Does Business Impact Peace?

From: University of Michigan | By: Timothy L. Fort
Timothy L FortEDITOR'S INTRODUCTION | In some regions throughout the world, economic globalization has created new opportunities; in others, it has generated greater instability and insecurity. Timothy L. Fort (right), associate professor of business law and business ethics at the University of Michigan interrogates this by asking a provocative question: Does business impact peace? His search for an answer reveals that there are valuable ways for the private sector to collectively influence conflict-prone regions. Fort demonstrates that multinational companies have pivotal roles to play in conflict prevention and resolution, and he provides practical actions companies might undertake to foster sustainable peace.

The fact that the World Trade Center was the target of the attacks on September 11, 2001, seems to have been no accident. Osama bin Laden was later quoted as wanting to harm US economic might because that might was a critical source of American power. The World Trade Center was also, of course, a symbol of American economic power. Moreover, the attacks did have a short-term impact on businesses, particularly the airlines. Businesses became more sensitive to the fact that a global economy requires stable, peaceful relations in order to flourish.

Does business have anything to do with peace though? It may be true that businesses flourish with peaceful, stable relationships. But what can a single business do to promote such relationships? In a sense, there may not be a great deal that any one business can do, but businesses collectively might be able to have an impact on sustainable, peaceful relations among peoples. That impact could be either positive or negative. In this feature, I would like to elaborate on why businesses might be constructive instruments of peace, why they might have the opposite effect, and what they can do to contribute to sustainable peace.

Premise #1: Business can contribute to peace

There are four ways in which corporations might theoretically contribute to sustainable peace. First, business provides economic development, which can alleviate the scarcity of resources. This is the rationale often used to justify globalization. When a business moves into an emerging market, it typically brings with it jobs that employ people who otherwise have limited means, if any, of supporting themselves. While the free market can also foster discrepancies of income levels, it does have a proven record of raising the standard of living of countries that adopt it as their economic model. The theory is that corporations provide the economic development that alleviates the competition for scarce resources so that there are fewer flashpoints for violent contention.

Second, corporations can contribute to peace through what is known as Track Two Diplomacy. There are two kinds of Track Two Diplomacy. The more traditional notion is that non-governmental parties are able to provide a context for governmental leaders to take greater risks in proposing changes in policy. It is difficult for a government official to speak to someone in another country who is independent of that country's government. An official should, diplomatically, use the other country's official channels. Yet, this limits the kind of communications that can occur. Track Two Diplomacy uses parties outside of the government to act as third parties who can unofficially convey information so that governments know when they can risk diplomatic changes because they have been given background assurances as to how the changes might be received by the other government. Although speculative, one can probably assume that one of the reasons why the 2001 China-United States dispute over the American spy plane shot down over China did not escalate was that business people were able to impress, explicitly or implicitly, on their governmental representatives, the economic importance of continuing, peaceful relations between the countries.

Another kind of Track Two Diplomacy is that of simple corporate citizenship. If corporations operating in another country conduct themselves in a way that is perceived to be constructive to the society, then there is likely to be a spillover effect that softens the view of that country's residents toward the home country for the corporation. For instance, Johnson & Johnson operates a program in a facility in Brazil in which it provides breakfast or snacks for its employees. Johnson & Johnson certainly benefits economically because fed workers are likely to be more productive employees. And such actions are also a positive contribution to the local society and can promote a receptive perception about multinational corporations.

Third, corporations can contribute to peace by providing a forum for interethnic cooperation. In some countries, including the United States, members of different ethnic groups may not typically associate with each other. Even if the reason for associating is merely economic, that association still provides an opportunity for those differing ethnic groups to work together for a common goal. In some cases, this can be informal: employees simply comprise different ethnic groups. In other cases, it can be an explicit purpose of the company.

The fourth way in which corporations can contribute to peace is in that it is unlikely that one will fight one's trading partners. This has been a theme of philosophers for centuries including such luminaries as Kant and Montesquieu. These philosophers, and many others besides, have argued that commerce will lead to peace. In a sense, this is true; but it is also worth noting, as has anthropologist Lawrence Keeley, that World War I adversaries traded with each other right up until the time hostilities broke out. The same is true with respect to Japan and the United States and with respect to Germany and the Soviet Union prior to their engagement in World War II battles. Keeley, who has been critical of how trade limits warfare when compared to contemporary times and during "pre-history," agrees that one does not fight one's trading partners when one is trading with them (Keeley, War Before Civilization, 1996). A more contemporary example of this is New York Times columnist Tom Friedman's "McDonald's Thesis" which states that there has never been a war between countries with a McDonald's. In light of the NATO conflict with Serbia, Friedman amended the thesis in that the time when prospects for peace grew was exactly when NATO cut the power grids which disabled commercial activities in Belgrade (Friedman, The Lexus and the Olive Tree, 2000).

Premise #2: Corporations can sow the seeds for unrest

Unfortunately, Premise #1 is not the whole story. Depending on how businesses conduct their affairs, they can also sow the seeds for violence. For instance, not only can a McDonald's have a positive impact on peace, it can also have a negative impact. In 2001, front page stories carried the news that McDonald's, without public announcement, had changed the oil in which it prepared its french fries from a vegetable-only formulation to one that contained beef tallow. Not only did this mean that unaware vegetarians had consumed beef but that Hindus, for whom cattle are sacred animals, had unwittingly violated their religious principles by consuming McDonald's french fries. As a result, protests erupted, including attacks on some McDonald's restaurants around the world. McDonald's did respond to the concerns raised, but more importantly this example shows how quickly an action of a corporation can have an unanticipated effect. It is not enough, therefore, to assume that business simply enhances the prospects for peace; business must also act in a certain way so as not to sow the seeds for violence. There are three main ways in which business can, theoretically, sow the seeds for violence.

First, businesses can be perceived as being exploitative of local populations and undermining of cultural identity. The McDonald's french fries example is a case in point where business, just by pursuing its interest in profitability, can deeply violate a cultural and religious identity. There are other, more far reaching examples. Certainly, the fear of exploitation has been present in poor countries throughout history. Colonialism, slavery in America, and drug pushing by English business interests in 19th century China, are examples of the historical reasons countries fear the presence of powerful businesses on their soil. Religious scholar Scott Appleby has made a convincing argument that religious extremism, which can be nonviolent or exceptionally violent, often results when a local population believes that an outside force is threatening its cultural identity. When that happens, the local population, often through a charismatic leader, can seize on certain key phrases in a religious text or tradition as core principles for the religion. Those phrases are used as justifications for violent opposition to intruding markets (Appleby, The Ambivalence of the Sacred, 2000). Tom Friedman notices this in his observation that human beings need "olive trees" — their sense of permanent rootedness — and free markets can threaten to overrun them (Friedman, The Lexus and the Olive Tree, 2000).

Second, income disparity, a typical outgrowth of the free market, can produce resentments. Often this disparity is linked to corruption, which will be explained further in the concluding section of this article. Regardless of the corruption dimension, if there is anything events of the 21st century have shown to date is that even marginalized members of a society have destructive weapons at their disposal. And if their plight is desperate enough they will be motivated and willing to give up their lives for the cause. Disparity itself may or may not produce such situations, but to the extent there is an imbalance so that marginalization ensues, then there is an increased risk that a violent reaction might occur. Thus, even more important than disparity is desperation. While the free market has a proven record of wealth creation, it does not have as clear-cut a record of eliminating marginalization in the process.

Third, because business tends to thrive on relatively unregulated markets, the push to deregulate state enterprises can bring with it a loss of equality, a psychological discomfort in security, and a threat to a kind of social glue. Referencing ex-communist countries, former Secretary of State Madeleine Albright has noted that while entrepreneurs and intellectuals often welcome the free market, it can be feared by the general population because communism, for all its faults, provided a sense of equality and security that one would not be left too far behind ("A Conversation with Madeleine Albright," 35 Vanderbilt Journal of Transnational Law, 2002). Free market reforms, however, are often in conflict with such safety nets and in the early years of economic development, the dislocations of peoples can be severe.

An individual business is not likely to solve all of these problems. However, a business that conducts itself in a way that respects local cultures, provides jobs while avoiding corruption, and looks to alleviate marginalization through support of certain kinds of reforms may mitigate some of the problems associated with economic development. Moreover, a company that is a good citizen, one that is ethically responsible, may be able to bring to an emerging market the best of all worlds. That is, it can bring the benefits of business as described in Premise #1 while avoiding the pitfalls inherent in Premise #2. Although research is not complete, there appear to be seven things companies may be able to do to positively contribute to sustainable peace.

Seven actions companies can take

I have been working with my colleague, Professor Cindy Schipani at the University of Michigan Business School, on a project that attempts to identify contributing factors to sustainable peace. It is too early in the research phase of this project to definitively identify specific things that corporations can do to contribute to sustainable peace in the countries where they do business. Given the preceding premises, however, and research established to date, I can suggest seven things that corporations might do in order to contribute to sustainable peace.

First, as should be obvious, corporations can do what they do best: provide economic development. This will produce wealth, create jobs, foster new, sometimes unforeseen spinoff business opportunities and, as a result of all of these things, mitigate the scarcity of resources, at least on an absolute scale. The ability of businesses — both small and large — to do this suggests that rich nation-states may foster more peaceful global relations by adopting trade practices and aid distribution that will enhance their own security.

Second, corporations can avoid engaging in corrupt activities as much as possible. We found a direct correlation between countries where corruption is perceived to be great and incidences of violence. In particular, the more corruption that existed in the countries, the more likely disputes were to be resolved through violence rather than through non-violent means. This research does not claim that corruption causes violence, but it does establish a correlation and it is not unreasonable to predict that further research might substantiate a causative connection (Fort & Schipani, "The Role of the Corporation in Fostering Sustainable Peace," 35 Vanderbilt Journal of Transnational Law, 2002). The reason for this possible correlation is that corruption tends to benefit an elite few, who frequently are not subject to democratic processes to remove them from office. As a result, it is conceptually plausible to argue that corruption perpetrates unfairness, reduces hope for common people to make economic advances, and builds up frustrations that could explode in violence. Thus, corporations may contribute to peace by avoiding corruption and supporting reforms that help limit corruption.

Third, anthropologist David Fabbro, who has studied peaceful societies throughout human history and "pre-history," has found that those societies with greater degrees of gender equity tend to be less violent (Fabbro, "Peaceful Societies," Journal of Peace Research, 1978). Researchers are currently investigating this link in contemporary terms, and if true, then to the extent businesses provide economic opportunity for both genders and provide equal opportunities for advancement within their organization, they may contribute to gender equity. It would be strange if this activity did not have spillover effects in the societies in which businesses do their work. Of course, in some countries, such gender equity would be strongly resisted. Nevertheless, even if the opportunities are provided to expatriate Americans rather than local populations (assuming that countries are less concerned with the promotion of women of non-local identities), then gender equity is still likely to have important spillover effects.

Fourth, in the anthropological studies noted above, a significant characteristic was the voice of all members of a community in the decisions affecting them. Typically, these communities were relatively small and that smallness gave voice to everyone in an organization where there is a great deal of face-to-face communication. Voice provides people with a sense of ownership over the rules that affect them and that experience psychologically provides people with a greater sense of ownership of the community's rules. Moreover, it prevents the likelihood of extreme problems, such as warfare and famine. Nobel Prize winning economist Amartya Sen has demonstrated that there has never been a famine in a country with a functioning democracy. The reason is that the poor in a democracy have voice in the government, can inform people that they are hungry, and can wield some political power accordingly. The problem of famine, Sen concludes, is not lack of resources as it is the kind of a voice-driven government (Sen, Development as Freedom, 1999). Similarly, several studies have shown that democratic countries do not go to war with each other (for example, Spencer Weart, Never at War, 1998). One reason for that is that people affected by warfare raise concerns about such a dangerous activity. A second reason is that a culture operating on the principle of the importance of voice is likely to approach disputes in a spirit of negotiation rather than violence.

There are at least three implications of this point for corporations. First, to the extent corporations can be supportive of democratic movements, an admittedly dangerous action in some authoritarian countries, they provide long-term assistance for sustainable peace. Second, to the extent corporations avoid their own command-and-control method of governance, they can teach employees how to exercise voice in a constructive way. Many corporations already do this because they understand that employees bring a perspective that can make the company more competitive. Thus, they want to unleash the voice of employees. Third, some companies, such as Motorola, insist on using quality management tools. A central aspect of quality management is that employees must raise their voice if they see a defect or have a way to improve quality processes. In countries where political, cultural, or even religious history may have been authoritarian, it is important for there to be models of what a voice-driven governance process looks and feels like.

Fifth, companies can engage in Track Two Diplomacy. I have already described this and will not repeat the dimensions of Track Two Diplomacy except to state the obvious, that when businesses can bring together parties who might otherwise be prone to unleash violence and when businesses act as good citizens, they provide positive rather than negative experiences for multicultural interaction.

Sixth, businesses need to respect the identity of local populations. Motorola again provides a good example of this. When operating in Malaysia and China, for instance, Motorola's managers are local individuals rather than expatriates. This allows for companies to have a built-in local sensitivity. It also provides for a transfer of managerial expertise to local countries in addition to the economic and technological transfers noted as benefits for multinational development. There is an additional aspect to this requirement. In earlier works, I have drawn on anthropological and psychological studies that demonstrate that human beings are cognitively constructed to live in groups as small as 150. In groups larger than this, there can be greater conflicts and less understanding of the consequences of one's actions (Fort, Ethics and Governance, 2001). Thus, while there are cultural sensitivities, such as respect of the Mexican culture, for example, there is also a need to provide a way for human beings to identify strongly with a relatively small group of others as a "mediating institution." Corporations can do a great deal on both of these dimensions of identity although it is exactly on this dimension that corporations suffer some of their greatest criticisms. They can respect the larger culture in a way that Motorola does by training local managers to run their businesses and they can provide a sense of community or family in the places where people work.

Finally, corporations can support the rule of law and the establishment of just legal rules. Economist Jane Jacobs has concluded that those countries where there are strong commercial values are those countries where there are more peaceful regimes (Jacobs, Systems of Survival, 1993). The reason for this is not simply the economic benefits noted in the first part of this section, but rather that commercial enterprise requires valuing of negotiations, honoring of contracts, respect for property, and nonviolent resolution of disputes for reasons of efficiency. Each of these promotes a certain way of living in which violence is not as valuable as stability and peace. Thus, to the extent a government has rules promoting protection of contracts and property and resolution of disputes, there is greater likelihood of just stability. In fact, one of the lessons from Eastern Europe after the fall of communism was that those countries that did the best were those countries that had this legal and moral infrastructure.

Another thing corporations can do with respect to the legal system is to consider what it means to own and hold property. Economist Hernando de Soto has argued that the way to decrease the marginalization of the poor in emerging countries is to provide them with the legal means to have title to their houses. Currently, he estimates that the poor live in homes worth more than $1.3 trillion in value, but they do not have legal title to the property. Advocating an approach similar to the Homestead Act adopted by the US in its early history, where the government gave legal title to people who made use of property, de Soto argues that governments need to find the ways to provide the poor with such titles (de Soto, The Mystery of Capital, 2000). Without that legal right, the poor do not have the capacity to exercise the most basic entrepreneurial strategy of taking out a loan on their house to start a business. This approach is likely to unleash the economic potential of a tremendous amount of assets, which in turn would translate into more economic development. Corporations cannot provide such title, of course, but corporations can influence legislation and point out the benefits of such an approach.


It is easy to become romantically optimistic about the possibilities that may exist for corporations to contribute to sustainable peace. I wish to emphasize that research to date is suggestive rather than conclusive. Moreover, even if it were conclusive, it does not mean that corporations somehow become exclusively responsible for whether war exists. Violence and warfare are exceptionally complex. What is new is that in addition to the nation-states that are typically accounted for in balance-of-power equations, corporations also have significant power that needs to be accounted for. And corporations are not impotent in affecting peace. They can do so by doing their work well and by doing it in a responsible way.

Relevant link

University of Michigan Business School