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Success of globalization rests on good business reputations

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These are not good times for business ethics in the industrialized nations. In spite of a carefully honed reputation for professionalism and honesty, businesses in the United States, Japan and Europe have seen scandals and problems. In the U.S. it has been the overstatement of profits by and exorbitant remuneration of chief executives. In Japan the concern has been with misidentification of products and payoffs. In Europe the issue has been bribery and understatement of profits. These developments place the acceptance of economic globalization at risk.

As we see the news headlines and the pictures of executives being led away in handcuffs, one might wonder whether lawlessness by business has reached a new zenith. After all, the revelations continue to come and the amounts involved are quite staggering. Is this perhaps the beginning of the unraveling of the industrialized nations, of the chickens of injustice coming home to roost? At the just completed annual meetings of the World Bank in Washington D.C. the demonstrators sure made it sound that way.

One might be tempted to relax by placing the issue into a larger context: Out of the more than 12,000 firms registered with the U.S. Securities and Exchange Commission, the companies accused are a minuscule fraction. The public spotlight has been on the spectacular bankruptcies in the U.S. and the gradual disappearance of major German firms and banks. Their plight has overshadowed the hundreds of thousands of hardworking managers.

While the scandals have embroiled some French members of the old school and have triggered resignations in Japan, the global acceptance of bribery and corruption has sharply declined. We now know about the tie-in between corruption and terrorism. The Organization of American States has passed rules outlawing such practices. The Organization for Economic Cooperation and Development — the rich man’s club — has agreed to change the bribery regulations among its member countries. In the future, not only will deducting improper payments from taxes be prohibited, but such payments will be prohibited altogether. Even the World Trade Organization is placing bribery rules on its agenda.

There has been major progress in the responsibility of firms on a global level. Of course, the pressures from shareholders and analysts have grown as well. Some firms have unfortunately responded to these pressures by taking shortcuts and using smoke and mirrors.

But in spite of all this progress, it is imperative to identify and terminate these nefarious practices and to punish the responsible executives. As they demand and create new remedies and rules, commentators and legislators typically point to misled shareholders, fired employees and cheated customers for their rationale. They’d have us believe that the issues to be addressed are of strictly domestic concern, since perceptions of ethics vary by country and culture. However, the task is much more formidable. This is not a strictly local concern. Rather, economic globalization itself is at stake. We need quick, ongoing and public action for the sake of the success of market forces around the globe.

As proponents of the market-based system, the industrialized nations are “selling” the rest of the world on two key issues: One is the benefit of market forces, which results from the interplay of supply and demand. This interplay in turn uses price signals instead of government fiat to adjust activities. It thrives on competition, and works within an environment of respect for profitability and private property.

The second key proposition is that within the system the players will do their best to identify market opportunities and bring their products and services to customers around the globe. In exchange for the profit potential, individuals place their funds at firms’ disposal for them to be put to the most productive and efficient use.

Key for all this to work is managerial and corporate virtue, vision and veracity. Unless the world can believe in the basic underpinnings of market based activities, it will be hard, nay impossible, to forge a global commitment between those talking about markets and the ones wooed to orient themselves on market forces. It is therefore of fundamental interest to the proponents of globalization to ensure that corruption, bribery, lack of transparency and the misleading of consumers, investors and employees are relegated to the scrap heap of history, where they belong. It will be the extent of openness, responsiveness, long-term thinking and truthfulness that will determine the degrees of freedom of global business in the future.

It is important that Japan, the European Union and the U.S. collaborate to guard the virtue of market forces so that the positive benefits of globalization can flourish in a world that desperately needs economic wind in its sails.