Europen trde in certin items [slt wood tr etc] ws lredy INTERntionl by the 10th century D

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Trade in history

Technological progress is the primary driver behind the growth of international trade.

Every acceleration of man’s ability to utilise Nature’s resources is matched by the spread of geographical reach of commercial relations and the appearance of new forms of cooperation.

Ancient Greece, Rome, etc., and the Middle Ages – Trans-European trade in certain items [salt, wood, tar, etc] was already INTERnational by the 10th century AD.:
- Trade in luxury goods.
- Trade relations were impermanent [as such didn’t result in changes of production structure in both nations].

Next development stage was tied in with the wave of geographical discoveries:
- No new trade goods;
- Primary aim of new territories: sourcing gold.

International trade was limited by the technological ability to transport goods over long distances.

Technological Revolution

The inventions of the time resulted in a qualitative and quantitative explosion of trade.

Which??
- Steam machine.
- Telegraph.
They enabled but also demanded (required) an expansion via new goods and new territories.

Steam resulted in:
- Increasing the effectiveness of production;
- An emergence of NEW goods;
- An increase in the demand for resources;
- An increase in demand for resources previously NOT used or used in minute quantities [which now had to be found and delivered].

The Revolution increased the division of labour.
Division of labour increased the need to trade between nations.

Structure of production began to change.
Countries began to specialise.

The International Economy

By the mid-19th century the process begun in England that had been spreading for decades across the world covered Europe, America and overseas countries.

The international economy was formed.
i.e. a system of PERMANENT economic relationships between countries, covering the entire world.

The system existed until WW1.
The War destroyed most relationships established during the 19th century [including colonial ones].

After WW2, inter-national trade accelerated.
Other forms of cooperation appeared in 1960’s and took hold by 1980’s.
Trade in goods began to loose primary spot.

General Agreement on Tariffs and Trade

Post WWII the US emerged as a dominant economic power.
Lessons learned from the Great Depression forced a shift towards free trade.
GATT established in 1947.
Read more about the history of GATT. An in-depth bibliography.
Read Article I, III, XI, XIII, XVI XX.

A multilateral agreement aimed at liberalizing trade by eliminating:
- Tariffs, find out the effects of tariffs
- Subsidies, read about the UK government's stance on subsidies,

Process of tariff reduction has been spread over 8 “rounds”.
The recent Uruguay Round was launched in 1986 and completed in December 1993.
Process: during each Round, members meet and commit themselves to not raising tariffs beyond the negotiated rates.
Regulations are enforced by a mutual monitoring system. Problems—resolved by Geneva-based bureaucracy that administered GATT.
Transparency. Need to know more?? "Trade, Transparency and Competition" by de Araujo.

Mounting problems:
Japan’s economic success placed stress on the world’s economic system. Export success combined with restrictive internal market.
Persistent trade deficit of the US. Result: painful adjustments in many industries created an increase in unemployment, which forced US Congress to focus on trade restrictions.
Find out more about US deficit.
New methods of bypassing/avoiding GATT were discovered—VER’s (bilateral voluntary export restraints). Read more about VER's. World Bank looks at VER consequences.

Uruguay Round

8th round of GATT negotiations.
Until now GATT rules were applied only to manufactured goods and commodities. Uruguay Round sought to:
- cover trade in services (fair trade and market rules extension),
- set up rules governing the protection of intellectual property (patents, copyrights, etc), read more about TRIPS here
- reduce agricultural subsidies,
- to strengthen monitoring and enforcement mechanisms.

Implications.
In 1992 services accounted for $900billion out of a total $3580billion in world trade. GATT presence strengthened services as a major source of trade.
Intellectual property protection allows—for example—high-technology companies to function in countries where internal intellectual property rules have been historically weak. It creates an enforcement mechanism.

WTO

WTO is set up to enforce the Uruguay Round agreement and beyond. Read the Agreement Establishing the WTO. Find out about the Uruguay Round Agreements.
An umbrella organisation, encompassing GATT and 2 bodies on intellectual property and services.
Takes over responsibility for:
- arbitrating trade disputes,
- monitoring trade policies of member countries.

Dispute settlements:
Countries no longer able to block adoption of arbitration reports.
Arbitration reports on disputes between member countries will be adopted by WTO unless there is consensus agreement to reject them.
Countries found by arbitration panel to have violated GATT rules may appeal to a permanent appellate body but its verdict is binding.
If offenders fail to comply with the recommendations of the arbitration panel, trading partners will have the right to compensation or (as last resort) to impose trade sanctions.
Every stage is subject to strict time limits.

Visit the WTO dispute index

Future of free trade?

Upcoming issues:
Environment. Interaction of environmental and trade policies. Issue: How best to promote sustainable development without resorting to protectionism.
Workers’ rights. Free trade helps firms to shift production to countries where worker rights are violated. International standards??
Foreign Direct Investment...Many countries still limit investment by foreign companies.
Read all about FDI.

International Monetary System

The Gold standard

Originates from the use of gold coins as a medium of exchange, unit of account and store of value.
Until the Industrial Revolution, when small amounts of goods travelled the world, gold was moved around as payment.

By 1880 most industrial nations have adopted the practice of PEGGING the currency to gold and GUARANTEEING convertibility.

Gold standard: given a common gold standard, the value of any currency in units of any other currency [the exchange rate] was easy to determine.

1 US dollar was defined as equivalent to 23.22 grains of “fine” [pure] gold.
There are 48 grains in an ounce.
As a result, 1 ounce = $ 20.67.
Amount of money needed to PURCHASE an ounce of gold = GOLD PAR VALUE.

1 GB pound was defined as equivalent to 113 grains.

The system assured balance-of-payments equilibrium.
2 countries: Japan & US.
Japan exports more [a trade surplus].
Japanese exporters are paid in US $.
Japanese bank submits $ to US bank and demands gold.

There is a flow of gold from US to Japan.
Flow reduces amount of money supply in US and swells Japan’s money supply.
-->Money supply growth = price inflation.
Japan’s prices go up.
US prices go down.
Japan’s goods are more expensive, so they buy US goods.
At some point balance-of-payments equilibrium is reached.

Collapse??
World War I. Countries printed money to pay for war.
Money = inflation.
Inflation = changing values against gold.
Changing values = loss of trust in government.
Loss of trust = demanding to be actually GIVEN the gold.
Result: governments were afraid of gold stock depletion and suspended the system.

Visit the World Gold Council for info about Gold.

Bretton Woods system

In 1944, representatives of 44 countries met at Bretton Woods, New Hampshire.
Idea: devise a NEW international monetary system.

Defence against:
- Collapse of the gold standard;
- Repeat of Great Depression from 1930’s.
- Worldwide financial collapse;
- Competitive devaluations;
- Trade wars;
- High unemployment;
- Hyperinflation;
- General economic disintegration.

Plan: build an enduring economic system that would facilitate post-war economic growth.

Result:
1. Two new institutions created:
- IMF;
- World Bank;
2. A fixed exchange rate system:
- IMF polices it;
- All countries set their exchange to gold;
- NO ONE [except US dollar] has to ACTUALLY exchange into gold.
- All participating countries agreed to keep within 1% of the par value by buying or selling currencies or gold.

IMF

Avoid the chaos that occurred between the wars, through a combination of discipline and flexibility.

Read the Articles of Agreement and study the IMF members' quotas and voting powers.

Fixed exchange rate imposes discipline via:
- Avoidance of competitive devaluations;
- Imposing of financial discipline on countries [thus curtailing price inflation];

Flexibility.
Was built into the system to avoid:
- Breakdown [like the gold standard];
- High unemployment in countries;

IMF would lend countries short-term to HELP ride through the tribulations [balance-of-payments deficits].
IMF loans would:
- Give countries time to reduce inflation and BoP;
- Reduce pressures for devaluation;
- Allow for a more orderly and less painful adjustment;

Increasing amounts of money drawn from IMF = acceptance of increasingly stringent IMF supervision of macroeconomic policy and agreeing to IMF conditions concerning monetary and fiscal growth:
- Targets on domestic money supply;
- Exchange rate policy;
- Tax policy;
- Government spending;

World Bank

International Bank for Reconstruction and Development.

Primary mission: assist in the rebuilding of post-War Europe by providing cheap credit.
But: Marshall Plan from the US soon overshadowed this agenda.

IBRD turned its focus to assisting developing nations in the Third World.

How??
Assisting in raising funds for development:
- IBRD scheme: sales of bonds in the international capital markets;
- IDA [International Development Agency] scheme: raising loans for wealthy subscriber countries.

Collapse of Bretton Woods

By late 1960’s the system was under serious strain.

Collapsed in 1973.
US are blamed.
Lyndon B Johnson’s funding of Vietnam War and welfare programmes.
Worsening inflation and bad US trade position [by spring 1971 US was importing more than it was exporting].
Dollar was going to be devalued.
DM would have to be revalued.
Nixon suspended Dollar convertibility into gold.

Conclusion; system could NOT work with KEY currency, the US dollar, under speculative attack.

Floating exchange rate regime

Jamaica Agreement formalised it in 1976.
- Floating exchange rates were deemed acceptable;
- Gold was abandoned;
- IMF quotas were increased;

Exchange rate volatility since 1973 is due to:
- Oil crisis in 1971, i.e. OPEC quadrupling price of oil [worsening US position, inflation=>devaluation of US dollar];
- Loss of confidence in the dollar after US inflation in 1977, 1978;
- Oil crisis of 1979, i.e. OPEC doubling the price of oil;
- Unexpected rise in the dollar between 1980-85;
- Dramatic fall in dollar against Yen and DM, 1985-87, and against the Yen, 1993-95;

Globalisation roots

Globalisation is generally understood to be a process of worldwide economic integration. BUT--there IS a lot more to it.

Factors that have contributed to globalisation include:
- increasingly sophisticated communications and transportation technologies and services;
- mass migration and the movement of peoples;
- a level of economic activity that has outgrown national markets through industrial combinations and commercial groupings that cross national frontiers;
- international agreements that reduce the cost of doing business in foreign countries.

Globalisation offers huge potential profits to companies and nations, but has been complicated by widely differing expectations, standards of living, cultures and values, and legal systems as well as unexpected global cause-and-effect linkages.

Giddens on Globalisation

The famous sociologist defines globalisation as: a decoupling of space and time, emphasising that, with instantaneous communications, knowledge and culture can be shared around the world simultaneously.
Find out more about Giddens

Roots of Globalisation

The roots of globalisation can be found in two different periods of history, namely in the period between the 17th century until the Second World War and in the period after the Second World War.

prof. Ruud Lubbers states that the first period is characterised by the process of enlightenments and within this period a number of roots of globalisation can be identified:

Cultural enlightenment:
Decoupling of religion and science, secularisation, rationalisation, individualisation.
Political enlightenment:
Nation state formation in Europe, development of international law and treaties.
Economic enlightenment:
Money-economy, book-keeping and accounting, merchant city-states and industrial revolution with interacting national economies.
Technological innovation:
Revolution in transport and communication systems by such invention as the car, the airplane, telegraph, radio and telephone.
Spread of Western Enlightenment via:
Voyages of discovery, colonisation, markets and support/advise for developing countries.

The roots in the second period after the Second World War:

Cultural modernisation:
Political and economic refugees, worldwide entertainment and information branches and Americanisation of culture and economy.
Political modernisation:
Almost worldwide acceptance of the neo-liberal ideology of market plus democracy, global soft law regimes, rationalisation processes, decolonisation and UN-system.
Economic modernisation:
Economic liberalisation and a digital revolution with interacting global actors.
Technological innovation:
The miniaturisation and dematerialisation of products, the ICT-revolution and the invention of space-technologies.
Spread of Western modernity via:
Markets, tourism and developing aid to developing countries.

Read an outline of The Enlightenment as an intellectual movement

History of Globalisation

prof. Ruud Lubbers argues that the following are crucial events in the emergence of current globalisation:
1945 Establishment of the UN. Visit the UN website
1945 Hiroshima.
1965 Publication of The Global Village, Marshall McLuhan.
1965 Cuba Crisis.
1968 Establishment of the Club of Rome. Find out more.
1968 Publication of Our Common Heritage, Arvid Pardo. Find out more
1969 Publication of Limits to Growth, the Club of Rome.
1972 Stockholm Conference on Environment.
1973 The first oil crisis.
1975 Apollo-journey.
1975 End of Bretton Woods/decoupling of the Dollar.
1978 Publication of The Third Wave, Alvin Toffler. Read a brief here
1979 Dengs Open Door Politics.
1980 Start take off Silicon Valley.
1985 Gorbachev’s Glasnost and Perestroika.
1986 Publication of Our Common Future, Gro Harlem Brundlandt.
1986 Chernobyl.
1989 First Environmental Green Plan in The Netherlands.
1989 End of the Cold War.
1990 The Hague Declaration.
1991 War in Kuwait/Desert Storm.
1992 UNCED conference in Rio de Janeiro.
1993 Publication of Le fin de la Democratie, Guehenno.
1994 Publication of The end of History, Fukuyama. Read a brief here.
1995 Conference on Climate Change, Kyoto. Find out more
1996 Publication of The Clash of Civilizations Huntington. Find out more

THREE MORE recent events should be added to this list:
2001 9/11.
2004 Invasion of Iraq.
2005 Implementation of the Kyoto Accord on Climate Change.

Causes of Globalisation

Three prime movers:
Economic globalisation.
Technological globalisation.
Political globalisation.

The three prime movers initiated a process in which geographic distance becomes less a factor in the establishment and sustenance of bordercrossing, long distance economic, political and socio-cultural relations and which we call globalisation.

Global Village?

The metaphor used by futurologists to portray a world without borders and where humans live in a single community.

Concepts of community are shaped by distance—new technologies reduce the importance of proximity between people and change people’s perceptions of what “community” is.

People become aware of this fact. Networks of relations and dependencies therefore become potentially bordercrossing and worldwide.

This potential internationalisation of relations and dependencies causes democratic, environmental, security and social deficits and rebound effects, like a change in attitudes and administrative shortcomings.

Globalisation is not only negative. It also includes people in the world community and gives rise to new systems of global governance and a global civil society.

Economic Globalisation

Most people see changes in trade and economic relations as the main mover of the globalisation process:

Globalisation of trade.
Globalisation of finance.
Globalisation of production.
Globalisation of labour.

The worldwide appearance of trade, production and consumption, the worldwide acceptance of market economics and free trade and the sharply increasing freedom of capital movements are caused by political globalisation and technological globalisation.

New technologies and the worldwide introduction of democracy have made economic globalisation possible, by providing new means of communication and by opening up countries.

As economic globalisation progresses, the number of multi-national companies also grows and the number of strategic alliances between companies in different countries increases. This way businesses deal with globalisation.

Technological Globalisation

Technological developments have been one of the strongest movers of globalisation.

New technologies also lead to other modes of production, trade and economic relations, less based on natural resources and machines and more on knowledge, services and infrastructures for communication.

The telecommunications revolution.
The marriage between new information and communication technologies (f.e. satellites) and computer electronics makes communications cheaper and easier. It is therefore less difficult and costly to communicate on a global level, which makes it easier to bridge distances.

The decline of distance as the prime determinant of the costs of communication will most likely be the key economic force shaping the society of the 21st century.

1. PC’s & Internet.
The ever increasing number of home PC's opening the world to the average user.

WORLD INTERNET USAGE AND POPULATION STATISTICS
World Regions	Population ( 2006 Est.)	Population % of World	Internet Usage, Latest Data	% Population ( Penetration )	Usage % of World	Usage Growth 2000-2005
Africa	915,210,928	14.1 %	23,649,000	2.6 %	2.3 %	423.9 %
Asia	3,667,774,066	56.4 %	364,270,713	9.9 %	35.6 %	218.7 %
Europe	807,289,020	12.4 %	291,600,898	36.1 %	28.5 %	177.5 %
Middle East	190,084,161	2.9 %	18,203,500	9.6 %	1.8 %	454.2 %
North America	331,473,276	5.1 %	227,303,680	68.6 %	22.2 %	110.3 %
Latin America/Caribbean	553,908,632	8.5 %	79,962,809	14.4 %	7.8 %	342.5 %
Oceania / Australia	33,956,977	0.5 %	17,872,707	52.6 %	1.7 %	134.6 %
WORLD TOTAL	6,499,697,060	100.0 %	1,022,863,307	15.7 %	100.0 %	183.4 %
NOTES: (1) Internet Usage and World Population Statistics were updated for March 31, 2006. (2) CLICK on each world region for detailed regional information. (3) Demographic (Population) numbers are based on data contained in the world-gazetteer website. (4) Internet usage information comes from data published by Nielsen//NetRatings, by the International Telecommunications Union, by local NICs, and other other reliable sources. (5) For definitions, disclaimer, and navigation help, see the Site Surfing Guide. (6) Information from this site may be cited, giving due credit and establishing an active link back to www.internetworldstats.com. ©Copyright 2006, Miniwatts Marketing Group. All rights reserved.

Source: Internet World Stats

2. Global Media.
Decreasing number of owners. Moves towards monopolies.
CBS-Viacom merger--find out more
Filtration of news to suit corporate agendas. Avoidance of difficult issues, focus on simplistic entertainment.

The transportation revolution.

1. Transport.
Technological progress (initially stimulated by the needs of WW2 and the Cold War) has:
- Enhanced the size of transport equipment (container principle);
- Lowered operating costs (cheaper and longer distance);
- Lowered the cost per unit transported;

Key issues:
- Panama Canal;
- Jet engine;
- Rail networks;
- Super-ships;
- Developments in loading/off-loading systems;
- Effectiveness of the trucking industry in delivering specific amounts of goods to required locations;

2. Travel.
Citizens benefit from transportation revolution, buy being able to visit ANY corner of the planet in under 24 hours.
A century ago, a journey from paris to Berlin would have taken DAYS, whereas today, thanks to the European fast-rail network, the trip takes under 3 hours.

CONSIDER: Can viruses (and their proliferation) become the greatest challenge to Humanity??
Prior to the transportation revolution, the most lethal viruses were "self-limiting": their lethality restricted their expansion.

Financial Globalisation

According to Knight, 2006:
The global financial system of today is vastly more accessible by companies and households than it was twenty years ago, or even a decade ago.
The financial marketplace offers greatly enhanced risk management properties, particularly for credit risk pools. For example, over the past five years the trade in credit risk transfer instruments, such as credit default swaps and asset-backed securities, has made possible the sharing of credit risks among often geographically dispersed firms and households on a scale never witnessed before. Both the scope and scale of involvement of non-financial companies and households in cross-border financial transactions are unprecedented.

Financial reforms began to accelerate in the mid-1980's.

REQUIRED READING: U. Backstrom, 1998, "Financial Globalisation"

Political Globalisation

New rules and norms
• Market economic policies spreading around the world, with greater privatization and liberalization than in earlier decades.
• Widespread adoption of democracy as the choice of political regime.
• Human rights conventions and instruments building up in both coverage and number of signatories—and growing awareness among people around the world.
• Consensus goals and action agenda for development.
• Conventions and agreements on the global environment—biodiversity, ozone layer, disposal of hazardous wastes, desertification, climate change.
• Multilateral agreements in trade, taking on such new agendas as environmental and social conditions.
• New multilateral agreements—for services, intellectual property, communications— more binding on national governments than any previous agreements.
• The Multilateral Agreement on Investment under debate.

New actors
• Multinational corporations integrating their production and marketing, dominating world production.
• The World Trade Organization—the first multilateral organization with authority to enforce national governments’ compliance with rules.
• An international criminal court system in the making.
• A booming international network of NGOs.
• Regional blocs proliferating and gaining importance—European Union, Association of South-East Asian Nations, Mercosur, North American Free Trade Association, Southern African Development Community, among many others.

Political globalisation consists of the hegemony of the neo-liberal ideology.
This is about the triumph of the market-ideology, the economisation of life and mass-consumption. But not alone.
Political globalisation also consists of the dominance of democracy as model of decision making within countries.
Democracy?? find out more

Political globalisation is therefore a combination of market and democracy.
The worldwide victory of market and democracy ended the traditional division between the matured (capitalist, democratic) first, Communist second and poor third world.
Some poor third world countries heavily invested in education and technology and became rich.
The Communist countries freed themselves of the yoke of their oppressive systems and most developed democratic systems.

Global migration crisis—the movement of populations across borders. Search for better life? find out more

Left critics of globalisation define the word quite differently, presenting it as worldwide drive toward a globalised economic system dominated by supranational corporate trade and banking institutions that are not accountable to democratic processes or national governments.

Globalisation is fundamentally a capitalist process. It has taken off as a concept in the wake of the collapse of the Soviet Union and of socialism as a viable alternate form of economic organisation.
Socialism??? find out more

Criminal globalisation

United Nations claims that:
Organised crime is a threat for the globalisation process. "At the root of all this is the growing influence of organized crime, estimated to gross $1.5 trillion a year, rivaling multinational corporations as an economic power. Global crime groups have the power to criminalize politics, business and the police, developing efficient networks, extending their reach deep and wide." [...] "All have operations extending beyond national borders, and they are now developing strategic alliances linked in a global network, reaping the benefits of globalization."

Crime syndicates prefer globalisation, for it creates "new and exciting opportunities, and among the most enterprising and imaginists are the world’s criminals." According to the HDR crime groups are able to generate enormous amounts of money: "The illegal drug trade in 1995 was estimated at $400 billion, about 8% of world trade, more than the share of iron and steel or of motor vehicles, and roughly the same as textiles (7.5%) and gas and oil (8.6%)."

Read more about Al-Kaida

CONSIDER: Will terrorism WIN the battle with Capitalism and Democracy??

Educational globalisation

Process accelerated by:
- Ease of communication;
- Ease of transportation;
- Spread of global values;

Key issues:
1. Focus on Knowledge as a source of competitiveness;
- The Knowledge-based economy and society is the key for achieving and maintaining long-run competitive advantage.
- Knowledge generation requires extensive networks for information transfer, large pools of educated citizens who can MAKE USE of such infrastructures, and a systemic environment supportive of knowledge and its resulting entrepreneurial activities.
2. Search for top examples in given discipline.
- "Academic drift" or the tendency of institutions “...to copy the role and mission of the prestige institutions” (Berdahl, 1985: 303), has focused on the tendency of less successful universities to ape the program offerings of more prestigious universities. Very often such uiniversities will be located in other countries and copying them will result in the transfer of external values/systems.
3. Networks, helpful in the exchange of academic experiences, knowledge and skills are being set up everywhere.
- Modern communication aloows for the immediate and detailed sharing of ideas and programmes.
- Increasing numbers of multi-schol programmes are offered, requiring extensive collaboration and sharing between partner institutions.
- Transnational "equivalence" systems are being set up: ECTS in the European Union.

Key concept: political economy.

Definition: term stressing that the political, economic and legal systems are interdependent. (Hill, 2011, p.42)
Doing business in any country requires dealing with these interrelated spheres, as they affect the costs, benefits and risks of operating in a given nation.

Political systems.

Definition: system of government in a nation. (Hill, 2011, p.42)
Two main dimensions (axis):

Collectivism vs individualism;
Democratic vs totalitarian;

Both axis are interrelated.
Collectivism: political system that stresses the primacy of collective goals over individual goals (Hill, 2011, p.43).
Needs of society are more important than needs of an individual or group.
Examples:

Communism;
Socialism;

Individualism: opposite of collectivism, philosophy stressing the importance of individual freedom in economic and political pursuits. (Hill, 2011, p.44).
Two major tenets:

Emphasis on guaranteeing individual freedoms and self-expression.
Welfare of society is best served by allowing individuals to pursue self-satisfaction, self-interest and NOT dictating to them society’s best interest.

International business seems to thrive well in democratic, free market societies.
Democracy: political system in which the government is by the people, exercised either directly or indirectly through elected representatives. (Hill, 2011, p.45)
Categories:

Representative democracy (modern, indirect);
Athenian (direct);

Totalitarianism: all individual rights are denied to citizens, oppression is common, free elections are missing. (Hill, 2011, p.47)
Categories:

Communist (Vietnam, Laos, North Korea);
Theocratic (Saudi Arabia, Iran);
Tribal (Africa);
Right-wing (Germany, Italy before WWII)

Economic systems.

Pure market economy: all production assets are privately owned. (Hill, 2011, p.48)
Principles:

No good or services are planned. Production is defined by supply&demand.
Unrestricted supply.
Avoidance of monopolies.

Command economy: the government plans the goods & services that the country produces, their quantity and price at which they are sold. (Hill, 2011, p.48).
Objective: to mobilise the economic resources of a nation for public good.

Mixed economy: economies located on the axis between command and market. (Hill, 2011, p.49).
Governments tend to make important decisions and take over important industries/firms if they are important for nation.

Legal systems.

Definition: rules, laws that regulate the behaviour along with the processes by which the laws are enforced and through which redress for grievances can be sought. (Hill, 2011, p.49)
Laws regulate:

Business practice;
Everyday life;
Buying and selling;
Ownership (rights and obligations);
Conflicts between people/organisations;

Common law: evolved in England, works in GB and its colonies, including USA. (Hill, 2011, p.49)
Based on:

Tradition (legal history);
Custom (ways that laws are applied in specific cases);
Precedent (cases that have come before);

Key: interpretative!

Civil law: detailed set of laws organised into codes. (Hill, 2011, p.49)
Judges rely on detailed legal codes rather than on interpretation.

Theocratic law: based on religious teachings. (Hill, 2011, p.49)

Property rights.

Property: resource over which an individual or organisation holds a legal title, e.g. resource it owns. (Hill, 2011, p.51)
Property rights: legal right over the use to which a resource is put and over the use of any income that is generated from that resource. (Hill, 2011, p.51)
Property right violation:

Private action: theft, piracy, etc conducted by private individuals.
Public action: public officials extort resources or property;

Corruption.

No society is immune.
High corruption reduces:

Economic growth;
Foreign direct investment;
International trade;
Trust;

Political economy of economic growth.

Different ways of measuring growth:

GNI (Gross National Income);
GNI adjustment via PPI (purchasing power parity);
HDi (Humand Development Index);

Key drivers of growth:

Innovation;
Entrepreneurship;
Is there a universal business culture??
The current dominant form of management "know-how" seems to be sourced in the American-centric culture.
Harvard Business School. Yale. Princeton. MIT. Stanford.
All contain the resident "gurus" of managerial (and other) science.
Other schools of management, like those in Central&Eastern Europe, seem to be incorporating MINDLESSLY, the dominant systemic ideology.
American textbooks.
American examples.
Harvard, Harvard, Harvard....
"One best way" of running a company.
The HOLY grail of de-personified, mathematicised management theories.
But, what about:
- McDonald's in France??
- McDonald's in India??
- How do you motivate someone for whom position (title) is more important than money??
- What about "window workers" in pre-1990's Japanese firms??
Thankfully, the cultural/national background of "gurus" is beginning to change. Look at the TOP50Thinkers
CONSIDER: Are all the greatest economic superpowers represented??
The reality of International Management
Managers are faced with dealing with:
- Personal culture;
- Location culture;
- Organisational culture;
Key challenge: understanding what every (even the smallest) thing MEANS TO PEOPLE IN EACH CULTURE.
Otherwise there will be NO understanding/appreciation of corporate:
- Aims;
- Goals;
- Products;
- Policies;
- Services;
Western thinking and ...reality
Focus on:
- Analytical thinking (breakdown of a phenomenon);
- Rationality (prediction of consequences);
But the approach is BEST suited to ...TECHNOLOGY.
Westerners have created an understanding that management is:
- A profession;
- An emotionally detached rationality;
Yet, business is all about RELATIONSHIPS. B2B, B2C, CRM, etc...
And relationships are best supported by UNDERSTANDING.
CONSIDER: the Cluetrain Manifesto (accessible online), talks about the emerging culture of converstions (sharing knolwedge at instant speeds, about everyhtign and anything, where nothign can be hidden). How can companies deal wiht such a challenge where nothing about their problems, weknesses, lies, etc will remain hidden for long??
Culture
Definition: A way in which a group of people solves problems and reconciles dilemmas. [Trompenaars & Hampden-Turner, 2005, p.6]
A problem which is solved regularly DISAPPEARS from consciousness and becomes a basic assumption, an underlying premise.
Basic assumptions define the meaning that a group shares.
They are implicit.
There is no understanding individual and organisational behaviour without understanding the MEANINGS they attribute to their environment. [Trompenaars & Hampden-Turner, 2005, p.19]
Levels of culture.
- Professional;
- Organisational (f.e. corporate, family business);
- National (or regional);
- Global (is there ONE??);
CONSIDER: Marshal McLuhan wrote about the "global village": is this happening?? What are its characteristics??
Layers of culture.
- Outer layer: explicit products.
Observable reality of language, food, buildings, fashion, art, etc.
- Middle layer: norms and values.
Norms: mutual sense a group has of what is "right" or "wrong". [Formal: written laws; informal: social control].
Values: determine the definition of "good" and "bad". Are related to ideals shared by the group.
- Core: Assumptions about existence.
Fundamental ways of dealing with the (local) environment. Groups organise to assure better problem-resolution. Different geography = different problem-solving skills = different sets of logical assumptions.
CONSIDER: What is the role in midle-eastern society of the penalty for theft (cutting-off a man's hand)??
CONSIDER: What part of culture is the act on driving on a particular SIDE of the road (Europe vs UK)??
Culture is:
- Man-made;
- Confirmed by others;
- Conventionalised;
- Passed on to younger people;
- Taught to newcomers (they must learn it);
Modeling cultural orientations
Kluckhohn & Strodtbeck (1961) designed a comparative model, focusing on:
Assumption 1: cultures are stable;
Assumption 2: cultures exhibit constant "orientations" towards the world and mankind.
Six basic cultural orientations.
1. What is the nature of people??
Scale: good-->mixed-->evil.
2. What is the person's relationship to nature??
Scale: dominant-->in harmony-->subjugation.
3. What is the person's relationship to other people??
Scale: lineal (hierarchical)-->collateral (collectivist)-->individualist.
4. What is the modality of human activity??
Scale: doing-->being in becoming-->being.
5. What is the temporal focus of human activity??
Scale:future-->present-->past.
6. What is the conception of space??
Scale: private-->mixed-->public.
In real life the model is too simplistic, as not all members of a group must practice the same behaviour.
BUT: when we consider the PREDOMINANT and SUBORDINATE variations, the same model can be used to explain the overall behaviour (predominant) from behaviour of smaller (subordinate) groups.
Subordinate variations are significant when:
- researching the behaviour cultural sub-groups;
- analysing mainstream groups in abnormal (unusual) situations.
Cultural contexts
Hall (1976) focused on how people interpret and create communications in reference to the CONTEXT.
Cultural experiences determine the understanding of context and define the way people structure their life.
Cultures vary in terms of programming their members to depend on the context when communicating.
High- and low-context cultures.
1. High-context.
External environment, situation, non-verbal behaviour are CRUCIAL in understanding (and creating) messages.
Examples: Japanese, Arabic, Chinese.
Characteristics:
- Subtlety is often valued.
- Relationships are long lasting, there is deep personal involvement.
- A lot of shared code, assures economic, fast and efficient communication (yet, often communication is an ART form, like in Japan).
- People in authority are personally responsible for the actions of subordinates.
- Agreements are more often SPOKEN than written.
- Insiders and outsiders are tightly distinguished (outsiders may include NON-members of family, clan, organisation).
- Cultural patterns are ingrained and slow to change.
2. Low-context.
Characteristics:
- Relationships between individuals are relatively shorter, less involvement.
- Messages must be explicit (cannot depend on receiver using the context to acquire more information).
- Authority is diffused throughout the bureaucratic system.
- Personal authority is difficult to pin down.
- Agreements are written (rather than spoken). Contracts are FINAL and legally binding. In 1987: Japan had 11 lawyers per 100 000 people, while the USA had 279.
- Insiders and outsiders are not so distinguished/separated. (Good for immigration, and immigrants finding their place in the country).
- Cultural patterns change faster.
Culture, status and function
Laurent & others (1983) analysed the ATTITUDES of managers towards organisational power.
Looked at management as an IMPLEMENTATION process by which managers expressed their cultural values in explicit management decisions. [Mead, 1994, p. 61]
1. Hierarchy.
- Cultures that value hierarchical structuring as a means of social cohesion impose severe restrictions on communication FLOW.
- In the case of non-hierarchical system, communication is tolerated and encouraged, information can be sent/channeled effectively.
2. Manager as an expert vs manager as facilitator.
- In Asia the manager must be a specialist/authority (if NOT-->loosing status).
- Technical efficiency of the organisation is dependent upon the efficiency and professionalism of the superior.
- In Europe the manager must be able to TAP INTO pools of knowledge/competence to get a problem SOLVED.
Culture and workplace
Hosftede (1984 and later) looked at the underlying values of the culture group and their impact on the workplace.
1. Power distance.
Focuses on how a society deals with fact that people are unequal in physical and intellectual capabilities:
- High power distance: societies that let inequalities grow/increase;
- Low power distance: societies that play down inequalities.
2. Individualism versus collectivism.
Focuses on the relationship between the individual and his fellows:
- Individualistic: societies where ties between people are loose, and individual freedom and achievement are most prized;
- Collectivism: ties between individuals are tight.
3. Uncertainty avoidance.
Focuses on the extent people are able to accept ambiguous situations and tolerate uncertainty:
- High uncertainty avoidance: societies where important is job security, career patterns, retirement promises. Strong need for rules and regulations;
- Low uncertainty avoidance: greater readiness to take risks and less emotional resistance to change.
4. Masculinity versus femininity.
Focuses on the relationship between gender and work roles:
- Masculine: sex roles are sharply differentiated and traditional "masculine" values are strong (achievement, exercise of power);
- Feminine: sex roles are less distinguished.

Ethics

Definition: accepted principles of right and wrong that govern the conduct of a person, members of a profession or the actions of an organisation. (Hill, 2011, p.124)

Ethical Strategy: strategy or course of action that does not violate the accepted principles. (Hill, 2011, p.124)

Employment practices.

Key challenges:

How to employ equally across borders;
Should employees get the same rights;
What are the correct working conditions;
Should workers have representation;
Definition of a “worker” or “employee” (children, etc);

Currently there are various campaigns aimed at:

Impacting overall working conditions in nations;
Changing employment practices of specific companies seen o be abusing workers;

Issue: if a product is cheap, do we care if it was made in a country with none or little worker rights, and minimal work conditions?

Human rights.

Definition: are commonly understood as "inalienable fundamental rights to which a person is inherently entitled simply because she or he is a human being." Human rights are thus conceived as universal (applicable everywhere) and egalitarian (the same for everyone). These rights may exist as natural rights or as legal rights, in both national and international law. (Wikipedia)
Rights are taken for granted in developed western states:

Freedom of association;
Freedom of assembly;
Freedom of speech;
Freedom of movement;
Freedom from political oppression;
Right to personal safety;

There are increasing other rights being associated with “Human rights” and the campaigns to spread these “rights” are active across the world.
Key targets of such campaigns: “oppressive regimes”.
Business dilemma 1: invest and operate in nations violating human rights?
Business dilemma2: can foreign companies contribute to human rights violations?

Environmental pollution.

Developed nations have complex, effective and substantial regulations concerning emission of pollutants, dumping of toxic materials, use of toxic materials in the workplace.
Key challenges:

Climate change;
Environmental pollution;
Rainforest destruction;
Biodiversity;
Endangered species;

Unethical behaviour.

Personal ethics: generally accepted principles of right and wrong governing the conduct of individuals. (Hill, 2011, p.131)
Personal ethics come from various sources:

Parents;
Schools;
Religion;
Media;
Community;
Friends, etc;

Personal ethics affect our business conduct.
Challenge 1: how will personal ethics coexist with ethics of company?
Challenge 2: how will a manager working in a foreign country behave?
Will:

His personal ethics be stronger/better than the local?
His personal ethics be weaker than the local?
Local pressure lead to moral pollution?

Challenge 3: what if an “ethical company” at home expect unethical behaviour abroad?

Decision-making processes also affect ethics, as manager focus on straightforward business decisions (solving problems) and ignore the ethical consequences of their actions.
Key dimensions:

Shareholder approach;
Stakeholder approach;

Organisational culture: values and norms that employees of an organisation share (Hill, 2011, p.134)

Unrealistic performance expectations: pressure by parent company to meet unrealistic performance goals that can be attained only by cutting corners or acting unethically. (Hill, 2011, p.134)

Leadership: helps establish the culture of an organisation and sets example for people to follow. (Hill, 2011, p.134)
Employees follow leader’s culture, and if he/she is unethical or rewards unethical behaviour, employees will pick up on this and change their behaviour to gain recognition, rewards, advancement.

Community

The company does not exist in an isolated vacuum, rather it is a part of a coherent social system and as such it:
- Is affected by development in society;
- Affects society through its own actions;
- Is a mini-society itself, with its own internal rules, culture, etc;

Shareholders vs stakeholders

The narrow approach to company governance talks about the profit-maximising firm, whose primary (and sole) aim is to maximise the welfare of the people that have invested in it (shareholders of various forms).
This approach is now being supplanted by the STAKEHOLDER approach:
A wider view of governance accepts that there are other groups, which also have a stake in the functioning of the company and as such should be given access to the decision-making processes within the firm. These “stakeholders” include:
- Employees whose work and wages depend on the company’s welfare;
- Suppliers who themselves make a living off the company, customers who provide funds by purchasing the company’s finished products;
- Creditors that have lent the company funds;
- Government;
- Immediate neighbourhood and its community.
The company is therefore a nexus of interests that must be satisfied without negatively affecting the company itself.

Read more about stakeholders at Wikipedia

Stakeholders vs externalities??

The stakeholder approach appears to have much in common with the Macroeconomic theories of "externalities".
Externality: is an impact or side effect that is caused by one economic agent and incurred by another agent or other agents. [Samuelson, 2003, p.499].
Externalities can be:
- Negative. Fundamental example: POLLUTION.
- Positive, die. bring about positive side effects. Definition: benefits from production or consumption experienced by OTHER people that are NOT the producer or consumer. [Sloman 2000, p.297] Example: Basic Science and R&D bring about spin-off benefits: the development of profitable products.

Affecting the community

The company should be aware of its impact on the surrounding community (communities).

Negative: externalities.
Ought to be avoided at all costs (while maximising short-term profits they impact long-term community relationships).
Ecological issues like noise and air pollution are at the forefront of such worries.

Negative: layoffs.
Large-scale downsizing can destroy entire communities, as the company pursues profit-oriented strategies and shifts production abroad.

Negative: moral/ideological "pollution".
In his previous movie, "Bowling for Columbine" Michael Moore talks about the effects that Columbine defence contractors (like Lockheed Martin) have on the psychology of the people living there. Surrounded every day (and for decades) with the reality that everyone around them is building Weapons of Mass Destruction, city inhabitants have undergone a mild psychological change, that has made them more prone to violence.

Positive: supporting local education/sports.
Increasing numbers of companies become involved in local education support initiatives, as well in supporting local sports teams. Rationality for such actions varies, but we can expect that a company wants to:
- Build a better climate around its base of operations;
- Build community awareness;
- Develop a stronger community for its employees that work and live in the neighbourhood;
- Avoid taxes :P;

Positive: community conscience.
Some companies might want to "steer" their surroundings in specific ways that will be of benefit to a much wider population.
A company might try to impose its own values.

Positive: health support.
In economic systems where health support is financially-dependent or unsatisfactory, companies might decide to provide:
- Health plans for its workers;
- Health-oriented projects for the wider community;

Consider: during my 2006 trip to india, I tried to give some money to a beggar on the streets of New Delhi. I was quickly persuaded NOT to do that, as one of the Indian businessmen accompanying me explained:
- Giving money to ONE beggar is a waste of money. He/she will eat the money away and no TRACE will be left.
- Those that want to AFFECT a much wider number of people INVEST money in simple projects, like digging up a water well with a hand-operated pump. That way a much larger COMMUNITY of beggars will benefit from having access to clean water.

Environment

Environmental issues have been at the forefront of media campaigns, protests, anti-globalisation organisations.
The key promoter of ecological awareness is: GREENPEACE.
Read more about the leading NGO here

The modern ecological campaigns have grow in strength due to Greenpeace's successes,a nd now multiple organisations and associations follow in its footsteps.

Greenpeace as a movement acquired CREDIBILITY, when the French sunk its flagship, the Rainbow Warrior.
The sinking of the Rainbow Warrior, codenamed Operation SATANIC, was a special operation by the "action" branch of the French foreign intelligence services, the Direction Générale de la Sécurité Extérieure (DGSE), carried out on July 10, 1985. It aimed at disabling the flagship of Greenpeace, the Rainbow Warrior, in the port of Auckland, New Zealand, to prevent her from interfering in a nuclear test in Moruroa. [Wikipedia]
Read more here

Ecological issues

The current focus on our environment centres several key issues.

Climate change.
The movie "A Day After Tomorrow" was the most recent powerful signal that we cannot continue affecting our ecological system in such negative ways.
Al Gore, the opponent of George Bush Jr in the 2000 elections (and who was Clinton's Vice President) has recently taken a STAND on ecological issues, and has released a powerful documentary on the consequences of climate change.
Read more here
Scenes from "Day After Tomorrow" as the world's climate SHIFTS abruptly, covering the entire northern hemisphere in snow/ice.

Protection of ancient forests.
Forests are the "lungs" of the earth as the provide the oxygen animals need to survive.
Complex ecosystems within forests maintain living habitats for thousands of species, that need a balanced ecosystem to survive.
Forests hold still untapped resources like medicines, vaccines, etc.

Saving the oceans
From maintaining the circulation in the atmosphere (Golfstrom current, etc), to providing humans with high quality protein, all the way through to possessing the greatest natural resources (minerals, etc) that, once "tapped for extraction" will revolutionise Humanity's development.

Stop whaling.
The greatest of all mammals. Only 2 SAVAGE nations retain their whaling fleets: Norway and Japan.

Saying "no" to genetic engineering.
Greenpeace: "While scientific progress on molecular biology has a great potential to increase our understanding of nature and provide new medical tools, it should not be used as justification to turn the environment into a giant genetic experiment by commercial interests. The biodiversity and environmental integrity of the world's food supply is too important to our survival to be put at risk."
Read more here

Stopping the nuclear threat.
Nuclear power is in no way "safe", ecological, cheap. From every reactor, tonnes of nuclear waste have to be extracted, shipped for re-processing and then stored for millennia, as the atomic decay progresses with astronomical slowness.
The entire nuclear industry is BASED on military developments, and every activity around it has military potential/implications.

Consider: The Chernobyl disaster provided a powerful warning about the dangers: it occurred at 01:23 a.m. on April 26, 1986 at the Chernobyl nuclear power plant in Pripyat, Ukraine. It is regarded as the worst accident in the history of nuclear power. Because there was no containment building, a plume of radioactive fallout drifted over parts of the western Soviet Union, Eastern and Western Europe, Scandinavia, the British Isles, and eastern North America. Large areas of Ukraine, Belarus, and Russia were badly contaminated, resulting in the evacuation and resettlement of over 336,000 people. About 60% of the radioactive fallout landed in Belarus, according to official post-Soviet data. According to the 2006 TORCH report, half of the radioactive fallout landed outside the three Soviet republics. The disaster released as much as 300 times more radioactive fallout than the atomic bomb of Hiroshima.[Wikipedia]
Read more at Wikipedia
What was left of a nuclear reactor...

Eliminating toxic chemicals.
Progress in chemical industries means that we are producing ever-more-complex substances, which cannot be destroyed (broken down) within nature.
For many chemical companies ILLEGAL DUMPING is a much cheaper solution that the ecological breakdown. Dumping penalties are much smaller than the investments necessary to deal with extremely toxic and long-lived substances.

Sustainable development

In response to Ecological challenges a new topic emerged, one where companies are able to find guidance about HOW they should go about:
- Continuing their operations;
- Minimising their impact on the ecosystem.

Sustainable development is a process of developing (land, cities, business, communities, etc) that "meets the needs of the present without compromising the ability of future generations to meet their own needs" according to the Brundtland Report, a 1987 report from the United Nations. One of the factors which it must overcome is environmental degradation but it must do so while not forgoing the needs of economic development as well as social equity and justice. [Wikipedia] Read more here.

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