Crowding Out or Ratcheting Up?:Fair Trade Systems,Regulati

An Expert's View about Wholesale Trade, Import Export Trading in the United States

Posted on: 26 May 2010

The Corporate Social Responsibility (CSR) movement and Fair Trade systems have grown in the past decade, reflecting a belief that corporations operating at a global level must voluntarily assume the role of raising production and trade standards and that consumers should play a role in pressuring industry to behave responsibly.

1 Crowding Out or Ratcheting Up?: Fair Trade Systems, Regulation, and New Governance Orly Lobel Introduction The Corporate Social Responsibility (CSR) movement and Fair Trade systems have grown in the past decade, reflecting a belief that corporations operating at a global level must voluntarily assume the role of raising production and trade standards and that consumers should play a role in pressuring industry to behave responsibly. This chapter discusses the multi-level interaction of corporate social responsibility (CSR) and Fair Trade regimes with state-based legal systems. It opens with an analysis of the potential problems arising when multiple systems are overlaid upon each other. In particular, the chapter explores two conflicting arguments concerning how regulatory approaches coincide with ?softer? private efforts: firstly, that regulation can crowd out voluntary private efforts, thereby diminishing their effectiveness and legitimacy; and the second, countervailing argument that Fair Trade systems and regulation can be complimentary and mutually reinforcing. It then discusses ways to better synthesize state and non-state governance initiatives, analyzing the examples of highly visible multinational corporations (MNCs) such as Nike and Wal-Mart, as well as examples from recent policy developments in the United States in the areas of safety, discrimination, and environmental regulation. The Promise and Limits of Fair Trade Mechanisms As countries vie over their share in global production chains, competition threatens social and environmental standards. The CSR movement demands that corporations, because of their dominance as global institutions, address these standards and ensure responsible 2 production and trade practices. Multinational firms increasingly face pressures from consumer groups and activists to demonstrate their social responsibility efforts, including more environmentally safe production, improved labour conditions and fair trade among transnational subsidiaries. The Fair Trade movement is located among the efforts to increase transnational social responsibility. The term ?fair trade? ? implying that some practices are unfair ? is usually used to contrast with ?free trade,? calling for higher standards of production and protection to be afforded to developing countries (Moore 2004). These efforts are prevalent at both local and international levels, motivated by the fear that international competition will precipitate a race to the bottom (Treibilcock and Howse 2005). While, as one commentator has articulated, ?our corporate law, paradoxically, tells managers that to be good managers they must be bad citizens? (Greenwood 2004), the CSR and Fair Trade movements ask corporate actors to become ?good citizens?. In other words, while managers are guided by traditional corporate law doctrine to maximize profits for their shareholders, regardless of the effects of their growth on other stakeholders, these recent accountability movements urge corporations to embrace a broader view of their interests and responsibilities. In the past three decades, the CSR and Fair Trade movements have grown dramatically and witnessed various successes. While, during the 1980s, firms routinely responded to challenges by human rights activists with dismissal, recent years have seen a change in attitude and a broadening of legitimate claims over corporations. It is no longer legitimate for a MNC to dismiss critiques about the labour standards practiced by its subsidiaries simply by claiming that it has no knowledge about, or responsibility for, the manufacturing companies. In response to public pressure from consumers, investors, unions 3 and NGOs, MNCs have adopted corporate codes of conduct. Campaigns that demand consumers? and investors? ?Right to Know? have increased economic transparency and have established non-governmental organizations that monitor and compare MNCs. In turn, multinationals increasingly make demands for regulatory compliance from their suppliers. However, the main criticisms of these responses are ineffective implementation, absence of monitoring, and lack of incentives to comply. Similarly, today there are dozens of Fair Trade programs and labelling initiatives. Although during the early 1990s many of the Fair Trade initiatives were ad hoc and dispersed, in 1997 many of the different labeling organizations united to create the ?Fairtrade Labelling Organizations International? (FLO) as an umbrella body that sets standards for, inspects and certifies producers. In 2002, the FLO launched its international certification mark, which is now used in over 50 countries 1 on a range of products (FLO 2008. According to the FLO, in 2006 consumers spent approximately $2.2 billion on certified products, a 42 per cent increase over the previous year. The products certified by the FLO include coffee, cocoa and cotton, tea, a number of fruits, wine and flowers. Farms are certified when they can show that they meet socially and environmentally high standards, such as the absence of child labour or harmful chemicals. Even major retailers which have made aggressive cost reductions through their trademark business techniques are reacting to the Fair Trade and CSR movements. Recently, Wal-Mart, the reigning ?nemesis? of social activists, launched an expensive public relations campaign to signal its willingness to improve its social responsibility in the 1 In the US and Canada, however, a different Fair Trade certified mark is used. 4 regions where it operates. For social activists, the campaign against Wal-Mart serves three distinct purposes. First, Wal-Mart ? the largest employer in the US and, according to some measures, the largest employer in the world ? is an effective target, serving as a deep pocket for policy reform, litigation and social activism. Second, Wal-Mart, as a familiar, visible, and brazen corporation, emblematizes the dilemmas regarding the costs and benefit distribution of global for-profit enterprises. Third, Wal-Mart serves as a model for strategically exploring the efficacy of alternatives in legislation, litigation, non- governmental strategies and political struggles for social reform. Wal-Mart has been the target of substantial grassroots and transnational activism, including organizations devoted entirely to addressing Wal-Mart standards, such as Wake Up America, funded by the United Food and Commercial Worker International Union, and Wal-Mart Watch, funded by the Service Employees International Union. Wal-Mart symbolizes unapologetic bottom- line profit management and vigilant price slashing, exerting intense pressures on its managers, partners, and sub-contractors to lower costs on every front (Lobel 2007a). In fact, social activists regularly use Wal-Mart as an example of the ?low road? taken by some corporations as opposed to high road options ? entailing higher social and environmental standards ? which can result in similar or even better returns. For instance, a study by Business Week compared the two large retailers Wal-Mart?s and Costco?s wage and compensation practices, arguing that despite Costco?s significantly better compensation packages, Costco has been able to contain labour costs and even reduce those costs below those of Wal-Mart?s Sam?s Club (Lobel 2006). Nevertheless, as part of Wal-Mart?s efforts to overhaul its image, it is attempting to target consumers that care about factors other than 5 low prices. Chief executive Lee Scott describes this new business philosophy by Wal-Mart as ?Doing Well by Doing Good? (Mui 2006a). Wal-Mart?s Sam?s Club, similar to popular chains such as Dunkin? Donuts, McDonald?s and Starbucks, already sells fair trade coffee, paying above-marker price for coffee beans that meet certain social and environmental standards. Wal-Mart is now seeking to work directly with South American bean farms to create a new, less expensive line by controlling the supply chain, ?direct-to-the-farmer?, from the ground up (Mui 2006a). Wal-Mart has already forged partnerships with hundreds of social and environmental groups to develop sustainability initiatives. TransFair USA, the only independent fair trade certifier of farms in the US, is working with Wal-Mart on fair trade coffee acquisitions. The company is also working with the Rocky Mountain Institute in efforts to reduce the fuel consumption of its trucking fleet. Employing approximately 1.8 million people in the US alone, Wal-Mart has the resources to experiment with other socially responsible practices as well; in addition to the Fair Trade interest, Wal-Mart recently introduced its plans to construct ?green stores?, supercentres with environmentally responsible features designed to reduce energy and water usage. The stores will include solar cells embedded in skylights and recycled water and heat. Wal-Mart announced that it will request independent assessment of these efforts by outside monitors and vows to extend the ?best practices? of the experimental stores to its other ?big box? -- mega retailers -- stores (Lobel 2007a). The inclusion of Wal-Mart on the Fair Trade bandwagon raises several questions. The company is well known for exerting downward pressures on manufacturers around the world. Because of its impact on its subcontractors, Wal-Mart should also be understood as 6 one of the world?s largest manufacturers. In other words, it is more accurate to understand Wal-Mart as both a retailer and a maker of goods, which employs tens of thousands of workers around the world through subcontracting to manufacture goods in a specified low cost. The company?s management dictates outsourcing and is responsible for lowering labour and environmental standards, eliminating jobs, avoiding unionization, increasing work hours and decreasing pay and benefits (Cleeland, Iritani and Marshall 2003). As one commentator put it, ?supporting fair trade presents a paradox for Wal-Mart. It is a tacit admission that there is a point at which no more efficiencies can be squeezed out of the system without harming the people who make it work? (Mui 2006a). Despite Wal-Mart?s efforts, activists have been skeptical of the corporation?s mixed signals of economic bottom line and ethical and social accountability. The Organic Consumers Association has urged shoppers to patronize independent cafés and roasters rather than buy Wal-Mart?s fair trade labelled products. (Mui 2006b). In addition to suspicions concerning Wal-Mart?s contradictory ?Do Good? efforts in a small subset of products and harsh management and retail practices for most of its operation, fair trade activists worry about the effect of these developments on the Fair Trade movement in general. Some commentators suggest that once the ?FairTrade? label is sold by mass-market big box retailers, its retail value will decrease as consumers will cease to view these products as offering something unique. These concerns indicate more the general limitations of CSR and Fair Trade strategies. Despite some success, the CSR and Fair Trade mechanisms and developments have been the subject of critique from both left and right. On the left, such regimes are viewed as too weak and cosmetic to actually bring fairness to a globalized market. On the 7 right, critics perceive these efforts as distorting the comparative advantage of developing countries in selling their products and labour for competitive prices (Espstein 2007). One commentator writes: those who?advocate various half-baked schemes to prop up prices may have the best intentions, but they are not really helping. At best they are diverting time and energy into dead ends; at worst they could end up making the situation even worse. It may feel good to ignore market realities, but it won?t do any good. (Lindsey 2004) Fair trade regimes are ?soft law? in the sense that they consist of a range of mechanisms but rely on corporations, consumers and investors to create their value (Freeman 1994). These non-regulatory instruments include social labelling, voluntary corporate codes of conduct, private accreditation and certification by non-government actors. There is no governmental standard for either fair trade certification or corporate codes of conduct. From the consumer?s perspective, the logic of paying a premium on certified products is two-fold: first, it ensures that the products themselves have been produced with certain criteria; furthermore, it also signifies that for future products, the premium will filter down through the chain of production all the way to local producers in the developing country as well as fund the certifying fair trade organizations. In other words, Fair Trade labelling seeks to identify goods that have generated a premium above market prices for the original producer (Meidinger 2002?03) and it relies on consumers to be willing to pay that premium. A growing body of empirical work demonstrates that consumers have preferences not only about the quality of the product or service they are purchasing, but also about the process, including the social standards and environment in which they were developed 8 (Kysar 2004). However, while empirical studies indicate that many consumers are indeed willing to pay to support fair labour standards and corporate environmental responsibility (New Marymount 1999), such willingness is limited in both depth and breadth. It is primarily significant for certain consumption products and when consumers are able to process information about production and corporate processes. Fair Trade efforts have focused on only a small fraction of overall production and trade. These efforts have identified a number of industries or even specific companies where standards are thought to fall low. There is also great variance of opinion on what constitutes the substance of ?fair?, such as which labour standards should be considered core standards that should be followed and how compliance is to be monitored. Relying on consumers to monitor trade standards through their willingness to pay is fraught with collective action and data processing problems, and, most basically, uncertain preferences problems. Focus on the end sale at the importing country as a mechanism of regulating production processes in the exporting country indicates the weakness of such a strategy. The percentage of products actually affected by certification efforts is very low. Even in coffee, fair trade certified products consist of a miniscule percentage of trade; only 3.3 per cent of coffee sold in the US in 2006 was certified fair trade (TransFair USA 2008: 19). Indeed, a fundamental limitation is that many violations of core labour standards occur not in the production of export goods but in the informal or local production sectors. As such, relying on consumer taste for responsible production will not affect labour standards in these contexts. Similarly, while CSR campaigns that focus on paradigmatic MNCs such as brand- name apparel and big box retailers have seen positive effects, these efforts are limited in their scope and possibilities. Using iconic corporate symbols to attain larger goals also has 9 its disadvantages. Activists risk reducing the message of human rights to the single context of a specific firm (Lobel 2006). Social responsibility campaigns that single out the icon into an exceptional target may lose sight of the greater goal of widespread social responsibility. For example, during the 1990s, Nike often became the sole focus of consumers in the apparel industry. While Nike products were often produced under exploitative conditions, other corporations, remaining below consumers? radar, were also producing under similar conditions. The World Bank Group commented on these limitations to CSR practices, stating: [W]hile meaningful progress has been made in apparel, and to a lesser degree in agriculture, the existing ?system? of implementation may be reaching its limits in terms of its ability to deliver further sustainable improvements in social and environmental workplace standards. This in some ways is natural when one considers that current approaches are not the result of a systematic effort to marshal the forces of the public and private sectors, trade unions and NGOs, and workers. Instead, it is clear from the consultations that current efforts are the result of a series of steps often taken through ad hoc and isolated decisions (World Bank Group 2003: 2). In sum, while responsible investment and ethical consumption can have significant effects on the behaviour of corporations, the potential of fair trade mechanisms to alleviate poverty is limited at best. The chapter suggests that it is rather the type and continuing role of state regulation remains which remains key. Regulatory Crowding-Out and New Governance Ratcheting-Up Just as the private processes of encouraging corporation accountability are limited in their reach, the limits of the legal process are numerous. In recent years, activists have moved to private standard setting in part as a result of skepticism concerning the ability of legal systems to bring about significant results (Lobel 2007b). Regulatory failures have been at 10 the centre of legal study for several decades. In the US, regulation has been described as having become ?the Stalingrad of domestic political warfare? (Schuck 2000, 117). Traditional regulation has been criticized as rigid, inefficient and suppressive of innovation and competition. It has also been characterized as secretive and hostile to public participation. In the absence of an encompassing governance approach, regulation also risks regressive taxation when its costs are passed on to consumers. Similarly, many social activists view litigation, either as a method of regulation or to enforce existing regulations, as an ineffective path to bring social reform. Litigation is most often expensive, time consuming and resource draining. Moreover, even when a social movement undergoes successful litigation, there are post-victory struggles for award collection and for enduring structural changes. Social activist have posed a particularly acute critique of the legal system that under the traditional regulatory model, groups and individuals are perceived as the passive object of regulation without room for dynamic input and participation (Roberts 1998). This in turn communicates a message of adversarial behaviour, mutual distrust, and conflict. These concerns coincide with behavioural studies which suggest that external interventions, such as regulatory sanctions or monetary incentives can have the effect of crowding out intrinsic or moral motivation. The theory, supported by empirical evidence, argues that the introduction of such external mechanisms may undermine any internal willingness to follow ethical paths (Akerlof 1982). Formal incentives may thus in fact adversely impact upon informal, private norms (Frey 2001). Another concern about using the regulatory system to promote social responsibility is that, in a command-and-control approach, information flows selectively and corporations 11 may be reluctant to examine and retain data about their own practices (Farber 1993). This is particularly problematic due to the informational asymmetries existing between government regulators and private industry. An example of this concern arose in the late 1990s, when Nike was sued in California by an activist named Kasky for false advertisement under California consumer protection laws. The suit was enabled by Nike?s response to grassroots activism through a CSR public relations campaign. In reaction to the law suit, the Nike Corporation removed manufacturing information from its website, to protect itself from increased challenges by consumers. The removal of such information reveals the weakness of regulation strategies in their potential to halt both positive cooperation between civil society and businesses and practices of transparency by MNCs. A countervailing thesis about the potential of overlaying private initiatives with more structural, formal interventions arises from new approaches to regulation which attempt to reconcile the tension between government intervention and market self- regulation. Archon Fung, Dara O'Rourke, and Charles Sabel (2000) have argued that Fair Trade strategies will ?Ratchet labor standards?, through a process of information gathering and distribution, systematic monitoring and comparing of peers ? firms will compete on labour standards performance, generating a race-to-the-top (Fung, O?Rourke and Sabel 2001). When they are developed collaboratively by civil society organizations, industry representatives, scientific experts and government representatives, they receive input from a range of interests. However, as described above, relying merely on decentralized voluntary decisions of individual consumers is limited in its reach. Market failures include: collective action and free rider problems; information asymmetries; cognitive biases; and scale 12 inefficiencies. Markets also frequently lack adequate spaces for the public exchange of ideas and the identification of best practices. In recent years, both in practice and in scholarly endeavors, a new approach to regulation has emerged, often referred to as ?New Governance?. This new vision of regulatory governance attempts to reconcile the tension between the fear of regulatory inefficiency by big government and the need for a public response to social challenges. New Governance scholarship is an effort to bring together insights from the empirical field of regulatory research and the changes in the new economy (Lobel 2004). In particular, New Governance approaches rely more on collaborative efforts between government and industry to continuously develop the best practices and increase compliance through preventative and multi-level efforts rather than through traditional top-down command and control regulation. New Governance scholars illuminate the wide range of regulatory possibilities, defying a purely dichotomized notion of command-and-control government regulation and non-governmental private ordering. Ayres and Braithwaite (1992) argue for ?enforced self-regulation?, where a regulatory agency negotiates particularized regulations with individual firms, while retaining the threat of less tailored rules if the firm fails to self- enforce and cooperate. This increases commitment on behalf of the company more so than if the standards are imposed by an external body. It also allows for better tailoring of the risks and solutions to specific companies and encourages innovation by allowing the company to choose the least costly solutions. New Governance approaches, committed to collaboration between state and non- state actors, promise the encouragement of discussion and spaces for dialogue and mutual accountability. They promote the identification of shared goals and the abandonment of 13 entrenched positions that construct other actors as the problem rather than partners to a solution (Lobel 2004). A central critique of traditional regulation is its ?one-size-fits-all? methodology, for example, imposing the same safety rules for diverse workplaces, without regard to the nature and real risks at each production site. New Governance approaches recognize the legitimacy of private economic interests while appealing to public values. Thus, New Governance assumes a harder definition of ?soft law?, preserving an active role for both the state and the legal regime. It offers a framework that enables us to view the three sectors ? state, market and civil society ? as part of a comprehensive, interlocking system. The focus of New Governance is on how government interacts with and facilitates the involvement of private actors in public action and policy. Exemplary of the synergy between private standardization, monitoring efforts, and government agencies is the use of information and disclosure regimes as policy tools which allow for choice and participation (Pedersen 2001). In areas as diverse as securities regulation, banking and loan management, environmental safety, health care, pharmaceuticals and consumer protection, regulatory agencies require information on performance, rates and quality to be available for the use of interested stakeholders in order to generate better practices. For example, the European Union has formalized social and environmental reporting and disclosure obligations as a matter of corporate law (Kysar 2005). Even when imposed by regional or national law in this manner, corporate social and environmental reporting still constitutes a significant departure from conventional command-and-control mechanisms. In a disclosure regime, the state mandates nothing beyond the provision of information to interested non-state actors who, in turn, are encouraged to utilize the information in ways that will promote collectively desirable 14 behaviour. Thus, even when formalized and adopted by state regulation, this approach offers ?a vibrant, alternative ethos to two oppositional orthodoxies ? regulation and deregulation? (Lobel 2004). New Governance mechanisms also call for inter-jurisdictional competition through decentralization and privatization, promoting experimentation and the evaluation of multiple approaches before selecting a particular solution. Private codes of conduct and non-governmental Fair Trade standards can thus serve as a benchmark for state codification and enforcement. Indeed, under a New Governance framework, government can designate private standard-setters; as a result, formal process-oriented state rules co-determine actions in conjunction with a range of other norms. Importantly, New Governance approaches blur the line between following the law and going beyond it, thereby reducing the relative advantage of CSR in which the law goes ?beyond compliance? to ethical behaviour beyond the confines of codified regulation. New Governance also builds on the principle that law has an expressive value in addition to its direct control over individuals and corporations. The law offers principled reasons and justifications for action in addition to its direct, tangible prohibitions and results (Anderson and Pildes 2000) and declaration of a formal rule influences prevailing social norms (Sunstein 1996). In fact, the existence of mandatory law can itself be norm generating: the regulatory regime creates a relational contract between government and industry that supports the generation of private norms (McMaster and Sawkins 1996). Conversely, when efforts remain in the realm of civil society and mechanisms are understood as purely voluntary, the frameworks perpetuate a conservative notion that the state no longer has any role to play in ensuring fairness and welfare in market relations (Lobel 2007b). 15 New Governance can direct CSR efforts by setting external substantive norms and providing a check on levels of enforcement, as well as setting the processes by which it is enforced. As such, the state can ask corporations to take initiatives and additionally hold them accountable for their own self-regulation. Christine Parker has referred to this as ?meta-regulation? ? where the law sets out to constitute corporate consciences by ?getting companies to want to do what they should do? (Parker 2002). In other words, the law becomes more process-oriented to ensure that the substance presented as CSR or Fair Trade claims has legitimacy. In this process, government, industry and civil society groups all share responsibility for achieving policy goals. Industry is expected to participate in a search for common goals rather than rigidly asserting its narrow economic or political interests. The role of government changes from regulator and controller to facilitator and coordinator. Law becomes a process of shared problem-solving rather than an ordering activity (Freeman 1997). Experiments in Private-Public Synergies Corporations have always been immersed in both legal and non-legal norms. In the following section, several examples of New Governance efforts emerging at the national level in the US are described. These areas of experimentation exemplify the particular synergy between private efforts and public administration. These cases test the possibility of building upon and supporting privately generated norms by adopting them into the administrative or jurisprudential process (Rubin 1994). The section concludes with several observations on the connection between national levels and transitional and international efforts. 16 A prime example of New Governance shifts is in the area of occupational safety and health. The Occupational Safety and Health Administration (OSHA) has a broad power to regulate workplace safety across all industries. Partly due to this administrative power, the OSHA has been commonly understood as a paradigmatic case study of bureaucratic regulatory failure, accused of gross regulatory unreasonableness and portrayed as exemplifying all the pathologies of the legal-bureaucratic regime (Handler 1988). Yet, even in its first years, the OSHA was directed by the legislature to adopt existing private industry standards by reference to associational safety codes. At the OSHA?s foundation, the agency entered in contractual relations with the non-governmental American National Standards Institute (ANSI) for the provision of technical support in the development and application of safety standards. The ANSI sets standards through collaboration with corporations, professional organizations and trade associations. It oversees the processes of private standard setting organizations and recommends the incorporations of their conclusions into the standards promulgated by OSHA. In spite of this attempt to generate standards which were responsive to industry need through partnership with the ANSI, the standards were criticized as being inflexible; the OSHA was critiqued for being too focused on the promulgation of substantive rules which established rigid universal standards for issues such as exposure to toxins. At the implementation stage, again the agency operated in an adversarial top-down manner vis-à-vis the private sector. The agency enforced these rules by random inspections of worksites and prosecution where violations were discovered. At the beginning of the 1980s, major litigation resulted in judicial decisions striking down several of the OSHA?s central top-down promulgated rules. The extensive litigation by 17 private industry reflected the controversy triggered in the business community by the OSHA?s regulatory activity. In recent years the OSHA has shifted its emphasis from extensive elaboration of standards and high rates of inspection to conducting fewer inspections and more programs of collaborative, semi-voluntary compliance. At the state and federal levels, agencies are experimenting with innovative governance approaches to occupational health and safety. For example, California?s Occupational Health and Safety Administration has adopted the California Cooperative Compliance Program, which authorizes unions and employers to develop and implement safety requirements, delegating governmental inspection and enforcement roles to joint labour/management safety committees. As long as this program of audited self-regulation proves to effectively reduce accidents, the agency does not intervene in the process. The auditing process is non-adversarial and is performed by periodic corporate submissions of reports on self-monitoring and prevention activities as well as accident rates to the compliance agency. This gives firms and industries incentives to dynamically learn, improve, and share information with others. Similarly, the federal OSHA has established cooperative programs, such as the Voluntary Protection Program (VPP), allowing companies with exemplary safety records to take over the role of OSHA inspectors themselves and be exempt from regular inspections. According to the OSHA?s reports, injuries and illnesses have been cut by 47 per cent at worksites engaged in cooperative relationships with the agency. The OSHA also aims to foster relationships with other civil society organizations in order to address critical safety and health issues, expanding collaborative partnerships, voluntary programs and assistance in outreach, education, and compliance. 18 In 2004, the Government Accountability Office (GAO) completed a study on the OSHA?s cooperative programs. It found that participation in the programs has considerably reduced injury and illness rates, improved relationships with the OSHA, increased productivity and decreased worker compensation costs. While the study emphasizes that the OSHA does not currently collect complete and comparable data that would enable full evaluation of the programs, the report suggests that the new cooperative strategies have improved safety and health practices by allowing the OSHA to play a ?collaborative, rather than a policing, role with employers? (GAO 2004). These findings are consistent with a number of studies: the OSHA self-reports the reduction of injury rates and lost workday incidence at a VPP when compared to a traditionally regulated worksite (OSHA 2005, Spieler 1994, Rees 1988). A derivative benefit of VPP participation seems to be the reduction of production costs, explained by increased worker productivity and decline in worker compensation costs (GAO 2004). Finally, less tangible benefits reported by program participants are increased trust between management and government and between management and workers (GAO 2004). This report echoes findings of comparative studies on the significance of maintaining a culture of safety in organizations. John Braithwaite (1985), surveying 39 coal mining accidents in Australia, the US, Britain, France, Belgium and Japan, found that fatal accidents were attributable to defects in: planning; internal communication; definition of responsibilities and authority; deficiencies in training; inadequate supervision; and an overarching culture of safety. In an Australian-based study, Fiona Haines (1997) studied 37 firms responsible for workers? deaths at a multi-employer worksite, observing that responses by firms were attributable to differences in corporate culture. Haines found two 19 opposing safety cultures that corresponded with different levels of risks prevention activities. She describes the ?virtuous culture? as one which views safety as integral to organizational processes. The ?non-virtuous culture? pushes safety into the background in order to focus on short-term demands. New employment anti-discrimination strategies are another example of the adoption of the New Governance model. Employment discrimination policies in the US have largely been based on a regulatory and adversarial regime. Its main strategy was the direct prohibition of certain practices, including illegal consideration of gender and race in hiring and promotions, followed by top-down implementation and enforcement. The regulatory model was founded on the assumption that employment discrimination is an intentional act and thus the best response is usually a lawsuit for damages or an injunction. While this approach has brought significant changes by eliminating the most obvious and direct occurrences of discrimination, it is limited in its ability to deal with more complex and subtle discriminatory practices taking place in more dynamic and multi-faceted workplaces. Discriminatory practices are frequently not the result of a distinct and direct decision to discriminate but are rather the consequence of complex practices, including corporate culture, informal norms, networking, training, mentoring and evaluation. The complex nature of this type of discrimination ?resists definition and resolution through across-the- board, relatively specific commands and an after-the-fact enforcement mechanism? (Sturm 2001, 469). The boundaries between legal and illegal conduct are blurred, although the consequences of discrimination are no less harmful. New Governance approaches to discrimination focus upon continual problem- solving efforts, involving workers as key participants in anti-discrimination efforts. It 20 emphasizes the explicit articulation and specification of decision-making criteria and goals in order to allow comparison, learning and continuous improvement. As with multinational CSR practices, the voluntary adoption of ethical codes of conduct in the workplace is common practice for corporate America. Similarly, many corporations have implemented voluntary diversity training programs. These private efforts have been integrated into policy through New Governance strategies primarily as liability defences in traditional litigation. The US Supreme Court established a defence to punitive damages in discrimination suits based on the ability of managerial agents to demonstrate good faith efforts to comply with Title VII. (Kolstad v. ADA, 527 U.S. 526 (1999)Employers may show good faith efforts through the implementation of internal compliance structures, including self-adopted equal employment policies, codes and diversity training programs. It is worth noting that this shift to reliance on internal monitoring and prevention practices was reactive to voluntary private industry efforts and courtroom litigation strategy, rather than an active, planned program adopted by the either legislature or administrative agencies. Empirical studies show that these private efforts in the discrimination context are highly varied. While corporate America often appears to be doing more than it is required by law to promote workplace diversity, new studies indicate that only some types of private approaches are effective and the legal system must be more sensitive to these variances (Dobbin, Kalev and Kelly 2007). Similar to CSR and Fair Trade programs, these new efforts have been mostly voluntary initiatives, albeit in the shadow of a litigation threat. The Equal Employment Opportunity Commission has recently initiated more systematic study, support and guidance on these private, internal self-governance efforts. It appears 21 that the threat of litigation is often the trigger for corporations to rethink their internal governance practices (Estlund 2005). Here, the example of Wal-Mart is particularly illustrative: recently, a class of women has been certified to bring a class action against the corporation. This is the largest civil rights class action in the country?s history and has prompted managerial changes in promotion processes at Wal-Mart (Dukes v. Wal-Mart, Inc., 509 F.3d 1168 (9th Cir. Cal. 2007); Greenhouse 2007). Before the class action, Wal-Mart did not publicize openings for management positions. This contributed to the disparities among men and women who applied and were promoted to higher paid jobs. According to the lawsuit, Wal-Mart had ignored internal warnings about discriminatory practices for years, including dismissing the 1998 recommendations of a diversity task force. Only in reaction to the employment discrimination litigation did the corporation take action. Wal-Mart formalized some of its promotion processes, using technology to ensure notice on job openings reaches a broader subset of its employees. In 2003, Wal-Mart founded its ?Office of Diversity? and adopted a new job classification and promotion system. The corporation has also adopted reforms, including a new information technology and a ?corporate compliance team? in response to wage and hour litigation (Human Rights Watch 2007).. The Wal-Mart example demonstrates that there can be a positive synergy between the background rules of command-and-control regulation and ex post facto reactions ? triggered either by litigation or settlement ? by private industry adopting more preventative self-monitoring and dynamic solutions. A third example can be found in environmental law. As early as the late 1960s, the emergence of an environmental social movement ?coincided with the decline of an older 22 dream ? the image of an independent and expert administrative agency creatively regulating a complex social problem in the public interest? (Ackerman and Hassler 1981). Environmentalists have long been frustrated by impasses and deadlocks and have sought more collaborative approaches to environmental law. Frequently, the nature of ecological resource management calls for intergovernmental coordination, learning and adjustment (Karkkainen 2003). In New Governance approaches to environmental management, public authorities provide cooperative implementation, relying on private groups to help interpret, implement and enforce applicable rules. Government provides incentives for self- implementation programs and encourages private participation by disseminating information to the public. For example, environmental information disclosure initiatives such as the federal Toxic Release Inventory Program require firms to report their environmental-related activities to the Environmental Protection Agency, which then posts the data on the Internet for use by industries, consumers and non-governmental groups. Over a decade ago, the US Congress endorsed ideas of collaborative rule-making by standardizing regulatory negotiation in the Negotiated Rulemaking Act of 1990, which was permanently reauthorized in 1996. Negotiated rule-making is a process through which stakeholders come together to negotiate and reach consensus as to the substance of regulation. A particular example of negotiated planning collaborative experimentation in the environmental area is the development of Habitat Conservation Planning under the Endangered Species Act of 1973 (ESA). Until the mid-1980s, the ESA established a rigid, prohibitive regulatory regime, imposing a near-absolute ban on land development in areas of wildlife conservation. This rigidity was criticized not merely by businesses, which were barred from developing conservationist areas, but also by activists and scientists for its 23 uncompromising nature. The binary endangered/not endangered listing led to strategic behaviours and, as a result of local negotiation efforts between environmentalists and developers to allow more flexibility, government was presented with consensus agreements that included some taking of habitat in return for guarantees of sufficient open space for long-term specie survival (Thomas 2003). Subsequently, Congress amended the ESA to encourage such multi-party planning. Habitat Conservation Plans must provide detailed information on monitoring and funding strategies as well as alternative actions considered during the negotiations. Although the federal agency is designated to give its final approval of the plan, the roles of subsequent supervision and coordination can be delegated to a private intermediary, such as a nonprofit land conservation environmental organization (Breckenridge 1999). Just as within the context of labour and employment standards, environmental regulation through collaborative public-private efforts reveals mixed results. Experiments in the areas of labour and environmental standards indicate that in order to fully realize the potential synergies between private efforts for corporate accountability and government oversight, there is a need for more data and learning, as well as coordinated pooling and sharing of information. One of the lessons of New Governance approaches is that the more these collaborative, reflexive elements of the governance methods are given teeth by the threat of litigation or penalty, the more likely they are to be effective. Good governance requires both private participation and the support of a centralized legal system. The internet offers a new frontier for social responsibility, both by allowing greater transparency and by reducing barriers of access into social activism. The greatest challenge remains that of sustainability, ensuring that cooperative initiatives have 24 2 long-term effectiveness and staying power in a global setting. If the raison d?être of voluntary initiatives such as CSR is to avoid accountability, then New Governance efforts ? which require a promise of hard law in the case of non-compliance ? are incompatible with purely privatized systems. Conclusion Philip Selznik (1949) described the democratic process as the means, instruments, and tools ?which define the relation between authority and the individual?. Traditionally, a narrow vision of the regulatory system inhibited stakeholders from participating in the process of standard setting and enforcement. In recent years, activists and policymakers have been shifting their attention to the work of private parties in ensuring ethical and socially responsible market behaviour. Both in their compliance with and in their resistance to regulatory standards and enforcement, firms display motivations that go beyond costs and monetary incentives, behaving in ways that are far more complex than the demands of simple rational calculations of cost avoidance. The merits of private regulation are that good-faith firms will focus on effective improvement of their labour, environmental and 2 The problems of a regulatory background in the case of non-compliance and sustainability are most pronounced when we move into an international setting. In 2003, the United Nations Sub-Commission on the Promotion and Protection of Human Rights adopted the Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights, seeking to coordinate many of the existing voluntary initiatives. For MNCs it remains to be seen whether the CSR movement can have sustainable affects on accountability and transparency. A promising aspect of Fair Trade initiatives, which separates them from one-sided CSR initiatives by corporations, are their consumer and investor driven processes involving a multitude of stakeholders and intrinsically allowing for external monitoring. This brings them closer to the New Governance model. 25 social standards rather than on ineffective liability avoidance. Thus, a broader repertoire of regulatory tools that includes private standard setting, monitoring and enforcement is desirable. Nevertheless, the lessons from recent experiments in New Governance approaches serve as a cautionary tale for advocates of CSR and Fair Trade regimes. Governments, strapped for resources and facing both shrinking budgets and regulatory resistance, can benefit from using private actors to complement standard setting and enforcement activities. Moreover, law can gear these complex motivations and incentives of firms to the improvement of their practices by expanding non-conventional, governance-based policies. At the same time, private efforts cannot serve as a substitute for government oversight in all instances because there are significant limits in the scope and depth of private industry interest to improve standards. The need for both public coercive and cooperative public- private policies remains. Under certain conditions, economic enterprises can be engaged in ethical and socially responsible behaviour without hard law. 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