Professional Documents
Culture Documents
Vogel, D. (2008) Private Global Business Regulation
Vogel, D. (2008) Private Global Business Regulation
Private Global
Business Regulation
David Vogel
Haas School of Business, Department of Political Science, University of California,
Berkeley, California 94720; email: Vogel@haas.berkeley.edu
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governments because they address the con- and virtually all “public” participation is by
cerns of critics of economic globalization western activists.
without increasing the regulatory burdens on This expansion of legitimate authority in
NGO:
firms, which would risk undermining their the global economy outside the state is fur- nongovernmental
global competitiveness. ther explored in a volume edited by Hall & organization
Although Haufler presents some evidence Biersteker (2002). The authors describe why
of improved industry practices, she concludes and how this authority is also being exer-
that industry self-regulation faces consider- cised by private sector markets, market actors,
able organizational and enforcement prob- nongovernmental organizations (NGOs), and
lems and is therefore unlikely to prove an ade- transnational actors. This book’s intellectual
quate response to the market and political fail- contribution is to take the concept of global
ures associated with economic globalization. private authority “one step beyond the in-
“While industry self-regulation has become a ternational political economy by examining
key component of the policy debate. . . . The the authoritative dimensions of other private,
problems that self-regulation attempts to ad- nonstate and nonmarket based actors in the
dress are often problems of national gover- contemporary international system,” includ-
nance, and it is there that most responsibil- ing those that rely on moral authority (Hall
ity still rests” (Haufler 2001, pp. 3, 121). Her & Biersteker 2002, p. 7). The governance di-
mixed but, on balance, skeptical appraisal of mensions of moral authority are described
the actual and potential impact of voluntary by Lipschutz & Fogel (2002), who exam-
international business regulation is consistent ine the privatization of environmental regu-
with the conclusions of other researchers. lation through the growth of voluntary busi-
Haufler’s analysis makes an important dis- ness codes and certification standards. While
tinction between traditional industry self- acknowledging the accomplishments of some
regulation and newer codes of conduct. Tra- voluntary standards, Lipschutz & Fogel, like
ditional self-regulation, which can be traced Haufler, remain skeptical of the capacity of
back to medieval Europe, primarily involves regulations that rely on market incentives
technical rules and guidelines for various ma- rather than government mandates to pro-
terials, products, and processes aimed at im- vide a stable foundation for moral action by
proving coordination and lowering transac- profit-seeking firms. However, like Haufler,
tion costs. More recent industry codes, such Lipschutz & Fogel (2002) do not analyze or
as the Sullivan Principles for business con- explain variations in the effectiveness of such
duct in South Africa during the apartheid regulations.
regime, focus on the social impact of business. “Governance without government” has
Originated in response to activist pressures, long been observed and theorized by political
these newer forms of industry self-regulation scientists (e.g., Rosenau & Czempiel 1992).
politicize business decision making, pressur- For example, Kobrin (1998, pp. 383–84) de-
ing firms to make expenditures and commit- scribes a “postmodern world of multiple and
ments they would not otherwise have made. overlapping authorities: sovereign and non-
They are also more likely to either directly sovereign, territorial and non-territorial.”
or indirectly involve political constituencies Studies of civil regulation often explicitly sit-
outside the firm. “One of the most signifi- uate its emergence in the context of changes
cant changes in recent years is that the ‘who’ in the structure of global governance. Thus
in ‘who governs?’ must now be expanded to the growth of civil regulation has been
include the participation of nongovernmen- characterized as “a shift in global business
tal and noncorporate actors” (Haufler 2006, regulation from state-centric forms toward
p. 92). However, not all civil regulations pro- new multilateral, nonterritorial modes of
vide opportunities for public participation, regulation, with the participation of private
and nongovernmental actors” (Scherer et al. states, firms, and NGOs (Kirton & Trebilcock
2006, p. 506). According to Ruggie (2004a, 2004). It primarily focuses on the role of both
p. 519), “the effect of the new global public state and nonstate soft law on labor and envi-
domain is not to replace states, but to em- ronmental standards in developing countries
bed systems of governance in broader global at both the national and international levels.
frameworks of social capacity and agency that The soft law approach is said to offer many
did not previously exist.” Similarly, Falkner advantages, including timely action when gov-
(2003) suggests that civil regulation repre- ernments are stalemated or otherwise unable
sents not a straightforward power shift away to effectively respond to the challenges of eco-
from governments and toward firms but nomic globalization. However, soft laws often
rather a movement toward a more complex lack the legitimacy and enforcement mech-
relationship between private and public ac- anism of hard law. The editors predict that
tors. Abott & Snidal (2006) describe the emer- many of the critical issues in global regulatory
gence of a complex “governance triangle” governance will revolve around the shifting
in which many international standards are relationship between hard and soft laws, and
now selected, implemented, monitored, and between state and nonstate regulation. They
enforced by varying combinations of states, correctly emphasize that soft laws must be un-
firms, and NGOs. The role of private regu- derstood as a complement to hard laws and not
lation as a new form of global environmental a substitute for them.
goverance beyond the state is also explored in
depth by Pattberg (2007).
CIVIL REGULATIONS
AND TRADE AGREEMENTS
CIVIL REGULATIONS The relationship of civil regulations with
AS SOFT LAWS trade agreements is discussed by Hockin
Civil regulations are soft laws. States have of- (2004), MacLaren (2004), Ostry (2004),
ten chosen softer forms of governance as a Wilkie (2004), Trebilcock (2004), Webb &
way of facilitating international cooperation Morrison (2004), and Bernstein & Hannah
because of the significant costs and limita- (2006). In part owing to pressures from NGOs
tions of enacting legally binding standards and trade unions, some regional and bilat-
(Abbott & Snidal 2000, Shelton 2000, Morth eral trade agreements initiated by the United
2004). Forms of soft law range from pri- States and the European Union now link
vate and voluntary codes and certification and market access to the labor and environmen-
labeling systems to transparency obligations tal standards and the human rights prac-
on the part of governments. Its defining fea- tices of their trading partners (Aaronson &
ture is that compliance depends on the vol- Zimmerman 2008). These agreements often
untarily supplied participation, resources, and complement the civil regulations of firms that
consensual actions of governments and/or have established voluntary standards for their
firms. As Grant & Keohane (2005, p. 35) ob- suppliers in developing countries. Much to the
serve in another context, “When standards are disappointment of many activists, the World
not legalized, we would expect accountability Trade Organization (WTO) typically does
to operate chiefly through reputation and peer not permit market access to be linked to
pressures, rather than in more formal ways.” domestic labor or environmental standards.
Hard Choices, Soft Law: Voluntary Standards However, the certification and sourcing stan-
in Global, Trade, Environment and Societal Gov- dards of civil regulations represent a major
ernance presents a detailed and comprehensive loophole in WTO rules: Global firms can
analysis of the increasing reliance on soft law refuse to import products from suppliers who
mechanisms to govern business on the part of do not comply with their standards, whereas
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states generally cannot. Similarly, whereas mation disclosure, have also been used as
state-based labeling standards and require- domestic regulatory instruments by govern-
ments fall under the WTO’s jurisdiction, vol- ments (Andrews 1998). An important vol-
untary social and environmental labels by untary global environmental standard, ISO
firms currently do not. 14001, “fits within an emerging paradigm
An important advantage of civil regula- shift in environmental law, from a media-
tions is that they essentially bypass ongoing specific ‘command-and-control’ approach to
conflicts about state sovereignty, which have controlling emission and wastes to an ap-
often restricted western governments from proach more focused on voluntary, incentive-
using trade policies to affect the domestic reg- based, market-based, and information-based
ulations of developing countries. Thus, iron- approaches” (Roht-Arriaza 2000, p. 273).
ically, WTO rules have created an important However, the boundaries between volun-
incentive for using voluntary, private stan- tary and mandatory regulations, state and
dards rather than public ones, since the lat- nonstate regulations, private and public law,
ter can be more readily challenged as non- and hard and soft law cannot always be sharply
tariff trade barriers. Although the adoption drawn. To the extent that firms have sub-
of civil regulations by governments would scribed to civil regulations because of threats
clearly strengthen their effectiveness, it would to their market positions or to avoid gov-
also subject them to WTO scrutiny—unless ernment regulation, they are voluntary only
they were recognized as legitimate interna- in a legal sense. More broadly, “the distinc-
tional standards. Yet the fact that civil reg- tion between mandatory and voluntary is best
ulations have established different standards thought of not as a dichotomy, but as the ends
for similar products, sectors, or processes will of a continuum” displaying varying degrees
make it more difficult for any of them to be of corporate discretion (Koenig-Archibugi
recognized as international standards. 2004, p. 122). The relationship between pri-
vate and public regulation is also dynamic;
soft laws can become harder, and norms can
THE BLURRING OF PRIVATE become law (e.g., the important case of in-
AND PUBLIC REGULATION ternational human rights) (Risse et al. 1999).
The growth of private international business Cutler (1997, pp. 266, 280) insightfully writes
regulation can also be understood in the con- that “the private/public distinction is a histor-
text of increased reliance on regulatory in- ically specific analytical construct that has un-
struments other than command and control dergone revision with changing material, ide-
to regulate the social conduct of firms. “Self- ological and institutional conditions,” adding
regulation has come of age; it represents an in- that “today the distinction obscures more than
creasingly viable alternative to the market and it clarifies about the nature of power and au-
the state” (Porter & Ronit 2006, p. 41). Many thority in international relations,” an assess-
domestic corporate practices in the United ment that is shared by other studies of interna-
States and Europe are governed by volun- tional relations that examine private business
tary agreements or codes of environmental regulation.
management practice—some of which have
been promoted by states and others estab-
lished by firms or NGOs (Nash & Ehrenfeld CIVIL REGULATION AS GLOBAL
1997, Brink 2002, Webb 2004, Morgenstern BUSINESS REGULATION
& Pizer 2007). The market-based regulatory The emergence of civil regulations as
mechanisms employed by many civil regu- a component of global business regula-
lations, namely producer certification, prod- tion is primarily attributed to three re-
uct labeling, third-party auditing, and infor- lated developments. The first is economic
globalization itself. In 2003 the number of of national governments for providing pub-
transnational firms was estimated at 63,000 lic goods [as]. . . . internationalization yields
firms, which had more than 800,000 sub- an increasing gap between territorially bound
sidiaries and millions of suppliers (Ruggie regulatory competence at the national level
2003); in 2005, transnational firms accounted and emerging problems of an international
for one tenth of the world’s GDP and one scope.”
third of all exports (Clapp 2005). Accordingly,
the investment and management decisions of
global firms and their relationship with their THE ROLE OF
global supply chains now play a key role in NONGOVERNMENTAL
shaping labor practices, environmental qual- ORGANIZATIONS
ity, and human rights conditions, especially in The emergence of what has been character-
developing countries. ized as a “global public domain” is closely
The second related development is the linked to another dimension of globaliza-
lack of adequate state mechanisms at both tion, namely the increasingly prominent role
the national and international levels to gov- of nonstate actors in global politics (Ruggie
ern global firms and markets. Whether, or 2004). More than 30,000 NGOs now operate
to what extent, the state is “in retreat” re- internationally and ∼1000 draw their mem-
mains a subject of lively debate among po- bership from three or more countries (Ruggie
litical scientists (Strange 1996). Nonetheless, 2007). There is an extensive literature on what
economic globalization does appear to have has been described as “transnational civil soci-
made it “more difficult for national govern- ety” (Batliwala & Brown 2006), “transnational
ments to hold corporations accountable than civil activism” (Tarrow 2005), “global citizen
in the past” (Keohane 2003, p. 146). Underly- action” (Edwards & Gavanta 2001), “global
ing virtually every scholarly and popular dis- social movements” (Cohen & Rai 2000), “ac-
cussion of global civil regulation is the claim tivists beyond borders” (Keck & Kathryn
that the global economy suffers from a demo- 1998), and “global civil society” (Lipschutz
cratic governance deficit, often attributed to 2005). According to Wapner (1995, p. 340),
the constraints posed by global competitive the increasing politicization of global civil so-
pressures on the willingness and capacity of ciety requires scholars to clarify conceptually
states to effectively regulate both global and the political character of governing efforts not
domestic firms. associated with the state. He adds that “a fail-
According to Lipschutz & Rowe (2005), ure to take note of the world civic efforts of
whose book, Globalization, Governmentality nonstate actors leaves one with only an incom-
and Global Politics, presents a comprehen- plete understanding of world politics itself.”
sive and highly critical study of civil regu- While studies of international advocacy
lation, the turn to politics though markets networks and organizations primarily explore
reflects the dominance of neoliberal ideol- the efforts of these groups to influence the
ogy and an associated decline in state con- policies of national governments and in-
trols over business at both the national and tergovernmental organizations, several also
international levels. Bernstein (2005, p. 160) describe the strategies of NGOs that have
states that “civil regulations represent an in- chosen to focus some or all of their politi-
novative form of governance that arose in cal activity directly on the private sector. This
part owing to the legitimacy and performance choice stems in part from NGOs’ frustration
limitations in traditional forms of interstate at the considerable power exercised by cor-
governance.” According to Knill & Lehmkuhl porations over national governments and in-
(2002, pp. 42, 44), “civil regulation is intended tergovernment institutions and the resultant
to compensate for the decreasing capacities failures to establish legally binding global
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participate in and influence corporate deci- against them, making their global brands
sions regarding global labor and environmen- and global supply networks into a source of
tal practices. political vulnerability (Klein 2000). The past
15 years have witnessed a steady series of cre-
ative and often well-funded public campaigns
GLOBAL BUSINESS that have sought to “name and shame” highly
ACQUIESCENCE visible firms in North America and Europe
What about corporations? As Levy & Kaplan through media exposés, demonstrations, and
(2008) observe, it is surprising how read- threatened or actual boycotts (e.g., Bartley
ily large, multinational corporations (MNCs) 2003, 2005; Bendell 2004; Sasser et al. 2006;
have adopted CSR standards and reporting O’Rourke 2005). The selection of corporate
mechanisms, considering the lack of financial targets by activists is determined by corporate
incentives or regulatory coercion. The typical reputation, market position, and the prox-
large MNC based in the United States and imity of activists to a firm’s headquarters. In
Europe now both has its own code of con- addition, activists are more likely to confront
duct and subscribes to one or more voluntary the leading global firms in each industry.
regulations. It has a dedicated CSR staff and Some scholars assert that there has been
is also likely to issue periodic reports on its a measurable increase in politically oriented
social and environmental practices, some of consumerism (Micheletti et al. 2004). Accord-
which are independently audited. ing to Fung (2002, p. 150), “well-ordered so-
In some cases, business self-regulation rep- cial markets supplement conventional chan-
resents a political strategy for avoiding ad- nels of political expression and popular
ditional government regulation. For exam- control by creating distinctive arenas of gov-
ple, Responsible Care, the chemical industry’s ernance in which citizens participate directly,
code of conduct, was adopted by several na- through their market choices, in influencing
tional chemical associations in part to fore- the behavior of powerful economic entities
stall national laws establishing more stringent often resistant to other forms of social con-
plant safety standards following the chemical trol.” Yet there is little evidence that consumer
plant explosion at Bhopal, India in 1984. The behavior has become more politicized. Most
International Chamber of Commerce’s Busi- consumers continue to make their purchas-
ness Charter for Sustainable Development ing decisions primarily on the basis of price,
was initiated by global firms who feared that quality, and convenience; few activist cam-
the 1992 Rio “Earth Summit” would lead to an paigns have affected market shares or corpo-
expansion of international environmental reg- rate profits (Vogel 2005). Nonetheless, many
ulation. But these examples are exceptional. large firms are highly risk-averse. Anxious to
In most cases, there has been little likelihood protect their reputations and the value of their
of additional regulation, especially at the in- global brands, they have often responded to
ternational level or on the part of developing public protests, or even the threat of pub-
countries. lic protests, by agreeing to change particu-
The willingness of firms to accept civil lar policies and practices and in many cases
regulations is primarily attributable to three by publicly subscribing to private codes of
other factors. The first and most important conduct.
is pressure from NGOs, who have become A second factor is linked to changes in
“highly sophisticated in using market- corporate strategies. In some cases, firms have
campaigning technique to gain leverage come to regard civil regulation, as well as
over recalcitrant firms” (Gereffi et al. 2001, other dimensions of CSR, as consistent with
p. 64). Global civil activists have frequently their business objectives. The claim that act-
succeeded in turning the global scope of firms ing more “responsibly” by taking into account
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and intensively studied (Utting 2001; tions in initiating and supporting new insti-
Meidinger 2006a; Auld et al. 2007; Bartley tutions of private transnational governance.
2003, 2007a; Conroy 2007). In contrast to Bartley (2005a) explains how and why each
NSMD: non-state
market-driven industry self-regulations, which are usually came to view multi-stakeholder governance
unilaterally enacted, multi-stakeholder codes’ as an appropriate policy response to conflicts
standards and compliance procedures result over the legitimacy of existing governmental
from negotiations among businesses, as well and international regulations and the factors
as national governments, NGOs, and/or that led firms and particular industrial sectors
trade unions. Described as “one of the most to agree to participate in them.
innovative and startling institutional designs Bernstein & Cashore (2007) address a criti-
of the past 50 years,” these transnational codes cal question: How do NSMD governance sys-
directly involve nonbusiness constituencies tems acquire legitimacy or rule-making au-
in their governance (Cashore et al. 2004, thority? Lacking state authority, they must
p. 4). These codes typically incorporate global create incentives for firms to accept their cer-
product and producer certifications as well as tification requirements or require that their
provisions for the independent monitoring of suppliers do so. If these standards are too
suppliers. Non-state market-driven (NSMD) stringent, few suppliers are likely to request
governance systems that recognize and track certification and/or few firms will agree to ac-
the markets’ supply chain of responsibly pro- quire some or all of their purchases from cer-
duced goods and services have proliferated tified suppliers. However, if standards are too
in recent years. Their professed objective is lax, they will not be endorsed by NGOs. In
to ameliorate a wide range of global social short, for NSMD systems to work effectively,
and environmental market failures, including both firms and NGOs must agree to com-
fisheries depletion, forest deterioration, and promise; the former must accept more strin-
sweatshop labor practices. The growth in gent standards than they would prefer, while
the number of such codes stems from three the latter must recognize the unwillingness of
factors: the lack of credibility of industry firms to make costly changes in their business
self-regulation, the increase in consumer practices.
and NGO influence and activism, and the Bernstein & Cashore (2007) argue that the
influence of norms of “good governance” that key to understanding how NSMD governance
emphasize the importance of collaboration systems have emerged lies in recognizing that
and partnership. business preferences are not static. Over a pe-
Bartley (2007a) identifies two theoretical riod of time, relatively successful NSMD sys-
approaches to explain how such codes emerge: tems have been able to create new identities
a market-based approach that views them as and shared norms. “They are engaged in le-
a collective action response by businesses to gitimating processes that contain elements of
the “naming and shaming” campaigns waged logics of ‘appropriatness’ and ‘argumentation’
by activists and a political approach that ex- in which stakeholders and target actors can
amines them as the outcome of broader con- discuss, argue, and deliberate in increasingly
flicts about the power of states, markets, and legitimate arenas about NSMD governance
civil society in the context of neoliberal glob- and specific standards” (Bernstein & Cashore
alization. His analysis emphasizes the explana- 2007, p. 368). While both an instrumen-
tory power of the latter, stressing the impor- tal “logic of consequences” and a construc-
tance of the institutional factors that underlie tivist “logic of appropriateness” are almost al-
the political construction of new market in- ways at work, the latter becomes progressively
stitutions. Bartley’s (2005, 2007a,b) research more important as NSMD systems become
describes the critical role of states, NGOs, more institutionalized (Bernstein & Cashore
social movements, trade unions, and founda- 2007, p. 349). Bernstein & Cashore’s research
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describes how both firms and activists grad- ing an effective NSMD system increases. In
ually come to share common expectations addition, the public benefits NSMD certifi-
about appropriate standards for private gov- cation is likely to provide are most significant
ernance. The setting in which they inter- when the primary producers are in develop-
act is also dynamic one. Firms learn how to ing countries and the primary consumers are
work through NSMD systems to maintain in developed ones, since the latter’s willing-
and advance their competitive positions while ness to pay more will have a greater marginal
NGOs come to accept NSMD governance as impact.
a legitimate arena in which to define standards A second variable is related to public pol-
for business conduct. icy. Firms are more likely to accept NSMD
The certification model of NSMD gov- certifications when public regulatory stan-
ernance has spread rapidly during the past dards are relatively stringent, which means
15 years (Conroy 2007). Beginning with that such systems will often first gain support
forestry and some elements of organic pro- in regions where they are needed the least.
duction, it has now expanded to factory pro- This explains the relative success of the FSC in
duction and to agricultural products including certifying forests in developed countries and
coffee, cocoa, sugar, and flowers, as well as to its relatively slow progress in developing ones.
fisheries and tourism. In each case, suppliers An important exception to the latter general-
that meet specific standards are awarded certi- ization is agricultural Fair Trade certification,
fications, which then serve to communicate to which has effectively targeted relatively poor
either firms or consumers that these products agricultural producers in developing coun-
have been produced responsibly. In principle, tries. However, Fair Trade certification is also
social certifications benefit firms that sell to unusual in that Fair Trade certified products
consumers by improving their reputations and are marketed directly to consumers, some of
protecting their markets, and they benefit de- whom are willing to pay a price premium for
veloping country suppliers by maintaining or them. By contrast, few other certified prod-
increasing their global market access. ucts have identifiable consumer “brands.”
The growth of the certification model
across multiple sectors has not occurred in-
dependently; rather, a few NGOs and foun- ENVIRONMENTAL CODES
dations have played a critical role in spread- Forestry standards have been the most exten-
ing the idea of certification from one sector sively studied civil regulations (e.g., Lipschutz
to another, in effect functioning as policy en- 2000, Bostrom 2003, Gulbrandsen 2004,
trepreneurs (Auld et al. 2007). According to Pattberg 2005, Meidinger 2006b, Auld et al.
Auld et al., the relative impact of these ini- 2007, Sasser 2006). The most comprehen-
tiatives across sectors, as well as the particular sive study, Governing Through Markets, an-
form that NSMD systems have taken, is linked alyzes the accomplishments and limitations
to two factors. The first is industrial organiza- of one of the most developed civil regula-
tion. NSMD systems are most likely to be ef- tions, namely the certification standards for
fective in sectors that are dominated by large, sustainable forestry practices developed by
vertically integrated firms because such firms the FSC (Cashore et al. 2004). This book
are both more vulnerable to public pressures seeks to account for the variations in sup-
and more able to afford the additional costs of port for the FSC among forestry firms in the
certification. The structure of these systems United States, British Columbia, Germany,
is also influenced by the location of supply the United Kingdom, and Sweden. Although
chains. For example, when the resource be- firms in each region/country were initially
ing targeted is more diffused and scattered, skeptical of the FSC, their subsequent behav-
such as fish stocks, the challenge of establish- iors diverged significantly. FSC certification
gained widespread support in both British assure the legality of timber imports. The ex-
Columbia and the United Kingdom and lim- perience of the FSC thus illustrates how civil
ited support in both the United States and regulations can both affect and be affected by
Sweden, with Germany falling in between. public policies.
Significantly, in each place, forestry firms have Although most studies of private forestry
an alternative to FSC certification: They can regulation focus on their role in developed
and have often established industry-governed countries, Espach (2006) analyzes the accep-
forestry codes. tance of FSC standards in two developing
Governing Through Markets demonstrates countries, namely Argentina and Brazil. He
that these variations in the ability of the FSC explains the relative effectiveness of the FSC
and its supporters to gain acceptance from in Brazil and its limited impact in Argentina
firms are linked to the position of the coun- by examining the relationship between the
try/region in the global economy, the struc- demand for and the supply of global private
ture of the domestic forestry sector, and the forestry certification. The demand for such
history of forestry on the public policy agenda. programs depends on the importance of ex-
When a hospitable environment exists, the ports to northern markets, the extent to which
FSC is able to “convert” forestry companies northern firms and NGOs have an important
and their owners without having to compro- domestic presence, the risks of state regula-
mise its standards, whereas in an inhospitable tion, and the possibility of a targeted neg-
environment, FSC supporters must weaken ative campaign by environmental and com-
their standards in order to attract industry munity NGOs. The supply of such programs
certification. But in the latter case, competi- is related to the degree of industry concen-
tor programs to the FSC have often strength- tration, the presence of a capable adminis-
ened their own regulations as a response to trative agency, favorable treatment by local
pressures for improved forestry practices de- regulatory authorities, and the availability of
manded along the market’s supply chain. Thus independent stakeholder groups capable of in-
efforts to achieve legitimacy place pressure creasing the legitimacy of program participa-
on both the FSC and its industry competi- tion. Espach’s analysis complements the work
tors to alter their rules—both upward and of other scholars in emphasizing the critical
downward (Cashore et al. 2004). However, role of both the domestic and international
this study does not examine the actual impact economic and political environment in de-
of either category of voluntary forestry codes termining the legitimacy of civil regulations.
on forestry practices. However, like Cashore et al. (2004), he does
The experience of the FSC demonstrates not examine how code adoption has actually
not only the interaction of different kinds affected forestry practices.
of voluntary codes but also the dynamics of Moving beyond forestry codes, Prakash
the relationship between civil regulations and & Potoski (2006) posit that voluntary en-
state policies (Pattberg 2006). Governments vironmental standards such as ISO 14001
are an important source of demand for FSC can be usefully analyzed as clubs. Firms that
certified wood and wood products. Several choose to subscribe to such voluntary stan-
European governments, as well some Ameri- dards and/or require that their suppliers do
can states, either require or give preference to so are often required to bear additional costs.
FSC certified products in their procurement In return, they receive excludable branding
decisions. The government of South Africa benefits that enable them to receive credi-
has effectively outsourced its forest surveil- ble recognition for their environmental com-
lance operations to the FSC, and Denmark has mitments by stakeholders (i.e., both environ-
recognized the FSC label as an instrument to mental activists and governments) who value
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the standards that their club membership sig- results suggest that civil regulation can pro-
nifies. However, these benefits are in turn mote the global “trading up” of regulatory
linked to the stringency of the club’s compli- standards (Vogel 1995). But what is missing
ance mechanisms. Standards that are weakly from these studies of ISO 14001 is any analy-
enforced provide firms with fewer “branding” sis of the actual impact of certification on the
benefits. environmental practices of firms in develop-
What makes ISO 14001 participation ing countries.
credible, and thus valuable for companies, Moreover, as Clapp (1998) notes, the pri-
is that compliance with its standards is in- vatization of global environmental gover-
dependently monitored. This ameliorates an nance through codes such as ISO 14001 has
important shortcoming of many voluntary en- conflicting impacts on developing countries.
vironmental standards, namely that after for- Many western firms require certification as a
mally subscribing to them, firms may choose condition for doing business with suppliers
to “shirk.” According to a study by Lenox & in developing countries, thus making it a de
Nash (2003), the effectiveness of environmen- facto global standard. This means that pro-
tal industry self-regulation is contingent on ducers in developing countries are required
the nature of the monitoring and compliance to bear the often considerable costs of se-
mechanism brought to bear on noncomplaint curing certification, which may impose a se-
firms although their data is confined to the rious financial burden and thus effectively
United States. serve as (private) nontariff trade barriers.
Potoski & Prakash (2005a,b) report that Moreover, unlike international environmen-
firms certified under ISO 14001 pollute less tal agreements, in whose negotiations devel-
than nonadopters, and that they are also more oping countries are able to participate, devel-
likely to better comply with public laws. How- oping country producers are not involved in
ever, their analysis of the impact of ISO 14001 shaping ISO 14001’s standards. More broadly,
is only based on evidence from the United- private regulations may exacerbate rather than
States. Their findings are also partially chal- ameliorate the imbalance of power in the
lenged by another study, which finds that al- global economy by “privileging the market
though adoption of this voluntary regulation over alternative forms of goverance, biasing
does appear to reduce the health risks facil- goverance toward market mechanisms and
ities impose on communities in the United giving corporate choices a disproportionate
States, it does not improve such firms’ regu- say in policy development and implementa-
latory compliance (Toffel 2004). tion at the expense of state representatives and
According to a study of 108 countries over public participation” (Bernstein 2005, p. 165).
seven years, ISO 14001 adoption in export-
ing countries is positively associated with the
extent of ISO adoption by firms in the coun- LABOR CODES
tries to which they export (Prakash & Potoski Several studies examine the extensive array of
2006). Similarly, research on 98 countries over labor codes that have emerged since the early
six years concludes that ISO 14001 adoption 1990s, describing their origins, their varying
in host countries is related to the extent of for- standards, their mechanisms for promoting
eign investment by firms from home countries compliance, and the challenges they face in
that have a high level of ISO 14001 adoption improving labor conditions (e.g., see Liubicic
(Prakash & Potoski 2007). An important im- 1998; Diller 1999; Pearson & Seyfang 2001;
plication of these findings is to challenge the Bartley 2005, 2007a; Esbenshade 2004).
claim that economic globalization invariably These private regulatory systems are almost
produces a “race to the bottom.” Rather, these as complex as the supply chains they seek
to monitor. They feature chains of standard few codes have been effective in assuring the
setters, layers of monitoring and enforce- rights of workers to bargain collectively.
ment, and competing systems of incentives, Liubicic (1998, p. 139) argues that those
as well as large variances in the competence, who claim public pressures are capable of pro-
extensiveness, and independence of their moting a “race to the top that will make multi-
monitoring practices. Labor codes have cre- national corporations a powerful instrument
ated a wide spectrum of new regulatory pro- in the pursuit of human rights” have over-
cesses, some purely privatized, some collabo- looked serious limits to the effectiveness of
rative, and some socialized (O’Rourke 2003). labor codes and labeling schemes. First, the
While acknowledging the lack of data reach of western codes is limited to small en-
that would make it possible to assess how the claves of employees in developing countries;
many diverse private labor codes are actually these codes primarily affect workers employed
working, O’Rourke (2003) argues that they all by manufacturers that make branded goods
face a number of weaknesses and challenges. for export to the United States and Europe.
Most importantly, the length and breadth The focus of most labor codes on sweat-
of apparel supply chains (often extending to shops effectively excludes the large numbers
thousands of factories for each western firm), of workers employed in agriculture, who of-
combined with the ability of firms to move ten work under far worse conditions. Second,
production quickly among factories and hide the effectiveness of monitoring is constrained
behind multiple layers of ownership, make by inadequate funding and by inability to
systematic inspections extremely difficult. monitor the informal economy and household
The brief site visits of inspectors are often employment, which are often part of global
superficial and frequently miss less obvious supply chains. Perhaps most critically, the un-
violations. Fung et al. (2001) suggest that willingness of western firms to pay a price pre-
it would be possible to build upon the core mium for more responsibly produced prod-
dynamics of nongovernmental regulatory ucts severely constrains both the ability and
systems if monitoring methods and their re- willingness of developing country contractors
sults were more transparent, since this would to comply with corporate and industry labor
enable the performance of factories and their codes.
monitors to be systematically compared. Liubicic (1998) also notes that effectively
However, this goal remains elusive because enforced western codes may actually under-
very few western firms make the results of mine the welfare of developing country work-
their factory monitoring public. ers. For example, under consumer and ac-
One of those few firms is Nike. An impor- tivist pressures, a firm may abandon the use
tant study of the impact of Nike’s labor prac- of child labor in countries where such labor is
tices finds that, despite significant effort and critical to family incomes. To the extent that
investment by the firm and its staff, the mon- voluntary labor codes replace rather than
itoring of working conditions in the facto- complement state regulations, developing
ries of suppliers has had limited results (Locke country governments are essentially ceding
et al. 2006). Several other case studies of the their sovereignty to the demands of western
impact of voluntary labor codes report highly activists, who are the primary drivers and the
uneven results ( Jenkins 2001, Hartman et al. main “consumers” of labor codes. Many labor
2003, Esbenshade 2004, Mamic 2004, Wells codes essentially empower NGOs, rather than
2007). There is some evidence of progress in developing country workers, and the two’s pri-
reducing child labor and improving factory orities can often conflict. The long-term ef-
conditions, but less on limiting compulsory fectiveness of private labor codes may well
overtime and increasing wages. Meanwhile, lie in public recognition of their limitations,
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ANRV344-PL11-12 ARI 8 April 2008 11:5
leading them to be replaced or complemented most civil regulations. These two major gaps
by more effective national and international make it difficult to assess the overall impact
public regulations, a conclusion echoed by of civil regulations on either business behav-
Diller (1999). ior or the conditions they were established to
ameliorate.
SHORTCOMINGS OF CODE
RESEARCH OUTLINING A RESEARCH
The above review does not exhaust re- AGENDA
search on specific voluntary codes. There The growth of civil regulation poses impor-
have been studies of the UN Global Com- tant questions that could usefully engage po-
pact (Therien & Pouliot 2006), human rights litical scientists, especially those working in
codes (Watts 2005), Fair Trade International the subfields of international politics, com-
(Courville 2005), the Marine Stewardship parative politics, public law, and government
Council (Constance & Bonanno 2000), and regulation.
codes for coffee production (Giovannucci & One key research question has to do with
Ponte 2005), as well as several studies of Re- the relationship between civil regulation and
sponsible Care (Gunningham 1995, King & public or state regulation. Civil regulations
Lenox 2000, Garcia-Johnson 2000, Howard and state policies can interact in many ways.
et al. 2000). However, this entire body of lit- Private regulatory standards can function to
erature has two significant weaknesses. First, avoid additional state regulations, to comple-
relatively few civil regulations have been stud- ment or better enforce state regulations, as a
ied in depth; indeed, more research has been precursor to more stringent state regulations,
published on the FSC and forestry codes than or as a substitute for state regulations. Under
on all other codes combined. This means that what conditions and how frequently has each
we know relatively little about the vast ma- outcome occurred? This issue is particularly
jority of civil regulations, how and why they critical with respect to the governments of
were established, and how and how well they developing countries, as their failures to ad-
are working. It is as if scholars tried to un- equately regulate domestic firms are the rea-
derstand the significance of government reg- son why much global civil regulation exists in
ulation by studying a small sample of existing the first place. But it is also important to ex-
laws and rules. plore at the international level, where many
Second, too few studies examine the of the regulatory failures that have prompted
global impact of civil regulations. Virtually civil regulation have also occurred. It is also
all quantitative studies of the impact of both relevant to understanding the limited efforts
ISO 14001 and Responsible Care focus on of developed countries to adopt legally bind-
developed countries, most commonly the ing regulations for global firms based in their
United States. In the case of the FSC, we know countries.
more about its origin, standards, governance, Governments engage with civil regula-
and patterns of firm adoption in developed tions in various ways. Some western govern-
countries than we do about how the spread ments, primarily in Europe, have helped to
of certification has actually affected the con- initiate and finance civil regulations, and have
ditions of forests in either developed or de- sought to promote compliance with them
veloping countries. Although there have been by mandating corporate social and environ-
several studies of the impact of labor codes, mental reporting and by requiring or en-
they are primarily based on case studies, which couraging “ethical” investment policies by
are not necessarily representative. There are public sector funds (Aaronson & Reeves
few scholarly studies of the effectiveness of 2002, Habisch et al. 2005). For their part,
some developing country governments regard ing country suppliers determine what finan-
western-based civil regulations as a vehicle cial and organizational resources to allocate to
to improve domestic regulatory enforcement, complying with them? How do they balance
whereas others view them as an intrusion the costs of acting more “responsibly” with the
on their sovereignty. Some developing gov- business risks of not doing so? In what ways
ernments expect civil regulations to improve has the often-cited change in business values
their global competitiveness, whereas oth- and norms actually affected the decisions of
ers perceive them as threatening their ac- global firms, such as where to outsource and
cess to global markets by raising domestic invest and whether to pay a premium for more
production costs in order to satisfy western responsibly produced products? How does
activists. Students of public policy and com- compliance with civil regulations interact with
parative politics could contribute to the lit- global competitive pressures to reduce costs?
erature on civil regulation by exploring the Studies of corporate political strategies need
varying responses of governments to them to incorporate an analysis of how firms en-
and by explaining how they interact with gage in nonstate market-based politics and
other regulatory policies and development also to explore the relationship between busi-
strategies. ness adoption of voluntary standards and their
Another critical issue has to do with the efforts to influence public policies.
political accountability and democratic nature This in turn raises another important ques-
of civil regulations. Advocates of civil regu- tion: How effective have civil regulations been
lations claim that, by providing nonbusiness in achieving their professed public interest
constituencies with new political and market objectives? The answer clearly varies across
mechanisms to affect business decisions, these different kinds of regulations, issues, and in-
regulations can help address the democratic dustries. Some civil regulations have been
deficit in global corporate governance. But much more effective than others. Too many
virtually all these nonbusiness constituencies assessments of the actual and potential im-
are located in developed countries. Too much pact of civil regulations—both positive and
attention has focused on the extent to which negative—assume that it is all of a piece, when
civil regulations are or are not dominated by in fact the impact of civil regulations is both
global firms and not enough on the lack of highly uneven and still evolving. Moreover,
representation from political constituencies in it is critical to assess not only the current ef-
developing countries—including local firms. fectiveness but also the relative effectiveness
We also need to better understand how civil of civil regulations. Their impact should be
regulations affect the interests and influence compared not to an ideal world of effective
of nonstate actors in developing countries, in- command-and-control regulations in devel-
cluding their impact on the strenghtening of oped countries but to real-world alternatives.
civil society. More specifically, how do their strengths and
We know much more about what codes re- weaknesses compare to international environ-
quire and why firms have subscribed to them mental, labor, and human rights treaties, many
than we do about the extent of actual busi- of which also rely on soft law, as well as to the
ness compliance. Scholars need to apply to the domestic regulations of developing countries,
study of nonstate regulations the sophisticated many of which are poorly enforced? What fac-
tools they have developed to measure and tors are likely to affect their future legitimacy,
explain corporate compliance with govern- scope, and impact—and what are their struc-
ment regulations. We need to get inside the tural limitations?
“black box” of firms to better understand how Existing research on private global busi-
civil regulations have changed their behaviors. ness regulation raises but does not answer the
How do both global firms and their develop- critical question: What mix of domestic and
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ANRV344-PL11-12 ARI 8 April 2008 11:5
international, private and public, and hard and nals, most work on this topic has been written
soft law would enable global firms and mar- by scholars and others outside the discipline
kets to be better governed? This is a serious and appears in both academic and nonaca-
subject that deserves more serious scholarly demic publications that are unfamiliar to most
analysis than it has received. political scientists. Drawing on this research,
Research on global civil regulations by contributing to it, and integrating its findings
political scientists must be interdisciplinary. into our discipline would significantly advance
Although this survey has emphasized studies our understanding of a relatively new and still
of civil regulation by political scientists and evolving dimension of international business
research published in political science jour- regulation.
DISCLOSURE STATEMENT
The author is not aware of any biases that might be perceived as affecting the objectivity of
this review.
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