Beyond Good Intentions

In her article “Beyond Good Intentions: Corporate Citizenship for a New Century”, Mary Robinson discusses possible routes to gaining corporate cooperation in non-binding environmental, human welfare, and other global common welfare issues. Robinson discusses why businesses can’t afford to wait until laws are passed. Issues such as human rights and the environment are too important for companies to ignore. And good intentions are not enough, either. “”It is vital that the business community focuses not only on policies of good corporate citizenship, but also their implementation in practice.” Skepticism is wide-spread about companies using their relatively miniscule contributions to non-profit organizations as “window dressing”, as actions without meaning or change in mentality or practice. Companies won’t have the responsibility to do it themselves. Robinson argues that governing bodies need to stimulate good practices and to stay away from regulation. When businesses are regulated, “society looses out on the power of business to innovate and establish new forms of behavior that are so desperately needed”, she argues.
Robinson proposes the United Nation’s Global Compact as a possible solution to this dilemma. She stresses that participation in this voluntary body “is not, and must not be, a mere public relations exercise”. The global compact is a necessary means of giving corporations social responsibility for their far-reaching actions.
Robinson also tackles the issue of complicity of corporations, specifically in the violations of the United Nation’s Declaration of Human Rights. She argues that corporations aren’t held responsible for only direct involvement with violations. “When human rights violations occur in the context of a business operation, the company need not necessarily cause the harm directly for it to become implicated in the abuses.” Furthermore, she argues, “it has become increasingly clear that the moral dimension of corporate action­ – or inaction – has taken on significant importance”.

The World Bank's Error

In his article “Is Globalization Reducing Poverty and Inequality”, Robert Hunter Wade argues that it doesn’t. Wade agrees with Wolf (see post below), in that many of the world’s developing countries are making great increases in their economic growth rates. However, Wade states that “the most striking feature is not the trends but the size of the gaps, testimony to the failure of ‘catch-up’”. Wade believes that the wealth difference between the world’s richest and poorest countries is simply too large for the current rates of economic growth to change. Wade’s major criticism of proponents of the neo-liberal inequality-is-falling argument lies with the large margin of error in the World Bank’s statistical assessment of poverty. This error is quite large and, Wade argues, in favor of the neo-liberal argument.
First, Wade discusses the trouble of the level of the international poverty line. A percent change in the line results in a greater percent change in the number of people below it. For example, in China, a 10% increase in the international poverty line results in approximately a 20% increase in the poverty headcount. This disproportionate ratio between the percent change in the arbitrary line and the growth of the amount of people affected by policies based on this measure is unacceptable. Below is a map of countries where people are living on less than one dollar a day, according to the UN Development Report.
Second, the household surveys from which the World Bank statistics are based on lack reliability. These surveys are conducted by various organizations with many practices. There is no international template for the surveys. There are many standards with a multitude of exceptions and loopholes. Overall, the quality of these surveys is not at all consistent.
Third, the purchasing power parity (PPP) adjusted figures are affecting the data. Wade calls PPPs “guess work” and argues that the process fro coming up with PPP figures “is based on guestimates form small, ad hoc price surveys in a few cities, adjusted by rules of thumb to take account of the huge price differences between urban and rural and between eastern and western regions”. This incongruity is particularly influential because both China and India use dubious PPP figures Thus, the largest proportion of population-weighted figures is in doubt.
Finally, the World Bank’s statistics on the number of people in extreme poverty from 1980 in comparison to 1998 is not valid. This “often-cited comparison” of the 1.4 billion in extreme poverty in 1980 to the 1.2 billion in 1998 is non-comparable because of a late 1990s change in World Bank methodology.
Wade believes that these for mistakes are sufficient enough to debase the legitimacy of the World Bank’s statistics.

Incensed About Inequality

Martin Wolf believes that inequality is falling because of globalization. The booming of the economies of some of the world’s most populated countries has resulted in the large rise in many people’s standard of living. In his “Incensed About Inequality,” Wolf uses statistical analysis to support his claim: “The incomes of poor developing countries, with more than half of the world’s population, grew substantially faster than those of the world’s richest countries”. He calls today’s phenomenon a “period of partial convergence”, where the rate of economic growth of countries, using gross domestic product (GDP) per heard, is greater for developing countries than for developed countries. The wealth gap is shrinking, Wolf continues, stating “rapid economic growth in poor countries with half the world’s population has powerful effects on the only sort of inequality which matters, that among individuals”. The weighting of GDP on population is a highly debated topic, and to see another point of view, read the blog above. Wolf, however, believes that the individuals of the world are overcoming inequality through choosing globalization: “they choose, however haltingly, the path of economic liberalization and international integration. This is the heart of the matter. All else is commentary”.
To evaluate his argument, Wolf uses the gini coefficient, a measure created by an Oxford-Rome University collaboration which weighs average income (at purchasing power parity) by population. The ratios between the gini coefficients of developing and developed countries are getting smaller, meaning that economic inequality is falling. Wolf weighs his gini coefficients by population because he believes “it is people who matter, not countries”. Individuals should be measured, as country inequality is an ineffective indicator. Wolf agrees: “global inequality among households, or individuals, peaked in the 1970s, whereupon it started to fall. This decline happened not because of greater equality within countries, but because of greater population-weighted equality among them”. Wolf, however, rightly admits that the unusually rapid growth of India and China in comparison to other countries’ growth could skew statistics which are population-based in favor of the falling inequality argument.
Wolf also has the World Bank on his side. He highlights three of the World Bank’s conclusions about inequality and globalization. First, the amount of people in extreme poverty (as defined by the world bank) has fallen, from 1.8 billion in 1987 to 1.17 billion in 1999, but with a noticeable maximum of 1.29 billion in 1990. Second, most people who live in extreme poverty live in East Asia, which is now experiencing the beginnings of economic growth. However, the third conclusion is more sobering: while the number of people in extreme poverty in south and East Asia, especially between 1990 and 1999, in Eastern Europe, Central Asia, and sub-Saharan Africa, the number increased steeply, from 217 million inn 1987 to 315 million in 1999.
Despite that statistic, Wolf still holds that inequality is falling. He points to other indicators which point toward the increase in standards of living and thus the falling of inequality. Life expectancy has been continually on the rise since 1970. Infant mortality rates have declined. Education (measured by literacy rates) has risen. Fertility rates have also declined – fertility rates are a well-known indicator of other standard of living factors. The number of people with chronic undernourishment (as defined by the United Nations) also fell substantially. Finally the percent of children aged 10 to 14 in the workforce has also fallen. All of these indicators are global trends which support Wolf’s thesis: world inequality is falling because of globalization.

The chart below is an International Monetary Fund (IMF) study on global inequality from 1820 to 1992. Notice that, although the large trend of global inequality is on the rise, at about 1980 the slope begins to downturn.

Why Today's International Trade is Unprecedented

In “The Global Economy: Organization, Governance, and Development”, author Gary Gereffi argues that while globalization of economic markets is a process that has been developing for centuries, today’s international trade has three aspects which represent a dramatic change in the nature of international trade.
The first new development is what Gereffi calls “Intraindustry trade in parts and components”. Across geographical boundaries, corporations have production networks. Gereffi uses Hummels, Rapaport, and Yi’s term “vertical specialization”, which means countries import parts of goods (or services) still in the development stages of production in order to export the final product. Much of today’s international trade deals in these unfinished goods in order to take advantage of every possible profit opportunity. This contrasts with the vertical integration mode of production, also known as the Fordist method, which keeps production within a corporation. However, the immense success of intraindustry trade in parts of goods has resulted in the decline of the vertical integration method. Gereffi argues that this decline highlights the “importance of coordinating exceptionally complex interfirm trading networks of parts and components as a new source of competitive advantage in the global economy.”
The second change in international trade is the emergence of a physically, geographically separated global value chain (GVC). The GVC is closely related to the global commodity chain (GCC, explained in greater detail in the post below), but the GVC takes into account policy’s effect on the relative value of separate steps of the GCC in political organizations. The GVC allows companies to make exact competitive analysis of their GCCs. Gereffi quotes Bill Kogut, who argues that “the challenge of global strategy formulation is to differentiate between the various kinds of economies, to specify which link and which factor captures the firm’s advantage, and to determine where the value-added chain would be broken across borders.” The GVCs , then, not only help companies determine what activities will capture more profit, but also where, as policies of different governments or political organizations can result in a competitive advantage in physically different locations. Thus, through applying the GVCs, companies can create the comparative advantage of low cost and/or product differentiation. This is why multidomestic industries, corporations which act as separate companies across political boundaries, are losing ground to global industries, which successfully use GVC to obtain a comparative advantage.
Finally, the production networks themselves have changed. In this section, Gereffi emphasizes a few key terms which apply to the “complex network relationships that make up the global economy”. The first is supply chain, which refers to the “input-output structure of value-adding activities”. In other words, a supply chain is the basic structure of events which begin with the raw materials and end with the final product. A GVC examines the supply chain in order to find areas to improve profitability at each step in production. International Production Networks is a term which Gereffi uses to describe the process which occurs when trans-national corporations (TNCs) lead the initiative in investments across political boundaries, which are then followed by countries themselves. Global Commodity Chains, or GCCs, is a way of looking at the supply chain, especially the internal structure of a corporation’s chain. Gereffi splits GCCs into producer- and buyer- driven chains. Analysis with GCCs comes with the setting up of international production networks. Finally, Global Value Chains, or GVCs, “emphasize the relative value of those economic activities which are required to bring a good or service from conception…to delivery to final consumers, and final disposal after use”. The GVC is so important because it takes into account all possibilities and their profit value for the corporation.

Commodity Chains and Marketing Strategies

In the excerpt from his book, “Commodity Chains and Marketing Strategies: Nike and the Global Athletic Footwear Industry”, Miguel Korzeniewicz studies the Global Commodity Chain (GCC) of the Nike Corporation. Korzeniewicz begins by describing how GCCs are very useful, especially in highlighting advantageous strategies, which companies apply to increase marginal product along the links of the chain. GCCs are also useful, he continues, for the linking of patterns in “core areas” of the world to countries he refers to as “peripheral”. The patterns he focuses on is the extremely successful marketing sector of Nike and its subsequent consumption in the “core” areas of the world, namely western, developed countries, and its relationship with production patterns in “peripheral” countries, meaning eastern, developing countries. Miguel briefly describes the recent trends in the US athletic shoe market from 1981-1990. The reason for his analysis of the Nike Corporation is in part because of the phenomenal growth in this sector of the economy. Product differentiation, price segregation, and cultural changes (the “fitness boom” of the late seventies and early eighties) all contributed to the incredible expansion. But Miguel contributes this growth to something else, too: “the most fundamental innovation of these enterprises, however, has been the creation of a market, and this has entailed the construction of a convincing world of symbols, ideas, and values harnessing the desires of individuals to the consumption of athletic shoes”. In other words, Nike, and other corporations such as Reebok and Adidas, has formed demand in a specific, and lucrative, area of the economy.
Korzeniewicz continues by stating that “Nike’s rise to prominence has been based on its ability to capture a succession of nodes along the commodity chain, increasing its expertise and control over the critical areas of design, distribution, marketing, and advertising”. Nike’s innovative changes in these areas, Korzeniewicz concludes, contributed to a “fundamental reshaping of production and consumption” which resulted in, ultimately, the transformation of the global commodity chain.
Miguel next assesses Nike’s transformation in two distinct time periods. The first is from 1976 to 1984, a time which he labels as “Marketing as an upgrading strategy.” During these years, Nike made changes in three critical areas of marketing and production. First, Nike capitalized on the “fitness boom” through the implementation of multiple highly visible endorsements. Their first major success was in signing Larry Bird, who ended up on the cover of a 1979 Sports Illustrated wearing Nike shoes. Second, Nike changed distribution norms by signing a deal with Footlocker which created a more reliable and efficient market. Finally, Nike was never a manufacturing company. Nike has always been in the business of marketing, designing, and distribution, while sub-contracting the actual production of their shoes. In this first time period, Nike began to turn to South Korea and Taiwan in hopes of finding cheap labor. Since Nike’s move in the mid-seventies, millions of companies have followed their example.
In the second time period, post-1985, Nike began making huge changes in product design and advertising. In product design, Nike shocked the world by overcoming financial difficulties of the mid-eighties and coming out with the “Air Jordan” line. This line was not only lucrative, but it also was one of the first large-scale endorsements of a professional athlete. The advertising campaigns associated with the new line were also revolutionary; they were post-modern, subtly showing the product while associating it with virtues popular at the time.
Nike’s amazing development over the past 30 years, Korzeniewicz concludes, is due to their changes in domestic marketing and overseas subcontracting. These changes were revolutionary at the time, yet now millions of companies are following Nike’s path. By manipulating the commodity chain of import, distribution, marketing, and advertising, Nike made huge profits and resulted in “uncommon success”. Today, Nike is working on their online resources. Such new developments such as personalized shoe design and online shopping are the next frontiers to be transformed in the pursuit of profit.