Tuesday, January 4, 2011

Globalization and Human Resource Management

I am teaching an online human resource management class this month.  One of our first day's discussion boards was about globalization and human resource management.  I sent the class the following e-mail to cap off the class discussion on globalization and human resource management:

>The class is more balanced with respect to globalization than my classes last semester.  Globalization gets bad press but I am for it, although not in the way it is done.  The theory of comparative advantage that David Ricardo first expressed in the early 19th century shows why trade works.  Each country has relative strengths and weaknesses. If each country does what it is relatively good at (not necessarily better at than other countries, just what it is relatively productive at compared to its other opportunities) then the world will produce more and the greater productivity can be exchanged globally, making each country better off.  Tariffs and other trade restrictions thus prevent possible gains from trade.

The worst examples of tariffs were during the 1840s in Britain and Ireland and in the 1930s in Russia. In both instances there were mass starvation, first of the Irish during the Potato Famine and second of the Ukrainian kulaks under Stalin's socialism.  These two instances of trade restrictions amounted to mass murders, the first of  one million deaths and the second of I believe about 10 million deaths. Thus is the promise of tariffs, trade restrictions, economic autarky (whereby everything is manufactured at home) and government intervention.

While such extremes are unlikely here, at least in the near future, there are other repercussions to trade restrictions.  For instance, trade restrictions preceded the Second World War.  The Smoot-Hawley Tariffs, the most extreme in American history, were passed in 1930 at the outset of the Great Depression. It is difficult to prove that World War II and the Great Depression were entirely caused by the Smoot Hawley tariffs. But it is astonishing the labor movement now advocates similar kinds of tariffs.

The Great Depression was far worse than any that preceded it and there was much less government intervention in the economy until within 20 years of the Great Depression.  Hence, the Smoot Hawley tariffs and the increased regulations of the 1890-1920 Progressive era and the New Deal along with the establishment of the Federal Reserve Bank in 1913 all may be part of the reason for the Great Depression of the 1930s.

Astonishingly, Americans under George W. Bush and Barack H. Obama have opted for policies that are similar to the policies that were adopted preceding the Great Depression: expansion of the money supply, more regulation, higher tariffs. Have fun, guys. My career is drawing to a close. You are the ones who will be hurt by economic insanity.

One of the chief policies that the Federal Reserve Bank and the US government have emphasized is ever increasing foreign indebtedness.  Numerous foreign countries have been holding large shares of treasury bonds. This has the effect of propping up the dollar.

The natural response to excessive outsourcing ought to be a weakening dollar.  As firms move overseas demand for dollars declines. When the dollar declines demand for foreign goods also declines and firms move back.  But the US government and the Federal Reserve Bank have orchestrated a pattern where foreign countries hold our debt, keeping import prices low.  Thus, the two-party system, specifically including the Democrats under Obama and the Republicans under Bush, have pushed for policies that ensure that jobs leave the country.

Of course, given the huge indebtedness now to foreign countries, if those countries were to unilaterally sell off the US debt there would be a currency collapse here. The dollar would be worth pennies, much like the Papiermark in Weimar Germany in the early 1920s.

The effect of the twin policies of monetary expansion by the Federal Reserve Bank coupled with subsidization of the dollar by foreign central banks and governments has been a weakening of the manufacturing sector here and the comparable strengthening of the competitiveness in European and emerging market countries, for instance, the BRIC countries, Brazil, Russia, India and China. At the same time, consumers here are better off than they ought to be as merchandise is at low prices.  However, the inflation due to the Fed's monetary expansion can be seen in the rising property taxes and cost of services such as construction, government, health care and education.

Thus, it is inaccurate to view globalization and its implications as separate from monetary and Federal Reserve Bank policy. These issues are linked as well to human resource management.

Many students note that culture clash, complexity and the need to increase skill levels are coupled with slow job growth, outsourcing and increasing competition.  All of these factors coincide with monetary policies.

There will be no easy way out for the US.  The dollar will become weaker and consumers will be worse off before manufacturing will return here.

There were several interesting responses to this discussion board, one of which was R's:

"Some employees who have lost their jobs have either relocated, changed their career, returned to school, negotiated with their former employer for a part-time position, pay-cut, or have accepted a lower level job. In turn, this has often led to a decline in living standards.

"2. Many employees who had maintained their jobs, felt insecure and were under constant pressure at work. This led to chaos, over-achievement, competition to outperform colleagues and an obvious decrease in desire to help co-workers leading to decreases in efficiency and lower product quality. This marked a  withdrawal in loyalty toward the employer and the employer’s goals. The low morale and insecurity would also heighten the employee's interest in social insurances (health, social security, education…) as the fear of job loss intensified.

"3. On the other hand, the import of these goods manufactured offshore has created end-line positions at retail stores...This yields a boost to the nation’s economy and the acceptance of diversity and multiculturalism. It can also foster positive feelings towards others cultures and harvest communication and cross-cultur(al) exchange of ideas on an international, national and intra-company level. (Of course the reverse exists due to globalization as well, with Dunkin Donuts, Starbucks, Walmart, McDonald's etc…  opening worldwide.)"

All of these behavioral and economic outcomes are linked not only to globalization but also monetary policy.

The error virtually everyone who discusses this makes is to blame globalization for phenomena that would not occur without the Federal Reserve and other central banks' monetary policies that have pegged other world currencies to the dollar.  The dollar has been propped up, encouraging exodus of manufacturing jobs.  If the propping stops, consumer prices of imports will rise and job losses (and foreign trade deficits) will come to a halt.


Doug Plumb said...

There is a whole other aspect to globalization - the destruction of cultures that have evolved over thousands of years. The new materialism adopted by Western cultures and the technological society has a bunch of disadvantages that are being exported.

To think that we Westerners with our big guns and phoney money know whats best after only existing for a few hundred years is absurd to say the least.

Some people think the world is better off with different cultures that evolve separately yet learn from one anothers mistakes. Making one world culture could be (and currently is) one big cultural mistake - materialism and positivism are not good for anyone but the ruling elite classes. These lead to overall unhappiness and currently the need for individuals that identify themselves entirely by their occupation.

Materialsm destroyed the ancient atomists, Marcus Arelius said its for commoners. Plato warned against it, Kant warned us against it. Strauss also doesn't like it as he spoke against it in Natural Right & History.

We adopt it because its easy for commoners to understand - its a philosophy for the intellectually lazy and ultimately leads to the opposite of progress.

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HR Management said...

Globalization implies accepting that cultural diversity in management composition and management style contributes to the competitive advantage of the global agency. Also, effective globalization calls for the pursuit of a number of management approaches that, on paper, may seem contradictory, but that can truly be effective only through their simultaneous and balanced application. Global human resource management provides an organized framework for developing and managing people who are comfortable with the strategic and operational paradoxes embedded in global organizations and who are capable of managing cultural diversity.