Global Corporate Power 9781588269713

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GLOBAL CORPORATE POWER

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International Political Economy Yearbook Volume 15 Series Editors

Christopher May and Nicola Phillips

International Advisory Board Daniele Archibugi Italian National Research Council Valerie J. Assetto Colorado State University James A. Caporaso University of Washington Philip Cerny Rutgers University Christopher Chase-Dunn Johns Hopkins University Christian Chavagneux Alternative Economiques, France Claire Cutler University of Victoria, British Columbia Stephen Gill York University Bjorne Hettne Götteborg University Geoffrey Hodgson University of Hertfordshire, Business School

Takashi Inoguchi University of Tokyo Robert Jessop Lancaster University Robert Kudrle University of Minnesota Bruce E. Moon Lehigh University Lynn K. Mytelka UNU/Intech Henk Overbeek Free University, Amsterdam Anthony Payne Political Economy Research Centre, University of Sheffield David P. Rapkin University of Nebraska Christine Sylvester Institute of Social Studies, The Hague Diana Tussie FLACSO, Argentina Marc Williams University of New South Wales

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GLOBAL CORPORATE POWER edited by

Christopher May

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Published in the United States of America in 2006 by Lynne Rienner Publishers, Inc. 1800 30th Street, Boulder, Colorado 80301 www.rienner.com and in the United Kingdom by Lynne Rienner Publishers, Inc. 3 Henrietta Street, Covent Garden, London WC2E 8LU © 2006 by Lynne Rienner Publishers, Inc. All rights reserved Library of Congress Cataloging-in-Publication Data Global corporate power / edited by Christopher May. p. cm. — (International political economy yearbook ; v. 15) Includes bibliographical references and index. ISBN 1-58826-436-X (hardcover : alk. paper) 1. International business enterprises. 2. Corporate governance. I. May, Christopher, 1960– II. Title. III. Series. [HD2755.5] 338.8’8—dc22 2005029752 British Cataloguing in Publication Data A Cataloguing in Publication record for this book is available from the British Library. Printed and bound in the United States of America The paper used in this publication meets the requirements of the American National Standard for Permanence of Paper for Printed Library Materials Z39.48-1992. 5 4 3 2 1

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Contents

Acknowledgments

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1 Introduction Christopher May

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Part 1 Conceptualizing the Corporation

2 The Century of the Corporation Jeff Harrod

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3 Making the Modern Multinational Louise Amoore

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4 The Restructuring of Global Value Chains and the Creation of a Cybertariat Ursula Huws

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Part 2 Corporations and Global Governance

5 Global Governance and the Private Sector Virginia Haufler

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6 Shaping International Corporate Taxation Michael C. Webb

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7 Commercial Control of Global Electronic Networks Stephen D. McDowell

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Contents

8 The Political Economy of the Firm in Global Environmental Governance Peter Newell and David Levy

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Part 3 Corporate Social Responsibility

9 Corporate Citizenship Ian Goldman and Ronen Palan 10 Transnational Business Civilization, Corporations, and the Privatization of Global Governance A. Claire Cutler 11 Instituting the Power to Do Good? Morten Ougaard 12 World Leaders and Bottom Feeders: Divergent Strategies Toward Social Responsibility and Resource Extraction Scott Pegg

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199 227

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Part 4 Afterword

13 Global Corporate Power and the UN Global Compact Christopher May

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Bibliography The Contributors Index About the Book

283 319 323 331

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Acknowledgments

An edited volume can only be as good as the contributors who write the chapters. This volume of the International Political Economy Yearbook has benefited from the dedication and commitment of all of the authors to produce a timely and accessible contribution to thinking about corporations in international political economy. I would like to take this opportunity to thank them all for making this volume a success and making my job much easier than it could have been. I also have benefited from excellent advice from my series coeditor, Nicola Phillips, and our publisher, Lynne Rienner, to whom I owe a debt of gratitude for their support and friendship. Early on in the process of commissioning chapters for this volume, a number of the series International Advisory Board members offered excellent suggestions and advice that helped shape the volume and for which I am very grateful. Two anonymous referees also offered excellent advice and comments in the last stages of preparing Global Corporate Power for publication; I thank them for their detailed and constructive engagement with the various chapters in the volume. — Christopher May

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1 Introduction Christopher May

As we enter the new millennium, the high-profile scandals at Enron, Tyco, WorldCom, Ahold, and Parmalat have once again returned the corporation to the center of political debate.1 Fraud and incompetence have resulted in the loss of jobs and investments, despite the supposed close control of corporations through law and shareholder oversight. These are hardly new problems: Ambrose Bierce’s famous Devil’s Dictionary suggested that a corporation was an “ingenious device for obtaining individual profit without individual responsibility” (1911 [1958], 25). Corporations are powerful political forces in society, and their actions are often closely examined by the news media and political activists. Indeed, the “agitprop” documentary The Corporation became a global media sensation in 2004. Conversely, corporate managers are feted by politicians, and their actions are celebrated as contributing to society’s growing well-being. However, and too often, debate about corporations is dominated not by analysis, but by anecdote, balancing awe with envy and paranoia. In the past two decades the role of multinational corporations (MNCs) has come under particular scrutiny from critics, many of whom have identified these largest corporations as the prime movers behind globalization. Frequently corporations (and especially MNCs) have been identified as being more powerful than states, and some critics claim they now “rule the world.” Certainly, in the last quarter of the twentieth century, many corporations adopted a strategy of “globalization” as a way of expanding their reach into new markets and previously un- or underexploited regions and countries. This strategy relied on the accelerating deployment of advanced information and communication technologies, 1

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reductions in global freight costs, and expanding international business travel. As the world became “smaller,” so corporations’ reach became more extensive, and their influence (and power) over other organizations grew. Despite presenting a globalized brand or identity for public consumption, utilizing limited liability rules and complex corporate structures, many corporations also have successfully distanced themselves from subsidiaries whose actions have been illegal, embarrassing, or unacceptable in their core markets. Multinational corporations are often only as global as they need to be for their own ends. Although there have been some significant accounts of the role of corporations in the field of international political economy (IPE), these have often been limited to the impact of MNCs on public policy, or have been focused accounts of national innovation systems and economic development. While both are important elements in exploring how corporations’ activities can be understood in the context of the global system, this book seeks to do something a little different: to focus on the legal and organizational determinants of global corporate power. There have been at least two previous volumes bringing together a diverse range of IPE-related scholars to consider corporations in the field of international political economy, George Ball’s Global Companies: The Political Economy of World Business (1975) and a special edition of Millennium from the early 1990s (reprinted as Eden and Potter 1993). More recently, IPE scholarship has become more focused and specialized, leaving the analysis of corporate power merely as one part of a series of treatments of globalization. Certainly, the dependency and development literature has had much to say about the power and influence of MNCs (in conjunction with other social forces) and the reproduction of global structural inequalities, but although these analyses of political economic power and new modes of “imperialism” are important, these are not the central focus of concern in this book. The contributors to Global Corporate Power each examine the manner in which corporations exercise and develop their power in the global system. We have aimed to establish the importance of corporations in IPE while also presenting some detailed accounts of the social and power relations in which corporations operate. In the rest of this introduction I will briefly lay out the historical and analytical context on which this volume builds (but also reacts to). The various contributors do not all share a specific approach to IPE, nor do they address all the questions one might ask about corporations. Rather, this book is meant to reinforce the importance of studying globally active and smaller corporations, as part of an overall study of the international (or global) political economy.

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The Corporation: A Person Unlike Any Other

Although one could examine the history of corporations primarily from a financial perspective (emphasizing the role of raising and deploying capital, alongside the use of cross-shareholding to control corporate alliances), or from an organizational standpoint (examining the shifts and developments in the labor process and the deployment of automation, with shifts from integration to outsourcing and network organizations),2 here I balance these elements with the parallel history of the corporation as a legal entity. Many problems that have vexed critics stem from corporations’ enjoyment of specific legally constituted rights and privileges. Certainly, corporations seldom have the institutional longevity of most states, although some are older than many postcolonial states. Nevertheless, corporations’ enjoyment of legal personality (and its attendant rights) allows them to deploy greater social power than the natural persons on whose rights corporate rights are often modeled. The normalization of the corporation has often obscured its dependence on positive law; incorporation has been reduced to a formal set of registration requirements, with its roots in privileges derived from monarchs’ courts conveniently obscured and forgotten. As Janet McLean stresses: “Ultimately the law decides who gets legal personality and status: there is nothing spontaneous about it” (2004, 376). Three distinct legal personalities are generally recognized in law: naturally existing people (that is, individuals in a particular jurisdiction); the state (as collective location of sovereign and legal authority); and the legally constituted corporation, a collective organization recognized for the purposes of regulation as having a single legal personality. Although the division between (sovereign) political authority and individual subject (or later citizen) might be said to have emerged almost organically from the historical requirements of nation-state politics, the assumption of legal personhood by the corporation was a politically engineered legal innovation. As Steve Russell and Michael Gilbert have pointed out, “Corporations have many advantages over natural persons: effective immortality, superior resources, and with globalization, mobility on a scale available to few human beings” (2002, 45). Indeed, the divergence between the legal protection available to all (legally constituted) persons and the disparities in the actual position of those claiming the protection of the law (the wealth/resource advantages the corporate personality enjoys) have been central to much critical discussion of modern corporations. However, corporations remain outside the scope of international law, as like other persons they are subjects only of national law, even if

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there have been efforts to establish (nonbinding) international regulatory structures of a quasi-legal character (see Chapter 10 in this volume, and Robé 1997). In the 1970s the International Labour Organization (ILO) adopted the Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy, but its scope has been very narrowly conceived by the ILO and has thus been largely ignored by unions (Braithwaite and Drahos 2000, 254). Likewise, the voluntary Guidelines for Multinational Enterprises, of the Organization for Economic Cooperation and Development (OECD), lack a robust enforcement mechanism and rely for compliance on corporations bowing to the influence of the OECD’s staff. The recent, and exceptional, attempt to construct an international legal regime for corporate investment, the Multilateral Agreement on Investment, failed for a number of reasons, not least of all the fact that some states (most clearly France) were unwilling to cede regulatory authority over corporate practices. Perhaps more effectively, there have been attempts in a number of national jurisdictions to hold corporations to account for their activities abroad. The US Alien Tort Claims Act has likely been the most effective of these mechanisms,3 although courts in the United Kingdom and other European countries have also had some success. However, such attempts to hold subsidiaries of MNCs to account often confront claims of forum non conveniens, the legal argument that other, more appropriate forums exist (often in the country in which the alleged offense took place) where the case may be better tried in the interest of all parties and the ends of justice (McCorquodale 2002, 104). More generally, despite these various national and multilateral efforts, the activities of MNCs remain for the most part outside formal international legal regulation. To begin to understand this situation, first we need to appreciate the historical specificity of the corporation itself as an international political economic entity. Early History of the Corporation

Although the origins of the corporate idea (that a group organized for a specific task or goal can be treated as a single person for legal purposes) are far from clear, they may stretch back to the Greek city-states or earlier. Karl Moore and David Lewis (1999) have traced the genesis of MNCs back to 2000 B.C. and the Assyrian Empire. The recognition of these earliest origins is based more on organizational issues than on any legal definition of the corporation. However, in the Roman Empire, not only settlements, towns, and other colonies (as single entities) but also commercial or business organizations of artisans organized by skill or

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trade were able to formally adopt a legal personality (Williston 1909, 197). Although not widely exploited, the idea of associations based on activity (rather than on proximity or residence) was to have considerable influence in later legal systems. The origins of the corporation may more directly lie with the rise of Benedictine monastic orders, and the rules under which they were organized; the accumulation of wealth by Holy Orders was not dissimilar to contemporary corporate activities (Brown 2003). Certainly, these religious orders were early examples of groups organized through rules and practices that transcended the individual (here, of course, incorporating the will of God). From the eleventh century, in Britain and on the European continent, incorporation usually remained limited to organizations such as universities, ecclesiastical orders, and boroughs, all of which sought to be recognized as collectivities beyond the life-span of any specific set of members (Davis 1905, 35–88). Incorporation established the separation of the organization from its members, in much the same way that the state was slowly being divided from the personality of the sovereign. Early guilds also were effectively corporate entities, seeking to establish longevity for rules and procedures relating to the control of specific trades, beyond the life-span of any specific set of artisans. Guilds also started to develop the use of the (trade)mark to establish those goods or manufactures that originated with them, allowing the nonguild artisan to be disciplined (McClure 1979). Therefore, as guilds became commercial entities with a single legal personality, they also initiated one of the key elements of corporate power, the trademark or brand. Although trademarks only gained full legal recognition much later, they remain one of the key devices that corporations have used to control markets and expand their business (Wilkins 1992). By the fourteenth century the advantages of guild activity were becoming clear: the weavers, closely followed by the goldsmiths, intended to control their trade for their own profit (both groups received charters from Henry II in the 1320s). Over the next century a number of other trades also established guilds with a similar rationale (Williston 1909, 199). Guilds explicitly intended to avoid ruinous competition by limiting the number of practitioners in any particular local market for a particular good or service (Jones 1926, 922). In the late sixteenth century, as new technologies and trades began to be developed outside the traditional guild structures, the common-law assumption of legal personality began to be extended to business enterprises that reached beyond the relatively local horizons of the guilds, with the East India Company, the Royal African Company, and the Hudson Bay Company among the first to be incorporated by charter. These

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and other trading companies were the first corporate entities to reach out beyond the borders of their home country strategically rather than merely as an opportunistic response to specific circumstances (Jones 2000). They were in many ways, previous commercial activities notwithstanding, the first international corporations, but because management and control practices were as yet underdeveloped, often these entities formalized family relations, and this was especially the case in the realm of banking (McCarthy 1994). The renaissance banking families, such as the Rothschilds or the Medici, operated across Europe, but unlike the trading companies were organized by clan, and as such remained essentially premodern. Although the law of corporations was only finally codified by William Blackstone in his Commentaries on the Laws of England, Blackstone, as John P. Davis pointed out, “did little more than to bring together the principles scattered through [Sir Edward] Coke’s Institutes and Reports, and to present them in a more compact and serviceable form” (Davis 1905, vol. 2, 210). Thus, whatever the organizational history of corporations, the modern law on which their incorporation is based finds its beginnings in the common-law upheavals of the early seventeenth century (Coke’s Institutes and Reports was published in 1628). In a number of cases, incorporation became caught up in the disputes between the Crown and Parliament regarding monopoly grants (Jones 1926, 930–933; Williston 1909, 205). However, by the end of the century the legal structures had become standardized and incorporation was being utilized much more widely than were the previous guild arrangements. In 1702 the increasingly important role that corporations were playing in the British economy prompted the anonymous publication of the first book devoted to the “law of corporations” (Williston 1909, 201). Both in this book and in the charters of the new corporations, one of the key corporate undertakings was the public goal of the better management and ordering of the trade in which the corporation was engaged, alongside any private goal of profit for its members. Hence the legal personality of the early corporation was conditional on a clear publicregarding role in promoting economic development, and in return investors began to be able to limit their liability. Although initially never formalized as “limited liability” under common law, holders of joint stock were seldom held liable for the debts and losses accrued by a corporation (Williston 1909, 229). Limiting of liability to the initial purchase of shares was a vital step in ensuring that joint-stock companies could obtain the widest possible market for their initial stock offerings.4 Although established by practice, liability was only formally

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limited by statute in the Limited Liability Act of 1855 and the Joint Stock Companies Act of 1856 in the United Kingdom, and in the various states of the United States over the next forty years. Nevertheless, the ability to effectively shield wealth from claims against corporate liability had already allowed investment in shares to flourish. Thus, from the eighteenth century onward, the limitation of liability was a key mechanism underpinning the growth in size and resources of corporations, allowing them access to disparate and unconsolidated capital to a much greater extent than did partnerships. In the first half of the eighteenth century certain corporations, and specifically the stock-jobbing that surrounded their shares, were the focus of a number of speculative booms and failures, most famously the South Sea bubble. While this scandal prompted the Bubble Act to reign the worst excesses of speculative stock-jobbing, its provisions did little to halt the development and spread of corporate economic organization (Cooke 1950, 83–86). As the century wore on, corporations were increasingly used by the British government to organize private finance to construct the infrastructure that a developing economy required. Thus the development of the railways acted significantly to spur increased use of incorporation: the scope of operations and the magnitude of financial capital needed to establish the rail infrastructure were so great as to be beyond the resources of companies still organized as partnerships. Indeed, the need to raise large amounts of capital, as part of the “railway revolution,” stimulated the further rise of corporations on both sides of the Atlantic. The US Corporate Model and Its Competitors

The need to deal with the unprecedented size and reach of US markets was the most important aspect of the next stage of corporate development. With the swift economic expansion of the United States in the eighteenth century, new corporations flourished (initially mainly in Massachusetts, but increasingly across all the states). Although the federal state was often willing to collude with companies in cartel activities, political opposition to such market rigging led finally in 1890 to the Sherman Anti-Trust Act (Kozul-Wright 1995, 104). However, through vertical integration this paradoxically encouraged the development of ever-larger corporations (as single entities rather than trusts) able to reach across the continent to control economic activities. Relying increasingly on internally generated surpluses and the stock market, US corporations became larger and more powerful than any that had preceded them.

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The development of large corporations also allowed the continuing development of the technical division of labor within corporations, driven by, and contributing to, their expansion. Certainly the industrial revolution and the advances in technology that followed had enhanced the possibilities of organizing large-scale business organizations. However, corporations sponsored and stimulated the further development of technologies that further enhanced the possibilities for expansion. The application of science and technological innovation, building on the work of Frederick Taylor and others, revolutionized the manner in which production would be organized in the twentieth century (Noble 1977). Taylorism, and the linked organizational logic of Fordism, were quickly adopted by corporations across the world. Freed from the traditional and historical economic limitations of Europe, the development of capitalist corporations in the United States proceeded unfettered. The expansion of the economics of scale (due in part to the expanding US domestic market) that could be captured by larger corporations also allowed significant gains for workers and other non-capital-owning groups and classes (Resnick and Wolff 2003). Thus, US corporate capitalism, by expanding productivity through technology and organization, but at the same time producing a significant rise in the standard of living of its work force (however precarious such advances might be for individuals), laid the foundations for a new period of modern capitalism. Now, large corporations dominated market sectors (nationally and increasingly globally) on the basis of technological and organizational advantage. In Britain especially, the more personal management style of the family firm continued to dominate economic organization (and indeed continues to be significant even today). In Martin Wiener’s famous analysis (1981), as generations attained the gentleman’s lifestyle, so their “industrial spirit” declined, with successive generations less and less interested in entrepreneurial activity. However, if the industrial class in Britain was losing interest, this was not the case on the European continent; the pressures of catching up forced German entrepreneurs to adopt the emergent innovations in corporate organization. In Germany and Japan, countries that would both become significant industrial competitors for Anglo-Saxon capitalism, the shift to banker-led corporate consolidation continued apace from the late nineteenth century, through two world wars, and into the present (Micklethwait and Wooldridge 2003, 83–101). While in Germany the numerous Mittelstand of mediumsized industrial companies balanced the power and influence of the larger corporations, in Japan the Zaibatsu created vast client networks based on

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cross-shareholding between corporate elements, smaller subcontracting firms, and their banks. Although each developed their own particular national approaches, Japanese and German industrialists remained influenced by the organizational innovations of US corporate capitalism. As Alfred Chandler has suggested, “the techniques and procedures perfected in the first years of the [twentieth] century to manage these integrated enterprises have remained the foundation of business administration” (1977, 289). The significance of the US corporation therefore lies partly in the manner in which production (or services) are organized, in the application of “scientific” management, but also in how the entire corporation is managed, from accounting and personal management to its interactions with partners and the global economy more generally (Noble 1977). Moreover, as John Kenneth Galbraith (1985) has argued at some length, the US corporation in the twentieth century often managed to position itself at the heart of the planning of society, as a crucial element in what he famously referred to as the “technostructure.” This is not to say all corporations were the same, only that the largest had a clear potential to embed themselves within the governance mechanisms of modern society, but without any linked political accountability. While the expansion of US corporations overseas certainly spurred the development of the modern MNC, other organizational models have been followed as well. British and other European corporations frequently utilized “freestanding” companies as a way to invest and develop business in foreign territories (Wilkins and Schröter 1998). Indeed, this alternative (less-integrated) mode of cross-border organization has remained a significant element even for relatively integrated MNCs. Often, “freestanding” companies have been able to combine the advantages of corporate organization alongside the particularities of their home economy. Nevertheless, the modern corporation is essentially the US corporation (whatever its nationality), although, as noted below, in IPE there has been some disagreement about whether corporations have a generalized character. The organizational implications of this US corporate model took much of the twentieth century to play out; most important was the continuing separation of ownership and management. In the past hundred years the professional manager has become the key corporate player, exercising the rights of the corporate personality on behalf of its owners (Chandler 1977; Galbraith 1985). Thorstein Veblen (1923 [1997]) referred to this development as the rise of “absentee ownership,” whereby those who interacted with the corporation had no chance of meeting an “owner” (and final beneficiary of corporate profits) and thus were alienated from the power of

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ownership. Drawing a direct parallel with absentee landlords, Veblen wanted to stress the corporation’s carelessness regarding the interests of the small holder, supplier, or customer. Veblen concluded that, in effect, the corporation is “a method of collusion and concerted action for the joint conduct of transactions designed to benefit the allied and associated owners at the cost of any whom [its actions] may concern . . . the joint-stock corporation is a conspiracy of owners” (1923 [1997], 409). The shareholders seldom have any direct interest in the affairs and practices of the corporation beyond its ability to offer a return on investment. Therefore, while certainly being formally accountable to the board of directors and through them to the shareholders, a new highly rewarded professional business class has emerged, one that, while not necessarily completely separate from owners, nevertheless has great latitude for independent management of the corporation. It is this independence that has sometimes bred corruption, scandal, and illegal activities, together with a periodic interest in the activities of this cadre of (international) managers. Reflecting on the US experience, Adolf Berle and Gardiner Means (1968, 244–252) likewise identified the “depersonalization of ownership” as the key transformation that created the modern corporation. The centralization of economic power in corporations, which acted in the interests of their (passive) shareholders, prompted Berle and Means to speculate that as shareholders had surrendered active control of, and responsibility for, their property, leaving it in the hands of the managers they employed, perhaps they had also released the wider community from any obligation to protect them to the full extent implied by strict application of the doctrine of property rights. This balance between the legitimate economic interests of owners and the wider social or community interest remains the key issue for the political economy of corporations.

Multinational Corporations: Popular Suspicions

One of the key themes of much critical literature discussing the national practices of corporations of various sizes has been their ability to avoid responsibility for their actions (specifically where they have had an unwelcome impact on a national polity). During World War II the concentration of economic power in strong corporations was a key issue for planning the postwar social order, prompted by the role of corporations in the rise of totalitarian governments in Germany and Japan (Brady 1943). By the mid-1970s a considerable critical literature had grown up examining and criticizing corporate power, but now also focusing as

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much on MNCs (Barnet and Müller 1975). Indeed, in the past three decades critics have increasingly focused on multinationals as the epitome of global corporate power. Often the global sales figures for corporations are compared with the gross domestic product (GDP) of countries to “demonstrate” that some of the largest MNCs are actually larger than many nation-states. However, this does not compare like with like: GDP is a measure of value-added, while sales income includes an element of value-added but is actually a measure of overall turnover. If a national economy were counted on salesfigure or turnover basis, this would double-count all intermediate economic transactions, overstating economic activity; therefore a calculation of how much value is added to national wealth, rather than merely how much money changes hands, is made. For example, in 2000, General Motors (GM) had a group sales income of US$184.6 billion. Also that year, Finland’s GDP was US$121.5 billion and Austria’s was US$189 billion, suggesting to the critics of MNCs that clearly GM was the same size as Austria and was larger than Finland. However, as corporations usually can be assumed to add value at a rate of around 20 to 30 percent of turnover, GM’s real comparable figure was a notional “GDP” of around US$46 billion (25 percent of sales) (Thompson 2003, 407). Obviously, GM still represents a massive economic actor, but this more accurate comparison pushes GM and other MNCs well down the ranking. This is not to suggest that corporations are not powerful or important, only that the desire to criticize them within the popular literature sometimes leads to exaggeration and hyperbole.5 Whatever comparison might be made regarding their size, corporations remain powerful players in the global system. Both George Monbiot (2000) and Jamie Court (2003) have examined how corporate interests can outweigh other parties’ contribution to democratic deliberation. Both argue that corporations’ pervasive power has lessened the ability of individuals to represent and further their own interests (even when they organize against corporate interests). Likewise, Joel Bakan, after noting that corporations are constituted by law, went on to argue: “Governments create corporations, much like Dr. Frankenstein created his monster, yet, once they exist, corporations, like the monster, threaten to overpower their creators” (2004, 149). Explicitly adopting language first used by Supreme Court justice Louis Brandeis in 1933, Bakan worries that, increasingly, the regulations intended to constrain the actions of the “monster” have become unreliable, allowing behavior that is far from socially valuable. Similarly, echoing the “muckraking” accounts of US capitalism at the end of the nineteenth century, Monbiot, Court, as well as Richard Barnet and John Cavanagh (1994), Judith Richter (2001),

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and others, have reported on specific instances of business interests gaining the upper hand in local markets, but have generally been concerned with US and British cases. Another strand of the critical literature (represented by magazines like the New Internationalist and Multinational Monitor) has examined and publicized the practices of MNCs in developing countries. These studies have emphasized corrupt practices and (again) the sidelining of local interests (often with the collusion of central governments). As noted above, incorporation was originally linked with the notion that such organizations enjoyed this privilege because they undertook to serve the public interest, leading both David Korten (1995, 54) and Joel Bakan (2004, 156) to suggest that this legal protection therefore should be foregone, or rescinded, when the practices of specific corporations no longer serve the social interest. As yet, this final sanction has never been deployed against a major corporation, although it is frequently used against smaller companies for all sorts of procedural infractions. More specifically, for many years John Pilger (2003, 17– 47) has been criticizing the role of MNCs in the control of the Indonesian economy, and there has been a growing concern among nongovernmental organizations (NGOs) and others regarding the abuse of human rights by corporations, as well as the part some MNCs have played in a number of security crises in weak (or failing) states. Regarding the richer countries, the late Herbert Schiller spearheaded a significant body of scholarship and activism criticizing the impact of the corporate control of public expression in the mass media (Schiller 1989; Maxwell 2001). Since Edward Herman and Noam Chomsky (1988) famously accused twenty-four large media companies of “manufacturing consent” for US government (foreign) policies, the concentration of media ownership has become widely criticized (especially in Italy currently). However, this concern with the role of corporate interests and the constraints they impose on the ability of others to combat (or modify) corporate interests is less often placed in a more global context. That said, Naomi Klein’s No Logo (2000) placed the role of corporations at the heart of the “antiglobalization” movement, now more accurately called the “global justice” movement. Klein’s work followed previous accounts that had explored the global reach and political economic power of major MNCs (see, for instance, Greider 1997; Korten 1995). The question of democratic accountability was raised by Noreena Hertz in The Silent Takeover (2001), echoing concerns about democratic deliberation made by Monbiot, Korten, and others, but now at the global level. Other authors, such as John Madeley (1999), have discussed at some length the impact that “corporatization” has on developing countries’

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economies. While drawing similar conclusions to Monbiot and Court, Madeley stresses the need for more extensive regulations and democratic oversight of the activities of MNCs, especially in countries where their economic power gives them extensive leverage over domestic political processes. Much of this popular literature is based on extensive (although sometimes anecdotal) accounts of corporate behavior, and is intended to act as a resource for political activism. For instance, Richter’s detailed account (2001) of the infant foods industry in poor and developing countries has become a minor classic in the “activist community” with its richly detailed story of one ongoing and emotive campaign. Such popular literature has a clear polemical intent, and as such can sometimes verge toward conspiracy theory in its treatment of the effects of corporate actions; it has also spurred a backlash against the appeasement of corporate activists (see, for instance, Halfon 1998; Henderson 2002). Popular accounts have also focused on the activities of the Bilderberg Group and other not so secret organizations, such as the Trilateral Commission, that are presented as seeking to establish a world “safe for corporations.”6 Many of these accounts depict the corporate sector as the most significant contemporary threat to society, and although this position is not completely without merit, it is hardly the whole picture, as many academic accounts have established.

Locating the Corporation in International Political Economy

At the center of the “problem” of the corporation in IPE are two linked myths, neither of which serves analysis well: debates about the “decline of the state” have often presented a decline of state authority as a direct result of the globalization of the economy; linked to this assertion has been an argument about powerful MNCs controlling and shaping the global economy (and the inability of states to resist such power). Both positions have been subjected to considerable critique, and to some extent have been touched on by two previous volumes in the International Political Economy Yearbook series, one that focused on the changing international division of labor (Caporaso 1987) and one that focused on national competitiveness (Rapkin and Avery 1995). For both these volumes, the key question about corporations was: How could the states’ interest in economic development be furthered through interaction with, and regulation of, corporations? For many years Susan Strange sought to explain the continuing incidence of US power despite its claimed decline (widely proclaimed

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in the late 1970s) (Tooze and May 2002, 13–14). For Strange, US power was no longer a state-based resource, but rather reflected the global (structural) position of the many MNCs in the United States. As the form of capitalism that was being globalized was very clearly the US corporate-led form of economic organization, moreover the United States still set the “rules of the game.” Ronen Palan and Jason Abbott (1996) expanded this analysis to examine how other states’ strategies impacted on their economic development and position within the structure of the global political economy. Although they did not focus centrally on corporations, like much recent work in IPE, they did examine the manner in which a state’s actions impacted on the national corporate sector. However, while other research in IPE has often also included corporations in its analyses, seldom have they been as central to the account as Strange’s still-influential work suggests they should. The study of MNCs in international political economy has sometimes treated them as a broadly similar group, but a number of recent studies have concluded that many global corporations retain the characteristics of their home countries (Doremus et al. 1998; Ruigrok and van Tulder 1995; Sally 1996). Divergence in the financial sector also has had a considerable impact on corporate organization, not least of all in the levels of debt regarded as acceptable (and hence the need or otherwise for extensive shareholder-derived funds), with German corporations the most indebted, ahead of the Japanese and US corporations, which depend much more on share capital (Doremus et al. 1998, 55). Indeed, Liberal or Anglo-Saxon models of capitalist organization can be contrasted with a trust-based organizational model, differently exemplified by Japanese and German practices (Coates 2000; Whitley 2000).7 Summarizing David Coates’s and Richard Whitley’s extensive and nuanced arguments, there seem to be three “models” of capitalism in which corporations operate: market-led, state-led, and negotiated or consensual. Each of these organizational forms makes quite different demands on the manner in which corporations develop their commercial strategy and organization. Furthermore, with the continuing rise of China in the global economy, one significant challenge to the US-corporate organizational model can be detected in treatments of Chinese business organizations overseas (Yeung and Olds 2000). Here, alongside the claim that there is something “naturally” entrepreneurial about the Chinese, the specific (historical) characteristics of Chinese commercial organization are identified as building not on individual corporate structure, but rather (reflecting Confucian values) on dense and wide-ranging international social networks

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(frequently based on a relatively centralized patriarchy in specific family groups). This organizational logic lacks the formality of incorporation, but may gain in flexibility and fluidity. However, despite these clear variances, corporations remain capitalist organizations seeking specific (profit-oriented) ends, and while certainly there is considerable divergence in corporate behavior, neither should these differences be overemphasized. The character of specific corporations (most often their US “personality”) has frequently been a source of tension, as was pointed out by Raymond Vernon in Sovereignty at Bay (1971), one of the earliest studies of the role of corporations in international political economy. To many critics of capitalism, such tensions are hardly surprising, as the corporation represents the interests of an increasingly international (or transnational) capital class. While there has been considerable Marxistinspired work on globalization and the structures of global capitalism in IPE since the groundbreaking work of Stephen Hymer (collected in Hymer 1979), few (neo)Marxist-inspired academics have closely focused on the corporation. Although Leslie Sklair (2001) and John Scott (1997) have both developed wide-ranging analyses of this new business class, most other critical IPE studies have only dealt with the issue of corporations tangentially. Examining the role of the corporation in the international political economy has therefore remained intimately tied to the examination of interactions between the corporation and the state (and government). Over the years this has prompted significant interest in the multilateral governance of corporations’ foreign activities. However, little has changed since Vernon, writing in the late 1970s, noted: “the challenge of finding an acceptable international regime for the multinational enterprise is more formidable in many ways than the challenge posed by tariff wars and competitive devaluation” (1977, 216). Analysis of the conduct of the United States (home of the majority of multinationals) shows how it wavered during the 1960s and 1970s between trying to govern these corporations through the extraterritorial expansion of the jurisdiction of US law, and putting pressure on host governments to lessen the regulation of foreign corporations (Gilpin 1975). More recently, although there is still some attempt to act extraterritorially, this is more often to support the operations of US companies than to regulate them. Nevertheless, many US-based multinational corporations abide by extraterritorial regulation regarding sanctions linked to US economic “statecraft” (Rodman 2001). Corporate compliance with sanction demands may not always be comprehensive, but neither is it negligible. Where

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compliance does not require illegal actions (such as breaking contracts) in the target country, MNCs’ managers often seem willing to acquiesce to political pressure to amend their practices. Conversely, multilateral efforts to reform the governance of corporations (or more accurately perhaps, the attempt to go beyond nongovernance) have been undermined by corporations’ bargaining strength, leaving such bodies as the UN Center on Transnational Corporations (set up in 1975, and wound up in 1993) largely on the sidelines. Indeed, in many cases (and across many sectors) the recent rise of global governance has often seen the influence of corporations expand. Representing themselves as repositories of extensive technical knowledge, but also utilizing political influence, corporate interests have begun to “capture” some governance organizations, of which the International Telecommunications Union is probably the most obvious example, although the International Maritime Organization and the International Tropical Timber Organization have also been increasingly “privatized” (Braithwaite and Drahos 2000, 488– 491; Lee, Humphreys, and Pugh 1997). On the other hand, the “oxygen of publicity” has modified the behavior of some corporations, linked to the agenda for corporate social responsibility. Here the role of global civil society has had some impact, and the “popular” literature discussed above has aided the examination of, and subsequent political organization against, specific corporate activities. However, while the popular literature tends to assume that possibilities for governance are being undermined, in the academic literature the continuing potential for the governance of corporations is often emphasized (Picciotto 1999b). Indeed, considerable research has been conducted into the power relations between corporations and states seeking foreign direct investment as a strategy for economic development, although the suspicions of MNCs voiced now (even in the academy) seem to have been partly discounted (Chang 1998; Cioffi 2000). Indeed, states’ ability to hold corporations (at least partly) accountable for their actions (Koenig-Archibugi 2004) has allowed a more nuanced position to emerge, examining the catalytic possibilities of governmental action regarding corporate contributions to economic development (Weiss 1998). Thus the relationship between states (and their governments) and corporations has been revealed to be complex and diverse, although still patterned by disparities in power and resources. Moreover, and this has too often been underplayed by previous analyses in IPE, through its legal structures and influence over organizational patterns the state has itself contributed to the accumulation of global corporate power.

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Introduction

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Overview of the Book

Having set out a number of key debates and issues that might concern any commentary on, or analysis of, the role of corporation in the contemporary global economy, I will now briefly introduce the contributors who have taken up the challenge to think about the corporation in contemporary IPE. Part 1 of this International Political Economy Yearbook brings together three chapters that seek to problematize and (re)examine the manner in which we conceive of the corporation itself. Approaching the subject from different directions, all three authors agree that any simplistic idea of how the corporation interacts with the international, or global, political economy can no longer be sustained. Rather, we need to understand the flexible, complex, and shifting character of this powerful group of global actors. Jeff Harrod argues forcefully that a consideration of corporations must be related to the new and unique circumstances of their contemporary political economy; for Harrod, the twenty-first century is the century of the corporation, but although there is a clear disjuncture with the past, this does not mean that all previous political approaches must be jettisoned. Rather, the economistic analysis that has previously dominated consideration of corporations must be replaced by a fully fledged pluralist (“eclectic” or “holistic”) political economy. However, Louise Amoore alerts us to the difficulties of establishing the subject of this analysis. The “boundaries” of the corporation itself are unclear, and the attribution of a singular (almost human) character to corporations obscures considerably more than it reveals. Furthermore, the presentation of business methodologies (most obviously outsourcing) as neutral and objective organizational logics suggests that knowledge of, and about, the corporation not only is politicized, but also enables the transfer of risk to vulnerable groups dependent (at a distance) on MNCs for paid labor. Ursula Huws takes the challenge of recognizing the corporation one step further; by focusing on the measurement of employment, she establishes that the monolithic corporation is little more than a convenient myth. In an age of outsourcing and a fragmenting division of labor, trying to agree on the boundaries of specific organizations is almost impossible, and hence the subject of analysis is almost chimerical. This is a major problem for the global governance of the corporation, and in Part 2 of this volume four authors examine the interactions between various modes of governance and corporate power. Virginia Haufler stresses the need to historicize our understanding of the role of

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the private sector in global governance, demonstrating how the relationship between private and public elements of any governance regime has fluctuated over the past century or more. Emphasizing the continuing efficacy of state-based authority, Haufler urges us to recognize not the decline of the state, but rather the increasingly plural character of governance, with “soft enforcement” joining more formal measures to shape and regulate the behavior of corporations. Taking a specific example of these issues, Michael Webb focuses on the problem of taxing MNCs, and examines the seemingly arcane questions of transfer pricing and “fictional residence” to establish how corporations minimize tax exposure. Claiming specialized knowledge, and establishing the norms of tax calculation, private-sector experts (on behalf of the taxable community—MNCs) have undermined the state’s power to control and reshape global taxation of corporate activities. Indeed, as Webb argues, MNCs have repeatedly managed to (re)orient the global governance of taxation to focus on state practice, not MNCs’ own “tax planning.” Global corporate power has facilitated the reduction of tax returns to states, and ensured that through regulatory capture, states seldom serve the public interest in the realm of corporate taxation. This is followed by Stephen McDowell’s account of one of the key elements of contemporary claims about globalization: the emergence of global electronic networks. Cautioning against crude technological determinism, McDowell examines the interaction between privatization, technological changes, and globalization to establish the corporate agenda of governance over these networks. Indeed, corporations have extensive strategic power over global electronic networks, but this is seldom fully recognized, even though the establishment of this private commercial realm has effectively limited the scope for governance: here, global corporate power is both extensive and often unseen. Peter Newell and David Levy then set out their argument that corporations can no longer be neglected by green activists or academic analysts of environmental politics, because they are reshaping and shifting the priorities and practices of the global governance of the environment. Utilizing their control of technology, and their knowledge of the processes involved, corporations are setting the agenda for what is possible or achievable in the realm of sustainable development. Most important, Newell and Levy suggest that there is a compelling need to expand the analysis of power in IPE to encompass the forms and practices of corporate power that can be identified in the realm of environmental politics, but that are hardly absent elsewhere. These two groups of problems, of defining the corporation or identifying the scope of its operations and the governance of corporations (in the public interest), come together when we ask: Can corporations

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be encouraged to, or made to, act in a way that might be regarded as socially responsible? Indeed, many corporations have tried to ameliorate the effects of their practices (if you are an optimist) or obscure their rapaciousness (if you are a cynic) by arguing they can act in a socially responsible manner. Part 3 begins with Ian Goldman and Ronen Palan’s consideration of the categories that we use to think about the contemporary international political economy of MNCs. They suggest that “corporate citizens” are ambivalent, but that this ambivalence is levered into power and influence over the contemporary global system through the “threat” of transnationalization. A. Claire Cutler then identifies the “invisibility” of corporations in international law. This has prompted a pluralistic response (encompassing both “soft” law and attempts to establish extraterritorial jurisdiction over corporate activity). As she notes, this has allowed most regulatory activity to be constituted as voluntary codes of conduct through the corporate social responsibility movement. Cutler suggests that the rhetoric of “efficiency” and the continuing desocialization of corporate activity still obstruct more comprehensive (global) governance of corporations. The last two chapters in Part 3 focus on corporate social responsibility (CSR) more directly, starting with Morten Ougaard’s analysis of CSR, both as a literature and as managerial practice. He notes that, often, the depiction of social responsibility is weak enough to cover virtually any corporate practice that is not actually illegal. He also suggests that, with certain honorable exceptions, IPE has not really developed an adequate response to the claims and results of the CSR practices adopted by many corporations. It is not sufficient merely to note the tensions between those who suggest profit-making is the prime responsibility of the corporation and those seeking to hold corporations to other (social) responsibilities. Rather, there is a need to recognize that CSR responds to corporate interests in market expansion and to social legitimization. This then leads to Scott Pegg to disaggregate the corporate response to demands for CSR in the extractive industries. Although some corporations have bought into the “logic” of CSR and others are renegades who have just ignored such demands (and indeed profit from this behavior), Pegg carefully notes that this bifurcation fails to capture the wide range of corporate behavior. The CSR world leaders often deploy their considerable political resources to undermine global or regional CSR initiatives, while many of those corporations demonized both by activists and by the “world leaders” are actually not as socially irresponsible as is imagined. The key point here is that CSR is an imperfect instrument for trying to control global corporate power, despite the recent and accelerating expansion of interest in this form of global governance, not least of all as it has often become a marketing instrument, denuded of any real correctional

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power. Therefore, in my afterword to this volume, I examine one further attempt to utilize global governance to promote (global) corporate social responsibility: the UN Global Compact. Although this volume does not attempt to ask all the questions that can be raised regarding the role, impact, and power of corporations in the contemporary global political economy, by focusing on definitional issues, the problems of governance, and the specifics of corporate social responsibility it does raise some very important legal and organizational issues for the future study of global corporate power. If Jeff Harrod is correct and this is to be the century of the corporation, then understanding its power and practices is vital to the continuing vitality of our subject; if IPE is to be relevant to those outside the academy, then we must think about and carefully analyze the corporation, to both establish a corrective to the hyperbole (negative and positive) and contribute to the ongoing debates about the future of our world.

Notes 1. Here I will use “corporation” to encompass what in Britain are termed companies or firms. The use of the collective term corporation has spread, not least of all through the use of the term “multinational corporation,” although its origins lie in US usage (Mencken 1962, 244). 2. The transaction-costs approach has been one of the most influential recent analyses of the manner in which corporate organization develops. See Williamson 1985 for the classic treatment. 3. But see Koh 2004 for a discussion of its rather limited impact. 4. In the wake of a number of bankruptcies due to asbestos-related and other claims, Lloyds of London’s “names,” perhaps the last unlimited-liability stock scheme, has in the past few years finally moved to incorporation and limited liability. 5. See Chapter 2 for a view that corporations are actually powerful for different reasons, and Wolf 2004, 221–226, for an argument (based on the same criticism of gross domestic product/turnover comparisons) that suggests corporations are much weaker than even my modified assessment suggests. 6. Jon Ronson’s telling (2001) of this conspiracy-driven perception (and the associated television series) balanced an account of the themes (some of which are relatively plausible) with a darkly humorous description of the individuals involved in proclaiming the threat (a number of whom were, frankly, scary). 7. Alfred Chandler (1990) distinguishes US “competitive managerial” organizational forms from British more “personal” management within the Anglo-Saxon market-led model, although these differences are perhaps more historical than contemporary. For a further disaggregation of the history of the corporation, see the various national histories presented in Chandler, Amatori, and Hikino 1997.

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PART 1 Conceptualizing the Corporation

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2 The Century of the Corporation Jeff Harrod

The basic argument elaborated in this chapter is that the current corporation has assumed a size, power, and nature that distinguishes it from its past manifestations. The corporation must be seen as a lead organization and institution at the beginning of the twenty-first century and no longer confined to its function in trade, commerce, and production. The current corporation must be subjected to theories and approaches developed outside the economic and commercial spheres, and this requires a reconsideration of past approaches and an eclectic development of new ones. This latter project should attempt to identify basic dynamics and contradictions inherent in the current corporation and its position in societies and in global politics in order to understand, influence, or change current directions and developments.1

Nature of the Corporation in the Twenty-First Century

The 1,500-year history of the various corporate forms—monasteries, guilds, colonial companies—can be seen as a shifting relationship between corporation and state. All the early corporations started or moved in the direction of acquiring, achieving, or securing monopoly or oligopoly power. The state often granted such monopolies, but at certain points those in control of the state came into conflict with those in control of the corporations, and until recently the conflict was always resolved in favor of the state. The historical discontinuity that developed in the last quarter of the twentieth century stands in contrast to the historical shifts of the past. 23

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First, oligopoly and monopoly have not only been achieved but also become permanently consolidated in most economic sectors on a global basis; second, the state no longer attempts to grant such monopolies, but also does not effectively restrain the development of sectoral power; third, interstate relations no longer limit the activities of the corporations; and fourth, the corporation has spread across all sectors and has increased in size and scope on a scale that is historically unique. To acquire a sense of the changes that have now produced the current corporation, it is necessary to consider five corporate facets—size, sectoral power, governance, global spread, and relationship with the state. For the arguments made in this chapter, the most important and controversial of these facets is that of corporate-state relationship. Corporate Size

The size of a corporation may be judged on several criteria, such as employment, assets, sales or profits, or market capitalization (the amount of stock multiplied by the current stock market value). The only indicator that has been used outside the direct economic area to indicate size has been to compare the sales figure of a corporation with the gross domestic product (GDP) of nation-states and thus demonstrate that corporation sales figures are larger than the GDP of many nation-states. This practice was supposed to indicate the power of the corporation. Grahame Thompson (2003) argues that a better indicator would be value-added. However, both indicators are misleading, because although it is suggested that they indicate political power of the corporation, they are derived from an economic view of both state and corporation. Essentially, to indicate the power of the corporation, the sales figure should be seen as an organizational budget. Sales minus profits equals expenditures in the corporation’s “budget” in analogy to a government or an international organization. The sales figure of the corporation shows how much the corporation spent in any year on purchasing labor, resources, investments, goods, advertising, corporate image-making, lobbying, and consultants in order to yield any desired surpluses. A better indicator of a corporation’s power would therefore be its sales figure in relation to the budget of states and other organizations. Thus the French government spent approximately US$270 billion in 2001, while Wal-Mart, a corporation headquartered in the United States, spent about US$210 billion. In 2002 the Toyota corporation, headquartered in Japan, had at least US$100 billion to spend, while, for example, the United Nations system (not including the International Monetary Fund and World Bank) had about US$10 billion.

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Power is notoriously difficult to measure, but in seeking proxy indicators of corporate power the sales-to-budget ratio provides a more useful order of magnitude than do ratios geared exclusively to economic indicators of size. Sectoral Power

There have been three decades in which the twin trends of the development of global markets and the reduction in the number of corporations that share them have resulted in a few powerful corporations dominating each of the global industrial sectors. Currently, almost all global sectors have an oligopolistic structure in which three to five multinational corporations dominate. Others have only one dominant corporation. In some sectors, corporations share markets by detailed product line rather than by a category of product; thus, for example, pharmaceutical corporations will each agree to specialize in one complex drug. Of the 149 specific global “business areas” listed by Peter Nolan, Dylan Sutherland, and Jin Zhang (2002), 41 of them (28 percent) show a structure in which one corporation alone has more than 40 percent of the global market. Oligopoly also produces oligopsony— the presence of only a few purchasers in the market—which extends corporate power beyond the immediate sector into the raw materials, suppliers, and labor markets, especially for high-skilled labor. In many sectors the oligopoly corporations are also in a position of oligopsony. The development and consolidation of sectoral concentration by merger and acquisition is one of the most important developments in the global political economy in the past twenty years (Nolan, Sutherland, and Zhang 2002; Klepper and Simons 2000). It has freed the corporation from the restraints of classical competition, changed the nature and scope of its behavior, and raised issues of power, control, and global processes in ways that have never before required consideration. Structure and Governance

The internal affairs of the current corporation are predominantly governed by the executives at the top of the organizational hierarchy, and there is little intervention from external forces or organizations, whether they be state agencies, civil society organizations, or shareholders. This situation prevails, to different degrees, within all three of the most important models of corporate governance, as found in the United States, Germany, and Japan (Doremus et al. 1998; Heinze 2004). The predominant power of the board and executives, and the general bureaucratic nature of the functioning of the corporation, are generally

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accepted. That is, the organization is based upon an internal hierarchical structure of different degrees of “flatness,” of ranks, contracts, status, mission statements, internal labor markets, and internal motivation systems—in short, all the characteristics that were first revealed and studied mainly in relation to the state apparatus. That the dynamics of a large corporation are little different from those of a government or government agency was originally resisted on the grounds that state organizations were administrative and were uniquely subjected to bureaucratic processes, and that this could not be the case with productive organizations. This argument had some purchase with smaller corporations, but the increase in size and the more recent entry of the corporation into administration previously performed by the state (for example, as in privatization when corporations are contracted to administer education, health, and prison systems) have rendered this distinction less useful. The management literature demonstrates, and investigatory journalism and whistleblowers reveal, that the current corporation is indeed an example of a bureaucratic organization similar to that usually discussed in relation to governments. Global Spread

Despite promoted images, the current multinational corporation is still essentially a large corporation with activities outside its country of headquarters. There are many criteria for determining how international a corporation has become—sales, assets abroad, and employment abroad, for example. Domestic sales is a useful criterion, because it indicates where the core corporate interest lies. Using this criterion, only the largest of corporations and those from small headquarter countries have more sales abroad than in their headquarter countries (UNCTAD 2003). The global activities of the corporations, as manifested by the spread of foreign direct investment (FDI), are heavily biased toward the wealthier countries of the world (see Tables 2.1 and 2.2). The proportion of the total of FDI stocks in the poorer countries of the South has rarely risen above 30 percent, and even when the proportion reached 40 percent, the bulk of it was to be found concentrated in a few countries in Asia. Sixty-two percent of the largest corporations among the Financial Times global top 500 are headquartered in English-speaking countries (see Table 2.3). Canada, the United Kingdom, and the United States have 59 percent of the FT500 corporations headquartered in their countries, while they account for only 37 percent of world GDP. By contrast, Japan and Germany are spectacularly underrepresented in relation to the number of corporations headquartered in their countries compared with their economic size (see Table 2.4).

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Table 2.1 Extent of Corporate Foreign Investments, 1985 and 2001, by Selected Country of Origin of Funds Percentage Percentage of Total FDI of Total FDI 1985 Originating from 2001 Originating from (US$ millions) Country (US$ millions) Country World United States United Kingdom Germany Japan Brazil South Korea Malaysia China Chile Nigeria Developed economies

707,786 251,034 100,313 59,909 43,970 5,826 526 414 131 102 8 663,456

35 14 8 6 0.7 0.07 0.06 0.02 0.001 97

6,866,362 1,381,674 1,033,003 577,849 331,596 53,227 43,500 20,194 35,538 13,639 4,553

20 15 8 5 0.8 0.6 0.3 0.5 0.2 0.06

5,987,746

87

Source: UNCTAD 2003. Note: Outward FDI: percentages rounded to nearest whole number.

Table 2.2 US-Headquartered Corporations’ Investment Abroad, 2001 Host Country

Percentage of Total FDI

United Kingdom Canada Netherlands Japan Switzerland Bermuda Germany Mexico France Brazil Ireland Australia Other

18.0 10.1 9.5 4.6 4.6 4.5 4.4 3.8 2.8 2.6 2.5 2.5 30.0

Source: US Department of Commerce 2002, 27.

Thus a statistical profile for the current corporation indicates that it is predominantly Anglo-American, with a greater interest in domestic markets; that it invests predominantly in rich countries, although in uneven proportions; and that it is one of a small group of corporations

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Table 2.3 Number of FT500 Corporations with Headquarters in the Ten States with Most Headquarters Located Within Their Borders Country United States Japan United Kingdom France Germany Canada Netherlands Switzerland Italy Australia

Number of Corporations 238 50 41 29 21 18 14 12 11 9

Sources: Financial Times list of top 500 (FT500) global corporations, May 2004; World Bank 2004. Notes: Top ten states by headquarters = 88 percent of FT500. Corporate size based on market capitalization.

Table 2.4 Number of Corporations as a Ratio of GDP, Top Ten Headquarter States Country Switzerland Netherlands United Kingdom Canada United States Australia France Italy Germany Japan

Number of Corporations 5.8 3.8 2.9 2.6 2.4 2.2 2.2 1.1 1.1 1.0

Sources: Financial Times list of top 500 (FT500) global corporations, May 2004; World Bank 2004. Note: Per US$100 billion GDP.

that dominate the sectors. There are always exceptions to this median profile, of course—some corporations, especially those from small countries, such as Shell in the Netherlands and Nestle in Switzerland, may have none of these prime characteristics. Despite such exceptions, the basic profile should be seen as a backdrop to any discussion of the corporation in abstract, which is the case in this chapter.

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Relationship with the State

The nature of relationship between the corporation and the state is of primary importance in considering the corporation in the twenty-first century. In analyzing the increase in power of corporations, considerable focus has been placed on their global activities, as if these activities alone were the source of the power increase. The argument made here is that while the global reach of the corporation has assisted in altering its relationship with the state in which its headquarters reside, it is precisely this alteration that is the source of the newfound power. The twenty-first century started with the corporation in a powerful position within societies and thus within and over governments. Such a statement produces controversy principally because elites and networkers associated with governments and states are reluctant to admit the impact of corporate power, as it is a political, electoral, and ethical issue. This has meant that much of the literature and studies have been of a political, popular, and polemical nature. It is not the purpose here to simply detail the increased global power of a single or group of corporations but rather to signal the existing evidence that supports the proposition that in the twenty-first century the corporation as a political organization has greater power within and over societies, governments, and sometimes nations than it had in the nineteenth and twentieth centuries. The real source of power of the corporation in the twenty-first century is its increased influence within the governments of key states in the global political structure. Unlike the church and the state, the dominance of which has been accepted and is historically familiar, in the case of the corporation the reality of its dominance or potential dominance is still contested. The arrival of the corporation as the dominant organization of the first quarter of the twentieth century was signaled by two factors. First, there was a shift in institutional and organizational structure of lead polities, and second, there was a shift in the relative importance of the groups or elites that held power and produced the rationalities, away from political elites and toward corporate elites. In 1974, Philippe Schmitter wrote a seminal article, “Still the Century of Corporatism,” but even as he wrote, the so-called corporatist governmental system began to weaken and has now almost universally collapsed. This meant the weakening or breakup of the tripartite system of negotiations between the so-called social partners of government, business, and labor unions, a system that had prevailed for almost fifty years. The structure of these patterns has now changed, as power has shifted from elites directly using the state to others not directly in control of state apparatus. The current changes can be seen as transformation of

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political economies previously dominated by tripartite patterns of power relations, in which the state used its power to mediate between the corporation’s economic power and organized labor’s social power, to a political economy in which the power relations are at best bipartite. The bipartite power relations are between a weakened government and corporations that make demands on the state, promote the social power of the ancillary professionals, and fragment the social power of the labor force. This transformation has precipitated the corporation as a dominant organization and institution of the contemporary scene. To support and expand this latter statement requires a discourse and scholarship with a focus on those developments that indicate the emergence of new forms of polity in which the corporation is formally, legally, and constitutionally part of governing structures. There is no such serious scholarship in this area at present, but evidence that can be used to indicate the rise and changing position of the corporation emerges from two different areas of research and discussion. First, in-depth “issue” studies that point to the increasingly dominant role the corporation assumes in dealing with specific policy issues and also to the instances when the corporation assumes statelike activities. Second, macro-level studies of elites that demonstrate the shifts that have taken place in “power elites” in the past four decades and in which the corporate elite has increased and consolidated its power. In the first category, for example, it has been shown that while it is generally assumed that sectoral business associations are the usual route for business lobbying in environmental regulations in the European Union (EU), the large corporations are engaged directly (Bennett 1999); John Bowman argues that in engaging in collective action, corporations create an alternative strategy that treats “business firms not as one dimensional self-interested profit maximizers but as actors capable of being educated to view themselves as part of the community” (1998, 328); David Levy and Daniel Egan (1998) argue that corporate domestic power over the state means that the latter is used as a conduit for corporate power in international climate-change negotiations; Marc Schneiberg (1999) sees governance by corporate association, not by “market,” in the US fire insurance industry; John Mikler (2004) shows that in the implementation of motor vehicle emissions standards, the outcomes are determined by the institutional relationships of auto corporations in the EU, Japan, and United States rather than by any conventional “market” explanations. Global sectoral studies (e.g., Levy and Egan 1998) show the combination of captive or compliant states, and corporations govern the sectors that they operate in (Paul and Steinbrecher 2003; McMichael 1999). Finally, there are specific national accounts of the corporate role and dominance in government and politics (Monbiot 2000; Korten 1995).

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In formal international relations, corporations and states are involved in traditional diplomatic practices, with the states often incorporating the situation or acting as a facilitator (Lee and Hudson 2004). At the same time, corporations assume statelike functions at the international level as, for example, they move into conflict prevention (Haufler 2004), and as internationally operating private security contractors begin to dismantle formal state monopoly on violence (Avant 2004). Studies in the second category indicate the changes in elite and power structures in key political economies. Thus Harold Perkin (1996) sees professional power as the third revolution after the social revolutions of the neolithic and the industrial. Robert Reich (1991) also identifies an elite connected to corporations that has arrived in power, while Erik Wright (1997) statistically shows the class nature of the new power. Richard Florida (2002), echoing Reich, sees the arrival to a position of dominance of a “creative class,” and Amy Chua (2003) argues that the weakening of state and previous structures is producing “market”-dominant elites that, in many societies, are ethnically distinguishable. In all of the cases, the class or elite identified as emerging into predominance is centered around structured professional, managerial, and high-technical employment, which is predominantly provided by corporations. Finally, there has been an arrival to power at the head of states of persons drawn directly from corporate experience in different sectors— for example, President George W. Bush and Vice President Dick Cheney of the United States (oil, construction), President Silvio Berlusconi of Italy (media), and President Vicente Fox of Mexico (carbonated drinks). Assessments of power and influence are always contestable, and in this area they range from that of Philip McMichael (1999, 16) asserting that states have been transformed into corporate entities—in a progressively shrinking democratic political space—to those that continue to assert that the corporation is a private commercial firm governed by a process of competition with limited ability to influence state or history. With the available evidence, however, it is safe to say that currently there is no continuation of Schmitters’s century of corporatism, but rather the opening of the century of the corporation.

Classical Theories: Relevance and Revisions

The corporation in the twenty-first century has only a limited connection with any of its past manifestations or analogies. This would normally mean that new approaches and theories have to be developed and considered. There are three barriers to this project. The first is that the

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corporation has been considered and viewed as an economic entity, even when it was a colonial extension of the state, and that the major discussions, dimensions, and theories have therefore been developed within the framework of modern economics and management. Neither of these latter approaches are equipped to consider the corporation as essentially anything but an economic entity or a managed organization for an exclusively economic purpose. Second, the current ferocious division of disciplines makes eclectic or holistic analysis of any modern phenomena difficult (Harrod 1997; Rostow 2003). Finally, it is apparent that those who, for political reasons, attempt to resist critical discussion of corporate social and political power are insistent that the corporation be designated a private economic organization. It is not surprising, then, that past theories of behavior, theories offering predictions and prescriptions, would have limited value in helping, understanding, or dealing with this new situation. Despite such a realization, the corporation and its actions are still most often justified in terms of classical (Smithean) theory and criticized in terms of classical Marxist theory. Even more important, past theories, with their historical distortions, have impeded the development of a more accurate perception of the corporation. The first task in theory building, in this case, is to delink the current corporation from the language of past theories (Rorty 1989) and then to disembed it from its position within the constructs of these theories. Neoclassical Economics: The Market Problem

Neoclassical economic theory celebrates the market. What is celebrated is an ideal type of market in which rational purchasers with necessary information buy from competing suppliers who are intent on maximizing returns. As already noted, the current corporation, through its sectoral domination and its ability to create compliant (unfree) purchasers, has made this ideal type irrelevant to an understanding of its behavior. The utility of the market concept thus becomes a heuristic device, that is, an imagined phenomenon useful only to demonstrate its nonexistence in reality. This would not be so serious if classical theory incorporated a theory of transformation from one ideal type to another, which it does not. Adam Smith (1952 [1776], 51–62) was intent on describing how capitalism and markets came into existence and how they should function, rather than what would happen if forms, practices, and power changed. Consequently he was against the “corporation,” by which he meant the guilds of artisans, who he thought would make dangerous monopolies

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of suppliers, but at the same time he was also against the absentee ownership of joint-stock companies. Current corporations are often both monopolies and joint-stock corporations. This situation means that other components of theory that were supposed to provide a guide to business or corporate behavior are also constrained. Profit maximization as an indicator of corporate action is only relevant if the concept of profit is redefined to include the organization’s desire to stay in existence and the non-profit-related salaries of the executive and managers. Also, profit, in the sense of a surplus secured from competition in the product market, may not be a guide when increases come from rent-seeking, that is, surpluses generated from activities not directly connected with investment and efficiency. If the surplus depends on the passing of a law, and if this, in turn, depends on the power of the corporation in the political arena, then behavior is more likely determined by the nature and extent of that latter power rather than by rational economic calculation and quantitative empirical data. There are few economists who are prepared to accept the bankruptcy of classical theory in this respect with the honesty of Alan Speight, a leading economist in the 1960s, in his statement relating to oligopoly: “Oligopolists are engaged in a constant struggle to achieve and maintain in their markets, and this struggle is better analyzed in terms of military strategy than in profit maximization and the marginal principle” (1960, 318–319). A further problem with classical theory is not so much the theory itself, but the way its terminology has been used and distorted. Strangely, the accuracy of the Smith version of the development of capitalism and so-called market societies was not challenged by those in the nineteenth century, neither by those who approved and promoted the final results of the development nor by those who opposed and decried it. The idea of “market” then began to have a meaning and scope far beyond its classical, ideal-type origins. Thus the abstract “market” became central and, as a consequence, became embedded in political theory, that is, before the “market” became corporate-dominated. From then, the reification of markets became commonplace—not only did they have an invisible hand but they also “thought” and “reacted” and finally were placed in relation to the less-than-abstract and heavily defined “state” to the extent that they became “masters of governments of states” (Strange 1996, 4). The market as an ideal type of classical theory or the pragmatic meaning of a shifting and voluntaristic body of suppliers and purchasers cannot be placed in juxtaposition to the state incorporating an existing nation-state or government with its defined boundaries, citizens, and formal power. For this reason, the discussion of “state and markets” can no longer be seen as the involvement of an authority in the consumption and production

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patterns of a society, but rather as the relationship between two authorities—the government of the state and the corporation. These two authorities have formally designated areas of operation, but increasingly are either using their authority and power jointly or, as noted above, conceding strategic power to the corporation. This situation has meant that the market concept either is used for blatantly hiding the power of corporations or is simply and entirely confusing. Those who persist in using a marketstate nexus in this manner either never define the market (Schwartz 1994), ignore the reality and cling to the eighteenth-century abstract market definition (Przeworski 2003), or simply use it as a euphemism for the corporation. Until the corporation is disembodied from classical and neoclassical theory and is taken from behind its discursive surrogate of the market, it cannot be understood, nor can its practices and behavior be anticipated. Marxian Economics: The Organization Problem

The literature on the relevance of Marxian theory to the current situation, whether wrapped in the analysis of capitalism or class relations, is vast and convoluted. While it is not possible here to analyze the relevant strands of Marxism and their application, it is possible to signal two aspects that are important within the current use of Marxist theory that affect the corporation. The first is that, currently, a large part of Marxist-oriented work, and critical analysis in general, concerns the concept of “global capitalism” and international activities of the corporation, especially in relation to globalization. The second is that the corporation is viewed as either part of a capitalist system or even as a definer of a capitalist system as in the rubric “corporate capitalism” (Gupta 2001). Both of these approaches are problematic for those seeking to develop a critical and analytical view of corporate dynamics. First, because the international or global power of the corporation is more a function of the power it has achieved within powerful headquarter states rather than a function of power over weaker states or more resistant states abroad. To focus on the study of the global activities of the corporation means to study the point of entry rather than the source of its power and activity. Second, to embed the corporation in capitalism suffers from the same distortion as does its embeddedness in the market. While disagreeing on its origin, Karl Marx accepted Adam Smith’s definition of the initial capitalist market. Shorn of their dynamic, transformational, and predictive elements, the Smith and Marxist visions of capitalism are similar. Just as a monopoly corporation can be seen to destroy the competitive market, so it can be seen to destroy capitalism

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in its nineteenth-century version (Baran and Sweezy 1968). In both cases, however, the view that the corporation has distorted or destroyed its original setting does not help in charting its new trajectory. Despite these similarities, Marx and his adherents had an entirely different dilemma than did the classical political economists—Marx analyzed the current situation in order to understand the dynamics of capitalism and why it would fail. There was a predictive theory of transformation. His vision of the failure of the political economy was connected with the growth in size of economic units. However, he put these into the hands of a class rather than organizations. The concentration of capital and power in fewer and fewer hands would lead to overproduction and the “pauperization of the mass,” which in turn would unleash the revolutionary transformation. To fit the corporation into this trajectory, the bourgeois class of Marx’s theory has to be symbolic of an executive class of the corporation, and the material pauperization of the mass must be made analogous to the current, more complex denudation and creation of an underclass. Proceeding by analogy may produce useful statements—corporate executives accumulate through surplus capture and salary, the current poor suffer spiritual rather than material deprivation, and pauperization must be seen more on a global scale than at a national or societal level. But as the analogies become weaker, become more removed from the original analysis, and involve greater complexity (including, for example, when placing class analysis in a global context and dealing with race, culture, and nation), then continued adherence to the original thesis becomes distorting. Any original Marxist vision concerning dynamics and contradictions is connected with Marx’s agreement that capitalism was subject to two processes, concentration and centralization—concentration meaning the development of monopoly and centralization meaning the concentration of capital in a small class (Marx 1952 [1867], 302–311). This dynamic certainly appears to have precipitated the corporation. The concentration and the current role of corporations were predicted in the framework of modern capitalism many decades ago (Ball 1975; Hymer 1979). But from there the Marxist theory is of less use, because this concentration and centralization was the key to the political events leading to systemic transformation. If, however, the creation of an organization of concentration and centralization was itself the transformation, then the theory has little further to offer. The dynamics of intra- and interorganizational conflict, strife, and rivalry are needed for a critical analysis of the new situation, just as is a critical analysis of the constant in the transformation process—the nationstate. Marxist starting points and insights may indeed be important in

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constructing a critical theory of the corporation, but just as in the case of classical political economy, unless the corporation is disembodied from traditional definitions of capitalism and from nineteenth-century class and transformational trajectories, it will not be understood or be subject to reasonable predictions.

Constructing New Approaches: Political Theories of Behavior

I have argued so far that the current corporation represents a discontinuity and that, as such, traditional theories apply only weakly or not at all to the current situation, in which the corporation has emerged as the dominant organization of the twenty-first century. Theorization will not be successful if it starts with notions of the market or of capitalism. Macro and meso theory building for a new phenomenon requires eclectic approaches and the broadest incorporation of parts of existing theories in as holistic a fashion as possible. The focus here is on theories that lead to a political assessment of the corporation, that is, to an assessment of the power it has and uses within societies and nation-states and globally. This is not to render the economic perspective totally defunct. Economic parameters to corporate action do exist, but they are much weaker than is generally promoted and assumed. Monopoly and oligopoly pricing theories within economics constitute a branch that is full of uncertainties and unquantifiable power factors. The Finance-as-Power Approach

Shimson Bichler and Johnathan Nitzan (2004) reject the neoclassical and Marxian notion that value originates in the “material” sphere of consumption and production. Instead, they argue that prices and distribution—and therefore earnings and finance—are wholly and only a matter of sociopolitical power, broadly defined. Corporations seek to “beat the average” and exceed the “normal” rate of return in order to augment their social power and raise their share of total return. The largest, or “dominant capital,” groups actively try to alter the social and political process to that end. Illustrating this process in the oil business, the authors show a correlation between a fall of the rate of return below the average and the eruption of conflicts in the Middle East. The latter conflicts have the effect of increasing oil prices and pushing the rate of

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return of the leading oil companies back above the average. In general terms, the specific actions taken to achieve such an end would be to some extent defined by the particular sector, which of course may not be as dramatic as the actions undertaken by the oil or energy sectors. The Social Relations Approach

The social relations approach enters and analyzes the corporation via social power relations or, more prosaically, labor relations (Amoore 2002b; Haydu 1998; Cox 1987). The fundamental argument is that the corporation’s posture toward a range of external forces and factors will be determined by the relations that prevail between dominant and subordinate forces within the corporation and, in particular, the manner in which labor motivation and control are achieved. Thus a strong and integrated labor force may be able to force the corporation to increase its labor costs above the going rates, or the corporation may find that integrating its labor force is a strategy that, in the longer run, will enable it to produce greater surpluses. Either way, it must use its sectoral power to increase prices to pay higher costs inside the corporation. This corporate pattern of power relations within production has “corporatist” overtones in that corporate surpluses are used as material incentives to secure a compliant or a loyal core labor force. Not only are such relations dynamic and thus affect corporate behavior, but the corporate pattern must also interact with other patterns, such as the self-employing or smaller enterprise patterns. This approach has been able to place the collapse of the twentieth-century corporatist tripartite system into a perspective beyond the more simplistic view that it was the result of the loss of power by organized labor, and in turn this was the result of changes in production technology (Ryner forthcoming). The Organizational Behavior Approach

Of the approaches listed here, the organizational approach to corporate behavior is the most established because it is used in management studies to discuss the functioning of the corporation, with its assumption of the certainty of its declared goals derived from a commercial and economic framework. The negative aspects identified by organizational theorists are seen merely as warnings of situations to be avoided. But organization theories can also be used critically, for example, to understand the arrival and impact of organizational “goal displacement” or when external action in the organization’s social ecology is used in relation to internal power games.

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The changes in the functioning of the political economy resulting from the ascension to prominence of the “manager” as distinct from the “owner manager” in the nineteenth century allowed the corporation to be viewed in a light different to that of an entrepreneur-led firm in the classical market. Now, in the twenty-first century, sectoral power allows organizational dynamics to have an even greater influence. The importance of organization theories expands with the number of managers who are, initially or currently, not driven by returns on personal capital as much as they are by increase in salary, status, and prestige. Thus, if the organization is swung in the direction of securing status and wealth for top executives rather than producing for aggregate consumption, then the power of the organization goes beyond the product market. The corporate goal becomes elite power and wealth maintenance without necessarily ensuring the continuity of organization—as in the case of the juxtaposition of corporate failure and an executive safety net. This scenario is even more likely when there is a greater certainty of continued return, which is the case in those corporations within the so-called natural monopolies of energy and communications. Max Weber’s well-known fear of a Kafkaesque bureaucracy of the state now applies to the corporation. Weber noted that “bureaucracy, thus understood, is fully developed in political and ecclesiastical communities only in the modern state, and in the private economy only in the most advanced institutions of capitalism” (1968 [1922], 956). A hundred years later the corporation can easily be considered as “the most advanced institution of capitalism” and thus subject to Weberian theory and warnings concerning bureaucracy, despite arguments by managerial theorists that it is the efficiency of corporate administrative use of information that accounts for its apparent success (Chandler 1977). Other organization theories, such as Robert Michels’s iron law of oligarchy (1949), or the dysfunction theories in cross-cultural transfers, can and should be applied to current corporate practices. Organizational dynamics and practices are at the core of the early twenty-first century’s series of corporate “scandals” in which sales in the market became a fiction, and service to the top executives became the goal—and the reality. The Institutional Approach

The institutional approach sees the corporation as an institution as well as an organization (Zijderveld 2000). As an organization, the corporation will be subject to organizational dynamics, but it also becomes institutionalized by the larger society and thus a producer of norms and values, of focus for loyalty and mistrust. There is also a latent aspect of

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the corporation as an institution; working for it, being involved in it, or sometimes purchasing from it is in itself the source or values and orientations. But as an organization it can actively seek to produce such values, norms, and perspectives. In Chapter 3, Louise Amoore argues that the organizational tactic of “outsourcing” is being made a universal positive value of global integration. As the organization of the corporation becomes institutionalized, it would be expected that its prime functions and goals would move beyond sectoral production. The institutionalists would have predicted that the corporation would move to accept social responsibility to a greater extent than would be expected by the rational choice and profit maximization of classical theory. As will be examined later, the contradiction between the corporation as an institution and a mere production organization is one that may dominate the politics of the twenty-first century. The Realist Approach

The realist approach, or “societal realism,” as it has been called by Jeffrey Harrod (2001) to distinguish it from international realpolitik, sees the corporation making its production function second to its search for political, social, and economic power. The greater the broader power, the easier it is to make surpluses, produce high executive salaries, and secure high status. Thus, surplus-generating may be postponed in favor of power-seeking. The realists are then not surprised that the corporation would seek to dominate consumers, to produce conformity, and to secure predictability in choice. It would also be expected to move to capture suppliers of capital, raw material, and in particular, the source of regulation—governments and government agencies. For the corporate realist, as for realism elsewhere, there is a linear relationship between interest and power. Realist scholar Georg Schwarzenberger (1951) insisted that any situation is clarified by asking qui bono (who benefits). The “who” then returns to the questions of elites, groups, and social classes that control the corporation as an instrument in maximizing their power. * * * Many of these approaches are overlapping and some have contradictory elements, but they have a common characteristic: the corporation, whether viewed as dominant capital, as an organization, as an arena for social relations, as an institution, or as a power instrument for discrete elites, is seen to be delinked from the place ascribed to it by traditional theory.

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Dynamics and Contradictions: Imperial Dysfunction, Forms of Power, and Weak Rationalities

The approaches discussed above yield insights and perspectives that permit some identification of the essential dynamics and contradictions surrounding the corporation and that may have geopolitical and social importance for the twenty-first century, three of which are signaled here. Imperial Dysfunction: Global Activities and Organizational Transfer

In 1845, Benjamin Disraeli, a future prime minister of the United Kingdom, wrote of the introduction into England in 1688 of the Dutch system of finance: The principle of that system was to mortgage industry to protect property; abstractly nothing could be conceived as more unjust; its practice in England has been equally injurious. In Holland with a small population engaged on the same pursuits, in fact a nation of bankers, the system was adapted to the circumstances which had created it . . . but applied to a country in which the circumstances were entirely different. . . . [I]t has ended in a fettered and burthened multitude. (Disraeli 1845 [1954], 30–31)

About eighty years later, Max Weber noted, concerning bureaucracy, that “the idea that the bureau activities of the state are intrinsically different in character from the management of private offices is a continental European notion and by way of contrast is totally foreign to the American way” (Weber 1968 [1922], 957–958). These observations highlight one of the important contradictions inherent in the current global activities of the corporation. The greater the corporate dominance, the less the need for adaptation to different circumstance and the greater the dysfunction and social turbulence produced. As noted above and shown in Table 2.3, the current dominant model of a corporation is headquartered in an English-speaking country and conforms to the Anglo-American model. The attempt to spread the Anglo-American corporate governance model around the world (Soederberg 2003), then, is to remove it to places different from the “circumstances that created it.” Further, it has always been noticeable that states and governments that command empires apply metropolitan–developed and generated policies more stringently in the reaches of the empire than in the metropolitan states (Memmi 1965; Varadararajan 2004; Owen 2002). For the modern corporation, especially with its

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increased power in government, this means that the policies required for its perceived needs and power are likely to be more uniformly and rigorously applied in the weaker areas and states than at the center. The dysfunction and serious broader impacts of such policies, practices, and models are already being discussed and identified even among countries of similar levels of industrial development (Hyeong-Ki 2003; Henrekson and Jacobson 2003). The demand for corporate-friendly policies without consideration of their social and political ecology is likely to create precisely the dysfunctions associated with organizational transfer in imperial times. The social and political effects of these dysfunctions were at the root of the development of protest movements and politics that destroyed or changed the nature of empire in the middle of the twentieth century. The variety of corporate governance models from this perspective produces problems associated with the transfer of institutional or organization models outside the national circumstances of its development and integration (Doremus et al. 1998). The weakening of national restrictions on foreign direct investment reduces the need for adaptation in organizational transfer to levels lower than those that were required by earlier colonialists. As with colonialists of the past, the corporation seeks the replication of its own idealized social and political ecology. The application of sociological and critical organization theory to crosscultural corporate activities would indicate a long-term trend toward increased resistance in a variety of forms from host populations. Forms of Power: Internal Profit-Taking and Underclass Politics

The actions of a corporation, both internally and externally, have a wide-ranging impact given its role as a lead organization and institution. One of the most important sociopolitical phenomena of the early twenty-first century is the continuing and increasing polarity of income distribution. This has been a trend for at least two decades in the major world economies, although at different rates and with different ratios. A wide-ranging discussion of the causes of this development has ascribed the trend to developments in labor markets, global economic integration, technology, and elite changes. This is not to suggest that the arrival of the corporation alone, or its position as a dominant institution by itself, is the cause of the polarity development. The purpose here is to consider what aspects, operational or internal dynamics, contribute to or sustain this situation. One of the important things the corporation has contributed can be placed under the heading of “internal profit-taking.” This, in turn, is

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derived from the achievement of sectoral power and the ability to pass on increased internal costs in product prices. Thus the increase in executive salaries, payments at commencement, and severance contracts, regardless of other criteria of performance, is part of an internal profittaking in which the power within the corporation apportions returns to those within. The internal struggle for the distribution of returns has been resolved in favor of the higher reaches in the corporation to a degree that was not present when productive worker organizations were stronger. National statistics confirm the stagnation or relative decline of productive workers’ incomes compared to those of executives, and also the massive widening of income differentials within the corporation. Another factor of importance is that the increased size of the unit requires more “staff”—that is, more managerial support—for the line workers in production. In this case, then, not only are the higher incomes increased, but so also is the number of such incomes within the total pyramid of incomes. A similar effect is caused by the increase in “consulting professions” to which the core corporate staff have resort and support as part of the internal dynamics of organization needs, perceived needs, or individual interests. Outsourcing to lower-paid workers has a similar effect of increasing the ratio of incomes from the top 20 percent of the wider corporation to the bottom 20 percent. The absolute employment figures of the corporation would not make a societywide change, but the corporation, as an institution and dominant organization producing wage and income standards, has an impact beyond corporate employment. The dominance of the traditional theories allows corporate hostility to organizations, particularly trade unions, which may redress income differentials to be seen as entirely within the framework of capital versus labor or the search for bottom-line efficiency. While this remains true, there is also another factor of importance to the contemporary corporation: the attempt to maintain internal processes and practices unaffected by interventions by external authorities. State agencies and trade unions are the only bodies in most legal regimes that have legal rights and, sometimes, the social power to involve themselves in the internal dynamics of the corporation. These agencies may question the internal distributions, reveal practices, and otherwise provoke split loyalties. The larger and more bureaucratic the organization, the more resistant to external interventions it becomes. The opposition to unions and regulation is thus not solely for the purpose of reducing the wage bill, but also is a dynamic that results from the contemporary corporation’s character as a large production organization seeking to secure its boundaries and its adherence, if not loyalty, to its core workers.

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Finally, the question of corporate promotion of mass consumption and mass markets, and the attempt to control such consumption by mechanisms other than price, must be considered. To achieve a loyalty to a brand reduces the elasticity of demand for that brand—increases in prices are slower to reduce the increase in sales. Marketing practices in the mass consumption industries are largely directed toward this end. Potential cultural and national resistences are overcome by use of inauthentic cultural symbols (Ram 2004). Parallel pricing, built-in obsolescence, and other such practices may be defeated by the consumer only by the application of time, research, education, and a degree of social independence. Thus there develops a bifurcated market for the mass and the educated. The less discriminating and more captive the market, the lesser the demand elasticity. The mass consumers are concentrated into what is becoming known as the “underclass.” Unlike Marx’s pauperization of the mass based on material deprivation derived from overproduction, the definition of the modern underclass is not based on caloric intake but on levels of basic educational skills, literacy, and social factors that are determined by level of occupation. The rise in proportion of this segment of the population has been accompanied by the arrival of mass consumption mediated by brand and information-poor media campaigns. Does the corporation’s search for a captive consumer—cajoled into paying a price for a good that includes, for example, the disproportionally high salaries of executives—create, contribute to, or sustain the development of an underclass? If this were the case, the primary question for the forthcoming decades would concern how the presence of such an underclass would affect the nature of the societies in which the corporation is embedded and, in particular, the nature of power within the state (Harrod 2002; Davies 2004). Certainly, for the maintenance of its position in the face of possible hostile political and social action, the corporation, as a lead organization and institution, must produce a legitimizing rationality similar to that of other institutions at the highest level of the political economy. Weak Rationalities: State-Corporate Relations

The social structure of the West at the opening of the twenty-first century can be seen as incorporating a number of institutions, each of which has an organizing form and a legitimizing rationality. A rationality in this sense is a construct that seems to explain the presence, the importance, and the outcomes of an institution in a fashion that satisfies the human need for causality (d’Aquili and Newberg 1999).

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If it were possible to see Western history as a succession of periods in which different institutions and their organizational expressions and rationalities become dominant, then the trajectory follows the shifting balances of power of the church and the state and now the entry of the contemporary corporation. Each institution, with its organizational counterpart, would have a legitimizing rationality that seeks to provide a cause for any outcome that raises questions of illogicality and requires an assigned cause. Thus, when individuals or groups question their place within segments of poverty, wealth, or power, a legitimizing rationality provides the answer. A question to the institution of “religion” and the organization of church concerning an illogicality requiring a cause would be responded to with reference to a “god’s will”; for a question to the “state” and the organization of government, the response would refer to “the people’s will”; and to the corporation, the response would refer to “market forces.” In each case there is a reference to a higher abstract, untouchable, and unidentifiable power. The strength of the legitimizing rationality thus determines the hold of the institution over the population and the strength and longevity of the institution (Harrod 2000). The contradiction here is that the rise of the corporation to a position of socioeconomic dominance and its candidacy for institutional status is not accompanied by a legitimizing rationality comparable to that of the church or state. The rationality of corporate power is the reification of the power of the market. From the beginning, the idea of a market was endowed with a mystical force—it would determine outcomes by a myriad of decisions and processes not easily discernible or predicted; the power of the market could be offered as a cause for every illogicality that might issue from corporate functioning. The legitimizing rationality of market forces has become the major construct of the contemporary period because of the rise to power of the corporation as the accompanying organization. For two centuries at least, state and market as institutions were linked, but the power of the state meant that the demand for final-cause answers was ascribed to the legitimizing rationality of the state. The change in power and position of elites outlined above now seeks to place market power alongside, if not above, state power. Furthermore, as the elites find a greater cohesion socially and organizationally across borders through multinational corporations and banks, the legitimizing rationality easily moves to the global level, while that of the state is still confined by the unevenness with which the rationality is absorbed in national political cultures. Thus Phil Cerny notes: “The main influence of economic transnationalization in terms of agent behavior will thus be felt in two ways: in the first place, through the spread of an ideology of market globalization

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through the mass media, the teaching of management schools, popular business literature and the like” (Cerny 1999, 9; see also Hira 1997). Thus the trajectory of the arrival to predominance of the marketpower rationality is embedded both in the shift in power of organizations and in the accompanying but uncertain link to the change in strength of the rationalities. In comparison with the organizations of church and state, the corporation as organization may not have such a powerful rationality. There are several problems with the rationality “market power,” of which two can be considered here. First, it not only disguises the source of power, but also tends to deny power itself, something that theology and raison d’état never did for church and state. Further, again, unlike church and state, the corporation cannot itself produce macro-level norms of justice and equity in justification of its operation. The second problem is that increasing the power of the organization more easily undermines its own rationality. The power of the market is dependent on overt and secure processes, especially competition. Thus, as oligopoly increases and corporate power becomes more and more concentrated in various industrial sectors, the power of the market collapses into the power of the corporation and the rationality becomes weaker, if not destroyed. Michel Foucault argued that the modern state abandoned its ethos and unleashed a process of domination that he called “the governmentalization of the state” (1978, 104), which weakened the rationality of the state. At the beginning of the twentyfirst century, we have the corporatization of the market. The rise in power of the corporation and the legitimizing rationality of market power are symbiotic. Kenneth Hoover (1999) sees institutions as ideologized through the medium of combatant lead intellectuals whose oppositional stance is a function of an early and personal identity crisis. For example, Harold Laski, the British socialist intellectual who died in his fifties in the 1950s, celebrated the state, and Friedrich Hayek, the Austrian-born intellectual who died in his nineties in the 1990s, celebrated the market. In this analysis, their oppositional stance was directly connected with early discontinuities in psychological development in which Laski saw the falseness of his family’s (market) justification of inequalities (wealth/market) and Hayek the falseness of the (state) justification in the 1914–1918 war (war/state). Laski and Hayek were contemporaries; Laski, in his engaged position with British social democrats, was important to the political position in the postwar period, whereas Hayek was important to the development of the first oppositional and now successful emergence of the “Chicago school” of market power. But each sought refuge in the other’s demon: the state was to contain the market, and the market was to contain the state. Facing the

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modern corporation, combatant intellectuals encounter an impasse because, unlike Laski, they cannot easily make recourse to the state, as was possible within the socialist and social democratic theories of the twentieth century and earlier. The increase in power of corporate elites and the de facto adoption of market rationality by politicians as servants of the state creates a hiatus between the previous dominant state rationality of people’s will and the contender of market forces. The two are incompatible and the tension between them precipitates discussion of the democratic anomie in which populations opt for a state rationality but are delivered the outcome of a market organization—the corporation (Bieling 2003). This trajectory helps explain some recent developments in relation to corporate behavior. Thus the rhetorical and in some cases substantive acceptance of corporate social responsibility is an attempt to capture and create a rationality larger than that previously accepted, based, as it was, on narrow functions within the markets without concern for public goods or the public good itself. * * * It is not been the purpose of this chapter to offer prescription but rather an analysis that can be useful in developing strategies to deal with changed circumstances. The twenty-first-century corporation will not easily disappear, and production organizations will be a long-term element within governing structures. Politicization, democratization, and new institutions of organization and control emerging from the so-called civil society may all have their place (Ayres 2001; Levy and Egan 1998; Seidman 2003; Zammit 2003). Considerations of new forms of civil governance are needed, and the concerns and theories that were previously applied to the development and functions, to the fears and hopes of the church and state, must now be considered in relation to the corporation. The core of these will be the development of a countervailing power sourced in politics and a movement that will enforce and monitor norms of public good, and impose societal and personal responsibility on the corporation as an organization and those responsible for regulating them. The first stage of this process is to escape from the language, concepts, and theories that previously determined policies of both opposition and support.

Note 1. I am grateful to Christopher May and John Mikler for comments on earlier drafts of this chapter.

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3 Making the Modern Multinational Louise Amoore

The productivity of a country is ultimately set by the productivity of its companies. (Porter 2003, 34)

In a report commissioned by the UK government, Harvard professor and business guru Michael Porter advises that a new business environment must be created. The era of competing successfully through “lowcost location,” he suggests, “is now coming to an end” (2003, 43). The successful modern multinational, in Porter’s view, must be a creative and innovative risk manager, using the most cutting-edge business knowledge and the most adaptable global work force. Positioned at an intersection of academic ideas, business knowledge, and governmental intervention, Porter is but one example of a burgeoning industry of expert advice. His report, together with a multitude of similar reports from management consultants for governments and international organizations, raises a number of questions that resonate beyond a particular state-society or a specific group of corporations. At the heart of these questions lies an important contradiction that has implications for how we understand the multinational corporation (MNC) within the global political economy. On the one hand, there is a manifest desire to name, define, and delineate the firm as an essentially material entity, connecting the prosperity of a country and its people to the competitiveness of its companies. Yet on the other hand, the transformations carried out in the name of competitiveness precisely reveal the discursive and ideational life of the firm, calling into question its apparently unambiguous relationships to states, managers, and workers. This chapter explores the tensions between the firm as presented to us by discourses of competitiveness, articulated by a number of key 47

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management consultants, and the concrete experience of working for and living with the contemporary multinational corporation. I begin this chapter by reopening a discussion on the framing of the firm in international political economy (IPE). The contemporary study of MNCs must confront the problem that new managerial techniques and flexibilized working practices do not sit neatly within the demarcated boundaries that are often assumed: conventional binaries such as domestic/ international, manufacturing/services, in-house/outsourced have become increasingly problematic in our characterization of the firm. I then explore the limits of our framing of the modern MNC through the example of the emergent corporate discourse on outsourcing, where the optimal competitive corporation is a fractured creature with chameleon-like qualities and fluid and malleable boundaries. Hence I argue that the firm ceases to be adequately conceived as a producer of things within a given location, and must be recognized also as a producer of ideas, cultures, and identities that extend across spatial boundaries.

The Multinational Firm in International Political Economy

Along with other critical voices, I have argued elsewhere that IPE works with a relatively fixed conception of what a firm is, what it does, and why it is significant (Amoore 2002b; Harrod 1997; MacLean and El Kalal 1999). Here I will merely draw out a number of questions surrounding our received commonsense understandings of the firm, using the work of Susan Strange as a vehicle for the discussion. Perhaps more than any other scholar, Strange sought to make the firm a key concern of IPE inquiry, and management theory a source of legitimate knowledge for the field (compare Strange 1983, 1988, 1994b, 1996; Stopford and Strange 1991). The first of my questions recalls Michael Porter’s advice to the UK government, that is, the explicit allying of the state to the corporation. The firm has long represented a “participant” in the international political economy (Strange 1983, 216), a unitary powerwielding entity that acts rationally in the pursuit of world market share. There is a strong sense of the firm as an individual, a single body with preferences, capabilities, choices, and relationships, and this prevails in much mainstream IPE research. The national border persists in the imagination of the firm as an agent whose material motivations affect power alongside the traditional IR agency of the state. Indeed, Strange ascribes to her MNCs some of the qualities of a statesman or diplomatic actor with self-seeking expansionary ambitions, arguing that firms “have to become more statesmanlike as they seek corporate alliances” (Stopford and Strange 1991, 2). Little is done, in such readings, to unsettle

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orthodox ideas about how power is exercised in the global political economy. In effect, we find a situation in which firms are understood to become more akin to states, and states in turn are urged to adopt the strategic outlook of businesses. The very idea that a proponent of strategic business theory, Michael Porter, might be commissioned by the Indian, Canadian, British, and Portuguese governments to advocate business-friendly political restructuring suggests that diplomatic and business practices are increasingly understood in similar terms. The result is that the dominant image of the firm in IPE is amenable to what Charlotte Hooper has defined as “frontier masculinity,” where the diplomatic practices of states are blended with business discourses such that James Bond and Henry Kissinger are depicted in advertising “sitting next to an Economist reading businessman on a plane” (Hooper 1999, 485). How might we challenge the way that the firm is presented to us as a unitary, statesmanlike agent or strategist? This is not to say that IPE inquiry has not reflected critically on its approach to the firm. Yet rather than questioning the framing of the firm as an agent, the critical attention of IPE writers has largely focused on the private authority enjoyed by the firm as an agent of globalization. As Strange described it, we are moving “towards a position where events are conditioned by an emerging managerial technocracy” (Stopford and Strange 1991, 22) of “business gurus and management consultants” (1996, 64). To recall the opening citation of Porter’s report, this is a matter of how the voices of business analysts, consultants, lawyers, and accountants are shaping outcomes in the global political economy. Although there have been significant questions raised with regard to the basis for the exercise of such private authority, asking for example whether it “weakens or enhances democratic institutions and processes” (Cutler, Haufler, and Porter 1999, 6), the politics of the rise of private expertise remains somewhat invisible. In particular, the means by which management texts have become accepted and legitimate bodies of knowledge on which to base entire tracts of government policy and the wider organization of society has not been a central concern for IPE. In an extreme example, corporate expertise is offered as a virtue by John Stopford and Susan Strange, when in their “advice to multinationals” they suggest that firms should “recognize the political role that they increasingly have” and, “like good diplomats,” should work “positively” to “train up the locals” (1991, 224). My second question, then, concerns how might we think differently about the politics of the firm so that we shift our attention from an instrumental search for a politically accountable or politically responsible corporation toward a politicization of the management culture that has become so normalized in daily life.

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The final question that I wish to explore concerns how we situate the firm in relation to the lives and experiences of people who find themselves subject to an intensifying global political economy. Much of the tradition of thought from which IPE draws has tended to locate discussion of the firm within a consideration of the social relations of production (see Cox 1987; Rupert 1995; Sklair 2001). While this has perhaps come closest to exposing the central tensions and contradictions of global production relations, it has tended to deal with labor in terms of the major trade unions and employment in the world’s largest and most globalized industrial sectors. Jeffrey Harrod’s companion volume to Cox’s (Harrod 1987), focusing as it does on unprotected workers, has not achieved the overwhelming influence of its twin. This reveals IPE’s apparent discomfort with the everyday lives of workers, captured by Rob Denemark and Robert O’Brien as a “deafening silence that is the almost total neglect of labour” (1997, 232). In most conventional IPE treatments of the firm, its workers feature only as material commodities that are likely to be restructured in line with the onward march of globalization. A reader encountering Strange’s advice on “managing labour relations” could be forgiven for confusion with the major business texts. “Managers have a political task,” she suggests, “in getting their employees to see that the long-term success of the firm (and their own prospects of employment) is the imperative” (1996, 60). There is little distinction between such an analysis and Porter’s finding that “UK companies fall behind their peers in modern management practices” (2003, 41). Similarly, in their world development report, Workers in an Integrating World, the World Bank finds that “governments and workers are adjusting to a changing world. Realization of a new world of work is fundamentally a question of sound choices” (1995, 11). If IPE is to set its reading of the firm meaningfully apart from the reading that is offered by business school analysis, thereby enabling a powerful critique of the firm as presented by some of the international organizations, then it must acknowledge that the firm extends beyond material life into a domain of ideational life or everyday experience; that, too often, a focus on the material relations of the firm collapses into a managerial-privileging analysis. Ordinary and everyday encounters with the firm yield knowledge that has a rightful place at the heart of IPE inquiry.

Outsourcing and the Fractured Firm

It is through a number of key binaries, then, that IPE has come to understand and recognize the modern MNC. First, the agency of the firm itself

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is understood by its juxtaposition to the agency of the state. Second, the power exercised by firms is explained by reference to a domain of private authority and management expertise that is set apart from the ascribed public authority of the state. Finally, the political economy of the firm itself is understood in relation to a fixed notion of labor as a material commodity. A commonsense understanding has emerged that we know what we mean by “firm”; however, we do not always know a firm when we see it. Indeed, the unprecedented growth in outsourcing, subcontracting, and the use of agencies and intermediaries to access sources of flexible labor all ensure that, often, we do not recognize at all the spaces where firms are active. Although the practice of outsourcing has its roots in business strategy, it is increasingly used in areas as diverse as state customs and border controls, accounting, human resources, and the monitoring of standards and codes of practice. Most of these contemporary practices are designed precisely to blur the boundaries between state and firm, between organizations, and between responsibilities for the risks borne by individuals (Amoore 2004). In essence, the guiding principle of outsourcing is that the risks faced by any organization (usually a state or a corporation) can be reallocated and spread around an array of subcontractors, suppliers, distributors, or providers of ancillary services. The key advocates of the drive to outsource1—management consultants—have unsurprisingly been the major recipients of the resulting new business. Now major MNCs in their own right, the “big four”2 accounting and audit corporations, described by Nigel Thrift as “an extension of firms” (2001b, 415), are effectively also becoming an extension of states and international organizations as they engage in auditing, verifying, and governing the practices of these agencies. The emergent managerial discourse on outsourcing envisages a world in which the optimal competitive organization is a fractured entity with fluid and malleable relationships to other organizations and individuals. The growing trend toward the use of business gurus or consultants to outsource public and private functions represents a major challenge to the way that we conceive of the firm in IPE. The management consultancies do not simply act as “private authorities” in the sense of shaping the governance of the global political economy. Rather, they themselves are actively authorizing political, social, and business practices, and in such a way that renders their relationship to an assumed “public authority” of the state thoroughly ambiguous. In the discussion that follows, I will use examples drawn from the global outsourcing trend to reveal some of the limitations in our thinking on the firm and to suggest some alternatives.

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Beyond Borders: The Outsourced State

In June 2000 the Indian state of Andrha Pradesh, together with the UK Department for International Development, commissioned consultants McKinsey & Co. to advise on the course of restructuring. The resulting “Vision 2020” strategy proposes that 20 million peasant farmers be removed from their land and that the “state’s people will need to be enlightened about the benefits of change” (cited in Monbiot 2004, 3). Following this report, the state’s power sector was privatized in a program supported by the World Bank and the Department for International Development and overseen by PriceWaterhouseCoopers and Accenture. By January 2004, Michael Porter was advising the Indian government that privatization and agricultural reform must move faster than the current “glacial speed” (Porter 2004). In May 2004 the state of Andrha Pradesh saw perhaps the most dramatic electoral turnaround in the ousting of the Hindu nationalist Bharatiya Janata Party. Of course, this is not to suggest that the consulting MNCs were the main focus of the protest and resistance seen in Andrha Pradesh, but rather that, in this instance, it becomes difficult to disentangle state policy from corporate advocacy. Elsewhere, the Thai National Economic and Social Board appointed Porter to endorse a new national economic strategy of restructuring and privatization. Following Porter’s report, for which he was reputed to receive a US$1 million fee, people took to the streets of Bangkok to protest, emphasizing the tensions between business thinking and the need for public programs for education, health, and housing in post-financial-crisis Thailand (Thrift 2002). The consulting corporations exercise power in these instances in ways that make the distinction between public and private authority difficult to sustain. They are variously implicated in the authorization of state restructuring, the representation of what it means to be a legitimate society in a globalizing world, and the verification of individuals as enlightened modern workers. The Enron scandal merely opened up the possibility for the consultancies to distance themselves from the accounting houses, reinventing their relationships to the state and establishing themselves as precisely the kind of impartial expertise required to effectively respond to state and corporate crises. Many management consultancies were hived off from accounting corporations and given new names and identities as well as new portfolios designed to attract state and nongovernmental clients. PriceWaterhouseCoopers Consulting, for example, was briefly renamed “Monday” in June 2002, professing a slogan that denoted a fresh start and a clean break from the past: “Sharpen your pencil, iron your crisp white shirts, set the alarm clock, relish the

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challenge, listen, be fulfilled, make an impact, take a risk” (http://www .monday.com). Thus the practices of management consulting have become increasingly accepted, indeed celebrated, as essential to the functioning of contemporary state and society. Though established as a separate company prior to the Enron scandal, Accenture’s previous incarnation as Andersen Consulting was perceived to have limited its scope to develop new programs. It is one such new program developed by Accenture in the United States that perhaps most dramatically illustrates the blurring of the assumed boundaries of state/firm and public/private authority. In June 2004 the Department for Homeland Security (DHS) named Accenture as the primary contractor for the US$10 billion project US-VISIT (United States Visitor and Immigration Status Indicator) to restructure and manage immigration systems at the air, land, and sea points of entry to the United States. As Accenture itself defines the project: “The end vision for the US-Visit solution is built around the concept of the virtual border. The virtual border is designed to operate far beyond US boundaries to help DHS assess the security risks of all US-bound travelers and prevent potential threats from reaching US borders” (Accenture Digital Forum 2004, 1). The perceived intensification of security risks following September 11, 2001, has created a climate in which the management consultants can extend their programs into new social spheres. Accenture announced the contract as a “key win” in a climate where other countries “on the front line of terrorism” are interested in similar programs (Accenture press release 2004, 1). For their part, the DHS reported that it would not be possible “to overstate the importance of this responsibility in terms of securing our nation” (New York Times 2004, 26). In effect, the responsibility for managing border controls is being outsourced to a private company on the grounds that it has objective and neutral knowledge and established business expertise. Accenture’s Eric Stange, managing partner of Accenture’s Defense and Homeland Security Practice, talks of the alliance as a “strong team of highly qualified companies with significant border-management expertise.”3 For one of Accenture’s subcontractors, Titan Corp., some of this expertise was honed in the supply of interrogators and interpreters to the Abu Ghraib prison in Iraq. Nonetheless, the DHS argues that “by harnessing the power of the best minds in the private sector,” it becomes possible to “enhance the security of our country while increasing efficiency at our borders.”4 The politics of the US-VISIT program are effectively masked by this discourse of expertise and technical management skill. According to the DHS, the responsibilities of the contractor will include “strategic support, design and integration activities, technical solutions, deployment activities, training, and organizational

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change management” (Department of Homeland Security 2004). This is particularly oblique, but it is likely to include the means to hold and communicate biometric data, criminal records, credit ratings, previous travel information, and other data on individuals, to be gathered and processed long before an individual reaches the physical US border, and also long after they have entered the United States, enabling, as Accenture outlines, “the border guard to be the last and not the first line of defense.”5 One does not have to look very far to find political tensions and controversies surrounding the award of US-VISIT to Accenture. Yet the debates that have circulated in the US media have not taken the turn we might expect—Accenture’s contract has provoked a storm of protest, but one that is constituted through the same discourse of border threats and security risks present in the Accenture and DHS statements. The visible and public face of dissent following the announcement of the contract has centered precisely on the risks to US sovereignty and US jobs of awarding the contract to an offshore company. Representative Richard Neal declared the contract “outrageous,” stating that “the Bush administration has awarded the largest homeland security contract in history to a company that has given up its US citizenship and moved to Bermuda. . . . If companies want a slice of the American pie, they had better help bake it” (New York Times 2004, 26). CNN’s business anchorman, Lou Dobbs, whipped up a similar storm when he announced the deal on primetime television, declaring the proposed high-tech borders to be “virtual, much like Accenture itself is virtual” (CNN transcripts 2004). During the summer of 2005 the US House Appropriations Committee voted to block the award of the contract to Accenture on the grounds of its offshore ownership, though progress on the contracts has moved forward, and the share prices of Accenture and its US-VISIT partners continue to rise. The specific issue of Accenture’s contract has received political attention solely due to the sensitivity of an offshore company providing outsourced services to police the borders of the United States. Similar projects in other countries—providing customs and immigration systems for Sweden and New Zealand, for example—saw a complete absence of public debate. Discussion was confined to the business pages, where the only concern was the efficiency and cost effectiveness of the new “smart” systems. In the Accenture story we get but one small glimpse of the way in which the interventions of management consultants have become relatively normalized and accepted on the grounds of expertise and technical knowledge. To date, the protests in no way question the grounds on which the consultancy is authorized to act in the

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defining of border risks and the rendering of people as either legitimate or illegitimate/illegal. If IPE persists in its view of the corporation as a unitary agent whose private authority stands outside of the public authority of the state, then, in effect, it will miss the multiple ways in which corporations are authorized to act on behalf of the state. The Accenture case is but one example of how the involvement of major corporations in state governance is becoming relatively normalized and accepted. In representing to us the risks of terrorists, illegal immigrants, drug traffickers, and others, and in intervening on this basis, the management consultants are implicated in defining the nature of the contemporary global political economy and the identities of those who have legitimate claims in, for example, the search for work and home. The consultancy MNCs are thus engaged in what has been called the “legitimation work of globalization,” the everyday work of constituting the limits and confines of the world, in “issuing and denying documents, sealing and opening records, regulating and criminalizing transactions, and repudiating and claiming countries and persons” (Coutin, Maurer, and Yngvesson 2002, 704). For IPE to begin to recognize and raise questions about these activities, it would need to move its focus beyond private authority per se, to consider also the processes of corporate authorization and legitimation.

Depicting the World: Where the Firm Tells Us Who We Are and What We Should Do About It

The 1998 McKinsey & Company report commissioned by the UK government, Driving Productivity and Growth in the UK Economy, concluded that “greater deregulation and a culture of competitiveness” were required to attract foreign direct investment capital to Britain (McKinsey & Company 1998, 6). By 2002, in a report for the UK Department for Trade and Industry, McKinsey was concurring with Michael Porter that current globalizing trends are actually ushering in a new era of competitive risk-taking. Identifying the oft-cited “productivity problem” in UK manufacturing, the consultants urged organizations to “translate market pressure into performance pressure at every level . . . rewarding those who succeed, and removing those who fail” (McKinsey & Company 2002, 13). Not only are the consulting MNCs afforded great authority in determining the nature of the world economy, but they are also exercising power to determine the character of the people who will successfully govern, manage, and work in such a world. McKinsey reports that it

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“investigated the role competitive intensity plays in the adoption of certain management practices,” finding that where the squeeze of global competition is tightest, “managers get more bang for their buck invested in trying to make the improvements we describe” (McKinsey & Company 2002, 15). In essence, there is an entire global enterprise growing up around the need to continually make and remake (structure and restructure, engineer and reengineer, and so on) the successful modern MNC and the workers and managers within it. The global management consultants are selling their strategies based entirely on their own depiction of the nature of the contemporary global political economy—they decide both what it is and what to do about it. Boston Consulting Group’s “Globalization Practice,” for example, depicts globalization as a “step-function increase in complexity,” offering its services to deal with this complexity by “helping companies navigate the opportunities and risks of the new global business environment” (Boston Consulting Group 2003). The major consultancies all package and sell some variant of what Andersen Consulting termed “harnessing globalization” (Amoore 2002a, 4). Cap Gemini Ernst and Young, for example, have a strategy document titled “Thriving in an Uncertain Economy,” which urges corporations to “adapt attitudes” and “consider unpredictability as a force for good” (Cap Gemini Ernst and Young 2001, 2). According to the business and management knowledge that is being parceled up and sold to governments and corporations, globalization erodes the ability to plan organizational strategy in the way that may have been possible in the past: “At the heart of the traditional approach to strategy lies the assumption that executives, by applying a set of powerful analytic tools, can predict the future. . . . When the future is truly uncertain, this approach is at best marginally helpful and at worst downright dangerous” (McKinsey & Company 2001, 5). The talking up of uncertainty and surprise that is evident in many neoliberal representations of globalization is exemplified in an acute form here. Swedish business gurus Jonas Ridderstrale and Kjell Nordstrom similarly call for firms to become “breeding grounds of risk takers” (2000, 194), and Cap Gemini Ernst and Young urge companies to “adapt quickly” to the “changing circumstances,” and to “adopt new thinking on how people work and the nature of employment” (Cap Gemini Ernst and Young 2001, 1). Each illustrates the point that corporations cannot be understood simply as private players within an already settled global political economy. Increasingly, they are representing to us what the global political economy actually means and, having characterized that reality, selling us the expertise to deal with the unfolding scenario.

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In a very real sense, the consulting MNCs are in the business of making the modern multinational in their own image. In many ways there is nothing unprecedented about corporate actors representing and defining the nature of political economy, and intervening on this basis. Among the earliest examples of management consultancy practices were special assignments undertaken by accountancy corporations for their corporate and government clients. In Britain at the end of the nineteenth century, for example, the scale of risk involved in the financing of railway construction led shareholders to seek out the expertise of established accountants Price Waterhouse. The accountants audited the railway and iron industries, finding that the key risk factors resided in uncertain and volatile industrial relations (Jones 1995). Their intervention made it possible for labor relations to be brought into the domain of business knowledge and made amenable to management. Similarly, the cost accounting methods of the early twentieth century made it possible to individualize worker efficiencies, creating “calculable people” (Miller and O’Leary 1994). Hence the productivity problem identified by management consultants in contemporary times has its origins in early scientific management theory. It was not only people as workers but also people as consumers and households who came under the management remit of the accounting houses. The clothing and food rationing programs of World War II also saw the accounting corporations appointed by the state to devise a means of creating responsible and measurable consumption practices. Fledgling management consultants did not simply act as private authorities within a political economy, but were implicated in defining the very nature of that political economy and authorizing the practices that constituted it. More specific to contemporary times is the consultancy corporations’ use of globalization and uncertainty to depict an image of the qualities of successful individuals. As Pat O’Malley reminds us, uncertainty is not simply “vagueness,” but is rather a “specific and enduring way of governing the self, economic activity and social relations” (2000, 461). Firms are not simply shaping global outcomes, then, as some IPE theorists suggest, but are shaping the private lives and identities of managers, workers, and consumers (compare Rose 1989) and shaping our ways of thinking about the world in which we live. Geographer Nigel Thrift envisages companies as part of a new “cultural circuit of capital” in which managers and workers are “constantly attentive, constantly attuned to the vagaries of the event” (2001a, 378). Here the boundaries between corporate strategy and personal identity become ever more blurred and porous. The question, as identified by Paul Du Gay, becomes how to “change ‘norms,’ ‘attitudes,’ and ‘values’ so that people are enabled to

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make the right and necessary contribution to the success of the organization for which they work” (1996, 152). Entire tracts of contemporary managerial theory envisage a world where people’s character traits and personalities hold the key to a successful and globally competitive multinational. So what are the implications of such trends for how we see the firm in IPE? Put simply, we need to shift focus from the firm as producer of material things, to also acknowledge the firm as producer of ideas, representations, identities, and cultures. A rich seam of research in cultural economy (compare Du Gay and Pryke 2002) has been somewhat neglected by an IPE that takes for granted the assumption that the firm has private authority. In his study of the way that technologies of power are exercised through individuals own lives, Nikolas Rose asks: Who is accorded or claims the capacity to speak truthfully about humans, their nature and their problems, and what characterizes the truths about persons that are accorded such authority? Through which apparatuses are such authorities authorized—universities, the legal apparatus, churches, politics? To what extent does the authority of authority depend upon a claim to positive knowledge, to wisdom and virtue, to experience and to practical judgement, to the capacity to resolve conflicts? How are authorities themselves governed—by legal codes, by the market, by the protocols of bureaucracy, by professional ethics? And what then is the relation between authorities and those who are subject to them? (1996, 132)

Following Rose’s provocation, IPE might usefully inquire into the consultancy MNCs’ authority to define the nature of our world and how we should live in it. The abstract concepts of what it means to be “competitive,” “productive,” “risk averse,” and so on, offered as self-evident truths by the consultants and business gurus, are made concrete and knowable through specific business techniques and management practices. “Rationales of costliness and efficiency, of decision-making, of responsibility, of competitiveness,” writes Peter Miller, “come to constitute truths in the name of which organizations are to be remade, processes reconfigured, and attempts made to redefine the identity of individuals” (1994, 4). To question these apparent truths (and so to call the basis of much corporate restructuring into question) is to recognize the contingent nature of the modern MNC. The entities that IPE defines as MNCs are never complete, bounded, or static. Like all other networks of social relations, corporations are ever-shifting and changing, they are always “incomplete, tentative and approximate” (Thrift 1995, 33). In this sense, the restructuring of production and work is never simply about

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material transformation, but always also an explicit confrontation with people’s ways of thinking about themselves and their place in the world.

Outsourcing and the Displacement of Risk

For global management consultants Cap Gemini Ernst and Young, outsourcing is “being redefined as a critical element in achieving outstanding competitive gains,” offering the means to “reduce exposure to risk from external partners” by exploiting “global connectivity.” Their “connected economy services” offer “a first step towards making it possible not just to survive, but to thrive through uncertainty.” The consultants’ message is that “it makes excellent sense to share your own risk” by making the corporation more “porous” (Cap Gemini Ernst and Young 2001, 4, 7, 6). Clients are urged to refocus on their core business and to outsource other functions to a network of subcontractors and suppliers who are loosely connected in terms of contract and responsibility (i.e., the contracts can be instantaneously terminated), but tightly tied in terms of control of the product or service provided. One might interpret the outsourcing trend as simply the latest phase in corporations seeking competitive advantage in a globalized world economy. However, this would miss the major contradictions that are emerging as a result. In Silicon Valley recently, a senior urban economics researcher spelled out the issue in a report to international real estate companies. The “globalising trends of outsourcing and offshoring,” she concluded, have seen 18 percent of tech jobs lost to India since 2000, and a 25 percent reduction in employment levels since the peak of the dot com bubble (Kroll 2004). The outsourcing of service and clerical functions to India, estimated to result in a loss of 3.3 million US jobs by 2015, became a major issue in Senator John Kerry’s election campaign (Wall Street Journal 2004, A3). Nevertheless, leading advocates of outsourcing celebrate the business benefits of subcontracting to Indian workers who have “an excellent command of English, graduate skills, and favorable wage differentials with the US” (Outsourcing Institute 2004). Call-center workers in the United States earn an hourly average of US$12.57, compared to less than a dollar per hour in India. In Bangalore, Accenture’s global managing partner for outsourcing announced that the company was to double its staff in India to 10,000 workers during 2004, expecting “all segments to grow as we go forward, but the business process outsourcing sector to grow most rapidly” (Outsourcing Institute 2004). The “risk-sharing” that underpins the consultants’ outsourcing services, then, might be more accurately described as risk displacement. If

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we reveal the people whose working lives are transformed by the apparent outsourcing revolution, we see that the risks of the multinational are indeed shifted “offshore”—into homes, sweatshops, unprotected and low-paid work, export processing zones, and other sites that may escape our conception of “the firm.” Beneath the surface of the consultants’ outsourcing strategies are the intermediary traders, who in turn will subcontract to plants using temporary and unprotected labor. Taiwanese footwear manufacturer Pou Chen Corp., for example, produces sports shoes for multiple brands, including Nike, Adidas, Timberland, Converse, Reebok, and Rockport. Itself a major multinational, Pou Chen subcontracts the work to factories in Thailand, China, Indonesia, Vietnam, Laos, and Cambodia. The chain of subcontracting and sub-subcontracting makes it difficult for nongovernmental organizations to monitor working conditions and labor codes of practice. As Tai-lok Lui and Tony Man-yiu Chiu found in their study of textiles production, risks are effectively passed along a supply chain, ultimately becoming threats to well-being, life, and livelihood: “Larger firms spread their risks of production by subcontracting. Subcontractors, in turn, pass on the risk by contracting out to homeworkers. The latter are not considered as employees and thus fall outside the scope of labour protection” (1999, 171). When Cap Gemini Ernst and Young advocates restructured and porous corporate boundaries, then, it does not reveal the reconfiguration of public and private that is taking place within the drive to outsource. The presumed “private” realm of home and household is also a site of production for the global economy. The International Labour Organization reports rapid increases in the number of homeworkers providing “optimal flexibility” in advanced industrialized countries and less developed countries (2000, 114).6 The garment industry, electronics and assembly sectors, together with services such as catering and cleaning, have found their way into homes. Put simply, the firm that “thrives on uncertainty” may do so on the back of the acute uncertainties of lowpaid and unprotected piecework undertaken predominantly by women and children. It is with considerable irony that the consulting corporations play important roles in both the advocacy of outsourcing and the monitoring of conditions in outsourcing plants. PriceWaterhouseCoopers, for example, offers outsourcing advice to major garment brands, while also providing services for the monitoring of labor codes in East Asian garment manufacturing plants.7 Of course, households also represent the sites in which the global revival of outsourcing in domestic services has taken place. We can see processes of risk displacement at work here also. If managers and workers “thrive on uncertainty” in their working lives, their working time

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becomes less predictable, their time for domestic and care work diminishes, and their use of hotel and catering services increases. Kimberly Chang and L. H. M. Ling refer to masculinized traits of mobility, autonomy, and challenging opportunity (characteristics of the successful global manager), resting upon the “global feminization of labour intimacy” (2000, 34). The championing of outsourcing as a means to a lean, fit, and flexible corporation is evident also at the level of individuals—so that domestic and personal services become part of the outsourcing boom. The consulting MNCs’ representation of outsourcing as a means to share risk is revealed in practice to displace and reallocate risk, with disproportionate effects on particular worker groups. In the food sector in the UK, the web of outsourcing and subcontracting is revealing particularly acute inequalities of risk. The multinational supermarkets exert pressure on their contracted suppliers to reduce costs. Many of the suppliers of farm-grown produce have been found to be further subcontracting to so-called gangmasters to supply migrants and asylum-seekers as cheap workers. In the summer of 2003 three Iraqi Kurds died when their vehicle was struck by a high-speed train. They were working on farmland picking leeks and salad onions and were apparently unable to read a sign that warned them of the railway crossing. Local people reported at the time that at least twelve other vehicles carrying workers had made the crossing that day. Seven months later, nineteen Chinese workers were drowned by the rising tide while picking cockles in Morecambe Bay. It is most likely that these workers were contracted via the same gangmaster as the Iraqi Kurds, and that, indeed, they had picked fruit and salads during the previous summer. In both instances, the workers were killed by a catastrophic lack of local knowledge while working in a global industry, and in the hands of the gangmasters. The risks borne at the end of this outsourcing chain are produced in large part by MNCs seeking to reduce their own risks of supplying an uncertain global food market. If we are to make these experiences vivid and real in our understandings of the dynamics of the global political economy, we need to rethink the relationship between a firm and its workers. The drive to outsource is in large part motivated by a desire to distance the corporation from almost everything that is done in its name, leaving only the responsibility for a “brand” (Klein 2001). “White labeling,” as this is known, in effect allows the networks of production and services behind a brand to become so loose and diffuse that connections are rarely made between immigrant workers, gangmasters, human trafficking, and the salad on our plates. By acknowledging that the boundaries of the firm are not fixed, we take one step toward seeing the displaced risks that

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pervade the supply chain. It is critical that IPE keeps pace with the firms’ abilities to metamorphosize and redefine their responsibilities. PriceWaterhouseCoopers, for example, has a luxury retailer client that, it reports, “became increasingly aware of the reputational risks associated with their identifiable brand due to increased outsourcing of manufactured products outside Europe” (PriceWaterhouseCoopers 2003b, 1). The consultants intervened to monitor the “high-risk suppliers” that could be directly attributed to the client’s supply chain. As movements such as the Clean Clothes Campaign seek to emphasize, there is a significant gap between a clean corporate reputation and a clean supply chain. The identity of the successful and competitive multinational may seek to distance itself from temporary labor, migrant workers, export processing zones, or the export of call-center jobs, but it is ultimately deeply inscribed in these practices.

Conclusion: Remaking the Modern Multinational

Jenny Edkins has observed in international relations a dual process of “technologization” and “depoliticization” within which, once it is decided “where legitimate authority resides,” what follows is a “bureaucratic technique of governance elaborated through recognized expertise” (1999, 4). A similar process can be discerned in the global political economy, where the roles of the consultancy MNCs in providing technical expertise and governance functions are tacitly accepted as part of our contemporary global reality. For many commentators it has been tempting to understand the significance of these powerful corporations only in terms of the private authority they are presumed to possess by virtue of their technical expertise. In this reading, management consultants can be conceived as having “agency,” alongside, for example, lawyers, accountants, bankers, and insurers, and juxtaposed to the already assumed agency of the state. The politics of such private authorities has thus tended to be delimited and confined to their impact on state power, implications for accountability, and possibilities for regulation and social responsibility. If multinational corporations are to be reintegrated into our thinking in IPE, the importance of corporations in the global political economy may lie precisely in their disintegration, in their ability to continually define and redefine the limits of their risks and responsibilities. Rather than focus explicitly on the impacts of firms on the practices and structures of the global political economy, I have been concerned in this

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chapter with how the firm itself is being made and remade through pervasive management discourses and, in turn, how these represent the global political economy to us in particular ways. The repoliticization of the rise of the consultancy MNCs to the status of experts on all matters global should precisely begin by inquiring into the means by which that status and authority is accorded. As Edkins suggests, the way to repoliticize a political act is to “interrupt discourse, to challenge what has been constituted as normal, natural and accepted ways of carrying on” (1999, 12). However, an exclusive focus on corporations as agents of globalization risks replicating the essentialist view of change that is the mainstay of the management consultants’ repertoire. That is to say, there is a danger that seeking to account for or explain global transformation in terms of corporate power takes business knowledge as a given and further normalizes the framing of social change in managerial terms. The drive to global outsourcing that I have discussed here is but one example of the ever-shifting boundaries of the modern corporation. Of course, the practice of outsourcing has a long history; there is nothing inherently new about designating something “offshore” in order to reinforce a sense of what is inside and outside a border (see Palan 2003). What is distinctly new, though, is the buying and selling of packages of business knowledge on the successfully outsourced state, corporation, and individual. In a very real sense, the making of the modern MNC simultaneously involves the making of an outsourced state, with the effect that business gurus come to exercise authority in domains from border controls and immigration to the restructuring of public utilities. The disintegration of the firm into functional fragments that are loosely tied but tightly controlled has become the major defining feature of corporate power in contemporary times. As Peter Freedman writes for the Sunday Times, “companies become hollow” to the point that they “make nothing and outsource everything” (2004, 1). Freedman goes on to ally the corporate structure of Al-Qaida with that of the successful modern multinational: “It has a strong brand, a high profile chief executive and a non-labour-intensive back office, implementing a global strategy by orchestrating and fronting an international network of outsourced suppliers” (2004, 1). Our understandings of the firm in IPE, then, have implications that extend beyond the corporation as subject matter in itself. The ideas and practices that we see at work in the modern multinational may find echoes in other transborder networks whose actions we seek to comprehend. Far from making nothing, corporations are actively engaged in depicting the world in which we live, and in shaping our perceptions and conduct within this world.

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Notes 1. The Outsourcing Institute (2004) estimates that the industry is growing at 15 percent annually in the United States. 2. Following the dissolution of Arthur Andersen amid the Enron scandal, the “big five” became the “big four”—Ernst & Young, Deloitte, the Kaiser Permanente Medical Group, and PriceWaterhouseCoopers. 3. Accenture press release, available online at http://www.accenture.com/ xd/xd.asp?it=enweb&xd=_dyn%5cdynamicpressrelease_730.xml. 4. Department of Homeland Security factsheet, June 2, 2004, available online at http://www.dhs.gov/dhspublic/display?content=3947. 5. Accenture press release, available online at http://www.accenture.com/ xd/xd.asp?it=enweb&xd=_dyn%5cdynamicpressrelease_730.xml. 6. See also Homenet, an organization for homeworkers; papers available at http://www.homenetww.org. 7. My thanks to researchers at the International Textile, Garment, and Leather Workers Federation and the Clean Clothes Campaign for drawing my attention to this practice.

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4 The Restructuring of Global Value Chains and the Creation of a Cybertariat Ursula Huws

Looking at a twenty-first-century organization close up is a little like looking down a microscope at a small piece of organic matter. What you see on the glass slide is a blob or smear with distinct outlines, a solid color, and apparently a clear identity. But when seen through the magnifying lens, this distinctive, static visual unity dissolves. In its place is a seething, ever-changing sea of tiny organisms in constant restless motion, looking much more like an arbitrarily chosen slice of a bigger ecosystem than a single, easily defined thing. Most of us are used to thinking of organizations as distinct and separate entities, each with its own unique characteristics and clear boundaries. But as we examine them closely these boundaries start to blur. And the sharp lines that shape the distinctive corporate identity start to wobble and shift. Turn your eyes away for a while and look again, and everything has altered, sometimes so much that you are not even sure it is still the same organization. It is not just that logos, company names, staff uniforms, and other external signs of corporate identity alter more frequently now than in the past. More fundamental changes are also taking place. Takeovers, mergers, and demergers are announced continually. Corporations enter into temporary alliances to carve up particular markets or to collaborate on the development of new products. Sometimes they buy stakes in competitors that are too large to be gobbled up. To make matters even more complicated, in addition to these external realignments, most corporations are also involved in a continuous process of internal reorganization, whereby individual functions are transformed into separate cost or profit centers, or floated off as separate companies. Add to this the 65

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impact of outsourcing to external companies and we arrive at a situation where corporations can no longer be regarded as stable and homogeneous. Rather, they appear as mutually interpenetrating entities in constant flux, held together by elaborate webs of contracts that are in a continuous process of renegotiation. We may be in the same landscape, but with all the signposts moved we can no longer orientate ourselves in relation to the old landmarks, if indeed they still exist. The first and most obvious problem facing the researcher, then, is the speed of change. Global corporations don’t stand still to be counted any more than amoebas do. However, there is a danger of being so dazzled by this continuous process of legal reshuffling that attention is distracted from more fundamental underlying changes, which are taking place more slowly. Could it be that the legally defined “corporation” is not the right unit of analysis to be focusing on if we want to understand the dynamics of the global restructuring of employment—that we are, in effect, looking at the wrong signposts? I begin this chapter with a critique of the conventional indicators used to measure changes in economic activity. Using the concept of commodification as an underlying explanatory framework, and drawing on my recent research, I propose an alternative approach, using the generic business function as a unit of analysis in combination with legal and spatial parameters in order to examine the elaboration of value chains currently taking place and the ways in which this is leading to a new global division of labor and the emergence of new occupational identities. The units of analysis that are normally used in the study of economies and labor markets are twofold. At the organizational level, the basic unit is normally the “firm” (either in its entirety or in its specific local embodiment as a “branch” or “establishment”), which is then aggregated up, at the level of a regional or national economy, to the “sector.” Just as the demand side is made up of firms classified according to sectors, the supply side is conceptualized as groups of workers classified according to occupations, and these two classification systems form the basis of most labor market statistics. The relatively slow pace of change in these classification systems (inevitably lagging behind actual developments by several years, or even decades, and reflecting the worldviews of their creators) has the effect of imposing an appearance of order and continuity onto a state of affairs that, viewed from below, looks more like the seething, unstable flux described above, with a continuous process of splitting and coalescing, deconstruction and reconstruction at the level of skills, labor processes, occupational identities, organizations, brands, and sectors.

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Commodification, the Division of Labor, and Conventional Indicators

The concept of the sector has a long pedigree. Although various adaptations have somewhat distorted the underlying logic, it can be traced back to a reasonably coherent conception of how an economy fits together. Although different systems have evolved in different countries and putting them together in international classification systems like NACE, NAICS, or ISIC1 has involved a certain amount of horse-trading, there has been a general consensus that there is a useful correspondence between the standard industrial classification systems which have been developed and a relatively stable underlying reality. Although not entirely consistent, these systems have usually been rooted in a tripartite division of economies into “primary” sectors (involving direct exploitation of the earth’s animate and inanimate resources); “secondary” sectors involving the manufacture of goods from these resources (subdivided first on the basis of the type of raw material used to manufacture these goods—e.g., “metal-based manufacturing”—and second, in more detail, on the basis of the type of product—e.g., “office equipment”); and “tertiary” sectors, providing “services.” Underlying this conception is a fairly static model of the social division of labor. It can more or less cope with the idea that new “products” will appear from time to time and necessitate the creation of new subcategories within the manufacturing sector and, perhaps, the amalgamation or elimination of some of the older ones. The unspoken assumption, though, is that the sorts of processes used to make them will remain analogous to those that existed in the past—that “factories” will remain “factories” just as “farms” will remain “farms,” “fisheries” will remain “fisheries,” “offices” will remain “offices,” or “shops” will remain “shops.” In this underlying conception, the basic unit—the “firm,” “company,” “enterprise,” or “corporation”—is still perceived as an organization producing a single product or service (or closely associated group of products or services) in a relatively simple and unvarying way. The different activities required to produce these were traditionally typically co-located on a single site and tightly integrated with each other, and it therefore made sense to ascribe them all to the category into which the end-product was classifiable. This conception of an economy as an assemblage of “firms” embedded in “sectors” with long historical pedigrees (evident in the time series that make up most of the raw material of economic trends analysis) makes it extremely difficult to observe any underlying dynamic processes whereby services may form the basis of new products, which in

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turn give rise to new services; the public is transformed into the private or vice versa, or entirely new industries may come into existence, apparently out of nowhere. I have argued elsewhere (in a series of papers dating back to the late 1970s and summarized in Huws 2003a) that there is a historical pattern of commodification whereby precisely such dynamic processes are continuously taking place, albeit in historically uneven jerks. In the first stage, activities are typically carried out outside the money economy or by workers whose relationship with their employers is that of servants or hired hands. In the second stage, these activities become the basis of consumer service industries or of petty craft production, which may be organized on a fairly large scale with a complex division of labor based on different specialist tasks. In the third stage, often taking advantage of technical innovation, these service activities become commodified to form the basis of new manufacturing industries characterized by the mass production of standardized products. The general underlying tendency is toward the generation of new and increasingly standardized products whose sale will generate profits that increase relatively in proportion to the scale of production. However, the commodification process does not stop there: the production processes involved in making these products in turn become the focus of new innovation, giving rise to the development of an elaborated division of labor within the manufacturing process and, if mechanization or automation is involved, giving rise in turn to the development of new industries making the new means of production. The sector-based statistics have in the past provided very good raw material for analyzing the intermediary trade in physical goods that contributes to the development of the increasingly complex products that have evolved from these processes. Input-output tables have made it possible to see with some precision, for instance, how much copper is bought by the makers of memory chips, how many of these memory chips are bought by industrial robot manufacturers, and how many of these robots are then sold to the automobile manufacturing sector. There are some technical problems aligning these statistics at the international level to produce a picture of global value chains, but these are not insuperable: after all, physical goods do have to be transported physically and in the process pass through seaports and airports and land frontiers where they are documented and counted. The trouble really starts when nonphysical goods, or “services,” come into the picture. The classification of services has never been as well developed as that for goods. Some services have been defined in terms of their generic functions (e.g., “retail trades”), some in relation

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to their ownership structure (with a separation of public and private services), while others have been grouped together in “miscellaneous” categories with little internal coherence. Some functions that could arguably be regarded as services, such as transport, were hived off fairly early into separate sectors; others have remained embedded in their parent sectors. Nevertheless, as production processes have become more complex, not only have new industries grown up to supply their means of production (e.g., to manufacture machine tools or computers) or components (e.g., to manufacture screws or sheets of steel), but so also have new service activities been generated—for instance, those involved in the design, distribution, marketing, sales, or customer services of products, or the tasks associated with the coordination and management of these processes or associated activities such as financial administration or training. While these activities remained so specialized as to be associated only with a single product, or group of products, it was logical to continue to perceive them as part of the same sector, especially when they continued to be carried out under the same roof or under the ownership of the same corporation. However, several trends have converged to make this increasingly anachronistic. Both geographical relocation and legal changes interact here, producing not only changes in the spatial distribution of labor but also complexities in the contractual patterns that reshape both corporate structures and employment relationships. One of these is the growth of large corporations that cover a number of different product or service groups but that may nevertheless use common departments to service all of them, making it difficult if not impossible to allocate a particular business service activity to a particular product. A second factor is the breakup of organizations into their component parts, making each part of the process into a separate cost center or profit center, often located on a different site, perhaps even in a different country, from the location of the parent or the sites of production. An even more important factor is the growth of outsourcing. Not only may an activity be carried out on a different site, but it may also be carried out under different ownership. At the level of the division of labor, two interconnected underlying processes are involved: the development of entirely new products and processes, forming the basis of new commodities (embodied in new corporations or sectors, or new subdivisions of old ones); and the application of new processes to the production of existing goods or services, involving an elaboration of the division of labor within their production that may sometimes involve the generation of new activities (perhaps separated geographically or legally from the old ones) or sometimes the

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recombination and concentration of previously diverse activities into a single process (again, perhaps involving geographical shifts or a change in legal ownership). Both fragmentation and consolidation processes may be at work simultaneously. In the former case (the development of new products or processes), the process may begin with a few creative workers with a high level of tacit knowledge with complex and ill-defined job descriptions. Over time, these work processes will become systematized and standardized, and typically a more defined division of labor will emerge, with new, demarcated occupational identities—the raw material for new process innovations in the second wave. In the latter case (the application of new processes to the development of existing products or services), a division of labor can be presumed to exist already, probably reflected in an occupational structure in which different tasks are recognized as requiring specific skills and knowledge and quite possibly are filled by workers with different gender, age, and ethnic attributes who have different degrees of leverage on the local labor market and are differently rewarded. Here, when the change comes, it generally takes the form of systematization and routinization, often accompanied by the development or application of quality standards; tacit knowledge is made explicit and extracted from the individual worker to become the collective property of the team or the private property of the employer; and “skills” are disembodied from the workers who have traditionally exercised them and analyzed to see whether some new configuration might be more productive. Here, depending on the specific circumstances, a number of different options are possible: to subdivide tasks to the smallest separately definable component and spread them across a larger number of workers either, in the classic Taylorization model, thus creating a production line of single-skilled workers; or, in a “flexible” model, to abolish traditional demarcations and create a pool of “multiskilled” workers who can be substituted for each other at short notice; or to devise training methods to transfer them to another, cheaper, group of workers, perhaps in another country; or to incorporate the skills into some clever software that can be operated either by lower-skilled workers or by users who are not on the company payroll at all. The point is that once tasks have been systematized, their results become quantifiable. And once the results are quantifiable, they need no longer be carried out under the direct eye of a manager: all that is required is that the requisite quantity of output be produced according to agreed quality standards. The tasks can then be carried out on a remote site or by another company under a contract for the supply of services, with payment withheld if the quality or quantity of the output is

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below specification. The cost of this process, and the value that is added by it, are no longer subsumed into an amorphous general overhead but are separately visible. It has become the basis for a separate profitmaking enterprise, a new link in a value chain. With each elaboration of the division of labor, we therefore have, in effect, the potential for the lengthening of the chain. The logic of this restructuring, and the chain metaphor, suggest a skein of endlessly lengthening lines; the notion that the global corporation sits at the top end of this line suggests that as the chain continues, the units get smaller, like fish tugged by the giant who constitutes the ultimate customer at the end of the line. In reality, the emerging corporate landscape is more complex and contradictory. There are of course many small companies occupying positions at various intermediate points in the new value chains as well as at their termini. However, there has also been an enormous and rapid growth in very large corporations, often many times larger than their clients, occupying strategic places as suppliers of a large number of generic business services to a diverse and geographically diffused group of customers in both the private and public sectors. Part of the explanation of this phenomenon is the contradictory nature of the changing division of labor. The commodification process drives a continuous process of restructuring that always has a double edge. Each innovation simultaneously requires a new cohort of creative “knowledge workers” who, in the very process of developing new innovations, bring about, albeit indirectly, the routinization of the work of others. “Upskilling” therefore goes hand in hand with “downskilling,” and new forms of specialization accompany the development of increasingly generic activities. A space is created for small startup companies at the innovatory end of the new processes (Dejonckheere, Ramioul, and Van Hootegem 2003). There is also a role for small firms at the other extreme: supplying goods or services at rock-bottom prices in the areas where competition is fiercest and survival most precarious, often on a “just-in-time” basis—in the most extreme cases these “small firms” may in fact be individual homeworkers or day-laborers whose selfemployed status is simply an expression of their powerlessness in the labor market. However, there is also a countervailing tendency. The spread of information and communications technologies, together with a global convergence in standards that has eased interoperability, combined with the near-monopoly use of a relatively small number of software products and the growing dominance of English as the world business language, has created a situation where the standardization of a very large range of business processes has become possible, and huge

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economies of scale can be achieved by companies that specialize in supplying them. In the global market for business services a space has opened up in which the terms of trade can increasingly be set by the supply side, rather than the demand side. The image of a hooked minnow being shaken helplessly from side to side at the end of a line wielded by a giant fisherman must therefore, in some cases at least, be replaced by that of a whale trailing in its wake an assemblage of puny harpoonists whose only alternative to hanging on to the line is to drop off and drown.

Anatomizing the New Economy

The growth of this outsourced market in business services, which can best be understood as an expression of the elaborated division of labor in other sectors, has coincided with, and been supported by, the spread of information and communications technologies and the globalization both of markets and of products. And it is arguably this group of activities, more than any other, that constitutes what is variously known as the “knowledge-based,” “information,” “digital,” “weightless,” “new,” or simply “e” economy (for a fairly random sample, see, for instance, Quah 1997; Liebowitz 2002; Castells 1997; Neef et al. 1998; Tapscott 1995; Talalay, Farrands, and Tooze 1997). The very proliferation of names, together with the nebulous character of most of them, gives a strong hint that this “economy” is not easy to define. Numerous policy documents, perhaps most famously the European Commission’s Lisbon Summit statement in 2000, have stressed the importance of this “knowledge-based” sector for policies seeking to improve economic performance and expand employment. Yet, despite some attempts to quantify it (US Department of Commerce 2000; Pattinson 2000), its lineaments have remained elusive. The notion that the “new economy” was autonomous, capable of generating value “out of thin air,” as one policy adviser to the British government put it (Leadbeater 2000), was punctured along with the bursting of the dot com bubble in 2000. However, there have been few systematic attempts before or since to anatomize the relationship of this “new” economy to the “old” economy. The problem, of course, is that of measurement. In principle, it should be possible to map the “new” economy using existing sectoral classification systems. There are homes, albeit not always very well-fitting ones, in these schemes for such activities as “software development,” “broadcasting,” and “telecommunications,” as well as for the broad mass of manufacturing industries, wholesale and

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retail distribution, government services, banking, and all the other activities that make up an economy. In the official statistics of any given country, no corporation (at least no legally constituted one) is left unclassified, even if it is in the nether regions of a category called something like “miscellaneous services not elsewhere classified.” If an activity previously carried out in-house by a manufacturing corporation is outsourced to another specializing in the supply of services, then it is reasonable to expect that the activity will simply be reclassified to the relevant service category (for instance, cleaning services, transportrelated services, data processing, or whatever). Surely, then, it should be a simple job for a researcher to plow through the existing statistics, noting carefully what is classified where, to come up with a list of the sectors that constitute the “new economy.” This could then be used not only to measure the relative growth of these sectors and the scale of the international trade they are involved in, but also, where input-output tables exist, to examine its relationship to other sectors and estimate the value that is added separately in these “knowledge-based” activities. Alas, close-up research reveals such expectations to be highly unrealistic. The STILE project (Statistics and Indicators on the Labor Market in the e-Economy), funded by the European Commission’s Information Society Technologies (IST) program, examined the sector coding and classification practices in five European countries (Germany, Hungary, Ireland, the Netherlands, and the UK). When coders from six different national statistical bodies in these five countries were given 150 fictional descriptions of establishments that might be regarded as being in the new economy and asked to code them to NACE (the European Union’s official statistical classification of economic activities), there was total agreement on the correct code at the two-digit level in only 23 percent of cases. At the four-digit level, needless to say, there was even less agreement. To take one example, out of thirty-four cases clearly involving call centers, there was full agreement on the coding between all six institutes in only three cases at the two-digit level. At the fourdigit level, the code 74.86 (“call center activities”) was universally allocated to only one of the thirty-four cases (Huws and Van der Hallen 2004). It was clear from the results of this exercise that no systematic practices have developed that would enable consistency in the coding of such activities, not least because there is little logic underlying the current classification systems, despite recent revisions designed to improve matters. Similar results were found when the results of a large employer survey carried out by the EMERGENCE project2 (also IST-funded) were analyzed in an attempt to identify the sector codings of establishments involved in the supply of “e-services.” This, too, found remarkable

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inconsistency in the sector coding of “new economy”–type activities. For instance, of the establishments reported as offering “software consultancy and supply” (NACE 72.2) and “other computer-related activities” (NACE 72.6), only 24 percent of cases were coded under these respective categories. Even more striking, less than 1 percent (0.38 percent) of those offering data-processing services were recorded under the relevant NACE classification (NACE 72.30). Similar anomalies were to be found in the other business services investigated in the survey (Huws and O Regan 2001). If the sector statistics are no use for mapping the “new economy,” what of the occupational-based labor market statistics? Even if they cannot tell us about the trade between the corporations that make up the sector, they presumably ought to give us an insight into who is doing what work where, and how this is changing over time. Since one of the side effects of commodification is a transformation of skills and recombination of tasks leading to new occupational identities, we might expect this to give us useful insights into the restructuring of work. Unfortunately, the occupational statistics present even greater challenges than the sectoral ones. Alongside its sector-coding experiment, the STILE project carried out a parallel coding exercise using 150 fictionalized occupational descriptions, with coders in four countries asked to code them to ISCO.3 Here, too, there was a striking degree of disagreement: at the ISCO twodigit level, only 23 of the 154 occupational cases (14.9 percent) were given the same code in all four countries. At the three-digit level this fell to 18 cases (11.6 percent), while at the four-digit level, the lowest degree of disaggregation at the international level, only 6 cases (a mere 3.8 percent) were given the same code (Huws and Van der Hallen 2004). So what alternative units of analysis are available? One interesting approach has been developed by Chris Benner (2002), who developed the concept of the “labor market intermediary” for his study of employment flexibility in Silicon Valley. He identified a large and diverse range of these intermediaries, some of which are membership based (such as guilds, trade unions, and various self-help organizations and networks) and some of which can more properly be regarded as arms of the private sector (such as temporary help agencies, consultant brokerage firms, or professional employment firms that act as the “employer of record” for their clients) or of the public sector (such as training providers or job-search agencies). This approach recognizes the complexity of the relationship between supply and demand and makes it possible to conceptualize value chains both as entities that may contain intermediary links and as embodying relationships that may be structured by forces coming from either direction. Unfortunately, however,

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because of the inadequacy of the statistics, it cannot be used as the basis for any systematic international comparison or mapping of new patterns in the global division of labor.

Making the New Global Value Chains Visible: Results from the EMERGENCE Project

The EMERGENCE project was launched in 2000 to address precisely this challenge. Having reviewed the existing literature and statistics on the globalization of business services, it was decided that neither the sector nor the occupation would serve as a unit of analysis (see Huws 1999 for some of the reasons why). What was needed was a unit that could be described unambiguously in a survey addressed to employers in many different countries and translated into a large number of different languages. This was resolved by the development of the concept of the “generic business service,” a unit defined by its functional relationship to the development or delivery of a product or service. For the purposes of the survey, seven of these generic business functions were identified: creative and content-generating activities including research and development and design; software development (conceptually speaking, a subcategory of design but sufficiently well defined and economically important to treat separately); data entry and typing (the routinized low-skill part of content generation); management functions (including human resource management and the training of workers as well as logistic management); financial functions; sales activities; and customer service functions (which included the provision of advice and information to the public as well as after-sales support). There was of course some overlap between these categories, and they were not exhaustive, but they did provide a more stable and internationally comparable unit of analysis than the highly problematic “sector” or the rapidly changing and culturally specific “occupation.” The focus of the project was, to use the terminology then current in the European Commission, on “e-work,” that is, work that is informationbased and capable of digitization and transmission over a telecommunications link and thus delocalizable. In other words, the aim was to measure and map the extent to which work involving these generic services was relocated, or carried out at a distance, using the new information and communications technologies, in order to find out the characteristics of this work, investigate the dynamics of the relocation process, and look at the policy implications of these developments. In order to address these questions, the project carried out a large survey of establishments

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in the fifteen European Union member states plus Hungary, Poland, and the Czech Republic. This was subsequently extended to Australia. The resultant data set makes it possible to see not only the geographical division of labor (which activities were being carried out in which regions or countries), but also the inputs and outputs of these business services between different sectors of the economy. In other words, it provides a starting point for building a model of the relationship between the “old” and “new” economies—in effect, anatomizing the impacts of the commodification process on the division of labor. Because the unit of analysis was not one that can be found in conventional statistical data sets (although proxies can be found for some specific functions), the survey results could not provide any information about trends over time. However, it did give a snapshot of the situation as it was in 2000 in Europe (with a comparable snapshot of Australia in 2001), at least in relation to establishments with fifty or more employees. According to this snapshot, one European employer in fourteen (6.8 percent) had a back office in another region. The term “region” was defined using the European Commission’s official nomenclature at the highest of five levels—“NUTS1.” A NUTS1 region is so large that in the case of smaller or more sparsely populated countries (such as Ireland, Luxembourg, Denmark, Portugal, and Sweden), it actually constitutes the whole country. This is therefore a broad definition that probably underestimated the extent to which corporations had an internal geographically based division of labor. More important than remote offices, however, was the outsourced delivery of services. On the demand side, over half of all establishments (56 percent) outsourced at least one of the seven generic business services defined above. Restricting the definition to services that are “telemediated” (i.e., delivered online) brought this percentage down to just under half (49 percent) of employers making use of this practice. On the supply side, 21 percent of these larger establishments were involved in the supply of outsourced business services to another organization. Much of this “e-outsourcing” was carried out within the region where the employer was based (34.5 percent) but substantial numbers (18.3 percent) outsourced to other regions within the same country, while 5.3 percent outsourced outside their national borders. It is these interregional and international (sometimes intercontinental) relocations of work that provide us with clues about the geographical characteristics of the emerging international division of labor in business services. A large range of activities are involved in this traffic in business services, ranging from routine activities such as data entry and inbound call-center work to highly skilled activities such as research and development, design,

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or software development (Huws 2003b). This produced a picture of a complex trade in business services whose character cannot be deduced from the normal statistics, with many establishments involved in both the supply and the demand for these services, suggesting a position as intermediary links in value chains that in a substantial minority of cases have an international dimension. Subsequent work by the project involved carrying out detailed case studies of these transnational supply relationships, including both internal movements between different branches of the same organization and cases involving the outsourced supply of services. In some cases, corporations studied in 2000 were revisited in 2003 to see changes over time. What became very clear was that in 2000, although there were already large numbers using a remote labor force, often in another country, to carry out specific tasks, these arrangements were still regarded in many cases as experimental and fraught with risk. By 2003, “offshoring” had become part of normal business practice and had clearly grown enormously, both in scale and in the variety of functions involved, although precisely how much growth cannot be ascertained, because of the general inadequacy of the official statistics (Van Welsum 2004) and the more specific incompatibility of the EMERGENCE survey results with such statistics as do exist. Furthermore, value chains were getting longer, involving more intermediaries and geographical locations. To get a complete picture of the entire value chain involved in, for instance, the production of a particular software package, the processing of orders for a particular product, or the production and maintenance of a particular database, it might be necessary to look at three, four, or even more different “hops” from contractor to subcontractor to sub-subcontractor, as well as taking account of the roles of various intermediaries ranging from large outsourcing consultancy firms to small “fix-it” organizations, able to ease the process of recruiting local staff, negotiate a path through state bureaucracies, or arrange services on the ground in, for instance, India, Russia, or the Caribbean. We are left with a picture of a large, and mostly uncharted, section of the economy, traversing national borders, involving an intricate web of economic relationships relating to the input, processing, or transfer of information. India is now well known as a source of software design, editorial work, call-center work, and medical transcription, but these represent only a small part of the large range of remotely supplied activities. Other examples in a by no means exhaustive list include Sri Lankan workers digitizing French maps; Indian workers analyzing US medical MRA scans; Vietnamese workers organizing logistics management for Norwegian shipbuilders; Namibians selling airline tickets to

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Germans; Mongolian engineers producing drawings for Finnish architects; Cape Verde islanders monitoring the security cameras in US parking lots; Sri Lankans carrying out estimates for Canadian engineering contracts; Chinese data-entry clerks typing abstracts for US medical databases; and Brazilians keying in data for US banks. Perhaps more important than the fact of their relocation is the underlying reality that the work in each case has been redesigned so that it can be relocated. Once a process has been rendered capable of being monitored by results, and if the technology is available together with people with the right skills somewhere else, the potential for relocation hangs like a threatening question mark over every job unless there is some very good reason why it should remain anchored to a particular spot. Even if it has not yet been redesigned to make it transportable, there is every chance that the next wave of commodification might render it so. The implications of this are immense.

The Impact on Labor

Most obviously, this development renders precarious a large swath of jobs previously seen as among the most secure: office jobs in formerly stable pyramid-like structures, associated with permanent tenure, promotion prospects, and a pension awaiting at the end of one’s career; jobs for educated people, perhaps a bit boring, but safe, some labeled “professional,” “technical,” or “managerial,” others simply “clerical.” Many of these jobs have traditionally been in the private sector—for instance, in the head offices of manufacturing corporations or in branches of banks or insurance companies. However, many have been in public, or formerly public, organizations: the civil service, local government, utility companies, post offices, health, or education. Public services are indeed among the main target customers for the new giant outsourcing multinationals. Whether under the rubric of “liberalization,” “compulsory competitive tendering,” “best value,” or “e-government,” the commodification of public services has been proceeding apace (Leys 2003). Again, whether or not this commodification actually leads to outsourcing is almost irrelevant (except to the group of workers directly affected, of course); the transformation of the work process that is involved, and the fact that it is potentially outsourceable, have the effect of rendering the work precarious, if not in its formal contractual arrangements at least in the workers’ perception of their dispensability. As already noted, the impetus underlying the commodification of services involves the interlinked processes of routinization, standardization,

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and management by results (or “performance measures”). In the public sector these are particularly visible, because they also and simultaneously involve a substitution of the production of exchange values for that of use values, giving an additional shock to the worker’s sense of occupational identity and self-worth. However, this should perhaps be regarded as a specific and extreme example of a more general shock to the occupational identities of “white-collar” workers. Indeed, in some cases the very concept of an occupational identity is under assault, as workers are increasingly expected to respond to demands, both from employers and from the state, to assess critically their “skills,” “competencies,” “attitudes,” and “knowledge,” to take responsibility for renewing them by participating in “lifelong learning,” and to market them to potential employers in the requisite permutations and combinations. The prospect of job redesign places both workers and the trade unions that represent them into ambiguous and contradictory positions, often with a gender dimension, as pressures from better-organized groups to maintain demarcations and privileges have to be balanced against the aspirations of those in the lowest-skilled groups to better their positions (Huws 1990). The occupational identity lies at the center of this contest. When it is an identity shared with other workers in other countries, with utterly different working conditions, cultural allegiances, and positions in the local status hierarchy, such contradictions are multiplied. The very process of uniting to safeguard existing job descriptions and resist deskilling serves to exclude those who are not part of the existing group; in the process, solidarity among one group of workers may generate xenophobic or sexist attitudes toward others. Because of the inadequacy of the statistical indicators, we have no idea of the precise nature and scale of this phenomenon, but we do now have incontrovertible evidence that, across the world, there are large and growing numbers of workers who are working, directly or indirectly, for the same global corporations, often wearing uniforms emblazoned with the same logos, enacting the same labor processes, using the same software, speaking the same working languages, and serving the same customers. Even when they share the same job titles, the evidence suggests that this is not yet leading, on a significant scale, to a sense of common shared identities that extend beyond national borders. Qualitative research in Indian technical support call centers (Mirchandani 2003), for instance, reveals a strong patriotic identification with the national bourgeoisie. Workers often see the work as personally demeaning and beneath their capabilities, but have a strong motivation— beyond the immediate need for an income—to “help develop India.” This is firmly in line with the strategic goal expressed by the Indian

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government and by the Indian National Association of Software and Service Companies, whose main objective was described in 1998 by the prime minister of India as “to help India emerge as an IT [information technology] software superpower” (National Taskforce on Information Technology and Software Development 1998). This nationalistic identification is buttressed by an equally strong discourse, evident in the content of training courses as well as the remarks of both managers and operational workers, about the “dumbness” of US customers. Negative attitudes toward these customers are reinforced by racist remarks often made to them by North American or European callers who realize that they are located in South Asia. While Indian IT professionals, and their counterparts in Eastern Europe and other parts of the globe, generally seem acutely aware (most usually as a result of carrying out Internet searches) of how their wage rates compare with those of their equivalents in more developed countries, this does not generally appear to produce any sense of solidarity. Whether the members of this new cybertariat perceive themselves as belonging to the same occupational groups is thus debatable; whether they will develop a common class identification even more so. Even if a trade union organization were to develop further in this sector, and links were to be built between trade unions in developed and developing countries, it is difficult to envisage the form that negotiations might take. The same difficulties that arise in identifying a stable unit of analysis for statistical purposes also apply in pinning down what constitutes the “employer” for the purposes of collective bargaining. A typical outsourced call center in the UK, for example, might have one corporation managing the building, another recruiting the staff, another training them, another negotiating the contracts, with client companies and the actual labor process (in terms of the scripts to be followed, the expected performance levels, etc.) determined by several different clients. Who then, should be deemed responsible for the quality of working conditions? And with whom should the trade union negotiate over health and safety? If these problems can be found on a single site, how much greater are they likely to become when stretched across a value chain that might involve workers in half a dozen different sites, in countries with differing labor legislation and differing traditions of collective bargaining (for instance, those in which national sectoral agreements are the norm, those where company-level agreements or branchlevel agreements apply, and those where antiunion legislation may have led to an effective exclusion of most of the work force from the scope of trade union negotiations). Add to these the growing practices of outsourcing the human resources management function itself, including, in

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some cases, the specific role of acting as the employer of record (Benner 2002), the increasing turnover of staff in information service sectors like call centers (Paul and Huws 2002), the accelerating speed of change in the awarding of outsourcing contracts, as well as the increasing ease of switching tasks from one location to another, and it becomes clear that the organizational problems are formidable. The sense of not knowing where the buck stops coexists with an equally powerful conviction that the source of power lies elsewhere.

Conclusion

The challenges are not just organizational, however; they are also conceptual. With the spread of generic “information-processing” skills and requirements to communicate in one or more global languages spreading across an ever-broader range of activities, there are increasing expectations that a growing portion of the work force will be available on demand to form part of a global reserve army of information workers. Whether these are students in developing countries looking for temporary part-time work to support themselves through college, people who are housebound by disability or the need to care for children, elderly dependents looking for an independent source of income, or unemployed graduates in a developing country desperate for a toehold in a foreign-currency earning sector, the likelihood is that this work will not offer a career for life in the traditional sense, but will be seen more contingently as a transient source of income. Without the development of stable, long-term occupational identities, it will be difficult for lasting forms of worker organization to develop, although the human impetus to collaborate to resist exploitative conditions remains insuppressible and there are already signs that these developments are not going unchallenged. However, identifying the appropriate target for any action and holding it in view remains extraordinarily difficult, given the slipperiness of the modern corporation and the medusa-like quality of the value chains in which its processes are embedded and their ability to transcend the boundaries between “sectors” as traditionally conceived as well as those between countries. It is simultaneously difficult for workers not only to “name” their identities and their precise relationship to their employers, but also to “name” who those employers are and what it is that they produce. Without any clear definition of who the partners are in a negotiating process, it is of course impossible for meaningful or binding negotiations to take place or regulations to be drawn up.

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It seems likely that the most productive course of action for organizations wishing to regulate wages and conditions in the global business service industries to avoid a global race to the bottom will be to pursue international labor standards that are universal in scope, thus avoiding some of these problems of definition. In pursuit of such goals it is worth remembering that just as the members of the new cybertariat are inextricably linked to each other, and to other workers in more “rooted” jobs, by the place their particular piece of the jigsaw occupies in the global division of labor—the inputs they make to the production or distribution of commodities—they are also, and increasingly, linked by their roles as consumers of these same commodities in a global marketplace. Market power offers another possible means for citizens to shape the strategies of global corporations, although one whose potential remains largely unexplored. What is clear is that attempts to curb the power of global organizations that rely on definitions based on the legal entity of the “firm” or “corporation” are likely to miss the mark. Increasingly their hegemony is exerted indirectly, through complex skeins of interconnected and legally porous value chains that traverse the traditional boundaries between sectors and nation-states; the global reach of these chains is twofold, reaching individuals in their capacities as workers as well as consumers and, arguably, appropriating their energies in both capacities. The process is a contradictory one, both atomizing and separating people from each other on the one hand and connecting them on the other. It is through a deeper understanding and development of the connections that positive changes are likely to arise.

Notes 1. NACE is the Nomenclature Générale des Activités Économiques dans les Communautés Européennes, or General Industrial Classification of Economic Activities within the European Communities; NAICS is the North American Industrial Classification System; and ISIC is the International Standard Industrial Classification of all Economic Activities. 2. Estimation and Mapping of Employment Relocation in a Global Economy in the New Information Communications Environment. 3. The International Standard Classification of Occupations, developed by the International Labour Organization.

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PART 2 Corporations and Global Governance

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5 Global Governance and the Private Sector Virginia Haufler

In recent years, the debate over the role of the state in regulating the economy has been joined by an increasingly vocal questioning of the role of the private sector in global governance. Critics contend that corporations have become so transnational that world markets outstrip the capability—and willingness—of governments to control them.1 Industry representatives often tout “self-regulation” as the appropriate method of developing transnational rules and standards of behavior, despite sometimes spectacular failures, as seen in corporate scandals involving Enron, WorldCom, and Parmalat. The debate pits “public authority” against “private authority,” governments against firms, issues of legitimacy and accountability against those of efficiency and rationality (Cutler, Haufler, and Porter 1999; Haufler 2001; Hall and Biersteker 2002; Florini 2003). But what is new about this debate? In what ways is the exercise of corporate power changing—if at all—in the context of globalization and issues of global governance? Many scholars have identified significant changes in the nature of public and private participation in governance, and have contributed to new theorizing about “governance without government.”2 Stephen Kobrin (1998) refers to the “new medievalism,” in which governance functions are located at multiple, overlapping sites involving local, national, regional, and international institutions—and include both state and nonstate actors. His conceptualization highlights the idea that authoritative decisionmaking can come from different “places” simultaneously. Others define global governance in terms of the organization of collective action or collective decisionmaking, including formal and informal mechanisms of rule-making that coordinate a wide variety of 85

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actors (Prakash and Hart 1999; Kahler and Lake 2003; Pierre 2000). Scholarship on global governance goes beyond traditional examinations of international organization and law, which presumed the ultimate outcome would be a global government. As Jon Pierre states, “political institutions no longer exercise a monopoly of the orchestration of governance,” since other actors can also govern (2000, 4). But is any of this truly new? Recent enthusiasm for the concept of global governance runs the danger of obscuring continuities with the past and missing what is truly “new” about governance in the twenty-first century. The functions of governance have been performed historically by both public and private authorities for many centuries. Amid this seeming continuity, however, there are three significant areas of change. First, it is only in the past century that we have seen explicit attempts to separate “public” from “private,” both in theoretical discussions and in practice. In the past decade or so, the neoliberal policy consensus among leading states and international organizations has aimed directly at separating governing institutions from the market at the domestic level.3 At the international level, traditional international relations scholars describe an arena in which there is little public sphere to speak of in the traditional sense. Critical scholars argue that this arena is instead filled with private authority in the form of corporate power. Susan Strange, in The Retreat of the State (1996), argues that some authority at the international level is simply lost. In terms of global governance, the public/private distinction is ambiguous and contested. So even as public and private appear to be more clearly separated at the domestic level, it is not entirely clear whether such a distinction is being maintained or created at the global level. A second significant development is the evolution in the character of the participants in governance of the economy, especially at the global level. Since there is no true global public authority, essentially there are only different actors trying to provide a framework of rules for transnational commercial activity.4 Those actors in the past either were governments or corporations. Today, different problems are addressed and different functions performed by a wide variety of actors, including intergovernmental organizations, business associations, nongovernmental activist groups, and nonprofit service organizations. The character of public authorities also has evolved, with some transnational governance functions pushed up to regional organizations or down to local-level governments. The corporate sector also has changed dramatically. In the past, the main sources of private authority were major corporations, but today the participants in global governance include a variety of industry associations, business groups, alliances, and subcontractor relationships. These different actors now combine and coalesce with

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other actors, including the state, in a surprising variety of governance coalitions and partnerships, so that governance activity often is neither “public” nor “private” in character (Reinicke 1998). Finally, at the beginning of the twenty-first century, the issues that the international community considers to be integral to the governance of commercial affairs have expanded. In the past, global governance of commercial affairs focused primarily on rules and standards governing relations between firms (e.g., contracts, technical standards), between governments and firms (e.g., property, arbitration), or between governments (e.g., tariff policy). Today, issues at the top of the agenda often involve relations between corporations and a whole host of other actors—consumers, citizens, intergovernmental organizations, or the natural world, including concerns about social, environmental, consumer, and political affairs. The scope for global governance of corporations has expanded in new ways. The expansion of democratic forms of governance, including the impact of the fall of communism after 1991, has prompted political pressures for governance in a wider range of issue areas, connecting commercial activities with issues of social justice and security. They also have stimulated the creation of transnational networks of nongovernmental organizations (NGOs), which have become increasingly specialized in advocacy, service delivery, and other functions. Of course, economic globalization itself has posed new challenges to the governance of commerce, and forced a reconsideration of the relationship between public and private authority. Despite these important changes, however, there are significant continuities with the past. The most important is that the state itself has not disappeared from governing commercial activities. Public authority remains important in affirming the “rules of the game” in trade—including rules that continue to protect national markets from economic integration and competition, as we can see in the difficult negotiations to launch a new round of trade negotiations that include sensitive issues such as agricultural subsidies. The free trade system sustained by the World Trade Organization has consistently provided benefits primarily to the advanced industrialized countries, and this is no accident—it is constructed by the ways in which powerful states shape the negotiations.5

Separating “Public” from “Private”

Who governs? This is a fundamental question in political science. In international affairs, the answer often has been that no one governs, that the international system is “anarchic.”6 This generalization is contradicted,

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however, by the extensive body of law concerning issues of property, contract, and interstate trade relations. The question of who governs is more typically answered by pointing to governments as the source of authority. But the private sector also contributes to governance, and the participation of private actors in important areas of international rulemaking can make it difficult to discern who really governs. Industry plays a direct role through, for instance, industry associations that establish standards and regulate their own behavior in order to attain selfinterested goals such as technological innovation or industry reputation (Haufler 1999). These associations can also contribute to governance through participation in intergovernmental deliberations as part of national delegations or as part of technical working groups (Haufler 1999; Sell 1999; Salter 1999; Mattli 2003). The private sector also governs when governments explicitly delegate authoritative decisionmaking power over some issues to industry groups or sectoral representatives, as has become common in European Union affairs (Egan 2001; Kahler and Lake 2000). Before examining the participation of public and private actors in governance, the key terms need to be defined: What is “public” and what is “private”? The definitions of public and private given by the ancient philosophers distinguished the sphere of the home and family (private) from that of political and social affairs (public).7 With the development of the modern market economy, liberal philosophers began to distinguish between public and private based on a particular conception of commercial affairs. Today we typically use these terms to differentiate in three ways between governments and markets: (1) between the actors involved in each; (2) between the political arena of the first and the nonpolitical market arena of the second; and (3) between the activities and responsibilities of each. The degree to which actors, arenas, and responsibilities can be distinguished from one another, and the relative balance of forces between them, has evolved and changed over time, becoming more distinct at some points and blurring into insignificance at others (Cutler, Haufler, and Porter 1999; Cutler 2003). In the centuries prior to industrialization, what we would today call the “state” and “market” evolved together, not separately. As commerce expanded, it was merchants who often developed the rules that governed their transactions and helped establish the market itself as a functioning entity, as Fernand Braudel (1981–1984) masterfully discusses in his analysis of sixteenth-century commercial development. The lex mercatoria, as it was called, developed unevenly across the European continent as commerce grew both within and between political boundaries. In many cases, states adopted this “private” law into the “public” law of

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the land (Cutler 1999, 2003). For example, most of the British commercial code was initially developed by merchants who needed rules, standards, and guidelines for their commercial exchanges. In specific industries, such as finance and insurance, the private sector developed most of the standard practices that now are backed by law; a number of European states adopted wholesale the standards and codes of practice that the marine insurance industry established for itself (Haufler 1997; Porter 1993). This participation by the private sector in developing rules and standards governing commerce coexisted with extensive state control. State ownership and direction of the economy was an integral element in early state-building, based on widespread ideas about the value of mercantilist policies. Select firms were chartered by the king, given a royal monopoly, and endowed with “public” authority in lands abroad. They were not “private” companies in the modern sense. The British East India Company, for instance, was an instrument of British imperialist expansion, and had the power to make laws, raise taxes, and provide military security. Rather than the privatization of governance, it would be more accurate to describe this as the extension of public authority through alternative means (Braithwaite and Drahos 2000). Institutionalist economists such as Douglass North (1990) argue that the market itself had to be created through government institution-building, so that the building of states and the creation of markets went hand in hand. The tight intertwining of public and private affairs during the preindustrial era was taken for granted at that time. Only toward the end of the eighteenth century, with the publication of Adam Smith’s The Wealth of Nations (1952 [1776]), does a separation between public and private in economic affairs start to be widely discussed. With the industrial revolution and the adoption of free trade policies in Britain and parts of Europe, the practical separation began in earnest. By the twentieth century, the exact nature of the relationship between governments and markets became central to political debate. On the one hand, government policies increasingly distinguished between the “public” and “private” realms of activity and responsibility. At the same time, with the establishment of the welfare state, governments claimed a larger share of the economy as part of that public realm. Karl Polanyi (1944), writing about nineteenth-century industrialization, argued that the self-regulating market was impossible to sustain, and that the market must be embedded within social regulation; this was the source of antipoverty and welfare support programs. Karl Marx challenged that divide most directly in theoretical-philosophical terms. The Russian Revolution forcefully challenged the emerging divide between state and market, and the contest between modern capitalism and communist/state-led

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polities defined much of the twentieth century. After World War II, the design of the modern social welfare state varied across the industrialized world, with different degrees of government intervention in and ownership of the economy. State ownership of significant industrial sectors and major firms blurred the line between the public and private sectors.8 Although the practical separation of public and private affairs varied, the effort to separate the two became more and more pronounced over time. The development of neoclassical economic theory concentrated attention on the efficient operation of unfettered markets, in which competition played out among individual private firms without government interference. The economics profession, especially in the United States, came to accept and promote the idea of a clear separation of the public and private spheres. Neoclassical economists, including Milton Friedman and Friedrich Hayek, became increasingly influential in policy debates in the latter half of the twentieth century, particularly in the United States. The Ronald Reagan and Margaret Thatcher governments of the 1980s held an ideological commitment to the separation of government from the economy and tried to redefine the public and private spheres along conservative economic lines. Their goal was to free corporations from the heavy hand of government regulatory interference and to reduce government ownership of assets that could be owned instead by private individuals. Governments began pulling back from their deep participation in the economy, selling off state assets, deregulating industries, and opening up national economies to the world market. The United States led the way in these changes, and reinforced the idea that state and market were—and should be—totally separate, and that the public and private sectors were distinct actors with distinct responsibilities (Vogel 1996). The collapse of the Soviet Union and the alternative model it represented further reinforced the ascendancy of the liberal model. Most of this development of distinct public and private spheres operated at the domestic, or state, level. At the international level, the absence of a single international government reduces the potential public sphere in significant ways. Intergovernmental organizations do not have the same degree of public authority as sovereign national governments. While international law has expanded significantly, this law applies specifically to states and not to corporations or individuals. However, in recent years, many corporate critics and policymakers have begun to insist that international laws do indeed apply to multinational corporations. For instance, the UN Human Rights Commission has developed a set of guidelines for companies that explicitly looks at the applicability of international human rights law to corporate behavior. The international legal system traditionally views the regulation of market actors as a state responsibility, and

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the strength of international commercial law depends upon how well it is implemented at the domestic level. Repeated attempts in the past three decades to develop a comprehensive global set of regulations for multinational corporations have failed. In the 1970s and 1980s, the UN sponsored negotiations over a code of conduct for transnational corporations, which dragged on and died a slow death. A decade later, the Organization for Economic Cooperation and Development (OECD) sponsored negotiations for a multilateral agreement on investment, which collapsed ignominiously (Kline 1985; Haufler 2001; Graham 2000). The result is that corporations appear to be entirely unfettered and free of constraints in their global decisionmaking, subject only to enforceable law at the state level. Nevertheless, as more and more corporations have extended their reach internationally, they themselves often have demanded a greater degree of order and rule over the international market, particularly in the area of standards that facilitate market transactions.9 Responding to these demands, the major international standard-setting organizations, such as the International Organization for Standardization (ISO), and new ones organized around new technologies, have been quite active in the past few decades in establishing market-facilitating standards. These organizations typically are dominated by industry interests, or combine public and private actors in a variety of ways. In the information technology arena, the establishment of new global standards has been a primary goal of major corporate actors in order to create global markets in new technologies, and to ensure corporate access to those markets. At times, this is done through sheer market power, as we can see in the de facto standards established by widespread adoption of the Windows computer operating system environment, which provides Microsoft with incredible influence. In other cases, it involves difficult negotiations among competitors, and may include a wider range of public and private actors, as in the case of high-definition television standards—which have generally been established by separate national governments, influenced by the major national corporations interested in benefiting from those standards. The standards regime today tends to be a hybrid of public and private authority, with public authority within the regime often exercised by delegating power to nongovernmental organizations (Salter 1999; Mattli 2003). The ISO, mentioned above, is an official international organization whose members are national standards organizations, which are in some cases private or nonprofit entities, and most government delegations are represented by industry interests. One interesting example of the mix of public and private authority is the Internet Corporation for

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Assigned Names and Numbers (ICANN), a nonprofit organization established by the US government to assign Internet names and numbers on a global basis, which gives it extensive power to shape commercial competition. But in many areas of commerce, corporations themselves have sought to develop global rules to meet the challenges posed by recent technological, social, and political changes (Spar 2001; Porter 1999). Increasingly, the standards at issue are not purely technical or market-facilitating, as corporations seek to ward off the imposition of public authority on their activities by developing self-regulatory mechanisms, including corporate codes of conduct. These corporate codes explicitly address issues that previously had been characterized as public in nature, ranging from the provision of welfare to the provision of security (Haufler 2001). This brief overview has highlighted the historical variation in the concept of “public” and “private.” Too often we tend to assume that it is easy to draw a line between the public and private spheres, and that it is a simple thing to identify and distinguish between public actors and private actors. The definition of the kinds of actions and actors that are considered public or private, and indeed the whole idea that these are separate, remains an area of contestation that has taken on a different character at different historical times and places. The degree to which governance—especially rule-making and standard-setting—is carried out by public (government) or private (corporate) actors has cycled between the two, with different eras characterized more by one than the other, with significant overlap and blurring of boundaries. This is particularly true with regard to the governance of the international market, where the state today is often depicted as just one among many actors.10

A Multiplicity of Actors in Global Governance

One of the most significant changes in recent years is that the “who” in “Who governs?” must now be expanded to include the participation of nongovernmental and noncorporate actors. In other words, there is a degree of continuity in the roles of the state and of market actors, but they have been joined by new participants in governance. The traditional duality of business versus government must be relinquished, not only because of the difficulties in determining the boundaries between them, but also because there are other actors involved in global governance today: labor unions, activist groups, aid organizations, and nonprofits of all kinds (Florini 2000; Simmons 1998).

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We can conceptualize the varieties of commercial governance, or regulation, in terms of four broad categories: traditional regulation, industry self-regulation, co-regulation, and stakeholder regulation. Each of these is distinguished by the sources, or actors, involved in developing rules, implementing them, monitoring compliance, and enforcing them. Traditional regulation is developed, promulgated, and enforced by sovereign governments, either on their own or in cooperation with other governments through international treaties, agreements, and organizations. Since the end of World War II, especially beginning with the creation of the UN system, there has been a steady increase in this kind of traditional regulation. Some of these negotiations have created independent intergovernmental bodies that have great influence over the shape of international commerce, such as the General Agreement on Tariffs and Trade/World Trade Organization (GATT/WTO). This type of “public” law is the most recognized form of global governance, and establishes the framework within which other forms of regulation have evolved. In general, there has been relatively little in the way of traditional international law created and enforced by governments and directed specifically at corporate behavior. The “new international economic order” demanded by developing countries in the 1970s failed, the UN Code of Conduct for Transnational Corporations was put to rest after over a decade of fruitless negotiations, the OECD Guidelines for Multinational Corporations remain weak despite recent revisions, and the OECD-sponsored Multilateral Agreement on Investment proposed only a few years ago fell apart due to lack of commitment by governments and pressure from activists. These were all efforts to develop comprehensive agreements, and may have sunk under their own weight, as they sought to cover every conceivable aspect of corporate rights and responsibilities. Sectoral regulation has to some degree been more effective, with many of the intergovernmental organizations created over the past century designed to establish rules and standards to facilitate the development of markets in specific industries, such as telecommunications (Murphy 1994). However, the degree to which different industry sectors are regulated internationally varies dramatically (Braithwaite and Drahos 2000). While interstate negotiations over traditional legal rules generate the most attention, a fair amount of international regulation of business is through industry self-regulation. Industry itself often develops its own technical standards, best practices, and codes of conduct when international rules are absent, ineffective, or partial (Braithwaite and Drahos 2000; Haufler 2001). Corporations cooperate among themselves

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in designing limits on their own behavior, typically through voluntary standards and voluntary action. Industry self-regulation itself comes in different “flavors,” including: (1) self-regulation of a corporation by itself, going beyond compliance with national law to set global limits on its own behavior, such as when Statoil negotiated with an international union to establish a global labor standard;11 (2) regulation by industry associations addressing issues within a particular sector, for instance, the chemical industry’s creation of standards for how to deal with the accidental toxic release of gases, known as the Responsible Care program;12 and (3) regulation of one industry by another, as when ratings agencies such as Moody’s set the standards that limit the access of other corporations to cheap capital (Cutler, Haufler, and Porter 1999). While such industry self-regulation is not new, it appears to be an increasing element of global governance. Leading technologies tend to be regulated first by the private sector, and in the past few decades there has been an explosion in innovations, especially in information and communication technologies. Technical standards for industry compatibility and international commercial dispute resolution to settle disagreements are two areas where corporations have been the dominant regulatory actors in recent years (Spar 2001; Mattli 2001; Cutler 2003; Chapter 10 in this volume). In addition, the 1990s were marked by the number and extent of new “corporate codes of conduct” in which corporations, either on their own or through business groups and trade associations, committed themselves voluntarily to protect the environment, uphold high labor standards, promote human rights, and generally act as good corporate “citizens” (Haufler 2001).13 These corporate codes can be simple statements of policy, or they can involve more elaborate implementation through internal management systems, auditing and accounting by third parties, and reporting of compliance results. The participants in industry self-regulation have changed in character over time. Industry associations have tended to be the lead players in selfregulatory initiatives, developing common rules, norms, and best practices for their own sector. But in recent years, new cross-sectoral business groups have formed, and a number of them now are transnational, such as the World Business Council on Sustainable Development. Additionally, most large corporations now are at the center of large networks that connect buyers and suppliers in dozens of countries (Tapscott, Ticoll, and Lowy 2000). The most powerful buyers along these supply chains are able to push particular standards down to the small and medium-sized supplier companies, in essence “governing” the supply chain (Gereffi 1996). For instance, IBM now requires all of its worldwide suppliers to

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become certified in ISO 14000 environmental management system standards; since IBM literally has thousands of suppliers around the world, this commitment to ISO 14000 expands the global reach of these standards. Industry self-regulation implies a strong separation between public and private actors, since it is by definition regulation by the private sector alone. Such distinctions, as discussed previously, can be difficult to maintain. During the 1990s, when liberal economic policies dominated political agendas in national capitals and international bureaucracies, many governments liberalized, deregulated, and sought more market-friendly ways to achieve regulatory aims.14 One result is that “co-regulation” emerged as a way to achieve public regulatory aims with private sector efficiency. Co-regulation involves both the government and the targets of regulation in the processes of regulation. Liora Salter argues that the standards “regime” has always been characterized by a “symbiotic relationship between public and private sectors,” although the balance has shifted toward private venues in recent years (1999, 100). Thus, typically, the public sector determines the ends to be achieved, while market actors determine the means to achieve them. The public authority establishes incentives and punishments to ensure compliance with co-regulatory rules. Co-regulation has become particularly popular within domestic environmental agencies, particularly in the United States and in the European Union (Harrison 1999; Egan 2001).15 The agencies establish environmental goals, such as the reduction of emissions to a particular level, but leave it to the private sector to design a means to achieve those levels. The so-called information revolution has also created pressures toward co-regulation, particularly in the United States, where the economic success of this technological sector created a fear that too much regulation might put a brake on the sources of wealth in the new economy. The European Union (EU) and the United States have taken distinctive strategies on regulation of information industries, with the former delegating certain regulatory issues to the private sector and strictly regulating others, and the latter taking a “hands-off” attitude. Transatlantic negotiations have at times resulted in outcomes that defy easy categorization of the type of regulatory authority involved. For instance, the “Safe Harbor Agreement” between the United States and EU establishes the rules by which information is transferred within transnational companies but across national borders. The EU strictly regulates information privacy, while the United States does not. Under the agreement, US corporations can commit themselves to adopt EU practices voluntarily, have this commitment certified by the US government, and then the EU regulatory authorities will recognize those companies as

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meeting EU standards and allow the transborder exchange of information (Bessette and Haufler 2001). This blend of industry self-regulation and co-regulation is unique. Finally, the most unusual variety of regulation today has yet to find a common label—“multistakeholder initiatives,” “global public policy networks,” and other broad terms have been used to describe this new policymaking phenomenon (Reinicke, Benner, and Witte 2003). On a number of international policy issues, a variety of different actors from the public, private, and nonprofit communities have negotiated and developed a regulatory framework. These initiatives typically establish a set of standards and goals, a framework for decisionmaking, and a process for achieving the standards. They often include the development of third-party certification systems so that products or firms meeting these standards can be identified by consumers, which can provide market incentives for compliance. In some cases, consumers become the ultimate enforcers of the system, as they respond to certification reports and labeling initiatives by buying goods from companies that meet particular standards. Multistakeholder regulation encompasses a wide range of types. It can be as simple as a corporate code developed by a single-issue advocacy organization and then presented to companies for adoption, such as the human rights code for business developed by Amnesty International. Or it may be more elaborate, such as the Global Reporting Initiative, a massive worldwide effort to develop common standards for publicly reporting corporate environmental performance, involving the United Nations Environment Programme, the International Chamber of Commerce, numerous environmental activist groups, and extensive solicitation of public input. This form of regulation is differentiated from the other three types by the influential role played by nonprofit or advocacy groups, and transnational activism has become a significant force in world politics (Keck and Sikkink 1998; Florini 2000). While their campaigns against corporations gain the most media publicity, many of these same NGOs have sought a more pragmatic relationship with corporate targets. They have been willing to participate in multistakeholder partnerships such as the Forest Stewardship Council, in which they play as significant a role—or even more significant—than governments or corporations. These groups often establish norms and standards of behavior, monitor the compliance of other actors, certify compliance for the public, and enforce the rules by increasing the costs of noncompliance through consumer reaction and activist response. These mechanisms may be formal or informal in nature, and provide opportunities for activists and corporate leaders to persuade and inform each other about the merits of their respective positions, and establish some common ground for their efforts.16

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Both industry self-regulation and multistakeholder regulation have gained new prominence in the past decade. Many observers refer to these initiatives as “corporate social responsibility,” “business ethics,” and “corporate citizenship.” In referring to them this way, they dismiss them as regulatory instruments, emphasize their voluntary nature, and imply they have nothing to do with the self-interest of corporations. Certainly, these initiatives are voluntary, but this does not diminish their regulatory function. Certification and reporting systems in particular entail a kind of “soft enforcement” through market incentives, strengthening or weakening the reputation of a corporation with consumers and investors, which can lead to real costs and benefits for the corporation. Given the general absence of public international governance of the multinational corporation, both industry self-regulation and multistakeholder initiatives represent an important evolution in global governance and the collective establishment of rules and standards. The emergence of new varieties of regulation and global governance has created competition among different systems, as different actors— corporate, nonprofit, national, and intergovernmental—claim authoritative power. In the same way that investors stimulate competition among states to attract capital investment, there may be similar competitive forces at work with regard to industry self-regulation and multistakeholder initiatives, especially those involving certification and monitoring systems. For instance, after a mix of industry and activist participants established the Forest Stewardship Council to create a global system promoting sustainable forestry, many industry players created a competing organization. Over time, as both systems competed for adherents, they have become more similar in their standards and operations (Cashore, Auld, and Newsom 2004). Some corporations go forum-shopping for the most “bang for the buck”—that is, the least costly system that will still bring them consumer support and political cover from activists. Competition is also emerging among local, national, and international regulatory schemes, particularly within the European Union and between it and the United States. The result is a very mixed picture of who exactly contributes to global governance today.

The Issues to Be Governed

The issues of contract, property rights, and technical standards have been part of the international agenda for well over a century now, in one form or another. National governments, international organizations, and industry associations all have worked to develop the complex systems that govern commerce today. In the early development of transborder

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trade, merchants needed to establish rules of exchange, including those of contract and property. Debora Spar (2001) argues that during the early stages of commercialization of new technologies, the existing government rules rarely apply, and entrepreneurs strongly resist any new regulation. But once the market for a product widens and profits are high, initial innovators seek to protect their assets and turn to governments to establish property rights. The early stages of commerce also required an authoritative source for creating common standards, such as weights and measures, in order to facilitate exchange. Issues of coordination became crucial to the expansion of markets, and firms began to create standards, or lobby governments to create them. What has changed dramatically in the past decade, however, is that the new actors participating in global governance—the activist, nonprofit groups, often assisted by intergovernmental organizations—have put new issues on the international economic agenda. The new issues include a wide range of problems, such as gender equity, the digital divide, the environment, consumer protection, and privacy. There now exist interest groups focusing on each of these, and many other, issues. They can mobilize global coalitions in response to perceived crises, and have been increasingly effective in changing the international policy agenda. For instance, in the early 1990s, a few NGOs publicized the link between natural resources, the companies that profit from them, and the way that those resources funded bloody civil war in Africa. Today, a number of national governments and international organizations, including the UN, have become sensitive to the role of business in conflict and are encouraging conflict-sensitive business practices (Nelson 2000). In putting new issues on the international economic agenda, these activists have sought in many cases to link preexisting agreements and institutions to new issues. For instance, there has been significant pressure to use the GATT/WTO to enforce environmental and labor standards, although to date this pressure has been unsuccessful. The antiglobalization movement has sought to incorporate a variety of social justice issues into the debt and development programs and policies of the World Bank and International Monetary Fund. They have been especially insistent that the existing system of public international law, specifically in the trade arena, grants too many rights to global corporations—property rights, market access rights—while ignoring their responsibilities. As a result, the idea of corporate social responsibility— whatever its weaknesses in practice—has become an established feature of current debates over the role of the corporation in society (Broad and Cavanagh 1998).

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Global Governance and Corporate Power

There has been both continuity and change in the role of corporations in global governance. The continuity can be seen in the continuing importance of states, which have not retreated, as some would argue, but instead have chosen to participate in new forms of multistakeholder governance, or delegated authority to the private sector. The relationship between state and market, and between state and civil society, has of course evolved dramatically over the past two centuries, but public authority remains a vital element of global governance. The historical changes can be summarized in terms of three areas: the line separating public and private authority has shifted and blurred in different eras; the number of actors doing the governing has enlarged; and the kinds of issues over which governance debates revolve have expanded. These changes are significant because they affect the relative balance of power between corporations and society as they influence the political costs and benefits of different forms of governance. In most places and most times, it has been difficult to distinguish between public and private governance or authority over commercial affairs. Only in the recent past has there been a clear effort to distinguish the two clearly, while endowing them with separate responsibilities; this has allowed a clearer strategy of co-regulation, as each side’s role now has been more clearly defined. This has generated intense interest in determining the conditions under which private governance is efficient, effective, and valuable as compared to public governance. Most of this debate has centered on how the economy within a particular country should be regulated, but in recent years more people have become concerned about the issues raised by private governance internationally. Corporations extend their reach across national borders, and yet are rarely subject to traditional forms of international regulation. Nongovernmental organizations actively seek to develop new means of restraining corporate behavior, and have become an increasingly visible and influential element of global governance.17 They directly interact with the private sector—in negative or positive ways—to place new issues on the corporate agenda. Rules and their enforcement can come from anywhere today—governments at all levels, international organizations, firms and industry associations, civil society organizations, suppliers, and consumers (Haufler 2001; Tapscott, Ticoll, and Lowy 2000). Rules and standards that come from industry alone, without the participation of or enforcement by third parties, tend to be difficult to sustain when there is a high level of competition among corporations on a cost basis; however, they may

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be more easy to uphold when competition is based on quality considerations or reputation becomes a factor in competitive advantage (Salter 1999; Spar 2001). Private governance may only be a temporary solution to problems generated on the technological frontier; Spar argues that, given competition that undermines private governance, other types of governance must supplement it—by either government regulation or the dominance of a single private player (2001, 121). Indeed, industry initiatives tend to confirm the leadership of particular corporations, particular industries, and particular countries (Porter 1999). Most observers view enforcement as the traditional role of governments, a function that needs to be performed by public authorities. Yet today, some of the most innovative systems being developed rely upon other mechanisms—what might be called “soft enforcement.” Servicesector corporations, such as insurers, increasingly are incorporating political, social, and environmental risks into their decisions about contracts with other corporations, in essence regulating them and enforcing a particular behavior by the terms of that contract. For instance, manufacturers with strict environmental management systems in place may receive a better price for property and liability insurance. A variety of certification systems have been created by the private sector, by international organizations, and by NGOs to provide information to the public on corporate behavior. The Forest Stewardship Council, a multistakeholder organization, certifies sustainably managed forests and wood products, and can refuse to certify or decertify those who do not comply with its standards. When information privacy issues became a public concern, a number of nongovernmental organizations offered the service of certifying a website’s privacy policy. All of these mechanisms rely on consumers and citizens to respond to the signals being sent to reward those corporations behaving well and punish those behaving badly. Even governments have turned to this form of soft enforcement in some cases. For instance, the British government now requires those issuing securities to include political and environmental risks in their reports, and this transparency can be used to impose costs on corporations, in turn pushing them toward less risky behavior. Such soft enforcement suffers from its own problems, however. We still have relatively little data on exactly how effective enforcement through market incentives can be, although there is increasing evidence that consumers and investors respond to information about the social, environmental, political, and philanthropic activities of brand-name corporations. The power of this response still may not be sufficient to change the behavior of the most powerful corporations, which often can afford to ignore marginal costs and benefits. Governments may be the

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only real “countervailing power” against the modern multinational corporation, and in the eyes of many, the power of governments has been significantly weakened in this regard (Galbraith 1952; Mathews 1997). Industry self-regulation and multistakeholder regulation both suffer from the fact that they do not rest on any system of accountability, democratic or otherwise. The participants in creating and enforcing should be responsive to some public interest, which is not the case in these alternative forms of regulation—especially not internationally. Executives are responsive to their shareholders and boards of directors, and not to the general public. Activist groups may be responsive to their membership, but their membership by definition represents a narrow interest. International organizations suffer from a “democratic deficit,” since member states themselves are not always democratically elected. All of this undermines the legitimacy of even the most reasonable standards, rules, and enforcement procedures. Corporate power and influence can and do shape the nature of the governance systems in which they operate, even in the anarchic international environment. The participation of new actors in governance, and the creation by them of new and innovative governance systems for an expanded range of issues, forces us to rethink the nature of corporate power in a global information society. It challenges our view of governance as a function only of states or public authority, and undermines any assumption that global governance eventually will be supplanted by a global government. But these new actors and new issues raise questions about who should have the authority to design institutions of governance; what values those institutions should pursue; for whom we should pursue those values, including cross-generational and crossnational values; and whether the focus should be on outcomes or process (Wendt 2001, 1046). The current era is an unsettled one, in which corporations grow larger and more international, and their supply chains ring the globe and reach into every country and culture. Corporate scandals and misbehavior continually feature in media stories. And yet, at the same time, there are indications that public authority still has influence, and is increasingly supplemented and complemented by nonstate forms of governance.

Notes 1. The popular literature critical of the modern corporation is vast and ever-growing, as briefly discussed in Chapter 1. For some examples, see Greider 1997; Korten 1995; Klein 2001; Bakan 2004.

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2. James Rosenau and Ernst-Otto Czempiel’s edited volume (1992) on this topic was one of the first sustained treatments. More recently, see Hewson and Sinclair 1999; Rosenau 2000; Pierre 2000; and various issues of the journal Global Governance. 3. Peter Hirst (2000) has noted that the liberal democratic state, with its separation of state and society, no longer captures the nature of advanced democracies—and such a model rarely has taken hold outside of the industrialized world. See also Pierre 2000. 4. Scholars have theorized about the creation, maintenance, and efficacy of “international regimes,” but as one recent overview of the literature attests, the concept itself has multiple meanings (Hasenclever, Mayer, and Rittberger 2000). Relatively few scholars have theorized about the participation of private actors in those regimes (Porter 1993; Haufler 1997). 5. For an excellent analysis of the lopsided benefits of membership in the General Agreement on Tariffs and Trade, see Gowa and Kim 2004. 6. One of the central debates within international relations scholarship is over the degree to which the international system is anarchic. Realists view the world as one characterized by the lack of any central agency to police the behavior of states (Waltz 1979; Mearsheimer 1994). Liberals believe that cooperation among states can be fostered by institutions and international regimes, which provide an orderly framework for international transactions (Krasner 1983; Keohane 1984; Hasenclever, Mayer, and Rittberger 2000). Constructivists propose the growth of an international society in which norms regulate behavior, and relations and identity are constructed by interactions of actors (Wendt 2001; Finnemore and Sikkink 1998). 7. This distinction has been carried over and criticized in feminist scholarship (Peterson 2003) and currently has emerged in a different vein in debates over privacy issues in the information age (Alderman and Kennedy 1997; Agre and Rotenberg 1998). 8. For an excellent overview of this topic written for a popular audience, see Yergin and Stanislaw 1998. 9. Standards “reflect decisions about the acceptable design, capacities or byproducts of products, industrial processes, or technological systems” (Salter 1999, 101). Most technical standards address issues of design and capacity, while standards regarding by-products can include social or environmental concerns. 10. The debate over the so-called retreat of the state in the face of globalizing forces is ongoing. Some, such as Susan Strange (1996), argue that the state has been weakened, its sovereignty undermined, and its place in international politics reduced (see also Mathews 1997; Hall and Biersteker 2002). Others, such as Kenneth Waltz (1999), insist that the sovereign state is still the most powerful actor in world politics. 11. Statoil has committed to applying one set of labor standards to its operations around the world, and the standards it applies were negotiated as a global framework agreement with the International Federation of Chemical, Energy, Mine, and General Workers Union. 12. A number of chemical industry associations have adopted the Responsible Care program, which sets standards for how to handle toxic chemicals

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appropriately and how to inform the public when a toxic release occurs, as well as seeking to regulate aspects of health, safety, and environmental performance across the chemical and allied industries’ supply chains. Responsible Care was one response to the chemical disaster in Bhopal, India. 13. The literature on corporate social responsibility has blossomed in recent years, though most of it does not analyze the phenomenon from a regulatory or global governance perspective. For more on corporate social responsibility, see Chapters 11 and 12. 14. This in turn led to the idea of the “competition state” seeking to reregulate markets in ways that enhanced the competitiveness of states (Cerny 1990; Vogel 1996). 15. Governments also have experimented with government corporations that are hybrids of public and private sector characteristics, and thus do not fit neatly into common categories (Koppell 2003). 16. The only comprehensive analysis of international business regulation today is Global Business Regulation, the impressive book by John Braithwaite and Peter Drahos (2000) that emphasizes the role of informal norms and persuasive mechanisms as a significant element of global business regulation. 17. Some observers argue that the rise of NGOs presages the development of a still-nascent global civil society (Wapner 1996; Florini 2000), while others argue that it is unlikely that a truly global civil society can be created (Devetek and Higgott 1999).

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6 Shaping International Corporate Taxation Michael C. Webb

The growth of transnational business creates contradictory pressures for new forms of global governance. On the one hand, multinational corporations (MNCs) depend on international cooperation to create favorable conditions for business expansion, with this cooperation often taking the form of international regulation of government efforts to regulate business in the interests of other social actors. Global governance in this form—with international organizations mainly serving the interest of transnational business—is a key concern of the popular activist movement that has arisen to challenge such institutions as the World Trade Organization (WTO), the Group of Seven (G7), and the International Monetary Fund (IMF) in recent years. In scholarly debates about global governance, the argument often is identified with GramscianMarxist theorizing about “new constitutionalism,” whereby global governance mechanisms increasingly establish suprastate constraints on the freedom of national governments to respond to popular sentiment that runs contrary to the interests of transnational business. Underlying this view is a belief that the international structural power of mobile capital forces governments to adopt capital-friendly policies or else suffer capital flight (Gill 2003; Cox 1992). On the other hand, global governance also has the potential to deal with some of the problems for governments and other social actors created by the globalization of business. Liberal institutionalism looks to intergovernmental cooperation to restore effective governance in a variety of policy areas affected by rising trade and capital flows (Cooper 1968; Keohane 1984). Activists and scholars concerned about the ability of MNCs to escape national regulation often look to global governance for 105

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mechanisms to restore collective social influence over mobile MNCs and promote nonmarket values like human rights, social justice, and environmental protection. In contrast to arguments about the structural power of capital, this position reflects the belief that since MNCs depend on states to create conditions that enable global expansion, states ought to have leverage to impose conditions that serve state and public interests (Walter 1998; Weiss 1999; Pauly 2002). Enthusiasts for global civil society believe that improvements in education, the spread of liberal human rights values, new information technologies, and other trends associated with globalization enhance the ability of nongovernmental organizations (NGOs), social movements, and transnational networks to make global governance more responsive to the values and interests of noncorporate actors (Lipschutz and Fogel 2002; Rosenau 1990). Many observers identify an increasing role for private actors and private governance mechanisms as a distinctive feature of contemporary global governance (see Chapter 1). From a rationalist utilitarian perspective, private actors can be involved in strategic bargaining and their impact can be understood as helping to shape the incentive structures facing governments and nongovernmental actors. From a social constructivist perspective, private actors can be influential in normative deliberations that determine the appropriateness of alternative courses of action, whether these are NGOs and transnational social movements interested in social justice (Keck and Sikkink 1998) or business groups mobilizing around a hegemonic ideology (Gill 2003; Cox 1981). Ultimately, the form and character of private-sector involvement in global governance helps explain whether global governance serves primarily corporate interests or enables more effective regulation of MNCs to serve broader social interests. Corporate taxation is a particularly interesting area in which to explore questions about transnational business and global governance. Taxation is a central element of national sovereignty (Gilpin 2002, 240). However, the growing disjuncture between the territorial organization of political authority in sovereign states and the increasingly transterritorial character of contemporary business creates problems for governments at the same time as it creates opportunities (and some problems) for transnational business. Globalization makes it much easier for MNCs to avoid or evade national taxes. The key avoidance mechanisms include the manipulation of internal transfer prices to shift profits from affiliates in high-tax jurisdictions to affiliates in low-tax jurisdictions, and the use of tax havens to accumulate profits beyond the reach of home and hostcountry tax authorities. From a rationalist perspective, Organization for

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Economic Cooperation and Development (OECD) states have a common interest in cooperating to regulate tax avoidance. Nongovernmental activists seeking to regulate MNCs in order to promote social justice might be expected to support this cooperation, since corporate taxes are a relatively progressive way to finance government spending. On the other hand, globalization also can make cooperation more difficult, because it forces states to compete over shares of MNCs’ taxable profits and investments. While transnational business may not favor cooperation to regulate tax avoidance, it does favor cooperation to reduce double taxation. Double taxation occurs when two governments seek to tax the same profits without taking account of taxes paid on that income to other governments. MNCs have long lobbied for international arrangements to prevent double taxation and, more generally, to limit the taxing powers of national governments, and this interest has grown as corporations have become more multinational. These government, corporate, and social interests have contributed to a proliferation of international arrangements addressing corporate taxation, centered around the OECD. I use the term global governance to describe “global, regional or transnational systems of authoritative rule-making and implementation . . . among public authorities (states and IGOs) and private agencies seeking to realize common purposes or resolve collective problems” (Held and McGrew 2002, 9). At present, national governments still constitute the key level at which corporate tax governance is located, and some of the most important collective agreements and shared understandings at the international and global levels reinforce national fiscal sovereignty. There are no elements whatsoever of common tax policies (e.g., harmonization of tax bases and rates); cooperation is limited to managing problems that arise when national jurisdictions overlap, as in the case of double taxation. Use of the term global tax governance therefore does not imply that global arrangements are the most important elements of the system—though global influences are becoming more important—nor does it imply that all parts of the globe are included on an equal basis. Since corporate taxation necessarily involves states, it is not an area in which global governance could be substantially privatized. Nevertheless, the intimate involvement of MNCs and their tax advisers challenges traditional assumptions that interstate cooperation is driven by state interests and interstate bargaining. States have maintained legal sovereignty in corporate taxation, but most have been losing the practical ability to exercise sovereignty as corporations become more mobile and as informal norms about corporate taxation developed in the OECD become stronger.

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Ironically, the deep attachment to fiscal sovereignty serves mainly to prevent governments from adopting cooperative mechanisms that would enable them to assert taxing powers more effectively. In this chapter I argue that global tax governance is overwhelmingly oriented toward the interests of transnational taxpayers rather than governments or noncorporate NGOs, and that this is related to the key role that private corporate actors and allied private-sector tax experts play in global tax deliberations. MNCs’ material capabilities enable them to bargain effectively with governments, and private-sector tax experts are central players in deliberative processes that evaluate the normative appropriateness of government policies and shape the shared understandings that underpin transnational commerce. Crucially, MNCs take advantage of their transnational character to minimize their vulnerability to government regulation, yet revert to a national identity when needed to gain home government support in disputes with foreign governments. Most of the private actors involved in international tax deliberations come from the corporate sector, including transnational accounting firms and legal firms that provide tax advice to MNCs. International taxation is technically complex, and the expertise of private-sector tax professionals gives their views an aura of authority in international tax deliberations, just as the difficulty of developing this expertise helps to exclude nonexperts from those same deliberations.1 These private actors have been intimately involved in the development of offshore financial centers (OFCs) and tax havens; indeed, the links with government authorities in the OFCs are close enough to call into question the traditional distinction in international relations theory between the state and the private sector (Mitchell and Sikka 1999). Transnational business associations are also highly active, most importantly the OECD’s Business and Industry Advisory Council (BIAC) and the International Chamber of Commerce (ICC), which often work together on tax issues. The BIAC attempts to formulate common positions based on input from national business associations in OECD member countries, and can be an influential voice when national groups are in agreement—as they are in opposition to restrictions on international tax avoidance. Close cooperation between international organizations, governments, and transnational business exists in a variety of regulatory areas, but this cooperation is especially paradoxical in the case of global tax governance. Whereas governments and transnational businesses have common interests in areas like prudential bank regulation (neither wants to see the financial system collapse because of imprudent lending), common interests are much less prominent in the case of corporate taxation. Corporations and their tax advisers want corporate taxes to be as low as possible, on the assumption that governments could finance the

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spending that benefits transnational business with other kinds of taxes. Governments, in contrast, want to collect corporate taxes because they contribute a modest but important share of total government revenues, and alternative taxes are unpopular among voters. Thus transnational business has gained an important role in governing itself in an area in which business influence necessarily tends toward minimizing effective regulation in the interest of states. The virtual absence from global tax deliberations of nongovernmental advocates of any position other than that of corporate taxpayers might seem surprising, since corporate taxation is important for achieving the goals of social activists. Domestic groups in the United States and other countries have drawn attention to international corporate tax avoidance and evasion and have demanded stronger national tax laws and stricter national enforcement. At the transnational level, anticorporate groups often are critical of tax havens and tax breaks for MNCs (ATTAC 2000; World Social Forum 2001), but have rarely become involved in OECD tax deliberations. The OECD does not consider these groups to be part of the tax policy community it must consult, and many critical NGOs are not interested in working with the OECD. Activists tend to see the OECD, like the IMF and WTO, as an institution that threatens national measures to promote social justice, not as a potential guarantor of social justice. Critical NGOs also have great difficulty developing the expertise needed to engage effectively in debates about international corporate taxation, in part because the discourse of experts presumes acceptance of the normative principles associated with existing systems for international corporate taxation, and groups from civil society are likely to find those underlying principles unacceptable. The European Social Forum held in Florence in November 2002 led to the creation of the Tax Justice Network, involving activists and academics concerned about tax havens and tax competition (Tax Justice Network 2003), but this initiative came after most of the developments examined in this chapter. And even though the Tax Justice Network certainly includes individuals with the expertise needed to engage effectively in international tax deliberations, their normative commitments mean that any attempts to influence international tax governance will come from the outside, in contrast to the privileged insider position of privatesector tax experts employed by MNCs.

Case 1: Regulating Transfer Pricing

Governments of the major home and host countries have been meeting since the 1920s to devise international arrangements to avoid double

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taxation of corporate profits. By the 1930s, most governments had agreed informally on a division of taxing authority whereby host countries (also known as “source” countries) would tax foreign-owned companies only on the profits earned within the host country’s territory. Home countries (also known as “residence” countries) could choose to tax the global profits of MNCs based within their territory, but were supposed to grant tax credits for taxes already paid to source countries on those profits. Thus the disjuncture between the cross-border organization of some businesses and the territorial organization of political authority was resolved by attempting to divide MNCs for tax purposes into units that corresponded to national political territories. This made sense when foreign direct investment (FDI) was a minor adjunct to national industry (Webb 1995). In 1963 the OECD codified evolving understandings in its “Draft Convention on Double Taxation of Income and Capital,” which served as a model for bilateral tax treaties. This specified that the part of an MNC operating in the territory of a country should be taxed as “if it were a distinct and separate enterprise” independent of its international affiliates, and MNCs were expected to produce separate national accounts for each country in which they operate (OECD 1963, Article 7, para. 2). Prices for intrafirm international transfers of goods and services are a critical element in the calculation of the profits that MNC affiliates earn in each national jurisdiction in which they operate, and firms are supposed to set transfer prices equal to the prices that would exist for equivalent transfers between independent firms operating at arm’s length. This is generally referred to as the “arm’s-length method” (ALM). The ALM is vulnerable to the artificial manipulation of transfer prices to shift profits from high-tax to low-tax jurisdictions, but in 1963 the OECD believed that this problem “should not be given undue weight. Much more importance is attached to the desirability of interfering as little as possible with existing business organization and of refraining from inflicting demands for information on foreign enterprises, which are unnecessarily onerous” (OECD 1963, commentary on Article 7, para. 9). The growth of FDI caused many governments to reassess this balance, and to attach greater weight to the problem of income shifting. Furthermore, as MNCs developed more tightly integrated global production processes, it became more difficult to calculate meaningful arm’s-length prices for intrafirm transfers, especially since many are unique and involve intangibles. The key alternative to separate national accounts based on the arm’slength method is a system that would allocate shares of the total global

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profits of an MNC to the different national jurisdictions in which the firm operated according to some formula for measuring the contributions to the total profit made by each affiliate. However, proposals for unitary taxation (also known in the OECD as global formulary apportionment) are strongly opposed by transnational taxpayers and most private-sector tax experts. Unitary taxation would severely constrain opportunities for international tax planning. A move from the current system to unitary taxation also would require a high level of international cooperation to avoid creating double taxation and conflicts among tax authorities (OECD 1995, paras. 3.64, 3.66). By the mid-1980s, the arm’s-length method had become institutionalized at a variety of levels. The OECD issued detailed guidelines for implementing the ALM method in 1979 (OECD 1979), claiming that these guidelines reflected agreed international practice, although only the US Internal Revenue Service (IRS) actually used the methods specified in the report (Langbein 1986, 651–652). Outside the IRS and the OECD’s own committees and documents, institutionalization of the ALM was strongest in the transnational tax service industry. Tax experts working on behalf of MNCs favor the arm’s-length method as the best way to avoid double taxation and maximize taxpayers’ freedom to assign transfer prices that meet their individual needs. Private-sector tax experts consistently identified the ALM as the international norm, even when few governments were actually using it. Their status as experts in a field of great technical complexity bestowed an aura of authority on their views. The arm’s length method came under challenge in the mid-1980s in response to the growth of MNCs and the development of tightly integrated global production processes. In a series of publications between 1986 and 1992, the US Treasury Department and the IRS proposed moving toward a system based more on assessing the appropriateness of the division of profits among MNC affiliates rather than on comparing transfer prices to supposed arm’s-length equivalents. Officials were concerned that US-owned MNCs were transferring high-value intangibles like trademarks, patents, and other intellectual property at very low prices to manufacturing subsidiaries located in low-tax foreign jurisdictions, including tax havens. The profits generated by the transferred intellectual property would then be accumulated abroad, largely beyond the reach of the IRS (US Treasury and IRS 1988). Japanese and other foreign-owned MNCs also were accused of overpricing imports from their overseas parents to reduce the profits of their US affiliates, thereby reducing corporate income taxes paid in the US by billions of dollars (Webb 2001).

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In order to ensure a more favorable division of taxable profits in the case of transfers of intellectual property, the US Treasury Department and the IRS proposed that the profit attributable to intangibles should be assigned to the parent firm and taxed in the United States (US Treasury and IRS 1988). To address alleged underreporting of US profits by foreign firms, US tax officials developed a new “comparable-profits method” (CPM), which would determine transfer prices by attributing to a firm the profit level that other comparable firms reported and then setting prices to achieve that profit level, rather than (as before) by estimating the price that such a transfer would command in an open market (Webb 2001). Recognizing that the arm’s-length method was the international norm (US Treasury and IRS 1988, 58), the Treasury Department and IRS framed the new proposals as minor modifications of that method rather than contesting its validity, even though their proposals reflected fundamental problems with the ALM in an era of corporate globalization. Transnational taxpayers and their tax advisers were sharply critical of the US proposals, alleging that the proposed methods were inconsistent with existing international norms. The ICC claimed that the new method for pricing intangibles was nothing but another form of unitary taxation . . . : instead of looking at the actual prices charged between related entities, it looks at the total profits earned by a number of entities and divides them up by reference to criteria determined by academic economists with no experience of the real business world. In an international context this inevitably leads to double taxation [and] would be directly contrary to [the OECD’s] 1979 report . . . which expressly condemns such “global” methods of allocating profits. (ICC 1989, 115)

In the ICC’s view, the arm’s-length method was “the only appropriate and legitimate approach for determining intercompany transfer prices” (ICC 1992, 414, 417). The possibility of double taxation existed because even when all tax authorities use the arm’s-length method, disputes can arise if different tax authorities use different transfer prices to determine the profits of an MNC’s operations in each of their countries. According to the mutual agreement procedures defined in bilateral tax treaties, representatives of each national tax authority should try to negotiate a settlement in which one or both would make so-called corresponding adjustments to their determination of transfer prices to eliminate double taxation (OECD 1996, Articles 9, 25). If the United States adopted a profit-based method, the number of disputes would increase and they would be harder to

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solve, since different authorities would be using different methods to determine an appropriate division of profit (Birnkrant and Crocker 1994, 269). A breakdown of informal cooperation among national tax authorities would create major problems for US-owned MNCs, especially if foreign tax authorities retaliated against the United States by auditing those firms more intensely.2 Of course, underlying all of the business criticism was the concern that the US proposals would limit MNCs’ freedom to set transfer prices to shift profits from high-tax to low-tax jurisdictions. Commentaries from tax practitioners emphasized the wide range of possible business justifications for transfer prices that might not meet the CPM test (see, for example, ICC 1992). By framing the proposals as a challenge to an existing international norm, private actors put the US government on the defensive. US authorities would have preferred a frame which depicted the proposals as minor modifications of existing international norms in response to new opportunities for aggressive tax avoidance, identifying foreign governments as allies of US tax authorities in the face of common transnational challenges. But private-sector opponents persuaded other OECD governments to accept their framing of the issue and to oppose the US proposals (interviews with European tax officials, June 1999). OECD officials were sympathetic to the business perspective, in part because the US proposals threatened the consensus the OECD had helped develop. Governments in Europe and Japan also believed that the US proposals posed a threat to their own revenues. If the IRS adjusted transfer prices to increase the share of an MNC’s global profits and taxes that had to be declared in the United States, this would reduce profits declared outside the United States. Furthermore, the penalties that the United States planned to introduce for firms which violated the proposed regulations were seen to create an incentive for MNCs to overreport income in the United States and underreport income abroad (Boidman 1995). Either phenomenon could reduce the tax revenues of foreign governments, though most of the profits reassigned to the United States would come from tax havens that did not levy corporate income taxes rather than from other OECD countries. The OECD’s Committee on Fiscal Affairs established a special task force to review the proposed US regulations and formulate a joint response, an indication of the seriousness with which other governments and MNCs viewed the US threat. The task force also consulted with the ICC and BIAC, which voiced transnational business’s strong opposition to the proposed regulations. The task force accepted private-sector critics’ arguments that the US proposals were inconsistent with the existing international norms and that this inconsistency could lead to double taxation

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and disrupt international commerce. A striking feature of the report is its wholehearted advocacy of the perspective of transnational taxpayers seeking maximum flexibility to determine transfer prices to suit their own purposes, free from the demands of tax authorities (OECD 1993, esp. 25–40). A reader could easily forget that the officials who drafted this report were themselves from tax-collecting agencies. This demonstrates an advantage transnational taxpayers derive from the disjuncture between the national-territorial division of tax jurisdiction and the transnational spread of contemporary business; not only can taxpayers take advantage of cross-national differences in tax systems to reduce their tax burden, but they can also still appeal to nationalism when convenient to persuade their home-country government to act as their advocate in debates with foreign governments. The persistence of nationalism ensured that a state-versus-state frame prevailed over a states-versustaxpayers frame in international deliberations. The perception that the US proposals were inappropriate meant that the onus for tax disputes and double taxation caused by the new methods would fall on the United States. This was an uncomfortable prospect for the US government, given its identity as the leading advocate of freedom for transnational capital. Consequently, the US Treasury decided to seek a compromise that would retain some elements that might improve enforcement of arm’s-length pricing while dropping those features that were least consistent with international norms (interviews with US Treasury officials, March 1997; Hay, Horner, and Owens 1994, 510). New regulations announced in 1993 abandoned the strict profit-based approach specified in the earlier proposals in favor of a revision of the arm’s-length method that provided greater flexibility for taxpayers in setting and defending transfer prices—the opposite of the original intent of US tax authorities—but that demanded more extensive documentation from MNCs to justify their choice of transfer-pricing methodologies. The new regulations specified a “best-method rule,” which provided that the method that produced the most “reliable” arm’s-length value for a transaction should be used. The comparableprofits method was now listed as just one of the possible methods that the taxpayer could use (Birnkrant and Crocker 1994, 268–270). The US retreat was followed soon after by a major revision of the OECD’s Transfer Pricing Guidelines that made them more favorable to taxpayers, no doubt reflecting the extensive involvement of taxpayer representatives in the discussions that produced the guidelines (Hay, Horner, and Owens 1994, 510; Financial Times, July 9, 1994). The new guidelines reaffirmed the arm’s-length principle as the key international norm, and emphasized the need to focus on pricing of specific transactions

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rather than on assessments of overall profit levels (OECD 1995, esp. chap. 1). At the same time, they defined two new profit-based methods to be used as a last resort in cases for which comparable arm’s-length prices could not be found (OECD 1995, paras. 2.49, 3.2). The transactional profit-split method attempts to estimate how the profit attributable to specific transactions would be split among firms operating at arm’s length, and had been used informally to resolve difficult transfer-pricing disputes. MNCs often favored an informal profit-split approach because it provided them with additional flexibility in justifying particular transfer prices, even though they thoroughly rejected methods like unitary taxation (Picciotto 1992, 211–212; Ernst and Young 1996, “Documentation Methodology,” 1). The other profit-based method acknowledged in the 1995 guidelines is the transactional net-margin method. This resembles the CPM proposed by the United States in 1992, except it uses comparisons of profits from specific transactions to price those transactions, rather than assessing aggregate corporate profits (Casley 1999; OECD 1995, para. 3.2). The new guidelines paid careful attention to concerns expressed by transnational taxpayers. They encourage tax authorities to accept taxpayers’ business judgments as the basis for pricing intrafirm transfers, and emphasize that there are good reasons other than tax avoidance why firms might declare unusually high or low profits in particular jurisdictions (see, for example, OECD 1995, paras. 1.2, 1.4, 1.5, 4.9). The intent to regulate tax authorities more carefully was reflected in a change in title to state that the guidelines were for “tax administrations” (the previous title merely referred to “transfer pricing and multinational enterprises”), and they devoted as much attention to defining what is not acceptable as they did to defining acceptable measures. Again, a reader might not realize that the document was written by tax officials. However, the new guidelines did not meet all taxpayer demands. Transnational business has long favored binding international mechanisms to resolve double-tax disputes and discipline national governments’ use of methods inconsistent with international norms (Herndon 1932, 26; ICC 2004), but the guidelines rejected binding commitments in the interests of “maintaining the fiscal sovereignty of each OECD member country.” Tax authorities were merely encouraged, but not required, to reach agreements to relieve double taxation (OECD 1995, paras. 4.35 [quote], 4.171). Most OECD governments soon introduced new national regulations modeled on the OECD guidelines, in part to discourage MNCs from overreporting income in the United States. But the elaboration of global tax governance mechanisms has done little to improve the ability of public authorities to prevent corporate tax avoidance. Some tax specialists

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suggest that, given the emphasis on flexibility and accepting business judgment, “corporate taxpayers will now be able to take more aggressive international tax positions, realizing that so long as the position staked out can be explained with basic legal and economic reason and it is contemporaneously documented the new harsher penalties can be completely avoided” (Bonfiglio 1995, 13; see also GAO 1995, 4; interview with tax lawyer, March 1997). Consistent with this, a survey of MNCs by transnational accounting firm Ernst and Young found that 44 percent of the respondents had discovered “tax planning opportunities” (a euphemism for ways to avoid taxes) as a result of their efforts to meet the documentation requirements (Ernst and Young 1996, “Documentation Issues,” 1, 3). Given the role that transnational tax service firms play in assisting tax avoidance, it is deeply ironic that the new tax governance mechanisms actually transfer some of the administrative burden to privatesector tax professionals. US regulations encourage taxpayers to draw on outside experts, such as tax accountants, lawyers, and economists, in preparing their transfer pricing methods and documentation. Officials hoped that involving tax professionals would lead to greater voluntary compliance by taxpayers (Lyons 1996, 101), but it is more likely to help firms minimize their taxes legally. Attempts to transfer the administrative burden to the private sector reflect the fact that international tax governance has become incredibly complex. The complexity arises out of taxpayers’ demand that the method in question be tailored to their specific circumstances, and out of the need (inherent in the arm’s-length method) to pay attention to the specific facts and circumstances of each case. It is difficult to imagine how even the largest tax administration could effectively audit the tens of thousands of MNCs in operation today. While conclusive evidence is difficult to find, recent investigations suggest that MNCs have gained considerable flexibility to determine transfer prices in ways that help them minimize taxes (Plender and Simons 2004; Roberts and Silverman 2004; Wright 2001). On the other hand, some companies singled out for investigation have found themselves facing higher taxes and double taxation (see, for example, Dyer and Firn 2004). Recent OECD work on transfer pricing has attempted to address these and other administrative problems (Owens 2002; OECD 2004b), but has not addressed the underlying political problems. These administrative and political problems ultimately stem from the attempt to make highly integrated MNCs resemble independent national enterprises operating at arm’s length. This defies the logic underlying the

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expansion of transnational business, which is to capture benefits that cannot be captured by independent enterprises operating at arm’s length. More effective alternatives to the traditional method based on determining arm’s length prices for specific transactions would involve treating taxpayers in a more unitary fashion, but the taxpayers and private-sector tax experts have succeeded in defining and entrenching the ALM as the international norm. Overall, the case of transfer pricing reveals how MNCs and their tax advisers helped define international norms and then used those norms to defeat a measure that would have been contrary to their interests. MNCs have taken advantage of the disjuncture between the national-territorial division of political authority and the transnational integration of their own economic organizations both to shift income to lower-tax jurisdictions and to get national tax authorities to act as their advocates in disputes with foreign governments. The continuing strength of nationalist sentiments enables MNCs to frame issues like taxation in terms of state-versus-state conflicts rather than in terms of states-versuscorporations. MNCs can benefit from corporate globalization, yet can also revert to their national identities when needed. For their part, governments are handicapped by the entrenchment at the global level of a corporate tax system that both divides MNCs into artificial units corresponding to national political jurisdictions and limits individual governments’ abilities to adopt more effective approaches to international taxation.

Case 2: Tax Havens

The most important benefit tax havens offer MNCs is the opportunity to establish so-called fictional residence—that is, legal residence separate from the physical location of investments.3 Fictional residence is the basis for much international tax planning, which aims to divert profits earned by operations in countries that levy corporate income to related entities located in tax havens, even though the latter usually contribute little or nothing of value (hence “fictional”). Artificial transfer prices and interest payments on loans from tax-haven affiliates to affiliates in high-tax countries are common techniques for shifting income (interest payments usually can be deducted from taxable earnings in high-tax countries). In addition, MNCs based in home countries that tax the global income of resident corporations can hold income earned outside their home country in tax-haven subsidiaries rather than repatriating the

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income to the home country, or can establish nominal corporate headquarters in the tax haven in order to avoid being considered a resident of their actual home country. Most OECD governments have developed national regulations to limit MNCs’ ability to shift profits to tax havens, but with limited success. The regulations are complex and full of loopholes that enable tax avoidance (Picciotto 1992, 91; Webb 2004). The weakness of national rules reflects, in part, a collective action problem. Taxpayers argue that strict regulations would put them at a disadvantage vis-à-vis their competitors in other OECD countries, and this argument often finds a sympathetic hearing among governments that want to assist the overseas expansion of national business.4 Before the mid-1990s, OECD governments had done little to persuade tax havens to stop assisting international tax avoidance, despite the impact on rich-country tax revenues. From a state-centric perspective, it is remarkable that high-tax countries have been so tolerant of tax havens—most of which are tiny in every respect except the nominal size of their financial sectors. In contrast, leading Western countries have had little hesitation about using their economic power to force smaller countries to alter economic policy in other areas such as government subsidies, trade barriers, and intellectual property. Two special features of tax policy account for the weakness of action against tax havens. First, there is no transnational business constituency in favor of combating tax havens. MNCs and their tax advisers benefit from tax havens and vehemently oppose rich-country efforts to discipline tax havens, as we shall see below. In contrast, there is strong business support for international measures to prevent national governments from subsidizing local firms or protecting local markets and to force governments to protect corporations’ intellectual property. Second, the traditional association of taxation with sovereignty discourages attacks on tax havens by making governments unwilling to treat the tax policies of foreign governments the same way they treat most other kinds of economic policy. Taxation’s special status enables what Ronen Palan (2002) calls the “commercialization of sovereignty.” Tax havens have used their legal right to produce tax legislation as a source of international commercial advantage, whereas states that have tried to use nontax policies for international commercial advantage have met effective foreign resistance. Nevertheless, tax havens became a target of OECD concern in the mid-1990s as the growth of capital mobility and transnational business increased the threat to government revenues.5 The OECD’s 1998 report on harmful tax competition (HTC) did not target all countries with low

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or no income taxes, since that was considered a legitimate choice for a sovereign government to make. Instead, three factors would indicate whether a low-tax jurisdiction constituted a tax haven: inadequate provisions for exchange of information with foreign tax authorities; a lack of transparency; and the absence of a requirement that entities receiving special tax treatment conduct substantial activity within its jurisdiction (OECD 1998a, 22–24). The third criteria meant that the OECD was directly targeting the ability of havens to offer fictional residence, thereby launching a potentially fundamental challenge to the existence of the havens and the transnational tax-planning industry. The Forum on Harmful Tax Practices, established to follow up on the 1998 report, quickly identified forty-one jurisdictions that met the tax-haven criteria and appeared to be moving toward coordinated sanctions against them. Lacking the material capacity to threaten retaliation, the havens instead attacked the HTC project on normative grounds—as an attack on their sovereignty, as an unfair use of the OECD countries’ power to bully small developing countries, and for the double standard implicit in the OECD’s refusal to subject member countries like Switzerland and Luxembourg to the same standards being demanded of nonOECD tax havens (Persaud 2001). Transnational actors did not participate in the deliberations that produced the 1998 report, because governments chose not to consult with them. Those governments that wanted to limit HTC knew that business would be hostile to that goal (interviews with OECD and government officials, June 1999 and September 2000). But transnational business insisted on a central role after 1998. Most private-sector tax experts were sympathetic to the normative claims made by the havens. The transnational tax service industry has developed a lucrative business helping taxpayers use havens to avoid rich-country taxes. The OECD’s intent to coordinate antihaven regulations was especially threatening to transnational taxpayers because, if implemented, it would undermine business’s international structural power; firms would be unable to argue against national antihaven measures on the ground that those measures would put them at a disadvantage relative to foreign competitors. Consequently, business opponents relied heavily on normative arguments against the HTC initiative, as had the havens. The OECD’s BIAC claimed that it was legitimate for businesses to consider tax differentials in planning and structuring their investments, and accused the OECD of creating new barriers to international commerce (BIAC 1998, 2–4, 6). Business opponents also defended national fiscal sovereignty, since fiscal sovereignty is an essential basis for the international structural power of transnational capital. They also expressed a laudable—if

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scarcely credible—concern for the sovereignty and economic development of the tax havens (BIAC 1998, 1–3). But transnational business did not object to all aspects of the OECD report. The BIAC claimed not to be opposed to measures to combat “tax fraud,” and accepted efforts to improve transparency and information exchange (BIAC 1998, 1, 4, 6). Tax fraud and secrecy could scarcely be defended in terms of liberal ideology. Why did the views of the transnational business community matter so much? In part this was simply an instance of corporate lobbying, with governments responding to the concerns of powerful private actors. But it also reflected the character of the OECD as an institution. Private-sector tax experts had worked closely with OECD officials to develop such measures as transfer-pricing guidelines, and the business community has been an important ally for the OECD in persuading governments to adapt national policies to those guidelines. This relationship gave the OECD an institutional interest in not alienating transnational business and private-sector tax experts. More generally, since the OECD works by means of consensus, proponents of OECD action must ensure that no vocal group is hostile (interviews with OECD and national tax officials, June 1999 and September 2000). Consequently, OECD officials consulted closely with business representatives after 1998 and made concessions to those business criticisms that resonated most strongly with the OECD’s liberal economic ideology. These concessions were reflected in an article that the OECD’s key tax official coauthored with the key BIAC expert on taxation (Hammer and Owens 2001). The fact that the OECD felt a need to develop a joint statement with BIAC testifies to the remarkable influence business groups have over governance arrangements nominally intended to regulate business. Richard Hammer and Jeffrey Owens wrote that “there is a need for better communication between business and government and, in particular, a more inclusive attitude on the part of governments toward the views of the business community” (2001, 4). The most important concession made by the OECD was to narrow the focus of antihaven measures to illegal tax evasion alone. According to the HammerOwens article, “we must try to eliminate non-compliance with tax laws. This should be done without limiting the ability of taxpayers to engage in legitimate tax planning” (2001, 2). Thus the OECD abandoned its earlier demand that havens stop offering tax residency to firms with no substantial business activity. Instead, it now only demanded that tax concessions offered to offshore businesses also be made available to domestic firms in the tax havens. The OECD’s retreat from challenging fictional residency also reflected normative pressure from the havens and their ability to gain sympathy from some Western foreign ministries.6

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Nongovernmental organizations opposed to procorporate globalization were notable by their absence from debates about the OECD’s proposals. Most of the critical activist literature on tax havens barely mentions the OECD campaign (for a rare exception, see Oxfam 2000), and there is no evidence that such groups were consulted by the OECD or member governments. Activists have little sympathy for the liberal economic arguments used by the OECD to justify its attack on tax havens. In fact, Oxfam recommended that international cooperation against tax havens “should have poverty reduction and human development goals at the centre” (Oxfam 2000, 17), goals that were entirely absent from the OECD project. Despite support from transnational business, by 2000 the havens had not persuaded the OECD to completely abandon its initiative. Consequently, some havens decided to reach an accommodation with the OECD. The so-called cooperative jurisdictions hoped that gaining the OECD’s seal of approval would help them attract more valuable kinds of financial business to offset the loss of business previously attracted by opportunities for illegal tax evasion. Improving transparency and information exchange would mainly affect the personal income tax side of the havens’ business. New opportunities, many felt, could be found in providing tax planning opportunities to MNCs (Cameron 2002; Peel 2000a)—especially after the BIAC persuaded the OECD to accept the legitimacy of international tax planning. The calculations made by “cooperative” havens reveal the centrality of private actors to global governance in a different manner. Many havens lost business after the OECD’s 1998 report (Sharman 2004) and were afraid that if they were seen not to be cooperative, they would continue to lose business even if the OECD countries never managed to agree on coordinated sanctions. Havens must work hard to establish a trustworthy reputation if they wish to attract mobile financial business (Hudson 1998; Cobb 1999). Prolonged conflict with the OECD would threaten their reputations, and private firms that continued to operate in noncooperative havens risked undermining their own reputations. This risk is especially serious for large firms with valuable brand names (Cameron 2002; Kelly 1999; Peel 2000b). This parallels the dynamics of consumer activism celebrated in Naomi Klein’s book No Logo (2001); corporate consolidation and the increasing importance of branding ironically increases the ability of nonstate actors to influence business’s behavior by threatening their reputations, even if there are no government regulations prohibiting that behavior. At the same time that many havens were beginning to abandon the confrontational approach, the OECD itself was shifting back to its

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traditional consensual approach, seeking to build a dialogue with transnational business and the tax havens rather than confront them with demands for changes. Then, in 2001, US private-sector lobbyists persuaded the Bush administration to oppose all aspects of the initiative except the demand that tax havens share more information with tax authorities in OECD countries.7 The US coalition against the HTC initiative included mainstream right-wing think tanks like the Heritage Foundation (Mitchell 2000), but was led by a group called the Center for Freedom and Prosperity, formed for this purpose and funded by unnamed wealthy individuals and companies (Giridharadas 2001; Center for Freedom and Prosperity 2002). Anti-OECD forces were guided by a libertarian antitax, antigovernment ideology shared by members of the George W. Bush administration. Despite their sharp criticism of the new US approach, OECD officials and governments that cared more about tax competition could not go ahead without the United States, and had to agree to scale back the project even further from its original goals. The impact of the change in US policy can be seen in the OECD’s 2001 progress report. The goal had become to “promote tax competition” while “combating anti-competitive . . . practices designed to encourage non-compliance with the tax laws of other countries” (OECD 2001d, 4). This was very similar to the position articulated by the BIAC in 1998. The earlier demand that tax havens stop offering tax advantages to investors that did not conduct substantial business activities within their jurisdiction was abandoned. Instead, the OECD was now demanding only that havens make their systems more transparent and agree to share information when requested by foreign tax authorities for civil and criminal tax investigations (OECD 2001d, 9–11). Greater transparency and information exchange could reduce opportunities for personal income tax evasion by wealthy investors from OECD countries. However, they will have less impact on MNCs’ ability to avoid taxes. Most major corporations do not use havens to illegally hide income from national tax authorities, though some of the accounting scandals of recent years (e.g., Enron, Tyco, Parmalat) have involved illegal activity in tax havens. More commonly, corporations use the opportunities that havens offer for tax planning rather than tax evasion. Those opportunities, in turn, result from features of the tax havens’ tax systems that the OECD had originally targeted with its “no substantial activity” criteria. US opposition to restrictions on the ability of havens to offer these opportunities means that the OECD project will do little to protect governments from harm to corporate tax revenues caused by tax havens.

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Most of the tax havens decided to cooperate with the OECD after the initiative was scaled back. By April 2002, only seven of the jurisdictions originally identified as tax havens were still not cooperating with the OECD (OECD 2003c). The willingness of most to cooperate reflected the fact that the OECD’s conditions were no longer onerous. Tax havens could continue to offer tax breaks to foreign investors as long as they did so in a transparent manner, and would be held to their commitments on transparency and information exchange only if Switzerland and Luxembourg accepted the same conditions (OECD 2001d, 10; Antigua and Barbuda 2002). The OECD therefore made some progress on transparency and information exchange. Between 2002 and 2004, it held a series of meetings with tax havens under the auspices of a newly created Global Tax Forum to discuss mechanisms for achieving these goals. Agreement was reached in June 2004 on changes to the information exchange provisions of the OECD’s Model Tax Treaty, and cooperating havens are expected to incorporate these provisions into tax treaties with OECD countries (OECD 2004a, 2004d). However, Luxembourg, Switzerland, Austria, and Belgium rejected the new model tax treaty provisions that challenge bank secrecy (see OECD 2004a, paras. 23–26). Tax havens like Luxembourg and Switzerland define tax evasion more narrowly than other OECD countries and are willing to exchange information only in limited circumstances, typically those involving actions that are fraudulent under their own laws as well as those of the country seeking information. The four European opponents of information exchange had persuaded the European Union to adopt a directive on the taxation of savings that allows them to impose withholding taxes on earnings paid to foreign investors rather than to share information with those investors’ home-country tax authorities, and are now insisting on the same principle at the OECD (Parker 2003, 2004a, 2004b). The opposition of four OECD countries makes it unlikely that non-OECD tax havens will face coordinated sanctions if they fail to exchange information, though most havens outside the OECD continue to feel pressure to conform to the OECD’s expectations and maintain their reputations in the transnational financial community (Parker 2003). MNCs and their tax advisers played a critical role in reducing the relatively ambitious attack on corporate use of tax havens outlined in the 1998 report to this modest improvement in provisions for information exchange. MNCs provided a sympathetic audience for the normative claims of the tax havens, helping to persuade the OECD and key member governments that the original plans were inappropriate. Transnational

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business’s hostility to the original attack on harmful tax competition also posed a threat to the OECD as an institution, and encouraged OECD officials to revise the HTC project to remove the features most strongly opposed by transnational business. These mechanisms of private influence coexisted with more traditional lobbying efforts that helped persuade the US government to withdraw support from a key element of the original HTC project. On the other hand, MNCs concerned about their reputations also helped persuade the tax havens to agree to exchange information with rich-country tax authorities even in the absence of OECD sanctions.

Conclusion

The pattern of global tax governance produced by the deliberations examined in this chapter is clear; international arrangements serve mainly to regulate government efforts to police international corporate tax avoidance, not to regulate tax avoidance itself. International cooperation is significant mainly in areas of interest to transnational taxpayers, including agreements to limit double taxation and harmonize national rules on transfer pricing in a fashion favorable to taxpayers. The most important constraints on national fiscal sovereignty that do exist are informal norms developed in the OECD, and their main orientation is to discourage governments from adopting strict national regulations that would limit MNCs’ tax-planning opportunities or cause double taxation. The only cooperation to restrict tax avoidance or evasion takes the form of information sharing in specific cases in which a national tax authority suspects that a particular taxpayer is evading taxes. Thus international cooperation regarding corporate taxation primarily serves the interests of transnational taxpayers, not those of national fiscal authorities. This pattern of international tax cooperation is quite consistent with neo-Marxist arguments about international cooperation serving to constrain governments’ freedom of action in the interests of transnational capital (e.g., Stephen Gill’s discussion [1998] of “new constitutionalism”). MNCs do depend on governments to set rules that enable international commerce, in this case rules to mitigate double taxation and other tax-related obstacles to trade and capital flows across national borders. As liberal and statist approaches suggest, this dependence of corporations on states could give states leverage to respond to pressures from other social forces that favor corporate taxation and stricter rules against tax avoidance and evasion. But there is little evidence to suggest that this has occurred.

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The nature of nonstate actors’ involvement in global tax governance helps account for the peculiar and biased character of the arrangements. MNCs and their tax advisers are integral parts of governance processes. Corporate lobbying about taxation is intense and continuous at the levels of national governments and the OECD. But the involvement of corporate taxpayers and private-sector tax experts goes beyond traditional lobbying, understood as the application of outside pressure by private actors on public authorities. Some public actors—especially governments in tax havens—are so closely involved with private-sector tax advisers that it does not make sense to view them as public authorities acting in the public interest. Beyond this extreme case, private-sector tax experts are key participants in the normative deliberations in which the most important tax governance arrangements are developed. Their influence reflects both their connections to powerful corporate actors and their status as experts in a field of considerable technical complexity. Private-sector involvement in global tax governance can be traced back to the 1920s and 1930s, when the International Chamber of Commerce and private experts had a major impact on the basic structure of international tax governance (Webb 1995). Governments were willing to grant private actors a leading role at that time because the revenue stakes were small (given the limited amount of FDI) and most governments lacked expertise in international tax issues. Favorable tax treatment undoubtedly facilitated the growth of MNCs after World War II, and continues to do so today. But by the 1990s, the revenue stakes had become much larger and many governments had developed considerable expertise in international taxation. Nevertheless, the OECD and member governments were unable to sustain their attempt to exclude private-sector actors from the HTC initiative. The strong influence that MNCs exercise on international corporate tax governance today results, in part, from the fact that favorable tax treatment in the past encouraged firms to develop the transnational character that now enhances their structural power. The private-sector actors most deeply involved in global tax governance are accountable only to investors and, informally, the transnational community of private-sector tax experts who help MNCs avoid taxes. The NGOs that have mobilized around other challenges to procorporate globalization in such areas as labor standards and trade rules are strikingly absent from global tax deliberations. The resulting arrangements are accountable only to corporate taxpayers, private-sector tax experts, and governments, but the ability and willingness of governments to look out for public interests is fundamentally compromised by their vulnerability to corporate lobbying and the international structural power

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of transnational capital. NGOs interested in regulating MNCs have focused their energies on broader initiatives such as consumer campaigns, the corporate social responsibility movement, and the UN’s Global Compact. However, none of these initiatives target corporate tax avoidance. Since one consequence of the international structural power of transnational capital is tax competition, it is not surprising that MNCs and their tax advisers support national fiscal sovereignty and vehemently oppose cooperation that could tame that competition. Indeed, the structure of the contemporary world political system is highly functional for MNCs, as emphasized by neo-Marxist scholars (Gill and Law 1989). Not only does it impede international cooperation to provide governance in the interests of the public rather than private corporations, but corporations also can take advantage of their national identity when they want the support of their home-country government in a dispute with foreign tax authorities. Fiscal sovereignty tends to depict national tax authorities primarily as competitors (over shares of jurisdiction to tax MNCs), rather than as agents who have a common interest in challenging the tax-avoiding practices of private transnational actors. The ability to participate in transnational political processes while reverting to a national identity when convenient contributes to the remarkable influence MNCs exercise in global tax governance, despite the sharp disjuncture between MNCs’ private interests and the public interests that governance usually is expected to serve.

Notes 1. On expertise as a source of authority for private actors, see Cutler, Haufler, and Porter 1999. 2. On fears and threats of retaliation, see Webb 2001. 3. In contrast, secrecy is the most important benefit havens offer to individual investors seeking to hide assets and income from home-country tax authorities. 4. For a striking example, see Auditor-General of Canada 1992, which details the Canadian Department of Finance’s response to criticism of the taxation of Canadian firms’ overseas earnings. 5. On the origins of OECD efforts, see Webb 2004. 6. On the efforts of the havens, also see Sharman 2002. 7. This episode is discussed in greater detail in Webb 2004.

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7 Commercial Control of Global Electronic Networks Stephen D. McDowell

Many critics argue that the policy agenda for the governance of the Internet is increasingly dominated by commercial concerns of large providers of Internet-related technologies and services, by the large users of these services, and by content providers. This is consistent with what can be observed in other electronic communication sectors, such as broadcasting and wired and wireless telephony. Other analysts are concerned that states and international organizations are trying to assert national authority over networks, access provision, and applications and content, undermining the benefits of Internet communication. The chapter examines “Internet governance” in three distinct areas: network standards and backbone services, Internet access provision, and Internet applications and content. This threefold segmentation is somewhat simplified, in that the divisions, or integration, that corporations use to construct unique advantages and value-added chains in electronic network services are constantly shifting (Sabat 2002; Li and Whalley 2002). This categorization could be broken down further, especially given the range of services available to users; as can be seen in Table 7.1, numerous activities are listed under applications and content, some of which would not have been available even a few years ago. Nevertheless, these conceptual distinctions allow different network control points and policy problems to be identified, appropriate policy issues and mechanisms to be debated and designed for each, and the possibility that different actors and institutions be mobilized, to construct solutions that may be unique to each different set of sectoral activities. Many treatments of Internet governance focus upon the actions of states, either to control Internet content or uses, to seek national 127

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Table 7.1 Internet Communications and Service Segments Sector

Scope and Activities

Example Corporations

Internet backbone services

Telecommunications carriers Networks Network access points (NAPs) Services provided to other telecommunications firms and large users Internet access provided to the public, via dial-up access or broadband telecommunications (telephone, cable, wireless) ISPs/portals Web browsers Media readers and players Search engines Information/content E-commerce

MCI Sprint Cable and wireless AT&T

Internet access providers (IAPs)

Applications and content

Games Miscellaneous applications: e-mail, Internet relay chat and messaging, peer-to-peer

AOL, MSN, AT&T, Mindspring, universities/ colleges, freenets and community networks MSN, Yahoo Netscape, Miscrosoft Explorer Adobe Acrobat, Real Networks, Quicktime, Flash Google, Yahoo Lexis-Nexis, EBSCO, Elsevier Amazon.com, Expedia, Travelocity Sega, Geocities MP3, Kazaa

comparative advantage through investments in new technology and network infrastructure, or to make Internet services more widely available to their populations. A popular, idealistic and sometimes utopian view of the benefits of broad and rapid dissemination of network services and uses is sometimes contrasted with what has been called a “dystopian” image of control of uses by states, or the increased opportunities for state and corporate surveillance and monitoring of Internet activities. While these tensions are real and important, this chapter highlights the strategic behavior of commercial corporations and its implications for Internet governance. Corporations act on a multinational or global scale to exploit their core assets, whether applying knowledge and expertise to develop new technology, asserting proprietary ownership of technology, enhancing their market position and dominance, or managing brands of products and services to maximize their value. The management of the pace and direction of technology change and the shaping of the governance and uses of new technology are now important elements of corporate strategy.

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This chapter compares idealistic and strategic models of change in network technology, drawing on a model provided by Robin Mansell (1993). Strategic behavior serving a corporate agenda has shaped the development of the Internet backbone, access provision, and network applications and uses. While these efforts have strengthened corporate positions, the public accountability and responsibilities of governments, the broad roles of international organizations, and the concerns of voluntary civil society organizations are not fully realized in this set of initiatives. Important public goals may include providing the maximum benefits from the development and use of Internet technologies to citizens in different countries, whether through programs to support access and use, through policies guiding communications market structures and industry practices, or through the definition and arbitration of intellectual property claims.

Electronic Communications Network Technology and Governance

Communications networks, like transportation, water, electricity, and other infrastructural services, are core investments shaping the social and geographic path of national development. Unlike some other infrastructures, communications networks have been characterized over the past two decades by rapid change in a number of core technologies, including transmission, switching, and end-user technologies. Investments in new technology may significantly increase capacity or lower costs of network services, create new product or service offerings, and lead to significant advantages for corporations or national industry sectors. This provides strong incentives for corporations to invest in and incorporate new technologies into economic production processes, and for governments to support and facilitate the use of new technologies to promote efficiency and comparative advantage. Hence, to appreciate some of the dynamics of the relationship between corporate control of electronic communication and governance that is responsive to the public, it is necessary to consider not only how the existing industry is shaped, but also how new technologies are designed and used in existing and new communications networks. The social shaping of technology perspective provides insights into the processes whereby public and private organizations, and economic and social institutions, guide the development, deployment, and use of new information and communication technologies (Lievrouw and Livingstone 2002; Volti 2001). It offers a political and economic framework

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to explain technological change, in contrast to interpretations that are more technologically deterministic. Indeed, Bruce Bimber warns us that in its most extreme form, technological determinism proposes a unique social outcome from the use of a technology. This perspective assumes that technology “rests on laws of nature rather than on social norms. . . . The claim here is that technology itself exercises causal influence on social practice” (1994, 83–84). To avoid these problems, the approach adopted in this chapter draws from the traditions of historical and institutional political economy, and focuses upon the role of the powerful state and private-sector actors and institutions in governing communication technology and in shaping technical change. Several scholars have investigated and commented upon these processes. David Edge (1995) uses the term “social shaping” to refer to the decisions that are made in various stages of technology design, deployment, and use. Not only are design and development of new technologies shaped by the goals and purposes of powerful public and private sector organizations and institutions, but so too is the deployment of technologies shaped by investment decisions and strategies of organizations within specific historical settings and contexts. Lawrence Lessig’s oft-cited Code and Other Laws of Cyberspace (1999) notes that certain cultural, political, and economic assumptions—such as openness, intellectual property rights, monitoring, and free expression—informed, and can be built into, network design. Lessig (2004) also argues that large media corporations have used their influence to assert property rights over cultural expression. Robin Mansell (1993) examines the roles and activities of telecommunications corporations and the ways in which they seek strategic advantage in decisions about technology adoption and network design. Mansell develops this analysis through a close examination of the clusters of telecommunications firms emerging with both regional and worldwide aspirations in the 1980s and 1990s, during a period that telecommunications equipment and services incorporated more digital technologies. She argues that the designs and configuration of digital telecommunications network technologies were chosen not only for the increased functionality of the services they could offer to end-users, but also because of the market advantages certain deployments of these technologies would offer to firms. Mansell contrasts idealist and strategic models of technology and industry development. The idealist vision holds that technology changes follow their own dynamics, and that the path of change is to seek the technological solution that offers the widest increase in capability and

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the greatest range of new and improved functions to users. The process of evolution to intelligent networks will do the following: Provide the basis for the integration of information and communication services within a permeable and seamless network. Provide the basis for ubiquitous or universal service diffusion. Transform the telecommunication industry from a supply-led to a demand-led industry . . . assumed to perform according to the rules of a fully competitive market. Force a rationalization of the supply side and stimulate the introduction of flexible high-quality services at reduced cost. Stimulate new forms of collaboration and competition which arise from the creative stimulus of the supply-demand balance.

Further, “regulatory institutions at the national and regional level [during this transition] will ensure that intelligent network development evolves on a trajectory that ensures that efficiency and public service objectives are met” (Mansell 1993, 7–8). The strategic vision, on the other hand, holds that technology choices, including design, development, and deployment through investment in networks, are guided by the same considerations shaping other short-term and long-term business and management decisions. The propositions composing the strategic model offered by Mansell are that economic and political interests that become embedded in the design and implementation of the intelligent network will be unlikely to lead to network integration and a seamless global intelligent network infrastructure. As a result of market imperfections, it is unlikely that there will be a ubiquitous diffusion of advanced services and there will be disparities and an uneven development of the terms and condition of network access. The design of the intelligent network will be largely supply-led. Where it is subject to pressures on the demand side, these will reflect primarily multinational business-communication requirements. Technical innovations in the intelligent network (and by analogy in other network configurations) will provide a weak stimulus for competition, and this will be insufficient to prevent monopolization within the industry. The balance between the supply- and demand-side forces in the development of the intelligent network will create incentives to design networks that help maintain or re-establish monopolistic power in the marketplace. . . .

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New regulatory institutions at national and regional levels will introduce pressures that stimulate telecommunications suppliers to devise new ways to maintain market power. (Mansell 1993, 9)

The choice of the next generations of technology, and the specific configurations of communications networks, may be seen as strategic efforts of corporations to shape new markets for communication technologies and services, and to position themselves in a dominant position in these market segments. This model is a very useful starting point in recognizing that corporations’ decisions take place in the context of market and industry conditions, and reflect responses to these conditions as well as the longer-term corporate strategic visions. Corporations seek to create and manage technology and service brands to sustain higher profit margins; in new technology sectors, constant investment in technology innovation and change is a key element for success. In network industries, establishing and maintaining control of key infrastructures have been part of corporate strategic planning. The recognition of the contrasting assumptions underlying each model can also serve as a path to tailor policy responses to either limit firm behavior that may be unique to a sector, to identify points of market power or market failure (and to address these through subsidies or public provision where necessary), or to structure market segments to provide incentives to shape behavior by firms (Melody 1997). Mansell notes, “if the implications of network development are to be adequately understood, policy analysis must be more broadly concerned with the political and economic objectives that are embedded in this technical architecture” (1993, 4). The constellation of governance activities and organizations with competence in electronic communication is wideranging, but here my discussion focuses upon the governance challenges and activities of international organizations, and the role of corporations in setting the agenda of governance of (globalized) electronic networks.

The Corporate Agenda to Restructure the Governance of Electronic Communications

National communications policies have historically been designed to balance a number of competing objectives. These include ensuring network stability, security, and reliability; advancing efficiency in the production of communication services; and introducing new technologies. Broad and open access to communications services, or the goal of equitable and

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universal access to telecommunications capabilities, also has been part of public policy goals in many countries. Sometimes these various goals have been packaged as reforms of ownership and regulation, as national information infrastructure initiatives, or as programs to promote telecommunications for development. Communications networks and services are important because they provide core services that enable a wide range of economic activities, social integration, and political participation. Additionally, public information services, such as libraries, museums, and schools, have been important vehicles to support information dissemination and to sustain democratic participation and development in polities across the world. In the early 1980s, few countries had private-sector telephone and telecommunications services companies and private broadcasters (the United States and Canada being two exceptions). According to Bella Mody, Johannes Bauer, and Joseph Straubhaar (1995), the path taken first by the United Kingdom in the 1980s, and then followed in various ways by almost all countries over the next two decades, was to create a corporation separate from the government department to house the telecommunications carrier (corporatization), create an independent regulatory body separate from the government department, loosen the direct regulatory and performance requirements for industry (deregulation), allow the introduction of more providers into communications markets (competition), and initiate the partial or full sale of public telecommunications firms to the private sector (privatization). Increased investment by multinational corporations (MNCs) in national telecommunications providers was also encouraged to provide access to capital, technology, and management expertise. An industry typified by national telecommunications carriers accountable to public agencies was transformed into transnationally integrated sets of corporations operating in several sectors that were less responsive to specific national policy goals. Privatization of national communications carriers was paralleled by the introduction of new technologies, such as digital networks, wireless communications, and coordinated information and communications services. Privatization has also been associated with expanded investment in the communications sector, and greater access to some sources of national and foreign capital. The numbers of wired telephone lines, subscription wireless services, broadband connections, and Internet connections, as tracked by the International Telecommunication Union (ITU), have risen consistently and in some cases sharply since the mid-1990s, especially in the developed economies. However, in some countries the processes of privatization were not open to appropriate scrutiny and safeguards, and public assets were sold

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to political cronies for far below the fair market value. For example, the sell-off of public assets in Russia was marred by corruption, vastly underpricing core national industries and resources. In some cases, efforts to create an independent regulator that was free from political pressure and outside control were not successful, and public monopolies became private monopolies with little effective regulatory oversight. In Mexico, for instance, the dominant telecommunications firm, Telmex, now has more influence over government policy than the regulator, and sometimes ignores or acts to overturn decisions with which it does not agree (Ruelas, McDowell, and Dowding 2002). The governance of digital technologies was seen as requiring approaches and models different from those in the traditional telecommunications and broadcasting sectors. In addition to the privatization of existing electronic communications networks and services, some regulatory rules limit the possibility of public ownership or the application of existing patterns of public regulation to emerging digital communication technologies and activities. In the United States, decisions taken in the 1970s classified computer-based services as information services or advanced services, rather than communication services, and were not covered by the same public interest and universal service obligations that previously shaped the telecommunications and broadcasting sectors. Advanced services were not regulated and their users did not have to make contributions for the use of telephone network resources as did the users of local and long-distance voice services (Zarkin 2003). Similarly, satellite-based broadcasting services were seen as beyond the scope of state control, and after some national efforts to launch and operate satellites themselves, satellite services were given over primarily to private-sector operators. Wireless services have been introduced by private-sector firms, even though the public has provided huge supports in terms of the allocation of radio-magnetic spectrum, changing local zoning laws to allow for tower siting, and use of public lands and public rights of way for network infrastructure. Although the public sector did not just stand aside, and was intimately involved in making these institutional changes, the net result is that communication services and activities are owned and operated almost entirely by private-sector firms, and are less responsive to public interest concerns and public accountability. Similar processes can be observed in the broadcasting sector. Broadcasters in much of the world were state owned, state funded, and state operated; in developed democratic societies, many pursued or were guided by a public service model, aiming to serve, inform, and educate the citizenry by providing high-quality programming. Privatization was

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matched by a shift to advertising and subscription-based revenue models. The pursuit of increased audiences in a more segmented broadcast market led to the growth of new formats and genres of news and entertainment programming. New distribution platforms—cable, satellite, digital broadcasting, and video sales and rentals—also facilitated the fragmentation of audiences into smaller subsets defined by narrower demographics and interests, rather than broader values attached to national identity and citizenship. While public broadcasters still exist, they receive proportionally less public support, and must guide their activities more upon market lines, using audience size rather than programming purpose or quality as a performance criterion. The public sector in the United States was the main initiator of Internet technologies, protocols, and applications. Commercial applications and uses were not allowed by the National Science Foundation until the early 1990s. Commercial organizations also developed great interest in Internet-based services when World Wide Web software applications were developed that allowed for fuller graphics and color capabilities. Brand images and icons could be presented online and onscreen that were consistent with the overall brand management strategy. As well, the corporate name had value in this new communication space, and as Milton Mueller (2002) notes, the protection of trademark claims in the assignments of names in the Web domain space became a top priority for corporations. Given the history of the Internet, and the culture of public ownership, of free information, and of access to a worldwide range of interconnected computers and databases of information shared free of charge, the transition toward private control over the past decade has significant implications. Large national corporations and MNCs that used telecommunications services also pushed for national and international regulatory changes. In the 1980s, MNCs that were large users of telecommunications supported efforts to liberalize their access to the use of leased telephone lines in different countries and advocated more cost-based pricing. These were in many cases firms in the service sector that had in place private global communications networks, and sought to expand these and to lower their costs. The effort to harmonize a policy of requiring access to leased lines and more cost-based pricing in different countries was initially undertaken in the Organization for Economic Cooperation and Development (OECD). By the mid-1980s, the same groups of large service-sector firms also obtained the support of industrialized countries in an effort to introduce trade in services as part of the Uruguay Round of trade negotiations in the General Agreement on Tariffs and Trade, which began in 1986.

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In the 1990s the Global Information Infrastructure Initiative was matched by the European Information Society policy research program, and at the national level in many countries by initiatives to create a national information highway strategy (OECD Committee for Information, Computers, and Communications Policy 1997). These national strategies looked at a variety of information and communication resources, and saw these as core elements supporting national competitiveness and comparative advantage, and paths to national development (Kahin and Wilson 1997). A central part of the Global Information Infrastructure Initiative was also the promotion of electronic commerce (OECD 1998b). Ruby Dholakia (2004) calls the first round of exploration of ecommerce a “euphoric phase,” with online sales given a sales tax moratorium in the United States and other countries. Internet access provision fees were also not taxed in order to spur growth in the new media sphere (McDowell 2004). The global infrastructure initiative did not lead to specific action plans or new investments by the governments, nor were all the claims about e-commerce realized. These debates, however, are important for understanding corporate control of the Internet and shaping the governance of electronic commerce. The primary purposes of new media were phrased in terms of promoting economic development, and the path to economic development was seen to involve integration in transnational links and flows in the global political economy. The role of the state was limited to providing the legal infrastructure and fiscal inducements to promote private-sector investment in communications networks and in new technology deployment. Other possibilities for national development were not emphasized, just as the benefits of noncommercial uses of the Internet and World Wide Web were not pursued fully. The benefits of new technology for healthcare, education, social life were cited, but only a small portion of public resources was applied to developing new applications and uses in these areas. Applications and uses, in the mythology of Internet governance, would be determined by the empowered users, and so there was no need for public-sector support. The developers of Web-based software and services would serve users’ demands, and along with user empowerment there was supposedly less need for public scrutiny and accountability. These claims and assumptions about ownership, regulation, international trade and investment, and the guidance of technological change are consistent with the idealist model presented by Robin Mansell and have framed public policy debates over the governance of electronic communications. The extent to which electronic communications networks—including radio and television broadcasting, telephony, cable

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television, and newer digital Internet protocol telecommunications networks—have moved from public-sector control to private-sector control in the past two decades is astounding. Despite the history of information and communication as public services, and universal access as a core element of the public interest, the increasing activities of private corporations in these sectors are matched by the presentation of these services as consumer services. Internet access and use is portrayed as a private household consumption good, and digital information and media are depicted as commodities to be consumed or used according to the whims of individual consumers, signifying little more than the satisfaction of consumer utility and a cycle of wealth creation and consumption.

Internet Backbone and Network Interconnection Services

Internet backbone and network interconnection services include digital carriage capacity, switches, as well as the network access points in which traffic is exchanged among private Internet backbone providers. Their customers may be end-users, such as the networks of large corporations, or other companies that are selling network services to the public. In order for the networks based in different countries, and using technologies offered by different companies, to interconnect and operate together, technical standards and networking addressing systems need to be planned and coordinated. Despite the creation of Internet protocols and standards by public agencies, and their initial military and nonmilitary uses in research organizations, educational institutions, and government agencies, decisions about technical standards and protocols and investment in the Internet backbone are increasingly determined by the market-based decisions of corporations. The International Telecommunication Union is the main multilateral body dealing with telecommunications issues, and is part of the UN system of organizations. At the end of 2005 there were 189 member states and over 700 private-sector members. It has three divisions: the radio-communication sector, the telecommunication development sector, and the telecommunication standardization sector. Its numerous working groups address technology standards for telecommunications networks and services, to allow various technologies and networks from across the world to interconnect with each other. Because of the large size of the ITU and its working groups, some have argued that it cannot deal quickly with technological or industry changes. Some of the main decisions over standardization of new technologies have moved to other standard-setting bodies, and in this view the ITU has become the place where governments and firms

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bring standards that benefit national corporations, or have already become the industry standard. It is also claimed that issues became politicized in the ITU, such as the promotion of telecommunications networks in less developed countries in the 1980s, or efforts to ensure equitable allocation in satellite parking positions. Others note that as an international organization the ITU is unique in the full participation it allows for private-sector representatives—both scientific and industrial organizations and recognized operating agencies—as members or as participants in national delegations at meetings (see Table 7.2). The large number of working groups and meetings means that it is difficult for civil society organizations to participate actively in ITU processes and functioning. The Internet Corporation for Assigned Names and Numbers (ICANN) was created in 1998 to assume a contract with the US Department of Commerce to allocate names in and for generic top-level domains (such as the .com or .edu top-level domains that do not use a country-code suffix), and to identify registries of domain names as well as registrars that would license names to the public. The allocation of unique names and numbers is an infrastructural issue, since this basic addressing information allows e-mail and Web-search functions to operate without confusion throughout the world, with domain names important as trademarks on the Internet. Prior to 1998 the allocation function for generic top-level domains had been undertaken in a fairly informal fashion by a nonprofit association, the Internet Assigned Numbers

Table 7.2 Most-Active Participants in the Telecommunications Standardization Sector (ITU-T) Scientific or Industrial Organizations

Recognized Operating Agencies

NTT Cisco Nortel ETRI Huawei Siemens L. M. Ericsson ZTE Alcatel Infineon Lucent NEC Fujitsu

France Telecom Telekom Polska China Telecommunication Corporation BT Deutche Telekom KDDI Bharat Sanchar Nigam Telenor ASA AT&T NTT DoCoMo Telecom Italia TeliaSonera Belgacom

Source: ITU 2004, 16.

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Authority (IANA), with registration provided by Network Solutions under contract to the US Department of Commerce. The creation of a nongovernmental body composed of various private-sector stakeholders was claimed by the US government to be more appropriate for the rapidly changing new technology than were traditional intergovernmental organizations such as the ITU. Others saw this as an effort to freeze out governmental participants from other parts of the world, while the US government still retained control through the contract with ICANN. Similarly, the lack of formal public participation in the formation of ICANN led such critics to argue that the goals of the organization had shifted away from providing full public access and exploiting the maximum benefit of the Web technology, and toward limiting the use of toplevel domains and thus creating a false scarcity in domain names that provides stability for industrial players and the protection of intellectual property rights (Mueller 2002). The dominant vision that was advanced by the US government in its promotion of ICANN was very similar to an idealist vision of technology change. This vision posited a demand for a loose and flexible form of minimal governance emerging primarily from the community of Internet users. The members of the user community would spontaneously determine the appropriate balance between private interests and the need for collective governance. Traditional forms of government regulatory agencies and international organizations would not be able to deal with rapid technical change, and preset rules would diminish the possible benefits of the new technologies (US Department of Commerce 1998). Others argued that limitations on public governance and unclear lines of authority in ICANN reduced effectiveness and accountability. This opened up the range of action for private-sector interests, especially for large information technology corporations that dominated the formation of ICANN in closed meetings without full public scrutiny (Mueller 2002). The World Intellectual Property Organization (WIPO) has taken a very active role in asserting the applicability of intellectual property rights (IPRs) in cyberspace and in dispute resolution and enforcement in domain name allocation. As part of the formation of ICANN, in 1999 a uniform dispute resolution policy was put into operation. The WIPO noted in January 2004 that from 1999 to 2003, around 6,000 disputes were handled involving 10,000 domain names, and that “over 80 percent of the WIPO expert decisions went in favor of the trademark holder, be it a large multinational corporation or a small and medium sized business” (WIPO 2004). Cybersquatting is the registration of an Internet domain name by one party when another owns a trademark or a name that is similar. The

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WIPO calls this “the abusive registration of trademarks as domain names” (WIPO 2004). The cybersquatter might use the name for fun, or might register the name with an Internet names registrar and then attempt to sell the name to another party for whom it might have great value. This is especially important for commercial users in the .com toplevel domain. The deputy director of the WIPO states that the outcomes of dispute resolution “underlined the bad faith inherent in the practice of cybersquatting,” and that “reducing the practice of cybersquatting is an important element in enabling the Internet to develop as a secure and reliable environment which inspires confidence on the part of the evergrowing number of Internet users” (WIPO 2004). On the other hand, critics argue that the protection of trademarks on the Web by the WIPO, and the wide range of uses of any supposed trademark that the WIPO has viewed as cybersquatting, have actually expanded the range of claims for the protection of IPRs in brands more than in offline settings or previous trademark law. The WIPO’s actions have included blocking fair comment and critique that makes use of material that would be allowed in other media (such as a book or motion picture title, or the title of a magazine article) (Mueller 2002). In addition to debates about the accountability and effectiveness of naming systems, concerns about the pricing of Internet backbone services have been voiced by some developing countries. International telephone traffic has been guided over the past hundred years by a series of bilateral and multilateral agreements covering the technology standards of interconnection as well as the ways in which revenues from calls will be divided. The settlement rate is paid by a company in the one country that initiates a telephone call to a company in another country that completes the telephone call. This covers the costs of completing the call for the receiving-country firm. If the minutes of calls initiated by each country are in rough balance, little money changes hands at the end of each year. Corporations became more efficient in the United States with new investment in the 1990s, and prices in the country fell following regulatory changes. Also, given lower prices, the size of the economy, and the wealth of residents, a larger proportion of international calls were initiated from the United States than in previous years. This led to an imbalance or outflow of settlement payments that US firms had to pay other companies. US officials argued that other companies should lower their telephone rates to prevent these imbalances, whereas many developing countries that used international call settlements as a source of foreign currency argued that the imbalance resulted from price reductions in the United States. William Melody (2000) argues that the claims that this imbalance in payments represents

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a “subsidy” to other countries are inaccurate, and that many poor countries may be constructing high-cost networks to receive or terminate calls from the United States. With increasing numbers of international telecommunications carriers, as well as efforts in the United States in the 1990s to cap the outflow of settlement payments, the outflow of settlement rate fees has diminished (Roseman 2003). By contrast, Internet backbone services have no comparable treaties governing international exchange of traffic, or even the exchange of traffic among different companies providing Internet services (Internet interconnection services). Although Internet backbone services make use of the networks of the major voice telephone providers, data services and leased lines are not governed by the same settlement treaties that govern voice traffic. Large corporations and other closed user groups, such as banks or travel services, might lease carrying capacity that is distinct from the public switched telephone network. The main mode of traffic exchange for Internet backbone services is the peering of networks at a network access point (NAP)—a physical location where different network providers have agreed to exchange traffic (Heckmann, Schmitt, and Steinmetz 2004). NAPs were initially set up by the National Science Foundation (NSF) in the United States, but the NSF withdrew from providing backbone services or network access points in the early 1990s, and they have been assumed by a number of private arrangements. The top Internet backbone providers— WorldCom (21 percent), Sprint (13 percent), Cable and Wireless (8 percent), AT&T (6 percent), and Verio (5 percent)—account for an estimated 53–74 percent of Internet backbone capacity (Telegeography 2001). They negotiate with each other as to how they will exchange traffic through private commercial agreements. Publicly funded network access points therefore have been supplanted by large traffic volumes flowing through private peering among the largest backbone providers (Roseman 2003). These are commercial agreements, rather than network interconnection requirements arising from public policy or regulation. This means that a variety of commercial considerations come into play, some reflecting the market power of large corporations. Each Internet backbone provider (IBP) bears the cost of bringing its traffic and networks to the network access point or private peering point. Each bills its customers for its services, and does not pay other providers any settlement rate to complete transactions on the Internet. It is advantageous for a large backbone provider to share and exchange traffic with another large provider, since this expands the reach of their customers. This traffic might be exchanged for free at designated network access points. However, smaller network service providers would

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not have as much traffic, and there is less advantage to exchange traffic with them for free. Large IBPs therefore charge these companies for access through transit agreements (Roseman 2003, 10), with charges based upon the bandwidth of the connection to the network that is being leased. Any network provider that could not reach the network access point on its own network would have to pay for leased lines or extra transport costs to reach an NAP. Since the largest population of users of the Internet and the major backbone deployments are based in North America, Europe, or East Asia, the NAPs are located in these regions, and IBPs from other parts of the world must pay costs to transport their Internet traffic to these points. One issue that has raised numerous concerns in areas outside the United States, then, is the international transmission costs that must be borne by users all over the world to connect with network access points in the United States. Since much of the traffic is already concentrated in the United States, the costs of backbone services are spread over a large number of users. Since these networks are close to these users, the costs for transport are actually lower. Developing countries, on the other hand, have fewer users of Internet services, yet must bear the cost of moving traffic to the NAPs in the north. Some have also complained about anticompetitive practices on the part of Internet interconnection service providers or Internet backbone providers. After examining this debate, Daniel Roseman (2003) concludes that the issues raised by each side are somewhat different, and that there is not sufficient evidence to support either position. Developing countries can make arrangements more to their advantage if they work with other countries and international organizations, and also liberalize their telecommunications sectors. At the same time, there is no public base of information on the rates charged for these services, and Roseman argues that efforts could be taken in international organizations both to collect data on rates and charges and also to explore what commercial laws best apply to ensuring competition in Internet connectivity and backbone services. The expansion of international agreements to support trade in services (market access, nondiscrimination, transparency), as well to promote transnational investment (dispute resolution, constrained role of government, privatization), is consistent with the privatization of Internet backbone services. Crucially, the establishment of the World Trade Organization included the General Agreement on Trade in Services. Thus the disciplines guiding trade in telecommunications services increasingly place national regulation and policies under the scrutiny of international trade principles, such as most-favored-nation status for international providers, openness of advanced service markets to international investment, and guidelines about what forms of public subsidies

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to domestic telecommunications providers will be allowed to promote universal service. Even though the Internet name and number assignment function was initially directed and delegated by the US government to ICANN or to national country code top-level domain bodies, the ITU has been involved in coordinating the discussions among governments and industry players for the many network layers and technology that interconnect to provide Web-based services. Many other countries seek to become more directly involved in Internet governance, and the ITU has begun to address these concerns by noting its many activities concerning Internet issues (ITU 2004), and by hosting the World Summit on the Information Society (WSIS), the first full meeting of which was convened in December 2003. This continuing process addresses a wide range of Internet governance and development issues. The initiative seeks to serve our common desire and commitment to build a people-centred, inclusive and development-oriented Information Society, where everyone can create, access, utilize and share information and knowledge, enabling individuals, communities and peoples to achieve their full potential in promoting their sustainable development and improving their quality of life, premised on the purposes and principles of the Charter of the United Nations and respecting fully and upholding the Universal Declaration of Human Rights. (ITU 2003a, 1)

The WSIS process has been seen by some as bringing accountable governance to this sector. Critics argue that the WSIS reflects an attempt by some states operating through international organizations to assert what they see as illegitimate government control over the Internet. To summarize, in the Internet backbone sector, several industry patterns have emerged as challenges for governance. While there has been extensive investment in high-traffic Internet backbone routes leading to more service offerings and price declines for large users, global backbone network deployment seems to confirm concerns about processes of uneven development. If access to these technologies and services is a building block for national development strategies, building the network out to underserved regions poses a major task for public governance. Although the number of privately organized NAPs has increased rapidly, there may be a need for public-sector support for NAPs in some regions. As core Internet backbone technologies develop, governance challenges and responses regarding domain name allocation, technical standards, and market dominance and interconnection in the backbone provision sector will no doubt continue. Network ownership and market structures have been reviewed in national and regional contexts. For

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instance, the European Commission opposed the proposed merger of WorldCom and Sprint because of the possible concentration of Internet backbone provision. At the same time, some of the existing international governance mechanisms will need to be strengthened to deal with the possibility of anticompetitive behavior in backbone provision. There is less accountability in the backbone sector, since little public information is collected and there are no public governance agencies in place beyond general and reactive antitrust enforcement. As Roseman (2003) notes, continued public and intergovernmental research on and review of private agreements to exchange Internet traffic and for transit may serve as a basis to encourage competitive markets. While much attention in the past decade has been focused upon accountability and effectiveness of domain name allocation, issues such as market structure, pricing of services, and standards for competition enforcement at the international level should command more resources in terms of international governance efforts.

Internet Access Provision

Internet access provision is the segment of electronic networks that is seen most by the public and refers to the provision of dial-up Internet access accounts or broadband services or the market segment that provides retail Internet access. In some cases customers pay for dial-up services that also provide an individual sign-in and portal to the Internet; broadband or higher bandwidth services that can carry more data per unit of time can be provided by digital subscriber lines that make use of telephone network lines to provide higher-capacity services. Higherbandwidth services are also offered to residential subscribers over cable television networks, using coaxial cable. There are also wireless technologies available for Internet access, whether through coverage of a small fixed area through wireless local access networks or WiFi (such as in a coffee shop or office) or through mobile data services in the third generation (3G) of wireless mobile telecommunications services. Larger corporate users also purchase broadband access services from telecommunications carriers, but may be large enough to justify investment in a high-capacity connection to their premises. They may be purchasing access to network and backbone services, rather than retail Internet access provision available to residential or small business subscribers. Since business clients have the highest revenue possibilities, much of the investment in new telecommunications infrastructure to serve the “first mile”—from client premises to local switches—has

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been constructed to reach large business customers. Similarly, the new entrants into local telecommunications services or into broadband or data network services—the competitive access providers—have served business users. As a result, the main providers of Internet access service to residences and small businesses are the incumbent communication companies that have networks in place to reach households and existing subscribers (see Table 7.3). The grand promises of “fiber to the home” or extensive broadband network investments that were used to justify legislative and regulatory changes in the 1990s have not been realized. While investments in Internet backbone or long-distance lines have been extensive, at the local level existing networks have been upgraded

Table 7.3 Ranking US Internet Service Providers by Number of Subscribers ISP America Online NetZero Microsoft Network Spinway EarthLink Comcast United Online Prodigy 1stUp.com Freei.net RoadRunner AltaVista (via 1stUp.com) SBC Communication Compuserve (AOL) Cox Communications Charter Communications Verizon AT&T Worldnet Mindspring Bell South MSN TV Cablevision

Number of Subscribers 24,300,000 8,600,000 8,000,000 6,700,000 5,400,000 5,300,000 5,300,000 3,500,000 3,500,000 3,200,000 3,000,000 3,000,000 2,199,000a 2,000,000b 1,800,000 1,800,000 1,788,000 1,500,000 1,297,000 1,462,000 1,000,000 1,000,000

Year 2004 2001 2004 2004 2004 2004 2004 2001 2000 2000 2003 2000 2002 2000 2003 2004 2002 2000 1999 2004 2003 2003

Source: http://www.jetcafe.org/~npc/isp/large.html. Notes: a. The number here represents broadband subscribers only. It is assumed that this company has a significant number of nonbroadband subscribers, so the number should be considered a lower bound. b. This company typically reports its worldwide numbers. The number listed here represents US subscribers only.

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to allow for digital services and broadband services rather than replaced. As Table 7.4 shows, even among the industrial economies that are part of the OECD, in 2003 broadband Internet access remained for most countries below 10 lines per 100 inhabitants. One of the core policy and industry questions concerning Internet access provision is whether it should be bundled with purchases of Internet-based applications and content. In the United States, information services have been separate from telecommunications services in the telephone network, while cable television networks are allowed to

Table 7.4 Broadband Access in OECD Countries per 100 Inhabitants, 2003 Country Australia Austria Belgium Canada Czech Republic Denmark Finland France Germany Greece Hungary Iceland Ireland Italy Japan Korea Luxembourg Mexico Netherlands New Zealand Norway Poland Portugal Slovak Republic Spain Sweden Switzerland Turkey United Kingdom United States OECD European Union

DSL

Cable Modem

1.48 2.76 6.25 6.09 0.06 7.29 5.39 3.56 4.68 0.003 0.56 10.66 0.19 2.50 6.49 14.36 2.02 0.12 3.82 1.87 4.08 0.09 1.12 0 3.24 5.44 4.70 0.01 1.78 2.68 3.37 3.31

1.11 4.22 3.82 7.18 0.21 3.17 1.21 0.57 0.06 0 0.36 0 0.08 0 1.75 8.45 0.24 0.15 5.38 0.06 1.17 0.12 2.61 0.01 1.00 1.96 4.43 0.05 1.82 4.84 2.40 1.10

Source: http://www.oecd.org/sti/telecom.

Other Platforms 0.07 0 0.27 0 0 0.65 0.01 0 0.10 0.02 0 0.56 0.14 0.34 0.36 0.37 0.06 0.001 0.001 0.14 0.14 0 0 0 0 1.76 0 0 0.02 0.74 0.29 0.14

Total 2.65 6.98 10.34 13.27 0.28 11.11 6.61 4.13 4.84 0.02 0.93 11.22 0.41 2.84 8.60 23.17 2.32 0.28 9.20 2.07 5.39 0.21 3.72 0.01 4.24 9.16 9.13 0.06 3.63 8.25 6.06 4.55

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provide both the network for carrying signals and the content. Both are now able to offer broadband services, but while the telecommunications companies are required to offer broadband services through separate units, the cable companies may offer broadband services as part of their overall package. If broadband services are bundled with Internet access services, the default option for many customers may be to choose the broadband service provider (such as the cable television or telephone company) rather than a stand-alone Internet access provider. Given that the Internet access provider may also become the provider for other services and Internet-based content, such as audio, video, e-commerce, chat, e-mail, and Web searching, the ways in which subscribers are invited or retained becomes a crucial issue for control of the Web and for competition policy. Despite the idealistic image of the vast possibilities of Internet services, business strategies to build a customer base include tying the telecommunications entry point for subscribers to an Internet access portal, and so the service options that subscribers choose as their menu of activities and services may be limited. Other issues of importance for national and international governance of the Internet are the problem of the digital divide and efforts to promote broader digital access. As was the case with telecommunications infrastructure and services in the debates over the telecommunications gap in the 1980s, the deployment of Internet access provision and broadband services has been most rapid in the developed countries. At the end of 2002, there were an estimated 625 million Internet users in the world, 35 percent of whom were in the Americas, 35 percent in the Asia Pacific region, 26 percent in Europe, and 2 percent in Africa (ITU 2004, 21). Despite the extensive public debate and research efforts devoted to outlining the different levels of access to Internet services and broadband telecommunications in different parts of the world, few public resources have been directed to address these problems as a proportion of the size of national economies or as a proportion of the size of the telecommunications sector. Many countries, as part of national strategies, have incorporated information and communication technologies in schools and created public access points. The main vehicle to promote diffusion and adoption of new technologies, however, has been to create market conditions for the more rapid investment in communications infrastructure and services. Even access issues can be cast in a commercial frame. The OECD also published advice for nonmember countries on best practices for achieving e-commerce “readiness” (OECD 2000; Tigre and O’Connor 2002), by which is meant “preparing the technical, commercial, and social infrastructure necessary to support e-commerce” (OECD 2000, 77). Readiness

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should be followed by increasing intensity of e-commerce, and greater impacts, as these technologies and services are diffused. Readiness issues include infrastructure, access technologies, pricing, and human resources. The main policy areas to be faced in e-commerce are enabling uses, enabling diffusion processes, and shaping the business environment (OECD 2000, 77–96). Some countries have seen the goals of the Global Information Infrastructure Initiative, national information infrastructure planning, and ecommerce applications on the World Wide Web as vehicles to stimulate the next wave of economic development and to gain competitive advantage for leading national economic sectors. This view was reinforced by the emphasis placed on the availability of information and communications technologies deployed in the infrastructures necessary to support e-commerce. For instance, an OECD presentation in 2001 emphasized Internet access prices, Internet subscription levels, the number of Internet hosts per 100 inhabitants per country, the number of secure Internet servers per 100 inhabitants per country, the level of broadband subscriptions by household, and the level of household ownership of computers (OECD 2001a). To summarize, the policy challenges for the Internet service provision sector can be seen as more national in scope, although investors and sources of capital may be transnational. Here governments need to address carefully a number of probable dynamics arising from corporate strategic behavior, and in a targeted and nuanced fashion informed by current research on corporate behavior in shifting markets. The problem this strategy encounters is the long-standing challenge of market failure. By using effective market demands (desire and ability to pay) to guide broadband roll-out, the groups and areas served first with advanced services tend to be those already served by communication infrastructure and services. Similarly, policies to encourage investment in networks in low-density regions may confront problems of market failure, even in high-income countries, and public subsidies or pricing policies may be seen to discourage new investment. Uneven development dynamics are evident in this sector at the national level as well, following from investments in well-served areas in order to maximize revenues and profits, new services, and new forms of value-added, rather than expanding universal access and a low revenue base of customers. Public policies to encourage investment in Internet access networks at the national level, such as providing for periods of monopoly ownership, may run against policies that promote competition, such as encouraging new entrants into Internet access provider (IAP) markets. The high costs of providing broadband services have slowed deployment, as

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have monopoly models preferred by corporations that engage in extensive network upgrades and do not want to be forced to provide access to elements of networks under regulatory efforts to promote competition. While bundling services and offering integrated packages of IAP and Web-based applications may be successful strategies for corporations to build market share, market dominance may limit consumer choice.

Internet Applications and Content

Backbone provision and Internet access patterns become important in that they underlie and shape the possibilities and constraints for access to Web-based content and the uses of Web applications and services. The idealistic mythology of Internet content provision is that the lower costs of production of digital media, as well as the ease of distributing and sharing, allow Internet users to become creators and their demands to be reflected in new technology development. Digital multimedia and data processing, combined with ubiquitous networks, will offset the power of governments to control media flows and of dominant and entrenched media corporations to set the public agenda. However, the same corporations that have dominated in the traditional media sectors of print, audiovisual, and broadcasting have also established preeminence in the Web-based new media environment. As noted above, some of the same companies that provide Internet access also provide packages of content and online applications. Internet access might be bundled with services in portals operated by operators such as Microsoft Networks, Yahoo, or the leader in the United States, America Online (AOL). By combining IAP services and a range of content and applications to build “walled gardens” of online applications and content, these firms attempt to maximize revenues derived from their subscriber base. While benefits to users arise through purchasing bundles of Internet access, applications, and content, some content providers are shut out of these proprietary sets of offerings. Stand-alone Internet access providers may also find it difficult to compete with integrated packages. It is difficult to determine, just as it is with Microsoft’s continuing strategy of bundling various software applications in desktop computers, what competition policies should apply to efforts to integrate Internet access services, online applications, and content. This general challenge can be seen with respect to a number of online applications. Government officials in the United States and the industry competitor Netscape were concerned in the 1990s when Microsoft bundled its Internet Explorer with its desktop computer operating

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software and required hardware vendors to include the whole software package with the Windows operating system. Although there are numerous independent media readers and players that can by “plugged in” or used with the Microsoft operating system, such as Adobe Acrobat, Real Networks, Quicktime, or Flash, Microsoft is also developing these types of applications. Online search engines, such as Google and Yahoo, offer free services to Internet users, and are funded by advertising or by sponsored listings. Search applications have emerged as a key area of growth, since they attract much traffic and many Internet users. Google is now developing a search tool for desktop computers, so that users can search their own files in a similar fashion. Online content includes news, entertainment, and information. Some database companies have established strengths in online publishing, such as Lexis-Nexis, EBSCO, Elsevier. Their market power, control of content, and pricing have concerned many in the academic and educational field. Copyright disputes have pitted users and technology companies against the content companies that own copyrighted material. In the United States, the Recording Industry Association of America, not satisfied with public enforcement of copyright laws, began in 2003 to file civil suits against individual users who downloaded or shared copyrighted material using peer-to-peer sharing programs such as MP3 or Kazaa. The Motion Picture Association of America is also considering similar lawsuits to deal with the sharing of movies. Some analysts, however, voice significant concerns about expansive claims for copyright protection, arguing that these types of actions represent an enclosure of the public information commons. James Boyle argues: We are in the middle of a second enclosure movement. It sounds grandiloquent to call it “the enclosure of the intangible commons of the mind,” but in a very real sense that is just what it is. True, the new state-created property rights may be “intellectual” rather than “real,” but once again things that were formerly thought of as either common property or uncommodifiable are being covered with new, or newly extended, property rights. (2003, 37)

Concerns about online content have also been reflected in policy debates, including whether and how to control a wide range of indecent or obscene content, such as efforts to control children’s access to pornography, efforts that have attracted much political attention in the United States (Thornburgh and Lin 2002; Zittrain 2003). In Europe, concerns over hate speech have been more prominent, leading to requirements that AOL remove access to some online sources from its

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Web listings. Control efforts directed at online applications have focused on spam or unsolicited mass e-mails, viruses, various forms of fraud, as well as online gambling. National and international cooperative efforts have been undertaken to prevent identity theft and fraudulent payments (OECD 2003b). National legislatures have also tried to limit spamming and hacking, and the spreading of computer viruses. E-commerce applications have attracted the attention of many investors and governments because of the perceived potential to enhance economic growth. Some e-commerce firms realized huge stock market valuations in the 1990s, such as Amazon.com, Expedia.com, E-Bay.com, and Travelocity.com, even with small revenue streams and no profitability. Despite the focus on retail e-commerce, business to business represents over 90 percent of online transactions in the United States (US Department of Commerce 2004), and may be more important in introducing efficiencies to production processes and lowering transaction costs in the overall economy (McDowell 2004). The OECD has also launched a series of efforts to coordinate electronic commerce promotion among its members. Among the issues and initiatives addressed are the “culture of security,” privacy online, network security, cross-border fraud, broadband access, the importance of electronic commerce for development, and measuring the information economy (OECD 2003a). Compared to the features that were touted in discussions a decade ago, such as openness and multiple uses on the Internet, and the ability to “conquer time and space,” the master metaphor for thinking about the Web has shifted toward strengthening control and enhancing security. However, less progress has been made in implanting consumer protection measures than in developing strategies to limit certain types of behavior by users of the Web. Consumer advocates have argued that consumers need more protection in cross-border disputes concerning Internet sales. Consumers International (2002) noted, prior to an OECD conference on e-commerce, that alternative dispute settlement procedures would be more effective than national courts in facilitating appropriate solutions. Other efforts that have been identified as important to consumers include privacy protection, including the use of cookies to track consumer activities. In summary, the attempts at governance of online applications and content and the control of online behavior merge a large number of difficult and contentious issues. These issues are linked more closely to national political, economic, and cultural practices than are Internet backbone or IAP policies. Similarly, the number of corporations providing online content and application services, and the types of strategies

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they undertake, are much more numerous than in the foregoing sectors. The resulting debates over speech rights, indecency, obscenity, intellectual property, among other issues, are often intractable at the national level, even without encompassing transnational dimensions. While nationstates may seek to protect security or respond to political demands in asserting control over Internet content and behavior, they may also want to avoid losing the benefits of access to technology and the open flow of information and capital arising from Internet use. International organizations, such as the OECD, the ITU, and the WIPO, are called into service by nation-states to harmonize and coordinate responses to these challenges. However, the limits of transnational dialogues and conversations may arise sooner rather than later as the agenda grows more crowded. Hence, civil society organizations, given their work in national and transnational coalition building in many countries, may have opportunities to play a larger role in shaping debates over these issues and about the appropriate goals of governance. The online applications cited by the WSIS’s action plan include activities such as e-government, e-business, e-learning, e-health, e-employment, e-agriculture, and e-science (ITU 2003b). The WSIS agenda is connected with sustainable development, and is considerably broader than the agenda advanced by many private-sector promoters. The private-sector agenda is dominated by concerns over e-commerce, the protection of intellectual property rights, and online security. While governments and international organizations also share these concerns and seek to address them, past experience of efforts to promote telecommunications for development in the 1980s suggests that it will be more difficult to find the resources to support and sustain the achievement of the public interest and developmental goals of the WSIS.

Conclusion

There are significant and even fundamental governance challenges arising from corporate strategies and behaviors in each sector (see Table 7.5). While some concerns, such as monitoring market power and enforcing antitrust legislation, are common to each, some sectoral issues have unique qualities and characteristics. It will be most useful to address these in a precise and targeted fashion. However, in discussions of Internet governance, many different sets of market dynamics and issues are linked together. By understanding more fully the distinct strategies pursued by corporations in each of the sectors discussed above, we can also understand more clearly the challenges and opportunities for

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Table 7.5 Sectoral Industry Patterns and Governance Challenges Sector

Industry Patterns

Governance Challenges

Internet backbone services

Trademarks, domain names Industry participation in IOs International settlements Distribution of backbones Peering arrangements/network access points (NAPs) Pricing of transit agreements

Domain name allocation Technical standards Tracking market dominance, competition policy Monitoring interconnection and transit agreements International distribution of network resources

Internet access providers (IAPs)

Integration of carriage and content Network resources of incumbent operators Rollout of broadband access

National deployment Bundling of access and services and competition policy Access to network elements

Applications and content

Bundling of multiple Intellectual property rights applications and content and public knowledge Concentration in online Providing information publishing for public purposes Intellectual property rights Appropriate responses to Antisocial content and behaviors control and behavior (spam, viruses, gambling) concerns

social shaping in the design, deployment, and uses of new technologies available to governments and citizens. Idealist visions are reflected in public perceptions of electronic communications networks, and in the assumptions underlying contemporary governance strategies. Hence, many possibilities for social shaping have not been realized by public policies. Corporations have viewed network technologies as tools to enact strategic behavior and to reposition themselves in national and global political economies. Governments have also viewed Internet technologies as potentially serving efforts to restructure national economies, and have increasingly seen private firms rather than public agencies as the main vehicles of this transformation. Enhanced but distinct roles for national institutions and for international organizations and other new types of governance structures are necessary to ensure fair competition in different service market segments, and to encourage open access to and use of Internet-based services. It is perhaps useful to recall Robert Heilbronner’s 1967 essay “Do Machines Make History?” to reflect on the broader context of the challenges posed by the political economy of industry structure, technology change, and the governance of Internet services:

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The prospect before us is assuredly that of an undiminished and very likely accelerated pace of technical change. From what we can foretell about the direction of this technological advance and the structural alterations it implies, the pressures in the future will be toward a society marked by a much greater degree of organization and deliberate control. What other political, social, and existential changes the age of the computer will also bring we do not know. What seems certain, however, is that the problem of technological determinism—that is, of the impact of machines on history—will remain germane until there is forged a degree of public control over technology far greater than anything that now exists. (p. 65)

These sectors are the concern of active civil society organizations and networks whose members in some cases have expertise rivaling that of governments and private firms. Some contractors who created and maintained Internet technologies and networks in the United States also acted as freelance political actors shaping and influencing policy debate and formation. This form of nonprofit, public interest volunteerism in technology design was very important in the development of Internet technologies, by contrast with proprietary technologies that are controlled by many telecommunications and software corporations. Today an active open source software movement has the support of dominant industry players such as IBM, again drawing benefits from the open exchange of ideas among a variety of technical experts. However, just as the idealist interpretations of technology change have been used to justify less government involvement in these sectors, the role of the voluntary community of stakeholders has sometimes been mythologized in the service of idealist images and a justification for less public accountability. However, it would be a mistake for governance strategies to continue to count upon the “kindness of strangers,” or to attempt to overformalize and direct the energy and creativity of informal groups of experts and civil society groupings. The WSIS process or other governance strategies will no doubt need creativity and forbearance to balance the involvement of states with active participation of expert communities and civil society organizations. Technical choices and policy choices confronted in attempts to build accountable governance are difficult to identify and to implement. Since these services provide significant benefits to citizens as well as corporations, heavy-handed control strategies in some areas (such as content control) may limit the benefits in other areas (such as access to e-commerce capabilities). Since the use of advanced communication services requires the interoperation of all of these components, governance needs to be coordinated across sectors and across national borders. The difficulty of

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building accountable governance institutions with complex global networks, and with technology that is changing, is formidable. Rather than leading to a conclusion that no governance is possible, or that governance should be left to the self-regulation of stakeholders in each sector, this points to the need for widespread consultation and dialogue at multiple levels, and for basic and sustained policy research.

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8 The Political Economy of the Firm in Global Environmental Governance Peter Newell and David Levy

Environmental issues provide a valuable lens through which to examine the question of global corporate power. Broader debates within the field of international political economy (IPE) about private authority, the privatization of the UN, and corporate social responsibility, to name a few, can be usefully informed by insights from environmental politics. Not only are corporations significantly responsible for generating global environmental degradation, but they also are increasingly performing multiple roles associated with the management of environmental change. As experts, technology providers, and investors, firms are on the front line of day-to-day decisionmaking on environmental issues. Through lobbying and coalition building they are also centrally located in regimes at the national and international level charged with establishing policies to contain and eventually reverse environmental degradation. It is unfortunate, then, that in looking at the role of corporations in the global political economy of the environment, we have a classic case of what Susan Strange (1970) would call “mutual neglect.” While theories of the firm continue to evolve and generate interesting insights into inter- and intrafirm behavior on environmental issues, with a few exceptions, students of IPE have paid little attention to the global politics of the environment. Likewise, students of global environmental politics increasingly recognize the key role of corporations as shapers, negotiators, and implementers of environmental rules, but lack a sophisticated understanding of the firm in terms of its corporate strategy or role within the broader structures of political and economic power that occupy students of IPE. 157

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This chapter seeks to develop a political economy framework to bridge this divide and to construct a more appropriate basis for conceptualizing the role of corporations in the organization of global environmental governance. Combining work on the political economy of the firm with literatures on corporate strategy and environmental management, we challenge the conventional writing on international environmental governance, which neglects the role of corporations as shapers and negotiators of environmental rules as well as their central position in informal governance of the environment that derives from their daily operations. The chapter explores the multiple and potentially conflicting roles that corporations perform as lobbyists, experts, (self-)regulators, and providers of the capital and technologies necessary to realize environmental policy goals. Moving beyond debates about the extent to which they are “greenwashing” their activities as opposed to engaging in a serious attempt to achieve sustainable development, we assess the political significance of the corporation as an actor in global environmental governance. Firms play diverse roles depending on whether they are multinational corporations (MNCs), as opposed to small and medium-sized enterprises (SMEs), the region in which they are based, the sector in which they operate, their positioning with respect to particular markets and technologies, and the political strategies they adopt. To illustrate this diversity, we draw on a range of empirical examples, from climate change and ozone depletion to biosafety and biodiversity; each issue arena is characterized by different sets of political relations and unique corporate strategies. These patterns of influence and representation have important implications for explaining the nature of current international environmental policy and its limitations, as well as important theoretical implications for how we are to understand the complex and competing roles that corporations play in the global political economy. By looking at the reciprocal relationship between corporate strategy and regimes of global governance, we develop a political economy of global environmental governance in which the corporation assumes a central role.

Rise of the Corporation in Global Environmental Politics

Business plays a key role in international environmental politics. Corporations are engaged, directly or indirectly, in the environmental degradation that global regimes seek to manage, contain, and eventually reverse. According to the Business Council for Sustainable Development’s own

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figures, “Industry accounts for more than one third of energy consumed world-wide and uses more energy than any other end-user in industrialized and newly industrializing economies” (Schmidheiny and Business Council for Sustainable Development 1992, 43). At the same time, corporations can also serve as powerful engines of change, with the potential to redirect their substantial financial, technological, and organizational resources toward addressing environmental concerns. Regulators cannot afford to ignore corporations in the design of environmental governance. Corporate activity has substantial environmental consequences at every stage of the value chain, from research into genetically engineered seeds to the disposal of household and industrial waste. In many ways, managers of large firms are the “streetlevel bureaucrats” of environmental policy, a term that Michael Lipsky (1980) uses to describe the role of frontline employees in shaping policy through its implementation on the ground. The active cooperation of large MNCs is therefore key to the implementation of environmental regulations and the amelioration of environmental problems. Industry appears to be increasingly aware of its role. The International Chamber of Commerce (ICC), an influential umbrella industry association, has forcefully asserted industry’s significance in the case of climate change, though these words would apply equally well to many other environmental issues: Industry’s involvement is a critical factor in the policy deliberations relating to climate change. It is industry that will meet the growing demands of consumers for goods and services. It is industry that develops and disseminates most of the world’s technology. It is industry and the private financial community that marshal most of the financial resources that fund the world’s economic growth. It is industry that develops, finances and manages most of the investments that enhance and protect the environment. It is industry, therefore, that will be called upon to implement and finance a substantial part of governments’ climate change policies. (ICC 1995)

There has been a notable evolution in the nature of corporations’ engagement with environmental issues. From denials of culpability in environmental degradation and rejection of the need for regulation, most major corporations have come to both acknowledge increasing evidence of environmental degradation and accept the need for societal action to contain the process (Fischer and Schot 1993). Andrew Hoffman (1996), for example, documents the changing attitudes of the chemical and petroleum industries in particular toward environmental problems traced through the corporate media. As a result of rising popular consciousness

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about environmental issues, catalyzed and consolidated by vocal and well-resourced environmental nongovernmental organizations (NGOs) that have focused the popular imagination on the consequences of industrial development, corporations have been thrust into the fray of environmental policy debate. Many industrywide initiatives on environmental issues have also emerged as a direct result of the need to pacify public anxiety in the wake of disasters such as chemical disaster in Bhopal, India, and the Exxon Valdez oil spill. The “Valdez principles” and the Responsible Care program of the chemical industry can be seen in this light (Garcia-Johnson 2000). External pressures have combined with the reform agendas of environmental advocates within corporations to sustain pressure for environmental reform within their operations. There has also been a notable shift in the relationship between business and civil society around environmental issues. From a position of clearly defined antagonism, there is increasing emphasis on partnerships and more institutionalized forms of collaboration that seek to mobilize the respective skills and expertise of corporations and NGOs toward the management of specific environmental problems (Bendell 2000; Newell 2001). The pervasiveness of discourses about corporate social responsibility has also forced the spotlight onto corporations’ environmental performance, prompting a spate of critical reports about “greenwashing,” the attempt by firms to use public relations to disguise businessas-usual polluting practices (Rowell 1996; Utting 2001). To protect themselves from such criticism, corporations have sought to build alliances with groups within civil society, and in some cases to fund the creation of “astro-turf organizations,” industry-orchestrated NGOs that are used as a front to present business positions in public debates on environmental issues. The corporate accountability movement has taken up the challenge of exposing instances of double standards and gaps between corporate rhetoric and practice as well as pressuring and cajoling companies to improve their environmental performance through more confrontational strategies of boycott and shareholder activism (Newell 2004a). As dynamic entities, corporations both respond to broader structural shifts in the global political economy, as well as contribute to them. Many have responded to the “Europeanization” of environmental policy, for example, by setting up offices in Brussels to influence policy, reflecting the shift from state-centered to regional decisionmaking structures (Grant, Matthews, and Newell 2000). Likewise, “global” coalitions have been formed to shape UN negotiations on global environmental problems or to respond to calls for partnership with business from the UN (Zammit 2003). More broadly, patterns of trade liberalization, brought

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about through agreement or neoliberal reforms led by the World Bank and International Monetary Fund, have created market opportunities for corporations to expand their export base. For corporations wanting to export to Europe and North America and parts of East Asia, this has required improvements in production processes through the “trading up” of environmental standards to meet regulatory requirements in overseas markets (Vogel 1997). At the same time, however, the transnationalization of production and capital and the removal of trade barriers have themselves created the need for orchestrated institutional responses from states. For example, it is the global and transboundary nature of the trade in genetically modified seeds that gave rise to the need for a protocol on biosafety to ensure adequate attention to the environmental effects of transferring the technology across borders and releasing it in diverse ecological settings. The need for environmental safeguards often follows the creation of market-enabling trade regimes. The hard-fought side agreement to the North American Free Trade Agreement was a concession to concerns about the creation of “pollution havens” in parties with lower levels of environmental regulation, such as Mexico (Hogenboom 1998). Political coalitions are also often an expression of changing patterns of investment. For example, efforts to harmonize government and industry positions in Europe and North America on the question of biotechnology are driven by the increasingly transatlantic nature of capital integration (Levy and Newell 2000). From being key actors at the national level in debates about appropriate forms of environmental regulation, corporations have come to occupy important roles in regional policy and, increasingly, in international policy.

States, Corporations, and Triangular Diplomacy

It is only relatively recently that small and medium-sized enterprises, particularly those oriented toward export markets, have become increasingly involved in environmental policy debates. Resonating with the history of their larger multinational counterparts, their involvement has come after a belated realization of the potential impact of environmental regulations on their activities. As actors in the supply chains of MNCs, and as global traders in their own right, SMEs find themselves subject to a bewildering array of regulations that they have to comprehend, or product specifications that they have to meet. Compliance costs can impose a significant burden on SMEs, which lack economies

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of scale and expertise, and can therefore act as a barrier to market entry. Indeed, supporting environmental regulation can constitute a strategic motive for larger corporations to undermine the competitiveness of their market rivals (Reinhardt 2000). One of the commercial drivers of private forms of (self-)regulation, such as ISO 14001 standards, is the desire to keep smaller firms out of profitable markets by raising the barrier to entry and increasing the costs of compliance with standards (Clapp 1998). Regulatory regimes carry significant implications for competitiveness as costs are imposed unevenly and new market opportunities are created. Regulated industries such as hazardous waste frequently have complex procedures for certifying new processes, thus stabilizing existing technologies and protecting market incumbents. Financial limitations also prevent SMEs from securing a higher political profile for themselves by, for example, hiring lobbyists and tracking legislative activity related to their sector, in the way many larger multinationals do (Dannreuther 2002). While in their role as “street-level bureaucrats” SMEs operate as informal regulators and policymakers, resource constraints and the scale of their operations mean that they are not involved as intensively or influentially as are their multinational counterparts in international forums addressing environmental problems. Although key decisions about government positions on issues that are the subject of international negotiation are formulated at the national level in the first instance, again it is often larger confederations that are the first point of contact for governments, given the breadth of their membership and the proportion of the country’s gross national product that they often represent. Given this opportunity structure, it is unsurprising that the majority of corporations prefer to fight their battles against regulatory regimes through national interest group representation and within decisionmaking channels familiar to them (Newell 2000a). David Levy and Daniel Egan (1998), in a study of the climate change negotiations, showed how US energy-related businesses attempted to keep any regulation at the national level due to their powerful domestic influence. US industry considered itself relatively weak in the international negotiations, which involved more than 140 countries and a set of international institutions, particularly those responsible for scientific assessments, with a degree of autonomy and legitimacy that provided some insulation from the interests of particular countries or industry sectors. This corporate preference for political engagement at the national level stands in contrast to the situation for market-enabling regimes, such as those for foreign investment and intellectual property rights (Sell 1999), which engage multilateral institutions with little representation from social

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groups and are dominated by corporate interests (Levy and Prakash 2003). Corporations have a variety of channels of influence open to them, and are able to draw on their material resources, personal connections, and specialized expertise to pursue their interests. Their command of the capital, technology, and expertise central to production processes and environmental remediation efforts explains the key role they increasingly assume in policy processes at the global level. Larger corporations often hire lobbyists on their behalf or join industry coalitions to represent common positions, lobby governments, and report back on developments that affect them. Occasionally a representative from an industry coalition will be invited to join a government delegation and in so doing gain insider access to interstate deliberations and the informal meetings that run alongside open plenaries and where many key decisions are made. Here they can provide on-the-spot advice to governments, serve as a sounding board for ideas being discussed in negotiations, and operate as crucial allies in building support for policies under discussion. In the negotiation of many international regimes, business has a formal voice in advisory panels and in the process of authoring and reviewing scientific reports. In the climate change case, for example, the contribution of business to the scientific evaluation process was significantly expanded in the third assessment report of the Intergovernmental Panel on Climate Change. Corporations also form alliances with sympathetic government delegations. The close relationship between the oil-exporting states of the Organization of Petroleum-Exporting Countries (OPEC) and the industry coalitions representing the fossil fuel lobby in the climate change negotiations is well documented. Indeed, it was the blatant drafting of text by industry lobbyists for OPEC delegations that led to all NGO observers being banned from the negotiating floor (Newell 2000b). The close ties between the biotechnology industry and the so-called Miami group of genetically modified organism–exporting countries are equally notorious (Newell and Glover 2003). Besides this obvious coalescence of interests between particular industries and states, corporations have been successful in mobilizing state managers in support of policies that promote industry “competitiveness.” The emergence of the “competition state” (Cerny 1990; Palan and Abbott 1996) reflects the perceived structural dependence of the state on business for investment, employment, and tax revenue. Industries are able to heighten fears of loss of competitiveness, therefore, by producing studies that show significant economic losses associated with particular regulatory paths. For example, industry associations engaged

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with the climate change debate funded a number of studies predicting dire economic outcomes if restrictive policies associated with the Kyoto Protocol were adopted (Levy and Egan 1998). Strange’s model of “triangular diplomacy” (1994a), which describes the triangle of relations among states, between states and firms, and among firms, provides a useful way of understanding many dimensions of global bargaining, even if it has less to say about the role of civil society actors in global environmental politics. Corporations with a presence at international negotiations on the environment bargain with one another over which positions to adopt in an attempt to reflect diverse and often contradictory interests. They then adopt diverse formal and informal strategies to register their views with government. The overall outcome is then determined by negotiations between state delegations with the input of corporations. Direct lobbying, position statements, and press conferences are used to sustain pressure on governments to pursue a line sensitive to key industrial interests. “Global” industry coalitions are often formed to express unity of interests across sectors. Examples include the Global Climate Coalition (an alliance of fossil fuel industries) and the Global Industry Coalition (an alliance of biotechnology industries). Despite the geographical and sectoral spread suggested by their titles, in practice they often represent a limited, though very powerful, number of sectors and regions (Newell and Glover 2003). When it comes to the national implementation of often vaguely worded agreements, corporations once again have a key role to play. As the ultimate subjects of regulation, and as the agents with the command of the technology and production processes expected to deliver environmental commitments, they are well placed to help define realistic time frames and reporting commitments. Often, domestic political battles loom over acceptance of the terms of an agreement, such as the congressional spats that marred, and continue to inhibit, the meaningful involvement of the United States in the climate change negotiations. This process of “domesticating” global commitments provides an important entry point for corporations to contest, dilute, and shape the detail of commitments. Corporations can again seek to use their networks and allies to push for national interpretations of global obligations that impose minimum changes on their operations. They can also exercise their structural power to shape the feasible range of policy options open to governments. While access to skilled labor and adequate infrastructure place constraints on where corporations can locate, large biotech firms, for example, consider themselves to be highly mobile. This provides them with a degree of leverage over governments anxious to attract investors; they

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can exercise a powerful threat to move operations elsewhere. The competitive race with China has been invoked by bodies such as the Confederation of Indian Industry, as well as individual corporations, to steer a regulatory course sympathetic to industry concerns in India’s debate about biosafety regulation (Newell 2003a). It is not only the size and mobility of corporations that accounts for their influence upon environmental governance. Some sectors of industry are also better organized than others to represent their interests, often reflecting greater experience of long-fought regulatory battles—for example, the chemical and energy sectors. It is also clear that within the coalitions that represent corporations as a group of stakeholders, such as the ICC, or as a sector on key environmental issues, there are intra-industry battles to define the appropriate position of the organization. The organization of decisionmaking within umbrella federations can have an important bearing on which corporate concerns get screened in and out of global debates. The decline of the Global Climate Coalition, for example, was a product of increasingly divergent political and investment strategies among the leading members of the coalition (Levy 2004). The effects of these different modes of political representation and lobbying are not felt only by the corporations themselves, but impact profoundly upon the nature of political relationships within and between institutions of global governance. The balance of power and authority between public regimes can be altered by the ties that institutions maintain with corporations. For instance, the close interactions between trade officials and firms in cases before the World Trade Organization (WTO) dispute settlement panel and in the drafting of accords such as the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) (largely shaped by the concerns of US industry) are well documented (Sell 1999). But when conflicts emerge between the provisions in one regime and those in another, business may play a crucial role in persuading states to back one set over the other. This is clearly the case in the ongoing debate over the extent to which the Biosafety Protocol is subordinate to, or overrides, WTO rules (Newell and Glover 2003; Newell and MacKenzie 2004). Industry coalitions have played an active role in lobbying for provisions that minimize the opportunity for restrictions on trade. The outcome of these battles, where the rules of regimes appear to pull in different directions, will be shaped, to a significant degree, by industry actors working in both environmental and trade and investment regimes, and working to ensure that neither impinges on their commercial ambitions. These patterns of engagement help to explain increasing attention to the role of corporations within the United Nations system as a whole.

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This interest reflects and coincides with their heightened involvement in bodies such as the Codex Alimentarius Commission and in standardsetting bodies dealing with health and environmental issues. The trade implications of these standards, plus the expertise that manufacturers and exporters bring to these discussions, help to explain the high level of involvement enjoyed by industry actors. This has generated concerns, however, about the potential for conflicts between the public interest goals of these bodies and their increasing dependence on the cooperation of profit-motivated actors. This pattern is of course familiar at the national level, but its emergence in global standard-setting forums has raised apprehension about the independence of international organizations from the actors they are meant to be regulating. Many see this as part of a broader process of privatization of the United Nations system in which private actors are increasingly carrying out the work of the UN, while benefiting from the good reputation of the organization (Lee, Humphreys, and Pugh 1997). This concern reached its height over a proposal by the United Nations Development Programme for a global sustainable development facility to be funded by leading multinationals that have traditionally drawn fire for the environmental impacts of their operations, including such prominent global players as Shell and Rio Tinto. The development of the Global Compact between the UN and the private sector, which businesses have been asked to sign on to, has generated similar controversy. The Compact lists a series of principles drawn from prominent UN conventions, including the precautionary principle, for example, which signatory corporations are expected to respect in their business activities. Many have criticized the veneer of legitimacy that association with the UN provides to companies with dubious track records on social, environmental, and human rights issues, as well as the lack of mechanisms for ensuring that commitments are honored in practice (Zammit 2003; Chapter 13 in this volume). In the environmental context, this theme was a subject of intense debate in 1992 at the United Nations Conference on Environment and Development. The role of business at the summit served as a catalyst for a critical “global ecology” literature that focused on business capture of the negotiations leading to the summit (Chatterjee and Finger 1994; Hildyard 1993). This work documented the role of Maurice Strong, former business leader and organizer of the summit, in projecting the achievements of MNCs at the expense of discussion about the role of corporations in contributing to environmental degradation. Corporate financing of the summit aggravated these claims, and evidence of sustained lobbying efforts by businesses and business associations in watering down the Rio agreements added fuel to the chorus of objections

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to business co-option of the Earth Summit’s agenda. MNCs were able to present themselves, alongside governments, as the appropriate stewards of the global commons, bringing their expertise, technology, and capital to the aid of the environment. The Business Council for Sustainable Development produced its own charter, while the Rio documents focused on the role of business in finding solutions to environmental problems, rather than the question of their regulation. The involvement of business in delivering responses to environmental threats in this way amounted, in Nicholas Hildyard’s words (1993), to putting the “foxes in charge of the chickens.” The debate about the appropriate role of corporations at such global environmental summits continues in the wake of failed attempts to gain support for a UN convention on corporate accountability at the 2002 Johannesburg World Summit on Sustainable Development. A comprehensive political economy account of the role of the corporation in global environmental politics needs to go beyond these important questions of political strategy and political organization, however. It needs to widen the analytical focus beyond traditional “political” activities such as lobbying and include more market-oriented corporate activities that help to explain which corporations mobilize and when, and therefore the political nature of their engagement with environmental issues. Corporate actors play a central role in environmental governance, because their technology, production, and marketing strategies so prominently affect pollution, resource depletion, as well as remediation efforts.

Locating Corporations as Political Actors: Power, Process, and Strategy

Corporations facing common environmental pressures often adopt radically different strategies, ranging from strong opposition and challenges to the scientific basis for action, to constructive engagement and investment in alternative technologies. These differences sometimes defy simple explanation in terms of objective economic interests. Strategies are not developed solely on the basis of a set of fixed, objective interests; rather, strategies rest precariously on perceptions of interests that are constructed in institutional environments as well as through processes of bargaining, and are thus influenced by national and industry contexts (Levy and Newell 2000; Levy and Kolk 2002). One reason that the negotiating process itself is complex and indeterminate is that industry is not monolithic. Corporations approach

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environmental issues with a conception of interests that is influenced by, among other things, their location and the sector in which they are active. Differences come to the fore when they are encouraged to formulate common policy positions as part of international environmental negotiating processes. Robert Falkner’s work (2004) on the ozone regime highlights the important divergences in policy preferences that exist between corporations at different stages of the value chain and with different relationships to technology. Manufacturers of chlorofluorocarbons (CFCs), particularly Dupont, were eager to develop and market high-margin substitute chemicals, while those who had used CFCs as refrigerants were concerned with the technical performance of substitutes, the cost of adapting products, and at the prospect of dependence on a single supplier. This suggests that there will be conflict and heterogeneity even within producer and user groupings. Peter Andree’s work (2004) on the biotechnology industry highlights a similar split between technology providers at the input end, such as Monsanto, and large grain traders such as Cargill at the output end. Country-based factors are also important; supposedly “global” corporations still tend to organize their operations in ways that reflect their home country (Doremus et al. 1998), and equally important, they maintain diverse styles and cultures of lobbying, and different histories and patterns of interaction with the state. The literature on business identifies differences in the lobbying styles, modes of organization, and institutional access of corporations, particularly along transatlantic lines. Many have noted the more adversarial style of business lobbying in the United States as opposed to Europe, where the approach is focused on dialogue, private meetings, and corridor lobbying (Coen 2004). Congressional hearings in the United States allow for more open confrontation and the adoption of aggressive styles of lobbying against environmental proposals, often backed up with media campaigns questioning the case for accepting agreements, such as the Kyoto Protocol on climate change. This reflects broader differences in corporate strategy: in the United States, corporations have been able to contest the scientific rationales for taking environmental action more openly and directly; in Europe, such positions are untenable. A range of strategic, institutional, and sociocultural factors have been invoked to explain these differences in approach (Levy and Newell 2002; Levy and Kolk 2002). Though differences endure, there has been a notable trend toward convergence between the lobbying styles of business in Europe and North America. This flows from the increasingly transatlantic nature of capital integration in sectors such as biotechnology, and attempts by global coalitions to construct policy positions that bridge European-US

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differences. Indeed, industry is increasingly forming issue-specific rather than sector-specific associations for this purpose (Coen 1999). In the case of climate change, David Levy and Ans Kolk (2002) argue that initial transatlantic differences in the oil industry’s responses were shaped by the home-country institutional environment. Over time, participation in the common global industry and new issue-specific institutions have produced some degree of convergence of corporate perspectives, and hence strategic responses. Underpinning many of these shifts in political strategy are broader changes in corporate strategy that need to be understood as part of a comprehensive theory of the firm. The extant corporate political strategy (CPS) literature is primarily concerned with empirical investigation and categorization of the drivers and forms of CPS (Getz 1997). The CPS literature draws from a disparate set of conceptual frameworks. Political strategy at the industry level has been viewed as a form of collective action; the question, then, is one of the costs and benefits of participation. This perspective suggests that industries are more likely to undertake coordinated action when corporations face a common threat, when large economies of scale from cooperation are available, and when industry concentration enables a few large corporations to bear the costs (Lehne 1993). Another stream of research examines the strategic use of regulation by corporations to increase costs for competitors or reduce the threat of competitive market entry (Leone 1986). Several contributions have examined firm-level and institutional variables that affect the political strategy formulation process. Jean Boddewyn and Thomas Brewer (1994) have asserted that the intensity of political behavior is likely to be greater when the stakes are higher, opportunities for leverage are greater, and corporations’ political competencies are more developed. Moreover, this political behavior is likely to be conflictual rather than accommodating when potential policies have a high strategic salience, when the situation is perceived as zerosum, and when corporations have sufficient power to affect the outcome. Writing a decade before climate change became an issue for the fossil fuel industry, Thomas Gladwin and Ingo Walter (1980) argued that secure supplies and stable demand are the “jugular veins” of MNCs in the oil industry, such that any threat would likely provoke an assertive and uncooperative corporate response. Amy Hillman and Michael Hitt (1999) observed that CPS varies across countries, depending on the political context. In corporatist nations, for example, corporations are likely to use relational approaches to CPS, in which they build a broad relationship with government agencies across a number of issue areas. In pluralist systems, by contrast, corporations are more likely to adopt

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transactional approaches, where engagement with government is on an issue-by-issue basis. These literatures on corporate political strategy and environmental management enrich our understanding of corporate practice at the firm level, but they tend to be decontextualized from the wider relations of power and have missed opportunities to engage with debates about international environmental regimes.

Theoretical Implications

We have already noted the relative absence of attention to the theoretical challenges that flow from taking business seriously in the study of global environmental politics. This neglect is not exclusive to the study of environmental politics. As Ronald Cox notes, “The dominance of the statist paradigm has meant that the power and influence of business has often been minimized or ignored in the study of international politics” (1996, 1). While realism is ambivalent about the role of business, in regime theory business becomes significant only insofar as these groups influence regime formation, maintenance or disintegration (Nowell 1996). Accounts from individuals personally involved in environmental negotiations that associate themselves with the regime tradition allude to a powerful role for industry groups in the ozone (Benedick 1991; Oye and Maxwell 1994) or climate change regimes (Mintzer and Leonard 1994), for example, but the acknowledgment of business influence has not, to date, extended to revisiting conventional theoretical assumptions. Hence, while some strands of regime theory are better placed than others to provide insights into the role of business in global governance, many fundamental assumptions that underpin the theories serve to weaken their ability to take business seriously (Newell 2004b). In particular, the neglect of domestic politics, the assumed separation of domestic and international politics, and the failure to relate developments within regimes and the power dynamics that shape them to broader patterns of economic power mean that much of the influence that corporations bring to global environmental governance is missed. Knowledge-based and interestbased theories of international institutions would be better placed than power-based theories to comprehend the multiplicity of roles that corporations play in global governance, but statist and pluralist biases within regime theory continue to obscure a clearer understanding of the complexity of the corporation as an actor in global politics. Work on business and foreign policy, on the other hand, generates important insights about the agenda-setting role of firms. But while the

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work of Cox (1996) and others usefully draws attention to the importance of the sectors in which corporations are based as a determinant of their policy preferences and explicitly seeks to develop a theory of business conflict, its application to global environmental politics is limited by its neglect of the role of civil society actors. Indicative of this, Cox notes for example, “The power of business is articulated through the interaction of three entities within the international system; the nationstate, the multinational corporation and domestic firms” (1996, 1). Given that IPE has placed state-market relations at the heart of its inquiry (Strange 1988; Stubbs and Underhill 1994), we would expect there to be greater attention to the role of the corporation in global governance (Stopford and Strange 1991). Some authors have charted the significance of the rise of nonstate actors in the global system (Higgott, Underhill, and Bieler 1999) in general terms, or sought to explore the role of a particular group of business actors in making global public policy (Sell 1999; Newell and Paterson 1998). But despite studies on private regimes that challenge our thinking about the role of firms in global governance (Haufler 1995; Cutler, Haufler, and Porter 1999), theorization of the role of firm in global governance remains underdeveloped. This is also true of global environmental governance. While scholars of IPE have tended to neglect environmental issues, writers on the environment have sought to make use of concepts and debates in IPE to account for the global politics of the environment (Saurin 1996; Williams 1996; Newell 2000a; Paterson 2001; Stevis and Assetto 2001), though notably absent is attention to theories of the firm. Only rarely have scholars of IPE sought to understand the significance of environmental issues for mainstream theory or use green political theory to challenge conventional thinking within international relations in general (Laferrière 1996; Laferrière and Stoett 1999) and not so much IPE in particular (Helleiner 1996). Within IPE, broadly conceived, there are a number of theoretical tools and traditions that can be deployed to comprehend more fully the role of the corporation in global environmental governance. Many of these debates, in turn, draw on the community power debates of the 1960s in political science, one aspect of which focused on the role of business in setting policy agendas. Pluralist accounts of the role of business in the policy process emphasize the expertise and resources of corporations that make them important players, without attributing them structural power in the way Marxist and neo-Marxist accounts do (Holloway and Picciotto 1978). Pluralists emphasize the openness of policy processes to any actors able to organize themselves and with the resources to represent their concerns (Dahl 1961), assuming that no one

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actor or group of political players is in a position to ensure systematic and privileged access or to secure outcomes favorable to them on a repeated basis. Attempts to take regime theory in new directions and to build on critiques of mainstream approaches may yet help to “upscale” insights from these debates, providing a pluralist account of global governance in which business actors are merely one among many, perhaps further developing the idea of “complex multilateralism” (O’Brien et al. 2000) or reinvigorating debates about “transnationalism” (Keohane and Nye 1972). In contrast to pluralist accounts, structuralist approaches suggest that the owners of capital exercise structural power over state managers, in that they are able to shape the context in which states make decisions (Strange 1988; Gill and Law 1989). This leverage has been enhanced as a result of changes associated with globalization, such as the capital mobility that allows corporations to relocate and discipline both the state and organized labor. These developments inform the notion of the “competition state” used to describe a shift of power between corporations and states in which national governments perceive as one of their primary responsibilities the maintenance of a favorable policy and regulatory environment to attract and retain private investment (Cerny 1990). Some structuralist approaches go further in questioning the very division of state and market (Holloway and Picciotto 1977) and are critical of many approaches to global governance that neglect the sphere of production and so “overlook the historical specificities of capitalism and the vital links between state and market with the former securing private property to ensure the functioning of the latter” (Bieler and Morton 2003, 6). The structural change that concerns these writers is the change that has unfolded in the structure of production since the 1970s, in particular the creation of “conditions for a hegemony of transnational capital by restructuring production and finance within forms of state and securing the interests of new social forces at the level of world order through institutions in the global political economy” (Bieler and Morton 2001, 23). Beyond these broader macro changes, it remains the case that the contribution of major corporations to the tax base of the state, the growth they generate, and the employment they provide, mean that states, for reasons of resources, expediency, and legitimacy, in many ways require corporate acquiescence for the success of their political programs. The manifestations of the forms of power that flow from this structural influence are many. Concepts from the community power debates are again useful in accounting for the forms of power at work. Relevant here are notions such as the “mobilization of bias” (Schattschneider 1960), ideas

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about “nondecisionmaking” on issues that are screened out of the policy process by being ignored or not even considered because they may threaten key interests (Bachrach and Baratz 1962), and “anticipated reaction” where state decisionmakers refrain from making certain decisions on the basis of how a powerful industry (or other actor) might react (Crenson 1971). In most such literatures, it is accepted that the idea of what constitutes the interest of capital is not hegemonic, as there are of course many fractions of capital each with their own (often competing) interests. What is significant is the extent to which particular sectors that are regarded as having high strategic importance to the success of the economy as a whole are able to project their interests as those of capital-in-general, for the benefit of industry as a whole (Newell and Paterson 1998). In mediating between the interests and concerns of different fractions of capital, such accounts emphasize the way in which state managers are charged with the responsibility of determining what is in the interest of “capital-in-general.” This, in many ways, is where a connection exists to emerging applications of neo-Gramscian perspectives to role of business in global governance. Neo-Gramscian perspectives seek to go beyond some of the more reductionist elements of structural accounts to look at the ways in which coalitions are formed between state, capital, and civil society in order to preserve the hegemony of blocs whose interests are threatened by environmental regulation; material, organizational, and discursive forms of power are exercised in attempts to project narrow interests as collective concerns and to accommodate challenges to those interests. Such an approach, we suggest, is better able to capture the fluidity and indeterminacy of alliances and the outcomes they secure, subject as they are to continual contestation and negotiation, while not abandoning insights from historical materialism about the importance of economic structures in determining the possibilities for global action.

Toward a New Approach

Though the focus in neo-Gramscian accounts is, variously, the formation of historical blocs and the role of hegemony in sustaining the power of a managerial class (Cox 1987), the supportive role of MNCs in particular is central to the maintenance of hegemony. Robert Cox and others describe the ascendancy of a transnational historical bloc comprising a managerial elite from MNCs, professionals from NGOs and academia, and governmental agencies (Murphy 1998; Robinson 1996). Leslie Sklair (1997) points to the strategic function of transnational

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industry groupings such as the Trans-Atlantic Business Dialogue and the European Roundtable of Industrialists in creating the infrastructure of the emerging bloc. In the environmental context, and from a neoGramscian perspective, we might expect to observe specific strategies as actors engage in a “war of position” across each of the three pillars of hegemony. On the material level, corporations develop product and technology strategies to secure existing and future market positions. On the discursive level, they attempt to challenge the scientific and economic basis for regulation and use public relations to portray themselves and their products as “green,” adopting the language of sustainability, stewardship, and corporate citizenship. On the organizational level, they build issue-specific coalitions that traverse sectoral and geographic boundaries and reach into civil society. At the level of the firm, other work is useful in both identifying the drivers of corporate behavior and understanding their interactions with particular governance arrangements. Such approaches challenge the tendency of international relations (IR) literatures to treat corporate interests at an abstract, aggregate level—capital rather than corporations. By opening up this “black box” to more critical scrutiny, we may be better placed to locate the linkages and connections between inter- and intrafirm decisionmaking and the activities of corporations in international environmental forums. Louise Amoore’s notion of the “contested firm” may provide a useful starting point in this regard, as it seeks to go beyond treating firms as “actors, reactors and transmitters of global imperatives” (2000, 183). Robert Falkner (2004), for example, challenges the idea that business passively adapts to the “technologyforcing” pressures of environmental regulation. Rather, he argues persuasively that corporations’ innovative capacity represents a form of “technological power,” which can play a critical role in shaping the design and phasing of environmental regulations. This requires us to do more than regard corporations as transmission belts between national and global levels of analysis and to challenge their predominant construction in IPE as atomized, rational, unitary actors, an approach that is subject to many of the failings of conventional IR theory. As Amoore notes, “Put simply, orthodox understandings of the firm in IPE tend neither to open up the firm to examine the social power relations within, nor to look outside at their extension into wider social contests” (2000, 185). A political economy approach, then, while recognizing the embeddedness of regimes in broader structures, needs to address the specific conditions under which firms engage with particular issue arenas. As noted above, management literature and organization theory offer several

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perspectives on corporate political strategy and environmental management, but tend to be somewhat disconnected from issues of political economy and international governance. The challenge is to connect the two. To link the macro world of international governance structures with the micro level of corporate practices within specific environmental issue arenas, we have begun to explore the potential of neo-Gramscian frameworks (Levy and Newell 2002; Levy and Egan 2003). Antonio Gramsci’s conception of hegemony provides a basis for a more critical approach to corporate political strategy that emphasizes the interaction of material and discursive practices, structures, and stratagems in sustaining corporate dominance and legitimacy in the face of environmental challenges. Corporations practice strategy to improve their market and technological positioning, sustain social legitimacy, discipline labor, and influence government policy. Paul Shrivastava describes the “continuing political battles that proactively shape the structure of competition,” and emphasizes the need to analyze “the social and material conditions within which industry production is organized, the linkages of economic production with the social and cultural elements of life, the political and regulatory context of economic production, and the influence of production and firm strategies on the industry’s economic, ecological, and social environments” (1986, 371–374). A key implication of these linkages is that the traditional distinction between conventional (market) and political (nonmarket) strategy is untenable (Callon 1998; Granovetter 1985); all strategy is political. This broader conception of corporate political strategy provides a more nuanced understanding of the rise of corporate environmental management (CEM), noted above. While proponents claim that corporations have dramatically “changed course,” as alleged in the title of Stephan Schmidheiny’s influential book (Schmidheiny and Business Council for Sustainable Development 1992), many environmentalists have tended to view the CEM phenomenon as, at best, managerialist incrementalism, or dismiss it outright as tokenistic “greenwashing” (Rowell 1996). A Gramscian sensitivity suggests that CEM is not just a set of corporate practices, but also represents a political response to growing public and regulatory pressure over environmental problems. On the practical, material level, CEM can address some of the more flagrant environmental consequences of industrial production, while positioning corporations to take advantage of new markets created by regulation or “green” consumers. On the ideological and symbolic level, CEM portrays a fundamental harmony of economic and environmental interests by constructing products as “green” and depicting corporations as responsible stewards of the environment (Bansal and Roth 2000;

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Purser, Park, and Montuori 1995). This is more than just cynical public relations; corporate managers often come to internalize the “win-win” discourse (Levy and Rothenberg 2002). Together with more overtly political measures, such as lobbying governments and forming alliances with environmental organizations, CEM represents a series of strategies and accommodations that help to shore up corporate legitimacy and autonomy and deflect the threat of more drastic regulation. It is thus about more than environmental sustainability. Hence a meaningful analysis of the corporation in global environmental governance has to operate on a number of levels. At a macro level we have to understand the power of MNCs as a product of a series of structural changes in the global economy that have changed the relationship within and between states and corporations. Many of these changes have been institutionalized in global accords through what Stephen Gill (1995) calls the “new constitutionalism,” whereby the rights of capital are protected from state interference, secured, and advanced through the machinery of bodies such as the WTO that can discipline states not abiding by the “laws” of the market. The internationalization of production and mobility of capital, brought about through both changes in technology and state policy in the form of removing capital controls, have enhanced the leverage of corporations to set the terms of investment. This power has translated into the sorts of political roles, described above, where in their own right, as well as through practices of coalition building, corporations have been able to shape environmental agendas at national, regional, and international levels. In turn, the positions leading firms have adopted across a range of issues from climate change to biotechnology are driven by their corporate strategies and the constraints imposed by technology and production choices. At the same time, the dynamic flows the other way, whereby global discourses and regulatory arrangements impact on choices at the firm level, and therefore also set the parameters of corporate strategy. There is a reciprocal relationship between corporate strategy and governance, operating across a number of levels. To capture these various dimensions, we must combine analysis of prevailing material conditions, organizational forms, and discursive practices, as each constitutes a mutually reinforcing element of corporate power.

Conclusion

A number of conclusions emerge from this analysis. First, in their roles as investors, innovators, experts, and polluters, corporations are critical players in developing the architecture of global environmental gover-

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nance. If we are serious about understanding the economic and political structures and processes that give rise to and at the same time are expected to combat environmental problems, we cannot afford to leave business out of our analysis. Unfortunately, the predominant renditions of global environmental politics continue to privilege state-centric models of interstate bargaining. Second, if we are to place corporations centrally in our analysis, we need to look inside them to understand the processes by which they make decisions about technological choices and political positions. We also need to locate corporations within the competitive dynamics of particular industry structures, and in the institutions and ideologies of the wider political economy. Third, business is not just a subject of a regulatory system imposed by the state; rather, business is an intrinsic part of the fabric of environmental governance, as rule-maker, and often rule-enforcer. Peter Dauvergne’s study (2004) of the logging industry in Asia demonstrates how the governance system is dominated by informal corporate norms and logging practices, resulting in severe environmental impacts. Businesses, therefore, play a key part in environmental regimes as they exist in practice. But they also construct and enforce their own systems of environmental and market governance through programs of certification, such as the Forestry Stewardship Council, for example, and processes of standard setting along the supply chain (Garcia-Johnson 2000). These, in many ways, exist outside of formal patterns of environmental governance, as traditionally understood. At a more fundamental level, however, corporate strategies, with the command of capital and impact on resource use that they imply at the firm or sectoral level and along the supply chain, generate “norms, rules and decision-making procedures in a given area of international relations,” following Stephen Krasner’s classic definition (1983). They are, in other words, regime actors in their own right, though not in a way that would fit the narrow categories traditionally employed by scholars of international relations and international political economy. In accounting for these dynamics, we have suggested a variety of tools in this chapter for assembling a political economy of the corporation. We have proposed a conceptual framework that provides a bridge between environmental practices and strategies at the firm level, and the development of international environmental regimes of governance. In each of the empirical examples cited here, this proved necessary. In the ozone case, corporate technological strategies were both a response to emerging environmental concerns and an important driver of the particular form and timing of the Montreal Protocol. Similarly, the international negotiations to address genetically modified organisms stemmed from corporate market strategies to develop and market seeds based on this

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technology, and corporate political strategies that blocked effective oversight and regulation in the United States. A full account of the evolution of these regimes of environmental governance only makes sense in the context of the political and product strategies of leading corporations. We have suggested the merits of neo-Gramscian perspectives in capturing some of these dynamics. The environment, then, provides a fascinating and increasingly prominent case study through which to develop theories of the firm. For this reason, scholars of IPE and of the firm, in particular, would do well to assess the implications for their own work of literatures within management and organizational sociology, as they have been applied to environmental challenges increasingly facing corporations the world over. Likewise, if scholars of the environment are to make sense of the actors that, for all the reasons outlined above, are central to the routine and mundane practice of global environmental politics, as it plays out not just in global forums where agreements are negotiated but also in the boardrooms where key decisions fundamentally affecting the fate of the environment are made, they may benefit from applying some of the tools and approaches surveyed here.

Note This chapter draws on and develops our previous work, most notably Levy and Newell 2004.

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PART 3 Corporate Social Responsibility

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9 Corporate Citizenship Ian Goldman and Ronen Palan

The role of multinational corporations (MNCs) has been as well acknowledged as it has been poorly thought out in the field of international political economy (IPE). Rarely is a text published in IPE nowadays that does not endeavor to impress its readers of the enormous power of MNCs in the modern world. Statistics are marshaled to demonstrate the colossal financial and economic powers of MNCs, whose turnover all but eclipses the gross national product of the largest states in the world. MNCs are said to control approximately two-thirds of the world’s trade, while approximately one-third of cross-border trade is in the form of intrafirm trade. Not surprisingly, MNCs are considered principal engines of globalization. At the same time, despite their economic and political power, MNCs are, as Christopher May argues in Chapter 1, among the leastunderstood phenomena in IPE. Subsumed under vague and imprecise categories such as “the market” or “nonstate actors,” the nature of their power and influence in the global political economy is a source of great debate; their relationship to the state remains ambiguous, to say the least; and their status in international law is an anomaly. Indeed, a number of legal scholars have concluded that MNCs do not exist in law!1 Why is it that the discipline of IPE has found it so difficult to come to grips with this burgeoning “agent” in the global political economy? The answer must lie to a degree with the history of the discipline. Like any other modern academic discipline, IPE is profoundly “statist” or “nationalist” in character. It emerged in an academic environment that was simultaneously nourished by, and helping to sustain, the agenda of the nationstate. The data we employ are primarily of national origins, collated by agencies of the state for the purposes of the state; even concepts such as 181

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“statistics” refer to the statist origins of the discipline of statistics— which evolve to help the state organize and control its population.2 As a result, it should come as no surprise that IPE scholars have tended to conceive of the global political economy in terms of a fundamental dichotomy between two types of corporate entities, “states” and “nonstate actors,” the latter consisting of a medley of entities, corporations, nongovernmental organizations, religious organizations, and others. Nonstate actors are defined simply with reference to, and in terms of the absence of, the former. Within such a dichotomous conception of the world, IPE scholars have also tended to regard MNCs as constituting a direct challenge to state authority; hence the globalization literature is dominated by the “state versus globalization” debate. Such debates make sense, perhaps, from a statist perspective: anything that is conceived as being “nonstate” and growing in influence is suspected of challenging the presumed preeminence of the state. But do these debates make sense from the perspective of the MNCs? We doubt it: from this, a “statist” discipline’s view of the world is perplexing and bemusing in equal measure—it is a world MNCs certainly recognize and exploit, but the debates that focus on the interaction between states and MNCs are really a distraction from the real importance of these corporations. The purpose of this chapter, therefore, is to rethink certain aspects of the development of contemporary IPE from a corporate-centered perspective as opposed to a state- or national-centered perspective. We present a very brief and highly generalized history of the development of the traditional, individual notion of citizenship and contrast that with the development of a notion of corporate citizenship. The increasing power of MNCs is not the result of a classic power struggle between corporations and the state, nor of a coordinated transnationally oriented class strategy, but rather has a structured social historical velocity and hence outcome rooted in the evolving concept of corporate citizenship and ownership in the context of a territorially bounded nation-state. Specifically, we argue that MNCs transform themselves and, in so doing, change the nature of the “constitution” of the international political economy through their encouragement of states reorienting themselves away from nationals within states, and toward “foreign” corporations outside states. This partial reversal of sovereignty results in a world in which offshore legal “areas” become integrated within traditional nation-oriented states. Furthermore, from a nonstatist starting point, MNCs show how the implicit categories of conventional IPE (state and nonstate actors, agents and structures, etc.) do more to impede understanding than they do to further it.

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Subjects in Law

The rising influence of MNCs and their ability to affect the fundamental organizing principles of the global polity may be intuitive, but is extremely difficult to explain, especially within traditional IPE terms. While evidence of their power and gains abound, MNCs face classic “collective action” difficulties. As Colin Gordon observes, “It is ironic that capitalism—a system premised on competitive self-interest is most commonly understood in terms of aggregate economic performance, the equilibria of supply and demand, or broadly defined class interests.” A close analysis of economic self-interest and competition, he notes, “upsets the expectations of both general equilibrium theory and class analysis.” To begin with, “the influence of business as a class is undermined by the contradictory demands of key interests, the shortsightedness of the market, and the tensions that pervade any social system based on equal political rights and unequal economic resources.” True, we can identify the collective interests of specific industries and the particular interests of competing firms within them [but] each firm belongs to an industry with a distinct organizational and competitive logic, a product of history and industrial structure. Each firm is also one of among a number of heterogeneous competitors whose interests are distinct from those of other firms (which it would often like to eliminate) and from the collective interest of its industry. Competition is further complicated by diverse patterns of integration and investment and invariably involves a number of distinctly situated and motivated firms. (Gordon 1994, 13, 15)

Given these conflicting demands to compete and cooperate simultaneously, how were MNCs able to carve out for themselves such a distinct power base in the global political economy? To many the answer lies in proxies: MNCs, they argue, serve as the proxy for the interests of states, specifically large capitalist states such as the United States. As Gabriel Kolko once observed, “logical deliberative aspects of American power at home and its interest abroad show how fully irrelevant are notions of accident and innocence in explaining the diverse applications of American power today. . . . To understand policy one must know the policymakers—the men of power—and define their ideological view and their backgrounds [and these] men of power do come from specific class and business backgrounds and ultimately have a very tangible material interest in the larger contours of policy” (1969, xi–xii). But this merely changes the proxy issuer from the state to a specific class within the state. It does not solve the collective action problem.

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Rather, it assumes it away by presuming that competition within a ruling class is superseded by a commonality of interest. These assumptions simply do not withstand historical and evidentiary scrutiny. Even within particular industries and within the productive and financial fractions thereof, there is constant competition and conflict of interest both from current members of any putative class, from previously distinct industries, and from the challenge of new entrants. Competition may appear at times to have been among a relatively constant group of people with similar backgrounds or interests. However, contemporary capitalism, characterized by highly mobile “absentee owners,” is simply too dynamic for any constancy of membership or similarity of interests to be maintained for any meaningful amount of time. Others believe that there is a rational bargain involved between politicians and business. Helen Milner argues that the executive wants to maximize her utility, which is assumed above all to depend on reelection. . . . Economic policy is chosen by political agents and political agents seek to win office through elections. In order to maximize their chances of reelection, executives have to worry about two factors: the overall economy and the preferences of interest groups that support them. (1997, 34–35)

This, she concludes, is the source of power of business in the domestic polity. Once again, these assumptions of commonality of interest and action do not survive examination. The role of interests and intentional action in explaining the structure of global power is typically used in international relations and IPE within narrow (usually state-centric) contexts and without adequate emphasis on historical forces. A longer-term horizon leads to a greater appreciation of the enormous sway of the unforeseeable consequences of previously unconnected events over current affairs. While our approach does not lend itself to prescribe actions/policy based on short-term “deliberative situations,” it does lend itself to a more evolutionary understanding that places great weight on adaptability and opportunism as new situations develop that are always only partly of one’s making. Consequently, when it comes to assessing contemporary developments, our starting point is the important difference between the historical evolution of the concept of human subjects in law, or personal citizenship, and the evolution of corporate personality in law, or corporate citizenship. The two have followed different paths, and this history is pertinent to understanding the evolving powers of the MNCs in the contemporary world.

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The development of citizenship was essentially a political evolution (masked by legal language) that developed through an interplay between the governing organization of the day and the individual—a core issue, as it is well known, for the development of liberal political economy. The original Greek notion of citizenship developed in opposition to kinship relations; it defined one’s status within a nonkinship organization. If a person had high status, such as in Athenian Greece, then they had greater opportunities to participate in and influence the organization of relations with others and to attempt to constrain the restrictions that the organization could place on them. Slaves and women, having lower status, were not considered citizens, and accordingly had much less ability to participate in the social rules regarding their activities. This ancient republican tradition of citizenship was transmitted through Aristotle and Niccolo Machiavelli and culminated in Jean-Jacques Rousseau. All of these thinkers concerned themselves with the issue of how “to connect the individual and the state in a symbiotic relationship so that a . . . polity can be created and sustained and the individual citizen can enjoy freedom” (Heater 1999, 53). Liberal thinkers, such as John Locke, Adam Smith, and David Hume, concerned themselves with essentially the same issue, but of course emphasized the generation and possession of wealth. Consequently, the liberal citizen, with property and contractual rights, and protection from the state and others to constrain those rights, created the environment in which capitalism could flourish. Despite this shift in emphasis, a thorough reading of both traditions (republican and liberal) shows that the core issue for both has been and still is the relationship between the governing organization and the individual. While the republican tradition required citizens to be property owners in order to meaningfully participate in a polity, liberals broke down the barriers to acquiring meaningful citizenship by incorporating the acquisition of property itself as a form of participating in a polity. The key issue remains, however, the material basis for the exercise of individual citizenship. T. H. Marshall’s seminal Citizenship and Social Class sets the contemporary agenda by defining the issue of the subject as being one of equality of power wherein the large disparity in resources between individuals and classes within a polity renders the practical exercise of rights and responsibilities biased in favor of some and against others (Marshall and Bottomore 1992; Faulks 2000). The great benefit of this literature is that it renders explicit and undeniable the political connection between liberal citizenship and capitalism. Yet due to the immediacy of the issue of substantive equality, a potentially

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more important issue has been disregarded: the issue of how MNCs have affected the traditional relationship between individuals and the state.

The Evolution of Corporate Citizenship

The development of the notion of corporate citizenship in European law was, in contrast, a more complex and nuanced affair. On the one hand the corporation used the ideas of liberal citizenship to carve out for itself over time legally protected rights from the state, while on the other hand it sought to distinguish its rights from the rights of the owners and investors that compose it. The corporation was caught, therefore, in a far more complex set of forces, which have rendered the evolution of the concept of corporate citizenship more ambiguous than the more developed notion of individual citizenship. There were two strains of early modern corporate forms: state charters and joint-stock companies. Ironically, while personal citizenship as a form of political organization was created in opposition to kinship relations, business organizations in medieval Europe continued to be largely based on kinship relations, be they on familial lines or on more distant racial or tribal lines. To be sure, kings and the church were players in European production and exchange, but their wealth derived primarily from the taxation and pilfering of the primary wealth-generating activities of agriculture, production, and trade. Hence, state charters could be seen partly as a form of vertical integration in which states wanted to move beyond the more derivative role of taxation and to get in on the primary wealth-generating activities available in the new worlds: international trading, mineral exploration, furs, export-oriented agriculture, and exotic spices, for instance. State-chartered companies, among which the best known are the British East India Company, the Hudson Bay Company, and the Dutch East India Company, were formally established as branches of the state that were used to circumvent and otherwise avoid conflicts within Europe prompted by conflicts elsewhere (Kratochwil 1986). They were a form of business organization that was acting on behalf of the state, and thus had no need to resist constraints from the state. Yet at around the same time that state charters were becoming more numerous in Europe, there were developments in other forms of business organization. When agriculture and craft guilds began to diminish in importance as the basis for business organization, business partnerships increasingly were formed across family, tribal, and racial lines. As a result, rules of partnerships and joint-stock companies, and accompanying

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dispute resolution techniques, were developed to handle issues that had previously been dealt with within familial and tribal organizations.3 The development of these rules produced nascent forms of business organizations that were not related on the basis of kinship. Without any traditional kinship power base, states threatened to place severe constraints on the operations of these “foreign” businesses and to usurp their wealth. Thus the external relationship between businesses and states— the citizenship status of nonstate business organizations—became a serious issue. These nascent corporations had three ways of gaining influence over states, and all were used to varying degrees. First, they could use the influence (financial, political) of their individual investor-backers to gain influence with the state. This strategy effectively disregarded the distinct, group nature of the business organization, because the individuals behind the enterprise were not acting on behalf of the organization as much as they were acting for themselves. This tactic disregarded the development of the business enterprise as an actor in its own right. However, the other two strategies that were used, in the long run, were much more influential, as they promoted businesses as group entities in opposition to the state. The second strategy was the attempt to gain for businesses the civil rights that the liberal citizen enjoyed, to allow corporations’ right to property to be protected under law against expropriation and against breaches of contract by both states and other corporations. More than just acting as a protective device, the law developed so that corporations could take action against others that did not carry out agreements and later, against the state itself. Eventually the corporation was given formal legal recognition, having status that equaled and even superseded the rights of individuals. For example, the crucial notion of limited liability and a lack of a time limit on a charter both provided corporations with advantages that individuals lacked. The third strategy pursued by corporations was to provide benefits to the state (e.g., tax and employment) as corporations (rather than as conglomerations of individual investors) in exchange for state benefits, be they military and political aid in expanding into new markets, or subsidies that would aid the corporation in competing against other internationally expanding corporations. This was mercantilism and colonialism in its most glaring form. Eventually, these premodern strategies of the corporation contributed to the gradual legal separation of the corporation from both its owners and the state. The corporation assumed over time, therefore, the rights of citizenship in the sense that it had obtained legally protected

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rights from others and from the state that are distinct from the rights of the owners/investors that compose it. This dual separation, enshrined in law, allowed the corporation to participate in the development of a form of capitalism that was predominantly nationally based, with corporations operating largely within one, or at most two, states. Like the concept of citizenship generally, the modern international corporation had complex relationships to the state. On the one hand, the corporation identified itself in opposition to its home state in order to fend off the state’s attempts to direct its activities. Hence corporations invoked their “civil rights” to seek protection from unlawful restrictions on their pricing power or from what they considered unlawful or illegitimate forms of taxation. On the other hand, the corporation simultaneously and actively identified itself with its home state in order to solicit subsidies or protection in its quest for foreign leverage in its competition against international corporations in other states and to seek the aid of its home state in obtaining effective protections for its property rights and protection from subsidization in other countries. Corporations were required, therefore, to walk a fine line between these two contradictory strategies. As long as corporations were bound to particular states, the two opposing forces could be more or less balanced. However, this was maintained only partially by the actions of the state. Equally the corporation itself actively operated to both detach itself from, and attach itself to, its home state in order to optimize its profitability. The modern corporate citizen acted, therefore, to carve out for itself domestic and international rights, but only within the context of being bound predominantly to a particular state.

The Development of Contemporary Corporate Citizenship

The history presented so far shows the nascence and adolescence of the corporate citizen as the development of its identity was forged in strategies aimed against the intrusions of its two parents. That is, the corporation became gradually separated from the state and its investors and thus became ingrained into capitalist society until its legal status and its social value became largely unquestioned. However, generally speaking, the corporation rarely fought the foundations of its relationship to the state. While it occasionally rebelled against one or the other of its parents during its adolescence, it did not seriously consider the possibility of surviving without the protection of its home state. The corporation’s right of passage into mature adulthood was occasioned by the emergence of a new type of corporate entity in the late

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nineteenth century—the hierarchically organized and well-coordinated and well-controlled enterprise, which first evolved in the United States (Chandler 1990). This was a new type of bureaucratic enterprise that was created by the necessity to accommodate the geographical size and very rapid growth of the US domestic market in the early nineteenth century. As Alfred Chandler notes, the “vast geographical space and the distances between urban centres meant that far more railroad had to be constructed. This in turn required better managed co-ordinated efforts on a continental scale and stimulated the development of other mammoth industrial enterprises such as Standard Oil” (1990, 55). These new enterprises began to transnationalize almost from inception, in turn reinforcing certain tendencies toward structural change in their nature and their relationship to the state. Moreover, transnationalization led to new forms of ownership and three important developments. First, the vast size of these enterprises implied, in time, the diminishment of de jure controlling majority shareholders due to the increased diffusion of ownership, so that vastly fewer individuals or even families held more than 50 percent of the voting rights of large corporations. This led to the rise in importance of the board of directors and the executives within the firm, since no one shareholder or kinship-based group of shareholders could wield direct authority over the enterprise (Berle and Means 1968; Commons 1959 [1924]). Second, in time, owners became more diversified not only within, but also across different states so the responsiveness of corporations to owners within any one state becomes less relevant. Third, ownership itself became corporatized, as it came to be exercised not merely through absentee owners, as Thorstein Veblen (1923 [1997]) observed at the end of the nineteenth century, but also, gradually, through the proxy of portfolio investment. Hence the apparent intermediaries between the de jure shareholders and the corporations— the investment banks, mutual and hedge funds, pension funds, insurance companies, trusts—became the de facto wielders of the authority of ownership. Ownership itself became corporatized with corporations that effectively owned the majority of other corporations. The theoretical hierarchy of accountability, with shareholders controlling boards of directors and boards of directors controlling management, becomes circular when the controlling shareholders are other corporations that are similarly structured. In this environment, the means of profitability had become much more important than the families or the class of the managers of corporations. While states have enacted more rules than ever before to regulate corporate activity, to a great extent these rules were carefully crafted

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and subsumed within a global competitive environment for capital. In this environment, states also had become more dependent on corporate capital flows than ever before, and as we discuss below, this has allowed corporations to play one jurisdiction off another to gain advantage. This has contributed to the formation of new types of state-corporate partnerships in which states provide benefits to MNCs to lure them to a location that is more profitable. Indeed, it is rare today for any sizable investment, “foreign” or not, to be made without state subsidies of some form or another (Palan 1998). Meanwhile, new intermediaries developed between investors and management. The diffusion of shareholders meant that financial analysts, stock markets, credit-rating agencies, and the business media became the new entities toward which corporate executives and board members primarily oriented themselves (Sinclair 1994). Hence it was the combination of all forms of transnationalization— ownership, production, and finance—that changed the orientation of corporations from state or multistate entities toward a global orientation in which every location and jurisdiction became, at least theoretically, a possible location from which investors could be found and in which production or finance could operate. The integration of the global expansion of the horizon of opportunity into the routine management of the corporation—the transnationalization of management—has constituted the transformation of the national or international corporation into the contemporary MNC. The result of these three trends is that the management of corporations became effectively denationalized. Many argue convincingly that despite the spread of their operations across the globe, corporations have maintained a personality that is very similar to the nation from which they are effectively managed (Doremus et al. 1998). However, there is no contradiction: corporations still maintain national personalities while following certain underlying transnationalizing trends. Indeed, MNCs have become adept at appearing to their “home” states as being “theirs” in order to gain benefits, while also appearing to global investors as being “theirs” to maintain access to capital. This ambivalence of identity is a crucial part of the contemporary means of profitability. This expansion in the horizon of opportunities was not only a means to gain access to new investors and states, but also a tool that could be used against them to gain leverage. This has led to a fundamental change, we would argue, in the nature of corporate citizenship, as the orientation of corporations’ rights and duties shifted away from investors and officials within one or two states toward investors globally and away from state officials in general. Of course, once certain conditions are in place, corporate entities have learned to take advantage to advance their interests.

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But in doing so, they are merely acting opportunistically within a given facilitating situation. This trend is not the result necessarily of anticipatory and coordinated activities of some transnationally oriented class, but a structured outcome of the coming together of a number of disparate trends: the changing nature of ownership, the natural tendencies of capital to expand, and the conditions generated by the velocity of a historically constituted territorial state system.4 That is why we question a class-oriented analysis of social change: we feel that it often offers a retrospective and somewhat misleading interpretation of the causes of change, confusing outcome with cause and exaggerating the influence of intentional action and foreseeable consequences.

Inversion of Sovereignty: The Advantages of Being “Foreign”

To illustrate our point, it might be useful to examine the development of the World Trade Organization (WTO) and its impact on the concept of corporate citizenship. The WTO is probably the most important part of the constitution of contemporary capitalism. There are two basic principles of the constitution of global power that have been enshrined through the WTO. These principles are the means by which mercantilism has being gradually diminished and liberalism has been gradually ingrained within the contemporary international political economy (Goldman 2001). The first principle is national treatment (NT): this prevents foreign goods (General Agreement on Tariffs and Trade [GATT], Article 3), foreign services (General Agreement on Trade in Services [GATS], Article 17), and intellectual property (Agreement on Trade-Related Aspects of Intellectual Property Rights [TRIPS], Article 3) from being treated worse than domestic goods, services, and intellectual property. In the area of taxation, double-taxation treaties are based on this same principle (Organization for Economic Cooperation and Development [OECD] Model Tax Convention, Article 24[1]–[3]). The principle behind the huge network of tax treaties is that foreign corporations should not be taxed any worse than domestic corporations. The other constitutionalized principle is the most-favored-nation (MFN) principle, which establishes that a state must grant to all other nations the same terms it offers to its most-favored nation. This principle is enshrined in major multilateral agreements (GATT, Article 1; GATS, Article 2; TRIPS, Article 4; OECD Model Tax Convention, Article 24[1]). In the area of taxation, the MFN principle ensures that any tax concessions that are granted to firms from one country are granted to firms from all other countries.

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Together, the NT and the MFN principles have become the cornerstones of international economic relations since the second half of the twentieth century. They were created essentially to combat the mercantilism in which states favor their national companies. However, by becoming preoccupied with one threat—mercantilism and protectionism—these rules have unwittingly created incentives that have become exploited by MNCs to create new threats. The widespread misconception, perpetrated especially among state officials, is that the NT and MFN principles stipulate that the benefits given to their own citizens must be the same as those given to foreigners. However, together these principles only provide that the benefits given to native firms must also be given to foreign firms. This points to a central myth about these constitutionalized principles of the modern global political economy. These principles are presented as being about treating economic actors “equally” or in a manner that is nondiscriminatory with respect to their nationality. In reality, these principles and rules of conduct have encouraged inequality and discrimination in a specific way. The MFN principle ensures that any foreigner is treated the same as any other foreigner, and the NT principle ensures that foreigners are treated no worse than natives. Seen another way, two weapons have been provided to foreign states to allow them to break through the mercantilist barriers of the state. First, the MFN principle provides a weapon to a foreign state to be wielded against any state that puts up its mercantilist barrier to treat other foreigners preferentially. Second, the NT principle provides a weapon to foreigners to be wielded against any state that puts up a mercantilist barrier to treat its natives preferentially. These two weapons have been quite effective in dismantling and preventing obstructions from affecting international commerce along state boundaries. However, while obstructions along state boundaries are gradually diminishing, other, more subtle types of boundaries are escalating. Mercantilism showed that states would always act in favor of their natives through subsidies or tariffs against foreigners. Liberals saw mercantilism as a global Prisoners’ Dilemma in which all states would be better off if states did not create barriers to commerce but if each individual state had an incentive to do so. The MFN and NT principles were intended to create a liberal state in which commerce was facilitated rather than impeded by treating natives and foreigners equally. However, the liberal state has developed into a mercenary state—a state that commercializes its sovereignty—in which the state is turned against its own natives. This is occurring because these rules provide no restriction on treating foreigners better than natives. This new “constitutionalism”

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(Gill 1998) has produced no effective grievance mechanism for natives when the interests of foreigners are given precedence, most blatantly in international trade law, since only states are permitted to lodge disputes with the WTO. The predominant assumption of the WTO is that native companies will place pressure on their home states to take action in the WTO to counteract the activities of other states. This assumption is so prevalent that it hardly needs to be stated. However, native firms have no ability at the WTO to challenge the effective subsidization by their own states to foreigners. This is because it was not seriously contemplated in the mercantilist world in which the WTO was created that states would subsidize foreigners. But that is exactly what happens. To the chagrin of US car manufacturers, the Mercedes plant in Alabama, set up in the early 1990s, reportedly had attracted US$253 million in tax incentives and other sweeteners by 1994. And that was for a relatively small plant offering no more than 1,500 workers in an area that enjoyed little unemployment (The Economist, January 8, 1994). Similarly, Siemens investment in Tyneside, UK, is estimated to have attracted £200 million by 1995 (The Economist, August 22, 1995)—a figure never matched by British producers. Domestic manufacturers may lobby their own government, but they do not have recourse for their grievances in the WTO. The situation in the so-called transition economies is probably worse, where subsidies and tax holidays to foreign corporations have reached new heights. If this inversion of subsidization was even envisaged, it would be expected that the native’s recourse would be to its domestic authorities. In this environment, “domestic” MNCs find it increasingly beneficial to operate in their home state under a flag of an offshore state! This way they can choose, like any other “foreign” corporation, which aspects of their activities they wish to be regulated by their home state. Corporations are increasingly using offshore not simply as an exit strategy, or as means of facilitating international investment strategies, but also as means of obtaining equality with the treatment of foreign corporations in their home states.5 The net effect is an accelerated transnationalization of capital that accelerates, in turn, the trends in corporate citizenship described above. Let us recall that at an earlier stage corporations had two main strategies to gain leverage with respect to states. First, they were able to gain legal status as collective entities able to enforce contracts and state obligations. Second, they provided benefits to their home state in return for state favors. We may call this the “mercantilist bargain.” The liberal world consisted of corporations that were predominantly based within a particular state. The contemporary form of influence of the MNC

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adds, however, a crucial strategy that was not available during the mercantilist phase and was being developed during the liberal era: the movement or the threat of movement of business activity. The threat is used by corporations to negotiate with states in securing better treatment than locals regarding subsidies from foreign states. This “movement” happens with respect to production facilities, the tax residence of corporations, and the booking location of business transactions. This “exit strategy” would be seen from a classical republican perspective as being nonsensical or masochistic. In ancient classical society, exile was seen as equivalent to, or worse than, capital punishment. The ultimate punishment during classical times was the excommunication of the offender from the polity. This idea is still prevalent in the concept of sovereignty—the attainment of citizenship of a sovereign state is the basis for civil rights of the individual. MNCs, however, turned exile on its head. The corporate citizen uses the threat of a selfimposed exile—taking its resources elsewhere—as a lever to gain concessions from states. This is a divide-and-conquer device that corporations use to extract benefits as foreigners or potential foreigners, ultimately resulting in the “offshore world” of today (Palan 2003).

Corporate Statehood

While corporations take on the role of a transnational citizen in the contemporary world, they also take on, or present themselves as aiming to do so, the role of a multiterritorial state. In an insightful reexamination of the notion of corporate citizenship, Dirk Matten, Andrew Crane, and Wendy Chapple (2003) argue that corporations are increasingly the mechanism through which substantive individual rights are upheld. There are two ways in which corporations are assuming the role of states. First, in states that do not have the resources, especially developing countries, MNCs are increasingly expected to protect rights and provide benefits. International organizations, both governmental and nongovernmental, are constantly putting pressure on MNCs to ensure that they provide adequate working and living conditions for their workers, such as housing, wages, hours of work, minimum age of workers, safety within the workplace, pensions, education, employment training, and medical care. Moreover, MNCs are scrutinized for the amounts that they contribute to their host countries in terms of taxes, employment, infrastructure, technology transfer, and skills transfer. Thus, “civil society” and the “international community” place demands on MNCs for the social benefits that developed states are expected to provide to their populations.

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In developed states, MNCs can be seen to be playing an even larger statelike role. First, MNCs provide the means of sustenance for the majority; while developed states provide welfare state benefits for the minority, MNCs provide them for a large part of each national populace. In addition to the services provided in developing countries, in developed countries MNCs are more actively involved in dispute resolution (grievance resolution, mediation, arbitration), pensions, and other social activities. However, there is another underappreciated way in which MNCs act like states: they increasingly provide the site of identity formation. In the liberal, modern era, states had corporations that they believed were “theirs” in the sense that they were members of their society in a similar way that individual citizens were. Similarly, corporations perceived themselves to be members of, and attached their identities to, a particular state (or perhaps a small group of states) (Doremus et al. 1998). However, MNCs have increasingly become sites for identity formation in their own right. As collective entities in which workers spend a large part of their lives, the effectiveness of the corporate enterprise requires a devotion that rivals, and often exceeds, the loyalty that citizens are expected to provide to their respective states. This is especially the case where meaningful collective bargaining is not present, but also explains the large amount of international intracompany transferees. Moreover, in developing countries where governments have chosen to withdraw from providing services, corporations often find it in their interest to fill in the gap in areas such as employment training, workplace safety, infrastructure development, and medical care.6 Cost-benefit analyses dictate that they provide these services lest their profits fall. For all of these reasons, MNCs are increasingly assuming the role not just of an active citizen but also of an active statelike entity. Of course, there is a crucial difference between a nation-state and a corporation-state, other than the obvious feature of multiterritoriality. Global power relations are such that workers, even collectively, usually are unable to put significant pressure on management to respond to their demands or the necessary skills and information to question their identification with their employers. As a result, to the extent that MNCs adopt statelike responsibilities, they respond to external pressure from international organizations to a much greater degree than they do to internal pressure from their own workers. Due to their profit orientation, MNCs are reluctant benefactors who conceive of their workers much less as members of the community than as resources from which more must be extracted than contributed to. Yet despite these attitudinal and identification differences, the adoption of a statelike position in the contemporary global economy by MNCs cannot be denied.

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Conclusion

In this chapter we have argued that there is great insight to be obtained by taking corporate citizenship seriously. This presentation of the historical sketch of corporate citizenship has linear and circular trajectories, both of which raise new issues for IPE. The linear view of the development of MNCs shows how the form of collective business enterprise had to first distinguish itself as being more than just a collection of people who wanted to do business in concert. Eventually this form of business organization grew to challenge the accountability of the governing organizations both nationally and internationally, such that their orientation may now be directed more to the needs of these burgeoning capital-controlling organizations than to the needs of individuals. From this linear perspective, the key question that arises concerns whether MNCs are necessary intermediaries that pool resources to provide ultimate and optimal benefits for individuals, or whether the means have unwittingly become transmuted into the end such that individuals have somehow become the intermediaries to provide for the ultimate and optimal benefits of MNCs. The circular view of the history shows MNCs to be caught within a cycle of isolation from, and integration back into, the role of governing. MNCs started out as branches of states’ international expansion in the form of chartered companies; they gradually became isolated from states and deterritorialized to the point where they now play states off against one another and take advantage of the cracks between national jurisdictions. However, we have also seen how their access to enormous resources and their organizational abilities have led them back from whence they came: MNCs are now playing a statelike role both within developed states and especially within developing states. Hence the circular perspective provides an equally challenging question: Do the overall effects of this privatization of governance undermine the notion of citizenship more than they enhance it? The development of the domestic liberal constitution was essentially a battle between individuals and classes and the state. The development of the contemporary global constitution may unfold to be a battle between national citizenship/statehood and corporate citizenship/ statehood.

Notes 1. See Chapters 1, 10, and 13. Yitzhak Hadari writes, “the MNC is a business and economic creature, and the usage of that term is presently found only

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in those fields. Properly viewed the MNC is not a single legal entity, but rather a group of corporations throughout the world sharing a single underlying economic unity” (1973, 754, emphasis in original). 2. The concept of “organization”—whether public or private—refers as well to the original aim of the eighteenth- and nineteenth-century social reformers to create social entities modeled on God’s creation: organisms. 3. There has been much interest lately in these rules of dispute resolution, the law merchant (or lex mercatoria), which have seen a recent renaissance in private international law. 4. For detailed discussion, see Palan 2003. 5. This is known, in the international tax-planning literature, as “roundtripping.” 6. Editor’s comment: In South Africa, for instance, a number of large mining corporations are now providing combination therapies for members of their work force who are living with AIDS, because until recently the state has not been willing to provide such treatment (see The Economist 2004a).

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10 Transnational Business Civilization, Corporations, and the Privatization of Global Governance A. Claire Cutler

This chapter is concerned with the normative and institutional dimensions of the emerging transnational business civilization. It focuses on what is being described more generally as a “revolution” in corporate law and practice centered around emerging norms and institutions governing the behavior of corporations. Central to this revolution is an expansion of corporate norms focusing on corporate environmental, labor, and human rights practices and what is known as socially responsible investment (SRI). John Ruggie (2004), former assistant to the Secretary-General of the United Nations (UN) and a major architect of the UN Global Compact, which seeks to govern corporations through voluntary commitments to socially responsible practices, has declared the emerging norms governing corporate social responsibility (CSR) to be evidence of a “new transnational public sphere” and a new nonstate-based public space. Ruggie evokes images of a transformation as profound as that accompanying the transition from the medieval to the modern world. Noting a dynamic interplay between multinational corporations and civil society organizations engaged in global HIV/AIDS treatment programs, Ruggie further notes the absence of a “shared paradigmatic understanding” of this “fundamental reconstitution of the global public domain,” away from an interstate realm to one concerned with the production of “global public goods.” Indeed, there is a growing body of analysis examining the labor, environmental, and human rights practices of corporations and the proliferation of private codes of conduct that seek to govern corporations through voluntary self-regulation. Furthermore, the United Nations Commission on Human Rights, the International Criminal Court, and leading financial institutions are expressing interest 199

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in investigating the impact of corporate investment activities in war-torn states. Together with the growing number of private codes of conduct that seek to regulate corporate business practices, these measures are regarded by their proponents as civilizing influences that temper the hazards of global market forces by giving globalization a human face. The propensity of corporations to externalize costs raises real and growing concerns that the costs and burdens of capital accumulation by private actors are being shifted to societies. In an effort to curb corporate externalities, both state and nonstate authorities are trying to encourage corporations to be more “socially responsible.” The proliferation of codes, statements of principle and good practices, and voluntary arrangements that seek to regulate corporate practices is said to constitute the dawn of a “new era” for corporate social responsibility and for progressive corporate law (Testy 2002). For some, such as Ruggie, the result is the provision of much needed public goods and signals the articulation of an incipient global civil society and public sphere. However, for critics the CSR and SRI movements signal an expansion of the private sphere and a displacement of governments and their public policy concerns as corporations give their particular stamp to the sorts of practices that are regarded as properly the domain of corporate social responsibility (see Lipschutz and Rowe 2005). Indeed, there is a great disparity of opinion as to just what socially responsible corporate conduct entails, ranging from “hard libertarians,” who articulate the “profit maximization” ethos in the belief that the pursuit of shareholder profit in fact defines socially responsible action (see Friedman 1962; Williams 2002; Muchlinski 2003, 125), to more progressive theorists who call for a more public-oriented approach. The latter do not privilege the value and interests of private shareholder wealth maximization above all other possible values and interests, such as human rights, environmental, and public health concerns (see Williams 1998, 1383). Progressives emphasize “good governance” as fair and transparent dealings with the public (Addo 1999, 20) and regard corporate managers as stewards or trustees of the public interest (Kolk, van Tulder, and Welters 1999, 148). For many this means acting as a “good citizen,” which, as the United Nations Conference on Trade and Development (UNCTAD) suggests (1999, 15), entails voluntarily assuming duties to the public that go beyond legal requirements (see also Addo 1999, 20). For hard libertarians, who “adhere to a Lockean version of the social contract [and limit] the ethical agenda to the protection of private property and basic market freedoms [and are] opposed to the protection of fundamental rights or the environment,” this is unacceptable (Muchlinski 2003,

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125). However, despite this lack of consensus concerning CSR norms, corporations are adopting their own interpretations. Moreover, governments and societies, both locally and globally, are devising a number of institutions and practices that attempt to control, or at least contain, the adverse consequences of the profit maximization ethos. Efforts to enforce corporate social responsibility range from mandatory domestic legislation to civil society efforts to organize boycotts, campaigns, shareholder activism, and civil litigation. While some of these strategies have met with considerable success, there are equally considerable obstacles to their effective deployment. Inadequate resources to support sustained cooperation, problems of access to documents and evidence necessary to satisfy the necessary standard of proof, and insufficient resources to sustain a counteroffensive legal action all prevent the effective control of corporate behavior in many less developed countries (Ward 2001, 4; Ayine 1999, 133; IRENE 2000, 23; Ratner 2001, 462–463). Furthermore, corporations may shift capital and operations around the world and use overseas subsidiaries, joint ventures, licensing agreements, and strategic alliances to assume foreign identities if national regulatory actions are perceived as impediments (Roht-Arriaza 1995, 484–485; IRENE 2000, 7). As the International Commission on Human Rights Policy (ICHRP) notes, “Only in exceptional cases will courts ‘pierce the corporate veil’” to impose liability (2002, 81). Doctrines of limited liability and corporate personality prevent holding corporations accountable (see Cutler 2000). Indeed, as Michael Addo observes, it is “pointless to define responsibility in terms of national jurisdictions only, while the transnational corporations continue to have ease of movement between countries” (1999, 23). Indeed, although it is increasingly a global concern, international law has been highly ineffective in regulating corporate social responsibility. This chapter seeks to problematize the idea of corporate social responsibility as the normative foundation of an emerging “public” sphere by analyzing the emerging global business civilization as a dimension of the expansion of “private” authority in global governance, a transformation in international law associated more generally with changes in local and global political economies under conditions of late capitalism and postmodernity, characteristic of the contemporary historical bloc (see Cutler 2003, 2004). The chapter develops a picture of multi-level and pluralistic governance arrangements embedded in deeper cultural expectations and understandings about political economy, law, and acceptable business practices deriving from neoliberal political ideology and economic theory. An emerging global business culture is giving rise to a global business civilization that disciplines and limits the scope of corporate social

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responsibility, while providing a unity of purpose and increasingly homogeneous design for global corporate norms and practices.

International Law and the Control of Corporate Behavior

The analytical and theoretical foundations of international law form obstacles to the development of international economic law regulating corporate conduct because they render multinational corporations (MNCs) legally “invisible.” However, despite the failure of efforts to create international institutions to regulate MNCs, important developments in international human rights law and in civil litigation under US law have a bearing on corporate social responsibility and accountability. The traditional starting point, analytically and theoretically, is that public international law is exactly that: law dealing with the public relations between states. It does thus not address the international relations of private persons or entities, because that latter is the preserve of private international law (see, generally, Cutler 1997). Relatedly, only states are recognized as having full legal rights and responsibilities under international law, that is, international legal personality (see Cutler 2001, 2003). According to the International Court of Justice (ICJ), international legal personality entails two things: being capable of possessing international rights and duties, and the capacity to maintain these rights by bringing international claims.1 Other entities, such as international organizations and corporate entities, may be vested with degrees of international legal personality by states; however, their legal personality or identity remains a derivative status that is contingent upon state authority. Such personality is filtered through the identity of states, which remain the main subjects of international law. A “subject” of international law “has a capacity to enter into legal relations and to have legal rights and duties” (Malanczuk 1997, 91). The identification of states as the proper “subjects” of international law is generally associated with the nineteenth-century doctrine of legal positivism, which attributed the binding force of international law to states and state consent. Under this doctrine corporations are not properly regarded as “subjects,” although they are considered as “objects” possessing derivative legal personality, like individuals, under international law (Johns 1994, 897; Higgins 1985; Higgins 1994, 49–55). The difficulty of imposing “command-and-control” style regulations on MNCs for their conduct under such a system is obvious. Corporations, as objects, cannot initiate a claim or be the defendant of a claim in the International Court of Justice, the main traditional venue for enforcing

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international law, which is limited to the participation of legal subjects, being states and, in appropriate cases, international organizations. A corporation must thus depend upon the state of which it is a national to take its claim before the ICJ. Moreover, there is no legal duty for a state to undertake the claim of a national; this is purely a matter of discretion. However, many contemporary developments have shed doubt upon the accuracy of this state-centric view, in that nonstate or quasi-state entities appear to exhibit elements of international legal personality. For example, when states enter into treaties creating international organizations, the latter are vested with the legal personality required to fulfill their mandate, but they remain “secondary subjects” (Higgins 1994, 92; see also Jägers 1999, 263) or “objects” of derivative legal personality (Johns 1994, 897). Therefore, they may have rights and duties conferred on them by states and will be considered to have the legal capacity required to undertake their responsibilities (e.g., the legal capacity to initiate a case at the ICJ). Individuals, too, have been recognized as possessing some degree of legal personality under international human rights law (see Malanczuk 1997, 100). Moreover, now, with the creation of the International Criminal Court and the Rome Statute identifying actionable offenses under international law relating to crimes against humanity, war crimes, and genocide, any doubts about the legal pedigree of individual responsibility under international law may be put to rest.2 However, the situation with MNCs is more difficult to assess. While corporations created by international treaties would be secondary subjects, analogous to international organizations, they are rare.3 More typically, MNCs are created under national systems of incorporation, where they are configured as creatures of national law. However, there are a number of international tribunals that have given MNCs access in order to enforce legal rights, including the International Bank for Reconstruction and Development (the World Bank), which established the International Center for the Settlement of Investment Disputes (ICSID), and the Iran-US Claims Tribunal, where individuals and corporations have legal standing. The UN Compensation Commission and the Permanent Court of Arbitration at The Hague permit MNCs to initiate legal claims against states. In addition, the Canada–United States Free Trade Agreement (CUSTA) and the North America Free Trade Agreement (NAFTA) provide private parties and corporations access to binational dispute settlement panels, while the failed Multilateral Agreement on Investment (MAI) also recognized the right of corporations to sue host states. Most important, in these examples, and in international law more generally, it is corporate rights and the protection of private investment that are emphasized, not corporate duties and responsibilities (see Jägers 1999, 264).

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Moreover, insofar as international law addresses corporate conduct or permits corporate participation, it is difficult to assess whether it is conferring rights or merely benefits, and whether they are under international law or municipal law. As Peter Malanczuk notes, “Even when a treaty expressly says that individuals and companies shall enjoy certain rights, one has to read the treaty very carefully to ascertain whether the rights exist directly under international law, or whether the states party to the treaty are merely under an obligation to grant municipal law rights to the individual or corporation concerned” (1997, 100). The ambiguity is further compounded when attempting to find the normative foundations for notions of corporate responsibility for wrongful conduct. Here, international legal personality shades into a related doctrine of state responsibility that addresses the responsibilities of states for injuries to aliens and their property (see Malanczuk 1997, chap. 17; Ratner 2001). Again the legal focus is upon states, who as the subjects of international law are responsible for international wrongs caused by state action or inaction to the person or property of an alien. In theory, it is the state of which the alien is a national that is regarded as having suffered the wrong. Direct responsibility would lie with the state of which the corporation is a national. Importantly though, the wrong must be imputable to the state. This clearly poses problems of corporate accountability when the conduct is private and not imputable to the state, or even if imputable, when corporate nationality is unclear, as in cases involving a dispersal of corporate control among numerous jurisdictions. Moreover, it means that in order to hold an MNC accountable under international law for a human rights infringement, for example, a legal action must normally be brought against the MNC’s home state, rather than against the corporation itself. As one international legal instrument puts it: “The obligation to protect includes the State’s responsibility to ensure that private entities or individuals, including transnational corporations over which they exercise jurisdiction, do not deprive individuals of their . . . rights.”4 Whether or not a state can be held responsible for breaching its obligation under international law is increasingly being determined by examining whether or not that state exercised due diligence (ICHRP 2002, 52). In the legal instrument quoted above, the immediately successive statement illustrates this: “States are responsible for violations of . . . rights that result from their failure to exercise due diligence in controlling the behavior of such nonState actors.” According to the ICHRP this test “says that a state must have taken reasonable or serious steps to prevent or respond to an abuse by a private actor, including investigating and providing a remedy such as compensation. It gauges the efforts and willingness of a state to act” (2002, 52).

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Where a state is deemed by an international court to have failed to live up to its duty of due diligence, it is up to that home state to take domestic action against the corporation, whatever form that action may take. This is expressly recognized in numerous international legal instruments.5 It has also been recognized in the decisions of a number of international courts.6 However, whether or not that state actually takes action to control corporate misconduct is another issue. As a representative of the US government has noted, “the US Government is not in a position to guarantee that its private sector will [or will not] perform in a [particular] way. . . . Our government does not have—nor does it wish to have—that type of control over our private sector.”7 As a consequence of such limitations on corporate legal responsibility, Fleur Johns has argued that the MNC is “invisible” under international law. It is “an apparition, reappearing in many different forms and contexts—its actuality sifted through the grid of state sovereignty into an assortment of secondary rights and contingent liabilities” (1994, 893). She notes that in contrast to the “dearth” of legal authority over MNCs, there is an “abundance” of literature describing their “power,” with corporate involvement in Chile, South Africa, Venezuela, Ghana, and Iran as obvious examples (1994, 903–906). Corporations clearly have the power and capacity to significantly influence political, economic, and social conditions throughout the world, yet international law permits them to operate with virtual impunity.

Corporate Social Responsibility and Communalization of the Private Sphere

Largely as a result of limitations on recognizing the international legal personality of corporations, there has been a paucity of public international economic laws or institutions that address corporate social responsibility. It is up to states to develop such rules and procedures, and the major economic powers have not been so inclined. Efforts after World War II to create an international trade organization that would regulate corporations and compare in regulatory authority with the World Bank and International Monetary Fund failed due in part to the opposition of the US Congress (Cohn 2000, 27). During the 1950s and 1960s, the United States as hegemon regulated foreign direct investment (FDI), ensuring that it was not threatened or undermined by host states and did not conflict with US foreign policy goals (Cohn 2000, 301). The 1960s witnessed the beginning of what were to become the main vehicles for protecting corporate investments, bilateral investment treaties (BITs), which established the rights and duties of host states and investors. Many

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of these treaties were negotiated under the auspices of the World Bank and directly addressed the matter of corporate legal personality by granting investing corporations the legal right to directly sue host states for breach of their agreements. Importantly, this created limited personality for investing corporations to enable them to protect their investments, but that did not limit corporate conduct in any significant way. It also anticipated the granting of similar corporate legal rights under NAFTA, CUSTA, and the failed MAI (see Cutler 2000). These regimes create an interesting hybrid of public-private authority that blurs the distinction between the public and private spheres. They create protective private legal regimes that secure corporate investment protections and enforce them through the public offices of the state signatories or international organizations, such as the World Bank’s ICSID, and socialize private commercial risks by involving public authorities in the enforcement of private agreements. The need for public global corporate regulatory authority was articulated by some scholars in the 1970s who called for the creation of a general agreement on international corporations, similar to the General Agreement on Tariffs and Trade (GATT) (see Goldberg and Kindelberger 1970). However, it was really the least-developed countries (LDCs) that pushed for the creation of such an institution as part of the proposals for a “new international economic order.” The latter argued that public international law did not take into account the interests of the developing world, and the Group of 77 pressed for rules regulating corporate conduct. In 1974 the United Nations Economic and Social Council (ECOSOC) created its Commission on Transnational Corporations and gave it the mandate to develop a code of conduct for MNCs. Efforts to work a rebalancing of interests between the LDCs and corporations were also taking place in the Organization of Petroleum-Exporting Countries (OPEC) and in the United Nations Conference on Trade and Development (UNCTAD). In an effort to thwart these efforts to significantly rebalance the economic authority of LDCs and private investors, the Organization for Economic Cooperation and Development (OECD) began to develop it own rules, adopting the “Declaration and Decisions on International Investment and Multinational Enterprises” in 1976. In 1974 the United Nations established its Commission on Transnational Corporations (UNCTC), which engaged in drafting a code of conduct for MNCs that regulated such matters as tax evasion, restrictive business practices, and transfer pricing. However, the industrialized states opposed the code, which was abandoned in 1992, when the UNCTC was dissolved. When the World Trade Organization was established in 1995, attitudes toward FDI and the regulation of corporations had undergone significant

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reformulation in keeping with the articulation of the Washington Consensus and neoliberal market discipline, both of which emphasize the need to facilitate the mobility of trade and investment and their protection through privatized dispute settlement regimes. The agreements negotiated as part of the Uruguay Round, such as the Agreement on TradeRelated Aspects of Investment Measures (TRIMS) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), function like NAFTA, CUSTA, and the MAI to socialize the costs and risks of private trade and investment activities. For MNCs, the question of accountability most often turns on whether or not a parent corporation can be held liable for damage that results from activities that are directly the responsibility of the subsidiary (Ayine 1999, 132). However, there are significant legal obstacles to establishing the accountability of the parent corporation, including the principle of the separate legal personality of the subsidiary, limitations on the extraterritorial application of domestic law, and rules of private international law regulating the choice of legal forum. Ultimately, however, a key limitation of international law concerns enforcing compliance. Host countries are often unwilling or unable to impose criminal sanctions, or provide civil remedies, while the states of parent corporations generally do not exercise jurisdiction over the extraterritorial acts of corporations. Moreover, as Paul Redmond observes, business “generally finds this exclusion from the state-based system of global regulation congenial since it frees it for the business of business and respects the central cultural and legal value of shareholder primacy and its correlate, profit maximization” (2002, 23). This failure has led one scholar to note that “international law has not responded to the changes in international society” (Skogly 1999, 248).

International Human Rights Law and Corporate Social Responsibility

There have been developments relating to the legal personality of individuals under international human rights law that have some bearing on the issue of corporate responsibility. As reported in the Harvard Law Review, these relate specifically to the growing legal status of individuals under international law: Over the last fifty years . . . the gradual establishment of an elaborate regime of international human rights law and international criminal law has begun to redefine the individual’s role under international law. It is

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now generally accepted that individuals have rights under international human rights law and obligations under international criminal law. This redefinition, however, has occurred only partially with respect to legal persons such as corporations: international law views corporations as possessing certain human rights, but it generally does not recognize corporations as bearers of legal obligations under international criminal law. (Corporate Liability 2001, 2030–2031, emphasis added)

This is starting to change. Despite the doctrine of state responsibility, nonstate actors such as MNCs are increasingly being recognized as having international legal personality in certain situations. This is possible because the concept of legal personality is not a “static, uniform concept; it is flexible” (Jägers 1999, 262) and is capable of evolving over time. The international legal personality of corporations has evolved to the point where it is now possible to hold them directly responsible under international law for some of the costs they externalize onto society—particularly as they pertain to human rights violations (Ratner 2001). It is most ironic, as Stephanie Farrior points out, that it has taken the international legal regime so long to accept that MNCs have the responsibility to respect principles of international human rights law “given that the first international human rights movement was the anti-slavery movement” (1998, 300). Many human rights are regarded as fundamental to personhood— their immutability transcending the legal artifice that divides international society in other areas. As such, there is a growing recognition of corporate responsibility under international human rights law. Insofar as international human rights law recognizes nonstate actors, be they individuals or corporations, as bearing legal rights and responsibilities, it opens a window for grounding normative claims about corporate conduct. The preamble to the Universal Declaration of Human Rights, the most fundamental and important international legal document for human rights, provides that “every individual and every organ of society . . . shall strive . . . to promote respect for [human] rights and freedoms” (emphasis added).8 As corporations are clearly “organs of society,” they quite obviously should fall within the ambit of the duties prescribed in the Universal Declaration (see ICHRP 2002, 58; Henkin 1999, 25). Indeed, corporations have arguably been under a legal duty to respect human rights since the very inception of the international human rights regime. In the wake of World War II, several German business leaders were prosecuted at Nuremberg for their involvement in the Holocaust. Their actions were decried as, among other things, crimes against humanity. While it was individuals who were the subjects of these legal proceedings, the courts, in delivering their decisions, nonetheless framed

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their decisions in terms of corporate responsibilities and obligations (Ratner 2001, 477). Since that time, there has been growing consensus that corporations do have responsibilities under international human rights law. While this is now taken by the international community as being a matter of course, it still falls short of a set of formal and general obligations. Nevertheless, Holocaust survivors are successfully suing corporations for complicity in human rights abuses during World War II; the UN Security Council has condemned illegal diamond trade in Sierra Leone for complicity in the civil war there; Human Rights Watch has issued two reports on corporate human rights violations in India and Nigeria; and corporations are being examined for their roles in war-torn states (see Ratner 2001). Courts around the world have recognized that nonstate actors have the duty to respect obligations under international law, particularly as they relate to human rights (Paust 2002, 428). As one US court has stated, “no logical reason exists for allowing . . . corporations to escape liability for universally condemned violations of international law merely because they were not acting under color of law.”9 The Israeli Supreme Court of Justice similarly held that “basic human rights are not directed only against the authority of the state, they spread also to the mutual relations between individuals themselves.”10 Others echo the view that the state-centric focus of international law is outdated (Petrasek 2001). As the International Council for Human Rights puts it, “the international legal system is made by states, but it is no longer exclusively for states” (ICHRP 2002, 160). Indeed, there now appears to be wide and growing support for a move away from the positivistic notion of state responsibility, and toward a recognition of international legal personality of MNCs (see, for example, Addo 1999; Cutler 2001; Jägers 1999; McCorquodale and Fairbrother 1999; Redmond 2002; Skogly 1999; Williams 2002). Steven Ratner declares that “the question [now] is not whether nonstate actors have rights and duties, but what those rights and duties are” (2001, 476). Nonetheless, the actual scope of the duties held by corporations is less clearly defined, and not all would accept the finality of Ratner’s suggestion that CSR norms have crystallized as international law. Indeed, it is precisely the absence of such law that has precipitated the recourse by individuals and civil society groups to adopt novel domestic methods of corporate accountability. US Alien Tort Claims Act

One such method involves civil actions under the US Alien Tort Claims Act (ATCA) 28 U.S.C. §1350 (1994). While the original intent of the

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ATCA is disputed, it was enacted in the United States by the first Congress as part of the Judiciary Act of 1789, which created the US federal court system. Its original form provided that “the district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.”11 It was most likely intended to protect US ambassadors and to combat piracy,12 and provides non-US citizens with a means of filing lawsuits in US federal courts to hold any party, whether state or nonstate, US or otherwise, liable for violations of the “law of nations” or of a treaty of the United States (see Williams 2002). Largely unnoticed and dormant for many years, the ATCA was revived in the early 1980s in the landmark case of Filartiga v. Pena-Irala, 630 F. 2d 876 (US Court of Appeals, Second Circuit, 1980).13 The case involved an action by a Paraguayan family against a former Paraguayan police officer, who was in the United States on a visitor’s visa, for the torture and death of their son in Paraguay. The court held that the ATCA may be used against any alleged torturer “found and served with process by an alien within [US] borders” (Williams 2002, 878).14 In the wake of Filartiga, a slew of ATCA cases were brought against corrupt foreign government officials. Indeed, many such cases resulted in significant damages being awarded, including Kadic v. Karadzic, 70 F. 3d 232 (US Court of Appeals, Second Circuit, 1995), whereby two groups of victims from Bosnia-Herzegovina brought actions against the self-proclaimed president, Radovan Karadzic, for brutal acts of rape, forced prostitution, forced impregnation, torture, and summary execution, carried out by the Bosnian-Serb military forces as part of a genocidal campaign. In this case the court held that genocide committed by private actors is actionable under the ATCA. Importantly, the court, finding that international law applies to nonstate entities for grave breaches of international law, while also citing earlier instances in crimes of piracy, and later instances for slavery and some war crimes, opened up the possibility of applying the ATCA to corporations. One of the first attempts to sue a corporation under the ATCA involved indigenous peoples of the Ecuadorian Oriente and downstream Peruvians trying to hold Texaco responsible for dumping toxic waste that caused massive environmental contamination leading to illness, death, and loss of livelihood. Although the court dismissed the case, holding that it should be brought in Ecuador rather than the United States, it had a huge impact in mobilizing indigenous people in the Amazon and spawned other litigation.15 In another case under the ATCA an Indonesian plaintiff took an action against a mining company for environmental abuses, human rights

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abuses, genocide, and cultural genocide alleged to have been committed by security forces at one of its mines. The case was dismissed on procedural grounds and for factual inadequacies, and so the court did not in the end rule on the relationship between the ATCA and corporations.16 In yet another case under the ATCA, Nigerian émigrés sued Royal Dutch/ Shell for complicity in human rights abuses committed against the Ogoni when they protested the corporation’s environmental and human rights abuses, including summary execution, torture, arbitrary detention, cruel, inhuman, and degrading treatment, and crimes against humanity.17 It was alleged that the corporate defendants made payments to the military, contracted to purchase weapons for the military, coordinated raids on the victims, and paid the military to violently respond to opposition. In an action taken by Burmese farmers against Unocal Corporation,18 it was argued that Unocal was responsible for its role in the Burmese military government’s use of slave labor, intimidation, rape, and forced resettlement undertaken in order to construct a natural gas pipeline in Burma. The Burmese government was accused of forcing villagers to work, authorizing rape, and forcing them to relocate in order to clear land for the pipeline, and in 1997 a US federal district court allowed the case to proceed.19 In yet another case, plaintiffs sued garment manufacturers for operating sweat shops in Saipan, an island in the Northern Marianas in the Western Pacific and a US commonwealth (see Williams 2002, 761–762). These cases suggest that the ATCA might possibly address the lacunae in international law concerning corporate responsibility and accountability. In a thorough review of the challenges posed by globalization to corporate accountability and responsibility and analysis of the substantive and procedural challenges posed by four ATCA cases (Texaco; Royal Dutch/Shell; Unocal; Saipan), Cynthia Williams observes that “expansion in adjudicating” corporate ATCA cases in the United States “is likely to continue” (2002, 750). EarthRights International, an environmental/legal nongovernmental organization that represented some of the plaintiffs in the Texaco, Beanal, Unocal, Wiwa, and other cases, has noted of these cases that, “by addressing the question of corporate complicity in human rights abuses, the courts have taken on one of globalization’s biggest problems: multinational corporations have achieved unprecedented international power without corresponding global accountability” (2004, 8). However, this use of the ATCA has been significantly criticized by some legal academics, the US government, and the business community.20 Former US Court of Appeals circuit judge Robert Bork refers to the “judicial imperialism” and “perversion of the law that began with

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Filartiga”: “It is clear that not only is Filartiga wrong but that it is a serious incursion by courts into the domain of Congress, involving as it does, the enactment of world-wide law by an unholy alliance of imperialistic judges and a leftish cadre of international law professors” (2003). Indeed, the US government has tried to narrow the application of the ATCA, citing foreign policy concerns, and has taken the position that the ATCA does not create new rights or causes of action, but merely creates a jurisdiction in which already existing breaches of rights and actions can be tried. The US government filed an amicus curiea brief in the Unocal case stating this position (see Bork 2003). In Sosa v. Alvarez-Machain (124 S.C. 2739, 2004, 2772), Supreme Court justice Antonin Scalia, in disagreement with the majority, echoed the US position and called the creation of brand new causes of action out of the purely jurisdictional ATCA “nonsense on stilts.” The Sosa case is widely regarded as setting the parameters for ATCA litigation, for in it the US Supreme Court held that caution must be exercised in adapting the law of nations to private rights, that legislative judgment would be required to create private rights of action, and that the implications of doing so for the foreign relations of the United States must be taken into consideration. In a recent case, In re: South African Apartheid Litigation,21 involving litigation by a number of plaintiffs against what the court referred to as a “slew of multinational corporations that did business in South Africa,”22 the US legal adviser, William H. Taft, in a letter to the court, expressed the following concerns: “We are sensitive to the views of the South African government that adjudication of the cases will interfere with its policy goals, especially in the area of reparations and foreign investment, and we can reasonably anticipate that adjudication of these cases will be an irritant in US-South African relations.”23 The US District Court for the state of New York dismissed the South African plaintiff’s claims under the ATCA against a number of corporations targeted for their involvement in apartheid. The court held that while the plaintiffs had “alleged a veritable cornucopia of international law violations, including forced labor, genocide, torture, sexual assault, unlawful detention, extrajudicial killings, war crimes, and racial discrimination,” they had not established that the defendant corporations had violated international law. The court applied the limitations set in Sosa, finding that benefiting from a “glut of cheap labor,” cheap power, and high levels of government service, use of Daimler-Benz engines by the South African police who shot demonstrators or use of oil supplied by Shell, tracking Africans on IBM computers, or governments receiving capital from banks on favorable terms did not constitute violations of international law.24 Nor did provision by the corporations of storage space for South African Defense Force arms or

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the corporations’ reliance on South African military patrols constitute violations of the law. The court held that the actions of the defendants could not be construed as state action; at most, the corporations benefited from unlawful state action, which is not a violation of international law. Nor did the actions constitute aiding and abetting violations of international law. The court refused to follow the earlier Talisman case,25 whereby ATCA jurisdiction was found over private actors who aided in the commission of human rights abuses, holding that the doctrine of aiding and abetting was not a clearly defined norm of international law and of questionable application in civil proceedings. Nor was doing business with the apartheid regime a violation of international law. In responding to objections from the South African government and the view of the US government that the adjudication of this case would have a negative impact on foreign policy relations between the two countries, the court opined: In a world where many countries may fall considerably short of ideal economic, political and social conditions, this Court must be extremely cautious in permitting suits here based upon a corporation’s doing business in countries with less than stellar human rights records, especially since the consequences of such an approach could have significant, if not disastrous effects on international commerce. Moreover, to infer such causes of action under the ATCA would expand precipitously the jurisdiction of the federal courts and would not be consistent with the “extraordinary care and restraint” that this Court must exercise in recognizing new violations of customary international law.26

The finding in the South African Apartheid Litigation case directly conflicts with that in the Talisman case, whereby the State District Court of New York, in a lengthy review of ATCA cases, allowed an ATCA claim against Talisman Energy Inc. to proceed to trial. The plaintiffs alleged that Talisman aided and abetted, and engaged in conspiracy with, the Sudanese government in the commission of acts of ethnic cleansing, genocide, war crimes, torture, and enslavement of Christian and nonMuslim people in southern Sudan. In this case the court explicitly stated that corporations may be liable for violations of international law, particularly when these violations are of jus cogens or fundamental norms of international law. The Talisman decision preceded the Supreme Court’s decision in Sosa; it remains to be seen to what extent the ATCA will figure as a mechanism for ensuring corporate accountability under international law or whether it will be progressively narrowed in application to corporate action. Proclaimed by Judge Henry Friendly as an “old and little used section . . . a kind of legal Lohengrin; although it has been

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with us since the first Judiciary Act . . . , no one seems to know whence it came,” the ATCA may indeed retreat to the obscurity from whence it came.27

Corporate Social Responsibility in an Era of Late Capitalist and Postmodern Business Regulation

Corporations themselves are responding to calls for corporate accountability and responsibility by developing “soft,” nonbinding legal codes to foreclose the development of hard, binding international law. The CSR movement is an integral element of the reconfiguration of political authority associated more generally with the contemporary historical bloc. Indeed, there are clear links between the CSR movement, alongside the increasing multiplicity of sources of and mechanisms for corporate governance, and political economic changes brought about by the neoliberal discipline of global capitalism. The Contemporary Historical Bloc and the Efficiency Principle

The complex of material, ideological, and institutional regulatory influences that form the contemporary historical bloc may be characterized as late capitalist and postmodern (see Cutler 2003). Today, states function as competitive market participants in facilitating the adjustment of national societies to neoliberal market discipline that assists in the transnationalization of exchange, production, finance, and investment (see Gill 2003). This is achieved by government policies and regulations that subordinate the interests of national to transnational capital. Late-capitalist regulation involves permissive, market-based legal norms and principles that facilitate the transnational expansion of capital and flexible accumulation (see Harvey 1990) through deregulation, privatization, and the removal of national legal barriers to economic relations. This involves harmonizing and unifying the rules governing economic relations, as well as those governing dispute resolution. Postmodernity in legal regulation reflects a plurality of legal orders operating nationally, internationally, and transnationally, and increasingly in a privatized mode involving voluntary and “soft” regulation (see Santos 1995). The emphasis on achieving flexible production through “soft,” voluntary, and nonbinding codes, rules, and practices is a hallmark of late-capitalist regulation. At the heart of this emerging normative and institutional order is the “efficiency principle,” the grundnorm of neoliberal market civilization. This principle elevates the concern of achieving economic

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competitiveness through market-friendly regulations over competing possible principles and is the defining characteristic of the emerging global business civilization. Government legislation and command-and-control regulation have traditionally been the weapons of choice in the effort to control corporate behavior, and were used extensively for the better part of the twentieth century. During the 1930s, US president Franklin D. Roosevelt introduced a package of legal and regulatory reforms designed to curb corporate power. The New Deal marked the dawn of a new era in efforts to control corporate behavior. This era was characterized by an unprecedented expansion of securities, labor, and environmental regulation, the entrenchment of big government, and the establishment of the welfare state. It was so hotly contested by corporate America that some of its constituents attempted to overthrow the US government as a result. While the attempt, backed by a group led by Gerald MacGuire and including many leading US industrialists and financiers, failed, the incident serves to show the lengths to which the corporate world is prepared to go to externalize political costs onto the rest of society (see Bakan 2004, 86–95). The election into office of the Margaret Thatcher and Ronald Reagan administrations in the 1980s, and the subsequent unleashing of neoliberal “laissez-faire” economic policies throughout the world, marked a turning point in the relationship between government and industry (Muldoon and Nadarajah 1999, 53). Today, faced with the seemingly inexorable force of economic globalization and neoliberal market discipline, the role of government is being recast through deregulation and reregulation as governments function to facilitate the global expansion of capitalism: “Economic globalization is generated by a philosophy in which markets must be allowed to flourish while states are relegated to the role of assisting this flourishing” (McCorquodale and Fairbrother 1999, 765). This involves governments in enhancing the global competitiveness of their industries and corporations, which places a premium on achieving economic efficiency. In turn, corporations are redefining their relationship with governments and societies, “blurring the frontiers of the enterprise and reshuffling its relations with its different internal and external partners” (Gaudier 1999, 50). In recent years, most governments have sought to liberalize, deregulate, and privatize national economies. As noted by Virginia Haufler, “Almost all of these reforms are market-oriented; that is, they either substitute markets and the private sector for regulatory regimes or have public agencies use market approaches, structures and incentives to achieve their regulatory goals” (2001, 22). Increasingly, “governments are turning to private firms to perform public functions . . . once thought

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to be within the exclusive province of the state” (Freeman 2000, 595). Indeed, Jody Freeman notes that in so doing, the administrative state is becoming a market participant as the “contracting state . . . shrinking while simultaneously relying on contract as the principal method of social service delivery” (2000, 594).28 Moreover, there is a growing trend toward the “private ordering” of functions traditionally regulated by the public sector (see, generally, Cutler, Haufler, and Porter 1999; Schwarcz 2002). Government agencies across a variety of regulatory contexts are turning to private authorities for expertise and assistance. These are the characteristics of what John Ruggie calls the “newly emerging global public domain” (2004, 32). In this domain, “there is neither a purely public nor a purely private realm. There is only interdependence” (Freeman 2000, 565). Indeed, reregulation has brought a new set of governance challenges: Governments are experiencing what might be termed overload, with demands for policy and services exceeding capacity to respond. As a consequence . . . a major challenge faced by democratic governments [is] to achieve new efficiencies in the conduct of public affairs. One means of accomplishing this is to harness resources residing outside the public sector in furtherance of public policy. (Grabosky 1995, 527)

Moreover, both governments and corporations are responding to increased international competition by eliminating “unnecessary inefficiencies” through streamlining and harmonizing national and international procedures (Muldoon and Nadarajah 1999, 53). Societal goals, both locally and globally, are being identified in harnessing “the power of markets in the social interest” (Helleiner 2001, 247). The market has thus replaced or displaced the state as the appropriate locus of regulatory authority (Strange 1996). Moreover, states are being recast as market participants and as agents of global markets, charged with the task of facilitating the adjustment of national economic policies to the needs of global capitalism (Gill 2003; Evans 2000, 427). Likewise the World Bank embraces the attainment of efficiency as a central guiding principle, and informs a multiplicity of regulatory sources. Legal Pluralism, Corporate Social Responsibility, and “Soft” Regulation

There are a variety of sources of authority that constitute the emerging neoliberal business civilization, which Ruggie characterizes as a “newly emerging public domain.” These involve domestic governmental initiatives, intergovernmental initiatives, private-public partnerships, and

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corporate self-regulation through private codes of conduct.29 Each plays a role in promoting norms of corporate responsibility that are marketfriendly and that promote neoliberal market discipline. They also involve industry and the private sector to different degrees in the regulatory process. To supplement traditional techniques, governments are adopting initiatives aimed at facilitating the adjustment of their societies and political economies to global market forces. This involves the promotion of permissive corporate responsibility norms that do not interfere with market forces in any significant way. Governments may provide the experts and human capital required for industry to self-regulate (OECD 2001b) or legal and financial incentives for corporations to behave “responsibly” (Fox, Ward, and Howard 2002; OECD 2001b; Gunningham 1995; Ratner 2001). Financial incentives include providing industry with subsidies and tax breaks. Legal incentives may serve to reduce penalties imposed for misconduct where the corporation can demonstrate that, despite the wrongful behavior, it had lived up to a certain standard of care. Some of these measures create mandatory legal obligations and thus are departures from the dominantly permissive CSR regime (e.g., Australian and Canadian competition laws and US federal sentencing guidelines). The OECD identifies these initiatives as creating “powerful incentives for firms to implement formal compliance practices and management systems” (2001c, 43). However, in general, mandatory legislative approaches to fostering CSR have met with limited success in the past few years. For example, there was a failed attempt in Australia in 2000 to pass a corporate code of conduct bill that sought “to impose minimum environment, employment, health and safety and human rights standards on the conduct of Australian corporations employing more than 20 persons in a foreign country” (see Redmond 2002, 25). The following year, there was an attempt in the United States to pass corporate code of conduct legislation that would have rewarded a corporation for complying with its conduct code by giving it preferred status on bids for government contracts, and punished noncompliance by withdrawing any government assistance and by creating legal liability in the courts (Westfield 2002, 1104). Conversely, as Ruggie argues (2004), a new British draft company law slated to take effect in 2006 may be the most far-reaching CSR measure yet. Alternatively, governments may require companies to publicly disclose why they have not taken certain steps seen as socially responsible,30 or require them to engage in a type of “moral suasion” (OECD 2001c) by endorsing socially responsible behavior.31 Governments also are involving private industry in matters of public governance by contracting out public functions (Gunningham

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1995) or by entering into partnerships with private industry (Fox, Ward, and Howard, 2002; Gunningham 1995), and can defer to self-regulatory programs and encourage the development of sector-specific codes (OECD 2001c, 94).32 In addition, government agencies incorporate voluntary initiatives by reference, and state and governments routinely adopt them (Freeman 2000, 640). However, governments sometimes refrain from any action, leaving allocative and ordering decisions to the market (Gunningham 1995). Indeed, increasingly the state is moving away from its role as “an active policymaker to a passive unit of administration” (Evans 2000, 433). The method a government chooses depends on the circumstances.33 Another way that domestic governments are engaging industry in creating this “new global public domain” is through their efforts to create international agreements pertaining to the conduct of MNCs. Helina Ward (2001, 5–6) notes that intergovernmental agencies assist in building shared expectations about corporate conduct that may connect to legal norms. Indeed, intergovernmental initiatives have proliferated in recent years and have generated renewed interest in previous attempts to regulate corporations (UNCTAD 1999, 5–6). In addition, intergovernmental organizations are being accorded significant roles in devising CSR initiatives (see Muchlinski 2003, 145). However, the distinctive aspect of these initiatives is their predominantly “soft” character. As Sol Picciotto notes, the “main response to the pressures that globalization has created on the formal separation between national and international law has been the growth of new forms of so-called ‘soft law’ in the international arena” (1999b, 15). According to UNCTAD, past failures to achieve agreement over binding, hard law precipitated the recourse to voluntary regulation: Faced with the apparent impossibility of generating international standards backed by legal sanctions, some governments initiated discussions aimed at developing non-binding codes of corporate conduct. These devices developed into new “soft law” alternatives, somewhat akin to a defined social contract, whereby governments would endorse and promote the agreed standards as embodying the type of conduct expected of “good corporate citizens.” (1999, 11)

One of the greatest attractions of voluntary initiatives to industry is the greater operational flexibility they offer when compared to command-and-control regulation (Gunningham 1995). Increased flexibility is identified by the OECD (2003d, 69) as one of the “prime objectives” of self-regulation, and is a consistent theme of flexible accumulation under neoliberal discipline (Cutler 2003). Yet, while corporations typically want as much operational flexibility as possible, they also want to

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have the rules of the game well-defined and predictable in order to reduce transaction costs and the risk that changing political conditions or regulatory uncertainties might alter the rules of the game for the worse. By “voluntarily” restricting their own conduct, corporations can effectively preempt government regulation (Sikkink 1986, 817), and reduce the chance that any regulatory change that is in fact made is detrimental to their interests. Indeed, voluntary initiatives can often reduce animosity toward the industry in question,34 and this has served as a powerful motivator toward their adoption.35 Corporations may also engage in voluntary initiatives to limit the risk of legal liability for the externalities they impose on society (Gordon 2000, 8). While they are not “legally binding” (Redmond 2002, 26), they may have “indirect legal effects” (Picciotto 2003b, 145). This is a concern that is commonly manifested in individual corporate codes of conduct,36 and is also expressly recognized in some industry codes.37 This risk may be controlled in two ways. First, voluntary initiatives may “lower the risk that [a] company engages in [wrongful] activity” (OECD 2001b, 89), which in turn reduces its litigation risk. By staying out of the courts, corporations may not only avoid expensive legal bills, but also avoid “revealing internal company documents that can trigger public censure, even if not legal accountability” (Ward 2001, 4). However, voluntary initiatives are no panacea to corporate liability concerns; they can also serve to increase the risk of legal liability (Lu 2000). They raise the risk that an employee or consumer might take an action for a company’s failure to conform to its own policies, although it is unusual for voluntary codes to find their way into legal proceedings against a corporation (Pitt and Groskaufmanis 1990, 1605; Barth and Dette 2001, 30) Finally, voluntary codes, particularly industry initiatives, can also translate into structural power through their influence on the structure of markets and the management of competition. Self-regulation may be used strategically to soften competition (see Maxwell, Lyon, and Hackett 2000, 584, n. 5), gain a competitive advantage (Gunningham 1995, 64), or provide incentives to restrict competition (Brau and Carraro 2001, 37). Voluntary initiatives may affect the terms of competition by increasing industry standards and startup costs, thus posing barriers to market entry, as recognized by the OECD (2003d, 71) and in the CSR literature (Muldoon and Nadarajah 1999, 61; Brau and Carraro 2001, 47; Haufler 2001, 124). While there is always the chance that corporations will become “free riders” instead of leaving the industry, voluntary industry initiatives can serve to discourage such behavior by threatening exposure or disciplinary action (Branson 2001, 607; Webb 1999, 35).

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Where such disciplinary action is taken up in the courts, free riders may have trouble justifying their behavior, as the terms of a voluntary industry initiative can be judicially imposed (Webb 1999, 32). Since a voluntary industry initiative can serve as a “benchmark” for assessing the reasonableness or otherwise of individual corporate behavior (Muchlinski 1997, 84), it can in effect raise the standard of care expected (Ward 2001, 6). Indeed, in one Ontario case, the court held that noncompliance with a recognized industry standard constituted evidence of lack of due diligence on the part of the accused (Webb 1999, 33).38 Ultimately, this disciplining effect may either create an incentive for reluctant industry members to participate in such programs or induce them to exit the market. Either way, the initiative will shift the distribution of costs in an industry and are likely to increase industry concentration (Brau and Carraro 2001, 46–47), thereby representing a key source of competitive advantage for some corporations.

Conclusion: Efficiency for Whom?

Posing the question “Efficiency for whom?” goes to the heart of a critical understanding of the significance of the CSR movement for the contemporary historical bloc, as it directs attention to the interests served by the privatization of corporate norms. It asks: Who benefits from and who bears the burden of voluntary corporate regulation? “Many corporate managements have wrapped themselves in the banner of corporate social and public responsibility. They have done so, though, with a mixed or hidden agenda” (Branson 2001, 636). The complex political economy of private regulatory initiatives involves both benefits and costs to industry, government, and society. However, if these initiatives are to be regarded as elements of a newly emerging “public sphere,” then they must be seen to be serving public, social purposes. As Sol Picciotto cautions, “Regulation entails allocating costs and benefits, and it is not enough to ask whether ‘efficiency’ is increased in abstract economic terms; it is necessary also to consider who bears the costs and who gains the benefits, and whether human welfare is enhanced in terms less easily quantifiable than by an increase in consumption of goods” (1999b, 4–5). Natalie Stoeckl emphasizes the social dimension of regulation, arguing that, “whether or not self-regulation is more economically efficient than other forms of regulation depends upon whether or not it is capable of achieving social objectives more efficiently than other forms of regulation—irrespective of who pays” (2004, 139).

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Indeed, the discourse of efficiency that informs the CSR movement is deeply problematic. It is connected to a more profound set of understandings about the nature of political economy, society, and law that frame issues of corporate responsibility as an economic value, to be determined by market forces. According to this view, at least in AngloAmerican systems, the corporation is cast, not as a social entity serving public purposes, but as an economic entity serving private purposes.39 This framing derives from a set of assumptions flowing from the dominant approaches to corporate social responsibility and is deeply inscribed in US corporate law. As the grundnorm of this nascent “public sphere,” the efficiency principle reduces publicness and sociality to economistic criteria of value, pushing competing social values to the margins. Even more important, and paradoxical, is its role in legitimating private regulatory mechanisms and standards as integral dimensions of the “public sphere.” To the extent that private self-regulation is becoming the defining regulatory mode, we are witnessing the privatization of the commons. The discourse of efficiency naturalizes private, market-friendly regulation as an inherent attribute of neoliberal business civilization. Even if voluntary initiatives are the most efficient means to ensure that corporations behave in a more socially responsible manner, we must consider whether efficiency is the only goal that public policy should protect. One must go further to interrogate the foundations of efficiency discourse itself. There is profound disagreement over just what “efficiency” means. Our understanding of efficiency must be contextualized in terms of the goals that a society seeks to achieve; it is inherently connected to and dependent upon the normative framework of a people. We have learned from political economy that market civilization is not natural or organic in nature, but is the product of human design in the form of legislation and regulation that progressively removed feudal entailments on exchange and restrictions on labor and production. The great paradox identified by Karl Polanyi (1944), and before him by Karl Marx (1952 [1867]), is that “laissez faire” was planned. The naturalization of voluntary regulation as the most efficient and hence desirable method for regulating corporations must similarly be denaturalized and interrogated as a conscious policy choice. Moreover, even economists disagree over how to measure efficiency. In gauging efficiency, most contemporary economic theories compare two or more courses of action to assess which one results in the highest ratio of positive to negative consequences. But as Richard Wolff (2002) notes, this conception of efficiency reflects a highly rigid, simple, and

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determinist view of the world. He notes that feminist, environmental, and Marxist economists have illustrated the incomplete and restricted normative net of the “hegemonic efficiency calculus,” emphasizing the relativity of standards of efficiency. Indeed, there are distinctive power relations associated with the discourse of efficiency, promoted by the efficiency principle, and embedded in the normative framework of neoliberal business civilization. In naturalizing the market and private activity, the neoliberal business civilization reinforces conceptualizations of corporations as “private” entities, devoid of political and social roles and identities. This conception has worked against corporate social responsibility and accountability under international economic law. However, this chapter has reviewed novel efforts to fill the gap in international economic law through a curious marriage of emerging international human rights law and civil litigation under an, until recently, obscure provision of US law. Binding and effective norms of corporate social responsibility seem now to turn on the proclivity of US courts to enforce them. The “public” dimension of the CSR movement in the constitution of local and global political economies and societies must be problematized. The movement must be interrogated in order to reveal its material, ideological, and institutional dimensions, as well as the interests and purposes it serves. It is quite simply inadequate, analytically, theoretically, and morally, to leave corporate social responsibility to private governance framed by contested criteria of efficiency, or to US courts.

Notes 1. Reparations for Injuries Suffered in the Service of the United Nations, ICJ Rep. 1949, 174. 2. The recognition of individual responsibility under international law in the Nuremberg and Tokyo war crimes tribunals was always subject to question as merely victors’ justice, while the ad hoc and temporary nature of these tribunals worked against finding institutionalized norms. Arguably, the tribunals for the former Yugoslavia and Rwanda have added to the normative force of individual responsibility under international law, but the Rome Statute now puts the matter beyond doubt. 3. More common, but less clear, are contracts between corporations and states that have been “internationalized” by express reference to the application of international law (see Johns 1994, 901). 4. Maastricht Guidelines on Violations of Economic, Social, and Cultural Rights, adopted in January 1997, para. 18; cited in Skogly 1999, 252.

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5. See ICHRP 2002, 47–49, for examples, such as the UN Convention Prohibiting Discrimination Against Women, the International Covenant on Civil and Political Rights, the UN Convention on the Rights of the Child, as well as most International Labour Organization conventions. 6. See ICHRP 2002, 50–53, for examples. 7. W. J. Bennett, US representative at UNIDO, the UN Industrial Development Organization, quoted in Johns 1994, 896. 8. Universal Declaration of Human Rights, available at http://www.un .org/overview/rights.html. 9. Iwanowa v. Ford Motor Co., 67 F. Supp. 2d 424 (District Court of New Jersey 1999), 445. 10. Hevra Kadisha, Jerusalem Burial Company v. Kestenbaum, C.A. 294/ 93, 46(2) P.D. 464, 530 (Supreme Court of Israel 1992) (Barak, J.). 11. In Wiwa v. Royal Dutch Petroleum Co., 226 F. 3d 88 (US Court of Appeals, Second Circuit 2000), the US Second Circuit Court of Appeals held that the ATCA “made no assertion about legal rights” but simply asserted the jurisdiction of the district court for a tort committed in violation of international law. However, whether it creates a cause of action or simply a jurisdictional competence is very much in dispute. The US government takes the latter view, while human rights activists and some academics take the former view. 12. The US Supreme Court in Sosa v. Alvarez-Machain, 124 Supreme Court 2739 at 2754–2756 (2004), said that this was the intent of the legislation in 1789, when there was no legislation authorizing the federal court jurisdiction over offenses in international law such as piracy and offenses involving ambassadors. 13. The following discussion addresses just a few of the many cases taken under the ATCA. For a full discussion of the cases against state and nonstate entities, see EarthRights International 2004. 14. In Hilao v. Estate of Marcos, 103 F. 3d 767, 772, 787 (US Court of Appeals, Ninth Circuit, 1996), Philippine nationals brought a class action against the estate of former president Ferdinand Marcos for human rights abuses and were awarded US$2 million in exemplary damages and US$766 million in compensatory damages. In Xuncax v. Gramajo, 886 F. Supp. 162 (US District Court of Massachusetts, 1995), nine expatriate citizens of Guatemala took an action against the former Guatemalan minister of defense and were awarded US$2 million in compensatory damages and US$5 million in punitive damages for torture, arbitrary detention, and cruel, inhuman, and degrading treatment. 15. See Jota v. Texaco, Inc., 157 F. 3d 153, 155 (Second Circuit, 1998); Aquindas v. Texaco Inc., No. 93 Civ. 7527, 1994 WL 142006 (State District of New York, April 11, 1994). 16. Beanal, 969 F. Supp. at 372–373, dismissed Beanal v. FreeportMcMoran, Inc., 1998 WI. 92246 (E. D. I a., March 3, 1998); affirmed 197 F. 3d 161 (Fifth Circuit Court, 1999). 17. Wiwa v. Royal Dutch Petroleum Co., No. 96 Civ. 8386, 2002 WL 319887 (State District of New York, February 28, 2002). 18. In this case litigation was initiated by indigenous tribe members of the Oriente region of Ecuador and downstream residents of Peru against Texaco for dumping toxic waste into local rivers, into landfills, and onto dirt roads. After

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eight years of litigation a recent decision in Doe v. Unocal Corporation (Superior Court of California, Los Angeles, Case Nos. BC 237 980 and BC 237 679, September 14, 2004) has cleared the way for the Texaco case to proceed to trial. The plaintiffs’ lawyers from the Center for Constitutional Rights and EarthRights International called this a major victory. See http://www.earthrights.org/ news/unocalchaneydecision.shtml. 19. Doe v. UNOCAL, 963 F. Supp. 880 (US District Court, C.D. Cal., March 25, 1997). 20. For a summary of business attacks on the ATCA, together with rebuttals, see Collingsworth 2004. 21. In re: South African Apartheid Litigation, MDL No. 1499 (US District Court, Southern District of New York, November 29, 2004). 22. The defendants contesting jurisdiction included UBS AG, Citigroup Inc., Minnesota Mining and Manufacturing Co., Bristol-Meyers Squibb Co., Commerzbank AG, General Electric Co., EI Dupont de Nemours, Shell Oil, Xerox Corp., Honeywell International, Dresdner Bank AG, IBM Corp., ExxonMobil Corp., Deutsche Bank AG, Colgate-Palmolive Co., National Westminster Bank Plc., Bank of America NA, Dow Chemical Co., Ford Motor Co., Barclays Bank Plc., Coca-Cola Co., Credit Agricole Indosuez, Hewlett-Packard Co., EMS-Chemie (NA), American Isuzu Motors Inc., Nestle Inc., Holcim (US) Inc., Fujitsu Limited, Credit Suisse Group BP Plc., JP Morgan Chase & Co., DaimlerChrysler Corp., and ChevronTexaco Corp. 23. USA Engage, November 30, 2004, http://www.usaengage.org. USA Engage describes itself as a coalition of businesses, agricultural groups, and trade organizations working to seek alternatives to US foreign policy abroad. 24. In re: South African Apartheid Litigation, MDL No. 1499 (US District Court, Southern District of New York, November 29, 2004). 25. Presbyterian Church of Sudan v. Talisman Energy, Inc., 244 F. Supp. 2d 289, 321–324 (State District Court of New York, 2003). 26. In re: South African Apartheid Litigation, MDL No. 1499 (US District Court, Southern District of New York, November 29, 2004). 27. IIT v. Vencap, Ltd., 519 F. 2d 101, 1015 (Second Circuit, 1975). 28. For a critique of the sufficiency of contract as a mechanism for ensuring corporate accountability, see Williams 2002. 29. These are often interrelated or cross-sectoral in design and operation. This discussion provides only a brief review, highlighting the key elements of these regulatory developments. 30. For example, the Sarbanes-Oxley Act in the United States requires that a public company disclose in periodic reports whether it has adopted a code of ethics for senior financial officers; if the company has not adopted a code, it is required to explain why not. 31. As indicated in Fox, Ward, and Howard 2002, 3–6, endorsement may involve the “demonstration” effect of public procurement or public-sector management practices; direct recognition of the efforts of individual enterprises through award schemes (such as the Green Business Award in Taiwan); and “honorable mentions” in ministerial speeches—for example, the presidential speech and the annual “CSR Week” in the Philippines.

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32. Examples of recent efforts to implement an industry sector approach in the United States include the Common Sense Initiative; Project XL; the Sustainable Industry Project; the Environmental Leadership Program (Fiorino 1996); Waste Wise, which promotes cost-effective steps to reduce solid waste from business operations; and Green Lights, which provides extensive information and technical support concerning energy-efficient lighting. 33. See Fox, Ward, and Howard 2002, 20, for a summary of the factors driving and constraining public-sector engagement in CSR. 34. Indeed, the ISO 14004 standards specifically state that improved government relations constitute one of the benefits firms can realize by adopting them. 35. The following all stress the preemptive significance of voluntary standards: Levy and Prakash 2003, 137; Maxwell, Lyon, and Hackett 2000, 584, n. 5; Freeman 2000, 647; Roht-Arriaza 1995, 488; Haufler 2001, 124. 36. See Pitt and Groskaufmanis 1990, 1603. A recent OECD study (2001b, 59) found that of 246 codes surveyed, 14 expressly mentioned within their text that a goal of the code was to control legal risks. 37. The ISO 14004 “Environmental Management Systems” standards specifically state that the benefits a firm can realize from adopting them include “reducing incidents that result in liability; demonstrating reasonable care” (see http://www.biosolutionsllc.com/ISO14001.htm). 38. R. v. Domtar [1993], Ontario Judgments, No. 3415 (Ontario Court— General Division). 39. It is beyond the scope of this chapter to pursue this point. However, such pursuit would take one into the foundational and hegemonic law and economics movement in the United States and theories of efficient and effective breach of contract that frame contract law, not as a mechanism for social regulation, but as a pricing mechanism. Breach of contract is thus evaluated by market criteria of efficiency, rather than by its effect or burden on society. For wonderfully insightful criticism of these tendencies, see Williams 1998, 2002.

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11 Instituting the Power to Do Good? Morten Ougaard

The corporate social responsibility (CSR) movement is a multifaceted phenomenon that has gained considerable momentum since the early 1990s. Under the heading of corporate social responsibility, companies should, for instance, seek to include minorities and disabled persons in their work forces, contribute to environmental sustainability, support and strengthen human rights and labor standards, participate in combating AIDS, and generally promote the development of health services, education, and housing in the communities where they operate. For some observers and protagonists, CSR holds the promise that private corporations in various ways can help ameliorate social and environmental problems of liberal and neoliberal globalization. Skeptics, on the other hand, consider it a well-meaning but unrealistic effort by reformers to change what cannot be changed, namely the inherent profit-seeking behavior of corporations in a competitive market. Yet others are emphasizing the “business case for CSR,” seeing it as a self-serving marketing and public relations tool, or even as a rational element in an underlying logic of long-term corporate expansion. Whereas all sides in this debate share the premise that private companies and especially large transnational corporations are highly significant shapers of the global political economy, and as such wield considerable power, the question posed by the CSR phenomenon concerns whether this power also can be harnessed for social purposes. In other words: Can the CSR movement mobilize corporations’ power to do good and develop an effective new mode of global governance in the process? As CSR is said to have the potential to address societal problems in areas where contemporary global governance is least developed 227

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(Ougaard 2004), it is of some interest to discuss its potential contribution in this regard. The purpose of this chapter is to analyze the rise of corporate social responsibility and to discuss its prospects as a mode of international and global governance. First I briefly explain what I mean by “the rise of CSR” and present evidence to substantiate the claim that there is, indeed, a CSR movement. Next I develop a theoretical interpretation of the phenomenon, focusing on the inherently elusive and contested nature of the concept of corporate social responsibility, and then discuss the causes for the rise of the CSR movement. Finally, I examine the prospects of this way of regulating private economic behavior.

The Corporate Social Responsibility Movement

The expression “the CSR movement” is used here to label a range of activities and discourses that focus on, seek to promote, and claim to represent a growing concern with social responsibility on the part of private business. CSR is not the only concept around to denote such activities: in the literature one also finds notions like “corporate citizenship,” “corporate responsibility,” “the new corporate social contract,” “business ethics,” “triple bottom line,” and others (Ougaard and Nielsen 2003). What these notions share is the idea that private corporations should assume responsibilities that lie outside the scope of the narrow pursuit of profits and shareholder value. This includes tasks that traditionally have been considered government responsibilities—that is, the provision of various public goods. Here they are grouped together under the heading of corporate social responsibility. Since the early 1990s such activities have become prominent in the business communities around the world, in the management literature, in business schools and other academic institutions, among nongovernmental organizations (NGOs), in the media, and elsewhere. The CSR movement has many faces. One is the large and growing number of codes of conduct and labeling schemes. When the Organization for Economic Cooperation and Development (OECD) made an inventory of such codes in member countries in the late 1990s, it identified 233, spanning single company codes, codes for entire industries in individual countries, national codes, and international codes (OECD Trade Directorate 1999; see also Williams 2000; Wilson 2000; Hopkins 1999). Some codes were very ambitious and covered many issues in social, environmental, and human rights areas, for instance; others had a more restricted scope.

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Another part of the CSR movement is the rise of new auditing and reporting principles. A growing number of companies supplement traditional financial reporting and auditing with reports on their environmental, social, and human rights performance (thus creating a new line of business for the auditing industry). The principle of triple bottom line reporting, for instance, implying an obligation to report on environmental and social performance, has been introduced in many corporations. A PriceWaterhouseCoopers survey of 992 corporate CEOs conducted from October 2002 to January 2003 found that 66 percent of respondents “cover[ed] sustainability in their annual report” (PriceWaterhouseCoopers 2003b, 23). Note that the report used the term “sustainability” in a broad sense and explained that it was “borrowed from the world of sustainable development and used in this context to mean adding economic, environmental, and social value through a company’s core functions” (2003b, 25). “Sustainability,” in other words, was used to denote the same range of obligations denoted by “corporate social responsibility.” The report’s conclusion, that “the tide seems to be moving in the direction of more rather than less sustainability reporting” (2003b, 29), thus testifies to the growing momentum of the CSR movement. Furthermore, initiatives have been undertaken to develop international and global standards for this kind of reporting. SA 8000, developed by Social Accountability International (2004), is one attempt to do this; another is the ambitious Global Reporting Initiative, which in 2002 published the second version of its guidelines for sustainability reporting. Whereas the SA 8000 is a private venture, the Global Reporting Initiative is a tripartite institution, affiliated with the United Nations and working with corporations, NGOs, accountancy organizations, and other stakeholders. Initiatives to promote responsible investment have also become a part of the CSR movement. Some pension funds and other institutional investors have developed “green” and social investment portfolios, new institutions have been created to provide savers with more ethical investment possibilities, and consultancies have been created to assist and monitor such investments. Another part of the CSR movement is the creation of several new organizations. The Business Council on Sustainable Development was created in 1991 to prepare business input to the Rio Earth Summit in 1992. In 1995 it merged with the World Industry Council for the Environment, established by the International Chamber of Commerce, to become the World Business Council for Sustainable Development. By 1994 it had 170 international companies as members (World Business Council for Sustainable Development 2004). Business for Social

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Responsibility, a global organization headquartered in San Francisco, was established in 1992, with many large US corporations among its members and with links to similar organizations in other countries (Business for Social Responsibility 2004). The US Chamber of Commerce founded its Center for Corporate Citizenship in 2000 (US Chamber of Commerce 2004). CSR Europe was set up in 1996, is supported by eighteen national partner organizations, and has an impressive roster of large European corporations among its sponsors (CSR Europe 2004). Together with its national partners, and supported by the European Commission, in 2000 CSR Europe created the European Business Campaign on CSR (European Business Campaign on CSR 2004) and in 2002 created the European Academy of Business in Society, also with strong corporate backing (CSR Europe Magazine 2002). These initiatives have also attracted attention from governments and international institutions. The European Union has begun work on a framework for corporate social responsibility (European Commission, Directorate-General for Employment and Social Affairs 2001) and has as part of this effort launched the European Multi-Stakeholder Forum on Corporate Social Responsibility (European Business Campaign on CSR 2003, 55–56). The United Nations Global Compact also represents an active concern with CSR issues (Ruggie 2002; Global Compact 2003a; Chapter 13 in this volume), as do initiatives by the OECD and the International Labour Organization (ILO), and a host of other international and national initiatives in Europe and elsewhere (see Aaronson and Reeves 2002 for an overview; see also Pruzan 1998), such as the British government’s efforts to promote CSR (UK Department of Trade and Industry 2004). Numerous workshops, seminars, and conferences have been held, bringing together activists from a variety of NGOs, academics, businesspeople, and representatives from governments and international organizations to discuss and promote CSR efforts. This movement has led to a proliferation of literature on the topic, as will be discussed later. Thus there clearly has been, since the early 1990s, a rise in CSR activity. In the words of the PriceWaterhouseCoopers survey, “the responses of the global CEOs make clear that this movement is here to stay and is gathering momentum” (2003b, 29).

Theorizing the Corporate Social Responsibility Phenomenon

Above I have defined the CSR phenomenon as activities and discourses that focus on, seek to promote, and claim to represent a growing concern

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with social responsibility on the part of private business. In order to develop a precise theoretical understanding of CSR within a critical international political economy (IPE) perspective along the lines advanced in my book Political Globalization (Ougaard 2004), first it is useful to take a brief look at the literature on CSR. The Corporate Social Responsibility Literature

The large and growing literature on CSR is very heterogeneous and reflects a variety of agendas (Ougaard and Nielsen 2003). A large section is advocatory, concerned with promoting changes in business behavior in a more socially responsible direction (e.g., Addo 1999; Wilson 2000; Frankental and House 2000; Kelly 2001; Richter 2001). A similar sense of mission is found in several academic works and textbooks (e.g., Hopkins 1999; Sternberg 2000; Williams 2000), as well as in many contributions to the dedicated scholarly journals Business and Society, Journal of Business Ethics, Business Ethics: A European Review, and Journal of Corporate Citizenship. A related prevalent theme is the search for ethical foundations and other justifications for CSR, or sorting out the implications of ethical principles for companies (e.g., Velasquez 2002; Sternberg 2000; Pruzan 1998). Norman E. Bowie, for instance, set out to “apply the essential features of Kantian moral philosophy to the business firm” (1999, 1). Yet another category is the more practical, “how to” literature. Here one finds published company codes (e.g., Shell International Ltd. 1998) and other guidelines (e.g., Jungk 2001; Frankental and House 2000), as well as management handbooks (e.g., McIntosh et al. 1998), academic works and textbooks (e.g., Sternberg 2000; Velasquez 2002; Schwartz and Gibb 1999; Hopkins 1999), and articles in management journals (e.g., Mintzberg, Simons, and Basu 2002; Porter and Kramer 2002; Prahalad and Hammond 2002). Many contributions to the dedicated journals mentioned above belong in these categories. Scholarly work from a social science or political economy perspective, however, seems to be in rather short supply. At the intersection between such approaches and the normative literature one finds a question that has been subject to some debate, namely whether CSR pays off financially. Much effort has gone into the search for a clear, empirically founded answer to this question, but so far the results are largely inconclusive. In part this is because of the methodological problems involved, in particular the thorny question of the direction of causation: if it is shown—as some studies seem to do—that there is a positive correlation between strong financial performance and strong CSR performance, the

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question remains whether the companies are responsible because they can afford to be, or their CSR performance contributes to their economic success (Simpson and Kohers 2002; Margolis and Walsh 2003). But this particular debate aside, scholarly work that seeks to describe, explain, and assess the phenomenon as a new mode of governance or more broadly as a type of social activity seems to be scarce. Virginia Haufler’s book-length study A Public Role for the Private Sector (2001) is probably the most significant contribution, although several writers mentioned above offer some comments on the causes and consequences of the rise of CSR. An International Political Economy Perspective

What is the CSR phenomenon, then, from an IPE perspective? For Haufler the central feature is self-regulation or voluntary efforts by a company or industry that “go beyond what is required by national and international regulation and put significant constraints on its own behavior.” This setting of voluntary standards is discussed as “a potential new source of global governance, that is, mechanisms to reach collective decisions about transnational problems with or without government participation.” But there is an additional aspect to her understanding of the phenomenon that concerns the content or purposes of such voluntary efforts. Voluntary self-regulation is a long-standing practice, for example, in the setting of technical (process and product) standards, but “what is particularly noteworthy about the current trend, however, is the degree to which the private sector is pursuing self-regulatory actions in areas that are typically not viewed as essential to their core economic activities. . . . They address what might be called the externalities of corporate activity—the side effects of modern production, distribution, sales and service.” Self regulation is therefore concerned with “social standards,” “contentious public policy issues,” and “rules and standards in socio-political areas” (2001, 2, 1, 14, 29). The new wave of selfregulation, in other words, is concerned with issues that traditionally have been thought of as matters for public policy. Defining CSR, then, is not only a question of self-regulation, but also one of identifying and delimiting the purposes that business should serve. In much of the promotional and “how to” CSR literature it is precisely this question that is the focus of attention. For the protagonists of CSR the real stakes are not found in the institutional form, but in the effort to change the understanding of what business legitimately can do and ought to do. Indeed, much of this literature is also concerned with ways in which governments can enhance CSR (e.g., Zadek et al. 2003,

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45–46). Thus the next question to consider concerns what precisely are those “social standards” that business should contribute to. The Social Purposes of Business

One way to answer the question about appropriate “social standards” is to look empirically at the standards that actually are included in current CSR business practices, or at least in corporate statements about their responsibilities. A recent study by Muel Kaptein investigated the 200 largest corporations in the world, of which 105 were found to have published codes of conduct. In addition to obligations to customers, owners/stockholders/investors, employees, suppliers, and the environment, a broad array of responsibilities were listed by these corporations (see Kaptein 2004, tab. 5), among them: • Being a good corporate citizen through charitable donations and educational and cultural contributions (mentioned by 36 percent of the companies); • Enhancing the quality of life and contributing to sustainable development/improvement (18 percent); • Respecting human rights and dignity (of those affected by the corporation’s activities) and promoting such wherever practicable (11 percent); • Supporting public policies and practices that promote human development and democracy (8 percent); • Supporting and participating in local initiatives that promote peace, security, diversity, and social integration (7 percent); • Setting an example in countries where human rights are seriously and systematically violated (2 percent). Although only a small number subscribe to the most ambitious agendas, Kaptein’s study makes it clear that the notion of CSR is interpreted very broadly by some corporations. Taken at face value, the statements seem to imply that few if any areas of human concern, in principle, are completely outside the scope of CSR. A similar conclusion emanates from even a cursory look at the issues discussed in current management handbooks (e.g., McIntosh et al. 1998). These empirical observations, in sum, point to an almost open-ended agenda with no clear demarcation of what is to be included in the social responsibilities of business. One may ask, therefore, whether the debate in the literature on CSR has clarified principles that would allow a clear definition of the purposes included in the responsibilities of business.

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What stands out, however, is a lack of agreement, reflected in the variety of concepts other than CSR introduced to cover the phenomenon. Several scholars have tracked the development of concepts (Carroll 1999; Wilson 2000; Göbbels 2002; Marrewijk and Werre 2003), but the most convincing conclusion is that a precise definition remains elusive. For many practitioners, especially in the business community, this is not an undesirable situation, because it preserves a high degree of flexibility, as discussed below. Attempts to systematize and give a precise meaning to CSR in academic debates point in the same direction. Thus the efforts by Marcel van Marrewijk and Marco Werre led to the conclusion that a “one solution fits all definition should be abandoned.” Instead, in order to bring some clarity to the concept, they developed a six-step scale of corporate “sustainability” (CS) (their preferred term), starting at “basically no ambition for CS” (where, however, “some steps labeled CS might be initiated when forced from the outside”) and progressing to (inter alia) “profit-driven CS” and then “caring CS,” the latter of which “consists of balancing economic, social and ecological concerns . . . beyond legal compliance and beyond profit considerations.” The highest level of ambition is described as “holistic CS,” where corporate sustainability is “fully integrated and embedded in every aspect of the organization, aimed at contributing to the quality and continuation of life of every being and entity, now and in the future” (2003, 107, 112). Thus practically every conceivable business practice beyond outright criminal activity, from the most narrow-minded pursuit of economic gain to the most altruistic, can be brought under the heading of a specific level of CSR ambition. This is perhaps not surprising; defining a precise standard for business behavior implies settling a contentious issue that has been around as long as private enterprise itself, namely the precise legal and normative content in the notion of a private company. The two poles in Marrewijk and Werre’s scale correspond to an antinomy between two fundamentally different legal-cum-normative theories of the firm that is central to the debate about CSR as pointed out by Lutgard Van Den Berghe (2002). There are more than just these two theories of the firm (Dine 1999), and the antinomy represents a more complex debate stylized into two ideal types carried to their opposite extremes. One extreme is the neoclassical, contractual theory according to which business’s sole responsibility is to earn profits for the owners, as famously expressed in Milton Friedman’s dictum that “the Social responsibility of business is to increase its profits” (1970, 33). The other pole is represented by various communitarian and stakeholder perspectives, according to which owners only have a residual claim on the company: they

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are entitled to what is left when all other stakeholders have been served, as recently argued by Henry Mintzberg, Robert Simons, and Kumal Basu (2002). In the words of Marjorie Kelly, the publisher of Business Ethics: “Corporations were created and controlled by the state to serve the public good” (2001, 165). At one extreme, business exists to serve the owner; at the other extreme business exists to serve society. Both of these positions can be underpinned by serious legal, ethical, and moral arguments, but attempts to solve the issue in favor of one or the other on such grounds are futile. In the words of Joshua Margolis and James Walsh: “The dispute among justifiable but competing demands reflects the reality that firms face in society today” (2003, 296). It should be noted, however, that a purely profit-oriented perspective does not necessarily exclude a concern with CSR. Indeed, a distinct line of argument seeks to show that there is “a business case for CSR,” that it is better business in the long run to act in a socially responsible manner. This argument is found, for instance, in Michael Porter and Mark Kramer’s article on “the competitive advantage of corporate philanthropy” (2002); in the findings of the PriceWaterhouseCoopers survey (2003b); and in the mantra of CSR Europe: “It simply works better!” (European Business Campaign on CSR 2003). Indeed, much of the European Union’s efforts in the CSR area go into developing this argument. It may be true in some cases (and we will return to this argument below), but as already said, as a general proposition it has not been shown convincingly. Furthermore, there is a clear effort in the promotional literature, as illustrated by Marrewijk and Werre’s scale, and indeed in the entire CSR movement, to go beyond what is defensible on profit-seeking grounds. The agenda is to admonish business to do something more, and something different than just pursuing profits. Corporate Social Responsibility as a Field of Struggle

There is an insoluble tension at the core of the notion of CSR, and a fixed, precise definition is not possible. At the heart of the matter is a struggle about business practice. The theoretical debate among academics and practitioners is a discursive struggle, the stakes of which are the definition of the legitimate standards to which corporations should and could be held responsible. The CSR movement is about finding and adhering to the proper balance between two extremes, and the right balance varies across time and space and is contingent upon numerous social forces pulling in either direction. Seen in this light, the CSR movement is a range of efforts to shift the balance in current business practice toward the societal ideal type of private enterprise, even as a

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move in the direction of economic democracy (Kelly 2001, 91–92), and counterefforts to resist this movement or refract it into patterns of behavior that correspond to the opposite understanding. By implication, this also concerns the use of revenues and profits. As Friedman argues, CSR activities beyond what serves long-term profit-seeking most likely represent an added cost on business resources. Guiding profit-seeking behavior into patterns that are more socially beneficial has implications for the distribution of economic resources between social purposes and investment in future profits. Thus the CSR movement is a discursive and material struggle about business practice; it represents a politicization of the social content of the institutions that govern private economic activity. In this sense the CSR movement and its future prospects are essentially questions of interests and power, but it would be too simplistic to stop at a notion of a two-way struggle between supporters and opponents of CSR. The constellation of interests that seek to impact modern businesses is more complicated, and an IPE perspective must therefore be more differentiated. This can be appreciated through consideration of the causes or drivers behind the rise of the CSR phenomenon.

Causes for the Rise of Corporate Social Responsibility

The question of why the CSR movement has arisen has been subject to some scholarly attention, but not much. Virginia Haufler’s study (2001) is probably the best in terms of empirically grounded explanations, and her answers generally converge with ideas offered by the numerous writers who have addressed the issue on a more impressionistic or hypothesis-forming basis (Cannon 1994; Wilson 2000; Frankental and House 2000; Avery 2000; Richter 2001; Warhurst 2001; Spar and La Mure 2003). Structural Change and the Rise of Activism

The first set of reasons concerns structural change in the global political economy. Deepened economic internationalization combined with deregulation and liberalization in many countries have on the one hand created a situation in which multinational corporations (MNCs) are affecting and are seen to affect social conditions in many countries, including developing countries. On the other hand, a range of public goods are perceived to be undersupplied, either because of deregulation and privatization or because of institutional deficiencies in weak states that increasingly are being brought within the operating sphere of MNCs.

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Second, at another level of analysis, the rise of activism and especially transnational activism is a central part of the explanations offered. NGOs concerned with environmental issues, development, human rights, and labor standards have made corporations and industries targets for public campaigns that have included consumer boycotts or threats thereof, attempts to change investor behavior, and efforts to introduce regulation nationally or internationally. At a more general level, such efforts have probably benefited from the rise of the notion of sustainable development in official discourse. For instance, as pointed out by Alyson Warhurst, “Agenda 21, the action plan resulting from the Rio Earth Summit in 1992 obliges industry—although morally, not legally—to contribute to local capacity-building in developing countries” (2001, 63). Furthermore, the rise of a very vocal and visible movement of criticism of neoliberal globalization, strongly in evidence since the Seattle World Trade Organization meeting in 1999, has contributed to an international climate of opinion in which the downside of economic internationalization has commanded much attention. Business Responses

Third, these causes have combined with factors in the world of business to produce the CSR movement. Corporations and industries have responded by adopting CSR measures (codes, labeling and reporting schemes, etc.) for several reasons. One is the implied or explicit threat of negative consumer reaction to which brand-name and reputationsensitive companies are vulnerable. This is obviously the case for major consumer-goods producers, but the pressure is not limited to them. Fairly anonymous producers of intermediate goods can be compelled by their corporate customers to adopt CSR standards, because the finishedgood producers want to ensure high standards in their supply chains (Warhust 2001, 65). One European manufacturer of packaging material, for instance, a company unknown to the general public, decided to develop a CSR program because of pressures from customers such as Sony and Nokia (information from company representative, 2002). Another factor, somewhat neglected in the literature but highlighted by some businesspeople, is that in the general climate of opinion indicated above, a convincing CSR profile can be important when competing with other companies to attract and retain the best and most talented manpower (e.g., Brandgaard 2002). Thus the “feel good” factor has a hard, competitive side to it. Yet another way in which pressure from activists and public opinion can influence company behavior is through shareholder activism, most evidently in the case of ethical investment funds.

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Thus, as argued by Virginia Haufler, Debora Spar and Lane La Mure, Alyson Warhust, and others, there are several good reasons for corporations to adopt CSR measures in response to actual or potential pressures from activists. In addition, such measures can also be a response to the possibility of regulation. Unsolved social and economic problems may call forward regulation by national governments or international bodies, and, as argued by Haufler (2001), such regulation may become more restrictive and more complex than desirable from a corporate perspective. Hence it can be a better strategy to preempt such initiatives through voluntary efforts to raise standards. A related argument that frequently is articulated by business representatives is that companies can use CSR activities to secure their “license to operate.” This is not meant in any legal sense, but points to a perceived need to be accepted in a more intangible and general sense as a legitimate economic actor in society, to be a “good corporate citizen.” These explanations all ultimately refer to the rational, long-term profit-seeking behavior as the reason for business to engage in CSR activity. In all fairness, however, it should be noted that the personal morality of business leaders is also argued to have played a role. Thus Christine Hemingway and Patrick Maclagan argue that, in addition to “strategic, commercial interests,” in situations “where individual managers can exercise influence, they may initiate or change specific projects in order to address their personal moral concerns” (Hemingway and Maclagan 2004, 41). The same point is made by Spar and La Mure (2003, 96), and Haufler and Warhurst alike have pointed to learning and peer pressure within the business community as one of drivers behind the rise of CSR. These observations rely mainly on theoretical reasoning and anecdotal evidence, but they also can find support in opinion surveys such as the PriceWaterhouseCoopers report quoted earlier. It should be noted, though, that for logical reasons it would be hard to ascertain the independent contribution from this factor. The rise of a situation in which “the personal moral concerns” of business managers are allowed to play a greater role than before, or where the intensity or content or both of those concerns themselves have changed, in turn can be understood as a result of the other factors mentioned. Thus, in summary, the general picture is that the CSR movement has been created by structural changes combined with political pressures leading to a heightened concern with CSR in the business world. The business response is precisely a response, a reaction to initiatives developed elsewhere and a reaction that ultimately is based on rational longterm profit-seeking motivations. This may be seen as a cynical view of the CSR movement, but it is one that does not preclude recognition of a

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heightened concern for ethical questions among managers as part of the process. This interpretation corresponds to a simple two-party model in which pressures from society toward the “business for society” pole have intensified and business has responded. At a more concrete level things are less simple, due to variations between the specific pressures in question and variations between corporations, industries, and countries, but in terms of general explanation for the rise of the CSR movement the answers offered in the literature converge on this two-party model. And indeed, this understanding is both theoretically plausible and supported by the available case studies, anecdotal evidence, and statements from business managers; there is no reason not to conclude that it captures a major part of the picture. A Market Expansion Motive?

But there are reasons to ask whether this model exhausts the explanation, even when stated as a general proposition that is open to a variety of specifications. It could be that, in addition to the reactive motives, resting on the rational pursuit of economic gain in response to societal pressures, there has been a distinct business rationale, independent of such pressures, to adopt CSR activities. And indeed, such a case has been made in the management literature. It does not relate to all activities that come under the CSR heading (which as we have seen is very broad and amenable to many interpretations), but it relates to a fairly large slice of those activities, namely those concerned with economic and social development in developing countries. In what follows, I narrow the focus to this subset of CSR activities. A succinct statement of this case for CSR was made by Michael Porter and Mark Kramer: In the long run, then, social and economic goals are not inherently conflicting but integrally connected. [This is because] Productivity depends on having workers who are educated, safe, healthy, decently housed, and motivated by a sense of opportunity. [And therefore] Boosting social and economic conditions in developing countries can create more productive locations for a company’s operations as well as new markets for its products. (2002, 59)

In other words, investing in social development through philanthropic activities, while not profitable in itself, can actually be seen as a means toward improving productivity and expanding markets. In a similar way, in an article aptly titled “Serving the World’s Poor, Profitably” (emphasis in original), C. K. Prahalad and Allen Hammond argued that

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“businesses can gain three important advantages by serving the poor— a new source of revenue growth, greater efficiency, and access to innovation.” They went on to explain that growth is an important challenge for every company, but today it is especially critical for very large companies, many of which appear to have nearly saturated their existing markets. That’s why BOP [bottom of the pyramid] markets represent such an opportunity for MNCs: They are fundamentally new sources of growth. And because these markets are in the earliest stages of economic development, growth can be extremely rapid. (2002, 51)

This is an argument, then, that even without societal pressures from activist groups, there is an incentive for at least some corporations to engage in nonprofitable development activities—that is, to take on certain social responsibilities. This rationale was succinctly stated by a representative from a leading Indian company: “If markets are to grow, the poor must become customers too.”1 And for markets to grow, certain types of social investments are required, investments that despite having a public-goods quality cannot be undertaken by the state because of financial or institutional constraints or both. A good real-life illustration of this is provided by the US company Cisco Systems, a leading producer of computer network equipment and routers. In the words of Porter and Kramer: “As Internet use expanded, customers around the world encountered a chronic shortage of qualified network administrators, which became a limiting factor in Cisco’s—and the entire IT industry’s—continued growth” (2002, 64–65). Growing out of traditional charitable activities, the company developed a program—the Networking Academy—that on a nonprofit basis helped train network managers, first in the company’s home region, then all over the United States, and eventually also in developing countries in cooperation with the United Nations. A similar case is arguably represented by Novo Nordisk, among the leaders in the global diabetes care industry. This company has developed a program that includes collaboration with health care officials in 40 countries to set up projects aimed at developing and/or implementing national diabetes strategies, a commitment that insulin prices in the 49 least developed countries will be no more than 20 percent of prices in the US, Europe and Japan, [and] an investment of 67 [million] Euro over ten years in The World Diabetes Foundation to improve diabetes care in developing countries. (Brandgaard 2002, 27)

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Given the nature of diabetes care—that it requires careful instruction by trained professionals and reliable regular delivery of the products, in other words a certain level of institutional capacity—it is tempting to argue that this kind of social investment is also necessary for markets to expand in the developing world. It must be noted, though, that Novo Nordisk has taken up this effort on its own, thereby carrying the costs of a program that also paves the way for its competitors. Accordingly, when justifying these expenditures, Novo Nordisk’s leadership does not employ the market expansion argument. As the company’s executive vice president and chief financial officer explains the matter: In the long term, however, such investments are essential for the survival of Novo Nordisk: to win our license to operate and innovate, to attract and retain the best people and to maintain the trust of our other stakeholders. Are these investments—which can be seen as a drain on profits—also justifiable in the short term? I think so. From the shareholders’ point of view I see them rather like a kind of “insurance premium” we need to pay against exposure to the risks of not having an active citizenship strategy. (Brandgaard 2002, 27)

Still, even if the firm may disagree with this interpretation, it seems clear that it can benefit from the market expansion that its philanthropic activity helps create, even if other companies will share the gains. Furthermore, presumably the added trust from stakeholders that the corporation hopes to create through this program can also help secure a larger market share than would otherwise have been the case. Thus, arguably, Porter and Kramer’s reasoning concerning Cisco also covers the case of Novo Nordisk: “To be sure, the program has benefited many free riders . . . and even direct competitors. But as the market-leading provider of routers, Cisco stands to gain the most from this improvement in competitive contexts” (2002, 65). This type of public-private partnership, in which corporations assume organizational and financial responsibility for development tasks, has been heralded as a major new departure that proves that the CSR movement has real potential. It has also drawn the attention of critical scholars such as Robert Wade, who argues that governments in less developed countries (LDCs) “enter an open-ended dependency of these suppliers for the continued functioning of their public administration” (2002, 461). On the motives of the big information technology companies, Wade argues that “their interest is presumably to get the public bodies to create a demand for their products in LDCs—and not have LDCs worry themselves about the international regimes or the dangers

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of dependency” (2002, 463). This is precisely the point: in addition to external pressures, companies whose products require a certain institutional and educational standard from their consumers can have an interest in contributing to the development of relevant capacities in less developed countries. Such developmental efforts are by nature not profitable and are therefore easily brought under the heading of corporate social responsibility. Concerns like these about competitive contexts are arguably a permanent fixture of the strategic, long-term interests of business. But under current circumstances, where many companies look to emerging markets for continued growth, including to the least-developed countries, where institutional and social capacities are deficient, these developmental issues may have become more evident and more compelling. They have also, significantly, taken on an inherently international and global dimension. Therefore it is reasonable to conclude that strategic market expansion considerations of this nature should be counted as one of the forces driving the contemporary CSR movement. In sum, the politicization of the governance of private economic activity, the CSR movement, must be explained by a combination of factors. Structural change, intensified societal pressures, and business responses to those pressures constitute one major part of the explanation, but there has also been, and presumably will continue to be under current circumstances, an independent drive in parts of the business community to sustain and strengthen such efforts. The simple two-party model has much to commend it, but if reduced to a simple distributional conflict over the use of economic revenue, it misses an element of shared interests, of compatibility between long-term interests in market expansion in parts of the business community and the social purposes promoted by nonbusiness social forces.

Prospects

When assessing the prospects of the CSR movement as a mode of global governance, the first observation is that the forces driving the phenomenon are likely to persist. The underlying structural conditions are here to stay for the foreseeable future, and it seems safe to assume that NGOs and other activists will remain determined to press their causes as effectively as possible. The drivers within business identified above are also likely to remain effective, at least to the same extent as they have been so far. This leads to the next question, namely whether the CSR movement is likely to continue in its present configuration, or

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whether change is possible, for instance toward closer engagement with more formal regulation by national governments and international institutions. The Limitations of Voluntary Efforts

There is some optimism, especially in advocacy discourse, about the potential positive benefits to society of private CSR activities, but there is little systematic evidence to support this. Many observers remain skeptical (e.g., Virginia Haufler, Jan Aart Scholte), and one detailed study by Robert Liubicic (1998) of the effects of private initiatives identified serious limitations in CSR efforts. Although addressing only that section of CSR activity that deals with labor standards, the weaknesses pinpointed in this analysis can be expected to apply in other areas as well. Liubicic found that private efforts can be helpful in improving labor, but also that they could be counterproductive (as when ending the use of child labor forces girls into prostitution). Liubicic’s conclusion is worth quoting at some length: Codes and labeling schemes provide reason for cautious optimism as to the rights of the relatively small numbers of workers employed by image-conscious MNCs, or the subcontractors, contractors and suppliers associated with them, in the formal export sectors of the developing countries. Outside this small slice of the world economy, however, current measures that lack the coherence and credibility necessary for the meaningful protection of decent working conditions are likely to fail. (1998, 157–158)

Thus, even if corporations engage in serious CSR activity, whether because of activist pressure or their own motivations or both, these efforts are not likely to solve all the problems that activists are concerned with. Therefore, as argued by Haufler, it is to be expected that activists will continue to press for stronger regulation and for national governments and international institutions to address the problems through public policies. In addition to this efficiency problem, there is also an important question of democracy and legitimacy involved. When corporations engage in voluntary efforts, they make decisions on the allocation of scarce resources for public purposes. From the perspective of democratic political theory, accountable political authorities should make such decisions about societal priorities, to the extent possible, based on expert insights into the problems they address. They should not be made by business managers whose careers are built on expertise entirely different

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from what is required for such decisions, and who often work under severe time constraints, no matter how philanthropically inclined they may be. In other words, from this perspective, the whole notion of voluntary codes across a widening array of issue areas is rather problematic. Business Ambiguities

Furthermore, a significant ambiguity in the world of business toward the notion of voluntary efforts is in evidence. It seems that business is torn between a preference for the flexibility that goes with voluntary self-regulation and the appeal of standardization and authoritativeness. The preference for flexibility is clearly expressed in the European debate of the early 2000s, prompted by the European Commission’s initiative toward a framework for corporate social responsibility. In this debate the dominant voices from business have clearly and firmly supported a continuation of the present pattern of voluntary codes and private initiatives, having welcomed public support but rejected direction or guidance from public authorities. There is no hesitation on this question, for instance, in the opinion voiced by the European Roundtable of Industrialists (2001) or the position taken by CSR Europe (2002). According to the official summary of the Europe-wide hearing conducted during 2001–2002, there also was no discernible disagreement with this in those parts of the business community that were given voice in the process (Commission of the European Communities 2002). The Advantages of Standardization

On the other hand, however, there also has been a discernible quest for standardization as a response to the proliferation of different codes at corporate and industry levels. Serious efforts have been put into the development of uniform, standardized sets of principles, the SA 8000 and the Global Reporting Initiative seemingly being the leading ones. Both of these are partly driven by private interests, and, significantly, an impressive number of large corporations have put considerable efforts into the development of the latter initiative (Global Reporting Initiative 2002). Both have the ambition of growing into universally recognized and accepted standards for reporting CSR performance. These standards do not amount to precise codes of conduct that clearly define what corporations can, must, and cannot do; they remain tools that can be used on a voluntary discretionary basis. Yet the principles try to cover the relevant issues, and their ambition is to become generally accepted points of reference for the requirements that socially responsible corporations must meet. They have to define the standards or sets of standards for each

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issue against which performance can be measured and reported. Although it is left to companies to decide how ambitious their performance should be, the criteria against which this is measured are becoming standardized through such efforts (see Global Reporting Initiative 2002). At least two reasons for the move toward standardization can be identified, both related to long-term corporate strategy. One is that corporations operating in multiple cultures, polities, and legal frameworks can achieve efficiency gains from such standardization of management practices, human resource management, technology choices, and supplier and customer relations. All of these are easier to standardize within the company if the external requirements are identical in all areas of operation, which in turn makes it easier to capture the “internalization advantages” that are among the key sources of competitive strength for MNCs (Dunning 1993). The second rationale hinges on the consequences of CSR requirements for competition. There is little transparency in a situation with several competing codes of conduct, each of them of some complexity and perhaps, while adhering to the same general principles, differing significantly in the technical details. Customers and other stakeholders, including investors, who have adopted a socially responsible investment profile will have difficulties in comparing companies that follow different codes. This could give companies that have chosen less costly low-standard codes an “unfair” competitive advantage. Hence CSR-ambitious corporations have an incentive to promote generally accepted standardized performance criteria. The move toward standardization also seems to imply a quest for authoritativeness, a tendency for private initiatives to seek recognition and acceptance of their codes from national governments and international institutions. Thus CSR Europe (2002) seeks involvement in the European Union’s work on social responsibility, and the Global Reporting Initiative and other private initiatives while individual companies support and participate in the UN’s Global Compact and the “learning networks” created by it. The latter builds on the UN’s Universal Declaration of Human Rights, the ILO’s Declaration on Fundamental Principles and Rights at Work, and the Rio Declaration on Environment and Development. The Global Compact encourages businesses to support and respect fundamental principles in the three areas of human rights, labor, and the environment, and attempts to mobilize business participation (along with NGOs and other stakeholders) in the development of guidelines for corporate behavior in a variety of issues (Global Compact 2003a; Chapter 13 in this volume). In a world of multiple and competing codes and standards, including competing efforts to standardize the standards, official recognition

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by political authorities is precisely one way to identify the best or most legitimate standard. This is exactly the rationale that has led some members of the CSR community to look to the package of declarations and conventions on human rights, including the Universal Declaration of Human Rights, as a source of authoritative standards for CSR (interview with anonymous company representative; see also Shell International Petroleum Company 1998; Jungk 2001). This is not because human rights are a particular convenient set of standards, but rather because they are universally recognized by governments. In a world of multiple cultures, polities, and legal frameworks, where criticism of business practices can originate from several and unpredictable corners, there is simply less room for contestation if standards are based on this universally recognized set of principles. In a situation of competing codes and standards and unpredictable activist risk, there is an advantage in following standards that are officially recognized by political authorities. It is a question of legitimacy.

Conclusion

The balance between flexibility on one side and standardization and authoritativeness on the other cannot be decided in theory and will vary across time, space, industry, and corporation. What must be recognized, however, is that there are incentives for business to move in both directions. This implies that the relationship between the CSR movement and public authority is far from settled, and rather should be seen as fluid and susceptible to flow in different directions. To recapitulate, I have argued in this chapter that the CSR movement is driven by a combination of perceived unsolved social problems, activist pressures on business to help solve those problems, and business responses to such pressures. These responses are largely explicable in terms of self-serving concerns about reputation, legitimacy, and the preemption of hard regulation by governments. This does not preclude recognition of a heightened concern for ethical questions among managers as part of the process. In addition, I have argued that there is an independent driving force in parts of the business world related to the incentive to enhance “competitive contexts”—that is, an underlying market expansion rationale. These driving forces, in combination with business preferences for standardization and authoritativeness, can turn the CSR movement toward a closer engagement with states and international institutions. Signs of movement in this direction can already be seen in the CSR movement’s involvement with the UN system, through

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the Global Compact, and with the various initiatives by governmental bodies in Europe at the community level and nationally. Such a closer engagement need not take the form of hard regulation by strong institutions to be considered important. A mixed form in which national governments or international institutions (or both) authorize and legitimize a strong norm that all companies should adhere to some self-regulatory principles that conform to basic standards would also imply a step forward in global governance. In a useful typology, Christopher Knill and Dirk Lehmkuhl distinguish between different patterns of private-public interaction in regulation: interfering regulation, interventionist regulation, self-regulation, and regulated self-regulation (2002, 49 ff.). At the start of the twentyfirst century, the CSR movement has clearly been in the self-regulation category, but this chapter has shown that there also is evidence of forces pulling toward the fourth category, regulated self-regulation. In conclusion, then, the CSR movement has the potential to transcend the current configuration of flexible, voluntary efforts and move toward a stronger pattern of regulated self-regulation, thus contributing to the development of a more capable system of global governance, including in areas where the movement, as it is presently constituted, is least developed.

Note 1. Statement at the “Beyond Philanthropy” conference, Indian Institute of Management, Calcutta, December 2002.

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12 World Leaders and Bottom Feeders: Divergent Strategies Toward Social Responsibility and Resource Extraction Scott Pegg

Corporate social responsibility (CSR) extends far beyond the oil, gas, and mining industries, as discussed in Chapter 11. Yet the resource extraction industries have played a uniquely prominent role in the debates and controversies surrounding CSR. This chapter examines the apparent divergence of individual corporate strategies toward CSR within the resource extraction industry. In colloquial terms, this divergence has seemingly produced a variegated corporate landscape featuring “world leaders” who have warmly embraced CSR initiatives and incorporated them into their business practices and “bottom feeders” who have generally shunned CSR and sought competitive advantage by investing in countries, like Burma and Sudan, where more responsible companies choose not to go. A geographical division of labor is also now emerging in which Asian stateowned oil companies have turned their relative invulnerability to consumer and nongovernmental organization (NGO) pressure into a core aspect of their business model. However, there are a number of problems with this apparently neat division in terms of CSR world leaders and bottom feeders. In highlighting some of the limits to this CSR divergence, this chapter advances two central arguments. First, along with other things like human resource management, innovation, marketing, and production, CSR decisions are now a form of comparative advantage and another arena in which corporations compete against one another. World leaders and bottom feeders are each trying to use CSR decisions to differentiate 249

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themselves from rivals while seeking to reduce competition and maximize profits. Second, this competition over CSR strategies has not produced significant positive results for local host communities or developing countries more generally. In theoretical terms, this poor performance can be explained by reference to the structural imperatives of a global capitalist system. By focusing on the underlying capitalist logic of self-interest, market competition, and profit maximization, one can see that the divergence in CSR strategies at the firm level will not produce substantive benefits at the aggregate level. Indeed, the whole focus on CSR as a potential driver of positive change is misplaced. As Ellen Meiksins Wood observes, many participants in contemporary social movements “assume that the detrimental effects of the capitalist system can be eliminated by taming global corporations or by making them more ‘ethical,’ ‘responsible,’ and socially conscious.” Yet when it comes to the various problems that resource-rich host communities in poor countries typically face, “the problem is not this or that corporation, nor this or that international agency, but the capitalist system itself” (2003, 138, 15).

The Growth in Corporate Social Responsibility

In essence, CSR starts from the idea that corporations have social responsibilities that extend beyond profit maximization for their shareholders. Socially responsible companies do not ignore profit considerations but instead embed them in a wider decisionmaking framework that also takes into account such things as human rights obligations, environmental impact, and the interests of employees, host communities, and other “stakeholders” (Henderson 2002, 32–33; Smillie 2003, 4). CSR is increasingly conceptualized in terms of the so-called triple bottom line, which maintains that companies should no longer just be evaluated on their financial results, but should instead simultaneously be held accountable for their social, environmental, and financial performances (Elkington 1997). Importantly, although CSR emphasizes responsibility, the concept is conceptualized in wholly voluntary terms. Thus the European Commission defines CSR as companies integrating “social and environmental concerns into business operations and in their interaction with stakeholders on a voluntary basis” (cited in Christian Aid 2004, 4). Christian Aid emphasizes that companies define “what responsible behavior is” and decide for themselves “when they have gone far enough in changing their practice” (2004, 4).

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Although the concern for business ethics dates as far back as Cicero writing about unscrupulous business practices in 44 B.C. and includes such things as abolitionists boycotting sugar produced by slave labor and the transnational campaign against brutal labor practices in the Belgian Congo (Pegg 2003a, 6–7), contemporary concerns for CSR only appeared since the end of the Cold War in 1989. The growth in CSR during this short period of time has been remarkable. Indeed, David Henderson goes so far as to argue that CSR has now achieved “something close to a consensus” in business thinking (Henderson 2002, 39). Henderson exaggerates here, as CSR has been attacked from at least three different directions. First, the view that corporations have social responsibilities that extend beyond profit maximization has never been accepted by many economists and business leaders. Milton Friedman perhaps put this concern most famously when he argued that what we now call CSR represents “a fundamental misconception of the character and nature of a free economy.” In Friedman’s view, “Few trends could so thoroughly undermine the very foundation of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible” (1962, 133). David Henderson (2002) has further developed Friedman’s basic points into a powerful liberal economic indictment of CSR. Second, CSR has been attacked by those who simply don’t think corporations are very good at providing or delivering positive social or environmental benefits to poor countries. Marina Ottaway accepts that oil companies might technically be “organs of society” in the phrasing of the Universal Declaration of Human Rights (UDHR), but argues that “they are highly specialized ones and their strengths lie not in devotion to democracy and human rights but in finding, extracting and distributing oil . . . taking on the role of imposing change on entire countries does not fit the nature of these organizations” (2001, 53). Daniel Litvin similarly questions the ability of corporations to comprehend or mold the social environments in which they operate (2003, 225). Third, although still actively promoted by some NGOs, CSR is also increasingly critiqued by other NGOs as a poor voluntary substitute for better legal regulation and enforcement of environmental, human rights, and labor standards. Perhaps the seminal argument here was originally advanced by the International Council on Human Rights Policy (ICHRP), according to which: “Voluntary codes rely entirely on business expediency or a company’s sense of charity for their effectiveness. By contrast, legal regimes emphasize principles of accountability and redress, through compensation, restitution and rehabilitation for damage caused. They provide a better basis for consistent and fair judgments

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(for all parties, including companies)” (2002, 5). This argument has also recently been forcefully put by Christian Aid, which argues that voluntary self-regulation is an inadequate and unsatisfactory mechanism for ensuring good corporate behavior (2004, 50). Yet despite these varied critiques, the rise of CSR has indeed been extraordinary. What explains this rapid growth? While a variety of factors are involved, two in particular stand out. First, the real and perceived economic changes brought about by globalization have facilitated the growth of CSR in a variety of ways. The rise of conservative political ideology in the 1980s and the growing consensus around the desirability of free market capitalist economic systems produced calls for businesses to assume greater social responsibilities in conjunction with their increased autonomy in privatizing and deregulating economies (Maresca 2000b, 156). The development of stakeholder theories of corporate governance also helped drive the growth of CSR (Henderson 2002, 30). As corporations sourced, produced, marketed, and serviced an increasing amount of their business overseas, labor unions “followed the work” overseas (Mazur 2000), as did environmental and human rights NGOs. Second, the rapid development of communications technology, particularly the Internet, made it dramatically easier to monitor and report on corporate activities around the world. This opened corporate practices to new and unprecedented levels of public scrutiny. What Debora Spar (1998) has called “the spotlight effect” produced a series of highprofile cases involving such well-known corporations as Nike and Royal Dutch/Shell that thrust CSR issues into worldwide prominence in the 1990s. The result, as Morton Winston explains, is that “protest politics and moral stigmatization by NGOs and some media organizations have been the main drivers of the corporate social responsibility movement to date” (2003, 96). To summarize, while concerns about business ethics are ancient, CSR is new and did not emerge in its present form until the 1990s. The basic idea underlying CSR is that corporations should voluntarily embrace social and environmental responsibilities that extend beyond simply maximizing profits for their shareholders. Although CSR has been criticized from a number of different perspectives, its adoption is increasingly widespread and, at least at the level of rhetorical acceptance, it has almost become a dominant business philosophy. A variety of forces subsumed under the catchall term “globalization,” particularly the reduced costs and increased diffusion of communications technologies, ensure that CSR will remain important in the coming decades.

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World Leaders and Bottom Feeders: Division of Labor in the Resource Extraction Industries

Within the emerging field of CSR, resource extraction industries play a uniquely prominent role for at least three reasons. First, resource extraction corporations are different from other businesses. They do not generally depend on local firms as suppliers, nor do they require a local market for their goods. Extractive industry corporations are thus better able to cordon their operations off from problems in the host-country environment than are other service or manufacturing corporations. As William Reno observes, “The former requires a government that can enforce property rights and prosecute infringement on them. The latter requires political stability that allows foreign business to operate and recoup investments. . . . Enclave natural resource operations, however, are exempt from some of these concerns” (2000, 456). The investment opportunities for resource extraction corporations are also, by definition, limited to areas that have lucrative natural resource deposits in commercially exploitable quantities. As explained by one Unocal executive, Unlike clothing, shoe and toy manufacturers, who can open and close a facility on short notice and with relatively little capital expenditure, global energy companies must go where the resources are and stay for as long as production is economical. They cannot move an oil field from Nigeria to the Netherlands to avoid political volatility in the host country or pressure from activists. (Imle 1999, 267)

For these reasons, resource extraction corporations are willing to bear political risks of a qualitatively different magnitude than others will consider (Imle 1999, 270; Karl 1999, 36; Maresca 2000a, 45). Second, resource extraction corporations have been involved in a number of famous cases that were partly responsible for bringing the whole issue of CSR to worldwide prominence in the 1990s. Obviously, they were by no means alone here. One need only think of the “sweatshop labor” travails of Nike (Litvin 2003, chap. 7) or various other textile manufacturers operating in South and Southeast Asia (Frynas 2003b) to realize this. Still, the willingness of resource extraction corporations to invest in unstable and conflict-ridden countries such as Angola, Burma, Colombia, Nigeria, and Sudan ensured that they featured prominently in world media coverage of CSR. A series of high-profile crises in the 1990s, including Royal Dutch/Shell’s alleged involvement in the hanging of Nigerian writer and environmentalist Ken Saro-Wiwa in 1995,

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and the publication of the Global Witness report A Rough Trade in 1998, which first brought world attention to the problem of “conflict diamonds,” forced oil, gas, and mining corporations to confront CSR. Finally, a number of prominent CSR initiatives have been developed specifically for resource extraction industries. Though not framed in terms of CSR, the World Bank’s recently concluded Extractive Industries Review (EIR) produced a series of significant recommendations designed to transform how both resource extraction corporations and international financial institutions should operate in developing countries (Extractive Industries Review 2003). Resource extraction corporations have also featured prominently in two specific CSR initiatives, one focusing on security (the US-UK “Voluntary Principles on Security and Human Rights”), the other on revenue transparency (the UK’s Extractive Industries Transparency Initiative). Oil, gas, and mining corporations are also prominent members of voluntary global initiatives like the UN’s Global Compact. In the past few years, there has also emerged a small but growing literature suggesting that resource extraction corporations can play positive roles in facilitating conflict prevention and conflict resolution efforts (Banfield, Haufler, and Lilly 2003; Haufler 2003; Nelson 2000; Winston 2003). The response of the resource extraction industries to CSR has been varied. Some corporations quickly bought into the basic idea of CSR and later began evangelizing about it with missionary zeal. These corporations have seemingly transformed their business practices to place new emphasis on the importance of social and environmental performance as well as incorporating respect for human rights into their daily operations. Others either ignored CSR, claimed that they were promoting economic development and political liberalization merely by virtue of investing in poor countries, or actively sought to take advantage of the ethical concerns of more “responsible” corporations by exploiting questionable commercial opportunities that others no longer wished to pursue. In simplistic terms, this CSR division of labor can be framed as one between “world leaders” and “bottom feeders.” Of these two categories, the CSR world leaders are the easiest to explain and distinguish. Of the large private oil companies, probably the two best examples of world leaders are Royal Dutch/Shell and British Petroleum (BP). Each suffered major headline-generating scandals surrounding their alleged support for or facilitation of repressive security measures in Colombia (BP) and Nigeria (Shell). BP fired its chief security officer in Colombia after documents were revealed that suggested that military equipment had been purchased for a Colombian army brigade with alleged links to paramilitary death squads (Pegg 1999, 482). Shell’s human rights record

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in Nigeria, which included requesting security assistance that led to the deaths of nonviolent protesters and paying field allowances to Nigerian troops and transporting them in company helicopters and boats, received even more attention, particularly after Ken Saro-Wiwa and eight other Ogoni leaders were hanged on November 10, 1995 (Frynas 2003a; Manby 1999; Pegg 1999). Both corporations responded to these and other concerns by becoming CSR world leaders. In 1997, Royal Dutch/Shell revised its business principles and became the first energy corporation to declare publicly its support for the Universal Declaration of Human Rights. In 1998 it directly addressed human rights issues in the first of a series of annual reports on its social, environmental, and financial performance (Shell International Ltd. 1998). BP has also committed itself publicly to supporting the UDHR, and began publishing an annual series of environmental and social reports in 1999. BP also won praise for becoming the first oil corporation to publish its revenue payments to the Angolan government (Global Witness 2001). Both have pledged to reduce their own greenhouse gas emissions and were active participants in the drafting of the US-UK Voluntary Principles on Security and Human Rights and the UK government’s Extractive Industries Transparency Initiative. Another potential entrant to the world leader category might be diamond industry leader De Beers. Like Shell and BP, De Beers also suffered a highly public crisis that involved its purchase of conflict diamonds from rebel movements in Angola and Sierra Leone (Global Witness 1998; Smillie 2003). Subsequently it announced a number of substantive changes to the way it would conduct its operations, closed buying offices in the Democratic Republic of Congo (DRC), and participated actively in the discussions leading up to the drafting of the Kimberley Process, concerning certification procedures designed to prevent the sale of future conflict diamonds. The bottom feeders category is more diverse than the world leaders category and contains within it at least three distinct subcategories. The first subcategory comprises what might be called second-tier Western corporations. Examples here could include Talisman Energy, Lundin Petroleum, Premier Oil, and Unocal. The first two maintained investments in Sudan despite that country’s ongoing civil war and the important role that oil production played in it (Gagnon and Ryle 2001), while the latter two maintained investments in Burma despite that country’s atrocious human rights record and allegations that forced labor was used by the Burmese military in constructing oil pipelines (Larsen 1998). None of these corporations would accept that they are “bottom feeders.” and all of them have, to one degree or another, embraced CSR.

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Unocal, for example, has explicit corporate human rights policies that are similar to those advocated by BP and Shell. Unocal also supports the UDHR and the US-UK Voluntary Principles on Security and Human Rights (Unocal 2004). All four also maintained that their investments in Burma and Sudan generated substantial benefits for the local host communities. Interestingly, despite years of arguments along these lines, a number of these second-tier Western oil corporations have now pulled out of Burma and Sudan. Premier Oil restructured its business operations and divested its Burmese interests in September 2002, while Talisman Energy announced the sale of its stake in the Greater Nile Petroleum Operating Company in Sudan in October 2002. Lundin Petroleum completed the sale of part of its Sudanese interests (Block 5A) in June 2003, but remains active in other Sudanese interests (Block 5B) today. These divestments came after years of concerted pressure from activists, governments, and investors and illustrate the tenuous ability of most Western corporations to resist concentrated campaigns against their operations in particular countries. In announcing the sale of its Sudanese interests, Talisman chief executive officer Jim Buckee explained that “Talisman’s shares have continued to be discounted based on perceived political risk in-country and in North America to a degree that was unacceptable for 12% of our production. Shareholders have told me they were tired of continually having to monitor and analyze events relating to Sudan” (Talisman Energy 2002). This brings us to the second group. Corporations like Lundin, Premier, and Talisman have not simply abandoned their stakes in Burma and Sudan or suspended their operations pending political change. Instead, they have sold their stakes to Asian state-owned oil corporations. The Malaysian national oil corporation Petronas purchased both Lundin’s stake in Sudan and Premier’s interests in Burma. Talisman sold its Sudanese holdings to the Indian company ONGC Videsh Limited, a subsidiary of Oil and Natural Gas Corporation Limited (ONGC), India’s national oil corporation. The important role played by Asian state-owned corporations in the global CSR division of labor is perhaps best illustrated by participation in the Greater Nile Petroleum Operating Company (GNPOC) in Sudan. Following the completion of Talisman’s sale to ONGC Videsh Limited in March 2003, the stakeholders in GNPOC were as follows: CNPC International (Nile) Ltd. (a subsidiary of the China National Petroleum Corporation [CNPC]), 40 percent; Petronas Carigali Nile Ltd. (a subsidiary of Petronas), 30 percent; ONGC Videsh, 25 percent; and Sudapet (the national Sudanese oil corporation), 5 percent. After Lundin Petroleum’s

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sale of its interests in the adjacent Block 5A consortium to Petronas, Block 5A is now exploited by a Petronas/ONGC Videsh/Sudapet consortium. Campaigners may have succeeded in forcing Western corporations out of Sudan, but their victory has been a hollow one, as Chinese, Indian, and Malaysian state-owned corporations have ensured that their comparative immunity from activist pressure keeps Sudan’s oil wealth flowing regardless of developments in that country’s civil war. The third group are tiny corporations that have gone beyond relative invulnerability to CSR pressures and actively specialize in what might be termed “militarized commerce.” Their core business model is premised upon their ability to profit from civil wars and other forms of conflict. Such corporations exist throughout different branches of the resource extraction industries. Starting with oil, Global Witness has expressed concern that, along with major oil corporations such as Exxon (now ExxonMobil) and Elf Aquitaine (now part of TotalFinaElf), recent offshore oil block concessions in Angola have featured “the inclusion of equity partners, more normally associated with arms dealing than with oil exploration” (Global Witness 1999, 11). Specifically, Prodev, Falcon Oil, and Naptha “appear to have connections to the weapons supply chain which Luanda has been keen to tap into” (Global Witness 1999, 12; Reno 2004, 618). George Frynas and Geoffrey Wood (2001) have also demonstrated how foreign oil corporations in Angola gained competitive advantage through their association with private security firms or through their role in mediating arms purchases for the government. A number of reports have also highlighted the role of various mining corporations in Angola and Sierra Leone that have benefited from their close ties to private security firms. As David Francis explains: The main target of the mercenary companies is not military installations, but to secure the strategic mineral fields, which are then handed over to the government. Once these mineral assets are secure, the government grants valuable concessions to private companies owned by and affiliated with these mercenary companies. These strategic minerals then pay for the war. (1999, 322)

William Reno offers the specific example here of the now defunct South African private security firm Executive Outcomes’ former links to Branch Energy, a British diamond-mining corporation. As Reno describes, Branch Energy and the Sierra Leone government entered into a joint venture project “to dig for diamonds in areas conquered and patrolled by Executive Outcomes. Presumably, Branch Mining helped pay for Executive Outcomes’ services or at least made it possible for Strasser’s government to do so” (1998, 131).

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In the forestry sector, Global Witness (2002) has highlighted how the Oriental Timber Company, run by Dutch national Gus Kouwenhoven, imported arms shipments for former Liberian president Charles Taylor and hosted training camps for government militia companies at its facilities. These corporations are perhaps the “true” or “pure” bottom feeders. Where second-tier Western corporations and Asian state-owned oil corporations have invested in conflict zones, these companies have gone a step further to specialize actively in profiting from conflict, insecurity, and violence. In the words of William Reno, “as fancy hotels in dilapidated capitals such as Freetown in Sierra Leone or Monrovia, Liberia, illustrate, even war does not deter a surprising array of foreign businesspeople, con artists and crooks” (1998, 32). In short, the particular nature of its industry has ensured that resource extractive corporations are playing uniquely prominent roles in the various debates surrounding CSR. World leaders have embraced human rights obligations, issued environmental and social reports, and promoted revenue transparency. Bottom feeders range from second-tier Western corporations seeking niche opportunities, and Asian stateowned oil corporations exploiting their relative invulnerability to ethical pressures, to pure bottom feeders actively specializing in militarized commerce.

World Leaders and Bottom Feeders? Not Such a Clear Division of Labor After All

CSR is particularly important in the resource extraction industries because oil and mineral resource dependency has been shown to correlate with poor or negative economic growth, a lack of democracy, increased risks for civil war, reduced spending on health and education, and high levels of corruption (Pegg 2003c, 8–15). In many ways, the various problems associated with resource extraction would make a neat and simple CSR division of labor between world leaders and bottom feeders a relatively straightforward world to comprehend and live ethically within. The resulting policy prescription would be to promote, using European Union jargon, a widening and deepening of CSR initiatives: deepening, to encourage world leaders like Shell and BP to become even more “progressive” and even more “responsible” on social, environmental, and human rights issues; widening, to enlarge the circle of world leaders beyond just a small handful of corporations. Were this to take place in the resource extraction industries, the positive

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benefits we would expect to see would include fewer direct or indirect contributions to human rights violations, less complicity with repressive regimes, greater revenue transparency, less corruption, conflict prevention instead of conflict exacerbation, and greater benefits for local host communities in poor countries. Unfortunately, in the resource extraction industries the neat distinction between world leaders and bottom feeders turns out to be much more problematic than it first appears. Three broad sets of problems can be distinguished here: generic problems with the idea of CSR itself, problems with the world leaders (the “good guys” not really being so good), and a more complex reality with the bottom feeders (at least some of the “bad guys” not really being all that bad). Starting with CSR itself, even if corporate motives in embracing it can be accepted as sincere, what corporations should do is often unclear or far more complicated than it might initially seem. As Ian Smillie points out, campaigners “tend to take an ex post facto approach to the most egregious cases of abuse. In other words, they have views on what companies should and should not do once a situation has spun out of control” (2003, 9). He gives the example here of the antiapartheid movement and argues that its campaigning only developed long after apartheid had already been institutionalized in South Africa. While the ethical dilemmas might have been very clear to a corporation considering investing in South Africa in the 1980s, Smillie argues those stark choices were less clear-cut for corporations already in South Africa. More generally, he asks, “How is a corporate investor to calculate the risks and costs of action, versus inaction, in a volatile political situation—which could turn better tomorrow, or worse?” (2003, 9). Daniel Litvin similarly highlights the fact that “what appear from the west, and from companies’ headquarters, as uncomplicated, risk-free instructions to local managers to behave ‘responsibly’ are neither as easy to define in practice, nor as removed from the old dilemmas of history as may be imagined” (2003, 273). The challenges of implementing CSR visions conceived at corporate headquarters throughout all of a large corporation’s various local subsidiaries, operating in different cultural, legal, and political environments, are formidable. Headquarters can outline broad strategies and policies, but detailed implementation remains in the hands of local managers who are often forced to make quick decisions on complex matters in difficult circumstances. It would thus not be surprising to find vastly different CSR performance between different units of the same corporation. To take one example, in 2000 the Houston chapter of the Human Rights Campaign, the largest national gay and lesbian political organization in the United States, honored Chevron as corecipient of its Corporate Citizen Award for its

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progressive benefits policies regarding gay and lesbian employees. That same year, a US district court judge ruled in the case Bowoto v. Chevron that Chevron could be sued in US courts for its Nigerian subsidiary’s role in transporting Nigerian troops in Chevron boats and helicopters on separate occasions in 1998 and 1999 that resulted in the deaths of nonviolent protesters (Pegg 1999). Thus, even within individual corporations, one might find vastly disparate performance on CSR-related issues. Beyond this, even well-intentioned CSR initiatives may produce perverse or unintended consequences. Litvin describes how the campaign against child labor in the Bangladeshi textile industry got children out of textile factories but did not address the abject poverty that drove them to work in the first place. The end result was that “they mostly sought jobs or meager earnings elsewhere, and the alternatives were generally more unpleasant still than garment sweatshops” (2003, 243). The campaign against conflict diamonds offers another illustration of this point. De Beers was criticized for buying conflict diamonds through its offices in the Democratic Republic of Congo. In 1999, De Beers took the seemingly “responsible” course of closing its buying offices in the DRC. Unfortunately, as Smillie notes, that “did not stop Congolese diamonds from reaching the world market; it simply deprived De Beers of the business. Other smaller companies simply flowed in to fill the void, caring nothing about OECD Guidelines, UN Expert Panels or anything else aside from the bottom line” (2003, 10). Finally, there are distinct limits to what even the best CSR initiatives can achieve. The case of Shell in Nigeria is particularly illustrative here. The Shell Petroleum Development Company of Nigeria Limited (SPDC) claims to have spent US$67 million on community development programs in 2002 (SPDC 2003). Leaving aside the important question of whether or not this money has been well spent, Litvin looks at the oil-producing Niger Delta region and argues that, “with local needs so pressing, and state provision so lacking, it is perhaps little surprise that Shell’s beefed-up community development efforts are themselves having little impact [and] go just a small way to meeting the demands of the Delta’s seven million people” (2003, 269). Litvin also points out that there are inherent limits to what SPDC can do through CSR initiatives. In terms of corruption, it can easily root out corrupt individuals within its own ranks. Yet “there is the broader issue of how government agencies spend oil revenues, a corruption problem from which Shell, as the main oil provider, cannot entirely disassociate itself, and which is far more significant in its effects on Nigeria” (2003, 271). Virginia Haufler’s more general conclusion is that “attempts by private sector actors to contribute to local community development, protect

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human rights, redistribute resources, or resolve divisions within and between societies have been beset with unintended side effects, insufficient expertise, and accusations about the lack of accountability and illegitimacy of the firms” (2003, 19). The above critiques all presume that corporations are sincerely pursuing CSR initiatives and trying to do the right thing. The empirical record of CSR world leaders to date, however, fundamentally calls this assumption into question. Upon closer inspection, the CSR performance of world leaders is not impressive. Shell in Nigeria serves as an illustrative case study in this regard. In terms of its community development projects, the nongovernmental organization Christian Aid describes the Niger Delta as “a veritable graveyard of projects, including water systems that do not work, health centers that have never opened and schools where no lesson has ever been taught” (2004, 23). An external review of the corporation’s community development projects commissioned in 2001 found that of the eighty-one projects visited, twenty did not exist, thirty-six were partly functioning or partly successful, and only twentyfive worked properly (Christian Aid 2004, 27). Environmentally, SPDC’s 2002 report admits that its operations spilled 34,800 barrels of oil from 296 incidents in 2001, and 20,000 barrels from 262 incidents in 2002 (SPDC 2003). Many outside observers believe that these figures represent just a small fraction of the oil actually spilled in the Niger Delta. According to Christian Aid, “Shell’s clean up of oil spills and repair of pipelines in Nigeria is scandalously inadequate and would never be tolerated in Europe or North America. Oil spills, made inevitable by a network of aging pipes, many of which are still routed above ground, are left for weeks, sometimes months, without being cleaned up” (2004, 23). For a corporation supposedly so committed to transparency and integrity, the recent scandal surrounding Shell’s grossly overstated reserves also calls the extent of the firm’s CSR leadership into question. In November 2003, Walter van de Vijver, at the time Shell’s head of exploration and production, wrote to the then-chairman Sir Phillip Watts that “I am becoming sick and tired about lying” in reference to Shell’s overstated reserve figures. According to The Economist, “The report into how the phony numbers emerged paints a picture of deception and backbiting at the top—and . . . contains plenty to encourage shareholder lawsuits and, maybe, criminal prosecutions, not least in America, where jail may await” (2004c, 63). Interestingly, a large proportion of the overbooked reserves came from Shell’s Nigerian operations. A December 2003 report for senior executives recommended that the revised Nigerian reserve figures remain “confidential in view of host country sensitivities” (Gerth and

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Labaton 2004, 39). Shell was apparently concerned that lowered Nigerian reserve figures would adversely affect both Nigeria’s stated desire to increase its OPEC production quotas and Shell’s own bonus payment negotiations with the Nigerian government. As the New York Times reported, Chris Finlayson, chairman of SPDC, attended the news conference at which President Olusegun Obasanjo called on oil corporations to publish their payments to governments. Yet, a month later, “Shell’s senior management recommended that details of its reserve problems and bonus negotiations with Nigeria be kept confidential” (Gerth and Labaton 2004, 39). Beyond their own CSR transgressions, however, a potentially much larger issue concerns the sharp limits to what even world leaders consider acceptable in the CSR realm. For all of its vaunted rhetoric about the importance of human rights, Robin Aram, Shell’s vice president of external relations and policy development, has led the International Chamber of Commerce (ICC) in its lobbying efforts against the proposed UN “Norms on Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights.” According to Aram, “From a Shell perspective we don’t find the Norms helpful.” Beyond this, “Shell supports the views of the ICC and other national and international industry organizations that the draft Norms initiative is misguided” (UN Observer 2004). The UN Observer concludes that “it is clear that the company is determined to prevent the emergence of international mechanisms through which communities could hold it accountable to its pledges” (2004). The oil industry’s response to the final report of the World Bank’s Extractive Industries Review is also illustrative of the limits to what resource extraction firms are willing to accept in terms of CSR. A letter submitted to the EIR by the oil industry and signed by representatives from Shell and BP rejects the EIR’s recommendations to establish environmentally sensitive “no-go zones” and to prohibit the forced resettlement of local populations (Nore et al. 2003, 6). The oil industry executives praise the EIR’s emphasis on good governance and maintain that the problems associated with resource-led development are not those of a “resource curse” but rather those of a “governance curse” (Nore et al. 2003, 4). Yet having said this, the world leaders demonstrate the limits to their concerns for good governance by stating, “We welcome country screening but not strict prerequisite governance requirements for WB [World Bank] investment. . . . Requiring a wide-ranging set of governance standards before WB investment is permitted is not appropriate” (Nore et al. 2003, 3). Perhaps most cynically, the world leaders justify their opposition to the EIR report’s call for an end to World Bank Group (WBG) financing

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of oil projects in 2008 by invoking the Bank’s alleged ability to demand higher standards of social responsibility from companies investing in its projects. As the oil industry executives explain, if the WBG withdraws from participation in oil projects, “the danger exists that future projects in difficult areas will be carried out under less transparent conditions and being subject to less stringent social and environmental conditions than had the WBG been involved” (Nore et al. 2003, 5). Yet, a few sentences later, they delineate the limits to such higher standards by noting, “There is no discussion in the text about the importance of attracting commercial actors to WBG projects and the possibility that they may not be very interested to participate in projects if there are too many obstacles and conditions that are imposed on them by the WBG or their constituencies” (Nore et al. 2003, 5–6). Ultimately, the world leaders at least implicitly threaten that the alternative to their watered-down social responsibility is poor countries turning instead to the bottom feeders of the industry. Specifically, they assert that developing countries will “reject conditionalities that hinder the rational exploitation of their natural resources that no developed country would tolerate.” Having done so, “sovereign countries will not allow valuable natural resources to go untapped” (Nore et al. 2003, 6). Such implied bottom feeder threats are a standard industry tactic that has also been employed by Shell in response to calls for it to leave Nigeria in the mid-1990s and by Talisman in response to calls for it to leave Sudan a few years later (Pegg 2003b, 92–93). While the world leaders self-interestedly invoke themselves as superior options in comparison to the undesirable alternative, they are constructing an exaggerated distinction. Within the larger category of bottom feeders, the second-tier Western companies and the Asian stateowned oil corporations are not all that different from the world leaders. Unlike the true bottom feeders, these corporations do not exclusively or primarily specialize in conflict zones. To start with the second-tier Western corporations, Unocal is currently active in eight countries outside North America. Only two of these (Burma and Congo) raise bottom feeder concerns. The company’s other investments in such countries as Brazil, the Netherlands, and Thailand are not noteworthy. Similarly, with the possible exception of Colombia, Talisman Energy’s investments in such countries as Malaysia, Qatar, and Trinidad do not look like part of a concerted “race to the bottom” strategy. The larger strategy of the Asian state-owned oil corporations can also be more readily explained by a general interest in expanding reserves to respond to economic growth and increased demand for oil in their home countries than it can be to a deliberate bottom feeder strategy.

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Petronas, for example, is now engaged in fifty-seven global upstream oil ventures in twenty-five countries. It has recently acquired interests in exploration blocks in Algeria, Benin, Iran, Mauritania, Sudan, Togo, and Vietnam. International reserves now account for 19.7 percent of Petronas’s total reserves, as opposed to 16.5 percent the previous year (Petronas 2003, p. 4). Similarly, the China National Petroleum Corporation’s rapid expansion of international production and exploration activities is more readily explained by China’s rapid economic growth and booming demand for oil imports than any other factor. In 2003, China alone accounted for about 30 percent of the entire global increase in demand for oil (The Economist 2004b). To meet this demand, CNPC’s overseas new recoverable oil in place expanded dramatically, from 14.97 million tons in 2000 to 80.08 million tons in 2002. Its overseas operational crude production expanded from 13.53 million tons in 2000 to 21.29 million tons in 2002. In addition to Burma and Sudan, the company’s overseas ventures also include Canada, Peru, and Venezuela. The five new overseas exploration and development contracts that the CNPC signed in 2002 were located in Azerbaijan, Indonesia, Kazakhstan, Oman, and Turkmenistan (CNPC 2003). Asian corporations are certainly not bothered by CSR concerns, and they are unafraid to invest in countries like Burma and Sudan, but this is only a small part of a much larger internationalization strategy that can best be understood in the context of rapidly increasing demand for oil in their home markets. Additionally, while the CSR achievements of the world leaders frequently fail to withstand critical scrutiny, there are many historical cases where “bad companies” have done “good things.” The United Fruit Company, now a legendary example of corporate social irresponsibility, was responsible for clearing the jungle from around the Mayan ruins of Quiriguá in eastern Guatemala and commissioning archaeologists to study it. United Fruit also invested heavily in disease eradication programs. The incidence of malaria among their workers on the Atlantic side of Guatemala fell from 22 percent in 1929 to 0.3 percent by 1955 (Litvin 2003, 73, 132–133). The Belgian mining corporation Union Minière, notorious for its support of the Katangan secessionist movement in the Congo, was by 1960 running some seventy schools and had built more than 20,000 homes for its African employees. Its assorted public health investments helped contribute to an overall fall in infant mortality rates in Elizabethville (modern-day Lubumbashi) from 20 percent in 1950 to 6 percent in 1955 (Litvin 2003, 160). Although it has recently been pilloried for its role in buying conflict diamonds in Angola and Sierra Leone, De Beers publicly opposed apartheid at a time when such opposition was distinctly rare in the South

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African corporate sector (Smillie 2003, 7). More recently, even though it has attracted criticism for publicly opposing the Kyoto Protocol and other proactive policies designed to address global climate change, Ian Rowlands finds that, on a couple of different measures, Exxon’s fossil fuel portfolio is less carbon-intensive than that of BP, the climate change world leader (2000, 347). The CSR landscape is much more complicated than it first appears. Well-intentioned CSR initiatives can produce perverse or unintended consequences, and there are distinct limits to what even carefully implemented CSR initiatives can achieve. With the possible exception of the true bottom feeders, whose business models are premised upon conflict and instability, the CSR distinction between world leaders and bottom feeders is exaggerated and overblown. Rather than view corporations in terms of “good guy” world leaders and “bad guy” bottom feeders, it makes more sense to view them all as rational actors. When it is profitable or logical to do so, “bad guys” will engage in malaria eradication efforts or invest in less carbon-intensive and cleaner-burning natural gas. Conversely, “good guys” will vociferously proclaim their support for human rights and transparency while simultaneously lobbying against human rights initiatives that threaten their interests and concealing reserve figures whose public dissemination could create sensitive problems for their host countries.

Conclusion

There are two main conclusions that come out of this focus on CSR in the resource extraction industries. First, and perhaps not so surprising, CSR has now become just another arena where corporations compete against each other for market advantage. Just as they compete on product quality, brand reputation, innovation, hiring the best employees, and production and distribution costs, so they also now compete over their CSR strategies. World leaders have loudly trumpeted their conversion to CSR and proclaimed their more responsible behavior in the hopes of improving staff morale and retention, generating goodwill and consumer brand loyalty, attracting favorable interest from the small but growing ethical investment sector, and maintaining good relations with their home governments and international financial institutions like the World Bank. Such world leaders are, in short, trying to take advantage of growing ethical concerns and translate their “responsible” behavior into profits. The history of corporations trying to transform ethical concerns into commercial advantage goes back at least as far as Cecil Rhodes and the

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British South Africa Company. The British South Africa Company’s charter committed it to combating the slave trade and preventing the sale of intoxicating liquor to the native population. As Daniel Litvin observes, “The latter commitment was certainly no problem for the company given that drunken Africans would be less productive as mine laborers. . . . [M]eanwhile, Rhodes tried to advance his claim over Nyasaland (present day Malawi), another territory over which he had ambitions, by offering to help clear Arab slave traders from the region” (2003, 57). Large global corporations like BP, De Beers, and Shell are those best positioned to meet demands for higher standards, and they can adroitly use the push for such higher standards to create barriers to entry for others. George Frynas (1998) has demonstrated how Shell used political instability in Nigeria to create a de facto barrier to entry for other corporations in order to maintain its market position. Establishing community development programs, stakeholder dialogues, transparency requirements, and the like as necessary conditions for a “license to operate” in regions like the Niger Delta today can serve the same function. Putting such requirements into World Bank–financed projects can also serve to exclude others from participation in such contracts. Put another way, who is better positioned to benefit from stricter certificate of origin requirements on diamonds than De Beers, with its large mines in “conflict-free” countries like Botswana, Namibia, and South Africa, where it can maintain complete supply-chain control over such diamonds. Bottom feeders, on the other hand, have also sought competitive advantage from their willingness to go places where world leaders fear to tread. As the discussion on second-tier Western corporations and Asian state-owned oil corporations has illustrated, this is by no means their sole or even primary business strategy, but it can be a profitable niche nonetheless. If world leaders are someday forced to shun Equatorial Guinea or Turkmenistan, bottom feeders will happily take over from them. Pure bottom feeders have taken this strategy to its logical endpoint and developed business models premised on their ability to barter arms or security for sovereign consent to their exploitation of the country’s oil or mineral wealth (Francis 1999, 335). Arguably, there is a need for further research in two related areas. First, to what extent does corporate structure drive diverse responses to CSR? Put another way, are the Asian state-owned oil corporations immune from public pressure because they are Asian or because they are state-owned? A number of observers have noted the seemingly greater acceptance of CSR among European firms than among American firms (Winston 2003, 84–86; Rowlands 2000). It would be interesting to see

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whether European state-owned oil corporations like Italy’s ENI (National Hydrocarbons Corporation) or Norway’s Statoil have responded to CSR initiatives any differently than European private-owned corporations. The role that corporate structure plays in determining CSR strategies remains unclear at present. Related to this question of corporate structure is the larger question of how CSR strategies affect profit maximization. In other words, is there a compelling financial payoff to being either a world leader or a bottom feeder? The available evidence to date is partial, contradictory, and inconclusive (Pegg 2003a, 10–11). Advocates of CSR and “socially responsible investing” claim that incorporating social and environmental concerns into business planning will enhance long-term corporate profitability and reward individual shareholders (Winston 2003, 85–86; Domini 2001; Camejo 2002). This view is increasingly challenged by advocates of socalled sin or vice stocks (Ahrens 2004; Waxler 2004). Most of these arguments, however, have focused on such industries as alcohol, gambling, and tobacco, with no detailed study on how different approaches to CSR affect profitability in the resource extractive industries. This chapter’s second main conclusion is that the huge disparity in overall CSR performance has not produced any substantive aggregate benefit for local host communities in poor countries. Corruption and misappropriation of oil revenue continue more or less unabated in countries like Angola, Equatorial Guinea, and Nigeria. Militarized commerce continues to take place in a variety of locations. A war that has now killed more than 3 million people has not prevented the continued plunder of Congolese natural resources by a variety of public and private actors. Clearly illustrated links between oil production and civil war in Sudan (Gagnon and Ryle 2001, 39) have done nothing to prevent Sudanese oil from entering world markets. Christian Aid’s overall assessment of the impact of Shell’s conversion to CSR for residents of the Niger Delta would hold for hundreds of different mineral-rich regions around the globe: “For poor people living among the oil fields of the Niger Delta, Shell’s pledge to sustainable development has made little difference. They are still plagued by oil spills and dysfunctional community-development projects, and their communities are divided by the company’s thirst for oil” (2004, 50). Part of the explanation for this lack of progress, as discussed above, relates to inherent limitations in what even good CSR initiatives can do to address complex developmental challenges in poor countries. A larger part of the explanation for this lack of progress, however, can be found in the structural logic of the global capitalist system itself. As Ellen Meiksins Wood explains:

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The problems we associate with globalization . . . are there not simply because the economy is “global,” or because global corporations are uniquely vicious, or even because they are exceptionally powerful. These problems exist because capitalism, whether national or global, is driven by certain systemic imperatives, the imperatives of competition, profit-maximization and accumulation. . . . Even the most benign or “responsible” corporation cannot escape these compulsions but must follow the laws of the market in order to survive—which inevitably means putting profit above all other considerations, with all its wasteful and destructive consequences. (2003, 14)

In terms of the structural logic of global capitalism, the divergence of CSR strategies is merely a change at the unit or firm level. As long as the overall ordering principle remains self-interested profit maximization within a capitalist economic system, we should not expect firm-level variations in CSR strategies to produce significant overall differences in outcomes. What David Harvey terms “the mixture of coercion and consent” (2003, 152) may have altered slightly both within and between firms, but there has not been any fundamental change in the structure of the system as a whole. Arguably, the divergent paths that resource extractive corporations have now taken toward CSR have led to the emergence of a new CSR division of labor between world leaders and bottom feeders. World leaders have opted to forego certain opportunities and emphasize others, while bottom feeders have sought to take advantage of newly opened niches. World leaders and bottom feeders now exist in a symbiotic “good cop–bad cop” relationship with one another. World leaders simultaneously try to use CSR to restrict bottom feeders’ market access while also sharply delimiting the extent of social responsibilities they are willing to undertake by raising the fear of their ultimate displacement by bottom feeders who share no such ethical concerns. Bottom feeders pursue profitable market opportunities wherever they are found, and benefit from their comparative invulnerability to CSR pressures. The respective comparative advantage of each firm and the overall division of labor between the firms themselves may have altered slightly, but the structure of the system remains the same. Regardless of what future changes emerge to the present mix of CSR strategies, lucrative natural resources will continue to be exploited wherever they are found, regardless of how poor or unstable the location is, and their exploitation will overwhelmingly not be to the benefit of local host communities. Changes in the respective mix of world leaders and bottom feeders will not dramatically alter that fact one way or the other.

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Note I would like to thank Tijen Demirel Pegg, George Frynas, and Chris May for their many helpful comments on earlier versions of this chapter.

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PART 4 Afterword

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13 Global Corporate Power and the UN Global Compact Christopher May

Since the end of the Cold War many things have changed in the global political economy. Modern capitalism generally is now seen as the only plausible (albeit widely varied) model of human economic organization. There are still groups that are fundamentally opposed to capitalism and its social relations, but in the main, policymakers now ask: How can we accommodate globalization? And how can we modify capitalism to secure specific national policy ends? This has led to hotly contested debates about how to support economic development, with the previously market-oriented approach favored by neoclassical economists beginning to give way to a more pluralist, institutionally focused approach (Fukuyama 2004). The shift toward accommodation, away from critique, has also been evident in the way the multilateral governance system of the United Nations has shifted its mode of interaction with (global) corporations. In 1993 the UN closed the Center on Transnational Corporations; the center had been a major source of critical research and analysis on the practices and power of corporations in a globalizing system. This heralded a change of emphasis, which was consolidated when in 2000, following a speech by the UN Secretary-General at the 1999 World Economic Forum, the UN Global Compact was launched. This firmly established that the UN would be working with multinational corporations (MNCs), and not against them. Reflecting the increasingly prevalent practice of public-private partnership, the Global Compact is organized on the basis of reputational incentives and benchmarks; it is a carrot rather than a stick, a set of principles that have been developed in the public realm but are to be enacted privately. In this final chapter, I 273

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briefly set the Global Compact into the political economic context that this book has established for global corporate power.

The Global Compact

The Global Compact is the UN’s project to place human rights, labor standards, “environmental stewardship,” and the reduction of corruption at the center of corporations’ practices and planning.1 Rather than offering a code of conduct, the Compact offers, as Georg Kell and John Ruggie (its chief architects) note, “a framework of reference and dialogue to stimulate best practice and to bring about convergence in corporate practices around universally shared values” (2001, 323). Corporations are asked to adopt the Compact, integrate the values it expresses into their mission statements and management practices, and regularly report on their progress toward fulfilling the aims of the Compact itself; the only firm commitment they need to make is to supply information about their behavior. Certainly, many corporations now seem to recognize that questions regarding human rights have a direct impact on their financial well-being, through the practices and decisions of the corporation itself, and through pressure brought to bear on management by a diverse set of shareholders, stakeholders, and regulators (McCorquodale 2002). However, it is not only in the area of human rights that corporations have been encouraged by the Global Compact to become better “citizens” (see Box 13.1). As Ruggie has noted, the Global Compact is a “social learning network [that] operates on the premise that socially legitimated good practices will help drive out bad ones through the power of transparency and competition” (2003, 113). This voluntaristic approach reflects a presumption that it would prove difficult, if not impossible, to revive efforts to generate a robust multilateral code of conduct for corporations; the Compact may be all that it is presently possible to achieve. It is intended to peg corporate behavior to internationally recognized “best practice,” and thus may allow some “ratcheting up” of standards, related to its nine principles. The Compact itself was originally conceived as a relatively small contribution to the general aim of changing the practices of corporations, but as it has developed, more weight has been laid on its ability to effect significant change by itself (Bendell 2004, 17). By formally adopting the Compact, corporations, in theory at least, can be held to account by the surveillance of civil society groups. The Compact contains four mechanisms through which the modification of corporate practices may be achieved: dialogue, learning, projects,

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Box 13.1 The Global Compact Human Rights

Business is asked to: 1. Support and respect the protection of international human rights within their sphere of influence. 2. Make sure its own corporations are not complicit in human rights abuses. Labor

Business is asked to uphold: 3. Freedom of association and the effective recognition of the right to collective bargaining. 4. The elimination of all forms of forced and compulsory labor. 5. The effective abolition of child labor. 6. The elimination of discrimination in employment. Environment

Business is asked to: 7. Support a precautionary approach to challenges. 8. Undertake initiatives to promote greater environmental responsibility. 9. Encourage the development and diffusion of environmentally friendly technologies. Source: http://www.unglobalcompact.org.

and local networks. Policy dialogues bring together corporate managers with representatives of various labor and civil society groups, to work with governments on the development of policies to further the aims of the Compact. The learning forum is intended to allow (through its website and at meetings) the sharing of experiences and the identification of “knowledge gaps” between the best practice of Compact participants and those seeking advice on how to improve their own practices. Partnership

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projects provide opportunities for groups (specifically among the “poor”) to develop research and advocacy projects related to corporate activities, again publicized through a website. Finally, the Global Compact explicitly supports outreach efforts to establish and maintain local networks, through which its aims can be articulated and supported by civil society (Global Compact 2003b, 6–7). Overall, therefore, the Compact is facilitative of political action, but is predicated on a central role for corporations themselves: it is an inclusive forum, rather than an external regulatory mechanism.2 Anne-Marie Slaughter regards the Compact as exemplary of a new form of horizontal government; sovereign authorities now facilitate selfregulation through the conduct of deliberative and formative forums, rather than directly regulating (2004, 310). Indeed, Kell and Ruggie suggest that global corporations are attracted to the Compact precisely because it is voluntary, offering one stop shopping in the three critical areas of greatest external pressure, human rights, environment and labor standards, thereby reducing their transactions costs. It offers the legitimacy of having corporations sign off on to something sponsored by the Secretary-General—and, far more important, the legitimacy of acting on universally agreed principles that are enshrined in covenants and declarations. (Kell and Ruggie 2001, 330)

However, many nongovernmental organizations (NGOs) are less sanguine about the Compact. Some (most often the larger, multinational NGOs) see it as an aspect of constructive engagement with the “corporate community,” while others (often the smaller, single-issue NGOs) see the Compact as a pact with the devil, leading to the co-option of critical groups into the global corporate project. Recently, even initially supportive NGOs have begun to express concerns about the weakness of the Compact’s influence on its signatories’ practices (Bendell 2004, 7). It is too early to assess the impact of the Global Compact, but its very character suggests that efforts at more formal control have been undermined by the ability of corporations to mobilize significant resources to compromise political control (or extensive regulation) of their activities.

The Compact and Corporate Power

Certainly, we must not exaggerate global corporate power, but neither should we underestimate corporate managers’ desire to operate autonomously. Robert Davies has suggested four elements that may individually,

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or in some combination, encourage corporations and their managers to act more “responsibly”: 1. top-down, regulatory or legal pressure may require corporations to formally change or amend their practices; 2. market signals may prompt shifts in practice, primarily through shifts to “ethical shopping” or broader changes in consumption patterns; 3. linked to the maintenance of reputation, cases of unacceptable or questionable practices can be easily and speedily publicized, and the damage to reputation, and hence market position can be severe and quick; 4. managers may also become increasingly concerned about the ethics of their own practices, in response to social and peer influence. (2003, 307)

All of these may be important, but with the exception of the first, they remain subject to contestation, image management, and media distortion. However, it is the first regulatory element that the Global Compact explicitly sidesteps. Indeed, the International Chamber of Commerce (ICC) and the International Organization of Employers have used their participation in the Global Compact to criticize the “Norms on Responsibilities of Transnational Corporations and Other Business Enterprises,” developed by a subcommission of the UN Human Rights Commission and adopted in August 2003 (Bendell 2004, 19). Such legal “binding and legalistic” regulations were declared counterproductive and “risk[ed] inviting a negative reaction from business at a time when companies are increasingly engaging into voluntary initiatives to promote responsible business conduct” (quoted in Martens 2004). Conversely, the “Joint Civil Society Statement on the Global Compact and Corporate Accountability” to the Global Compact Leaders Summit in 2004 made these (formalized) norms the centerpiece of the statement’s call for a legally binding instrument on global corporate accountability.3 Indeed, there is considerable tension between how the ICC has deployed the Compact as a defense against other UN-related demands and the need for signatories to UN agreements (such as the Compact) to support the implementation of conventions and UN mandates, such as those from the human rights subcommission. Such UN-related demands or undertakings remain difficult to enact, as the Compact itself is conducted from the Secretary-General’s personal office, and as such remains outside many of the formal mechanisms of the UN.

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A further problem is that the limitation of the Global Compact to three areas deemed most important obscures the significant avenues for the mobilization of corporate power in the realm of fiscal policy, the avoidance of tax (not least through transfer pricing), and corporations’ direct impact on domestic politics through support for specific political groups and parties. All these practices are absent from the Compact, although at the June 2004 Leaders Summit in New York, a tenth principle was proposed and adopted: “Business should work against corruption in all its forms including extortion and bribery” (SustainAbility 2004, 37). Certainly this widens the scope of the Compact, but does little to address questions regarding the impact of corporate pressure within domestic political processes. However, even in the areas that the Compact explicitly covers, it is far from clear that its principles are informing the practices of corporations that have signed on. A report by CorpWatch dubbed the Compact a “bluewash”; like “greenwashing” (the attempt by companies to present themselves as environmentally concerned), “bluewashing” is the attempt by corporations to “wrap themselves in the United Nations’ blue flag” while “claiming to be champions of UN values such as human rights and poverty elimination [and] environmental protection” (CorpWatch 2002, 3, 6). The report identified at least five corporate members of the Compact that CorpWatch believed had already violated its principles: Aventis, Nike, Rio Tinto, Unilever, and Norsk Hydro (CorpWatch 2002, 7–8; see also Bendell 2004, 9–10). A more recent report by SustainAbility, in association with the Global Compact Office and some of the signatory corporations, notes that the Compact team are aware of corporations’ “free riding” and thus have started to require regular reports on signatories progress implementing the Compact’s principles (SustainAbility 2004, 3, 37). While less pessimistic than the CorpWatch report, the SustainAbility report still expresses a large measure of disappointment at the progress in changing corporate behavior that has been achieved by the Compact’s initial intervention in global corporate affairs. Although assessments of the Global Compact’s likely success at modifying corporate practice are mixed, even the SustainAbility report recognizes that such voluntary arrangements will only have a limited impact “if they continue to operate in isolation of mainstream governance systems” (2004, 1). This returns the issue to the realm of law and governance, and the balance between business interests and political deliberation or accountability. While SustainAbility calls for more transparency in the lobbying process, it also recognizes that much corporate lobbying is often the legitimate representation of their interests (2004, 19). The problem is that, often, these interests are privileged (and

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have been so for many decades) in the politics of many, if not all, members of the UN. The exercise of corporations’ political power can be at the cost of the recognition of other social and civil groups’ interests and rights. Even within the Compact, smaller corporations (especially those from developing countries) have been sidelined, with the interests of the largest, most global corporations most heavily represented (Bendell 2004, 14). Indeed, there is likely to be considerable tension between the commercial needs (and interests) of MNCs and those of nationally based corporations (especially outside the rich, developed countries). Hence, while it certainly is true that corporations have legitimate interests, how can these be balanced with the similarly legitimate interests of others groups in national and global society, as well as encompass the divergent interests within the corporate sector itself? Furthermore, the notion of corporate social responsibility that informs the Global Compact constitutes a particularly Western set of demands, with monitoring and auditing practices already initiated by auditing companies looking for new markets (Bendell 2004, 15; Chapter 3 in this volume), and thus the Compact itself may undermine developing countries’ own local regulatory action and practice. Therefore, although the Global Compact represents one effort to deal with global corporate power, this is hardly sufficient as a regulatory mechanism (at least in its current form), not least of all as its membership represents a small minority of global corporations. In the future its role may expand as its supporters hope, but at present it leaves the international political economy (IPE) of corporations largely unaffected.

International Political Economy and the Corporation

One of the key issues for initiatives such as the Global Compact concerns whether the negative publicity that might compromise a corporation’s brand (or reputation) is enough to inflict sufficiently heavy costs that corporate managers feel the need to amend their practices. If the assessment is that “ethical shopping” or “naming and shaming” do not have a significant impact on corporate behavior, then they are unlikely to hold the answer for reform. This suggests that extending and reinforcing formal legal regulation remains the better political strategy. Indeed, as A. Claire Cutler has forcefully pointed out in Chapter 10, the rhetoric of regulation, and the new “public domain” of corporate social responsibility, have effectively maintained the socially disembedded character of the contemporary corporation. Conversely, if choices by market participants can and do send accurate signals as regards broad

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social concerns, then any extension of regulation beyond that required to constitute and maintain markets themselves is not required. For many corporate representatives, the latter position holds considerable appeal, while few activists or NGOs believe market signals are enough to encourage socially acceptable corporate behavior. This underlying tension between global corporate power and the possibilities of (and demand for) regulation remains the key analytical nexus that IPE needs to explore. Echoing the position of David Korten (1995) and Joel Bakan (2004) as regards the corporation in national jurisdictions, Jem Bendell argues that if corporations want to enjoy rights as global “citizens,” then “in the absence of an international framework of mandatory obligations of corporations to society, so corporate citizenship should mean support for developing such a framework, in return for the right to international ownership and the movement of capital assets” (2004, 29; compare Chapter 9 in this volume). This is to say that the legal framework of global rights for corporations has developed without an equally sustained and developed notion of responsibilities, nor a formal framework of regulation, being put in place. While in domestic jurisdictions, political regulation and control, although often contentious, have been widely developed over the centuries as part of company law, current attempts to exercise such restraining regulatory power on corporations in the global system have lagged well behind the globalization of corporate rights. As the contributors to this volume have demonstrated, corporations have often managed to be a “law unto themselves.” As Louise Amoore in Chapter 3 and Michael Webb in Chapter 6 have argued, when it comes to the technical details of regulation (both through organizational logics and legal mechanisms), corporations and their supporters have been able to set the agenda of possibilities, maintaining that aspects of corporate practice require specialized knowledge to assess. Corporations have captured the minimal regulatory structures that have been established, by controlling the development and deployment of the knowledge base on which regulations rest. However, it is not merely in the realm of business organization and tax issues that the corporate interest has been normalized and consolidated; in the environmental realm, discussed by Peter Newell and David Levy in Chapter 8, and in the wide-ranging area of communications, examined by Stephen McDowell in Chapter 7, corporations also have been able to seize the initiative to shape not merely the technical practices, but also the perceived possibilities of governance. By entrenching their claims to authoritative knowledge of these various realms to be governed, corporations have managed to forestall many aspects of potential governance by ruling them outside the field of possible actions (for reasons of efficiency or even practicability).

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Nevertheless, as Scott Pegg has reminded us in Chapter 12, we also need to delineate the significant variations of corporate practice. Although we need to recognize the achievements and failings of the “good” corporations, he also cautions that the demonization of the “bottom feeders” plays a clear political and rhetorical role in the pantheon of corporate social responsibility. Indeed, it should be recognized that, as Morten Ougaard has argued in Chapter 11, the notion of corporate responsibility itself can often be reduced to the mere fact of corporations not acting illegally (hardly any great political triumph). Thus, although corporate social responsibility is clearly a powerful rhetorical discourse, as I noted above regarding the Global Compact, without a more formalized regulatory regime behind it, such a discourse can be little more than wishful thinking about corporate behavior. Indeed, as Virginia Haufler has pointed out in Chapter 5, self-regulation continues to suffer from the lack of a legitimate foundation, a lack of formal political authority. The continuing “invisibility” of the corporation, identified by Cutler in Chapter 10, is linked to the manner in which the “global business civilization” has captured the language of social responsibility and allied it to “efficiency,” suggesting that corporate social responsibility can never really discipline MNCs. However, if the corporation is to be governed at the level of the global political economy, then two key issues need to be resolved. First, as Ursula Huws has pointed out in Chapter 4 regarding the realm of labor relations (and as Amoore has discussed more generally in Chapter 3), identifying the corporation for regulatory purposes may not be that easy. This difficulty has become more pronounced as corporations have begun to take on certain attributes of other political actors (most importantly the adoption of statelike characteristics). Ian Goldman and Ronen Palan have suggested in Chapter 9 that these developments have further widened the power and influence of corporations, as they seek to establish their global citizenship, to privilege their interests through the cooption of other political groups and actors. The development of a global constitution may become a site for the consolidation of corporations as the dominant political entity. This dynamic has led Jeff Harrod to suggest in Chapter 2 that the twenty-first century will be the century of the corporation. In its normalization of the “market rationality” and in the increasing global dominance of business elites, Harrod, like Goldman and Palan, sees the increasing domination of the corporation in the contemporary (global) political economy. Corporations are trying to remake the world into one defined and patterned by the private exchange of commoditized goods and services in global markets. What this volume has demonstrated most clearly is that simplistic invocations of global corporate power miss both the significant problems

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that any program of regulation encounters, but also, and perhaps more important, misunderstand the scope and efficacy of corporations’ power in the global political economy. Certainly, there is a real need to continue to examine and investigate corporate practices, but also we need to go behind the corporate-generated rhetoric about specialized knowledge and technical limits to the possibilities of regulation, to understand the continuing possibilities for political economic engagement with corporate power. Thus it is not enough to take corporations at their word about the limited possibilities of global governance, nor is to enough to merely adopt the more hyperbolic invocations of corporate domination; rather, in IPE we need to establish a more nuanced and complex analysis of global corporate power and its global governance. This volume has set out some key issues and perspectives on corporations; the contributors and I hope that it will be a spur to further work in IPE that will continue to interrogate the corporation as a key player in the new millennium’s (global) socioeconomic relations.

Notes 1. The project’s website is http://www.unglobalcompact.org. 2. For those wishing to see how the Compact is presented by its organizers, an excellent place to start is Raising the Bar: Creating Value with the United Nations Global Compact (Fussler, Cramer, and van der Vegt 2004), which sets out the Compact’s toolbox approach comprehensively and is laid out as a manual to encourage implementation of the Compact’s principles. 3. The statement can be found at http://www.globalpolicy.org/reform/business/ 2004/0623joint.htm (September 6, 2004).

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The Contributors

Louise Amoore lectures in political geography at the University of Durham. Her current research focuses on the roles of risk management consultants in shaping the contours of the global political economy. Her books include The Global Resistance Reader (as editor) and Globalisation Contested: An International Political Economy of Work. A. Claire Cutler is professor of international relations and international

law in the Political Science Department at the University of Victoria. Her publications include Private Power and Global Authority: Transnational Merchant Law in the Global Political Economy and Private Authority and International Affairs (coedited with Virginia Haufler and Tony Porter). Ian Goldman is a PhD candidate at the University of Sussex and a

member of Tax Justice Network. He has been practicing law in Canada since 1992. He has presented numerous papers regarding the politics of international corporate taxation. Jeffrey Harrod is visiting professor at the International School for

Humanities and Social Sciences, University of Amsterdam, where he lectures and supervises research degrees in international political economy. He was previously a research coordinator at the International Labour Organization and a professor of comparative labor studies at the Institute of Social Studies, The Hague, Netherlands. Virginia Haufler is associate professor of government and politics at the University of Maryland–College Park. Her publications include A Pub319

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lic Role for the Private Sector: Industry Self Regulation in the Global Political Economy and Private Authority in International Affairs (coedited with A. Claire Cutler and Tony Porter). Ursula Huws is professor of international labor studies at the Working Lives Research Institute at London Metropolitan University and director of Analytica Social and Economic Research Ltd. Her most recent book is The Making of a Cybertariat: Virtual Work in a Real World. David Levy is professor of management at the University of Mas-

sachusetts. He is currently researching the potential of the renewable energy business cluster in Massachusetts and the role of business in industry governance. Levy’s most recent publication is The Business of Global Environmental Governance (coedited with Peter Newell). Christopher May is professor of political economy in the Department of Politics and International Relations, Lancaster University. He is coeditor of the IPE Yearbook series, and has published widely on intellectual property rights and the information society. May’s publications include Intellectual Property Rights: A Critical History (coauthored with Susan Sell) and The Information Society: A Sceptical View. Stephen D. McDowell is associate professor and chair in the Depart-

ment of Communication at Florida State University. His publications include Globalization, Liberalization, and Policy Change: A Political Economy of India’s Communications Sector. Peter Newell is senior research fellow at the Centre for the Study of Globalisation and Regionalisation, University of Warwick, and was previously a lobbyist for Climate Network Europe in Brussels. His publications include Climate for Change: Non-State Actors and the Global Politics of the Greenhouse; Development and the Challenge of Globalisation (as coeditor); and The Business of Global Environmental Governance. Morten Ougaard is professor of international political economy at Copenhagen Business School, where he also is director of the bachelor of science program in international business and politics. Recent publications include Towards a Global Polity (coedited with Richard Higgott) and Political Globalization: State, Power, and Social Forces. Ronen Palan is professor of global political economy at the University of Sussex. His recent publications include The Offshore World; The

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Imagined Economy of Globalisation (coauthored with Angus Cameron) and Les Paradix Fiscaux (coauthored with Christian Chavagneux). Scott Pegg is assistant professor in the Department of Political Science at Indiana University–Purdue University at Indianapolis (IUPUI) and previously taught in the Department of International Relations at Bilkent University, Ankara, Turkey. Pegg is author of International Society and the De Facto State and coeditor of Transnational Corporations and Human Rights. Michael C. Webb is associate professor of political science at the Uni-

versity of Victoria. His research focuses on macroeconomic policy coordination, taxation and fiscal policy, welfare policy, and the OECD. His publications include The Political Economy of Policy Coordination: International Adjustment Since 1945.

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Abu Graib, 52 Accenture, 52–55, 59 Acquired immunodeficiency syndrome (AIDS), 197n6, 199, 227 Addo, Michael, 201 Adidas, 60 Agenda 21, 237 Ahold, 1 Al-Qaida, 63 Amazon.com, 141 America On-Line (AOL), 149, 150 Amnesty International, 96 Amoore, Louise, 174 Andersen Consulting, 56. See also Accenture Andree, Peter, 168 Andrha Pradesh, India, 52 Arm’s-length method (of transfer price allocation), 110–112, 114–117 AT&T, 141 Automation, 3, 68, 70 Aventis, 278 Bakan, Joel, 11, 12, 280 Ball, George, 2 Bangalore, 59 Barnet, Richard, and Cavanagh, John, 11 Benedictine monasteries, 5 Benner, Chris, 74 Berghe, Lutgard Van Den, 234 Berle, Adolf, and Means, Gardiner,10 Berlusconi, Silvio, 31

Bharatiya Janata Party (BJP), 52 Bhopal, 160 Bichler, Shimson, and Nitzan, Jonathan, 36 Bierce, Ambrose, 1 Bilateral investment treaties (BITs), 205, 206 Bilderberg Group, 13 Bimber, Bruce, 130 Biosafety protocol, 165 Blackstone, William, 6 Boddewyn, Jean, and Brewer, Thomas, 169 Bork, Robert, 211, 212 Boston Consulting Group, 56 “Bottom of the pyramid” markets, 240 Bowie, Norman E., 231 Boyle, James, 150 Brandeis, Louis, Supreme Court Justice, 11 Brands, 43, 61–65, 135, 265 Braudel, Fernand, 88 British Petroleum (BP), 254–256, 258, 265, 266 Broadcasting, 134–137 Bureaucracy, 26, 38, 40 62 Bush, George W., 31, 54, 122 Business Council for Sustainable Development, 158, 159, 167, 229. See also World Business Council for Sustainable Development Business for Social Responsibility, 230 Business service-based statistics, 75–77

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Cable and Wireless, 141 Canada–United States Free Trade Agreement (CUSTA), 203, 206, 207 Cap Gemini Ernst and Young, 56, 59, 60, 116 Carbonated drinks, 31 Cargill, 168 Center for Freedom and Prosperity, 122 Cerny, Phil, 44 Chandler, Alfred, 9, 20n7, 189 Chang, Kimberly, and Ling, L.H.M., 61 Chemical industry, 94, 102n12, 159, 165 Cheney, Dick, 31 Chevron, 259, 260 Chicago School, 45 China National Petroleum Corporation, 256, 264 Chlorofluorocarbons (CFCs), 168 Christian Aid, 250, 252, 261, 267 Chua, Amy, 31 Cicero, 251 Cisco Systems, 240, 241 Citizenship, history of, 185, 194 Class, 35, 39, 43, 183–185, 191 Clean Clothes Campaign, 62 Coates, David, 14 Codex Alimentarius Commission, 166 Coke, Sir Edward, 6 Commodification, 68–71, 78 Comparable profits method (of transfer price allocation), 112, 115 Competitiveness, 47, 59 Confederation of Indian Industry, 167 Conflict diamonds, 254, 255, 260, 266 Consultants, 47–52, 57–60; and legitimizing globalization, 55; and monitoring, 62, 94, 279; and outsourcing, 42; and tax planning, 108, 113, 116, 119, 123, 125 Consumers International, 151 Converse, 60 Copyright, 150 Corporatism, 29–31, 37 Corporate codes of conduct, 94, 96, 200, 225n36; and corporate social responsibility, 228, 243, 245; and regulatory change, 219, 220 Corporate diplomacy, 31, 48, 164 Corporate elites, 29–31, 39, 46 Corporate environmental strategy, 175, 176

Corporate legal personality, 3, 187–189, 202–204, 207, 208 Corporate lobbying, 30, 125, 162–164, 168, 176, 278 Corporate political strategy, 169, 175 Corporate power, assessment of, 11, 24, 25, 205; and classical economic theories, 29, 32, 34; and political economy, 172, 173, 181; and political theories, 39, 45 Corporate rationality, 44, 45, 58 Corporate social responsibility (CSR), 199–201, 214, 221, 222, 227–268, 281; and the environment, 161; and human rights law, 207–209; and institutionalists, 39; and nongovernmental organizations, 98; and regulatory function, 97, 217, 218 CSR Europe, 230, 235, 244, 245 Corporate technology strategy, 131, 132 The Corporation (film), 1 CorpWatch, 278 Court, Jamie, 11, 13 Cox, Robert, 173 Cox, Ronald, 170, 171 Credit rating agencies, 94, 190 Dauvergne, Peter, 177 Davies, Robert, 276, 277 Davis, John P., 6 De Beers, 255, 260, 264, 266 Democracy, corporations’ threat to, 11, 101 Denemark, Robert and O’Brien, Robert, 50 Deskilling, 71, 79 Dholakia, Ruby, 136 Digital divide, 147 Disraeli, Benjamin, 40 Division of labor, 8, 67–71, 75, 76, 80 Double taxation, 107, 110, 112, 115, 116, 124, 191 Du Gay, Paul, 57 Dupont, 168 Earth Rights International, 211 East India Company, 5, 89, 186 E-bay.com, 151 E-commerce, 136, 147, 148, 151 The Economist, 49, 261 Edge, David, 130 Edkins, Jenny, 62, 63

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Index 325 Education, 43 Efficiency principle, 214–216, 220–222 EMERGENCE project, 73, 75–77 Employment statistics, 66–68, 73, 74 Enron, 1, 52, 53, 64n2, 85, 122 Environmental regulation, 100, 106, 162, 215 European Roundtable of Industrialists, 174, 244 European Social Forum, 109 Expedia.com, 151 ExxonMobil, 257, 265 Exxon Valdez, 160 Export processing zones (EPZs), 60

Global Climate Coalition, 164, 165 Global Industry Coalition, 164 Global Information Infrastructure Initiative, 136, 148 Global Reporting Initiative, 96, 229, 244, 245 Global Tax Forum, 123 Global Witness, 254, 257, 258 Google.com, 150 Gordon, Colin, 183 Gramsci, Antonio, 105 Group of Seven (G7), 105 Group of Seventy-Seven (G77), 206 Guilds, 5, 32

Falkner, Robert, 168, 174 Farrior, Stephanie, 208 Feminism, 102n7 Feminization of labor, 61 Financial capital, 3, 6, 14, 36, 105, 189, 190, 229 FT500 companies, 26–28 Flexibility, 51, 60, 74, 78 Florida, Richard, 31 Food industry, 61 Foreign direct investment (FDI), 26, 41, 110, 125, 190, 205–207 Forest Stewardship Council, 96, 97, 100, 177 Forum on Harmful Tax Practices, 119, 122, 124, 125 Forum shopping, 97 Foucault, Michel, 45 Fox, Vicente, 31 Francis, David, 257 Freedman, Peter, 63 Freeman, Jody, 216 “Freestanding” companies, 9 Friedman, Milton, 90, 234, 236, 251 Friendly, Judge Henry, 213, 214 Frynas, George, and Wood, Geoffrey, 257, 266

Hadari, Yitzhak, 196 Hammer, Richard, and Owens, Jeffrey, 120 Harvey, David, 268 Haufler, Virginia, 215, 232, 236, 238, 243, 260, 261 Hayek, Fredrich, 45, 90 Heilbronner, Robert, 153, 154 Hemingway, Christine, and Maclagan, Patrick, 238 Henderson, David, 251 Heritage Foundation, 122 Herman, Edward, and Chomsky, Noam, 12 Hertz, Noreena, 12 Hildyard, Nicholas, 167 Hillman, Amy, and Hitt, Michael, 169 Hirst, Peter, 102n3 Hoffman, Andrew, 159 Hooper, Charlotte, 49 Hoover, Kenneth, 45 Hudson Bay Company, 5, 186 Human rights, 106, 223n5, 246, 254, 259; and corporate social responsibility, 201, 207–213, 228, 233, 251 Human Rights Watch, 209 Hume, David, 185 Hymer, Stephen, 15

Galbraith, John Kenneth, 9 Gangmasters, 61 General Agreement on Tariffs and Trade. See World Trade Organization General Agreement on the Trade in Services (GATS), 135 142, 191 Gill, Stephen, 124, 176 Gladwin, Thomas, and Walter, Ingo, 169

IBM, 94, 95, 154, 212 Income differentials, 42 Incorporation, 3, 6, 12 Indian National Association of Software and Service Companies, 80 Information and communication technologies (ICTs), 1, 100, 106, 240, 252; and outsourcing, 59, 80;

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and standards, 91, 95; and work, 70, 71, 72 Insurance industry, 89, 100 Intellectual property rights, 111, 112, 118, 139, 140, 150, 152 Intergovernmental Panel on Climate Change, 163 International Center for the Settlement of Investment Disputes, 203, 206 International Chamber of Commerce (ICC), 96, 165, 229; and climate change, 159; and corporate taxation, 108, 113, 125; and the United Nations, 262, 277 International Commission on Human Rights Policy, 201, 204, 209 International Court of Justice, 202, 203 International Criminal Court, 199, 203, 222n2 International labor standards, 82, 94, 98, 125 International Labour Organization, 4, 60, 230, 245 International law, 3, 4, 87–90, 93, 98, 202–205 International Maritime Organization, 16 International Monetary Fund, 98, 105, 109, 161, 205 International Organization for Standardization, 91, 95 International regimes, 102n4, 102n6, 170, 172, 177 International relations, 102n6, 170, 182 International standard setting, 87–98, 102n9, 162, 166, 232, 244 International Telecommunications Union (ITU), 16, 133, 137–139, 143, 152 International Tropical Timber Organization, 16 Internet access provision, 129 Internet backbone services, 129, 137–144 Internet Corporation for Assigned Names and Numbers (ICANN), 92, 138, 139, 143 Internet domain names, 138–140 Internet idealism, 128–131, 136, 139, 147, 149, 153 Internet service providers, 144–149 Johns, Fleur, 205

Kaptein, Muel, 233 Kell, George, and Ruggie, John, 274 Kerry, John, Senator, 59 Kissinger, Henry, 49 Klein, Naomi, 12, 121 Knill, Christopher, and Lehmkuhl, Dirk, 247 Kobrin, Stephen, 85 Kolko, Gabriel, 183 Korten, David, 12, 280 Kyoto protocol, 168 Labor, 25, 30, 37, 50, 57, 195, 215; and corporate incentives, 193; and outsourcing, 42, 59–62, 65–82, 194 Laski, Harold, 45, 46 Lessig, Lawrence, 130 Levy, David, and Egan, Daniel, 30, 162; and Kolk, Ans, 169 Lex mercatoria, 88, 197n3 Litvin, Daniel, 251, 259, 260, 266 Liubicic, Robert, 243 Limited liability, 2, 6, 7 Lipsky, Michael, 159 Lloyds of London, 20n4 Locke, John, 185, 200 Lui, Tai-lok, and Chiu, Tony Man-yiu, 60 Lundin Petroleum, 255, 256 MacGuire, Gerald, 215 Madley, John, 12, 13 Malanczuk, Peter, 204 Managers, 25, 26, 38, 50, 56, 184, 238 Mansell, Robin, 129–132, 136 Marcos, Ferdinand, 223n4 Margolis, Joshua, and Walsh, James, 235 Marshall, T. H., 185 Market, reification of, 30, 33, 34, 44 Marketing, 43 van Marrewijk, Marcel, and Were, Marco, 234, 235 Marx, Karl, 34, 35, 43, 89, 221 Marxism, 34, 35, 105, 124, 126, 171 Mass media, 12, 31, 43, 149 Matten, Dick, Crane, Andrew, and Chapple, Wendy, 194 McKinsey and Co., 52, 55, 56 McLean, Janet, 3 McMichael, Philip, 31 Medici family, 6

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Index 327 Melody, William, 140, 141 Mercedes, 193, 212 Michel, Robert, 38 Microsoft, 91, 149, 150 Mikler, John, 30 Miller, Peter, 58 Milner, Helen, 184 Mintzberg, Henry, Simons, Robert, and Basu, Kumal, 235 Mittelstand, 8 Models of capitalism, 14 Mody, Bella, Baver, Johann, and Straubhaar, Joseph, 133 Monbiot, George, 11, 13 Monopolies, 6, 23, 24, 33, 149, 150 Monsanto, 168 Montreal protocol, 177 Moody’s, 94 Moore, Karl, and Lewis, David, 4 Most-favored nation (MFN), principle of, 191, 192 Motion Picture Association of America, 170 Mueller, Milton, 135 Multilateral Agreement on Investment (MAI), 4, 91, 93, 203, 206, 207 Multinational Monitor, 12 Nationalism, 80, 114 National Science Foundation, 135, 141 National treatment, principle of, 191, 192 Neal, Richard, Representative, 54 Neo-Gramscian approach, 173–175 Nestle, 28 Netscape, 149 Network Access Points, 141–143 Network Solutions, 139 New economy, 72, 73, 75 New medievalism, 85 Nike, 60, 252, 253, 278 New Internationalist, 12 Nokia, 237 Nolan, Peter, Sutherland, Dylan, and Zhang, Jin, 25 Nongovernmental organizations (NGOs), 103n17, 106, 138, 154, 249; and corporate social responsibility, 228, 229, 237, 242, 245, 249–252, 280; and corporate taxation, 108, 109, 121, 125, 126; and the environment, 160; and global

governance, 86, 87, 92, 107; and regulation, 96, 98, 99; and the United Nations Global Compact, 276, 277 Norms, (re)construction of, 57, 58, 101, 111, 113, 117, 221 Norsk Hydro, 278 North, Douglass, 89 North American Free Trade Agreement (NAFTA), 161, 203, 206, 207 Novo Nordisk, 240, 241 Nuremberg Trials, 208, 222n2 Obasanjo, Olusegun, 262 “Off-shore,” 63, 108, 193, 194 Oil and Natural Gas Corporation Limited, India, 256 Oil industry, 31, 36, 159, 163, 169, 210, 211, 257, 262 Oligopoly, 24, 25, 33 O’Malley, Pat, 57 Open source, 154 Organization for Economic Cooperation and Development (OECD), 118, 206, 217, 219; Business and Industry Advisory Council, 108, 113, 119–121; Committee on Fiscal Affairs, 113, 114; and corporate taxation, 107–111, 120–124; and Guidelines for Multinational Enterprises, 4, 91, 93, 230; and the Internet, 146–148, 151, 152; study of corporate codes of conduct, 228; and telecommunications, 135; Transfer Pricing Guidelines, 114, 115 Organization of Petroleum Exporting Countries, 163, 206 Organization theory, 37 Ottaway, Marina, 251 Outsourcing, 3, 39, 42, 40, 51, 59–63, 66, 76–78 Oxfam, 121 Palan, Ronen, 118; and Abbot, Jason, 14 Parmalet, 1, 85, 122 Perkin, Harold, 31 Permanent Court of Arbitration, the Hague, 203 Petronas, 256, 257, 264 Picciotto, Sol, 218, 220

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Pierre, Jon, 86 Pilger, John, 12 Polanyi, Karl, 89, 221 Porter, Michael, 47–49, 52, 55; and Kramer, Mark, 235, 239, 240 Pou Chen Corp., 60 Prahalad, C. K., and Hammond, Alan, 239, 240 Premier Oil, 255, 256 PriceWaterhouseCoopers, 52, 57, 60, 62, 229, 230, 235, 238 Private authority, 49–52, 85, 86, 100, 126n1, 171, 201, 215, 216 Private security companies, 31, 257 Privatization, 26, 90, 133 Productivity, 8, 55, 239 Profit maximization, 33, 39, 200, 201, 234, 251, 268 Public-private, distinction between, 88–92, 99, 201, 222, 241 Railways, 7, 57, 189 Ratner, Steven, 209 Reagan, Ronald, 90, 215 Recording Industry Association of America (RIAA), 150 Redmond, Paul, 207 Reebok, 60 Reich, Robert, 31 Reno, William, 253, 258 Rent seeking, 33 Responsible Care Program, 94, 102n12, 160 Rhodes, Cecil, 265, 266 Richter, Judith, 11, 13 Ridderstale, Jonas, and Nordstrom, Kjell, 56 Rio Tinto, 278 Risk, 47, 51, 56, 59–62, 79 Rockport, 60 Roman empire, 4, 5 Ronson, Jon, 20n6 Roosevelt, Franklin D., 215 Rose, Nikolas, 58 Roseman, Daniel, 142, 144 Rothschilds, 6 Royal African Company, 5 Ruggie, John, 199, 200, 216 Russell, Steve, and Gilbert, Michael, 3 Safe Harbor Agreement, 95 Salter, Liora, 95

Sarbanes-Oxley Act, 224n30 Saro-Wiwa, Ken, 211, 253–255 Scalia, Antonin, 212 Schiller, Herbert, 12 Schmitter, Philippe, 28, 31 Schneiberg, Marc, 30 Scholte, Jan Aart, 243 Schwarzenberger, Georg, 39 Scientific management, 8, 57, 70 Scott, John, 15 Sector-based statistics, 68, 69, 72–74, 134 Self-regulation, 85, 93, 101, 218, 220, 232; and corporate codes of conduct, 92, 96, 97, 214, 217, 219; and corporate social responsibility, 238, 243, 251, 252; and technical standards, 94, 95 Senior management remuneration, 41, 42 Shareholders, 25, 57, 101, 160, 187–189, 200, 207, 251; and absentee ownership, 10, 33, 184 Shell, 28, 252, 255, 256, 266; and corporate social responsibility, 258; and Nigeria, 253, 254, 260–263; and overstated reserves, 261, 262; and the US Alien Torts Claims Act, 211, 212, 223n11 Sherman Anti-Trust Act, 7 Shrivastava, Paul, 175 Siemens, 193 Silicon valley, 59, 74 Sklair, Leslie, 15 Slaughter, Anne-Marie, 276 Smillie, Ian, 259, 260 Smith, Adam, 32, 33, 89, 185 Social Accountability International, 229 Social shaping of technology, 129, 130 “Soft law,” 218 Sony, 237 South Sea bubble, 7 Spar, Debora, 98, 100, 252; and La Mure, Lane, 238 Speight, Alan, 33 Sprint, 141, 144 Standard Oil, 189 Statoil, 94, 102n11 STILE project, 73, 74 Stoeckl, Natalie, 220 Stopford, John, 49

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Index 329 Strange, Susan, 13, 14, 48, 49, 86, 102n10, 157, 164 Strong, Maurice, 166 Structuralism, 172 SustainAbility, 278 Taft, William H., 212 Talisman Energy, 213,255, 256, 263 Tax avoidance, 106, 107, 113, 120, 124, 126 Tax havens, 111, 117–124 Tax Justice Network, 109 Taylor, Charles, 258 Taylor, Frederick, 8 Technological determinism, 130, 154 Telephone services, 135, 136, 140, 141 Telmex, 134 Texaco, 210, 223n18 Textile industry, 60, 211, 253, 260 Thai National Economic and Social Board, 52 Thatcher, Margaret, 90, 215 Thompson, Grahame, 24 Thrift, Nigel, 51, 57 Timberland, 60 TotalFinaElf, 257 Toyota, 24 Trademarks, 5, 43, 111, 135, 139, 140. See also Branding Trade Related Aspects of Intellectual Property Rights (TRIPs): Agreement on, 165, 191, 207 Trade Related Aspects of Investment Measures (TRIMs): Agreement on, 207 Trade unions, 79, 80, 92 Trans-Atlantic Business Dialogue, 174 Transfer pricing, 109–117, 120, 124 Travelocity.com, 151 Trilateral Commission, 13 Tyco, 1, 122 Unilever, 278 Union Minière, 264 Unitary taxation, 111, 112 United Fruit Company, 264 United Kingdom (UK) Department for International Development (DfID), 52 UK Department of Trade and Industry (DTI), 55

United Nations (UN), 24, 93, 98, 137, 165; and “bluewashing,” 278; Code of Conduct for Transnational Corporations, 91, 93, 206; Commission on Human Rights, 90, 199, 277; Commission on Transnational Corporations, 16, 206, 273; Compensation Commission, 203; Conference on Environment and Development, Rio 1992, 166, 167, 237; and the environment, 160; Global Compact, 126, 199, 230, 245, 246, 254, 273–279; and Global Reporting Initiative, 229; and human rights, 223n5; and the Internet, 240; Norms on Responsibilities of Transnational Corporations and Other Business Enterprises, 262, 277; privatization of, 166; Security Council, 209 UN Conference on Trade and Development (UNCTAD), 200, 206, 218 UN Development Program (UNDP), 166 UN Environment Program (UNEP), 96 United States (US), 15, 205; Alien Torts Claims Act (ATCA), 4, 209–214, 223n11–18, 224n19–22; Chamber of Commerce, 230; corporate model, 14, 15, 40, 189; Department of Commerce, 138, 139; Department of Homeland Security, 53, 54; Internal Revenue Service (IRS), 111, 112; Treasury Department, 111–114 Universal access to telecommunications, 132, 133, 137 Universal Declaration of Human Rights (UDHR), 143, 208, 246, 251, 255, 256 Unocal, 211, 212, 253–256, 263 Value chain, 71, 82 Veblen, Thorstein, 9, 10, 89 Verio, 141 Vernon, Raymond, 15 Wade, Robert, 241 Wal-Mart, 24 Waltz, Kenneth, 102n10 Ward, Halina, 218

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Warhurst, 237, 238 Weber, Max, 38, 40 Whitley, Richard, 14 Wiener, Martin, 8 Williams, Cynthia, 211 Winston, Morten, 252 Wolff, Richard, 221 Wood, Ellen Meiksins, 250, 267, 268 World Bank, 50, 52, 98, 161, 203–206, 216, 254, 263–266 World Business Council on Sustainable Development, 94, 229. See also Business Council on Sustainable Development Worldcom, 1, 85, 141, 144

World Intellectual Property Organization (WIPO), 139, 140, 152 World Summit on the Information Society, 143, 152, 154 World Summit on Sustainable Development, Johannesburg 2002, 167 World Trade Organization, 87, 93, 105, 109, 176, 191–193, 206; and corporate lobbying, 165; and environment and labor standards, 98, 237; and services, 142 Yahoo, 149, 150 Zaibatsu, 8

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About the Book

Exploring the diverse ways that corporations affect the practices and structures of the global political economy, this innovative work addresses three fundamental questions: How can the corporation be most usefully conceptualized within the field of IPE? Does global governance succeed in constraining the power of multinational corporations? To what extent has the movement for corporate social responsibility been fruitful? The authors’ rich, detailed contributions—covering topics ranging from environmental governance to control of the Internet, from the evolution of legal structures to issues of outsourcing—cogently reestablish the study of the corporation as a central concern for IPE. Christopher May is professor of political economy in the Department

of Politics and International Relations at Lancaster University. His recent publications include A Global Political Economy of Intellectual Property Rights: The New Enclosures? and Intellectual Property Rights: A Critical History.

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