Walking the Talk About Globalization, Ethics, and Sustainability

Mike Eskew, chairman and chief executive officer, spoke to a group of business leaders and executives at the Commonwealth Club of California in San Francisco. He discusssed how global trade improves life in developing countries, creates new jobs and opportunities in the United States and abroad; and strengthens the environment. He called these social, economic and environmental benefits "ethical globalization."

Thank you, and good evening, everyone.

It’s great to be back in San Francisco - one of my favorite places in the world.

I had the good fortune of living here during the 1980s and vowed I would never leave. Of course, plans change, and I’ve actually moved to four different cities since.

My daughter is with me today … and she would tell you that every time her dad came home from work and said, “kids, we have something to talk about” … it always meant another move.

I’m also deeply honored to be speaking at this forum. The diversity of thought and opinion expressed over the years at the Commonwealth Club is perhaps unrivalled among speaking venues in the United States.

From discussions on human rights, national and geo-politics, environmental awareness, business leadership, workplace trends, arts, literature, film and gourmet foods - this venue has provided a rich platform for discussion and debate.

And through this debate, our democracy is strengthened … and our quality of life improved.

Few subjects in recent years have been discussed and debated with such intensity as the topic I’ve been asked to touch on today - globalization.

One of the more creative minds at the Commonwealth Club entitled my talk -- “Walking the Talk about Globalization, Ethics and Sustainability.”

I make no bones about my strong belief in the benefits of free and fair trade.

And this evening, I’m going to share with you some thoughts on how globalization improves lives in developing countries … creates new businesses, jobs and opportunities here and abroad … and strengthens the environment.

In many ways, San Francisco is the perfect place to talk about globalization, ethics and sustainability.

The Bay Area was borne out of globalization. In the 1850s, tens of thousand of would-be-millionaires from around the world descended on Sutter’s Mill to make their fortunes in the gold and silver mines.

Even after the miners had tapped the Sierra Nevadas, the Bay Area remained the economic and cultural nerve center of the West Coast. By 1872, when Los Angeles and Seattle were little more than villages, San Francisco had attracted the Japanese consulate - the first of 70 foreign consulate offices to be established here.

Today, the Bay Area creates more than US$220 billion in gross regional product. That makes you the 20th largest economy in the world.

And measured by international trade, this is one of the most globalized regions in the world. In terms of export value, this community was surpassed in the U.S. only by Seattle at the turn of the 21st century.

Global trade has been good to the Bay Area … and the Bay Area has been good to global trade.

Your community also has a rich tradition of tackling ethical issues - whether they relate to culture, government, business, society or trade.

Fiery writers and poets in the vein of Lawrence Ferlinghetti, John Steinbeck, Herb Caen and Jack London have made us pause and think over the years about issues impacting the way we live, work and interact with each other and the environment.

One could argue that the sustainability movement originated here in San Francisco and lives on through organizations as far-ranging as Global Exchange … Business For Social Responsibility … and the Pacific Council on International Policy.

My interests in trade and the ethics of globalization are probably self evident.

The company I work for is closely tied to the development of global trade.

Those brown delivery trucks and courteous drivers that have become part of the fabric of American life now help enable commerce in more than 200 countries. And they’re supported by a professional staff of over 400,000 people - including over 10,000 right here in the Bay Area.

On any given day we handle seven percent of the value of the nation’s GDP … and about two percent of the world’s GDP. And every 40 packages we transport represents a job.

In recent years, we’ve made aggressive strides in building a global supply chain business - helping businesses large and small expand into new international markets … from San Francisco to Sao Paulo … Oakland to Osaka.

At UPS, we believe that synchronized commerce - the coordinated movement of goods, information and funds across borders - is the foundation of international trade.

In essence, we’ve staked our future on the global economy.

Just like those millions of South Asian, Latin American and Indian people who’ve risen out of the ranks of poverty in the recent years through the influx of global trade.

Just like the more than 200,000 Bay Area residents who’ve gained new jobs since 1995 through foreign trade.

At UPS we think that synchronizing global trade is a noble cause.

We like to think that we bridge more than businesses and commerce … we also bridge people and cultures and lives.

We believe it’s in our best interest … and the best interest of the world at large … that global trade is allowed to thrive.

Of course, not everyone agrees with the merits of globalization.

In recent years, the roar of anti-globalist rhetoric has … without question … grown louder than those of us who are out promoting the merits of trade.

Just go to Google. What loyal Bay Area resident doesn’t use Google?

Now type in “anti-globalization” and see what comes up.

About 1.4 million entries.

Then, type in “pro-globalization” and see what comes up.

Less than 60,000 entries.

If Google were our only measure, the anti-globalists would have won the day.

Those of us on the pro-trade side - the true silent majority -- need to step up and make our case heard.

No matter what side of the fence you fall on … it’s important to remember that the debate over globalization is not exactly new.

Philosophers and politicians have been engaged in this issue since the Phoenicians first plied the waters of the Mediterranean.

One of my favorite quotes on the ethics of economic integration comes from Cordell Hull, FDR’s Secretary of State. He said, "When trade crosses borders, armies don't."

In more recent years, writers like Tom Friedman point out that no two nations with a McDonald's have ever gone to war against each other.

For the record, I'm not a philosopher or a politician.

There are scores of people more qualified to discuss the finer points of this issue.

But as a business person, a father, a citizen, and someone who cares deeply about global trade, global prosperity and global harmony, I can tell you that there is no more pressing ethical issue today than preparing people for a world that is coming closer together through trade.

Quite frankly, it would be unethical not to do this.

Likewise, it would be unethical not to approach trade in a sustainable manner.

In the time I have remaining today, I want to share some thoughts on how economic, social and environmental factors merge in a sustainable equation through free and fair trade.

Rather than being mutually exclusive, each is dependent on the other and will be even more so in the years ahead.

That is the crux of sustainability.

At the same time, I want to share with you some examples of UPS’s approach to sustainability, which we also think of as “ethical globalization.”

Let’s start with the economics part of the equation.

Some people contend that globalization and the imports it creates destroy jobs and economies.

We’re seeing just the opposite play out. A good sign of a country's participation in the global economy is growth in imports.

Evidence shows that imports do not cause a net job loss in a nation's economy.

On the contrary, imports create new jobs, both domestically and abroad.

Not to mention the impact imports have on keeping prices down for consumers. A University of Michigan study showed that imports into the U.S. results in annual savings of over US$5,000 for every American household.

When former Treasury Secretary Robert Rubin came to speak at a global trade conference UPS hosted two years ago, he mentioned that he was the first leader to ever testify on Capitol Hill on behalf of the benefits of imports.

Here's just one statistic he relayed:

Over the past two decades, import volume has tripled in the United States. And during that same period, the number of Americans employed has grown by 31 million.

There's a reason, he contends, for the correlation between global sourcing and job growth.

Imports leads to competition ... competition leads to innovation ... innovation creates new products and industries.
Higher returns in these new industries create new wealth, new capita and new jobs.

We might, for example, lose some types of manufacturing jobs to places with cheaper labor like Asia ... but we gain other kinds of jobs in areas like engineering, design, assembly and marketing.

Of course, no statistic alleviates the pain of a lost job. That’s why just as much effort needs to be placed on assistance, training, education and innovation as on opening markets around the world. This training and education must be inextricably linked with trade.

Another economic issue that concerns people is the idea that globalization widens the gap between rich and poor countries.
The implication is that global corporations are Robin Hoods in reverse ... stealing from poor countries and contributing the wealth to the rich countries.

The truth is that integrating into the global economy actually narrows the prosperity gap between developed and developing countries.

The only poor countries that fall farther behind are those closed to global trade.

In East Asia, for instance, countries like South Korea, Malaysia, Thailand, Indonesia, Singapore, Taiwan and China have significantly opened their economies to trade and foreign investment in the past 20 years.

As a result, GDP and living standards have been rising, and poverty has been falling.

The middle class is growing.

In contrast, some governments in other parts of the developing world have stifled foreign investments. And their poverty rates and economic growth are as bad as ever.

According to the World Bank, passage of the Doha trade round could raise global income by more than US$500 billion a year by 2015. Over 60 percent of that gain would go to poor countries where as many as 145 million people could be pulled out of poverty.

Our approach to economic sustainability at UPS is partly based on helping businesses and nations manage global trade through our supply chain, transportation and distribution networks.

We believe that running a strong and profitable business leads to greater opportunities for our customers, employees, shareholders and communities.

Last year, around the world, we helped support nearly a trillion dollars in business transactions for our customers.

We paid over US$2.2 billion dollars in taxes to the communities we serve. In places like Louisville, the home of our U.S. air hub, our economic impact is profound. Since 2000, our expanded and automated Worldport facility has contributed about US$600 million annually to the local economy. More than 90 companies have moved to Louisville to be closer to UPS. That’s resulted in another US$1.2 billion to the city’s economy and has created more than 8,000 new jobs.

In 2005, we invested US$22.5 billion dollars in compensation and benefits worldwide, which is more than half of our annual revenues.

The social benefits of global trade … the second prong in the sustainability equation … are as important as the economic benefits.

In many ways, this is one of the most underrated stories in all of business.

To be sure, there have been cases in which multinational companies have created substandard working conditions ... mostly in cases where they have contracted with third-party manufacturers.

But statistics demonstrate that employees of global companies are generally much better off than other workers in their own countries.

For example, according to the Center of Trade Policy Studies, foreign employees of U.S. based companies working in developing countries make eight times the average per-capita salary.

In middle-income countries, they earn about three times the average local yearly wages.

Even in cases where multinationals contract out to third parties ... most reputable companies impose strict policies about working conditions and wages. Their investors and customers increasingly demand it.

At UPS, about 65,000 of our 400,000 employees work outside the United States and fewer than 70 of those 65,000 international employees are U.S. ex-pats.

We believe in giving local control to local people.

They earn very competitive wages.

We value their insight into local culture and business.

We believe they are the biggest reason why our international business is the fastest growing segment of UPS today.

Another often overlooked benefit of globalization is the spread of corporate best practices in areas of worker safety, health and training.

UPS, for instance, has the best driver safety record in the transportation industry.

I’m proud to say that those UPS drivers you see negotiating the streets around the Embarcadero, Golden Gate Park and Chinatown are among the safest on the road. Our 102,100 drivers worldwide log more than two billion miles a year and average less than one accident per million miles driven.

When we go into developing nations and other parts of the world, we bring that safety culture and training with us.

Over the past five years, we have invested more than US$180 million dollars in safety-related initiatives worldwide, including enhanced training programs, new equipment and modifications to facilities.

The investment is working. In 2005, for instance, we improved lost-time injury frequency by eight percent.

I’m even more proud of the generosity of our people, and what they do to help build communities worldwide. This past year, UPS people around the world collectively logged 327,000 hours through our company’s Neighbor to Neighbor volunteer program.

During our Global Volunteer Week in October, more than 20,000 employees volunteered 100,000 hours in more than 45 countries. We planted trees in Mexico City ...cleaned up beaches in the United Arab Emirates ... volunteered in a children’s hospital in Shanghai ... and painted houses in Africa.

Our people not only roll up their sleeves, but they also open their pocketbooks. In 2005, the charitable actions of our people made UPS the largest corporate giver to the United Way in the United States for the fifth consecutive year.

At the same time, our 55-year-old Foundation gave nearly US$45 million dollars last year. This included over US$6 million in aid to those areas devastated by the natural disasters in South Asia and the American Gulf Coast.

I’ve talked a bit about the economic and social benefits of trade.

Perhaps the most misunderstood aspect of globalization is the environmental impact of a world coming closer together through trade. This is the third and final component of the sustainability equation.

Today there is growing fear global companies will naturally flock to countries with lower environmental standards.

In other words, they'll put plants in developing countries because they can avoid costly environmental regulations.

In reality, the presence of multinationals in developing countries tends to lead to stricter ... not looser ... environmental controls.

That's because, rather than juggling a variety of production technologies in different countries, multinational companies tend to adopt the highest environmental standards worldwide.  Repeatable,

A common environmental standard simplifies management and creates efficiencies of scale.

What's more, trade and investment help speed the spread of pollution control technologies.

It enables developing countries to purchase cleaner energy sources on world markets.

As free markets expands … nations democratize … and more individual voices are heard … environmental activism also tends to move forward.

At UPS, we try to do our part in protecting the environment.

Without question, we are a large private consumer of fossil fuels.

We operate more than 91,000 vehicles, 2,900 facilities and the world's 9th largest airline.

Our imprint is large and so is our responsibility to minimize it any way we can.

Alternative fuel vehicles and technologies are important to UPS.  We’ve been experimenting with them since our first electric vehicles rolled down the streets of Manhattan in the 1930s.

We currently operate hydrogen fuel cell, liquefied natural gas, compressed natural gas, electric and propane-powered trucks in the United States, Canada, Mexico, France, Germany and Brazil.

Just today, in Washington, D.C., UPS and the EPA unveiled the first-ever full-series diesel hydraulic hybrid urban delivery vehicle.

This advancement will provide dramatic improvements in fuel economy and emission reductions.
 
Just last week, our alternative fuel vehicles reached a major milestone, topping more than 100 million miles since the year 2000.  That’s the equivalent of circling the Earth more than 4,300 times.

We believe there is great promise in fuel cell technologies.  In the next year, we will add 50 Hybrid-Electric Vehicles to our fleet.  This should produce a 35 percent fuel economy improvement over the vehicles they are replacing.
 
We believe hybrids are a great near term solution.  Longer term, we hope to see continued advancements in fuel cell technologies.

Our policy for diesel and gasoline-engine vehicles is to buy low emission  vehicles. 

This year, in total, we will 4,000 additional low-emission vehicles of all types to a fleet that already includes 8,000 such vehicles.

About two years ago we introduced a new package flow technology system that will not only help us improve customer service and cut costs, but also reduce mileage and save fuel.

The package-flow technology allows us to analyze dispatch plans to optimize delivery routes and times.

Here in the San Francisco area, we’ve had the system in place for over two years.  Before implementing package flow technology, our drivers here averaged nearly 20 miles per day.  After introducing the system, the mileage has dropped to just over 17 miles.

The new system has resulted in the total savings of nearly 240,000 miles in San Francisco alone.

That’s less time on the road … and less fuel burned.

We're also leading the industry in complying with stricter noise and emission standards on our aircraft ... years ahead of regulatory deadlines.

And we've introduced reusable packaging for our express shipments ... and improved the environmental profile of our packaging.

Of course, UPS isn't the only global company dedicated to environmental protection.

You can tell that by the sharp rise in corporate environmental reporting.

In fact, since 2001, over half of the world's largest 100 companies have produced global environmental reports.  And you’ll see many more in the years to come.

This kind of transparency is good for business … and good for the earth we occupy.

I mentioned earlier that our people at UPS believe the work they do has a noble purpose.

It also has a sustainable purpose.

Our business model is based largely on driving operating efficiencies and economies of scale - while encouraging the talents of our people.

It's proved to be a lasting formula ... one that's served us well for the past 99 years.

Five years ago, a thorough examination of our operations led to the development of our first … and the industry’s first … Corporate Sustainability Report.

The latest update to that report is coming out this month, and you’ll be able to access it by going to UPS.com.

These efforts are a work in progress.    It’s essential work. 

We don't profess to have all the answers and we've cited many areas in need of improvement.   But we do think these efforts paint a roadmap of where we need to go to ensure that UPS can thrive for another century.

The most important finding that’s come from this exercise is the re-affirmation of just how inter-related economic, social factors and environmental factors are in running a sustainable and successful enterprise.   We think of it with a balanced approach … and measure it with a Balanced Scorecard.

We see that in the way we operate our own businesses ... and what we can do for our customers' businesses as we synchronize their operations ... and their supply chains.

Each element is vital to the bottom line. None more important than the other.

I think the same can be said about helping create a sustainable and successful global economy.

From my experiences - whether it’s talking to customers who are engaged in global trade  … or serving on other corporate boards … or visiting different parts of the world as a member of the President’s Export Council and the U.S.-China Business Council … the vast majority of business leaders out there are walking the talk on globalization, ethics and sustainability.

They’re growing their businesses responsibly … treating their people and customers with dignity and respect … adding value to the communities they serve … and providing returns to their shareholders.

Most business leaders today understand and respect the rules of global engagement.

They realize that long-term profitability is conditioned upon not just sound economics but also sound social and environmental policies. 

They know that accountability transcends national borders.

In fact, I believe we’ve entered an era where business diplomacy trumps political diplomacy.

The world has become so integrated economically that the vast majority of influence … the greatest force that impacts the greatest number of lives internationally … is business.

Our actions and our beliefs are not only shaping the perceptions of our companies abroad but they are forming impressions about our nation and the ideals for which it stands.

That’s a big responsibility - one that requires all of us to “walk the talk.”

Thank you for your time and attention this evening.