Hack:
Government Regulation within Trading Blocs to facilitate Sustainable Capitalism
The 21st century has seen unprecedented prosperity and produced high living standards for the majority of people living in the western world. All in the name of Capitalism, markets are short-sighted and only focus on the next quarter. We need a long term approach, corporation needs to be flexible in order to survive; they can’t be fixated with the short term gains any longer. The question is how to achieve this in a global market that is so evident today.
The challenge is to find out how can capitalism be sustainable in the long term, through the eyes of global organisations that are socially accountable for their actions. It is in my opinion that this can only be achieved through effective governance systems. Without governance there would be chaos and governance establishes order within communities. In an inter-human relation framework, conflict arises from individual personalities and beliefs, which in turn results in competition for natural resources.
In order to create a solution we first need to look at the purpose of a corporation. The question should be: should the corporation serve its shareholders, or should they serve the societies that are affected by its actions? The underlying point should be that employees as well as management need to be involved in the decisions that affect them. The more they unilaterally participate in the decision making process the more likely they are to be committed to the foresight of the corporate enterprise. This can only be achieved through well-defined governance brought forward by the board. Capitalism does not give businesses the right to avoid common moral decency, capitalism should instead, encourage business to trade in a fair way. In response to the perceived corporate greed of resend times, businesses have started to move towards a stronger business ethics.
Over the last decade large global corporations have moved their focus from the traditional supplier-firm-customer relationships to also include their relationship with communities. They have started to add another level in their value chain that being their relationship with communities through governments or other interest groups and in doing so provide an important value to society (Freeman, 1997). Companies that are in harmony with the needs of their communities are less likely to run into liability issues and are more able to depend on trust within these communities they serve. In recent times the corporate governance has become extremely important and is more evident where boards of directors no longer observe the importance of their roles and responsibilities vis-à-vis governance. Management is the sole determinant of a company’s sustainable future.
It is my believe that we need to start looking at the bigger picture and not confine the answers within countries, but start looking at what is actually happening in the world. Corporations have now become global and are influencing markets on a much bigger scale.
They are competing with each other globally and the only way to govern this is through trading blocs. Examples are: Preferential trade areas; Free trade areas; Custom unions that can work through the World Trading Organisation (WTO). Case and point the European Union is the world’s largest trading bloc after the North American free trade agreement (NAFTA). Capitalism is constant under pressure of ecology, globalisation and demographics and should be seen as a servant rather than a master.
Governments need to start taking a bigger stance in regulating businesses, by doing so they can facilitate a better quality of life for all citizens, providing a strict platform that can be incorporated within the trading blocs to influence other trading members. Corporate governance will have to comply then within the rules, should they not comply, they will find themselves left out and not able to trade in a capitalist model for the future. It is important that governments need to raise standards in order to raise productivity and improve environmental standards, by reducing waste and enhances work motivation within organisations.
Through the work of Edward Freeman and Jeanne Liedtka from the Darden School, University of Virginia- Stakeholder Capitalism and the value Chain - they have come up with four principles that drive sustainable capitalism for the future.
Stakeholder Cooperation
Capitalism works because entrepreneurs and managers generate relationships and business deals that incorporate customers, suppliers, employees, financiers and communities. Each party is vital to the success of any company. All stakeholders are needed and without them, companies cannot be sustained.
Principle of Complexity
Humans are complex creatures they can act with different values and do not always behave in an economic capitalist’s way. Capitalism works because of this variance in behaviour, sometimes humans are selfish and other times they act for the benefit of others.
Principle of Continuous Creation
Businesses create value and new sources of value and because of this creative force it becomes a driver of capitalism. People come together to create something whether it is a new service or product or even to cure the sick.
Principle of Emergent Competition
Competition emerges when you have a relatively free and democratic society. Competition is an important force that drives capitalism, but is not the only force. It helps us to distinguish between cooperation and manages tension within the process of capitalism.
The European form of Capitalism under the EU is a good example to compare, prepared to protect ordinary workers during economic downturns, providing affordable health care, child care and education to their citizens. Under this model employee’s morale tends to be better which improves productivity. Co-workers see each other as sources of support rather than competition. This encourages innovation and increases efficiency.
With technology constantly changing Corporation needs to be flexible in order to survive; they can’t be fixated with the short term gains any longer. Capitalism needs to adapt to a changing environment and rediscovers its moral compass that is vital for markets to work well (George Higson, 2011). The French banker Michel Albert calls it the “Rhine” model. Within this model labour unions and management share power, governments provide a safety net through pensions, education and health benefits. The laws in Europe make it hard for employers to dismiss employees and as such it makes employers view their staff as a kind of investment that can be improved but not discarded (Piety). Governance should be structured in such a way to give employees a voice in management. Some will argue that this model is a form of socialism rather than capitalism. By definition: “socialism is the ownership and control of capital and industry by the community as a whole through government” (Marshall, 1993). Ownership of capital in most European countries is significantly private with very intense competition in the open markets (Marshall, 1993). Following a model that looks after the wellbeing of ordinary citizens within a global community is the essence of long-term capitalism that takes care of the environment and the social aspects of a society.
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