Strengthening international regulation through transnational new governance: overcoming the orchestration deficit.

• Author: Abbott, Kenneth W.

ABSTRACT

A new kind of international regulatory system is spontaneously arising out of the failure of international "Old Governance" (i.e., treaties and intergovernmental organizations) to adequately regulate international business. Nongovernmental organizations, business firms, and other actors, singly and in novel combinations, are creating innovative institutions to apply transnational norms to business. These institutions are predominantly private and operate through voluntary standards. The Authors depict the diversity of these new regulatory institutions on the "Governance Triangle," according to the roles of different actors in their operations. To analyze this complex system, we adapt the domestic "New Governance" model of regulation to the international setting. "Transnational New Governance" potentially provides many benefits of New Governance and is particularly suitable for international regulation because it demands less of states and intergovernmental organizations (IGOs). However, Transnational New Governance does require states and IGOs to act as orchestrators of the international regulatory system, and that system currently suffers from a significant orchestration deficit. If states and IGOs expanded "directive" and especially "facilitative" orchestration of the Transnational New Governance system, they could strengthen high-quality private regulatory standards, improve the international regulatory system, and better achieve their own regulatory goals.

TABLE OF CONTENTS I. INTRODUCTION II. THE GOVERNANCE TRIANGLE III. OLD GOVERNANCE AND NEW GOVERNANCE A. Old Governance and New Governance as Ideal Types B. Role of the State C. Centralization vs. Decentralization D. Bureaucratic vs. Dispersed Expertise E. Hard vs. Soft Law F. Limits of Ideal Types IV. OLD GOVERNANCE AND NEW GOVERNANCE AT THE INTERNATIONAL LEVEL A. International Old Governance 1. IGOs 2. Unilateral State Action B. Transnational New Governance 1. Decentralization 2. Dispersed Expertise 3. Soft Law 4. State Orchestration V. EVALUATING TRANSNATIONAL NEW GOVERNANCE A. Decentralization 1. Distribution of Regulatory Authority 2. Multiplicity 3. Participation and Engagement B. Orchestration 1. The International Orchestration Deficit 2. Reliance on Voluntary Action by Firms and Public Audiences VI. REALIZING THE POTENTIAL OF TRANSNATIONAL NEW GOVERNANCE A. Overcoming the Orchestration Deficit B. Directive Orchestration 1. States 2. IGOs C. Facilitative orchestration 1. States 2. IGOs VII. CONCLUSION I. INTRODUCTION

Regulation of transnational business has become a dynamic area of international governance. (1) Nongovernmental organizations (NGOs) have demanded stricter regulation of international firms and their suppliers, (2) especially with regard to worker rights, human rights, and the environment--the areas addressed in this Article. (3) Revelations of politically salient problems such as sweatshops and child labor, and high-profile crises such as the Bhopal disaster and Exxon Valdez oil spill, (4) have stimulated significant public support for these demands. Yet business has, for the most part, vigorously resisted mandatory (and even less than mandatory (5)) regulation in these areas, even as an increasing number of large firms (6) have responded to public demand, reputational concerns, and the possibility of "win-win" innovations (7) to embrace corporate social responsibility, (8) self-regulation, (9) and stronger requirements for suppliers, (10) In addition, the evolving structures of global production--multinational enterprises and global supply chains (11)--pose major challenges for conventional "regulation": action by the state or, at the international level, by groups of states, acting primarily through treaty-based intergovernmental organizations (IGOs) to control the conduct of economic actors through mandatory legal rules with monitoring and coercive enforcement. (12) As these opposing forces have collided, actors on all sides have established a plethora of innovative institutions, (13) with the expressed goal of controlling global production (14) through transnational norms (15) that apply directly to firms and other economic operators. (16)

The new regulatory initiatives have two particularly striking features. (17) The first is the central role of private actors, operating singly and through novel collaborations, and the correspondingly modest and largely indirect role of "the state." (18) Unlike traditional inter-state treaties and IGOs, (19) and unlike transgovernmental networks of state officials, (20) most of these arrangements are governed by (1) firms and industry groups whose own practices or those of supplier firms are the targets of regulation; (2) NGOs and other civil society groups, including labor unions and socially responsible investors; (21) and (3) combinations of actors from these two categories. (22) States and IGOs support and even participate in some largely private schemes, yet the state is not central to their governance or operations. (23) Other arrangements resemble public--private partnerships, with states or IGOs collaborating on a more or less equal footing with private actors. Finally, a few IGOs--including the United Nations, through its Global Compact, and the Organization for Economic Cooperation and Development (OECD), through its Guidelines for Multinational Enterprises--have adopted norms for business conduct that aim to influence firms directly (as opposed to indirectly, through rules governing states). (24) Many of these initiatives also engage private actors in the regulatory process. Thus, even traditional international regulatory modalities have begun to take new forms.

The second striking feature is the voluntary rather than state-mandated nature of the new regulatory norms. (25) It is natural for private institutions formed by firms or NGOs to adopt voluntary norms, as they lack the authority to promulgate binding law. But even the new public-private arrangements and IGO initiatives such as the UN Global Compact operate through "soft law" approaches rather than the traditional "hard law" of treaties.

We refer to these novel private, public-private, and IGO initiatives as forms of "regulatory standard-setting" (RSS), (26) defined as the promulgation and implementation of nonbinding, voluntary standards of business conduct in situations that reflect "prisoner's dilemma" externality incentives (the normal realm of regulation), rather than coordination network externality incentives (27) (the realm of voluntary technical "standards" such as those set by the International Organization for Standardization). (28) RSS potentially involves all of the functions of administrative regulation in domestic legal systems: rule making, rule promotion and implementation, monitoring, adjudication of compliance, and the imposition of sanctions. (29) The rapid multiplication of RSS schemes is creating a new kind of transnational regulatory system, one that demands a broader view of regulation and a more nuanced view of the state as regulator. (30)

To gain analytical leverage on this complex emerging system, we look to the New Governance model of regulation, which was developed to characterize a diverse range of innovative domestic regulatory practices. (31) The diversity of practices encompassed within New Governance makes it difficult to define precisely--indeed, it is often defined merely by contrast to traditional forms of regulation. (32) To focus the discussion, we identify four central elements of New Governance, each reflecting a modification of the state's traditional role. (33) In New Governance, the state:

(1) incorporates a decentralized range of actors and institutions, both public and private, into the regulatory system, as by negotiating standards with firms, encouraging and supervising self-regulation, or sponsoring voluntary management systems;

(2) relies on this range of actors for regulatory expertise;

(3) modifies its regulatory responsibilities to emphasize orchestration (34) of public and private actors and institutions rather than direct promulgation and enforcement of rules; and

(4) utilizes "soft law" to complement or substitute for mandatory "hard law."

The New Governance model is still predominantly applied in domestic contexts. New Governance approaches such as government-industry pollution control agreements have been widely adopted in industrialized countries. John Braithwaite argues that New Governance may be even more valuable for developing countries that lack essential capacities for traditional regulation. (35) To date, however, neither scholars nor public officials have fully recognized the potential of New Governance for the international system--what we label "Transnational New Governance." New Governance cannot be uncritically transferred to the very different circumstances involved in the international system, where the role of the state is even more attenuated, but it does provide key insights for improving international regulation.

In this Article, we develop a model of Transnational New Governance to analyze the emerging patterns of RSS and its potential for improving international regulation. The Article advances both positive and normative arguments. Positively, the Article argues that the expanding array of RSS schemes is developing into a system of Transnational New Governance for business. As in the New Governance model, these schemes form a decentralized but increasingly dense and interlinked (36) constellation of private and public-private rule-making arrangements, drawing on many sources of expertise and relying on soft law, which surrounds and complements traditional state-based regulatory structures. This Article also argues positively that states, and especially IGOs, have incentives to promote Transnational New Governance as the best means of achieving their regulatory objectives. Normatively, this Article argues that states and...