The Privatization of Governance: Emerging Trends and Actors

Larry Catá Backer (白轲)W. Richard and Mary Eshelman Faculty Scholar Professor of Law and International Affairs

Pennsylvania State University | 239 Lewis Katz Building, University Park, PA 16802 1.814.863.3640 (direct) || lcb11@psu.edu

International Conference: New International Trade and Investment Rules Between Globalization and Anti-GlobalizationHeld at Penn State Law, University Park. PA 16802 April 22, 2017

Ordering GlobalizationHow does one think through the issues of ordering globalization?

(1) Start with a consideration of the contradictions of globalization

(2) Consider basic presumptions and actors of the ideological orthodoxy of globalization

(3) Identify emerging heterodoxy (a) actors, (b) concepts, and (c ) consequences

Globalization as a Double Edged Sword• PRO:

• strengthens commercial and financial interdependence and cooperation among different countries through robust markets and production undertaken through global supply chains.

• globalization appears to continue to drive policy and to serve as the crux of contemporary societal development.

• intensification of efforts to construct conceptually coherent systems that are meant to facilitate interactions among states relating to the free movement of goods, enterprises, capital, and, to some extent, people across borders.

• Serves as a basis for maximizing aggregate wealth and social progress across states.

• ANTI:

• increased the gap between both rich and the poor individuals within states, and between developed and developing states.

• individuals and states participate unequally in the processes and rewards of globalization as an economic, societal, cultural and political phenomenon.

• acceleration and deepening of globalization has also accelerated and deepened resistance among individuals within even the most globalized states, and by states that feel increasingly left behind.

• Globalization bifurcates economic regulation: an elite global structure of economic activity and residual localized economic activity disconnected from global flows.

The Contemporary Expression of Orthodoxy

CENTRALIZING FORCES

• WTO systems• Trans-Pacific Partnership (TPP) and

the negotiation of the Transatlantic Trade and Investment Partnership (TTIP) and Trade in Service Agreement (TISA), driven by Western states.

• People’s Republic of China. China’s One Belt One Road (OBOR) Framework promises a different approach and perhaps one that serves developing states better.

DECENTRALIZING

• Protectionism• in the service of development• As derogations from global ordering

• Nationalism driving he implementation of state projections into global markets

• Bilateral Trade Agreements• Regional Trade agreements

• Markets based • “Western Socialist” models

Conceptual Basis of Orthodoxy

• Primacy of politics as an ordering and legitimating device• Economics is the object• Social ordering as a stabilization mechanism

• Centrality of the state as the principal means of ordering politics

• Law as the core structuring mechanism• Legalization and judicialization as the structures of

implementation

• Constrained delegations of authority from states to state collectives

• The use of public international bodies as disciplinary organs• IFIs and conditionality for ordering macro economic policies • Technical assistance for socializing “good governance”• Global mechanisms for criminalization of destabilizing

activity and to discipline states with weak governance that interfere with the flows of global production

• Socialization of ordering societal life through state power—regional human rights organizations and common constitutional traditions

Overturning Orthodoxy Through Orthodoxy

• One of the great ironies of globalization:• effort to cement a framework

orthodoxy after 1945 has served to overturn orthodoxy itself,

• Emerging heterodoxy that is both ordered but anarchic

• Identify emerging trends and actors

From the Primacy of Politics to Economics

• Driven by the primacy of the global production chain

• The contradiction of the governance gap in the conceptual structures of law• De-centering the state• Challenging the integrity of law and its

“rule”

• Movements• From law to contract• From command to management• From planning to markets• From public to private• From norm making to technique• From mass politics to consumer choice

• Manifestations:• The business case for human rights• Transformations:

• The states as economic actors• The enterprises as governance vehicles

• The production chain and the MNE as the new “territory” within which regulation is targeted

• Sovereign debt as a driver of governance and sovereign lending as an alternative to domestic sovereign authority:

• Private financing as a means of global regulation

• Popular will from political expression to (1) consumer choice and (2) factor in the production of value

• Assessment Technique (self and collective); internalization of external rankings.

The Business Case for Human Rights

• From a normative project grounded in the legalization of the Universal Declaration of Human Rights

• To a project of regulatory compliance by enterprises

• Devolving regulatory authority to intermediaries• Banks • Apex multinationals• 3rd party certification

• Importing the language of risk, reputation and complicity• UNGP• OECD Guidelines for Multinational

Enterprises

• The business of compliance: • for norms and compliance mechanisms

The State as Private Actor

• Sovereign Wealth Funds• Active shareholding• Projection of policy through

investment• Development• State to state economic activity

• State Owned Enterprises• Privatize economic operations in

outbound economic activity

• Hybrids• SOEs in SWFs• SWFs as development banks

The Enterprise as Legislator

• Apex Multinationals

• Production Chains

• Third Party certification

• Enterprise collectives

• The Rana Plaza Factory Building Collapse as an exemplar• The Alliance

• The Accord

• The ArrangementPix credit

Production Chains/MNEs as New Governance Territory• Role of Apex enterprises in

privatized regulation• Especially useful in business and

human rights related efforts• Functional effect is to produce

enterprise obligation/liability

• Role of production chains as site for standards generation• More efficient site for managing

its component parts (environmental, social, labor conditions)

Sovereign Lending as a Governance Driver

• Role of IMF-World Bank conditionality in lending

• The role of technical assistance as a socialization technique

• Discipline through control of productive capacity abroad in the event of failures to pay

Private Financing as Regulatory Center

• Within globalization looking for aggregation of power can serve the same functional effect as the state.

• In an economic model, the power of finance can be useful.

• States and international organizations that cannot legislate directly can seek to devolve legislative authority through financial institutions with power over economic sectors.

From Popular Will to Consumer Choice

• Where does popular power go when governance seeps out of the state?

• Direct relationship with banks and enterprises exercised through management of consumers

• NGOS as representative bodies• Contests for control of consumer

tastes• Investors as consumers• Consumers within production

chains and wholesale markets also consumers

Assessment and (Self) Control • The power of transparency and data

• Ordering behavior through the rationales of economic and societal advantage

• Power in the individuals and institutions that have the authority (through law or consensus) to develop the parameters for assessment, data harvesting and interpretation (ranking)

• Detaches governance from the legitimating structures of politics, the state and law: • this is technical and “neutral”• Any actor may produce or manage

• Produces a governance regime in which the targets of assessment become its principal enforcers (internalization)• Individuals• Enterprises• states

The Privatization of Governance

• The state has not disappeared• Public order• Protection of territorial manifestation of

international order• Projection of power through markets

• International Organizations• Producer of norms• Creator of assessment mechanisms

• Private Enterprises and financial institutions have emerged in a regulatory capacity

• The societal sphere has become an object of regulation

• These actors are now inter-linked and collectively produce the web of obligation that constitutes the global trading order

Where Does China Fit In?• The business case for human rights

• Two track compliance for SOEs:• Within China—CSR and Chinese context as basis• Outside China—Conform to local and international

requirements as necessary

• Transformations:• The states as economic actors

• Chinese SWFs as drivers and sources of regulation • The enterprises as governance vehicles

• SOEs as drivers of markets Marxism

• The production chain and the MNE as the new “territory” within which regulation is targeted• The essence of One Belt One Road initiative • Grounded on coordinated aggregated BITs

targeted toward Chinese production and its trade needs

• Built on targeted infrastructure and development financing

• Sovereign debt as a driver of governance and sovereign lending as an alternative to domestic sovereign authority

• Private financing as a means of global regulation• China lags behind in the institution of private

lending that advance state policy

• Popular will from political expression to (1) consumer choice and (2) factor in the production of value• Socialist modernization requires a coordinated

approach between economic and societal advancement

• State and economic actors undertake responsibility to care for workers and promote correct behavior through provision of services

• Assessment Technique (self and collective); internalization of external rankings.• Development of socialist society through social

credit systems

Taking Stock• Where has governance gone?

• How is it manifested?

• The great orthodox vision of the period after 1945 has succeeded perhaps beyond the hopes of its architects

• Yet in that success lay the seeds of the transformation of the foundations on which it was created• adds an important contradiction to a global system

founded on the territorial and power asserting integrity of states through legally framed politics.

• Provides the basis around which anti-globalization acquires a reactionary character

• Produces a world that is divided into economic territories rather than political territories (every state contains distinct “worlds” of individuals subject to distinct aggregate governance systems)

• Leaves unanswered the framework within which great global problems (climate change, terrorism, etc.) might be approached.

The thrust of new governance produces:(1) a new balance between private and public power in powerful states;(2) a move from private to privatized power in developing states and weak governance zones.

Thank You!Text may be accessed upon request.