Governing Global Business - Essay Example

Governing Global Business Globalization is a phenomenon that has taken the modem day world by storm. It is not only easier to communicate with peoplefrom all over the world, it is also possible to carry out business operations from any corner of the globe. This is all possible due to improved technology and policies that have been drafted to ensure that commerce across borders is as easy as possible. Multinational corporations are more today than they were a few years ago. Global business is growing at a fast rate and focus is on how these businesses are governed (Bakan, 2004). It is important to govern global business so as to ensure that commerce practices are not violated. Governing international corporations ensures that business runs as it is supposed to. It also ensures that the corporations do not take advantage of prevailing situations to enrich themselves at the expense of other people in society. In other words, global business governance ensures that everyone gains from the operations of international business (Zadek, 2001). There are many theories that can be used to analyze the governance of global business. For the purposes of this paper, I will examine global business governance using the Neoliberal Approach and the Social Democratic Approach. These two approaches have been used to propagate the idea of prosperity through international commerce (Epstein, 1999). Neoliberal Approach The Neoliberal approach to global business governance can be described as the theory that supports economic freedom, which is an important factor in international business policy discussions. The neoliberal approach gained popularity after being adopted by the World Trade Organization in 1970. The main objective of this perspective is to remove all the barriers to international commerce and the privatization of services and resources. The neoliberal approach focuses mainly on: 1. Less restriction on economic operations 2. Free market methods 3. Property rights Reduced restrictions on all or some economic activities means that the governments of the involved countries do not have the mandate to interfere with how the multinational corporations run their businesses. The neoliberal model’s support for free market methods also means that there should as little restriction on business operations as possible. The multinational corporations are also are entitled to full property rights in their areas of operations (Hill, 2008). In this approach there is limited government intervention in international corporate governance. Instead, it supports the multilateral political influence from such bodies as the World Bank and the WTO. Privatization is a major component of neoliberalism. This means that international business governance issues are dealt with by the corporation itself, free from external pressure (Ohmae, 1990). In the neoliberal school of thought, economic planners generally regard markets as the best means for the achievement of economic efficiency as well political freedom and social justice. The neoliberal approach is in favor of the liberalization of international and domestic restrictions of operations carried out by transnational corporations. This means that the approach enhances corporate responsibly among international firms which may face stiff penalties if they fail to comply with the restrictions and policies that have been laid out for them (Epstein, 1999). Strengths and Weaknesses of the Neoliberal Approach One of the greatest strength of the neo liberal approach is its support for free markets and free trade. An unrestricted flow of capital across boarders has the potential to enhance better political, social and economic operations. This means that if unrestricted and unregulated corporate governance is carried out properly, prosperity for all parties involved is sure to occur (Zadek, 2001). One of the weaknesses of the neoliberal approach is that it supports the lack of regulation in trade and markets. When TNCs are left to their own devices, they are likely to govern themselves any way they want as they are not accountable to anyone, at least, not politically. This could lead to great differences between the big multinational corporations and the smaller domestic companies (Hill, 2008). Since the neoliberal perspective advocates for the removal of trade and commerce barriers as well as the privatizations of resources and services, it means that the life of many people is put at the mercy of a few powerful individuals. These are the individuals who would control the lives of the common citizen are those who own the businesses that would be operating without any restrictions (Bakan, 2004). One of the objectives of the neoliberal approach was to create a world where prosperity was based on the ideals of a free trade and market economy. However, it seems that this approach has not been able to reach that goal. There are several countries in the third world which are currently suffering economically due to unequal economic opportunities brought about by the idea of free, unregulated commerce (Ohmae, 1990). Social Democratic Approach As the name suggests, the social democratic approach to business governance is pegged on the ideals of social democracy which lean towards the belief of using democratic means to move from capitalism to socialism. When used in the context of global business governance, the social democratic approach means that governance issues cannot be left in the hands of a few powerful individuals (Zadek, 2001). This means that the ideology supports strong social mechanisms to distribute income. According to this social democratic approach, there has to be some form of negotiated compromises among the parties involved in transnational commerce. The parties involved in the governance of international corporations include the business owners, workers and public authorities (Epstein, 1999). The social democratic approach is non-discriminative, which means that TNC governance is uniform for all firms. The governance of global business ventures is strongly regulated to fit international laws. Public governments can form policies which can help regulate international trade for the good of the business owners and the country of operation (Bakan, 2004). Strengths and weaknesses of the Social Democratic Approach One noticeable strength of the social democratic approach is its inclusion of the public governments in the formulation of policies that are meant to act as guidelines as to how multinational corporations should be run. The supporters of this approach argue that it allows governments to redistribute wealth. This means that through social democracy in international business governance, there is a likelihood of reduced inequalities between regions as well as between social classes (Zadek, 2001). One of the weaknesses that has been linked to the social democratic approach to the governance of global business is its inability to create the perfect economic situation it was supposed to create. Many saw the social democratic approach as the cure to capitalism, but it seems that nothing has come out of it (Ohmae, 1990). Another weakness of the social democratic approach is that the rights of the individual are ignored in favor of those of the community as a whole. In such a system it would be hard for a corporation to make any gains since interests will not be of much importance compared to those of the community in which the corporation will be operating from. Since the public governments are allowed to govern the corporations the way they want, there is risk for interference in market mechanisms. This interference may hurt the economy in the country in question. Allowing high taxation in this system of global business governance may discourage entrepreneurs from investing in the country’s economy (Bakan, 2004). Similarities and Differences between the Two Approaches The social democratic and neoliberal approaches to international business governance seek to create an economic environment that is equal for all players. They both support the idea of multinational corporations running in a way that benefits everyone, including the general public. This, however, is all they share in common. There are major differences between the two approaches in terms of ideology (Epstein, 1999). While social democracy advocates for the involvement of public governments in decision making in international business governance issues, neoliberalism sets its focus in the opposite direction. It propagates for the idea that public governments should be involved in running TNCs. Instead, it supports the inclusion of multinational organizations in such decision making, regardless of the implications those decisions might have on the affected nation (Bakan, 2004). Due to the social democratic support for the involvement of public government in international business governance, it leaves little room for these governments to save on expenditure. Neoliberalism on the other hand focuses on decreasing government expenditure by diverting the work of TNC governance to third parties, not directly connected to public governments (Hill, 2008). Conclusion The argument about which approach is better for global business governance is quite difficult to settle. Each of the approaches has its unique pros and cons. For instance, both the neoliberal and the social democratic approaches each have a set of strengths and weaknesses, yet they have the same goal of making TNC governance beneficial to all (Ohmae, 1990). For these approaches to work the way they are supposed to, they must be approached realistically. Expecting a capitalistic world to change over night will is a waste of time. The proponents of both the neoliberal approach and the social democratic approach have to learn from past mistakes in order to find a way to move forward. There is need to shift the approach of the two ideologies and find a way to translate theory into practical solutions which should be helpful to all parties involved (Epstein, 1999). References Bakan, J. (2004) The Corporation: The Pathological Pursuit of Profit and Power, London: Constable. Epstein, G. (1999) A Critique of Meo-Liberal Globalization. Third World Network. Retrieved from: http://www.twnside.org.sg/title/critique-cn.htm Hill, C.W. (2008) Global Business Today (5th edition), New York: McGraw-Hill. Ohmae, K. (1990) The Borderless World: Power and Strategy in the Interlinked Economy, New York: Free Press. Zadek, S (2001) The Civil Corporation, Earthscan, London 1561 words Read More