New Paper Posted: "Regulating the Multinational Enterprise as Entity, as a Network of Links and as a Process of Production"

(Pix © Larry Catá Backer 2018)

I have been teaching a course on the law of Multinational (or transnational) corporations for a number of years.  I have been struck both by the persistence of notions in law that the MNE exists as a legal construct (and the lengths to which law is deployed as if that were true), and the extent to which the regulation of MNEs has actually transformed into regulations around the economic conception of MNEs or with respect to the processes of its production, without seeking to regulate the entity itself.  These trends have only accelerated with the rise of transnational governance systems.  The result is the rise of a complex matrix of regulatory sources within and beyond the state and in forms that range from "binding" law (binding at least within the territory of a state and extended as far as its extraterritorial reach will carry law) to nonbinding norms and frameworks developed and implemented by international public and private organizations that is applied to a complex amalgamation that is the MNE, at once entity, the network of links that give it form, and the processes of production for which it is operated.

It is to the emerging structures of this complex network of law and enterprise that the essay recently completed is focused.  The initial draft of that essay, "Regulating the  Multinational Enterprise as Entity, as a Network of Links and as a Process of Production," may be accessed HERE.  The Abstract and Introduction follow below. Comments, reactions, etc. most welcome.

Regulating the  Multinational Enterprise as Entity, as a Network of Links and as a Process of Production

Larry Catá Backer

Abstract: Since the 1970s there has been an explosion of regulatory efforts that have arisen, both within and beyond law, the object of which is to manage MNEs.  The MNE itself has also exploded as body on which law can be imposed.  It very much retains its identity as an object (“the enterprise”) of regulation and management.  But it has increasingly also been understood as a conduit—a convenient intangible aggregation of the nexus points that together define the arc of its operation, or even as the framework within which global production is coordinated (and with it risk allocated and the distribution of value added is directed). It is to a consideration of those changes as well as the strong underlying lines of continuity that this short essay will focus. Section 2 considers traditional approaches to the regulation of MNEs and its problems. These sketch out the evolution of law as a means to construct and then regulate the MNE as an entity, and to manage the linkages and connections through which the MNE is constructed.  Section 3 then exams emerging regulatory forms beyond the state and its domestic legal orders.  The emerging techniques suggest both the evolution of law and its detachment form the state—that is, this evolution suggests the character of the transnational in regulation of which law (in its traditional sense) remains a part but no longer at the center of the regulatory project. Section 4 then briefly considers the character of the object of regulation.  Some elements of transnational regulatory structures appear to be moving from the objectification of the MNE as an entity and the management of its form through interventions in its linkages and connections, to the management of the production process which is itself the object of MNE function. In the MNE one encounters entity, connections and linkages, and functionally differentiated production chains. Each aspect of the MNE is partially and simultaneously by layers of regulatory governance, the effectiveness of which is limited to that portion of the “idea” of the MNE to which it attaches.  Understanding its form and structure—and its use—may drive truly transformative change. This reconsideration of the character of the MNE then may have a substantial effect on the way in which transnational law is understood and applied, that is that transnational law produces polycentricity in governance but that its object also acquires a polycentric character that shapes its amenability to regulation by law. 

1. The Conundrums of Polycentricity in Transnational Law and the

Multinational Enterprise as Object, Linkages, and Process

                  Almost half a century ago Detlev Vagts (1970), quoting the then well-known linguist Noam Chomsky (1968, 24), noted the fundamental contradiction of the multinational corporation and its relations to transnational law:

A noted linguist, seeking to exemplify "an arbitrary statement in a human language," chooses: "the rise of supra- national corporations poses new dangers for human freedom." That choice may fairly measure the current intellectual impact of the multinational enterprise (hereafter referred to as the "MNE"), even though many would hold that institution in far higher esteem. As the literature about the MNE grows exponentially, the question arises whether the legal profession should not be developing responses to it. As yet it has not; statutory or case law reaction is virtually nonexistent and the secondary coverage is thin. (Vagts 1970, 739).

Vagts (1970, 745-55) built his analysis on the basic notion that the object of regulation was an enterprise—just one not recognized as a legal whole.  He criticized (Ibid., 743-744) the state of the law, grounded in the preservation of the authority of states over their territories, and contests over the assertion of extraterritorial authority as producing fragmentation of legal efforts.  He decried a state of affairs in which clever lawyers for integrated economic enterprises could use legal regimes to fragment their respective authorities, always one step ahead to regulators when these were not tripping over themselves. He expressed some exasperation at a state of affairs in which whatever gains there might be in the form of case law or statutory advances were so “idiosyncratic that they do not provide the regularity and comparability needed for the growth of a normal body of law.” (Ibid). That, in turn, reflected an unsophisticated approach to the regulation of these objects. Vagts proposed a number of innovations, none of which have yet to be implemented.  These included a cocktail of methodologies, some of which reflected the age.  Among them were legal disclosure obligations (Ibid., 776-77); improved regulation and good governance in host states (Ibid., 777-779); better negotiation by governments seeking inbound investment (Ibid., 780-781); the development of indigenous companies in host states (Ibid., 781-82); national support for national enterprises (Ibid., 783); strategic joint ventures (Ibid., 783-785); licensing and management agreements that strip MNEs of their technology while eventually rebuffing their investment (Ibid., 785); and a power rationale for U.S. extraterritorial management of global trade through control of U.S. apex enterprises (Ibid., 785-787). 

                  Almost fifty years later one finds that little has changed in the approaches to MNEs within the conventional approaches of state driven law based on the supremacy of domestic legal orders.  The MNE continues to sit at the center of the debate around the issue of the dangers it may pose for human freedom and the stability of states (even as these have changed in accordance with the standards of the times) (e.g., Rodriguez, Klaus and Uhlenbruck 2005; Stephens 2002; Boddewyn 1988), or its power to enhance these freedoms (Agmon 2003).  Likewise, even though the literature continues to grow exponentially (Held & McGrew 2003; Scherer and Palazzo 2011; Heinecke 2011, 13-62), much of it continues to ask the same question about the nature of extent of an appropriate legal response to the phenomenon of the MNE (Dunning 2000). And with some small though quite notorious exceptions (e.g., U.K- Modern Slavery Act 2015), the legal profession has failed to develop responses to the MNE and commentators continue to worry about the paucity of either statute or of case law (Zerk 2006). That exception, touching on issues of human rights and economic activity, has itself been limited by courts at times (National Association of Manufacturers v. SEC 2015). The focus remains on the construction of an entity as the object to which law is to be applied within and across borders (OECD 2011 (“They   usually   comprise   companies   or   other   entities established in more than one country and so linked that they may co-ordinate their operations in various ways.” Ibid., 17)).  Indeed, to a large extent, the current approaches to the legal regulation of MNEs have moved very little since the 1970s.  This is ironic given the tremendous efforts over the last half century to produce effective legal regimes to govern these enterprises that do not, in reality, exist as a unified legal person (Robé 2016).

                  But Vagts also noted change on the horizon.  He dreamed of the emergence of the “stateless, footloose MNE” (Ibid., 789), a transnational entity, freed of the regulatory peculiarities of any one state and beyond the contradictions of home-host state divides (Ibid., 787-789). Alternatively, and perhaps more realistically for the times, he considered the development of a global law of MNEs overseen by a responsible IGO which might or might not hold “golden shares” (e.g., Szyszcak 2002; Grundmann and Möslein 2004; Backer 2008) in such enterprises and which might or might not assert substantial or supplemental regulatory authority (Vagts 1970, 789; cf. Backer 2011). And the last was a vision of the extension of a web of regulation through bilateral and multilateral agreements that would regulate MNEs through the management of their linkages and connections (Vagts 1970, 790-791).  But there was a catch—the proposals all “presuppose[d] that economic pressures will keep governments, however reluctantly, progressing towards a more integrated world economy” (Ibid., 791) which might well be changing after 2016 (Backer 2018) and which remains controversial (Amon ed. 2014).   

                  Change has indeed come since 1970, but not quite the way envisioned. To some extent change has undermined the old orthodoxies of law making contained within a state (Calliess and Zumbansen 2010; Michaels 2007).  The premise of the supremacy of a state system grounded in the apex authority of the laws of domestic legal orders coordinated and constrained through voluntary adherence by states to the requirements of consensus based multilateral actions memorialized through international law, the old orthodox “gold-standard” of the law-state, is contested (Backer 2018b; Backer 2012). The constitution of governance entities has escaped the confines of the state (Kjear 2014; Grimm, 2005), as the logic of economic globalization has opened the possibility for governance beyond the state (Sassen 2003) that is functionally constituted (Scott 2010). Law itself can no longer be simply understood as the memorialization of the will of a polity autonomously produced (Calliess and Zumbansen 2010). It has become intermeshed in its own governance gaps (Fischer-Lescano and Teubner 2004) and no longer can be understood to occupy the entire field of regulation (Merry 1992). “In other words, under the spectre of globalization, law is faced with the prospect of its own demise.” (Zumbansen 2013, 121).  Regulatory management has displaced government in the economic sector, but regulatory management itself has produced a polycentric universe of actors (Zumbansen 2013; Backer 2016) and of governance instruments (Zumbansen 2012; Berman 2006; Teubner 1996), and of private law in the production and protection of global public goods (Cafaggi 2012). This “golden era of regulation” (Levi-Faur and Jordana 2005) is both well-known and deeply contested even as globalization deepens commitment to an integrated regime of economic activity (Levi-Faur 2005).

                  More importantly, since 1970 there has been an explosion of regulatory efforts that have arisen, both within and beyond law, the object of which is to manage MNEs (Muchlinski 2007).  The MNE itself has also exploded as body on which law can be imposed.  It very much retains its identity as an object (“the enterprise”) of regulation and management (Calzolari 2001).  But it has increasingly also been understood as a conduit—a convenient intangible aggregation of the nexus points that together define the arc of its operation (Backer 2015), or even as the framework within which global production is coordinated (and with it risk allocated and the distribution of value added is directed) (Backer 2016). In either case, it presents a conundrum for law. On the one hand, the polycentricity in the identity of the MNE (as object, linkage or process) permits the possibility of self-constitution and self-regulation (Backer 2016c)—part and apart from the state and domestic legal orders which may affect its parts, or which may be consumed in the production of MNE objectives, even as the MNE so self-constituted resides and operates through and among these states (Teubner 2012). On the hand, the detachment of the MNE (as object, linkage or process) from the state also detaches effective lawmaking over the MNE from the state, or reduces the reach of law to only parts of the MNE itself. To speak to the issues of transnational law and the MNE is to combine two questions in dynamic interplay—what is the MNE? What is law? The answer to both points to a substantial revaluation of values (Nietzsche 1895) that has reshaped our understanding of regulation for this century. 

                  It is to a consideration of those changes as well as the strong underlying lines of continuity that this short essay will focus. Section 2 considers traditional approaches to the regulation of MNEs and its problems. These sketch out the evolution of law as a means to construct and then regulate the MNE as an entity, and to manage the linkages and connections through which the MNE is constructed.  Section 3 then exams emerging regulatory forms beyond the state and its domestic legal orders.  The emerging techniques suggest both the evolution of law and its detachment form the state—that is, this evolution suggests the character of the transnational in regulation of which law (in its traditional sense) remains a part but no longer at the center of the regulatory project. Section 4 then briefly considers the character of the object of regulation.  Some elements of transnational regulatory structures appear to be moving from the objectification of the MNE as an entity and the management of its form through interventions in its linkages and connections, to the management of the production process which is itself the object of MNE function. It is here that one reaches the front lines of transnational law making (Backer 2016b).

                  And thus, the thesis of this essay: Transnational theory is comfortable speaking to polycentricity in regulation—the possibility of coherence in functionally differentiated spheres in which multiple layers of regulation from multiple rule producers’ functions simultaneously on a stable object of regulation.  But to limit the effects of polycentricity to regulation fails to account for half of the transformation inherent in globalization.  Like regulation, the MNE itself has emerged as a great polycentric space, one which engages with and is embedded within the traditional polycentricity of transnational “law.” The consequences are clearly seen but regrettably undertheorized—just as there is now a layering effect of regulation and governance on its objects, the objects of such regulatory governance are themselves layered aggregations of objects of regulation. In the MNE one encounters entity, connections and linkages, and functionally differentiated production chains. Each aspect of the MNE is partially and simultaneously by layers of regulatory governance, the effectiveness of which is limited to that portion of the “idea” of the MNE to which it attaches.  Understanding its form and structure—and its use—may drive truly transformative change.