Globalization

Globalization only heihtens public anxiety over corporate conduct. Many people seem to think that corporate virtue declines as international economic activity expands. An analysis using the virtue matrix suggests that the source of the skepticism has to do with the variations among the civil foundations of countries at differing stages of economic and political development.

A country’s civil foundation- thus its supply of corporate virtue - tends to grow in concert with its overall economic development. In general, corporate social responsibility in economically advanced countries is generated by deep, solid civil foundations supporting relatively smaller strategic and structural frontiers. The civil foundations of countries with developing economies, by contrast, are relatively shallow and weak, and their strategic and structural frontiers are correspondingly large. (This is a function of limited economic capacity, not necessarily a lack of desire to do good. In a country whose annual per capita GDP is $500, compared with $35,000 per capita in the United States, providing medical benefits to same-sex partners is not a pressing corporate issue. Making sure that companies don’t sicken or exhaust their workers is.)

The varying depths of the world’s civil foundations can affect the global supply of corporate responsibility both positively and negatively. On the positive side, globalizing corporations from advanced countries can enter developing economies and bring with them the employment and environmental practices of their home countries civil foundation. Those some practices are likely to be in the strategic or structural frontiers of the host country’s virtue matrix. In adopting those practices, local businesses engage in responsible behavior that eventually migrates to their country;s civil foundation. In this way, globalization can “average up” the world’s civil foundations.

What can be averaged up, however, can also be “averaged down.” When a corporation from an advanced economy does business in a developing country, it may instead establish a level of corporate virtue consistent with the host country’s civil foundation. Notoriously, Nike, by running its Southeast Asian athletic footwear plants and paying its workers in accordance with local customs and practices, opened itself to charges of operating sweatshops. In essence, it was accused of averaging down its level of corporate responsibility. Although the company protested that its conduct was virtuous by local standards, angry U.S. consumers made it clear that they expected Nike to conform to the U.S. civil foundation, even if doing so meant the company had to operate in the strategic or structural frontier of its Southeast Aiean hosts.

Practices in developing countries can also average down the civil foundation of an advanced country. For example, American garment manufacturers have argued that competitive pressure from manufacturers in developing countries, where wages are low and benefits nonexistent, make it impossible to maintain benefits for their U.S. level benefits packages have migrated from the civil foundation to the structural frontier as a result of foreign competition.

The net impact of globalization on the supply of responsible corporate behavior has yet to be calculated, of course. But it’s apparent that companies from countries with robust civil foundations will determine the outcome. If their practices average up civil foundations worldwide, globalization advocates will be vindicated in their belief that increased internastional economic activity can address some of the world’s most difficult development problems. On the other hand, acorporate race to the bottom would succeed inly in averaging down civil foundations and confirming the most lurid fears of globalization opponents.