New governance and industry culture.

• Author: Schulz, Karen Bradshaw

New governance scholarship argues that a blend of public and private regulation is playing an increasing role in influencing firm behavior. Despite its burgeoning growth, new governance scholarship is critiqued as lacking practical examples. This Article begins to fill that void by conducting a new institutional economics analysis of forest sustainability certifications, an example of new governance. This Article analyzes the features of the domestic forest industry to trace why new governance emerged within it and has persisted for over seventy years. The industrial characteristics that contribute to this longstanding new governance regime include strong norms within the industry, a resource-type that favors user-developed rules, and robust competition among private actors to regulate the industry. These findings suggest that new governance may emerge as a regulatory tool to address environmental problems in other industries that possess similar characteristics. The Article also sheds light into the broader discussion of how to measure the "success" of new governance regimes. B identifies stakeholder involvement relative to the democratic process and displacement of other regulatory tools as two key considerations in evaluating new governance approaches.

INTRODUCTION

New governance--legal reform emphasizing the role of non-state actors in influencing behavior against a backdrop of the state (1)--is an important emerging intellectual movement. (2) New governance scholars are "engaged in developing a broad menu of legal reform strategies that involve private industry and nongovernmental actors in a variety of ways while maintaining the necessary role of the state to aid weaker groups in order to promote overall welfare and equity." (3) A central feature of new governance is extralegal regulation that privileges private actors in rule setting and rule enforcement, (4) which marks a shift from the previous state centric or market mechanism regulatory approaches. (5)

Although the term "new governance" appeared in the literature relatively recently, (6) the underlying idea of private regulation against a backdrop of state enforcement is not new. This Article traces that idea through a review of literatures addressing corporate social responsibility; (7) environmental nongovernmental organizations, (8) and the study of norms in law and economics. (9) Each of these literatures foreshadowed the emergence of new governance by observing that industrial action can be regulated by private regulatory schemes operating against the backdrop of state regulation.

Critiques of new governance scholarship center on the lack of detailed empirical studies illustrating the principles in action. Leading articles are critiqued as having a "high level of generality" (10) and focusing on "ambiguous" and "scattered" policy assessments with innovations found "here and there." (11) As a result, examples in the field appear "aberrational, idiosyncratic, or unproven, and the anecdotes and case studies heralding these developments unconvincing...." (12) Adherents to new governance agree that there is a pressing need for detailed studies examining the circumstances of when non-state regulation succeeds. (13)

This Article joins in the task of providing examples of new governance (14) to provide a detailed analysis of new governance operating within a particular industrial setting. It conducts a new institutional economics (15) analysis of the industrial features that led to voluntary, market-based sustainability certifications for forests and forest products. Sustainability certifications are a voluntary, primarily private (16) regulatory regime that incentivizes firms to conduct their operations in accordance with what the certification identifies as socially desirable standards. (17) For reasons previously unexplored, the forest industry contains an unusually longstanding example of sustainability certifications. (18)

This Article presents a case study of sustainability certifications in the forest industry. First, it describes the emergence and interplay between the leading forest and wood product certifications. (19) This Article provides a novel account of the first forest sustainability certification, The American Tree Farm System. A modern, comprehensive account of the history and development of the American Tree Farm System does not exist in scholarly literature across relevant disciplines--including law, natural resources, environmental sciences, corporate social responsibility, and forestry. Yet, the American Tree Farm System plays a crucial role in understanding the later proliferation of other sustainability certifications within the forest industry. It also highlights that sustainability certifications emerged not as private self regulation by an industry, but instead as a public-private partnership, in which state agency employees and industry actors worked together to enforce standards. (20)

Second, this Article identifies the industrial features that contribute to the continuous, seventy-year existence of sustainability certifications within the forest industry. Drawing upon legal, sociological, and economic literature about forest use, (21) it argues that the emergence of certifications in the forest industry are attributable to: (1) the existence of rich, well-developed norms among a merchant group comprised of large, industrial land managers and state foresters; (2) a resource-type that is conducive to user generation and enforcement of rules; and (3) a robust competition for private regulatory control over industry activity.

The findings provide a starting point for further research about both the conditions under which new governance can operate in practice (22) and the broader discussion about when new governance is an appropriate means of regulating the behavior of industrial actors. Although forest sustainability certificates produced a significant "greening" of the industry, (23) their success both individually and collectively remains extremely controversial. This underscores that there is no agreed-upon set of metrics to evaluate new governance regimes. Two themes for evaluation of new governance regimes emerged from the forest sustainability certification case study: (1) the inclusiveness of diverse groups of stakeholders in new governance relative to democratic processes; and (2) the displacement of other, more stringent legislation by new governance regimes.

Part I situates new governance literature amidst existing scholarship. This Part argues that a new institutional economics analysis can address the void of practical examples within new governance literature. Part II provides a novel case study of the emergence of sustainability certifications within the domestic forest industry. Part III identifies norms, rule development and enforcement, and a robust market for regulation as the factors that contribute to the ongoing existence of sustainability certifications in the forest industry. Part IV situates the findings from forest sustainability certifications into the broader framework of understanding the industrial culture and conditions in which new governance strategies will emerge and whether they should be considered successful.

1. NEW GOVERNANCE AND INSTITUTIONAL ECONOMICS

   A central critique of new governance literature is the lack of practical, real-world examples. (24) Existing examples in the field have been critiqued as idiosyncratic and unconvincing. (25) Thus, a central, unexplored inquiry in new governance literature is: What are the conditions--the underlying industrial culture--in which private regulation emerges? (26) Detailed institutional analysis is needed to further scholarly understanding. This Article provides a detailed look into conditions underlying a longstanding private-public partnership to govern resource use, using a new institutional economics approach. This Subpart outlines other literatures that anticipated new governance.

   1. New Governance in Existing Literatures

      Private forms of social regulation working in tandem with government institutions are rapidly supplanting older, state-centric models of market regulation. (27) New governance (28) focuses upon non-state actors governing their own behavior based on self-generated norms and rules, (29) with decreased reliance state enforcement powers. (30) New governance has been called a "third way" (31) between regulation and market mechanisms, in which a global public domain helps governments to produce effective action. (32) In the international context, (33) the rise of new governance is attributable to the failure of traditional state governments to respond to the challenges of globalization and related environmental problems. (34)

      Although the uptick in new governance scholarship is recent, the idea of private regulation of commercial exchange is well-established in several strands of legal literature. (35) Corporate law, environmental law, and law and economics literatures point towards the importance of incorporating institutional analysis into the theoretical arguments of new governance. (36) This Subpart argues that existing literatures inform the theoretical underpinnings of new governance and provide a starting point for further inquiry of its operation in practice.

      1. The Corporate Law Literature: Corporate Social Responsibility

         An example of new governance is when an industry creates rules to control the behavior of firms within it. A recent example of such private regulation is found in the corporate law literature on corporate social responsibility. Corporate social responsibility describes industries and companies attempting to contribute to the resolution of societal problems although they are not legally required to do so. (37) The term "corporate social responsibility" was coined in the 1950s, (38) but firms have long engaged in voluntary over-compliance with socially-desirable objectives. (39) Modern...