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Globalization and the Natural Environment


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Title: Globalization and the Natural Environment

Globalization and the Natural Environment
  • Trevor Hunter
  • Kings University College

Globalization and the Environment
  • One of the biggest ethical dilemmas companies
    face today
  • Different countries place different value on
    clean environments not always by choice however
  • Rich countries tend to value environmental
    protection more than poor ones they can afford

Globalization and the Environment
  • In the latter half of the 20th century, the
    perspective of environmental concerns has changed
    from local to global
  • Things are no longer someone elses problem

Globalization and the Environment
  • This perspective arises from three
  • Finiteness
  • Interdependence
  • Sustainable development

  • Can the earth as a whole (not just one country)
    continue to absorb the damage we inflict?
  • A notion of limits to the carrying capacity of
    the global ecosystem
  • Challenges the status quo of expansion equalling
    progress bigger is not always better

  • Global village, spaceship earth, shrinking world
    etc. the notion that we are dependent upon each
    other arises from economic connections and
    information dissemination
  • As we know more about others, we realize how
    connected we are and how we depend upon each other

Sustainable Development
  • Development which meets the needs of the present
    without compromising the ability of future
    generations to meet their own needs - World
    Commission on Environment and Development (WCED),

Sustainable Development
  • Development includes
  • Societal
  • Economic
  • Industrial
  • Differs from how developed countries developed

Sustainable Development
  • Tragedy of the commons (Garrett Hardin)
  • Grazing cattle in a common pasture
  • Individual incentive to overuse the pasture leads
    to collective overuse, leading eventually to the
    destruction of the pasture and an end of the
    resource for all

Sustainable Development
  • A developed world concept being applied to the
    developing world
  • North/West vs. South/East debate developed vs.
  • North/West emphasis on global environmental
    protection (now that they are developed)
  • South/East emphasis on right to develop just the
    way North/West did but, what if China used as
    much fossil fuels as US?

Globalization and the Environment
  • Ironically, environmental degradation was mainly
    caused by local problems, but affect the world,
    and may be stopped through globalization
  • However, due to their scope, local problems have
    become global problems

Impact of Human Systems
  • Increase in greenhouse gases
  • Carbon dioxide
  • Methane
  • Nitrous oxide
  • Ozone
  • CFCs
  • Water vapour
  • Causing
  • Acid rain
  • Depletion of the ozone layer
  • Depletion of critical resources e.g. energy, fish

Globalization and the Environment
  • Air pollution
  • Carbon Dioxide from US factories causes
  • Poor air quality days in Canada
  • Acid rain dying trees, dead lakes
  • Deforestation in Brazilian rainforest causes
  • Reduced oxygen production/carbon dioxide cleaning

Globalization and the Environment
  • Global warming
  • Greenhouse effect So-called greenhouse gases
    (carbon dioxide, methane, Chlorofluorocarbons,
    CFCs etc) block infrared radiation that normally
    escapes raising the global temperature
  • Melting ice caps and glaciers rising sea levels
  • Drying out of arable farmland

Globalization and the Environment
  • Ozone depletion
  • Protective layer in atmosphere that reflects
    harmful radiation (like UV rays) away from planet
  • Increase in skin cancer
  • Reduced immunity in food crops
  • Destruction of low-level food chain organisms

Globalization and the Environment
  • Land pollution
  • Garbage dumping and soil degradation
  • Where does it go Toronto shipping garbage to
  • Topsoil overuse and erosion means less arable
  • Increase in irrigation requirements

Globalization and the Environment
  • Water pollution/over use
  • Only 1.1 of all water is fresh, of this 92 is
    used for agriculture or industrial purposes
  • Once water is used for industry it is essentially
  • Disproportionate distribution of fresh water
    water wars?

Globalization and the Environment
  • Water pollution
  • Lake Karachai in Russia most polluted site in
    the world
  • Aral Sea 65 000 km2 in 1964, less than half of
    that now
  • Cuyahoga river fire - 1969

Aral Sea - 1987
Aral Sea - 1997
The Aral Sea
April 8, 2005
s/aral_sea_links.htm and http//www.redtailcanyon.
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Costs of Inaction
  • Stern Review concluded that, over next 50 years,
    if nothing done to stem climate change
  • Output per head could fall permanently by 20
    i.e. everyone in the world would be a fifth
    poorer than they would otherwise have been
  • Agricultural productivity will drop ? effects on
    farmers ? increases in cost and reductions in the
    supply to food processing industries

Costs of Inaction
  • Fishing catches will decline
  • Increased costs of damage from hurricanes,
    flooding and forest fires ? increases in the
    costs of insurance and more volatile financial
  • Major victims developing countries - in deaths
    and as a of GDP
  • Implications for business operating in developing

Costs of Action
  • 1 of GDP costs of stabilizing CO2 at
    500-550ppm by 2050
  • BUT costs could range from -2 to 5 of GDP

Environmental Sceptics
  • Lomborg argues that
  • Global warming is occurring but claims
  • Resources spent reducing greenhouse gases better
    used improving the health, welfare and economies
    of DCs (opportunity cost)
  • Future generations should not be denied fruits of
    economic growth
  • Other sceptics claim that
  • Global warming a natural phenomenon and not

Environmental Policies
  • Green taxes e.g. congestion charges
  • Controlling emissions e.g. using emissions
    trading schemes (ETS) as in the EU
  • Setting quantitative limits on emissions
  • Switching to low carbon technologies
  • Increasing energy efficiency
  • These policies more effective with greater
  • international cooperation

International Cooperation
  • Kyoto protocol
  • signed by 37 industrialised countries the EC
  • signatories legally committed to cut GHG
  • US not a signatory
  • protocol ran to 2012

Durban Climate Conference 2011
  • 194 participants agree to start talks on new
  • Aim a legally binding accord to cut GHGs
  • To take effect by 2020 at the latest
  • Poor countries to receive financial aid to help
    reduce emissions
  • US a signatory
  • Kyoto commitments re GHGs extended for 5 years
    for industrialised countries

Policy Implications for Business
  • Policies can impose costs on business through
  • Imposition of taxes
  • The need to buy emissions credits
  • Having to change production techniques
  • Causing firms to relocate production
  • But also provide opportunities
  • New markets for alternative technologies

Globalization and the Environment
  • Implications for global managers
  • While environmental protection is now a global
    phenomenon, different national standards exist
    will you take advantage of them?
  • Environmental protection costs increase the
    liability of foreignness
  • Ethics and reputation vs. short term

Globalization and the Environment
  • How will NGOs and regulations affect your
    international expansion?
  • Standards ISO 14001
  • Legitimacy expression
  • Pollution havens national comparative
  • Competitiveness drivers

Ethics in International Business
  • Trevor Hunter
  • Kings University College

Ethics vs. Laws and Institutions
  • Laws
  • Rules developed and enforced by governments and
    legal systems the regulate the behaviour and
    actions of actors within a given jurisdiction
  • Are relatively closed to interpretation
  • Often codified

Ethics vs. Laws and Institutions
  • Ethics
  • The study of moral judgements about the rightness
    of actions and rules of behaviour
  • Intended to contribute to mutually beneficial
    modes of conduct as an alternative to government
    prescription and enforcement.1
  • 1Source Baron, 2000

Ethics vs. Laws and Institutions
  • In other words, ethics is a system to which we
    can all subscribe to avoid the need for
    government intervention and force
  • Supposedly reflect universals that allow for
    interaction without regulation and anarchy

Problems with Acting Ethically
  • Ethical behaviour does not always make the firm
    better off
  • Refusing to make payments to government officials
    to facilitate business can result in lost
    opportunities or business failure
  • Paying workers uniform salaries around the world
    can make product prices uncompetitive

Problems with Acting Ethically
  • Ethical behaviour may not always be self-evident
    or rewarded
  • Being green in a country that does not expect
    environmental protection is costly and may not
    provide a good reputation
  • Paying more than standard wages (but still lower
    than Western rates) could still lead to boycotts
    or be seen as helping the locals

Problems with Acting Ethically
  • May conflict with the business profit objectives
    or managements self interest
  • Agency risk incentives, self-interest with
    guile, bounded rationality
  • Ethics sometimes cost money shareholders or
    customers may not be forgiving

Problems with Acting Unethically
  • Although ethics cost money, unethical behaviour
    can result in greater losses if and when it is
  • Reputation effects no customers
  • Bad apple spoiling the bunch leading to over
    regulation and industry suspicion (accounting,
    corporate governance)

Ethics in International Business
  • Ethics are culturally and socially based
  • Cultures and societies differ
  • Ethics differ between cultures and societies
  • Ethical differences further complicate
    international business

Ethics in International Business
  • Three major perspectives of ethics that are
  • Utilitarianism
  • Contractarianism
  • Pluralism

Ethics in International Business
  • Utilitarianism
  • Founded on ideal of maximizing net expectable
    utility for all parties affected.
  • In a situation, the costs and benefits are
    weighed so that the outcome is in the best
    interests of all
  • Global managers act ethically when everyone wins

Ethics in International Business
  • Utilitarianism - Problems
  • How do you assess welfare maximization? How can
    you measure the net contributions to social
  • Equal pay vs. equal prices globally who wins
    and who loses?

Ethics in International Business
  • Contractarianism
  • What is ethical is what is fair to everyone (note
    that fairness is not the same as interests)
  • Global managers act ethically when everyone is
    treated fairly and everyones rights are respected

Ethics in International Business
  • Contractarianism - Problems
  • Whose rights take precedence when crossing
    borders and interests disagree? Each has equal
    rights but different interests

Ethics in International Business
  • Pluralism
  • It is the individuals duty to act morally
  • Focuses on rightness or wrongness of actions,
    distinct from interests and rights
  • Global managers act ethically when they do the
    right thing, regardless of who has the right or
    wins moral integrity

Ethics in International Business
  • Pluralism - Problem
  • Moral integrity is difficult to define when what
    is right and wrong is perceived differently in
    different countries

Ethics in International Business
  • Corporations have to define their ethics systems
  • Ethical global managers combine contractarianism
    and pluralism to develop company ethics systems
    that guide behaviour

Ethics in International Business
  • Good ethics systems
  • Define company rights that transcend borders and
    extend them to all stakeholders that are narrow
    but consistent with company strategy
  • Embrace moral absolutes which are independent of
    country norms and are applied to everyone equally
    and therefore may be at times, higher than what
    are embraced in a given country

Ethics in Business
  • The firm develops ethical standards that are
    absolute by evaluating all the perspectives of
    stakeholders around the world to find the
    highest standard.
  • Members are then socialized to that standard
    (affects hiring and filtering mechanisms).
  • Standards are communicated and incentives are
    created to support desired ethical behaviours.

Ethics in International Business
Ethics in International Business
  • Integrity
  • Having and demonstrating a strong commitment to
    personal morals and company standards
  • Reflects the need for absolute standards
    (separate from the company) and relative
    standards (reflecting what the company does).

Ethics in International Business
  • Integrity is demonstrated at two levels
  • External interactions
  • Activities through which the company is
    represented to the outside world
  • Internal interactions
  • Activities involving groups or individuals within
    the company

External Interactions
  • Big challenge when there are large differences
    between the dominant behaviours in a situation
    and what the mangers judgement of what the
    behaviours should be.
  • So. . .managers must understand the ethics of the
    country in which they are operating and those of
    their company and how they differ

External Interactions
  • Cultural relativism You do what is appropriate
    in a given culture. If it is ok for members of a
    given society to do something, it is ok for you
    to do it.
  • Often used as an excuse but is it ethical?

External Interactions Cultural Relativism
External Interactions
  • If ethics are universal (i.e. go beyond values
    and norms which differ between cultures) then
    cultural relativism is not an ethical perspective
  • What to do?

External Interactions
  • Acting ethically raises the level of ethical
    performance of supporting industries ultimately
    improving the conditions of the country
  • Only dealing with ISO 14001 suppliers better
    environmental conservation
  • Only dealing with non-sweatshop produced goods
    higher disposable income for workers

Internal Interactions
  • Since these actions are internal to the firm,
    external stakeholders are less likely to know
    about unethical practices and firms face less
    scrutiny and pressure to act ethically
  • However, companies still should have ethical
    standards that govern internal interactions

Internal Interactions
  • Common ethical situations
  • Worker safety less is cheaper
  • Equity in hiring hire the cheapest
  • Equality of opportunity only some get promoted
  • Comparable compensation sweat shops and
    disproportionate pay
  • Freedom of expression why is it needed?

Ethical Decision-making
  • Ethical decision-making depends upon three
  • Good observations skills internally and
  • Asking tough questions
  • Understanding what standards are core to the
    company knowing what NOT to compromise

Ethical Decision-making
  • Determining what are core standards
  • Is it strategic can we survive without it?
  • Is the standard as high as possible?
  • Are people (animals, the environment) being put
    before the company?

Ethical Decision-making
Global Standards Local Standards
Core to competitiveness
Non-core to competitiveness
Morrison, 2001
Ethical Decision-making
  • For activities that are non-core to the success
    of the firm and do not go against the core
    standards use local standards, otherwise, use
    global standards.

Why Ethics Are Important to Business
  • When facing an ethical problem in a country,
    there are three basic choices
  • Avoid doing business in the country
  • Maintain standards and risk putting the firm at a
    competitive disadvantage
  • Change standards

Why Ethics Are Important to Business
  • From an ethics perspective only options 1 2 are
  • Option 3 is risky
  • Reputation effects
  • Stakeholder perceptions
  • Impression management problems
  • Boycotts etc. etc.

Why Ethics Are Important to Business
  • Short-term gains not worth the long term pain
  • Information travels fast and it is difficult to
  • Stakeholders have long memories so do the press
  • Public perception is important (avoid, change
    values, change perception, confront)

What do Businesses do?
  • They create, maximize and transfer wealth
  • They also
  • Create most of the worlds products, innovation,
    food, pharmaceuticals, etc. to allow people to
  • Provide most employment to allow people to live
  • Provide investment opportunity to spur innovation
    and economic growth
  • Provide the bulk of governmental revenue to fund
    social programs, educational institutions, to
    deal with societal problems
  • Theyre kind of important

Why do We Expect Businesses to act Ethically?
  • The answer
  • We are irrational hypocrites!

Why do Businesses Act Unethically?
  • They have no choice! Businesses are in a no-win
    situation. We expect them to do the impossible
  • Businesses are expected to hire a lot of people,
    at home, pay everyone a living wage, provide a
    broad selection of the highest quality goods for
    the lowest price, produced sustainably, fairly,
    locally and organically while providing a
    quarterly return on investment in the
    double-digits and support social causes!
  • Irrational!

Why do Businesses Act Unethically?
  • In the mean time we benefit from business
    activities and have the luxury of criticizing
    them because their operations (that we despise)
    allow us a lifestyle that is cushy enough to have
    no other cares than to worry about how bad
    businesses are.
  • Hypocrisy!