Fathers And Mothers Infants eLders and Youth
Responsibility in a modern world: My brother's keeper?

Clifton R. Wharton, Jr.

Keynote Address
"Personal, Social, and Corporate Responsibility in a Common World"

Fourth International Paolucci Symposium
Michigan State University
April 4, 2002

Clifton R. Wharton, Jr.
President, Michigan State University, 1970-78

The invitation to participate in a symposium named for Professor Bea Paolucci is an opportunity which I could not refuse. When I became president of MSU, I soon learned that a president's success depends on many intangibles, one of which is the support of distinguished members of the faculty. I am proud to say that Bea Paolucci, a recognized leader of the professorate, was one of those. These symposia fittingly honor Bea's intellectual contributions to human ecology, and I want to also acknowledge her added role in the university's academic governance.

I must say that I found the title of this symposium—"Personal, Social and Corporate Responsibility in a Common World"—somewhat intimidating. It is hard to think of one that holds more potential hot-button issues or risks more diverse interpretations. Yet, knowing Michigan State people, and particularly the integrity and vision of the woman we came here to honor, I am confident that in this audience we can find much common ground as we begin our discussion. Taking the words "common world" to intend a global perspective, I will not dwell so much on our personal views of responsibility, but rather on the broader landscape on which our approach can help bring peoples of the world together—or conversely create a further divide.

I would like to begin by taking a closer look at the word "responsibility." The implication is that persons and institutions interpret responsibility as being based upon certain moral and legal values or codes, which may be imposed externally or held internally and which affect behavior. We have laws which control the level of emissions—an externally imposed limit to create a more responsible behavior to achieve a better environment for the "common good"—the commonweal. Most citizens have personal beliefs about the value of charity and philanthropy usually designed to address an area of need that affects the "common good," such as supporting United Way or the Salvation Army or a local Christmas Fund for the Neediest. In this area, while the state encourages such behavior through recognizing charitable tax deductions, the action of giving is a reflection of an individual value of personal responsibility—a social responsibility for the needs of fellow human beings. We are not legally forced to give, but do so out of an internal motivation.

But this cursory exploration of the term responsibility opens several nagging questions. I want to assure you that I don't intend to inflict on you another lecture on the Enron affair, where the words "corporate responsibility" have become an oxymoron. But there are definitional problems. Who decides upon the locus of responsibility? Who sets or determines the standards of responsibility? When there is a conflict in these standards, between personal values and social ones or laws, how are they resolved? At what point do social benefits part company from economic benefits? For example, a corporation is obligated to pay taxes, but if it can avoid taxes by the simple expedient of registering in Bermuda, is it shirking a national responsibility in order to benefit its shareholders? How can we best resolve the frequent instances of conflict or tradeoffs in determining the "common world" good or "general welfare?" I will elaborate on these questions in a moment.

The Challenge of Globalization to the Commonweal'

For now, let me move back to the larger canvass of "responsibility in a common world." Such terms as "global village" or "shrinking world" or "growing world interdependence" are regularly used—perhaps overused—to describe the explosive growth in human linkages on the planet. Nowhere is this phenomenon more evident than in "economic globalization," the hallmarks of which are such realities as transnational production networks and massive financial linkages that crisscross the globe. For example, the daily volume of transactions on the New York Stock Exchange is about 1.3 billion shares with a value of $50 billion. Of this, about 12 to 13 per cent represents some 500 non-U.S. firms. Note that this volume for foreign firms is more than the total Exchange volume a scant 10 years ago. Such is the accelerating pace of economic globalization.

Much of economic globalization is propelled by acceptance of certain key beliefs and theories that laissez-faire, technology transfer, and international trade based upon comparative advantage are the keys to higher incomes and greater human progress. Economic integration forged by open markets for trade and investment are subscribed to as a major force increasing incomes and reducing poverty. These ideas, once limited to the advanced industrialized countries, are now embraced by the majority of nations.

Nevertheless, market-based forces are not universally applauded as positive. For some groups the term "globalization" has become a synonym for a "new colonialism" or a "21st Century imperialism." Indeed, in the past few years almost every international meeting of economic or political leaders has been treated to the urban theater of demonstrations and riots, demanding extraordinary security. But behind the handful of radicals and anarchists who provoke the rioting for television purposes, there are genuine reasons for concern about the darker side of globalization. Today's freer trade and lower barriers often induce corporations to take advantage of manufacturing or service opportunities in other countries, sometimes to the detriment of the home base. Added to this are the escalating mergers which close plants in the name of efficiency and the shift of jobs to lower-wage countries. The old American tradition of 'the plant" where generations of families worked, is rapidly disappearing. A close-to-home example is the Kraft Life Savers plant in Holland, Michigan which will close next year and move to Quebec, Canada after more than 35 years of operation and at the cost of 600 jobs. The owners may have a persuasive economic case for the action—they say it will save 10 cents a pound on sugar—but promoting cost savings or "shareholder value" as the motive for such changes does little to assuage the plight of laid-off workers. Nor do statistics that purport to show the gains of freer trade for U.S. companies and employees that export their goods. Jobs lost and jobs won may have statistical balance, but this is can be deeply painful in human terms.

This phenomenon raises some important questions about the term "corporate responsibility," which, in its global mode, no longer consists of just business ethics, treatment of employees, or attention to community needs. Moreover, as U.S. companies grapple with these problems on the home front, there is an important new corollary: How does corporate responsibility apply to the foreign countries in which they operate? If a company moves production to Asia or Africa because of lower costs, primarily labor, what is the company's responsibility to improve the conditions of its new workers? Is it up to human rights organizations to police the actions of the Nikes, GAP and other companies and force change?

Beyond the special global responsibility of corporations, there is also the governmental and multilateral governmental set of responsibilities. Advance press coverage for the recent United Nations Conference on Financing for Development, in Monterrey, Mexico rehashed the customary litany of global development—or more accurately the lack thereof. The New York Times noted that 'Nearly half the people in the world still live on less that $2 a day. and a fifth survive on $1 or less. Most people in Latin America, the Middle East and Central America are poorer than at the cold war's close. despite the fast economic integratbn of the 1990s. Africans live no longer and have no higher incomes than they did 40 years ago."1 The message may be getting across. When a Republican president advocates a $5 billion increase in the foreign aid budget by 2006, as he did on March 14th, you know there must be a problem. Even so, the resulting total aid of $15 billion will still represent only about one-tenth of one percent of our gross national product. Compare that with Spain which gives $1.2 billion (0.22 per cent of net OOA), the Netherlands at $3.1 billion (0.84 per cent). France at $4.1 billion ( 0.32 per cent), and Germany at $5.0 billion (0.27 percent).2 In absolute dollars, we rank second to Japan which is the largest.

While foreign economic development was my earliest professional career, I will resist the temptation to critique the situation. Instead I would like to follow my charge for this evening to set the stage for your subsequent deliberations on "responsibility in a common world."

Let me set forth two broad areas which bedevil individuals, institutions and societies or nations attempting to deal with responsibility for the global commonweal.

The Challenge of Adam Smith

First is what might be called the challenge of Adam Smith. Our economic system is regularly described as market-oriented based upon classical notions of laissez-faire. The assumption is that adhering to this model will ultimately achieve the greatest good for all—resources are optimally allocated, prices/costs are minimized and productivity/income is maximized. The first complication is that markets rarely conform with Adam Smith's totally free theory, and the "invisible hand" is regularly moved, shaken, deflected, squeezed, tilted, twisted and bent by governments which in turn are subjected to a variety of pressures and forces which distort the pure free market outcomes. Whether it is corporations or unions, self-interest is frequently expressed in ways which alter the achievement of the "greatest good for the greatest number." In such cases, the critical difficulty is who defines the common good and who determines the locus of responsibility for creating the undesirable situation and for correcting it.

The recent decision by the president, who apparently violated his own stated free-trade principles to impose tariffs on steel imports, is a case in point. Global economic interdependence and international trade in steel was having an adverse effect upon the U.S. steel industry—foreign steel was cheaper and was gaining market share. Raising tariffs is supposed to reduce the threat of U.S. steel companies going bankrupt and to protect U.S. jobs in the steel industry. But there are other economic interdependencies—the tariff action will also raise the domestic price of steel, adversely affecting the other U.S. industries which use steel products. For example, the cost of building automobiles will rise (or factories will use even more of other less expensive substitutes), the price of cars will increase, fewer cars will be sold—you can continue the analysis yourselves. The end result will be that far more jobs will be lost than the ones saved in the steel producing industry itself. This is not to say that the tariff action may not have been warranted based on other considerations such as national security to protect a domestic steel supply in the event of war or disruption of foreign sources. The issue to consider here for our purposes this evening is where lies the "commonweal?" Who should bear the burden of correcting any adverse consequences? Who is responsible for maximizing the "common good?"

Both nationally and internationally, corporations, as the key economic engines, bear major responsibilities. Dean Roger Martin's concept of a "Virtue Matrix"3 has made a useful distinction between "instrumental" corporate social responsibility—those actions which "explicitly serve the purpose of enhancing shareholder value, and the "intrinsic" ones which are taken simply because "a company's leaders . . . think it's the right thing to do, whether or not it serves shareholders interests." Although such "intrinsic" actions when unilaterally undertaken may adversely affect the "bottom line," I would argue that in this new era of heightened globalization, the adoption of such policies may well prove to be of significant economic value in the longer run.

The Challenge of Distortions: Adjustments and Inequality

The second and perhaps the most serious area for global economic responsibility relates to the challenges of economic dislocations, and employment disruption requiring transitional and retraining actions. It should be noted that the so-called "backlash" against globalization is not limited to the widely televised World Bank, IMF, WTO and Davos demonstrations by radical activists. A recent analysis by researchers at the Institute for International Economics reviewed some 20 public opinion studies4 and found that there is significant widespread skepticism among U.S. citizens about globalization. Even though the respondents recognized the costs and benefits of broader integration with the world economy, they tended to give greater weight to the costs than to the benefits. Some 56 per cent of those surveyed believed that, even if greater U.S. exports created new higher-paying jobs, overall it is not worth the disruption of those losing jobs due to the new international trade linkages. These sentiments were strongest among less-skilled workers who constitute the majority of the U.S. labor force, the group which has had close to zero or even negative real wage growth. Little wonder at the strong opposition of these workers to freer trade and immigration.

I would argue that the greater international transparency now accompanying global interdependence will bring about greater pressures to correct the distortions in the global "commonweal." Communication links—the Internet et al—alone are sufficient to make clear the extent to which the "have-nots" know what they don't have. This fact places a premium on those governments which are prepared to propose and execute policies designed to address these social and economic distortions and inequalities.

The nations which have adopted policies favoring globalization through improved trade, increased investment, when coupled with strong domestic policies and administrative infrastructure, have had more rapid growth than those which did not do so. A forthcoming report by the Committee for Economic Development (CED) finds that "between 1993 and 1998, the number of absolute poor in developing countries that have embraced globalization declined by 120 million, while poverty increased in other developing countries by 20 million."

Little wonder that the forces pushing ever greater globalization are virtually unstoppable. Stan Fischer, who recently left the International Monetary Fund to join Citigroup, made a penetrating observation when he pointed out, "Over the last few years almost every country that has had an economic crisis was advised by powerful domestic forces to stop free-market reforms. And yet after an initial period of doubt, almost all of them—Brazil, Russia, Turkey—came back to the same policy path. Often they have come back with greater resolve."5

The CED report appropriately points out, however, that "open markets are not by themselves sufficient to do the job of poverty reduction,"6 and goes on to emphasize the need for complementary policies and institutions with special attention to education and health. The report says that the "countries that have achieved high rates of economic growth and poverty reduction have maintained macroeconomic stability, strengthened political institutions, and invested in human resources."

This is why I believe that the most critical consequence of economic globalization is the need to meet the inevitable challenge of the negative consequences—especially human dislocations and inequalities. It is worth noting in passing that the challenge is not limited to the developing or recently developed nations—we face the same problems domestically in the United States. The impact of globalization is such that the frequencies of adjustment and impact of these forces and the speed with which they occur constitute a major paradigm shift. The economic and human dislocations that took place when gas powered cars replaced horse-drawn wagons spread over several decades. Compare that with the rate of adoption of computers or cell phones. Hence, dealing with the human consequences in these two situations is radically different.

Those groups most severely and adversely affected by dislocations are understandably in the forefront of seeking to block such policies and changes. Bearing the unavoidable short-term personal costs associated with the process of adjustment is never easy, particularly when viewed at the individual level.

Existing U.S. federal programs do not take full account of the growing complexity and worldwide nature of these transitional problems. The Trade Adjustment Assistance Program was established almost thirty years ago and is primarily aimed at those who lose manufacturing jobs due to foreign imports. The NAFTA Transitional Adjustment Assistance addendum of ten years ago is limited to workers adversely affected by imports or production shifts relating only to Mexico and Canada. These programs hardly reflect the nature of today's world.

I stress the areas of transitional adjustment rather than such factors as income redistribution because the latter does not create lasting solutions to the problems of poverty. The hard evidence is clear that attempting to reduce poverty by redistributing income or wealth can only provide a temporary solution and, as the CED report states, "In the final analysis, reducing poverty means raising productivity. Higher productivity...raises incomes; as income rises poverty declines."7 This equation is not universally accepted, however, and is the subject of much current debate among economists.8

Nevertheless, I hold that nations should always seek to address income gaps not only for humanitarian reasons but also because the gaps frequently contribute to class conflicts or social instabilities and in some instances adversely affect the rate of growth. This is especially true where the problem has been exacerbated by the negative actions of corporations or governments. But we must be careful not to assume that the inequalities themselves have prevented economic growth. In many cases, negative social pathologies are more due to poverty itself than to income inequalities. We must, therefore, keep our focus on economic growth as the major force which will be the best solution by "lifting all boats."

Perhaps on a par with addressing responsibility for greater economic parity and poverty reduction is environmental protection. Some even would put it as the most pressing priority because of the implications for all of human life—rich and poor. Still, the two priorities are inexorably linked, primarily due to cost factors. The argument over whether we are undergoing "global warming" may still have some validity among scientists, but the evidence of climate change and pollution of the atmosphere is too great to ignore. Yet, that is what we are urged to do by the scuttling of the Kyoto Treaty and the failure to address our gluttonous use of oil, actions that are disturbing signs that the administration is not facing up to the seriousness of the problem. In the long run, only governments can initiate and enforce significant steps to protect the environment, but the question is: can we afford to wait for the long run? As British economist John Maynard Keynes put it:—"In the long run, we're all dead." Here then, is a classic challenge to exercising responsibility in a common world.

Conclusion: "Am I My Brother's Keeper?"

I would like to conclude on a slightly personal note. Three months before September 11th, Bill and Judith Moyers hosted a small dinner during which Bill challenged the guests by asking us a provocative question, as he so ably does on his television programs. He remarked that looking back over the most recent century, there clearly were problems that we might have worked on to improve world conditions, but failed to recognize. So, he asked, what are the current problems that we are neglecting to address today that might prove crucial in retrospect in the next century? After considerable reflection, my choice was our inability to deal with religious creeds that are distorted to deny the unity of humankind and become moral justification for intolerance or holy war. One's belief in a god is an intensely personal matter; yet, when it becomes the basis of state-sponsored "ethnic cleansing" or guerrilla warfare or terrorist killings, religion loses the very essence of humanity.

I believe that this is a most disturbing phenomenon which is affecting humankind globally. Hence, my answer to Bill Moyers's question is critical when considering "responsibility for global welfare" because our Western, Christian-Judaic commitment to responsibility is essentially rooted in the Biblical notion of being "our brother's keeper." All humankind on the globe is presumed to be our brother—and sister—for whom we have a human responsibility. Yet the centrifugal forces of differentiation are tearing the human fabric with ever escalating conflict and violence, whether it is in the Sudan, Northern Ireland, the Middle East, Peru, Kashmir, or Sri Lanka.

All this compels me to leave you with a broader question: while we respect and observe tolerance for different values and beliefs within our own society, how can we best proceed to exercise our attempts at expressing our responsibility for the global commonweal? Can we be our "brother's keeper" in an interdependent world where the "they" often do not see us as their brothers? Or even more important, can we afford not to?

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Besides the presidency of MSU, Dr. Wharton's former positions include U.S. Deputy Secretary of State in the Clinton administration, Chancellor of the State University of New York System, Chairman of the Board of the Rockefeller Foundation, and Chairman and CEO of TIAA-CREF, the financial services giant.

Footnotes:

(1) Joseph Kahn and Tom Weiner. "World Leaders to Discuss Strategy for Aid to Poor." New York Times. March 18, 2002.

(2) Organization for Economic Cooperation and Development (OCD), "Net ODA (Overseas Development Assistance) Flows in 2000."

(3) Roger L. Martin, "The Virtue Matrix: Calculating the Return on Corporate Responsibility," Harvard Business Review. March 2002.

(4) Kenneth F, Scheve and Matthew J. Slaughter. Globalization and the Perceptions of American Workers. (Washington D.C.: Institute for International Economics, 2001).

(5) Fareed Zakaria, "The Teflon Global Economy," Newsweek. February 11, 2002

(6) Committee for Economic Development, "A Shared Future: Reducing Global Poverty Through Economic Development," Report of Subcommittee, Co-Chairs Edmund Fitzgerald and Paula Stern (DRAFT March 2002)

(7) CED Report, "A Shared Future: Reducing Global Poverty Through Economic Development, " (DRAFT March 2002), p. 17.

(8) James K. Galbraith, "A Perfect Crime: Inequality in the Age of Globalization," Daedalus. Winter 2002.