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The Third world and

Business ethics Ethics in third world

Main stakeholders in the third world

Corporations: (TNCs)

State: International trade, development Organisations;

Civic organisations-

Case Study : Free trade v fair trade,

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Ethics in the Third World Poverty in Third World - moral questions re

inequality

1990s, 54 countries became poorer than theywere in 1990, with life expectancy falling to 34

(UN Development Programme, 2003 )

In Africa approx half population live in extreme

poverty , one-sixth children die before age of 5,

5mill before 5th birthday from malnutrition &

preventable threats to health (UNICEF, 2003).

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Ethics of third world absolute poor severely deprived human beings

struggling to survive in a set of squalid /degraded

circumstances .. Beyond the power of our

imaginations and privileged circumstances to

conceiveMcNamara (former US govt. Defence

Secretary)

Consider the policies and activities of the three mainstakeholders in third world

Market - Corporation

StateInternational Development & trade agencies

Civil societyNGOs, labour, community orgs..

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1. Corporations in third world Globalisation chain of reasoning

economic globalisation , free trade, deregulated

markets, neo-liberal ideologyMulti-nationalscentral to this

large corporate enterprises spread across no.

of nations, via subsidiaries & holding cos

term interchangeable with MNCs, MNEs

Developed in first world, trade domestically

& overseas .

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Transnational Corporation (TNCs) Largest TNCs, Exxon, Ford, Royal Dutch

Shell, Microsoft, vodaphone have turnovers

larger than the GNP of 80% of worldcountries

Increase profitability of TNCs by opening up

bases in undeveloped country- consideredgood business practice as well as socially

responsible

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TNCs - advantages Intro new technology, factories & equipment

to under-developed countries

Provides much needed capital investment Helps develop & build infra-structures

provides employment and training

Open up new markets enhances quality of life in host country - see

China, India

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TNCs disadvantages Seek to gain control over supply of resources in host

country

Pursue competitive advantage by lowering labourcosts

Reduce prod costs by avoiding more rigorous labour/

Health & safety laws

Pay lower tariffs on both imported by/exported fromhost country

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Disadvantages: Pay reduced taxes in hosts country & avoid paying

corporation tax in home country by transferring

profits to a shell co in third tax haven country

Rarely reveal transaction costs incurred from

overseas investments so that profits are maximised

by minimising tax payments

As resources diminish or labour costs rise, they oftenclose down operations :& move on to another

developing country

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2. State : International development &

trade organisations in the third world Richer countries response poverty in third world

Create international, government agencies to acceleratedevelopment

United Nations development agencies: economicdevelopment Programmes - aid poorermembers

coordinated by United Nation Economic &

Social Council (UNESC), monitors UNDevelopment Programme (UNDP), & inter- &nongovernment orgs

UNDPfunded by voluntary contributionsfrom richer countries ,

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International development & trade

organisations

All UNESC policies funded by International

Bank of Reconstruction & Development

(IBRD), commonly known as World Bank &IMF,

UNESC also holds joint consultations with

World Trade Organisationwhich representsthe interest of first world founder nations &

transnational corporation (TNCs)

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World Bank (IBRD)

Approved by Bretton Woods Conference 1944,formed 1946

Self supporting, obtains funds from capital paid by

member-states, sales of its own securities, factoringits own loans, & repayment by beneficiary nations

Loans made to members countries against bondsbacked by pledges from other govts & repayment of

previous loans to members Criticismdiscriminatory polices against the

poorest

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International Monetary Funds (IMF)

Approved by Bretton Woods, established 1945independent international org in agree. of mutualcooperation with UNbut funded mostly by the US,

followed by UK, Germany, Japan, France, SaudiArabia

Aims to promote monetary co-op by expandinginternational trade & exchange rate stability ,removal of barriers through multilateral payments

systems These subject to strict IMF ec. Conditions

To qualify for loans member states must demonstrate awillingness to change from a command to free market ec,subject to stringent controls

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Other agencies Organisation for Economic Cooperation (OECD)

Organisation of the Worlds richest nations

World Trade Organisation (WTO)increases in

international trade led to formation in 1995 . Itsucceed the General Agreement on Tariffs & Trade(GATT) Ec purpose of GATT was to expand non-discriminatory

international free trade, replaced by WTO as

legal/institutional trading system for creating bindingtrade policy

Adjudication (arbitration) accepted as means of settlingtrade disputes between nations

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Washington Consensus

Since 1980 financial problems of developing

countries - handled via the W.C,

enshrined in twin global regulatory bodies of IMF & W.B

Favoured remedy: financial support in return for

acceptance liberal economics.

reduce inflation by de-regulation - cuts in public

spending (Health & Education), cuts in food subsidies, Sub-Saharan Africa recipient of 29 IMF/WB

packages during 1980s , but per capita incomes

declined by 30% over same period (Hoogvelt, 1997)

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Washington Consensus

End C.20th under increasing criticism. Reasons

included

Pace of global development in poorer countries remained

slow/non-existent

Continuing instability of global financial system meant

urgent re-structuring was required

Significant sections of the elitefinancial speculator

George Soros (2002), economist Jospeph Stiglitz (2002)

began to publicly challenge Washington Consensus

precepts

Pressure from belowstreet protest- helped transform the

agenda of the debate on global economy.

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Civil society organisations

Newly emerging organisations - spontaneous

coming together of individuals and groups ,

around summits such as Seattle WTO, 1999,street protests in G8 Birmingham (1998)

Edinburgh 2005What probably unites them

is opposition for Neo-liberalism

The radical global NGOs & social movements

have changed the agenda bringing issues of

corporate abuse into greater focus

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International Non-Government

Organisations (INGOS)

Becoming increasingly important because of this

Head quarters INGO heavily concentrated in north-

western Europe, yet its membership grown both in &

outside northern hemisphere Latin America, sub-Saharan Africa

Among large INGOs (Amnesty/Oxfam) see range

of North-South connections

Oxfam International is a confederation 12 orgs in 100

countries, several thousand partner orgs in South.

Amnesty - 1.5 mill members in 150 countries, with

85,000 volunteers able to respond rapidly

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Case study: Free Trade & Fair trade

Evidence to support free trade and FDI with the

export-led development of no of developing

countries

Yet concerns over environmental abuses, use of

cheap labour, (lack of TU & human rights, child

labour race-to- the-bottom labour standards)

Call by orgs like Oxfam, replace free trade by fairtrade, to help gain necessary skills & knowledge, lift

themselves out of poverty

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Fair trade

Increasing no of cos include this inpurchasing polices and agreements , most tend to focus almost exclusively on

environmental issues

B&Q (1990) expects all its suppliers provideinform on environmental performance as part ofSupplier Environmental Audit

More recently Nike, Reebok & Puma intro ethicalcode, intended to prevent labour & human rights abuse in

suppliers operations

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Free Trade Threat of being de-listed by major customer act as

powerful force for change,

Body Shop operated Trade Not Aid programmes

assist small-scale indigenous communities Many coffee, tea, cocoa growers live in poverty

international commodity markets, fail to provide livingwagefree trade protects & empowers

Systems implemented by fair trade orgs, ensure thatgrowers get minimum pricenot the whim ofmarket

Many growers organise themselves into local co-ops& share the benefits

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Free trade

Movement initially operated through charitableorganisations such as Oxfam, & Alternative Tradeorgs (ATO) - found in supermarkets

Recent move away from charity to commercialpositionprivate sector for profit fair trade cos -Day Chocolate Co.

But commercialisation can put pressure on ethical

standards Davies & Crane (2003)activities in early stage of chain

of supply strongly protected,

but marketing, sales, retail more vulnerable to

ethically dubious practices

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Conclusion

Policies & activities of three main

stakeholders in third world, Corporation,

State, civil society orgs all influence & shapethe agenda in the third world.

Increasing number of companies are realising

the importance of fair trade in the third world