Make things more effective

By Frank-Jürgen Richter

Khaleej Times, April 27, 2012

Their intensity fell away as the `business cycle´ progressed only to arise again in a new form – the Occupy demonstrations, commencing in September 2010 in New York. Although it is a convenience for politicians to talk of the `business cycle´ many economists consider these variations to be only fluctuations superimposed on the aggregate economic activity – for them it represents a form of normality; but for the people out of work it may be described as a catastrophe. Mass demonstrations against globalisation used to occur while the IMF, WTO, Gxx meetings were being held; for instance, the WTO meeting at Seattle (1999) was recognised as perhaps the initiation of this mainstream protest.

I am of the opinion we ought to reconsider business practices, maybe reflecting on what happened even before Adam Smith (1723 – 1790). Yet, taking one of his axioms, we understand that if there is someone who can make `things´ more effectively than oneself it is best to let them do that and enter into some bargaining – to exchange what one can make effectively in exchange for those things others can make better. Perhaps this sequence of bargaining and using cash sometimes will be a long sequence, but it will be best for all. Partly as a consequence of these thoughts massive globalisation took place as the world became more industrialised; more fuel was consumed, logistics became more reliable and the global population grew. Many grew rich on trade and trade took on many forms – including complex global trades of financial instruments, hence the Occupy demonstrations.

Once containers were invented after the Second World War vendors saw that their goods (finished and part-finished) were now securely transported and so Adam Smith´s `effectiveness´ criteria was further extended: work was outsourced and increasingly off-shored to the vast factories of Asia especially in China once its `special enterprise zones´ opened up; now it is their centre and western regions opening up. Western managers looked to personal and stockholder value maximisation. What their societies ought to have done was to invest in the re-education of redundant staff to ensure they would be able to leap past their own historical skills to embrace an unknown future. Indeed, this is what will soon be needed in China since it finds now fewer people working in cities than remaining in their rural homelands. Several dynamics come into play – an ageing workforce nationally with rising wages in the coastal regions, as well as their annual GDP rate faltering as the nation becomes ever more prosperous.

Yet, make no mistake, globalisation is here to stay. Adam Smith was quite correct – we must, for the good of the planet, use all our resources effectively. This means we must use logistics to move goods and services round the globe to better our overall state. At the same time we must support an honest social agenda and stop the rape of innocents. We should realise that `sweat shops´ (while they offer cash to poor people whose only alternative is no work and probable starvation) must provide a full social service of wages, health and education support both at the factory and back in the rural villages.

There has to be a new balance of re-shoring, off-shoring and outsourcing. It is stupid for governments to succumb to local pressures to offer incentives and tax-breaks to entice reluctant managers to re-shore bringing back work to the local community which could be better done overseas: this is a waste of our taxes. Yet it is prudent for all enterprises to look to their sustainability, their green credentials and to their susceptibilities to supply-chain shocks to ensure they have second-sourcing in place: the recent floods of Thailand and the chaos of Fukushima demonstrate the massive interdependence of present-day globalisation.

The demonstrations for and against globalisation must stop and be re-addressed to clamour for a Fair Global Social Agenda. This should take the form of a complex change since `back home´ governments have allowed too many of their population to fall into a malaise exacerbated by poor education fitted only for the past: their people need re-education to support a new future. And these people, while still out of work, must agree to let people overseas work effectively within the new Social Agenda so in the round, globally, we will all benefit. Our new quest must be a re-education to jointly understand how the world is running: the future is now, and we must learn to thrive on our global strengths whilst preserving local harmony.

Frank-Jurgen Richter is chairman and founder of Horasis, a global business community