Just Published: "Regulating Multinational Corporations — Trends, Challenges and Opportunities," Brown Journal of World Affairs 22(1):153-173 (Fall/Winter 2015)

I am pleased to announce the publication of an article that I hope might be of interest to some of you: "Regulating Multinational Corporations — Trends, Challenges and Opportunities", Brown Journal of World Affairs 22(1):153-173 (Fall/Winter 2015).

I am in very good company. The contribution was part of a group of articles sharing distinct perspectives on MNEs. Other contributors include:

Globalization from a Business Leader's Point of View
Frits van Paasschen

Human Rights and the OECD Guidelines for Multinational Corporations: Normative Innovations and Implementation Challenges
John Gerard Ruggie
Tamaryn Nelson

The Cost of Free Trade
Joel Richard Paul

Transnational Mining Corporations, the Environment, and Indigenous Communities
Al Gedicks

Included below is the abstract and introduction (footnotes omitted) to my contribution.  Comments, reactions, etc. most welcome.


Regulating Multinational Corporations — Trends, Challenges and Opportunities
Larry Catá Backer
Brown Journal of World Affairs 22(1):153-173 (Fall/Winter 2015).

Abstract:

In prior work, I suggested the way in which private enterprises have been developing coherent systems of governance that draw on but are autonomous of law and state based legal systems. In this essay I suggest the challenges to the erection of a similar coherent system of legal regulation by or through states. This essay has two objectives. The first is to examine the difficulties of current approaches to use law and legal frameworks to manage MNEs through law. The second is to examine the way that current contradictions impede efforts act developing coherent regulatory models and on that basis to sketch out alternatives beyond the quite limited and repetitive discursive approaches to the regulations of MNEs through law. The fundamental impediment to the legal regulation of the MNE, then, may well be the conceptual cage within which this use of regulation is constrained. As long as the “problem” of MNEs is understood as an institutional problem, that is as a problem of managing something that can be conceived at some level of generality as an institution, an appropriate regulatory response will be elusive. And it will be elusive precisely because the object of regulation cannot focus on the regulation of an object (the MNE as enterprise), but the management of a system (production chains beyond and within the state). For that enterprise, the traditional tools available to states and exercised on “things” will continue to increasingly elaborate legal interventions produce failure.

Keywords: multinational corporations, corporate social responsibility, international taxation, governance, bilateral investment regimes, foreign direct investment.


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INTRODUCTION

The once orderly arrangement of public and private power, of domestic and international law, and of the institutions through which these arrangements were realized has been upended by the very the structures legitimated in political, economic, and legal theory.2 In place of the state, the production chain increasingly serves as a basis for collective governance.3 Domestic and institutional actors—individuals, economic enterprises, civil society actors, public international organizations, and hybrids that emerge from couplings of these actors—along with states, now engage in a world order marked by fracture, fluidity, permeability, and polycentricity.4 This world governance order is char- acterized by a stable universe of objects of regulation around which governance systems multiply and in which law is one of several systems of governance that has an impact on the organization of human and communal activity.5 It is a governance order in which regional integration might well supplant both the state and global integration.6

And yet, much of the current discourse and premises of public policy continue to indulge beliefs solidified after 1945.7 This post-1945 system presumes a dynamic population bound to static and stable states, which reflect the communal consensus of their populations through democratic representative institutions. States operate and speak most forcefully through law, which con- strains both the actions of states and the direction and scope of policy. Policy discourse is centered on these traditional presumptions in ways that sometimes ignore or diminish the reality of the governance frameworks of globalization that are growing up around the state or seek to preserve it in the face of change.8 But these emerging governance systems, which appear all around the state in order to support activities that cross borders and thus cannot be regulated in their entirety through the application any one state’s law, contradict this discourse.9 At the base of this contradiction are two distinct approaches to regulation—one is legal and tied to the traditional structures of the state; the other focuses on social norms and is tied to the governance power of public and private institutions operating between, within, and around states.10

These contradictions lie at the heart of the subject of this essay—the challenges and opportunities, and the legal and public policy context of multinational corporation or enterprise (MNE) regulation. 11 MNEs “have transcended their traditional limitation for lobbying on the national level, and have begun to involve themselves directly within global economic regulations, either by acting as transnational lobbies or by setting up rules themselves.”12 And yet, policy discussion tends to focus on the use of law to regulate MNEs whose operations extend beyond the reach of any one state or on the structures of international law that by their nature and implementation lack coherence and remedial structures. This contradiction is especially discernible in recent efforts to legally institutionalize an architecture for the regulation of the economic, social, cultural, and human rights effects of economic activity.13 Public institutions and civil society invest substantial effort in the construction of an international legal framework for regulating multinational enterprises.14 Private governance and self-regulation are viewed as threats to the social and political order; at the same time, private actors have increasingly turned to a variety of self-regulatory and private governance structures, some of which are recognized in international norms, in order to manage significant aspects of their operations.15 Public actors have also sought to manage private regulatory governance by intervening in private markets.16 In some cases, private actors have been recruited to serve as governmental substitutes in weak governance or conflict zones.17 From a regulatory perspective, the object of each such intervention is the international business enterprise.18

Focusing regulatory efforts on enterprises, however, may miss the mark. The policy problem might not be MNEs per se but rather the effects of production chains, which themselves might be understood as their own transnational legal orders, of which MNEs form a part.19 Indeed, the failure to clearly understand whether regulation should be aimed at MNEs, at the entities through which production chains are operationalized, or at the production chains themselves, evidence the difficulty of applying legal solutions where the regulatory object is conceptually ambiguous, against which the techniques of traditional state-based law may be ineffective.20 Yet the focus of regulation, for many, must remain on the MNE and grounded in state-based legal regimes.21 A powerful example is the controversy over the value of a comprehensive treaty for business and human rights.22 At its core, the controversy arose over the belief of developed states and a large sector of civil society that the regulation global business activity must be centered on MNEs (however defined) and undertaken through traditional means—the modification of the domestic legal orders of states on the basis of a treaty that creates a legal obligation on states to make and harmonize those changes.23 Developed states and others oppose this effort as ill considered and 3 doomed to fail, precisely because law no longer has a monopoly on regulatory authority.24 That controversy serves as the front line in the battle between the state and law-based approach to regulation of enterprises and the social norm and transnational approach to the governance of economic systems within which the MNE is embedded.

It is in this context that one may usefully consider the legal challenges relevant to the proliferation of MNEs. This essay, presents the challenges to the establishment of a similar coherent system of legal regulation by or through states. Specifically, I aim to first examine the difficulties of regulating and managing MNEs through legal frameworks; second, to examine the current impediments to the development of coherent regulatory models for MNEs and to sketch out alternative approaches that seek to go beyond the limited and repetitive approaches to the regulation of MNEs through law. The fundamental obstacle to the legal regulation of the MNE, I argue, is the conceptual cage which con- strains this use of regulation. In other words, this article proposes that as long as the challenges of MNEs are understood as institutional ones—that is, as a problem of managing something that can be conceived at some level of generality as an institution—an appropriate regulatory response will be elusive because the aim of regulation cannot focus solely on regulating an object (the MNE as enterprise) but must instead focus on regulating a system—production chains beyond and within the state. The traditional tools available to states, such as increasingly elaborate legal intervention, are inadequate to address the rise of MNEs and global supply chains and will only produce failure.