S. Venu

Responsible global capitalism is a system comprising individuals, private commercial corporations, NGOs, governments and supranational agencies. It includes the set of non-market institutions within which the market is embedded and which, together, characterise a global society.

RESPONSIBLE global capitalism (RGC) is the latest offshoot of the two earlier shibboleths — globalisation and the global market place. However, the three have different and distinct meanings.

By globalisation, we mean the connectivity of individuals and institutions across the globe, or at least, over most of it. Such connectivity may be shallow or deep; short or sustained. It may be geared to advancing personal or institutional interests; and economic, cultural, or political goals. The global market place refers more specifically to the flow of goods, services, and assets across national boundaries, which are mediated through the market, the prices, quantity and quality of which are determined by the participants in the market.

All of us, directly, or indirectly, participate in global markets; look at the labels of origin on the goods each of us buys. As workers too, many of us are helping to supply goods and services for sales in export markets — or are employed by an MNQ in our leisure pursuits, we may travel abroad, look at foreign TV, and purchase the services of foreign airlines, hotels, and ethnic restaurants. RGC embraces much more than global markets. It includes the set of non-market institutions within which the market is embedded and which, together, characterise a global society.

RGC is a system comprising individuals, private commercial corporations, non-governmental organisations (NGOs), governments and supranational agencies. Each has a unique and critical role to play in advancing and sustaining its goals. This includes (and this applies particularly in the case of developing countries) the transformation and upgrading of the economic structure and social fabric of societies.

The success of RGC is best judged by its ability to deliver an economically efficient and socially acceptable answer to three questions — what to produce, how to produce, and how to distribute the benefits arising from global economic activity.

Originally, the goal of capitalism was regarded as increasing the GNP or GDP per head. Such a measure is increasingly viewed as only a partial reflection of economic and social well-being.

This is partly because it is recognised that money prices, even when markets work well, do not accurately reflect real economic welfare of society, (a rupee allocated to reducing such `bads' as AIDS, mental stress, or crime counted the same as that spent on housing, food, and clothing). Moreover such an index excludes those goods and services which are not transacted in the market place.

For example, the output of subsistence farming, `do it yourself' handiwork, the protection of environment, road safety, a fair judicial system, reduced hospital waiting lists, and such intangible benefits as reputation, status, sovereignty, freedom of choice to which it is difficult to attach a price tag.

Several attempts have been made to devise more acceptable measures of living standards. The United Nations Development Programme, for example complied a Human Development Index (HDI) that adds to GNP per head variables as life expectancy and education attainment (UNDP 2000).

What of the specific impact of global capitalism on societal objectives? The main impact is two-fold. First, thanks to modern travel, TV, and information channels, there is an increasing awareness of the needs, preferences, aspirations of people throughout the world.

This leads both to a convergence and a divergence of consumer wants in the demand for global products such as Nike shoes, Gucci handbags, mass-produced cars, musical/sporting events, five-star hotels, and the like. There is also divergence to cater to localised needs and tastes: ethnic food, nation-bound tourists attractions, and intangible assets such as indigenous customs.

Second, part of the awareness is a growing recognition that `man does not live alone,' and that values such as reputation, personal security, adequate health provision, minimum labour standards, environmental protection and economic and social stability must be re-prioritised and targeted by the institutions of RGC.

So, the second task of RGC is to produce the type, quantity, and quality of goods and services that global society wants in the most efficient and socially acceptable way. Again, most economists accept there are some goods and services best provided by the market, and others by non-market institutions; for example by governments or NGOs, and some jointly by the private and public sector. The costs and benefits of production are also likely to vary according to the location of that production.

In the textbook case of prefect competition, the market is fully up to meeting these objectives. But increasingly, in an unstable, and innovation-driven global economy — and one in which international public goods are being increasingly valued — this ideal state of affairs is far from reality.

More often than not, markets — forproducts, finance, technology, or labour — are structurally or intrinsically imperfect, and in many, but not all, movements of corporate and financial capital, do tend to be more volatile than their domestic equivalents. An innovation-led economy is, almost by definition, uncertain and unstable. Global markets, today, are frequently dominated by a few large firms or internet groups, which, because of their size and geographical scope, can exploit such market failures as information asymmetries, monopoly power, and privileged access to market; and where it is perceived to be in their interests, engage in unacceptable social or moral behaviour.

Some factory inputs, for example unskilled or semi-skilled labour, and certain kinds of activity, are location bound, and cannot easily respond to global market signals.

Attempts to regulate the conduct of market participants and facilitate the response of producers and workers to changing market needs have been happening since the 19th century. But the twin impact of recent technological advances and globalisation have added a new, and more urgent, dimension to the debate.

In short, the standard expected from the value-adding activities of the institutions of RGC are being raised. This is particularly seen in two directions. The first is in the dramatic increase in the number of co-operative ventures concluded between firms — including many across national boundaries, which themselves are reactions to the imperatives of the global market place and knowledge-based economy.

The second relates to the growing ease with which companies can tap global markets for their inputs, either by trade or by foreign direct investment (FDI). The ability to engage in both horizontal and vertical division of labour by MNCs has increased dramatically.

But one ethical challenge arising from the shifts in the `where' of production has been the growth of sweatshops in several poor developing countries, notably in East Asia.

It is widely accepted that capitalism, especially the market economy, is likely to result in an uneven distribution of income. Whatever one's conception of a fair wage or salary, it is a fact of life that there is only one Sachin Tendulkar or Amitabh Bachchan while it is also human nature to charge what the market will bear for one's labour. At the same time, it seems to be somewhat incongruous that while deploring huge income differentials between individuals and huge profits of some firms, we — as consumers — are often all too ready to pay large sums of money to buy the goods or services they provide.

So why are equity and social justice so central to the agenda of those critical of RGC? First, globalisation — and all the features associated with it — has exposed as never before the huge income gaps both between and within countries. Thus, for example, it is estimated that 90 per cent of the world's innovatory capacity resides in the US, the EU, Japan, which account for only 10 per cent of the world's population (UNDP 2000).

However, of greater moral concern perhaps, is the fact that over a billion people, or one-quarter, of the world's population live on less than $1 a day (World Bank 2001), while a small segment has amassed fortunes on an unbelievable scale. Third, and, perhaps most important, there is no supranational form of governance which can correct or lessen inter-country social injustices arising from the global market place, in the same way as national governments can. Some aspects of contemporary society pose both problems and opportunities to the RGC institutions.

On the one hand, we have far more knowledge and experience than we had in the past on how to deal with the challenges and imperfections of the global market place. On the other, contemporary capitalism comprises more uncertain and volatile characteristics than that of its predecessors; while some of the reactions to its less desirable effects adopted in the 19th century are not as readily available today.

In particular, religious revelation as a mentor to moral behaviour is not as strong or pervasive as it once was. At the same time, even some of the most vocal critics of RGC concede that socialism — at least the 19th and 20th century variety — is not a feasible alternative economic system.

(The author is a Chennai-based management consultant.)

© Copyright 2000 - 2009 The Hindu Business Line