Global Capitalism, Culture, and Ethics

Richard A. Spinello

• Publisher: Routledge
• Year: 2022
• Print ISBN: 9780367527969
• eBook ISBN: 9781000549690
• Topic: Business
• Subtopic: Business General
• Index: Business

This book seeks to deepen the reader's understanding of the complex ethical and social disputes that corporations and managers face in an increasingly globalized world. It reviews the history and nature of global capitalism along with the role of the multinational within the global economy. Special attention is paid to emerging and frontier markets where there is economic potential but also major challenges due to institutional voids.

Globalization is a constantly evolving field. In addition to exploring basic economic concepts and ethical frameworks, this second edition takes into account many new developments across different industries, ranging from "Big Tech" to "Big Pharma." It reviews some of the controversies that have affected those industries including bribery, censorship, the politics of computer networking, sweatshops, divestment, and the intensifying crisis of climate change. The book now includes short case studies to help spur creative reflection. Also, the revised content is highlighted in two new chapters – "Bribery and Corruption" and "Emerging and Frontier Markets."

The book is ideal for use as a textbook on globalization, and specifically for courses that want to introduce a social responsibility or ethical component at both undergraduate and postgraduate levels.

Chapter 1 The logic and history of global capitalism

DOI: 10.4324/9781003058427-1

The period immediately after World War II was one of unremitting gloom for many people in war-ravaged Europe. The grim statistics only dimly reflected the human reality of the war’s devastation. It was an especially trying time for the citizens of Germany, who wondered how German culture could be revived and how their once powerful economy could ever be restored. Like all institutions, German businesses were in a shocking state of disarray after incessant waves of Allied bombing. Manufacturing plants in the Ruhr valley and in industrial cities like Hamburg and Mannheim were prime targets of the United Kingdom’s bombing offensive. Aside from the daunting challenges of re-building factories and supply chains, some companies had to cope with allegations of collusion with Hitler’s brutal regime. As Hitler consolidated power, it became increasingly difficult and perilous for businesses to avoid full cooperation with the Nazi government. All foreign and domestic businesses had to comply with the policy of Gleichschaltung or total coordination with the state.¹

The post-war era was particularly challenging for Krupp, the legendary German munitions manufacturer, which was accused of using slave labor during the war, including POWs and civilians from occupied countries like France. These abuses along with the many other war crimes of the Nazi regime demanded justice and fair retribution. After the war the Nuremberg trials were convened to punish Hitler’s collaborators and to help exorcise the ghost of the Third Reich. Alfred Krupp and the company’s directors were indicted “as the focus, the symbol, and the beneficiary of the most sinister forces engaged in menacing the peace of Europe.” Krupp’s lawyers protested that the company had no choice – it had to fill Nazi orders for weapons or face dire consequences, and the labor shortage forced the company to rely on foreign laborers. But the Nuremberg judges were not persuaded by this reasoning. Krupp and the directors were convicted for slave labor and for “the plunder of occupied Europe.” ²

The Krupp enterprise traces its roots to a small steel mill built in the city of Essen in 1810.³ The German company quickly moved into a diverse range of products that took advantage of the industrial age and its insatiable demand for steel to construct buildings, ships, and railroads. Krupp soon became a major manufacturer of steel rollers, ship shafts, and railway tires. Many of Krupp’s cast-steel products were vital inputs for the transportation innovations that drove economic development and globalization from the mid- to the late 19th century.⁴ But Krupp also specialized in building the tools of war, including rifle barrels and artillery pieces used by the Prussian military. After it perfected these technologies, Krupp became the pre-eminent arms manufacturer in all of Europe.

The entrepreneurial Krupp family also expanded overseas more zealously than most of its competitors. The history of globalization mirrors to some extent what transpired at Krupp from the 1850s until after World War I. Krupp recognized that it needed a presence in prosperous countries like the UK to preserve its competitive advantage in steel and related industries. Fortunately, Krupp’s superior technology gave it a big advantage in that market. As word of its quality products spread, the company exported its cast-steel products and weaponry throughout West Europe and Russia. Krupp also invested abroad, purchasing Spanish mines for raw material and a Dutch shipping company as part of its expanding distribution network.

Krupp’s global ambitions and economic vitality were disrupted in the early 20th century, however, when a wary German government imposed restrictions on the sale of weaponry to its potential foes. Those restrictions were reinforced during World War I, which unleashed the forces of de-globalization throughout the whole global economy. During the war many of the company’s foreign markets were lost thanks to the Allied blockade. After the war, Krupp was forced to renounce arms manufacturing, at least temporarily. The company found itself on the brink of bankruptcy in the mid-1920s, thanks to inflation, overcapacity, and severe labor problems. But the Krupp enterprise was revived, and by 1930 it was back in the arms business. However, daunting challenges remained. The worldwide depression of the 1930s contributed to Krupp’s stagnant export business. With the exception of Russia, export orders still languished from most of its major customers. By 1933, Krupp returned to profitability, though not as a result of demand for military products.

As World War II approached, the company began to rebound more strongly as it made weapons for the Nazi war machine. Its Germaniwert shipyard filled orders for submarines and destroyers, while its main plants made howitzers and other artillery pieces. Krupp’s profits surged in the late 1930s, though they fell off somewhat during the early war years. After Hitler’s ignominious defeat there was another reversal of fortune and prolonged turmoil. The victorious British disassembled major Krupp factories and sequestered its coal mines, while the Russians sequestered its Grusonwerk factory in Magdeburg.

In later decades, however, Krupp recovered yet again thanks to a new “ethos of globalization” that became the focal point of its corporate strategy. The resilient Krupp enterprise acquired major operations in Italy and Mexico and refined its skills in manufacturing specialty steels.⁵ Eventually Krupp merged with Thyssen to become ThyssenKrupp, a trust company, partially owned by a foundation. It remains a major worldwide player in steel mass production and in capital goods such as elevators and industrial equipment.

The Krupp story dramatically mirrors the twisty path of global capitalism, which has been massively thrown off course at times by international conflicts and the forces of economic nationalism. Like Krupp, globalization’s fate seems closely tied to politics, as it treads a course marked by sharp discontinuities and an uncertain future. The Krupp saga confirms David Hume’s insight that trade and international commerce is “an affair of state.”⁶ Even in ostensibly free markets, the state is always involved to some degree in the economic welfare of its citizens. Krupp was subject to political intervention because of the nature of its business, but in 19th century Europe, nation states intervened in markets to help forge a global expansion of capital.

Bearing in mind this relationship between commerce and the state, we turn to an examination of economic globalization’s past so we can better understand the present moment and perhaps discern its future trajectory. During this discussion we also concisely treat the economic advantages of trade and foreign investment that were perceived so clearly by discerning and resourceful enterprises like Krupp.

The cycles of global market integration

This condensed historical analysis provides a broad context for the remainder of the book and allows us to appreciate the paramount role of the multinational corporation in the globalization process.⁷ Some naively think that globalization is a purely contemporary phenomenon that has only recently sprung forth with the help of modern communication and transportation technologies. But this is definitely not the case. Globalization, broadly defined as the “process of increasing integration in world civilization,” has a long and tangled history.⁸ Since our focus is on economic aspects of globalization, perhaps a more useful definition is the following: “the integration of economic activities across borders, through markets.”⁹ Globalization represents the triumph of global capitalism over geographical constraints.

Economic integration occurs primarily through both foreign trade and foreign direct investment (FDI). FDI is an especially important dimension of globalization. Multinationals and corporations engage in FDI through acquiring an existing firm in a foreign country or by making a greenfield investment that typically entails construction of a new operation such as a manufacturing plant or a distribution center.

Trade has been aptly described as an “engine of growth.” Even in the Middle Ages philosophers recognized the value of free trade and interdependencies between countries. According to Thomas Aquinas, for example, “Trade must not be entirely absent from a city, since one cannot easily find any place so full of life’s necessities so as not to need some commodities from other regions.”¹⁰ Aquinas, however, also warned about the dangerous side effects of relying excessively on trade. Hence he was skeptical about the net benefits of economic globalization for some countries.

Economists like David Ricardo and Adam Smith have developed viable theories of trade demonstrating that countries enhance their prosperity when they trade across borders. The starting point of Smith’s economic theory is two principles: voluntary exchange and the specialization of labor. The division or specialization of labor applies not only to a business but also to an entire country. Smith was convinced that specialization at what a country does best followed up by trade is the key to sustainable economic growth:

What is prudence in the conduct of every family can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it off them with some part of the produce of our own industry, employed in a way in which we have some advantage.¹¹

Echoing Smith, Ricardo cleverly demonstrated that countries will benefit from trade if they specialize in what they are relatively most efficient in producing and trade for their other needs.¹² Countries should concentrate on products or services where they are comparatively more productive and exchange some of those goods for their other needs. When a country is open to trade for other goods where it does not have such a comparative advantage, its domestic factors of production get the highest returns. In addition, there are static advantages such as economies of scale in production and procurement that can be exploited when trade expands markets. Finally there are dynamic advantages since trade encourages competition and productivity growth. An isolated community, on the other hand, must be self-sufficient and do everything for itself. It must grow its own agricultural products even if the land and climate are unsuited to farming.¹³

Box 1.1 Concepts explained: comparative advantage¹⁴ Ricardo’s theory of comparative advantage

The theory of comparative advantage presented by David Ricardo in 1817 is critical for understanding the positive benefits of trade between countries. Ricardo sought to demonstrate how world trade could increase global consumption and improve living standards. Here is an example of how his simple model works:

Two countries, A and B, each employ 1,000 workers, who make two products: compact cars and syrup. A is more productive – to make a car it needs the labor of 5 workers – whereas B needs 10 workers, and to make a year’s worth of maple syrup it needs the labor of 2 workers (vs. 4 for country B). For both countries half the workers are employed in each industry.

	West	East
Cars	10 workers	100 workers
Syrup	2 workers	4 workers

The two countries decide to specialize. A has a more substantial advantage in car-making (10/1 vs. 2/1) and so it devotes most of its resources to that industry, employing 700 workers to make cars and 300 to make syrup; B switches entirely to producing maple syrup.

Both countries are able to consume more of both products if they trade with each other. They negotiate and settle on these terms of trade: 10 cars for 120 vats of syrup.

This table illustrates how both countries are better off than they would be if they did not trade:

	Output w. no trade		Output after specialization		Consumption after trade
	Cars	Syrup	Cars	Syrup	Cars	Syrup
A	50	250	70	150	60	270
B	4	125	0	250	10	130

Why are both countries better off through free trade? Even though Country A has an “absolute advantage” in producing both cars and syrup, each country has a different comparative advantage. A’s greater advantage is in producing cars, while B, although at a disadvantage in both industries, is a relatively more efficient producer of maple syrup. If each country specializes in producing those goods in which it has a comparative advantage, both countries will benefit from trade. Thus, countries should specialize in what they are most efficient at doing and trade accordingly.

Thanks to liberal economic policies and the power of Ricardian comparative advantage, the world economy was tightly integrated during the last half of the 19th century, and it seemed to be advancing towards even greater economic integration and global cooperation. Progress was cut short, however, in 1914 and in the turbulent interwar years.

The history of globalization is anti-teleological, because of damaging political and economic choices along with many unintended consequences. It is not marked by some sort of relentless upward spiral. It is instructive to contrast this state of affairs with the views of a philosopher like Hegel who conceived history as a manifestation of the Rational Idea or Reason through time. History is a teleological force, always moving ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Preface
• Acknowledgments
• 1 The logic and history of global capitalism
• 2 Global capitalism and free markets
• 3 Cultural diversity and cultural relativism
• 4 Law, morality, and natural rights
• 5 Emerging and frontier markets
• 6 Corporate bribery and the Foreign Corrupt Practices Act
• 7 Political risk, corporate collusion, and divestment
• 8 Patents, Big Pharma, and emerging markets
• 9 Big Tech, censorship, and geopolitics
• 10 Multinationals and environmental integrity
• 11 Responsible sourcing and offshoring
• Index