business & global governance · pdf filebusiness & global governance 1 author: ... the...

Manuel Erzuah International Business & Politics April 2014

Business & Global Governance 1

Author: STU-Count: 22115

Manuel Kobina Erzuah Pages: 10

BSc. International Business & Politics

Course Coordinator:

Morten Ougaard,

Department of Business & Politics

0 9 t h A p r i l 2 0 1 4

Business & Global Governance

2014

A s s i g n m e n t 1

Under what circumstances do regulatory regimes yield positive outcomes?



Table of Contents

1. INTRODUCTION ........................................................................................................................ 2

2. THEORY ..................................................................................................................................... 3

2.1. THE REGULATORY CAPTURE FRAMEWORK ....................................................................................................... 3

2.2. THE GLOBAL PUBLIC GOODS CONCEPT ........................................................................................................... 5

3. REGULATORY EMERGENCE – THE CASES OF ACTA & CFC ...................................................... 6

3.1. THE ANTI-COUNTERFEITING TRADE AGREEMENT ............................................................................................. 6

3.2. THE CFC REGULATORY REGIME ...................................................................................................................... 7

4. TAKING THE ANALYSIS FURTHER ............................................................................................. 8

4.1. ACTA – NARROW BENEFIT DISPERSION ......................................................................................................... 8

4.2. MONTREAL PROTOCOL – BENEFITS FOR EVERYONE .......................................................................................... 9

5. CONCLUSION .......................................................................................................................... 10

6. THEORETICAL STRENGTHS & LIMITATIONS ........................................................................... 11

7. WORKS CITED ......................................................................................................................... 12

1. Introduction

Among the central overhauls of global regulation over the last decades has been the increasing focus

on multi-faceted influences of regulatory outcomes. States that historically tended to hold sway in

pushing regulatory agendas have been supplemented by leading businesses and, more recently, by

actors representing civil society. Still, the private sector remains clearly more resourceful translating

into more tangible impact. Consequently, arguments abound criticizing businesses’ egoistic motives

and agendas when it comes to affecting legislation. What can be overlooked, however, is the fact that

the “privileged position” (Lindblom, 1977) of businesses can serve as an efficient catalyst to reach

unforeseen positive outcomes on the global level.



As will be argued, the case of the Montreal Protocol is a positive regulatory outcome from various

perspectives. By contrast, the recent Anti-Counterfeiting Trade Agreement (ACTA) shows that certain

conditions put provision of optimal regulatory regimes at danger. The two case studies provide a

suitable footing to assess the question under what circumstances regulatory regimes yield positive

outcomes.

This paper builds on the theory of regulatory outcomes (Mattli & Woods, 2009) and a normative

theoretical approach defining global public goods (Kaul, Grunberg, & Stern, 1999). The theoretical

underpinnings comprise two different levels of analysis. The former enables discerning whether

regulatory processes are diligently conducted while global public goods describe an absolute standard

for assessing regulations. After introducing the theories, light will be shed on how chlorofluorocarbon

(CFC) regulation and ACTA have come into existence and what actors have been prominent in the

process. Thereafter, the two regulations will be contrasted revealing the differences in actual

benefits. After the conclusion, a brief assessment of how the given theories answer the research

question and their general limitations will be provided.

2. Theory

2.1. The Regulatory Capture Framework

Mattli & Woods (2009) offer an account that takes institutions as a proxy for the efficiency and

desirability of regulations. They posit that regulation can be analyzed on a continuum that spans from

the one extreme of regulatory capture to the other end termed a common interest regulation. It can

be labeled as a pluralist mid-range theory since it analyzes different actors’ influence on regulation

limited to a more contemporary than wide historical time span. In essence, the insights of the theory

contrast regulatory results that reflect narrow interests of certain pressure groups with those that are

shaped by a broad array of actors.

Regulatory capture is defined as control over the regulatory process by few actors entailing different

empirical effects. There can be a case of no-regulation, regulation that opposes broad societal

preferences, hardly enforceable regulation as well as regulation that creates an uneven playing field



thereby subsidizing the capturing interest group. Conversely, common interest is discussed to be a

proceduralist phenomenon. The authors reject the notion of idealists (as will be described shortly),

who see absolute values that a global polity appreciates. By the same token, a rejectionist point of

view, that argues that every individual has their very own set of preferences, is discarded as this does

not allow for a common optimal outcome. They therefore take this proceduralist stance arguing that

a proper due and inclusive process is the most favorable outcome of a regulation.

For the actual progression of all outcomes, Mattli & Woods consider two institutional axes:

institutional supply and institutional demand. Institutional supply constitutes a necessary condition

for positive regulatory outcomes. Wide institutional supply means that access points to the regulatory

process abound. Open forums, proper due process and oversight mechanisms are examples of a wide

supply whereas narrow supply can be defined as club-like, exclusive institutions that work secretively.

Supply is composed of two instances, namely the rule-making and the implementation phase.

Institutional demand can be seen as the sufficient condition for a positive outcome since empirically

global regulation is frequently subject to a rather broad supply-side whose potential stays unexploited

since institutional demand is at best erratic. Institutional demand, in turn, depends on the factors

information, interest coalitions and ideas. The diffusion and demonstration of information is

important since it needs to be clear what social cost

will be generated. At the same time, demand is only

seen to be high when various expert groups from

the public, private and non-governmental sector

with vested interests demand change and form a

coalition. This is simplified by having a set of ideas

that offer new constraints but allow framing the way

in which discussions are made whilst aligning

expectations and goals of the regulation. The

different outcomes can be summarized along the

two axes being either wide or narrow (Figure 1). Figure 1 - Regulatory Outcomes - Mattli & Woods (2009)



2.2. The Global Public Goods Concept

Global public goods is a concept developed in a joint effort by Kaul, Grunberg & Stern (1999) that de-

rives a benchmark for what ultimate and intermediary goals regulation should aim for. It constitutes a

normative macro-level theory that supposes that there are certain values – global public goods – that

are of superior significance for positive outcomes. Archetypical public goods can generally be distin-

guished from private goods in that they are “marked by non-rivalry in consumption and non-

excludability […] [and that] their benefits are quasi-universal in terms of countries […], people […], and

gender.” (Kaul, Grunberg, & Stern, 1999, p. 2). Private goods, on the other hand, can only be con-

sumed by an individual or a set of persons and therefore do not exhibit the same degree of (positive)

externality as public goods do.

What makes a public good a global public good are the dimensions of country, socio-economic group

and generations. An ideal type, once more, would have no geographic concentration but encompass

all countries equally whilst pertaining to all social strata of society. Moreover, it would not be timely

exclusive but rather have spillovers for generations to come. Practically, the ideal type is difficult if not

impossible to identify, which is why the authors are sure to state that impure public goods are the

most relevant objects for scrutiny. The weakest condition of an impure global public good therefore

describes a good that does not discriminate against socio-economic groups, is intergenerational, but

only benefits a few groups of countries.

Finally, a distinction is drawn between final and intermediate global public goods. Final public goods

are tangible or intangible goods like the environment or peace – something that is felt by the global

society and benefits them almost equally. Intermediate public goods, on the other hand can be

frameworks or regulations that contribute towards the provision of a final public good. The problem

with global public goods is that they can arguably not be supplied by the “Invisible Hand”, which justi-

fies the existence of regulatory regimes. With the theoretical groundwork at hand, the emergence of

two empirical cases of environmental and internet governance can now be further examined.



3. Regulatory Emergence – The Cases of ACTA & CFC

3.1. The Anti-Counterfeiting Trade Agreement

The agreement can be summarized as pushing for stricter legal and enforcement standards with re-

spect to intellectual property in informational goods and as such has both strong adherents as well as

fierce opposition.

ACTA was only brought to the public’s attention after a Wikileaks entry showed a draft of the regula-

tion (Electronic Frontier Foundation, 2012). Negotiations had until this point hardly been open and it

was not until early 2008 that the United States Trade Representative requested for public comments

in the process. It was generally club-like structures with industrial lobby groups working hand-in-hand

with regulators to establish “narrow-minded policies that do not reflect the breadth of opinion and

research on the trade in knowledge-based goods” (Shaw, 2008). As stated by the European Parlia-

ment (2011), the venue of negotiations on ACTA was held secret, even to the European Parliament

itself, and access to drafted documents was granted to industry lobbying organizations but not to par-

liamentarians or interest organizations.

A clear lack of institutional supply was at first met by restrained demand since only very few leading

newspapers dedicated their interest to the regulation. After ACTA had gradually taken a more promi-

nent position in mainstream media, public opposition, as well as pressure to open up the regulatory

process, grew. One camp comprised both governmental as well as lobbying business’ interests, argu-

ing that a considerable market is undercut. Fighting copyright infringement would, in their view, sup-

port a multibillion dollar industry and spur economic growth while creating employment opportuni-

ties (European Parliament Committee on International Trade, 2008). The opposing side feared unduly

prosecution and a disproportionate restriction of civil liberties. The fact that ACTA is perceived to be

largely driven by industry interests further laid claims on forfeiting the regulation. In essence, a coali-

tion made up of scholars, but also especially NGOs and even public officials took a vested interest in

deferring the regulation. The idea that united the different stakeholders was that civil liberties need-

ed not be overruled and current gains corresponding to free circulation of knowledge through the



internet not be curtailed. Consequently, the secretive nature of the negotiation compelled the EP offi-

cial in charge at the time to resign from his position (Techdirt, 2012).

According to the regulatory capture model, the narrow institutional supply coupled with broad

demand led to the undesirable outcome of capture with concessions and compromises. So far, the

agreement has been signed by an amalgamate of countries including, among others, the United

States, the European Union, Canada Australia but only ratified by Japan. In order for it to take actual

effect, however, it needs a critical amount of 6 ratifying governments rendering it ineffective for the

time being. Still, the possibility exists that more countries will ratify the agreement or even take the

implementation of the regulation to a bilateral level (Smith, 2013).

3.2. The CFC Regulatory Regime

As opposed to the Anti-Counterfeiting Trade Agreement, the regulatory regime on chlorofluorocarbon

emerged against the background of wide institutional supply and arguably broad demand and

describes a common interest regulation from a proceduralist point of view. When alarming scientific

proof circulated that the emission of chlorofluorocarbon into the atmosphere would deplete the

ozone layer and lead to serious detrimental health effects, a case for global regulation was given.

Although much of the advanced industrialist world as well as developing countries depended on the

use of CFC to large extents, the Montreal Protocol was formed effectively binding its signatories to

lower CFC emission by high margins (Seaver, 1997). The Protocol contained inputs from various

governments but also crucially included business perspectives and even environmental concerns

brought forth by international NGOs. A document-analysis by Rizal Razman et al. (2009) shows that

manifold institutional access points existed in the form of meetings, workshops and conferences as

well as different sub-committees. These forums were not exposed to external forces over frequently

so as not to hinder decision-making mechanisms but vivid exchange with external experts was still

given. This lends support in favor of viewing the institutional supply as sufficiently wide.

On the demand side, Gareau (2012) notes that international environmental NGOs “are an intricate

part of neoliberal [global environmental regulation].” However, he also adds that in their pursuit of

influencing the policy output, NGOs had to concentrate their efforts on a small number of key issues



rather than addressing larger concerns. International businesses, on the other hand, had a leading

role in affecting the regulation. Whereas DuPont, the largest CFC emitter worldwide, initially

vehemently opposed regulation, its role shifted entirely when the company realized that the political

climate was unfavorable and embarked on a search for alternative chemicals. Coupled with the fact

that conventional CFC chemicals were a declining market, the industry decided a spectacular

turnaround and joined the pro-regulation camp (Maxwell & Briscoe, 1997). DuPont assisted in

providing scientific support for measuring the actual influence and cost of ozone depletion further

buttressing the convictions by governments and especially NGOs to limit CFC emission. Meanwhile,

DuPont positioned itself to become part of the solution by offering alternative chemicals, thus

capitalizing on this new market opportunity. The coalition of the “green and the greedy” (Gareau,

2012) managed to spread the idea that the reduction of the ozone layer was of pivotal importance to

the global society entailing the establishment of a successful regulatory regime. To date, this regime is

still reporting under peer-review to a number of different organizations.

4. Taking the Analysis Further

From the above analysis it is tempting to conclude that broad supply coupled with broad demand

yields an overall positive outcome. Indeed, as promoted by Mattli & Woods’ framework (2009), the

situation of common interest regulation is evidently conducive to favorable regulation. As a quick

reminder, a proceduralist stance purports that as long as a proper due process is guaranteed and

stakeholders actively engage in the regulatory process, one can expect efficient outcomes. In theory,

this makes sense but what the framework falls short on is to gauge the actual benefit to stakeholders.

This is where Kaul, Grunberg and Stern’s (1999) theory comes in. When applying the concept of global

public goods, the image of what benefits should ultimately aimed at become more obvious.

4.1. ACTA – Narrow Benefit Dispersion

ACTA has created widespread resentment by civil society organizations even supported by key

politicians and has been stalled for the moment. At the same time, a host of private businesses and

high legislative bodies such as the European Commission asseverate their support for the ratification



of ACTA. Why is that? It is helpful to draw attention to the ultimate goals of ACTA and evaluate

whether or not they constitute global public goods. As the European Commission (2008) states, the

issue they take with counterfeiting goods is that it depletes competitiveness of the entire economic

area. This means unharnessed economic growth potential and thus job-creation. Adding to that is the

fact that counterfeited medicine or foods can have adverse effects on public health. Essentially, ACTA

therefore seeks to achieve this by reinstating the rule of law in the virtual domain in the form of

stricter enforcement of copyright laws.

When debating optimal social outcomes scholars often turn to economic science that promulgates

the efficiency of markets as most optimal societal welfare effects. From an economic point of view, a

level playing field with efficient application of the rule of law indeed sounds reasonable. However, this

does not sufficiently mean that ACTA strives to provide a global public good. Since it is vested

interests of businesses that seek to secure their global market share, the regulation rather follows

what can be considered a ‘club good’. Strict enforcement of property rights not only restricts freedom

of speech and expression of internet users but also has clear distributional effects. Especially Western

firms would benefit from a stricter enforcement giving them the opportunity to prosecute any person

or firm that lays claim to their intellectual property. Affordable generic drugs for the treatment of e.g.

HIV and other diseases of the developed world would no longer be accessible. As becomes obvious,

this would clearly discriminate against developing regions of the world and leave especially the have-

nots of poor societies worse off (Arkinstall, Childs, Menghaney, Ford, & von Schoen-Angerer, 2011).

Clearly, the implementation of ACTA therefore compromises a global public good in terms of rivalry,

excludability and non-universal benefits. Given the fact that corporations and states in advanced

industrialized nations would see positive impacts suggests a label as a club good.

4.2. Montreal Protocol – Benefits for Everyone

The Montreal Protocol, on the other hand has been created in a joint effort by different interest

organizations, states and the private sector. The question suggests itself why such a broad coalition

was captured by this idea. The Montreal Protocol was formed against the background of a pressing

environmental issue, namely the depletion of the Earth’s fragile ozone layer (United Nations



Environment Programme: Ozone Secretariat, 2009). CFC substances that were extensively produced

and consumed led to the creation of ozone holes that could be felt in the form of dangerous

ultraviolet radiation. This harmful activity posed a long-term threat to all Earth inhabitants. The

preservation of the environment can be described as a public good. Its well-being does not exclusively

benefit a certain group of people – it is universal. Therefore, a healthy environment has very positive

spillovers. It can also be considered a global public good since it concerns all countries and socio-

economic groups in the world and its preservation equally benefits generations to come. The

Montreal Protocol is marked by promoting the final global public good - protection of the ozone layer

and constitutes a necessary regulatory regime to achieve this final global public good. Thus, the

existence of the CFC regime is justified by it serving as an intermediate global public good.

5. Conclusion

Drawing on the above discussion the two frameworks have assisted in arriving at a similar conclusion:

When comparing the cases of the ACTA regulatory regime with the Montreal Protocol, it becomes

clear that the Montreal Protocol stands uncontested as the more equitable and beneficial outcome.

This suggests that the two theories are interchangeable when predicting the strength and quality of

regulatory outcomes. It must be stated, however, that they both take differential stances. Looking at

the regulatory capture concept allows to determine whether or not a broad alliance of actors can be

considered satisfied with the outcome as they all had their stake in it. This does not allow inferences

for the actual value of the regulation, though. It is only from the normative perspective as provided by

the global public good concept that it can safely be said that a given regulation actually makes the

world a better place in absolute terms. In this regard, the Anti-Counterfeiting Trade Agreement

constitutes a very narrow regulation that mainly reflects business and state interests at the expense

of society’s welfare. Pursuing the regulation’s rationale does not provide a positive sum effect to the

world. The Montreal Protocol, contrariwise, drives change towards a better environment ultimately

benefiting everyone. It is probably with this in mind that the recently retired Secretary General of the

United Nations Kofi Annan coins this regulation “perhaps the single most successful international

agreement to date […]” (United Nations Organization, 2013).



6. Theoretical Strengths & Limitations

The chosen theories each have their advantages and deficiencies. Both analyze regulatory outcomes –

but along different dimensions. Mattli & Woods’ mid-range theory allows for the comparisons of two

entirely different empirical settings. The chosen case studies differ according to point in time and

policy domain. The concept allows for a more abstract view on what preconditions need to be in place

for good regulation. The definite shortcoming of the framework, however, is that it only provides the

tools that allow describing the regulatory process. A due process is here somewhat tantamount to an

optimal outcome. The toolbox does not give a satisfactory account of the quality and effect of the

outcome, though.

This is where the Global Public Good framework helps out. Its idealist take on global governance

means that it provides convincing arguments for how to measure benefits for the global society.

According to this absolute standard, the specific qualitative grade of the different regulatory

outcomes can be better assessed clearly ranking the Montreal Protocol over ACTA. Mattli & Woods

would argue that a simple opening up of the institutional supply would yield a positive outcome for

ACTA, but Kaul, Grünberg & Stern would require a more complex global public good to be the

ultimate aim. The problem with global public goods is that in some way they impose a standard

formula for bliss onto the entire world, which can be challenged by individual preferences. Another

problem of general relevance, is the fact that public goods are not easy to define. In the

environmental domain it seems fairly easy to determine those goods but in other policy objectives the

good might become so abstract that it is hard to inextricably link intermediary public goods to a final

public good.



7.

8. Works Cited

Arkinstall, J., Childs, M., Menghaney, L., Ford, N., & von Schoen-Angerer, T. (2011). The reality behind

the rhetoric: How European policies risk harming access to generic medicines in developing

countries. Journal of Generic Medicines, 8, 14–22.

Electronic Frontier Foundation. (2012). Electronic Frontier Foundation. Retrieved April 2014, from

Anti-Counterfeiting Trade Agreement - What is ACTA?: https://www.eff.org/issues/acta

European Commission. (2008). The Anti-Counterfeiting Trade Agreement (ACTA) - Fact Sheet. Brussels:

European Commission - Trade.

European Parliament. (2011). The Anti-Counterfeiting Trade Agreement (ACTA): An Assessment.

Brussels: DG External Policies .

European Parliament Committee on International Trade. (2008). Draft Report on the impact of

counterfeiting on international trade. Brussels: European Union.

Gareau, B. J. (2012). The limited influence of global civil society: international environmental non-

governmental organisations and the Methyl Bromide Controversy in the Montreal Protocol.

Environmental Politics, 21(1), 88-107.

Kaul, I., Grunberg, I., & Stern, M. A. (1999). Global Public Goods - International Cooperation in the 21st

Century. New York & Oxford: Oxford University Press.

Lindblom, C. E. (1977). Politics & Markets: The World's Political-Economic Systems. New York: Basic

Books.

Mattli, W., & Woods, N. (2009). The Politics of Global Regulation. Princetion & Oxford: Princeton

University Press.



Maxwell, J., & Briscoe, F. (1997). There's Money in the Air: The CFC Ban and DuPont's Regulatory

Strategy. Business Strategy & The Environment, 6, 276-286.

Razman, M. R., Hadi, A. S., Jahi, J. M., Shah, A., Shah, A. H., Sani, S., et al. (2009). A study on

negotiations of the Montreal Protocol: Focusing on global environmenta lgovernance

specifically on global forum of the United Nations Environmental Programme. Journal of Food,

Agriculture & Environment, 7, 832-836.

Seaver, B. M. (1997). Stratospheric Ozone Protection: IR theory and the Montreal Protocol on

substances that deplete the ozone layer. Environmental Politics, 31-67.

Shaw, A. (2008). The Problem with the Anti-Counterfeiting Trade Agreement (and what to do about

it). KEStudies, 2.

Smith, P. J. (2013). Speaking for Freedom, Normalizing the Net? Journal of Information Technology &

Politics,, 423-443.

Techdirt. (2012, January). Techdirt. Retrieved April 2014, from European Parliament Official In Charge

Of ACTA Quits, And Denounces The 'Masquerade' Behind ACTA:

http://www.techdirt.com/articles/20120126/11014317553/european-parliament-official-

charge-acta-quits-denounces-masquerade-behind-acta.shtml

United Nations Environment Programme: Ozone Secretariat. (2009). UNEP: Ozone Secretariat.

Retrieved April 2014, from Treaties - The Montreal Protocol on Substances that Deplete the

Ozone Layer: http://ozone.unep.org/new_site/en/montreal_protocol.php

United Nations Organization. (2013). United Nations. Retrieved April 2014, from Ozone Day -

Background: International Day for the Preservation of the Ozone Layer:

http://www.un.org/en/events/ozoneday/background.shtml

business & global governance · pdf filebusiness & global governance 1 author: ... the...

Documents