Business ethics in the age of globalization
Selected learning objectives
After reading this chapter, you will be able to:
• describe the phenomenon of globalization from different dimensions
• understand the challenges that globalization poses for virtue ethics.
1.1 The phenomenon of globalization
1.1.1 Definition and development
There are many definitions of the term “globalization.” Some definitions focus on the economic perspective and, accordingly, understand globalization as the spread of Western market models across the globe (see e.g. Currie and Newson, 1998). Other definitions include not only economic but also political, technical, and cultural phenomena (Giddens, 1999, p. 10). Definitions of globalization often already contain normative criticism: Chomsky (2006), for example, considers globalization to be a doctrine for the promotion of neoliberalism. And Wallerstein (2000, p. 252) defines globalization as a scam perpetrated against everyone by powerful groups.
Matthias Fifka (2013) identifies four different dimensions of globalization that are mutually dependent:
1. Denationalization: The borders of nation states are becoming more permeable to goods and travel and financial transactions.
2. Deterritorialization: Culture (e.g. food, music, fashion) is less tied to geographical areas or nation states.
3. Reduction of spatial and temporal distances: New technical developments (Internet, mobile telephony, highspeed trains, air traffic) minimize spatial and temporal distances.
4. Interconnectedness: People interact across borders and are in increasingly intensive exchange.
On the basis of these four dimensions, Fifka understands globalization as the reasons, developments, and consequences of intensified economic, political, cultural, ecological, and technological relations across borders (Fifka, 2013).
The beginnings of globalization can already be identified, for example, in the colonial trade of the British East India Company (beginning in the seventeenth century). In the wake of the Industrial Revolution in the West, this trade intensified due to the high demand for raw materials and labor. On the eve of the First World War in 1914, the world economy was in many respects more closely intertwined than ever. This was undone, however, by the ruptures brought about by the two world wars.
After 1945, organizations like the United Nations (UN) created a framework for reviving international exchange. However, the start of modern globalization is not located until the end of the 1980s, after the end of the Cold War. With the end of bloc policy in the East and West, new markets emerged. The World Trade Organization (WTO) was founded in 1995 and began its work in Geneva one year later. In addition, new forms of mobility and communication have developed which will further boost globalization such as the Internet and social networks.
The following figures show the increasingly rapid development toward global interconnectedness: Trade accounted for 27.3 percent of the world GDP in 1970, rising to 59.4 percent in 2018 (World Bank, 2019b). Global freight traffic increased 29fold between 1950 and 2007 (Fifka, 2013). Between 1980 and 2018, the volume of global exports of goods and services rose from USD 2.4 trillion to USD 25 trillion (UNCTAD, 2019, p. 86). It is estimated that the number of multinationals rose from 9,000 at the beginning of the 1990s to 65,000 at the turn of the millennium (Fifka, 2013).
In the gastronomy sector, chains spread across the globe: In 2019, sandwichmaker Subway was the largest company with 42,998 restaurants in 112 countries, followed by former frontrunner McDonald’s with 36,900 restaurants in 119 countries and the Starbucks chain of cafes, ranked third, with 30,000 stores in 68 countries (Chepkemoi, 2019). As far as the international crosslinking of large companies is concerned, an estimated onethird of international trade is intracompany trade.
This development not only affects the Western world: Since the mid1990s, the number of countries classified as “lowincome countries” (i.e. countries with a GNI per capita of less than $1,025 as of July 1, 2019) by the World Bank (2019a) nearly halved, declining from 66 in 1995 to 31 in 2019. During the same period, the number of highincome countries rose from less than 50 to 80. Population shares have also shifted dramatically: While 6 in 10 people of the world’s population lived in lowincome countries in the 1990s, this number decreased to just about 1 in 10 today. The greatest growth has been in the middle group, with 75 percent of the world population currently living in the 107 lower and uppermiddle income countries (World Bank, 2019a). The number of people who live on less than USD 1.90 a day (2011 PPP) and are therefore defined as living in extreme poverty has fallen from 1.94 billion in 1981 to 736 million in 2015 (World Bank, 2018, p. 2). In 2015, the proportion of the world’s population living in extreme poverty fell below 10 percent for the first time (World Bank, 2018, p. 2).
Globalization can also be quantified on the regulatory level: The worldwide average rate of customs duties dropped from 45 percent after the Second World War to 4 percent in 2010. In 2013, the number of international agreements was around 25,000, which are intended to regulate both environmental and safety issues in trade. Regarding mobility, the number of passenger kilometers in air transport increased 100fold between 1950 and 2008. In 2000, the number of Internet users worldwide was over 400 million, the one billion barrier was crossed in 2005 and by the end of 2019, over 4 billion people used the Internet (see Figure 1.1).
Globalization is also reflected in the use of fossil fuels: From 1965 to 2014, CO2 emissions rose from 11 to 36 gigatons (World Bank, 2016). During the same period, consumption of crude oil increased from 31 million barrels per day to 93 million barrels per day (BP, 2019). In 2019, the daily demand of crude oil exceeded the 100millionbarrel mark (International Energy Agency, 2020).
The numbers show that globalization is having positive effects on economic development. Nonetheless, there are numerous critics.
Figure 1.1 Number of Internet users worldwide
Source: https://www.statista.com/statistics/273018/number-of-internet-users-worldwide/
1.1.2 Critics of globalization
Despite the positive developments just described, the public debate on globalization is dominated by critical voices. This applies in particular to the presentation of globalizationrelated topics in the daily press. In this section, we would like to give two critics an opportunity to lay out their arguments and then analyze them.
Canadian economics professor Michel Chossudovsky has published several books on the subject of globalization criticism and stands out as a leading voice. In his book published in 1997 The Globalisation of Poverty: Impacts of IMF and World Bank Reforms, he presents theories about the negative effects of globalization, which are summarized here: On the one hand, Chossudovsky’s criticism is directed against the International Monetary Fund (IMF) and World Bank and their structural adjustment programs in developing countries. As he sees it, new loans negotiated in rescheduling proceedings, which are intended for macroeconomic stabilization, actually led to the impoverishment of hundreds of millions of people. These programs were not aimed at economic reconstruction and stable exchange rates, but, on the contrary, were responsible for destabilizing national currencies and ruining the economy as a whole. According to Chossudovsky, something similar happened after the end of the Cold War in the former Eastern Bloc countries: Here, too, the macroeconomic restructuring is supposed to have only served the geopolitical interests of the West. Overall, the economic policies of the international financial organizations increasingly deprived developing countries of the opportunity to build up their own economies. On the contrary, these countries increasingly became reservoirs of natural
resources and cheap labor. This led to the further contraction of commodity prices and thus to growing poverty.
In addition to the IMF and the World Bank, Chossudovsky is also very skeptical of the WTO: On the one hand, the policies of the WTO violate international law and legitimize almost criminal trade practices, such as the robbery of intellectual property by multinational companies. For example, the patentability of organisms would weaken the rights of plant breeders in favor of Western biotechnology companies. In addition, Chossudovsky sees the WTO agreements as being contrary to the 1948 Universal Declaration of Human Rights.
Chossudovsky argues that the credit policy of international institutions effectively makes developing countries insolvent. The loans are always linked to political provisos such as liberalization, exacerbating the balance of payments crisis. Projectrelated loans are rarely granted, thus preventing capital formation wherever the interests of the export industry are not directly impacted. Loans, conversely, are granted on a large scale for worldmarket imports benefiting industrialized nations. This has the effect of crowding out a wide range of domestic goods. According to Chossudovsky, developing countries are left only with exports to the industrial nations, which leads to fierce competition and, as a consequence, low prices and wage dumping.
Chossudovsky finds examples in the food crisis in Somalia in the 1980s, which had been made worse by the policies of the IMF and the World Bank. The economic reforms that the nomadic peasants were unable to cope with destroyed agricultural production, which led to a dependency on grain imports, which, in turn, prevented selfsufficiency. Chossudovsky contends that the “subsidized beef and dairy products imported (duty free) from the European Union have led to the demise of Africa’s pastoral economy” (Chossudovsky, 2003, p. 99).
The Frenchman Thomas Piketty is another prominent economist who takes a critical view of globalization. While Piketty regards globalization as a benefit, he finds that the profit of global trade is not fairly distributed among the various actors. His book Capital in the Twenty-First Century published in 2014 addresses the critique of inequality. Piketty sees regulatory shortcomings as the main problem behind the unequal distribution of globalization’s gains. Yet, institutions such as the IMF or the World Bank are not in a position to solve these problems. He also argues that the European Union has failed in its task of mitigating inequality (Piketty, 2014). Overall, Piketty advocates closer political and economic cooperation to effectively combat problems such as tax evasion.
In this context, Piketty also recognizes free trade agreements such as the Transatlantic Trade and Investment Partnership (TTIP, see also practice box 1.1: The TTIP Dispute) and Comprehensive Economic and Trade Agreement (CETA) as an opportunity: If free trade were complemented by fiscalpolitical cooperation between countries, which, for instance, could lead to a joint corporate tax, it would be an effective way of combating abuses. At present, Piketty points out, multinational companies in both the United States and Europe pay less tax than mediumsized companies. Piketty sees tax competition between countries that want to attract multinational companies into the country with the lowest possible corporate taxes as a central problem that can only be solved through political cooperation. Overall, Piketty argues for a fundamental reorientation of globalization (Piketty, 2016). Only in this way can the greatest challenges of our time— inequality and global warming—be effectively combated. The instruments for this are international agreements, but they should no longer be geared exclusively toward trade liberalization. Rather, these agreements must ensure that global development is oriented in terms of the goals of fairness and sustainability. Specifically, this means that the reduction of trade tariffs must be combined with conditions to effectively tackle tax dumping and the exploitation of natural resources (Piketty, 2016).
Practice box 1.1 The TTIP Dispute—The fear of being flooded with “inedible food”
In the wrangling over the Transatlantic Trade and Investment Partnership (TTIP), the issue of food safety has dominated the reporting in the European and especially German press. As EU consumer protection, environmental and health standards are in most cases stricter than the corresponding US rules, many Europeans feared that harmonizing the regulations in the wake of TTIP implementation would drastically weaken current EU standards. This fear of a “race to the bottom” (Neslen, 2016) became particularly apparent through warnings of being forced to eat allegedly “inedible food,” once TTIP opened the EU “floodgates” to American food products (Chan and Crawford, 2017). Europeans’ fears of free trade with the United States crystallized in response to debates on “turbo pigs” (pigs treated with growth hormones), “chlorinated chicken” (poultry cleaned with chlorinated water to kill bacteria), and “gene food” (genetically modified food) (Hagelüken, 2014).
“Turbo-pigs”—feed additives and growth-promoting
hormones
In the United States, the treatment of livestock with growth-promoting hormones and non-hormonal feed additives (e.g. ractopamine) to accelerate weight gain is a standard practice and the largest part of cattle and pigs produced in US feedlots is treated with either one (Diamand and Schimpf, 2016; Peter, 2015). Currently, this practice largely prevents the import of US beef and pork to EU member states: Most hormones used for cattle treatment have been banned in the EU for decades; ractopamine is prohibited in a total of 160 states, including the EU member states, due to potentially negative effects on the human heart and circulatory system (Diamand and Schimpf, 2016). In their last evaluation in 2009, the European Food Safety Authority (EFSA) concluded that no residue level of ractopamine was low enough to protect even the most vulnerable groups (EFSA, 2009). As a result, the sale of ractopamine-treated meat remains prohibited in the EU. Nonetheless, US lobby groups are calling for the ban on ractopamine to be lifted (National Pork Producers Council, 2016; Peter, 2015).
Pathogen reduction treatments
In meat, germs (especially Salmonella bacteria or Campylobacter) multiply very rapidly after slaughter. To prevent these germs from spreading, after being gutted, meat is subjected to so-called pathogen reduction treatments (PRT), i.e. meatwashing processes to kill bacteria. While the United States authorizes various processes for PRTs, the EU only allows washing with hot water or lactic acid. During TTIP debates, one such treatment in particular gained notoriety: The chemical washing of poultry in water baths containing antimicrobials (chlorine dioxide, acid sodium chlorite, trisodium phosphate, and peroxyacids) (EFSA, 2008) resulting in what the European press called “chlorinated chicken.” In the United States, meat handled in this way is labeled; in the EU the use of chlorine after slaughter and the import of chlorinated meat has been banned since 1997. In principle, after a thorough scientific evaluation (EFSA, 2008), the use of antimicrobials can be considered harmless and permissible. Yet, European consumer advocates still view the issue critically: They fear that the introduction of “chlorinated chickens” will gradually undermine hygienic standards in factory farming. By allowing chlorination after slaughter, standards of hygiene in breeding and husbandry could decline.
“Gene food”—genetically modified organisms (GMOs)
In the United States, genetically modified foods are already commonplace: almost the entire soybean harvest comes from genetically modified crops and more than
Practice box 1.1 Continued
two-thirds of the processed foods sold in US supermarkets contain genetically modified ingredients.
In contrast, there is strong opposition in the EU to the authorization of GMOs. Many Europeans fear that artificially engineered food or crops could harm human health or the finely balanced ecosystems in ways not known today. Since the EU Commission authorized the member states to block the cultivation and sale of GMOs for reasons beyond public health or environmental concerns, virtually no genetically modified crops, food, or animal feed may be sold in the EU. Currently only one GM plant, MON810 maize, is allowed to be cultivated in the EU. All products containing genetically modified ingredients must also be labeled accordingly. In the United States, however, there is no such obligation (Hagelüken, 2014; Peter, 2015).
Do the Americans also have their doubts?
While strong resistance had emerged among the European population and especially among consumer protection and environmental organizations, few critical voices against TTIP were heard from the United States. This may be due to the fact that the majority of the US-American population had little contact with the content of the negotiations. In a survey, for example, 46 percent of Americans surveyed said they knew too little about TTIP to be able to judge whether the agreement would be good or bad for the United States (compared to 30 percent of the Germans surveyed) (Bluth, 2016, p. 15). Nevertheless, there were also fears on the US side that TTIP would dilute their own quality and safety standards in the food sector or create new trade barriers for US food producers.
One reason for the US food industry to reject TTIP is, for instance, the EU insisting on protecting so-called “geographical indicators” (GIs) for food products. GIs identify an agricultural product that may only be produced in the traditionally associated region of origin. For instance, only sparkling wine produced in the French region of Champagne may be sold under the name “Champagne” in the EU and “Scotch beef” must not come from cattle bred outside of Scotland (Diamand and Schimpf, 2016; Serfati, 2015).
Yet, the United States does not legally recognize GIs and consequentially, American agro-food companies have been producing “feta,” “parmesan,” or “gorgonzola” for generations. During TTIP negotiations, the EU demand of a ban on sales of US manufactured products under these protected labels clashed with the US standpoint that these names designate “generic products” and thus the EU was only proposing new trade barriers for US food companies (Behsudi, 2015; Diamand and Schimpf, 2016; Serfati, 2015).
Concerning food safety, the regulations for milk products for human consumption have been much stricter in the United States than in the EU since the 1980s and were last tightened in 2014. In particular, products made from unpasteurized milk are considered to be hazardous to health and therefore may not be sold. For this reason, most French raw milk cheeses, such as Camembert, Roquefort, or Brie, are banned from import to the United States (Bonem, 2017; Bushak, 2014; US Food & Drug Administration (FDA), 1987).
Sources:
Behsudi, Adam (2015). U.S. to Europe: Don’t Move My Cheese. Politico, updated July 21, 2015. Last accessed July 4, 2020 at: https://www.politico.com/story/2015/07/us-to-europe-dont-move-mycheese-120387
Bluth, Christian (2016). Attitudes to Global Trade and TTIP in Germany and the United States. GED Study. Edited by Bertelsmann Stiftung, Gütersloh. Last accessed July 4, 2020 at: https://www. bertelsmann-stiftung.de/fileadmin/files/BSt/Publikationen/GrauePublikationen/NW_Attitudes_ global_trade_and_TTIP.pdf
Bonem, Max (2017). Why Americans Don’t Get to Eat Delicious Raw Milk Cheese, updated May 24, 2017. Last accessed July 4, 2020 at: https://www.foodandwine.com/lifestyle/why-americansdont-get-eat-delicious-raw-milk-cheese
Bushak, Lecia (2014). FDA Bans Roquefort, Other French Cheeses Due To Bacteria Levels; Though They’re Virtually Harmless. Consumer News, updated September 6, 2014. Last accessed July 4, 2020 at: https://www.medicaldaily.com/fda-bans-roquefort-other-french-cheeses-due-bacterialevels-though-theyre-virtually-301638
Chan, Alexsia T. and Crawford, Beverly K. (2017). The Puzzle of Public Opposition to TTIP in Germany. Business and Politics, 19(4), 683–708.
Diamand, Emily and Schimpf, Mute (2016). Schlechter Deal für EU—Bäuerinnen und Bauern. Gefahren für die Europäische Landwirtschafts durch TTIP. Edited by Bund für Umwelt und Naturschutz Deutschland e.V.—Friends of the Earth Germany (BUND), Friends of the Earth Europe, Berlin. Last accessed July 4, 2020 at: https://web.archive.org/web/20160713105629/http:/www. bund.net/fileadmin/bundnet/pdfs/umweltschutz_international/160711_bund_ttip_studie_ agrar.pdf
European Food Safety Authority (EFSA) (2008). EFSA Opinion on Four Substances Used to Decontaminate Poultry Carcasses: Assessment of Effects on Bacterial Tolerance and Antimicrobial Resistance. Last accessed July 4, 2020 at: https://www.efsa.europa.eu/en/press/news/080402
European Food Safety Authority (EFSA) (2009). Scientific Opinion: Safety Evaluation of Ractopamine. Scientific Opinion of the Panel on Additives and Products or Substances used in Animal Feed 1049, pp. 1–52. Last accessed July 4, 2020 at: https://ec.europa.eu/food/sites/food/ files/safety/docs/codex_ccrdvf_18_agenda_item2-efsa_en.pdf
Hagelüken, Alexander (2014). Geplantes EU-Freihandelsabkommen mit den USA. Tempolimit für Turboschweine. Süddeutsche Zeitung, 29 April, 2014. Last accessed July 4, 2020 at: https://www. sueddeutsche.de/wirtschaft/geplantes- eu- freihandelsabkommen- mit- den- usa- tempolimitfuer-turboschweine-1.1945592-0
National Pork Producers Council (2016). Comments on the “Transatlantic Trade and Investment Partnership.” Last accessed July 4, 2020 at: https://nppc.org/wp-content/uploads/2016/03/ Trans-Atlantic-Trade-Negotiations-Comments-to-USTR-on-TTIP-Negotiations.pdf
Practice box 1.1 Continued
Neslen, Arthur (2016). Leaked TTIP Documents Cast Doubt on EU–US Trade Deal, updated May 1, 2016. Last accessed July 4, 2020 at: https://www.theguardian.com/business/2016/may/01/ leaked-ttip-documents-cast-doubt-on-eu-us-trade-deal
Peter, Laurence (2015). TTIP Talks: Food Fights Block EU–US Trade Deal. BBC News, updated June 10, 2015. Last accessed July 4, 2020 at: https://www.bbc.com/news/world-europe-33055665
Serfati, Claude (2015). The Transatlantic Trade and Investment Partnership (TTIP): A Controversial Agreement and Dangerous for Workers. European Trade Union Institute (ETUI), Brussels (ETUI Working Paper 2015.07).
US Food & Drug Administration (FDA) (1987). 21CFR1240.61 “Mandatory Pasteurization for all Milk and Milk Products in Final Package Form Intended for Direct Human Consumption,” revised April 1, 2019. Last accessed July 4, 2020 at: https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfcfr/ CFRSearch.cfm?fr= 1240.61&SearchTerm=pasteurization
1.2 The implications of globalization for business ethics
1.2.1 Value pluralism and its challenge for virtue ethics
Marshall McLuhan coined the term “global village” as a result of technological interconnectedness. He assumed that cultural differences would inevitably lead to miscommunications: “The global village absolutely ensures maximal disagreement in all points. It never occurred to me that uniformity and tranquility were the properties of the global” (McLuhan cited in Stearn, 1968, p. 272). Geert Hofstede (1991) has emphasized the need for culturesensitive communication and his research remains highly influential as it has been cited more than 10,000 times each year since 2012 (Google Scholar 2020). He considers cultural value differences along six dimensions measured in the form of indices. For instance, Hofstede’s Power distance index captures the extent to which the less powerful members of society accept that power is distributed unequally. The scale reaches from 120 to 1. Higher degrees on this scale imply that the people accept hierarchies without questioning them, while lower degrees on the scale imply that people question authority and strive to distribute power equally. Malaysia (104), Guatemala and Panama (both 95) reach the highest values, whereas Denmark (18), Israel (13), and Austria (11) reach the lowest values (Clearly Cultural, 2009).
The substantial disagreement in ethical values across the globe has recently been impressively documented by a worldwide survey experiment on ethical
dilemmas that arise from autonomous vehicles in cases of unavoidable accidents: the socalled Moral Machine experiment (Awad et al., 2018). The authors of the study find substantial crosscultural ethical variations and uncover three major clusters of countries. They also show that these differences correlate with modern institutions and deep cultural traits. The distinction between individualistic and collectivistic cultures, another dimension used by Hofstede, reveals substantial differences in ethical values. Subjects from individualistic cultures, which put on emphasis on the distinctive value of each individual, tend to have a stronger preference for saving larger numbers of people in such ethical dilemmas. Subjects from collectivistic cultures, which emphasize respect for older community members, show a weaker preference for saving young over older people. The mean zscores in Figure 1.2 indicate different preferences for certain attributes. For instance, higher mean zscores for the attribute of “sparing higher status” express a preference for saving people with higher status over those with lower status in an unavoidable accident where not everyone can be saved. Higher zscores for “sparing females” imply that people tend to prefer that women are saved over men. The figure reveals striking differences in ethical values. The Western cluster clearly has a strong preference for inaction, i.e. a preference to not intervene in the course of events. The Eastern cluster strongly prefers to spare the more vulnerable pedestrians over car occupants and to save the lawful at the expense of traffic rule violators. The Southern cluster strongly prefers to save higher status people and females. The substantial differences suggest that the respective countries would choose rather different laws to regulate autonomous cars in their jurisdictions.
The diversity of moral values exhibited around the globe poses substantial challenges for transnational actors like multinational companies. It is an enormous challenge to find some plausible common ground for a
Source: Awad et al. (2018, p. 62)
ethics in the age of globalization
meaningful ethical dialog if a common denominator in terms of values does not exist. Joshua Greene (2014) has placed an emphasis on the ambiguous role of moral practices in a globalized world. While morals can serve as a social glue within certain cultural groups, they may induce substantial conflicts between groups that disagree about essential moral questions. The cultural borders need not necessarily be determined by the borders of geographical regions but can also run within countries. Catholics and nonCatholics, for instance, within the United States hold very different views on gay marriage and birth control. Greene notes that it is not surprising that cultural moral differences are strongest when sex and death at the margins of life are affected, because these are “the gas pedals and brakes of tribal growth” (Greene, 2014, p. 11). Appealing to virtues might be effective in culturally coherent groups but it is increasingly difficult in a secular and globalized world where people have diverging ideas of what defines a virtuous person. According to order ethics, the fundamental problem of a plurality of moral values in modern societies requires a normative criterion that relies on consensus seeking. The key idea of order ethics is to look out for strategies on the level of rules that enable winwin solutions for all affected parties.
1.2.2 Globalization from the point of view of order ethics
Order ethics understands the underlying problem of globalization as follows: In the course of opening new markets far beyond the borders of national jurisdictions, extralegal spaces are created. The activities of global players, who have different locations around the world and trade in many countries, simply cannot be contained in a single legal area, especially since laws and regulations vary greatly from country to country. Further regulatory gaps exist in states where there are major deficits in the rule of law and where applicable law therefore also does not apply. Such states, however, are also involved in international trade, which further aggravates the situation. These major differences affect not only areas such as commercial law and tax policy, but also fundamental issues such as occupational safety, environmental regulations, or equality, where standards in the different countries often vary considerably.
These emerging legal loopholes give rise to numerous problems. To name just a few, it can give rise to tax avoidance by internationally operating companies, standards that are difficult to verify in the widely ramified supply chains, or wage levels perceived as “wage dumping” in countries with weak rule of law. The search for solutions to the aforementioned problems raises
