Prologue: Capitalism at the Crossroads

Each human generation believes that it is endowed with special importance, that it faced a particularly important challenge (for example, the “greatest” generation and World War II), that it has a special quality or character (for example, the baby boomers), or that it lived at a particularly important time (for example, the age of enlightenment). The term for this is chronocentrism. Although each generation earnestly believes in its own significance, there is objective evidence that those of us alive today will witness the most important time in human history. We truly stand at a crossroads.

From the dawn of our species some 2 million years ago until roughly 12,000 years ago, there were never more than some tens of millions of our brethren walking the planet at any one time. With the advent of agriculture and surplus food production, however, our species embarked on a path of population expansion that continues to this day. By the time of the American Revolution, the human family had grown to approximately one billion. Propelled further by the expansion to the New World and the industrial revolution, the population continued to grow so that by the close of World War II, there were two billion people on the planet.¹

As a baby boomer born in 1952, I entered a world of about two billion people. In less than half a century, that population had ballooned to more than six billion. If I live to a ripe old age, I could easily see eight billion or more people on the planet. Thus, in a single lifetime, the human population will have grown from two billion to more than eight billion. This growth is truly unprecedented. Never before in human history has a single generation witnessed such explosive change. It seems self-evident, therefore, that the policies we adopt, the decisions we make, and the strategies we pursue over the next decade or two will determine the future of our species and the trajectory of the planet for the foreseeable future. That is an awesome responsibility, to say the least. It is also a huge opportunity.

The Best of Times, The Worst of Times

We are truly poised at the threshold of a historic moment. During the past decade, we have witnessed the fall of communism and the birth of a planetary economy and civilization. The United States has emerged as the world’s only superpower, championing a message of liberty and democracy rather than conquest and subjugation. Multinational corporations, international institutions, and global civil society have exploded onto the world stage, bringing with them state-of-the-art technology, advanced business practices, and a new accountability. Life expectancy and literacy are on the rise throughout the world.²

A revolution in information and communication technologies has unfolded before our eyes, changing the way we live and speeding the spread of information and ideas. The new information-based economy has greatly increased transparency, fostered local self-help, and facilitated the spread of democracy throughout the world. Technological innovation has also led to dramatic reductions in the material and energy intensity of the economy. Consider, for example, that the U.S. economy “weighed” about the same (in terms of material intensity) at the end of the twentieth century as it did at the beginning of the century, despite being approximately 20 times larger in real terms.³ As the Iron Age gives way to the Information Age, there is no question that we have much to be thankful for.

Yet fault lines and fissures are also readily visible. Although U.S. consumers did a yeoman’s job of driving the world economy during much of the 1990s, it appears that there may be a limit even to Americans’ ability to consume goods and services (witness the record levels of consumer debt). Indeed, despite some recent signs of life, the global economy has been sputtering, raising the question of where the growth will come from in the future. With few exceptions (such as oil and pharmaceuticals), most major industries have been mired in an extended slowdown, with no apparent end in sight.

In fact, a decade of economic globalization, privatization, and free trade has produced mixed results, at best. Whereas the wealthy in developed countries have grown richer, the vast majority of nations and people in the world have yet to benefit from the apparent triumph of capitalism and liberal democracy. The $40 trillion–plus world economy is simply not growing fast enough to provide jobs for the tens of millions of young people from around the world joining the labor force each year. Contrary to popular belief, the so-called “roaring ’90s” was actually the slowest-growing decade in the world economy in the past 40 years.⁴ In fact, the poorest countries in the world have had zero or negative economic growth since the early 1980s.⁵

And whereas developed country economies have indeed become more information- and service-intensive, globally, the use of materials and energy has exploded during the past 50 years, with dire consequences for the world environment. The underlying natural systems supporting human economies—forests, fisheries, soils, ecosystems, and climate—have all experienced significant disruption and decline.⁶ The proliferation of new diseases such as AIDS, Ebola, and SARS also reminds us that the potential for a global scourge is only one plane ride away. Already our cows are mad and the birds are sick with the flu.

The Russian fiasco, the Asian financial crisis, and, most recently, the Argentinean crisis have made it clear that the so-called Washington Consensus is coming apart at the seams: The International Monetary Fund, the World Bank, and the World Trade Organization are all under increasing fire, even from insiders such as Jeffery Sachs, Joseph Stiglitz, and George Soros.⁷ Lack of an international standard of value, currency instability, and wild swings in the business cycle have contributed to simultaneous recession in the three major world economies, a lack of investment in the developing world, and an ongoing conflict between the short-term financial demands of shareholders and long-term sustainability. Across the developing world, there is less enthusiasm for globalization’s potential to bring prosperity to the masses.⁸

A rising tide of antiglobalization has emerged that combines concerns about environmental degradation, inequity, human rights, cultural imperialism, and loss of local autonomy. Wealthy protesters organize massive demonstrations against multinational corporations and the institutions of global capitalism, such as the WTO and the World Economic Forum. The disenfranchised become increasingly organized—and militant—in their desire to assert their autonomy. Indian-led movements in Bolivia, for example, succeeded in toppling the Western-friendly government in that country and have joined a continent-wide backlash against free-market reforms. Many, in fact, assert that the whole concept of “development” must be abandoned, in favor of a new concept that gives a greater voice to the views and aspirations of local people.⁹

Two recent events, in particular, have fueled anticorporate and antiglobalization sentiments: the Enron debacle, which has eroded the public’s already low level of trust in corporate conduct; and the events of September 11, 2001, which have proven that unrest in one part of the world will not remain geographically isolated. Indeed, terrorism—the ultimate expression of antiglobalization—is on the rise, driven by poverty and hopelessness and, in the Muslim world, by a growing sense of defiance and polarization. And despite the United States’ best intentions, it is not clear that a doctrine of “preventive war” can bring about democratization, empowerment, or self-determination.¹⁰

Implications for Corporations

The global dynamics just described have significant implications for large multinational corporations (MNCs), given their centrality to the global economy. There are now more than 60,000 MNCs (defined as any corporation with operations in more than one country) with more than a quarter-million affiliates around the world. MNCs account for more than 25 percent of world economic output. During the 1990s, foreign direct investment (FDI) by MNCs overtook official development assistance (ODA); by 2000, it exceeded ODA by more than a factor of 5. Indeed, MNCs have become the primary instruments of economic globalization, facilitating the diffusion of more efficient and competitive business practices throughout the world.¹¹

However, a growing chorus of voices points out that the process of economic globalization driven by MNCs over the past decade has also had a dark side.¹² For example, the 10 largest MNCs have annual sales of more than the GNPs of the 100 smallest, poorest countries in the world, raising concerns about sovereignty and the ability of governments to determine their own fate.¹³ Given the ability of MNCs to shift resources and production across borders, many have also suggested that they encourage a global “race to the bottom” by chasing subsidies, incentives, and lower costs wherever they might lead, at the expense of national and community interests.¹⁴

Of the top 200 MNCs in the world, the vast majority have their origins in the most affluent, developed countries of the world—in the United States, in European countries, and Japan. A growing number of critics have voiced concern that such corporate dominance is leading to a worldwide commercial monoculture based upon the values of Western consumerism and bringing with it the decline of local cultures, products, and traditions.¹⁵ Others decry the environmental consequences associated with spreading the energy- and material-intensive industries associated with global capitalism to the rest of the developing world.¹⁶

And although MNCs account for a quarter of global economic activity, they employ less than 1 percent of the world’s labor force, while one-third of the world’s willing-to-work population is either unemployed or underemployed.¹⁷ Furthermore, while a substantial number of Americans now hold shares in companies either directly or through pension accounts, less than 1 percent of the world’s population participates in the financial markets as shareholders. As a consequence, the wealth created by MNCs accrues almost exclusively to a relatively small number of wealthy people in the world—corporate executives, employees, and Western shareholders.¹⁸

We can also discern a similar trend on the corporate investment side, where the vast majority of FDI occurs within the richest countries.¹⁹ Investment in emerging markets has been limited largely to the wealthiest of the poor countries or those with the largest potential markets, such China, India, and Brazil. Even there, most MNC products are aimed at the wealthy, elite customers or those in the rising middle-class segments of the market.²⁰ Virtually no commercial attention has been paid to serving the needs of those at the base of the economic pyramid.²¹

The result is that, during the past 40 years, the gap between the richest and the poorest in the world has continued to widen. In 1960, for example, the richest 20 percent accounted for 70.2 percent of global GDP, while the poorest 20 percent controlled 2.3 percent (a ratio of 30:1). By 2000, however, this gap had widened considerably: The richest quintile controlled 85 percent of global GDP, while the poorest accounted for only 1.1 percent (a ratio of 80:1).²²

Clearly, MNCs alone are not responsible for all these problems: International financial institutions such as the International Monetary Fund and the World Bank have played a central role. Corrupt and repressive regimes in the poorest countries have also been major contributors to the problem. Still, these dynamics are increasingly being viewed as unacceptable. MNCs, for better or worse, are on the “front line” of globalization. If current trends continue, they can only become more frequent targets of antiglobalization protests, sabotage, and terrorism.

The Fork in the Road

Global capitalism now stands at a crossroads: Without a significant change of course, the future for globalization and multinational corporations appears increasingly bleak. It might be argued, in fact, that global capitalism stands at a juncture similar to the one faced in 1914. Between 1914 and 1945, world war, depression, fascism, and communism almost succeeded in eliminating capitalism from the face of the Earth. The problems global capitalism now faces (international terrorism, the backlash against globalization, global-scale environmental change) are no less daunting. Constructively engaging these challenges will be the key to ensuring that capitalism continues to thrive in the coming century—to everyone’s benefit.

The Brundtland Commission defined sustainable development as that which “meets the needs of the present without compromising the ability of future generations to meet their own needs.”²³ By creating a new, more inclusive brand of capitalism, one that incorporates previously excluded voices, concerns, and interests, the corporate sector could become the catalyst for a truly sustainable form of global development—and prosper in the process. To succeed, however, corporations must learn how to open up to the world: Strategies need to take into account the entire human community of 6.5 billion, as well as the host of other species with which we share the planet.

Sustainable global enterprise thus represents the potential for a new private sector–based approach to development that creates profitable businesses that simultaneously raise the quality of life for the world’s poor, respect cultural diversity, and conserve the ecological integrity of the planet for future generations. Making such a societal contribution while simultaneously creating shareholder value will take real imagination and a fresh approach to business strategy. These exciting and uplifting challenges are the focus of the pages that follow.

Notes

¹ For a fascinating account of the human species’ emergence, see Jared Diamond, Guns, Germs, and Steel (New York: W.W. Norton, 1999).

² Allen Hammond, Which World? (Washington, D.C.: Island Press, 1998).

³ Diane Coyle, Paradoxes of Prosperity (New York: Textere, 2001).

⁴ Thomas Palley, “A New Development Paradigm: Domestic Demand-Led Growth,” Foreign Policy in Focus (September, 1999), www.fpif.org/papers/development_body.html.

⁵ William Easterly, The Elusive Quest for Growth (Cambridge, MA: MIT Press, 2002).

⁶ Allen Hammond, Which World?

⁷ See, for example, Jeff Sachs, “Helping the World’s Poorest.” The Economist (14 August 2000): 17–20; Joseph Stiglitz, Globalization and its Discontents (New York: W.W. Norton, 2002); and George Soros, George Soros on Globalization (New York: Perseus Books, 2002).

⁸ This point is made convincingly by Hernando DeSoto, The Mystery of Capital (New York: Perseus Books, 2000).

⁹ See, for example, Wolfgang Sachs, Planet Dialectics (London: Zed Books, 1999).

¹⁰ Benjamin Barber, Fear’s Empire (New York: Ballantine Books, 2003).

¹¹ Rajan Raghuram and Luigi Zingales, Saving Capitalism from the Capitalists (New York: Crown Business, 2003).

¹² Perhaps the best articulation of this point of view can be found in David Korten, When Corporations Rule the World (San Francisco: Berrett-Koehler, 1995).

¹³ As Jagdish Bhagwati points out in his book In Defense of Globalization (New York: Oxford University Press, 2004), this comparison, while appealing, is conceptually flawed. When we compare sales volumes, which are gross values, with GDP, which includes only value-added figures for the goods and services, we are comparing apples and oranges. In other words, corporate sales figures across an entire economy will add up to numbers that vastly exceed the GDPs of the countries where these sales occur.

¹⁴ David Korten, When Corporations Rule the World.

¹⁵ See Colin Hines, Localization: A Global Manifesto (London: Earthscan, 2000).

¹⁶ Allen Hammond, Which World?

¹⁷ The World Bank, World Development Report (New York: Oxford University Press, 2000).

¹⁸ David Korten, When Corporations Rule the World.

¹⁹ Jeff Sachs, “Helping the World’s Poorest.”

²⁰ C. K. Prahalad and Ken Lieberthal, “The End of Corporate Imperialism,” Harvard Business Review 76(4) (1998): 68–79.

²¹ C. K. Prahalad and S. Hart, “The Fortune at the Bottom of the Pyramid,” Strategy+Business 26 (2002): 2–14.

²² The World Bank, World Development Report.

²³ Brundtland Commission, Our Common Future (New York: Oxford University Press, 1997).