International financial and trade institutions

1
(No Transcript)
2
International financial and trade institutions

• The World Bank
• Provides economic development loans to its member
  nations.
• Funds used mainly for roads, dams, power plants,
  pipelines, and other infrastructure projects.
• International Monetary Fund
• Purpose is to make currency exchange easier for
  member countries so that they can participate in
  global trade.
• Lends foreign exchange to member countries.
• World Trade Organization
• An international body that established the ground
  rules for trade among nations.
• Its major objective is to promote free trade.

3
Benefits and costs of globalization
Figure 7.3

• Benefits of globalization
• Increases economic productivity.
• Reduces prices for consumers.
• Gives developing countries access to foreign
  investment funds to support economic development.
• Transfers technology.
• Spreads democracy and freedom, and reduces
  military conflict.

• Costs of globalization
• Causes job insecurity.
• Weakens environmental and labor standards.
• Prevents individual nations from adopting
  policies promoting environmental or social
  objectives if these discriminate against products
  from another country.
• Undermines cultural, linguistic, and religious
  diversity.
• Is just as compatible with despotism as it is
  with freedom.

4
Finding Lessons of Outsourcing in Four
Historical Tales

• Losing skilled jobs to low-wage foreign
  competition is as old as Industrial Revolution
• Trade and technology can boost living standards
  for many, by creating lower-priced goods
• But same forces can destroy skilled jobs
• Competition from foreign labor hurt huge classes
  of American workers in 19th century, but
  eventually helped ease wage disparities between
  nations
• History shows that politics can arrest seemingly
  unstoppable technological progress
• With what consequence???

5
Finding Lessons of Outsourcing in Four
Historical Tales

• One lesson (or implication)
• It takes away jobs from Americans and gives them
  to people who will work for less
• Questions for your consideration
• Do you as a consumer maximize your utility by
  choosing lower-priced good of equal quality,
  regardless of where that good is made?
• Does firm maximize profits by employing
  lowest-cost resources of sufficient quality?
• Does firm have ethical obligation to employ
  higher-cost domestic resources, even if result is
  lowered profitability?

6
Finding Lessons of Outsourcing in Four
Historical Tales

• Lessons
• Even high-skilled, good-paying jobs are
  vulnerable
• Trade liberalization often works w/ technology to
  undermine powerful interests

7
Finding Lessons of Outsourcing in Four
Historical Tales

• Lessons
• Domestic workers are always vulnerable to
  competition from foreigners willing to work for
  less
• Between 1870 and 1910, 60m Europeans, mostly
  young males w/ few jobs skills, emigrated
• Boosted U.S. labor force by 24
• Sent industrial wages tumbling
• Wages declined 1-1.5 for every 1 increase in
  immigration during 1890s and early 1900s
• Wages dropped even more steeply in fields
  dominated by immigrants
• U.S. labor unions turned against immigration in
  1890s
• In 1870, wages were 136 higher in U.S. than in
  Europe, by 1913 gap closed by half
• By 1921, when U.S. limited immigration, flow of
  immigrants was easing due to increase in European
  wages

8
Finding Lessons of Outsourcing in Four
Historical Tales

• Lessons
• Politics can slow down transforming effects of
  new technology
• Transportation revolution of late 19th century
  every bit as life-changing as advent of Internet
  and high-speed data communication today
• Cost of shipping wheat between New York and
  Liverpool fell by half between 1830 and 1880, by
  half again between 1880 and 1914
• Industries and workers hurt by imports assembled
  coalitions that persuaded politicians to erect
  high tariffs
• U.S. remained high tariff country for much of
  early 20th century
• In Germany, political reaction was more radical
• Result militarism and economic isolation mounted

9
Finding Lessons of Outsourcing in Four
Historical Tales

• Implications
• Labor rates in India one-third those in U.S.
• Cost advantages likely to last for decades
• History of immigrations suggests that if
  outsourcing spreads, wages of U.S. workers who
  compete with Indians and Chinese will suffer
• Salaries of U.S. computer programmers flat
  between 2000 and 2002, after inflation
• Number of U.S. programming jobs declined 14
• See BW cover story, Software WSJ article,
  Lessons in India Not Every Job Translates
  Overseas

10
Behind Outsourcing Debate Surprisingly Few Hard
Numbers

• Economists influenced by theories of David
  Ricardo, 19th century economist who laid out
  principles of free trade
• Ricardo believed countries should specialize
  where they have comparative advantage
• When countries lower trade barriers, everyone
  benefits because able to buy and produce goods
  more cheaply
• In political terms, easy to see why outsourcing
  debate is dominated by critics of practice
• Cost to individuals who lose jobs is obvious,
  while benefits of outsourcing (lower prices for
  goods and services and increased exports) less
  tangible (and accrue to society as whole or other
  individuals)
• In 1980s and 90s, two-thirds of workers who lost
  jobs in manufacturing industries facing overseas
  competition earned less on next job
• One-quarter of workers who lost jobs saw income
  fall 30 or more when re-employed
• Need for Pareto optimization analysis
• Source Wall Street Journal, 4/12/04

11
The Future of Jobs New Ones Arise, Wage Gap
Widens

• Will there be good jobs left for next generation?
• The good news U.S. almost certainly isnt going
  to run out of jobs, even though history shows
  its impossible to predict what new jobs will
  replace those that are destroyed
• For example, in 1988 travel agents projected to
  be among fastest-growing occupations, but instead
  number fell due to online booking
• In 1988 electronics assemblers projected to
  decrease, but grew as outsourcing and robotics
  had less effect than expected

12
The Future of Jobs New Ones Arise, Wage Gap
Widens

• The bad news Outsourcing overseas and technology
  could widen gap between wages of well-paying
  knowledge work and poorly paid manual work
• Jobs that can be reduced to series of rules
  likely to go either to computers or workers
  offshore
• Jobs that stay or are newly created likely to
  demand the more complex skill of recognizing
  patterns or will involve human contact
• Tax preparation example distinction between
  routine and complex returns
• USI 2004 grads w/ A.S. in Nursing, mean salary of
  37,200 Radiologic Technology, 34,400 Dental
  Hygiene, 56,500 (cf. BUAD(Mngt area), 27,300)
• Community colleges excel at responding to
  shifting vocational demands in labor market

13
The Future of Jobs New Ones Arise, Wage Gap
Widens

• Forces of economic change favor workers w/
  education and skills
• Unemployment among college grads 3, high school
  grads 5.5, high school dropouts 8.5
• In 1980s and 90s, demand for educated workers
  grew more quickly than supply, leading to
  increased pay
• Wages of men over age 25 w/ four-year degree now
  41 higher than similar men w/ HS degree,
  compared to 21 higher 25 years ago
• For women, 46 today compared to 25
• Notion of career ladder becoming rock climbing

14
The Future of Jobs New Ones Arise, Wage Gap
Widens

• MIT economist refers to two kinds of lies
  politicians tell about outsourcing
• First, we can turn it all back
• No, because even if trade cut off, technology can
  do same thing to workers
• Second, education is all that matters
• May be true, but only in long run
• Wo/ better elementary and high schools, wider
  access to college and more training of mature
  workers, wage gap is certain to grow
• Source Wall Street Journal, 4/2/04

15
Global codes of corporate conduct

• The United Nations Global Compact
• A values-based platform designed to promote
  institutional learning.
• Corporations are invited to voluntarily endorse
  core principles covering labor, human rights, and
  environmental standards.
• The OECD Guidelines for Multinational Enterprises
• Code of conduct for corporations developed by
  member nations of the OECD.
• The guidelines are voluntary, address employment
  relations, information disclosure, environmental
  stewardship, consumer interests, and the
  management of technology.

16
Global codes of corporate conduct

• The Global Sullivan Principles
• The objectives are to support economic, social,
  and political justice by companies where they do
  business.
• Calls on companies to support human rights and to
  encourage equal opportunity at all levels of
  employment.
• The Caux Principles
• Emphasizes working for the common good and
  respect for human rights.

17
Distinctive attributes of the three major
sectors Business
Figure 7.4a
Organizational form For-profit
Goods produced Private
Primary control agent Owners
Primary power form Money
Primary goals Wealth creation
Assessment frame Profitability
Resources Capital assets, technical knowledge, production skills
Weaknesses Short-term focus, lack of concern for external impacts
Source Adapted from Steven Waddell, Core
Competences A Key Force in Business-Government-Ci
vil Society Collaborations, Journal of Corporate
Citizenship, Autumn 2002, pp. 43-56, Tables 1 and
2.
18
Figure 7.4b
Distinctive attributes of the three major
sectors Government
Organizational form Governmental
Goods produced Public
Primary control agent Voters/rulers
Primary power form Laws, police, fines
Primary goals Societal order
Assessment frame Legality
Resources Tax revenue, policy knowledge, regulatory and enforcement power
Weaknesses Bureaucratic, slow-moving, poorly coordinated internally
Source Adapted from Steven Waddell, Core
Competences A Key Force in Business-Government-Ci
vil Society Collaborations, Journal of Corporate
Citizenship, Autumn 2002, pp. 43-56, Tables 1 and
2.
19
Figure 7.4c
Distinctive attributes of the three major
sectors Civil Society
Organizational form Nonprofit
Goods produced Group
Primary control agent Communities
Primary power form Traditions, values
Primary goals Expression of values
Assessment frame Justice
Resources Community knowledge, inspirational leadership
Weaknesses Amateurish, lack of financial resources, parochial perspective
Source Adapted from Steven Waddell, Core
Competences A Key Force in Business-Government-Ci
vil Society Collaborations, Journal of Corporate
Citizenship, Autumn 2002, pp. 43-56, Tables 1 and
2.
20
Globalization

• Overemphasized benefits of free movement of
  capital, underemphasized risks
• Countries that do best dont simply open markets
  and wait for trade to work its magic they use
  trade as part of strategy that includes building
  sound political and legal institutions
• Growing evidence that free trade increases income
  disparities within countries
• NGOs accountable to no one but themselves
• Source Fortune, 11/26/01

21
The American Way

• In business world, globalization has meant
  Americanization
• Foreign companies adopting American business
  practices, esp. following fall of Berlin Wall and
  Japanese economy, U.S.-led tech boom
• English is increasingly the language of global
  business
• International accounting standards dovetailing
  with those set by FASB
• 80 of faculty at Insead got degrees from U.S.
  business schools
• In past decade, proportion of foreign graduates
  of Harvard and Wharton has doubled, to one-third
  of class
• But, ongoing resistance to some American values
  and practices
• For American business values to continue to
  thrive, they will have to take into account
  stakeholders beyond shareholders
• Source Fortune, 11/26/01