The new realities of globalization

No matter where you have your headquarters, produce your products or offer your services, the realities of the technological revolution in communications, transport, education and consumer attitudes have altered business perspectives.

The impact has been felt and dealt with in every aspect of business, government and management education. For the most part, businesses have adjusted to new global competition. Now, new challenges have arisen right here at home, even in our own backyards.

A new “beggar thy neighbor” attitude impacting trade relations and capital market flows paralyzing Europe and the Eurozone has made its way here to battles between U.S. states and even cities within states, to entice existing businesses to their locales.

The implosion of the national and global economies beginning in late 2007 and reaching new depths in 2009 and the uncertainties and gloom surrounding the lack of growth even today have created new social and economic forces to address perceived grievances. These grievances have taken on strong, even violent, reactions to solutions promoted by federal, state and local governments.

Trade unions both in the private and public sectors, long opposed to what they have seen in globalization, are frantically attempting to rally support among political allies and the voting public. Even before the economic crisis unions in the private sector complained that the transfer of jobs out of the U.S. by local companies was an attempt to destroy the trade union movement.

Today, the efforts of governors in Indiana, Wisconsin, Ohio, Indiana and now Missouri and New Hampshire to change the collective-bargaining laws are resulting in massive, sometimes violent, demonstrations by unions and their supporters.

To many observers the union message of “attempts by business to destroy the unions” has found support. What is not being widely discussed in the popular media is the real reason why these governors and legislators are moving in these directions. And, it all goes back to the impact of globalization and the implications for developing an environment friendly to free enterprise and with a regulatory framework minimizing both compliance costs and internal staffing needs.

The urgent need to deal with huge budget deficits and unsustainable benefit plans are also of current concern in many states and cities. Uncertainty and fear often breed contentiousness, even hostility.

The situation in Wisconsin bears analysis. Long the bellwether for liberal social and economic legislation the newly elected governor, blessed with majorities in both Houses, decided the time was ripe to make his state far more business-friendly. The first move was to disassemble the incestuous links between government officials supported for re-election by union contributions collected in dues from the employees of the government managers at state and municipal levels.

Only with a “level playing field” and more friendly officials would Wisconsin become attractive to outside investment.

Meanwhile, elected officials in our region are struggling with similar problems with varying results. Both Govs. Cuomo and Malloy face legislatures dominated by their own Democratic Party. This, however, does not guarantee overly friendly cooperation from private sector and public employee unions when asked for both financial sacrifices and changes in laws and regulations. Malloy took a bold step when he accused successive state legislatures of having ignored their constitutional duties in overseeing all labor contract negotiations at municipal levels and being largely responsible for the sad state of finances at both the state and local levels. Negotiations for staff reductions and increased employee contributions to health and retirement plans are ongoing. Unions are strong and deeply entrenched in the societies of both Connecticut and New York. The governors have a tough row to hoe.

While the struggles make headlines what is not gaining adequate coverage, debate and general understanding is how these relationships between state and local governments, trade unions and businesses define “the climate” for investment. Perceptions of a market area, accurate or not, impact both new investment decisions and capital expenditures.

New investment is essential to a community”™s financial and social fabric. It results in new tax revenues. New employees and families bring increased income to local businesses.

However, if government and its powerful supporters are seen by both prospective investor boards, management and employees as “not business friendly” no investments will occur. Nissan in Tennessee is an example. Its initial investment made in a “labor-union friendly” environment is now the sole site for all of its electric cars and batteries.

Neither New York nor Connecticut, in my experience, are viewed abroad or here as business-friendly. This is due in large part to the high degree of unionization and unions viewed by foreign investors as at best contentious and at worst to be avoided if possible.

Another important environmental factor is regulation. We all are aware of the myriad regulations, licenses, codes, etc. at the federal level. What is often overlooked is the wide range of expensive and time-consuming regulations at state and local levels.

High real estate costs for employees moving to Fairfield and Westchester counties are also deterrents.

It all creates an ambiance, which influences attitudes, which impacts decisions.

Concentrating on less ”“ and more effective ”“ regulation would be a first meaningful step. Toning down the rhetoric at all levels is also desirable. The stakes are high.

 

John Alan James is professor of management and corporate governance, Lubin School of Business, Pace University, New York City. He also served as the first director of International Business Economic Development for the state of Connecticut. Reach him at jjames@pace.edu.