THE ETHICS OF GLOBALISATION

1. THE ETHICS OF GLOBALISATION Charts by Dr. Peter Vardy Vice-Principal, Heythrop College, University of London

3. ADDITIONAL ANNUAL COST OF UNIVERSAL EDUCATION, HALVING POVERTY AND CUTTING CHILD DEATH BY THREE QUARTERS IN THE DEVELOPING WORLD £25 BILLION DOLLARS

4. GLOBALISATION • Some say that the increased trend to a global economy is the best way of helping the poor around the world – others hold that the process of globalisation ensures that the rich countries (the G8 [The Group of 8]) control the world’s economy and keep the keep the poorest countries in poverty. • The issues are not straightforward and there are arguments on both sides. • These slides explore some of the ethical issues which arise.

5. THE ORIGINS AND AIMS OF BUSINESS ETHICS

6. ORIGINS OF ETHICAL INVESTMENT • The roots of ethical investment lie among religious movements including the Quakers and Methodists in the nineteenth century, whose concerns included issues such as temperance and fair employment conditions. • At the beginning of the 1900s, the Methodist Church began investing in the stockmarket, consciously avoiding companies involved in alcohol and gambling. During the twentieth century, more churches, charities and individuals began to take account of ethical criteria when making investment choices. • Initially America was more advanced in developing the ethical investment ideology and in 1971 the Pax World Fund was set up which avoided investments associated with the Vietnam War. The apartheid regime in South Africa accelerated the promotion of ethical investment in the 1980s. • In 1983 EIRIS was established as the UK’s first independent research service in ethical investment. The UK’s first ethically screened unit trust was launched by Friends Provident a year later.

7. ETHICAL INVESTORS HAVE THREE MAIN STRATEGIES • EngagementNo companies are excluded (not even tobacco or arms companies) but areas are identified in which companies can improve their environmental, social and ethical performance are identified. The fund managers then "engage" with the companies to encourage them to make such improvements. • PreferenceThe funds adopt social, environmental or other ethical guidelines which they prefer companies to meet. These guidelines are applied where all other things are equal (e.g. financial performance) but they are not finally binding – they are objectives which the ethical investors seek to foster. • ScreeningAn ‘acceptable list’ of companies is created based on chosen positive and/or negative criteria (e.g. avoid companies involved in the arms trade, include companies with good environmental performance and so on). Funds are invested only in those companies on the list.

8. ETHICAL FUNDS FOR ISLAMIC INVESTORS • Islamic finance and investment are based on Islamic values as defined by the principles of Shari’ah (Islamic law). • The Islamic Shari’ah attempts to maximise social welfare (Maslahah) by protecting five ‘pillars’ of an Islamic society – faith, life, wealth, intellect and posterity. Islamic investment involves the screening out of those companies whose primary business does not conform with these objectives. • The screening process will exclude companies whose activities relate to the following: alcohol, tobacco, gambling, armaments, pork, financial institutions and pornography. • Financial institutions are excluded since Shari’ah prohibits investment in interest-based activities. • All wealth creation should result from a partnership between the investor and the user of capital in which rewards and risks are shared.

9. WEALTH AND POVERTY

10. INCOME RATIO • The ratio of income per head in the richest countries to that of the poorest was 10:1 in 1990 • By 2000 this ratio had increased to 60:1. Plato said that any society where the ration was more than 6:1 would be an unjust society. • The World Bank and the International Monetary Fund are meant to reduce poverty and have taken measures which many hold have in fact increased poverty. What is more terms of trade between the rich and poor nations have tilted to the disadvantage of the poor nations of the world. • Many in the poorer countries are desperate to migrate to the richer countries in pursuit of a better life for them and their children.

11. COST OF MIGRATION • The cost of migrating from the poor world to the rich is exceptionally high: • From Afghanistan to Europe - $10000 • From Sri Lanka to Toronto - $17000 • From Central Mexico to the U.S. - $2000 • From China to Britain - $24000 • From Albania to Italy - $450 • Many of the organisations that help illegal immigrants are evil and wicked – for instance the ‘coyotes’ of Mexico, the ‘snakeheads’ of China the Mafia in Italy and Albania, but they are the only means that many desperate people have of reaching safety. • In Britain, there were 61700 refugees at the beginning of 2002. Australia faces a growing tide of refugees from Vietnam, Indonesia and countries to the North. • Figures from New Internationalist October 2002

12. TWO REFUGEES In August 1999, two boys, Yaguine Koita and Fode Tounkara, aged 15 and 16 were found dead in the landing gear of a plane which had flown from Guinea to Brussels. This note was found on their bodies: • “Excellencies, gentlemen – members and those responsible in Europe, it is to your solidarity and generosity that we appeal for your help in Africa. If you see that we have sacrificed ourselves and lost our lives, it is because we suffer too much in Africa and need your help to struggle against poverty and war…. Please excuse us very much for daring to write this letter.”

13. Poverty in Africa • Income per head in Africa is lower today that it was 20 years ago. • Life expectancy in 31 African countries has declined between 1995 and 1998 (AIDS is one factor explaining this) • Africa spends £14 billion ($40 million each day) repaying debt and the total aid given by the first world is 12.7 billion (i.e. less than the debt figure) • Total foreign debt by African countries in 1999 was $319 BILLION – this represents 59% of the entire GDP of the continent.

14. WARS IN AFRICA • There are more wars in Africa than anywhere else in the world. In 2000 there were 15 armed conflicts. From 1989 to 1998 the U.S. supplied $227 million or arms to African countries and of this total $111 went to countries involved in war. • The French and British supplied even more. The major arms suppliers are the U.S., Russia, France, Britain and Germany. The major arms buyers are the countries of the developing world. These raise profound ethical issues.

15. Remittances • Funds sent by migrants to third world countries from which they have travelled exceed the whole amount given by the first world in aid to the third world. • Allowing in migrants often benefits the economies concerned as well as helping third world countries – however there are also worried about migrants not fitting in with the society where they move to and also some fear that migrants will take jobs which ‘belong’ to those in Western countries.

16. Refugees to poor countries • The largest refuge problem is not in the affluent West – it is in countries adjacent to areas of conflict. For instance: • Palestinian refugees fleeing the Israelis after the State of Israel was declared in 1948 • Iraqis fleeing Saddam Hussein and going into Iran where there are millions of refugees • Refugees from Afghanistan fleeing to Pakistan • The poor countries often do not have the resources to be able to deal with these people. In some cases, but by no means all, the United Nations helps.

17. GLOBALISATION

18. GLOBALISATION • Improved communication and transport has led to the world becoming one – the same products and similar advertisements are found across the world. Because transport costs are low, it is often cheaper to produce products on one side of the world and to transport them half way round the world than to produce them locally. • Multinationals have offices in almost every country in the world. Their wealth and power are greater than almost any single state and they can no longer be regulated by any one country. • Money can be moved around very quickly (at the touch of a button) and, therefore, if any country stands out against the power of multinationals, it is this country that is likely to suffer most.

19. PRODUCTION COSTS • As a country becomes more wealthy, its production costs increase. This is not simply due to wage costs but also to many other costs such as health, pensions and social security costs and also the legislation on, for instance, environmental protection which adds significantly to the cost of production in Western countries. • For many companies, therefore, it is much cheaper to produce in third world countries where wage costs are low and health, social security and environmental costs are low. • Consumers are primarily interested in price even if this means that people in their countries lose their jobs and goods are produced in countries with poor records on caring for the staff and the environment.

20. ADVANTAGES OF GLOBALISATION • It is easy to portray the globalisation process in negative terms. In fact it has many advantages – as the workers in poor countries become more efficient and skilled and as they produce better products, so their wages rise and health and environmental controls improve. • For instance, after the second World War, Japan produced cheap trinkets – now it produces some of the best electronics in the world. The same applies to Taiwan. • Vietnam is at present a very low cost country but the increasing number of Western countries operating there is already improving education standards and wages are beginning to rise. At some point, when wages get too high, western countries will look for even lower cost countries and they, too, will benefit from the investment and training that is given. The countries themselves benefit by being able to produce and export goods and by earning some taxes on local profits (although most countries can ‘massage’ profits to ensure profits are minimised in third world countries.

21. WESTERN UNFAIRNESS Western governments insist on FREE TRADE – in other words that third world countries (and others) should reduce tariff barriers to allow good to pass freely between countries. This increases world trade and, it is argued, benefits all countries as it allows for specialisation. HOWEVER Western countries insist on having access to Third World markets but effectively arrange things so that Third World countries do not have access to their own markets. Often this is done by subsidies. For instance, the U.S. government subsidies 25000 cotton farmers in the U.S. by more than THREE BILLION DOLLARS a year which makes it nearly impossible for third world cotton producers to compete. COTTON OFTEN ROTS IN THE FIELDS AS THE COST OF TRANSPORT TO THE COAST IS GREATER THAN THE FARMERS WOULD RECEIVE FOR THEIR CROPS

22. Cotton and Sugar • The aid by the U.S. to it’s 25000 cotton farmers is more than its entire aid to the whole of Africa. In Africa, 10 million people rely on cotton for their livelihood but the typical small farmer makes less than US$300 per year because the U.S. and the European Union subsidise their farmers by such a large amount that the African farmers cannot compete. • Subsidies by Europe to its own farmers makes Europe the largest producer of white sugar in the world and this means that countries like Malawi, Zambia and Mozambique are unable to sell their goods in Europe because the European price is so heavily subsidised. • This distortion of global trade helps keep Africa in poverty.

23. U.S. AID • The Bush administration in the U.S. has announced major aid and free trade agreements for Africa BUT these are tightly tied to U.S. interests. For instance, the ‘Africa Growth and Opportunity Act’ is meant to give African countries access to the U.S. markets for their textiles BUT only on condition that they buy all their yarn from the U.S.. • The U.S. dumps surplus grain (the farming of which is massively subsidised in the U.S.) on third world markets which, because it is cheap, destroys the local farming industry and makes the country dependent on imports. • Intellectual property rights over drugs and, with the use of genetics, crops give U.S. companies control over basic essentials in many third world countries. U.S. companies are patenting third world crops which prevent third world companies developing their own cheap alternatives without paying subsidies to the Western companies. • The problem here is not globalisation but the self-interest of the West which dominates world trade.

24. President Jacques Chirac • In June 2003, President Chirac proposed to a summit meeting of the G8 leaders that the G8 countries should stop subsidies on all goods sold to Africa. This would enable African farmers to get a fair price for their goods and would generate income and employment in Africa. • The move was effectively blocked by the U.S. – partly as a result of U.S. disagreements with the French over the French opposition to the invasion of Iraq in 2003 by the U.S., Britain and Australia. Justin Forsyth of Oxfam said (June 2 2003) “This proposal is a casualty of the Iraq war. The Americans don’t want a specific focus on Africa and they don’t want to support a French proposal”. • So poverty in Africa is partly the result of global politics – and most people are not aware of these issues.

25. ‘ADDED VALUE’ • In addition, many multinationals insist that most processing of primary products such as raw materials and food takes place in the First World and not the Third World, thereby ensuring that tax revenues and earnings in the third world are kept low. • For instance, raw timber, raw cotton, iron ore, food crops and the like are mostly imported in their raw state – the processing (which is where ‘added value’ comes in) tends to be undertaken in the wealthier countries. • This makes third world suppliers totally vulnerable as buyers can simply switch between suppliers in different continents in order to cut costs.

26. ETHICAL APPROACHES

27. UTILITARIANISM AND THE COMMON GOOD • Utilitarianism promotes the greatest happiness for the greatest number, but the question is who is included in the circle of ethical concern. • Utilitarianism often promotes the interest of the group to which people belong and fails to address the wider issue of the fundamental equality of all human beings no matter what their race, religion or gender. This religious insight is more and more neglected and the interests of the First, western, world are promoted at the expense of the interests of the poor. The latter are not included in utilitarian calculations. • Utilitarianism also, as Martha Nussbaum argued, ignores the human values that are so crucial to happiness and well being and tends to measure the state of human beings in financial terms. • The Catholic ethical idea of the COMMON GOOD suffers from the same challenge as often the ‘Good’ that is promoted is that of the local community although there is no doubt of the marvellous work done by organisations such as CARITAS and CAFOD to try to remedy problems of social injustice.

28. PETER HENRIOT S.J. • For Henriot – a Jesuit priest - at the heart of the ethical issue of globalisation is the question of what the foundation ethical criteria are for judging the positives and negatives of the process of globalisation. • 1) One set of criteria is founded on the principles of a neo-liberal economic ideology that gives market operations (with profit margin as the key driving force) the major priority. Consequently, individualism, competitiveness, consumerism, profits, are guiding values. • 2) Another set of criteria takes human dignity as a foundation, dignity recognised with rights and duties and promoted within a communitarian context. Consequent guiding values are community, solidarity, social sustainability, common good. • The issue is which of these has priority.

29. Market and Human values • In Henriot’s judgement, human values are accorded only secondary importance when considering business and globalisation issues. If in any specific situation human values come into conflict with the first, market-driven set of values, then they must give way. • Those guided by the human set of values cannot be said to simply overlook economic values. Economic systems are made up of interactions between women and men and should have as their purpose the development of women and men. • If human values take precedence, then market operations must be subservient to them. This position sets up a very different set of expectations and operations. • Henriot calls for BOTH human AND economic values to be balanced in making economic decisions on, for instance, privatisation of companies (which is designed to increase profitability and efficiency).

30. STAKEHOLDERS • The problem is how this can be implemented in a capitalist world where the main yardstick of measurement is financial – this may mean developing new methods of accounting which recognise the social and human elements of corporate activity and, in particular, which recognise the role of different STAKEHOLDERS. • WHO DO YOU THINK ARE STAKEHOLDERS IN A BUSINESS?? • Stakeholders might include: • Shareholders • Directors • Employees • Those working in areas surrounding the company’s operation • Suppliers • Those working for suppliers • Those working in areas surrounding suppliers • The animal world • Others? • It can be argued that the network of those with an interest or ‘STAKE’ in business operations is much wider than normally considered and to focus primarily on the shareholders provides a mistaken set of priorities.

31. PETER SINGER’S EXPANDING CIRCLE ARGUMENT • Assume you were walking past a pond and a child fell in. You could rescue the child but to do so would mean getting your clothes wet and muddy? Would you be morally wrong not to do so? • Assume you were walking by the same pond and there were a number of other people who could save the child who had fallen in. Would you be morally wrong not to make the attempt yourself? • Assume that the child in the pond belonged to a different racial group to yours. Would you be morally wrong not to save him or her? • Assume that the child lived in a different country, but you could save them from the pond with minimal inconvenience on your part. Would it be morally wrong not to do so?

32. W.H. Lecky • Lecky , at the end of the 19th century, wrote of human concern as an expanding circle which begins with the individual, then embraces the family and: ‘soon the circle... includes first a class, then a nation, then a coalition of nations, then all humanity, and finally, its influence is felt in the dealings of man [sic] with the animal world’. WEH Lecky, The History of European Morals, Longman, 1892 • On this basis the overwhelming majority of us seem to be already in the penultimate stage – at least – of Lecky’s expanding circle. There is, of course, for many of us and for various reasons a gap between acknowledging what we ought to do, and doing it….

33. SINGER: A GLOBAL ETHIC? • Instant communications and jet transport have changed moral responsibility. As Singer says: • “A television audience of two billion people can now watch hungry children beg for food in an area struck by famine, or they can see refugees streaming across the border in search of a safe place away from those they fear will kill them. Most of that huge audience also have the means to help people they are seeing on their screens. Each one of us can pull out a credit card and phone in a donation to an aid organization which can, in a few days, fly in people who can begin distributing food and medical supplies. Collectively, it is also within the capacity of the United Nations – with the support of major powers – to put troops on the ground to protect those who are in danger of becoming victims of genocide. • Our capacity to affect what is happening, anywhere in the world, is one way in which we are living in an era of global responsibility. But there is also another way that offers an even more dramatic contrast with the past….

34. Singer – A global ethic contd. • “…The atmosphere and the oceans seemed, until recently, to be elements of nature totally unaffected by the activities of human beings. Now we know that our use of chlorofluorocarbons has damaged the ozone shield; our emission of carbon dioxide is changing the climate of the entire planet in unpredictable ways and raising the level of the sea; and fishing fleets are scouring the oceans, depleting fish populations that once seemed limitless to a point from which they may never recover…. the actions of consumers in Los Angeles can cause skin cancer among Australians, inundate the lands of peasants in Bangladesh, and force Thai villagers who could once earn a living by fishing to work in the factories of Bangkok…the need for a global ethic is inescapable.” (Singer. ‘The drowning child and the expanding circle. 1997)

35. THE EARTH DIALOGUE • This is a forum which sees ethics as the missing dimension in the debate between globalisation and sustainable development. The 2002 conference came up with five key ingredients: • 1) To correct the forces that promote wealth over global welfare and justice, equality, solidarity, protection of the environment and human rights. • 2) These values need to be established under the rule of law providing, for instance, that the polluter pays, • 3) Each person must become aware of their personal, global responsibilities, • 4) Peace and security for all must become fundamental political goals – if they are not then terrorism will increase, and • 5) Action is urgently required which will mean greater political commitment and better financial regulation.

36. Singer’s car example • You have just retired and buy a very smart new car costing £25000 but you have never had an accident so you only insure it for third party, fire and theft. • You drive the car and park it near a railway line. You forget to put on the handbrake and the car slips forward and a few yards and stops on the railway line. A train is coming and the car will be crushed. You can pull a lever and divert the train but the train will then hit a little Bangladeshi boy who is playing on the branch line. What would you do? • Singer says that most people would let the car be destroyed BUT the way we live is to let the child be killed.

37. INSTITUTIONAL EVIL • Central to the ethics of globalisation is the issue of INSTITUTIONAL EVIL – this is the injustice built into the respect institutions that are taken for granted. • The Economic power of the West is so great that World trade is carried out in the interests of the rich countries – this makes it almost impossible for poor countries to move out of their poverty. • By accepting the injustice that comes from many trade structures and not challenging them, it can be argued that people in the Western world are guilt of complicity because of their failure to speak out and their willingness to participate in an unjust system. • In Nazi Germany, in apartheid South Africa, many ‘good’ people participated willingly in the system – but their participation allowed the evil in these societies to prosper. • The problem is to identify the injustice that stems from institutional evil in world trade and then to bring about change – AND THIS IS NOT EASY!

38. CORPORATE REPORTING • At present, Governments require companies to report on their financial operations to their shareholders and others. Thus they have to produce a Balance Sheet and Income Statement showing their assets and liabilities as well as profits and losses. • However there are few requirements on companies to declare their ethical policies and this makes it difficult for shareholders to evaluate them and to apply pressure on companies. Companies that ignore the ethical perspectives on their operations are enabled to hide behind shareholder and invested ignorance. • INCREASED DISCLOSURE AND AN INDEPENDENT ETHICAL AUDIT WOULD MAKE COMPANIES MORE ACCOUNTABLE.

39. Change…. • Because companies have to disclose directors’ salaries and benefits, shareholders are increasingly pressurising companies to reward directors more fairly. • Recently many major companies have been criticised as directors pay themselves increasing amounts even though their profits and asset values have fallen and the companies have made many workers redundant. • Until, however, shareholders and investors pay greater attention to the need to widen the circle of ethical concern so that it includes workers, the third world, customers, suppliers and the environment, change is likely to be slow.

40. Shareholder concern • In the final analysis, companies are owned by shareholders – and shareholders are pension funds, banks, insurance companies and the like who invest on behalf of ‘ordinary people’. • Until companies realise that their shareholders care deeply about ethical issues and that the ethics of business is as high a priority as the profits that companies make, directors may have little incentive to bring about change. • There are now an increasing number of ETHICAL INVESTMENT TRUSTS which target ethically concerned companies – these are supported by those who are as concerned about ethical behaviour as they are about profits. This is a decision that each individual can make for themselves and it can have a significant effect on corporate attitudes.