Corporate America has received a lot of criticism lately—much of it deserved, considering the egregious behavior we have witnessed over the past year. However, as long as we are assessing the relative merit of American business, it is only fair that we look for positive aspects as well. A report recently released by the United Nations (UN) gives us reason to do so.
The 2002 UN Report on Human Development describes democratization as being stalled and facing a backlash from disappointed societies around the world, with Russia, Eastern Europe and Latin America as typical examples. It is interesting to note that those countries that have struggled the most with democracy are those that have had the least amount of success integrating into the world economy. There is a reason for this. Capitalism is the classroom for democracy, and business is the teacher. Business probably does more to help spread democracy than any other part of society, primarily by facilitating the cultural change that is necessary for a society to become truly free, civil and democratic. It’s time we recognize this contribution by business.
Evidence Abounds Don’t take my word for it—let’s look at the hard evidence. Over the last 50 years, among the less developed countries that have tried to venture down the path of progress, those that have started with economic reform and saved broad political reform for later (Taiwan, Hong Kong, Singapore and South Korea) have significantly outperformed (both economically and politically) those that began with political reform (India, Russia and most of South America).
For a specific comparison, let’s look at India and Taiwan, mainly because of the chronology. India gained independence from Great Britain in 1947 and immediately instituted democratic institutions of government. Taiwan separated from Communist China in 1949 and spent the next 40 years under martial law imposed by a one-party autocratic government. Today, India remains a broadly impoverished country with a 45% illiteracy rate, a government and society known for pervasive corruption, and a troubling amount of politically-related violence and instability. Taiwan’s economy, on the other hand, is not only more than 10 times larger than India’s (on a per capita basis), but its democracy is sounder and its society is much more stable and peaceful.
To what do we owe the difference? The biggest factor would have to be economic liberalization and capitalism. During the period of martial law and beyond, the Taiwanese government advanced and protected property rights, encouraged entrepreneurship and foreign investment, and elevated education and the rule of law throughout the land. India, on the other hand, tightly controlled access to markets, withheld property rights from its citizens, and did little to promote foreign investment. Taiwan made the transition to democracy later than India did, but in a much more effective fashion.
A Ground-Level Perspective That’s the big picture on how capitalism paves the way for democracy. Having spent many years managing businesses in remote, less developed parts of China, I can also share with you a ground-level perspective on how business helps spread democracy. When I was working in China, I was surrounded by tyranny. I don’t mean the tyranny of government—I mean the tyranny of business managers with whom I had dealings. It quickly became clear to me that heavy-handed, authoritarian, rule-with-an-iron-fist leadership was more the rule than the exception in China, not just at the top of government, but at all levels of society.
Corruption was equally prevalent. Again, I am referring not only to government officials, but to the behavior I witnessed in my everyday business activities. To a far greater degree than in the U.S. or other developed nations, people at all levels in China take advantage of their positions for personal gain.
There were also other cultural differences that shocked me, such as a relative lack of systematic and analytical thinking and a tendency to ignore basic safety precautions. In the end, I came to see the differences as reflecting a passive, “life is what happens to you” view of the world, as opposed to the proactive, “life is what you make of it” view of the world that dominates Western culture. This explains why poverty always accompanies oppression, because a people who see themselves as powerless will not only fail to protect themselves from the forces of nature, but will also lack strength to protect themselves from the oppression of their fellow man.
These were more than casual concerns for me. I had a job to do. I was supposed to build a business without losing money or getting ripped off. I quickly learned that my primary challenge was to affect cultural change in my co-workers. Concepts such as accountability, fairness, meritocracy, balanced leadership, honesty, systematic thinking, efficiency, quality and the like had to be understood by our personnel if our company was going to survive. The challenge was not simply to teach certain business techniques, but to use business techniques to change the way people view their jobs and the world in general.
Investing in Democracy Ultimately, this is what the process of democratization requires—a cultural transition, i.e., a sweeping conversion of the hearts and minds of the people over to the values that support freedom, rights and democracy. As a practical matter, I believe that to effect this transition, to cause a people to fundamentally alter their world view and to convince them that they have the power to improve their lives, you must appeal to that which is fundamentally most important to them—the food on their table or the roof over their heads. That’s why capitalism paves the way for democracy.
And what is capitalism without business? The truth is, a successful company, a prosperous economy and a just political system share the same cultural foundation (accountability, fairness, meritocracy, balanced leadership, honesty, systematic thinking, efficiency, quality, etc.). Since our economic well-being is so important to us, and since business is the way we address our economic well-being, it stands to reason that the cultural attributes we see in business will reflect those of society in general.
That’s why business helps bring change in developing countries. When those countries trade with us, they learn something about honesty, accountability and quality. When we invest in those countries, they learn about our approach to leadership and management in general. In short, while government-to-government contact is limited to diplomats, businesses interact with other companies, employees and customers, and this interaction in developing countries is one of the most effective ways for us to teach the cultural values that lead to capitalism, prosperity, democracy and freedom.
I am not saying that all businesspeople are saints or that all Senators should be CEOs. I am simply saying that we need to give more consideration to the role culture plays in shaping our world. If we did that, we would realize that businesses, economies and political systems tend to reflect the same cultural values. And given that realization, maybe we would be more careful with our business culture in America and more aware of the importance of spreading that culture in the world.