Moral purpose, economic incentive and global trade : why new business models are needed

Abstract

Globalization has occurred in various forms over the past century, yet only recently has it become daily news. This evolving process has created numerous underlying tensions that are not well understood. While western society has tried to address these tensions, it has sometimes mishandled them. In this thesis, we examine one such area; the belief that globalization creates opportunities for significant labor exploitation and why it is necessary, in the absence of government regulation and enforcement, to set social codes for companies sourcing products in developing countries in order to prevent this mistreatment. The thesis examines whether these codes are actually effective in accomplishing their stated objective of improving social conditions and if not, what plan could better accomplish this goal. It is divided into five chapters; the first is a review of five central globalization trends that frame the social code discussion. The second and third chapters look at the negative publicity that exposed labor problems overseas and assesses whether any of the known global actors care enough to cure the problems. Starting with the historical development of multi-stakeholder initiatives (MSIs) set up as a response to these problems, we then examine the codes they promulgated.

(cont.) In the fourth and fifth chapters, we discuss why the codes are less effective than desired. The analysis is focused on the alignment and misalignment of institutional and organizational incentives in three areas: business model design, supply-chain management, and capital-market development. While acknowledging the impressive social good accomplished by the MSI's, we argue that moral purpose by itself is difficult to impose across a wide range of institutions and cultures. Using more dynamic business models, companies and MSIs can create the right incentives to eliminate exploitive practices. Finally, we look at how creating such a virtuous cycle can have a profound positive impact on global trade and encourage governments to regulate. While modifying business models will prove daunting for many companies, there is ample economic justification to do so.