow Quiz
  • How to calculate GDP in a practice example – Exercise 2 includes 1-question GDP Calculation Quiz
  • How to use U.S. government information to verify the formula in the real world – Exercise 3 includes links to U.S. GDP data

Tutorial: How to calculate the GDP

The basic formula for calculating the GDP is:

Y = C + I + E + G

where 

Y = GDP

C = Consumer Spending

I = Investment made by industry

E = Excess of Exports over Imports

G = Government Spending

This formula is almost self-evident (if you take the time to think about it)!

GDP is a measure of all the goods and services produced domestically. Therefore, to calculate the GDP, one only needs to add together the various components of the economy that are a measure of all the goods and services produced.

Many of the goods and services produced are purchased by consumers. Therefore, what consumers spend on them (C) is a measure of that component.

The next component is the somewhat mysterious quantity “I,” or investment made by industry. However, this quantity is mysterious only because investment does not have its ordinary meaning. When calculating the GDP, investment does NOT mean what we normally think of in the case of individuals. It does not mean buying stocks and bonds or putting money in a savings account (S in the diagram for Exercise 1, below). When calculating the GDP, investment means the purchases made by industry in new productive facilities, or, the process of “buying new capital and putting it to use” (Gambs, John, Economics and Man, 1968, p. 168). This includes, for example, buying a new truck, building a new factory, or purchasing new software. This is indicated in the diagram by an arrow pointing from one factory (enterprise) to another. In essence, it shows the factory “reproducing itself” by buying new goods and services that will produce still more goods and services. NOTE: There is a money-flow relationship between personal savings, S, and investment, I, but this does not figure directly in calculating the GDP. See Exercise 3 below.

The next component is E, or the difference between the value of all exports and the value of all imports. If Exports exceeds imports, it adds to the GDP. If not, it subtracts from the GDP. Thus, even if a nation’s people work very hard to produce products for exports, but still import more than they export, the nation’s GDP will be negatively impacted. This is one of the reasons trade deficits are frequently a political target. Because the balance of trade can be either positive or negative, we can rewrite the equation, showing the components of E, using X for Exports and M for Imports:

Y = C + I + (X - M)+ G

You may see the formula for the GDP written this way, and it may be easier for you to remember in this format.

The final component is G. The government buys (with your tax money) goods and services (G). These purchases are a measure of those goods and services produced. Be aware that many people make the mistake of thinking that the money paid in taxes and spent by the government is “lost” and therefore subtracts from the GDP. Tax money may indeed be spent inefficiently but this fact has no bearing on the calculation of the GDP.

Exercise 1: Understanding Money Flow in the GDP Components

Study the diagram below. Be sure you understand how the total income and expenses of Joe Worker ultimately make up the Gross Domestic Product.

  1. Joe Worker receives a salary from his place of work, as well as additional income from other work, stock dividends, and interest on savings.
  2. Joe spends most of his money on personal consumption, which includes not only purchasing items such as cars, food, and clothing, but also making rent and utility payments, paying for monthly consumer services such as phone and cable, covering health care costs, and even contributing to charity. All of these expenses fall under the broad category of “Consumer Spending” when used in calculations of the GDP. These expenditures comprise about 2/3 of the U.S. GDP.
  3. Joe pays a substantial portion of his income in various local, state and federal taxes. These taxes can vary considerably. Federal income taxes, for example, range from about 4% to 26%, depending on total household income – see the Taxes Game).
  4. The money that Joe gives to the government to spend on his behalf converts some of Joe’s labor into substantial public goods such as roads or schools that contribute to the Gross Domestic Product. The Government expenditures (“G”) in the formula are therefore added to the GDP. In recent decades, federal government spending has comprised from 18% to 23% of the U.S. GDP.
  5. If Joe helps produce soybeans, computers, or medicines that are sold overseas, the items he makes count as exports. But the money received in payments for these items comes into his country (the direction of the arrow in the diagram shows the money flow into Joe’s country). This money is added to the GDP.
  6. Imported items count in just the opposite way: money is leaving Joe’s country. When raw materials, such as oil or chemicals that are used in the manufacture of finished goods are imported, these costs are subtracted from the GDP. [Note: The cost accounting is different when Joe shops at Walmart. Since many of the items he buys at Walmart are imports these count as “consumer spending,” increasing the GDP but also count as imports, decreasing the GDP by the same amount. In other words, buying an imported finished good does not change the GDP because nothing new has been produced in Joe’s country.] In recent years, U.S. imports have exceeded exports, resulting in about a 2% reduction in U.S. GDP.
  7. Foreign countries receive funds when Joe Worker buys their products. But these countries also invest in Joe’s country (the U.S. in our example). For example, they may buy shares in public companies. The result is that the outflow created by the by the purchase of imports is balanced by an inflow of investment money into the U.S.
  8. Joe still has a little left over to put into savings and to perhaps to purchase stocks or mutual funds. Although not part of the GDP calculation, this money contributes indirectly because it contributes to the supply of money banks and money managers have available to support corporate investment.
  9. Banks and money managers use Joe’s money to lend to corporations or to buy stock in corporations, which the corporations use to make new “investments” (“I” in the formula), such as a new factory, or any other means of substantially expanding or improving their business.

Note: Understanding the Role of Personal Savings

Let’s look at the role played by personal savings. The diagram indicates that personal savings (what we normally call “investment”) is actually a source of revenue for industry. This is because the money you put in the bank is loaned to businesses so that they can put it to work. The bank system uses the personal savings of individuals to give industry its reservoir of money to work from. This is why economists say that the amount of Savings is always going to be approximately equal to the amount available for Investment. Savings and Investment can become out of balance when there is more demand for investment money than what is available from domestic savings. In that case, more money is borrowed from foreign sources. Because additional Savings has the effect of supplying more money to industry, some economists have argued that if we want to correct the negative effect of the trade deficit (since it is subtracted from the GDP), we should encourage Savings, which will indirectly boost Investment.

Questions Based on the Diagram

At this point, you should be able to answer the following questions.

1. What portion of the U.S. GDP is accounted for by Consumer Spending?

2. What percent of the U.S. GDP is “lost” or subtracted from the total due to the trade deficit?

3. How does the money “lost” due to the trade deficit find its way back to the U.S.?

4. How is “Investment” defined on the diagram?

Are you confident about your answers? Check yourself with the Money Flow Quiz!

Exercise 2: Practice Calculating the GDP

Atoll K is a small island nation. Its population total is 400, and it has 100 wage earners who earn an average of $50 per year. Each wage earner spends a total of $40 per year buying goods and services of which $3.00 goes to buying imported goods. The island exports a total of $800 worth of goods. The Government tax rate is 10% and all government money is spent on building infrastructure and supporting schools. There is only one industry (uranium mining) on the island and it employs every wage earner. The industry spends $600 each year on new mining equipment. What is the GDP? Check your answer with the GDP Calculation Quiz!

Exercise 3: Using U.S. Government Figures to Verify the Formula

In this example, we shall use the actual GDP figures for the U.S. in 2000. The U.S. Government Printing Office has historical data for the U.S. from 1959 to the present. Click HERE to open the link to the GPO page with the data for GDP 2004. On this page, click on the link for the PDF file for Economic Report of the President (2004). This document, named “ERP-2004,” is quite large (416 pages). Go to the entry for Table B-1: Gross domestic product, 1959-2003. The table is spread over two pages: pages 284-285 of the document. Carefully review the entry for the year 2000. If you are adept at moving data and eliminating unnecessary information, you can generate a chart like the one below simply by editing the government-supplied chart. Notice that the GDP calculation in the chart uses the same headings we gave above in the formula for the GDP. Our example calculation, made by plugging the chart entries for the year 2000 into the formula is shown below.

  Y    =    C    +    I     +    E   +    G
9817.0 =  6739.4 +  1735.5  -  379.5 +  1721.6   

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Categories
Globalization

Definitions of Globalization

The following definitions are useful in the study of globalization. They may be studied and used in academic settings. Read these definitions carefully. When you are finished, Take the Quiz for this page.

Definitions of Globalization:

1. Joseph Stiglitz, an economist, and winner of the Nobel Prize defines Globalization as follows:

Globalization “is the closer integration of the countries and peoples of the world …brought about by the enormous reduction of costs of transportation and communication, and the breaking down of artificial barriers to the flows of goods, services, capital, knowledge, and people across borders.” (from Globalization and its Discontents)

2. Thomas Friedman, a political reporter for the New York Times, defines Globalization in terms of PARADIGM SHIFTS. We can compare the contemporary world to the world of the Cold War prior to the fall of Communism (1989). The following is a partial list of contrasts derived from Thomas Friedman’s book The Lexus and the Olive Tree.

Paradigm Shifts from the Cold War to the Age of Globalization

Cold War Globalization
Division Integration
(of nations, markets, and technologies)
the Wall the Web
8% of world’s countries
have free markets
28% of world’s countries
have free markets
Different cultures Global culture
Weight (megatons) Speed (megabits)
Power of nations Power of individuals, markets

3. In the early 2000s, the UC Atlas of Global Inequality (no longer, apparently, in operation, but see https://ccrec.ucsc.edu/ for the updated site) used the following definition of Globalization:

“Globalization, global integration: ‘… a widening, deepening and speeding up of interconnectedness in all aspects of contemporary social life from the cultural to the criminal, the financial to the spiritual’ (Held and McGrew 1999: 2). Several dimensions of globalization can usefully be identified. These dimensions can often be analyzed separately even though they may have powerful interconnections. Economic globalization means the greater global connectedness of economic activities, through transnational trade, capital flows, and migration. Environmental globalization could include the increasingly global effects of human activity on the environment. Cultural globalization may highlight the connections among languages, ways of living, and fears of global homogeneity through the spread of North American and European languages and culture. Political globalization may include wider acceptance of global political standards such as human rights, democracy, labor standards, environmental standards, as well as the greater coordination of actions by governments and other institutions across the globe.”
— Source: UC Atlas of Global Inequality

Note that in the above definition, Globalization is divided into four aspects or dimensions:

  • Economic
  • Environmental
  • Political
  • Cultural

Also, note that the definition cites Held and McGrew who emphasize

SPEED

as one of the general features of Globalization.

The UC Atlas definition emphasizes that while

SYSTEMS ARE BECOMING MORE HIGHLY INTEGRATED,

these trends are also leading to potential

FEAR AND CONFLICT.

In your own research on globalization, you will find it useful to note how speed, systems integration, and fear and conflict are continuing to develop.

Categories
Globalization

Global Consciousness

Think locally, act globally — John Naisbitt

Background: Some Preliminary Considerations for Understanding Global Consciousness

In the sense of being aware that we now live in “global village,” virtually everyone today has some form of what might be called “global consciousness.” Today, the events that intrude on daily life are no longer limited strictly to one’s own village, city, or nation. Everyone knows that there can be direct influences on their lives from events on the other side of the globe. Virtually everyone feels, in one way or another, the forces for both cooperation and strife that Globalization has unleashed. On the one hand, cooperative international trade has created new wealth and opportunities for hundreds of millions. On the other, political, moral and cultural differences are causing conflicts around the world. And many people, as Thomas Friedman has pointed out, are aware of cultural icons of our global village — “Super Individuals,” such as Madonna, Michael Jordan, Osama Bin Laden, to name a few — who have fame and influence worldwide.

In addition to this general awareness, many educational systems around the world now support a version of relativism that urges us to be aware that there many cultures and moral systems in the world and to “celebrate the differences” by studying these alternate systems. While this popular version of relativism offers little in actually understanding or dealing with, the complex issues involved in Globalization, it might also be called a form of global consciousness.

Global consciousness, as we shall understand it for the purposes of this course, includes, but also goes beyond, these general forms of awareness about our interconnected world and our being ready to accept the fact that there are many moral and cultural systems. Our concept of global consciousness also has different emphases. First, global consciousness, as we shall understand it, is primarily about finding unity, not differences. It finds ways in which people, political systems and cultures are the same. Second, it engenders not only a sense of belonging to a greater whole but of being willing to take some responsibility for action within that greater whole.

To understand this notion further, consider the following historical example from an earlier form of Globalization. In 212 C.E., the Roman Emperor Caracalla issued a decree making all free residents of the empire citizens of Rome. This included most of the area shown in the map below — the greater portion of the known world at the time.

Map of Roman World, 200 C.E.
The Roman Empire at 200 C.E., showing major trade routes. Source: http://college.hmco.com/history/west/mosaic/chapter3/mckay184_map.html (Houghton Mifflin Company)

Caracalla’s edict served, at least on paper, to make many of the residents of this vast area political equals, subject to the same laws. This edict was not just a change in the legal system. It had a profound psychological effect on the way the peoples of this region thought about themselves. Regardless of their prior religious or cultural backgrounds, they now had, as Roman Citizens, reasons find political, moral, and economic interests in common. Not coincidentally, there were at that time well-developed trade/communication routes that greatly facilitated this psychological shift. This shift in self-awareness, in turn, became an integral part of the economic life of the region.

Today (thankfully), we have no one to issue edicts to declare that we are all citizens of the world — but we do have an even more complex system of communication, and prototypes (however inadequate) for world governance already in place. One aspect of global consciousness, as it develops in our time, will, therefore, most likely be a spontaneous “grassroots” phenomenon, taking the form of increased awareness, that our “home” — the circle of our immediate concerns — encompasses the entire earth. The map below indicates roughly the same geographic area and one mode of the contemporary communications infrastructure that links it. Despite the “competing” languages and cultures, the new Europe, much like the old Roman Empire, has already become economically, and to some degree spiritually and culturally, unified. This, of course, is only one phase of a worldwide phenomenon now spreading to every region of the earth.


Telecommunications Traffic Flow Map © 2000 – TeleGeography, Inc.
See http://www.telegeography.com/ for source and http://mappa.mundi.net/maps/maps_014/ for brief discussion of this and other maps.

Communications fosters community — a sense of home. What do you consider your “home” — your city, nation, region, or…. (see picture below)?


Earth photographed from space, Apollo 17 mission. Source: NASA

Toward a Contemporary View of Global Consciousness

The above description of global consciousness will no doubt be unsatisfactory to many since it might be criticized as being entirely too vague and nothing more than a feeling. Let us, therefore, expand on the notion of finding unity and specify more concretely what we mean. Global Consciousness, as we shall refer to it, involves, among other things, the following:

1. Awareness and understanding of the unifying conditions of human life worldwide.

  • Universal needs: food, clothing, shelter, health
  • Universal Human Rights: freedom of speech, freedom of religion, the right to education regardless of gender, race, or economic circumstances
  • Emerging shared values and standards of justice: international laws, international courts, sanctions against terrorism
  • Emerging models of regional, transnational, economic development: cooperative rather than confrontational or competitive national economic policies

2. Awareness of the global implications of local actions.

As John Naisbitt pointed out, in today’s interconnected world the old saying “the flap of a butterfly’s wings one place creates a hurricane somewhere else” has become literally true. This is why he says we can put a new twist on the old phrase, “think globally, act locally.” We should understand that it is basically impossible to “act locally.” Our local actions always have global repercussions.

  • Cutting down rainforests reduces world oxygen supplies
  • Economic protectionism means jobs lost in another country
  • Support for single-commodity economies (e.g., oil) creates unstable conditions worldwide

3. A critical perspective on differences among cultural practices worldwide.

This means attempting to discern which differences matter in judging the value of a particular set of culturally-defined practices and which do not. One might argue, for example, that wearing a headscarf is a cultural difference that does not matter, while the practice of female circumcision is a cultural difference that does matter.

4. Awareness of changes in psychological, cultural, and economic modalities that may govern changes in 21st century personal, corporate, and national life.

  • Models of strong tribal/national identity that cause unnecessary conflict may be abandoned in favor of alternative modalities of personal identities, such as Cosmopolitanism.
  • Corporate cooperation, rather than competition, may become necessary for large research and development projects (e.g., hydrogen economy)
  • International intervention in the internal affairs of nations may increase as the rights of “sovereign” nations and the concept of “national autonomy” may no longer be understood to include the right of a nation to violate the universal political and economic rights of its citizens
  • National borders may disappear as economic growth of transnational corporations encourages dissolving artificial barriers between nations

5. At least at some level, a commitment to new forms of global political cooperation or global governance.

As you know from your study of other modules in this course, critics of Globalization have pointed out that the current structures of the U.N., IMF, and World Bank are undemocratic. While one can debate whether or not the current structure is sufficient for our immediate needs, it seems certain, given the rapidly expanding nature of global communications, that the future will call for some other form of governance.

There are, at present, no specific exercises for this module. Feel free to contribute your thoughts on this topic. Do you think global consciousness is a good thing? Or do you think ties to one’s own people, place, or nation ought to take precedence over global consciousness?

Categories
Globalization

The Complicity Problem

In this Mini-Course, you will learn the essentials of the U.N. position on a worldwide problem: the treatment of workers in third-world countries. The issue is sensitive because citizens (corporate citizens and consumers) in the first world do not want to feel responsible for working conditions that seem harsh or that ignore human rights. If you are involved in sales or customer relations in the first world, the information here may help you answer questions such as: “What is your company doing to protect the rights of the overseas workers who make the products you sell?”

1. The complicity problem arises when one is directly or indirectly facilitating wrongful acts. For example, if you are selling goods made in China by a company that treats its workers poorly, you might be accused of complicity in violating worker rights. Although you might treat the workers directly employed by you very well, you are indirectly contributing to the poor treatment of workers by doing business with a company that has little respect for worker rights. Can you absolve yourself of this kind of complicity by taking it upon yourself to thoroughly inspect the working conditions provided by your supplier? It might seem so. Suppose you can give your supplier a clean bill of health in good conscience. What happens if your supplier, unbeknownst to you (and perhaps also you supplier) contracts to get some of your work done by subcontractors who are much less concerned about worker rights? Are you still guilty of complicity? How far down the supply chain should you be required to inspect working conditions? Even if I am responsible for checking out my supplier, am I responsible for checking out my supplier’s supplier? Furthermore, should not there be a distinction between what individual corporations do and what countries do as a matter of cultural practice or law? Should one person (or corporation) really be held responsible for the practices that may pervade an entire nation? These are among the initial questions one might ask about complicity.

2. The U.N. did not have good answers to these kinds of questions until recently. A basic framework for answers was provided in the 2008 “Ruggie Report.”

3. The U.N. approach to the complicity problem divides the responsibilities of moral actors (states or corporations) by distinguishing between PROTECTION of rights and RESPECT for rights. Once this distinction is made, it is easier to see which parties (moral actors) are primarily responsible for which aspects of human rights. The U.N. report asserts that states should protect the right of freedom of speech by ensuring there is no government interference with mass media. And Corporations should show respect for human rights by allowing workers access to means of filing complaints. (Note, however, that this distinction between the duties of states and corporations is NOT a strict or “sharp.” Corporations have additional duties that do not allow them to “hide” behind that idea that they can do nothing about the policies or cultural practices of the states in which they have business operations. See point 6 below.) In addition to providing protection and respect for human rights, the U.N. also asserts that a means of remedying violations of human rights must be available. These means should include both state and corporate channels for reporting violations and ensuring that they are justly corrected. Thus, the overall approach to human rights is three-pronged: protect, respect, and remedy.

4. “Respect” is an ambiguous word. The U.N. attempts to remove some of the ambiguity by further describing what “respect” means in the context of corporate activities. As shown below, respect means exercising due diligence in a three-step process.

5. For example, if you were involved in the textile industry in China, you should exercise your due diligence by evaluating the potential impacts of your activities in a variety of ways. In other words, you should carefully evaluate all the possible consequences of your actions as they relate to human rights in the broadest sense.

6. While there is a difference between State and Corporate responsibilities toward and human and labor rights, corporations cannot hide behind the fact that they need only “respect” rights in order to escape their responsibilities. They cannot, for example, choose to only “respect” selected rights. Corporations cannot escape their intrinsic responsibility not to harm. As a result, corporations should take care not to create serious harm regarding ANY forms of human or labor rights.

7. Be aware that actual legal cases have shown that corporations have been taken to court for alleged violations of virtually every Labor Right.

8. These responsibilities are deep and meeting them is time-consuming. Yet, the U.N. report did NOT explicitly state that each corporation is responsible for respecting labor and human rights ALL THE WAY DOWN its own supply chain. This is a crucial point for corporate citizens of the first world wishing to defend their labor policies in other countries. We have then, and answer to one of our initial questions. Is each corporation responsible for inspecting the labor conditions all the way down its supply chain? The answer is “No.” Each corporation is responsible only for the first level down — at least, this is the interpretation supported by our analysis here. But note the reason for this limitation! It is assumed that the obligations of corporate due diligence, respect for human rights and the duty not to harm extend to ALL corporations. This means, in effect, that human rights are automatically protected ALL THE WAY DOWN if each and every corporation performs its duties. Again, the reason for this result is that the “rules” are supposed to be universal. That is, EVERY seller should see to it that its supplier is not abusing labor rights. Therefore, the chain of responsibility automatically goes to the bottom. This, at any rate, is the logical result of the U.N. recommendations if they are universally followed. Can one trust this logical result? Can one “hide” behind the assumption that every moral agent in the supply chain will perform their moral duties? Perhaps the best answer is that one should exert reasonable and prudent efforts to ensure there are no violations of labor rights. In many cases, this will involve, primarily, investigation of immediate level suppliers and not those two or there levels down.

9. To conclude, when people ask about the protection of labor rights in your business, one might say something along the lines of the following: “Our corporate duties extend primarily to respect human and labor rights, but we do not create or protect them in the way that states do. In accordance with the U.N. Ruggie Report, we make reasonable efforts to ensure our direct suppliers comply as much as possible with international labor rights laws, to the extent that these are granted within China or elsewhere. We perform our “due diligence” by carefully examining the impacts of our actions in foreign countries. Furthermore, we understand our duty, as corporate citizens and moral agents not to harm others and we seek to avoid any actions or policies that might. We have corporate means of reporting and remedying violations of worker rights.”