Time and again, economic activities are seen as source of power and authority. The market serves as an arena of wealth both for the nation and for personal/private company gains. Nevertheless, this is not always the case. There are cases wherein a company’s gain serves the country’s interests. Others would like to look into environmental means to lower costs and expenses. In all these, companies transact internationally and trade with other nations. This activity is guided by rules and agreements to limit monopoly and increase competition.
The global political economy today tries to reach the best compromise that would benefit the participants. This essay would look into how businesses, governments and societies interact in the global economy. There will be a discussion of the role of government in economic policy focusing on the instance of joint ventures as portrayed by Botswana and De Beers. Competition will be analyzed in the presence of tax credits which prevail in United States and Europe. The difference between the two will be highlighted.
Finally, there will be a comparative clarification of why WTO fails to reach a compromise in addressing trade efforts between developed and developing countries. De Beers and Botswana According to Jun Nocera, De Beers is a diamond mining company established in Botswana in 1967 (Diamonds, 8/9/08). Since then, Botswana had been the foremost seller of diamonds. Botswana’s economic growth and shift from agriculture to industrial is due mainly to De Beers influence. Nocera further elaborated that De Beers accounts for “around a third of the country’s gross domestic product” (Diamonds, 8/9/08).
De Beers’ social role in Botswana portrays the concept of “corporate social responsibility”. This means that while De Beers is exploiting the resources in Botswana, they are also aiding the country by building hospitals, roads and schools. In doing so, they are helping the country prosper economically and socially. The roads, schools and hospitals are essential in making sure that the company will get its product and have a healthy and intelligent workforce. This illustrated that the social role of De Beers supports the economic role and vice versa.
This is an example of business as good citizens since the business prospers with the society. Nocera cited that this is not the case with Chinese investors who exploited the resources without helping the country in any way (Diamonds, 8/9/08). In the past, when De Beers behaved as a monopoly, it kept the prices of diamonds high by limiting the supply. The company made sure that what they sold in the market was enough to meet the current demand. This created a “perception of scarcity” despite the fact that supply is actually abundant.
This action is restricted by anti-trust laws in the United States such as the Sherman Act. Goldsmith stated that De Beers was already investigated by the United States for violating anti-trust laws for four times (Goldsmith, Chap 12; 255). Moreover, “De Beers were not able to sell diamonds to the United States directly and the company had been under indictment since 1994” (Goldsmith, Chap 12; 255). Aside from this law, the blood diamonds also threatened De Beers’ monopoly.
Blood diamonds is a term used for diamonds mined by people who were forced by rebel-groups (Diamonds, 8/9/08). The mined diamonds were sold to gain substantial amount needed to sustain the organization especially to buy arms. To this end, De Beers devised Kimberley Process which would prevent buyers from buying blood diamonds (Diamonds, 8/9/08). De Beers shift from monopoly to a joint venture begun when the diamond mines where discovered in Canada as well. Canada refused to take part of De Beers’ cartel and becomes another supplier of diamonds instead (Diamonds, 8/9/08).
The increase in competition disrupted de Beers monopoly and prompted the shift towards joint venture. Goldsmith defined ‘joint ventures’ as the undertaking by two or more firms for a limited purpose (Goldsmith, Chap12; 256). De Beers gained an advantage in forming joint venture since it allows “companies to break into foreign markets, where it is helpful to have local partners” (Goldsmith, Chap12; 256). Furthermore, the company ceased to buy diamonds and sells its own diamonds instead (Nocera).