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2006-08-01,11:06 AM

Global Giants Realizing Greed Doesn't Pay

By Nick Mathiason
The Observer

Oil giants foment gang warfare in developing countries; their negligence causes catastrophic environmental disasters. Ruthless mining firms stop at nothing to secure lucrative concessions, bribing officials and even toppling democratically elected governments.

Big Pharma obstructs access to vital life-saving medicines for the world’s poorest. Consumer titans douse their unhealthy wares with sugar and salt while simultaneously buying up burgeoning ethical brands to own and control the nascent competition. Rich world agribusinesses suck on the teat of state subsidies while demanding poor nations give them access to their markets.

The charge sheet is lengthy and this one is by no means exhaustive. But it is increasingly the case that the forces of capital are portrayed as creepy, ruthless and evil. Even the leader of the British Conservatives — traditionally the party of moneyed interests — is at it. David Cameron told an audience of London financiers last week that business must shed the image of “evil corporations and their bankers.”

In recent months, the British opposition leader has launched a series of public salvos against big business, singling out leading firms such as BHS, urging them to become more socially responsible.

Cameron has bigger fish to fry than antagonizing the likes of the BHS boss Philip Green. He is driven by the imperative to project an image that the Conservatives are breaking with the past and are no longer in the pocket of big business. “He needs a political fight that shows the party has changed, and the best way is to pick a fight with business,” says one seasoned lobbyist representing a large collection of some of the world’s most powerful corporations.

Tellingly, Cameron’s Conservatives do not advocate any regulations forcing business to behave responsibly, but even leading figures from within the business community know which way the wind is blowing. Writing in the May-June issue of Foreign Affairs, Samuel Palmisano, chairman and chief executive of computer giant IBM, argues that multinationals are dead. In their wake is a new creature — the “globally integrated enterprise” (GIE) — which does not exploit nations or workers but seeks to “open new possibilities for business growth and social progress.”

To this end, the GIE no longer outsources production to cheap labor in poor regions while retaining the value-creating bits (research and development and product design) in the First-World “home territory”. Rather, the smart new entity knows that inventive talent in Asia, Africa or Latin America must be harnessed for the greater corporate good, because intellectual capital knows no frontiers.

This approach is made possible by modern communications. At General Motors, elite teams in four continents simultaneously refine new car designs using the latest in 3D computer graphics and video conferencing.

Palmisano argues that the GIE represents the business model for the 21st century and that failure to embrace it will lead to financial and social meltdown. “People may ultimately elect governments that impose strict regulations on trade or labor, perhaps of a highly protectionist sort,” he warns. “Worse, they might gravitate toward more extreme nationalism, xenophobia and anti-modernism.” Such concerns are pressing.

The business community is mindful that the newly elected president of Bolivia has nationalized his country’s plentiful gas and oil resources. In Nigeria, a simmering war raging in the oil-producing region of the Niger delta could force Shell, the dominant firm in the region, to pull out of the country altogether, say sources on the ground. In some Muslim countries and Indian states it is impossible to purchase Coca-Cola.

There are flaws in Palmisano’s thinking. The concept of “knowledge sharing” — capturing the best brains from around the world to maximize financial and social ends — only works in leading-edge industries. In the extractive and commodity sectors, it is hard to see how his model can be appropriated.

But that’s not stopping some corporates from trying. Shell, for instance, is behind some innovative work which is slowly establishing small and medium-sized enterprises in Uganda, Kenya and South Africa. The idea is that without entrepreneurs, poverty alleviation is impossible. Furthermore, a stable economy is good for business.

Ericsson, the mobile-phone firm, has sold huge numbers of handsets to Africans by ripping up its tariff structure. Rather than charge $30 a month, phones can be rented for $1.25 and shared with others. At a stroke, the latest commodity market information becomes available to rural communities, helping them to get decent prices for their products. Phones can be charged using solar devices, as power points are thin on the ground in many African nations.

In Tanzania, where the population relied on imported powdered milk from the Netherlands, work by packaging giant Tetra Pak has resuscitated the dairy industry, bringing employment opportunities and better health for children.

There is obviously a potentially huge financial windfall to be gained by reaching out to consumers in the developing worlds. Will Day, an adviser to the UN Development Program, points out that India’s population is expected to grow by 300 million in 15 years: “That’s the equivalent of the entire population of the United States.”

Redefining models and processes will allow global businesses to access consumers at the bottom of the pyramid. This final consumer frontier approaches as revenue growth in the northern hemisphere stalls. Last week, even Tesco said that growth had slowed to 4.5 percent — half the level the firm has been used to. Only mergers and acquisitions can boost revenues. Without enterprise there is no prospect of lifting the two billion people living on $2 a day out of poverty. The hundreds of billions of dollars spent on aid to poor countries — channeled through bureaucratic and occasionally corrupt international financial institutions and doled out to business-unsavvy NGOs — has counted for next to nothing.

Yann Risz, chief executive of the California-based Next Practice, which advises multinationals on how to access markets in emerging economies, said: “Four years ago, this was an interesting topic. Now it’s becoming more mainstream. But the fastest-moving are small entrepreneurial companies. They get it. They’re often off the radar screen, but they have models that can be scaled up.” For multinationals, being a good corporate citizen — being seen to be behaving responsibly — not only keeps First-World consumers happy but is the key to opening a treasure trove of riches. But can the wolves become sheep? Or will sheep’s clothing be enough?

Adam Smith’s warning that “people of the same trade seldom meet together, but the conversation ends in a conspiracy against the public,” should sound the alarm over the vogue for loud, self proclaiming corporate ethical behavior. Even the Financial Times described as “satisfyingly Machiavellian” the way that businesses can “forestall regulation by behaving with conspicuous virtue.”

Voluntary alignment of large corporations and big finance with social and environmental goals fails repeatedly. If the private sector is in favor of ethics and sustainability, why doesn’t it support the three modest aims of the campaign for corporate social responsibility (CSR)? These are: for directors to have a duty of care to communities and the environment; for people affected overseas by human rights or environmental abuses by EU companies and their subsidiaries to be able to seek compensation in the EU; and for mandatory sustainability reporting to sit alongside legally required financial reports.

Right now a more accurate meaning of ‘CSR’ would be ‘corporate suppression of regulation’. Multinationals are islands of central planning in a sea of failed markets. CSR is used as a PR weapon to help corporations maintain market power, when it is precisely that power that is the problem.

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