May 13, 2004
Comment: Enforcement of existing laws should be the concern
Priority one for developing nations and corporate non-financial impacts should be the implementation of existing rules, not new laws, writes Adam Greene of the US Council for International Business.
In the current debate about corporate responsibility and the need – or not – for additional non-financial regulations on companies, one fact remains abundantly clear but little discussed: worldwide, most countries have social and environmental laws in place, but many do little to enforce them. Before new efforts are launched to vastly expand social and environmental laws, countries – mostly developing countries and countries in transition from state control - must first address their inability to implement their existing laws.
It might seem obvious that laws are only meaningful when they are implemented, but the truth is that many governments have never developed the capacity and, in some cases, the will to enforce their laws effectively and consistently. The reasons for this are not difficult to find, but they can be very difficult to resolve.
Effective enforcement requires much more of a government than simply deciding that, come tomorrow, its laws are going to matter. It many cases, it first requires extensive domestic legal and economic reforms that are likely to generate political opposition, including reforming police forces and the judiciary, increasing tax collection, instituting anti-corruption programmes, and formalising the economy through property rights and business licences. In short, effective enforcement requires nothing less than a full commitment to the rule of law and the development of national institutions that make laws work.
In the debate over the so-called “race to the bottom” – encompassing the idea that companies will relocate to countries with the most lenient regulations – few of its proponents ever seemed to notice that the governments they feared would lower their standards to attract foreign investors rarely enforced their standards in the first place.
All investors, foreign and domestic, require the rule of law – including laws on labour rights, human rights, environmental protection and other civil liberties – in order to conduct business efficiently. In a 2003 survey of 107 multinational companies conducted by the World Bank, 61 per cent responded that strong national laws on labour and the environment make it easier to conduct business, and 75 per cent responded that it helps their business when such laws are well enforced.
The lack of enforcement of national laws is clearly evident in the efforts of some companies to manage the non-financial aspects of their supply chains. Examples abound of labour and environmental requirements that companies or entire industry sectors demand of their suppliers, with many coming from the textile, clothing, and toy sectors. And while, in some cases, such requirements go beyond national law (such as the availability of health clinics for employees), the majority are simply the equivalent of a private enforcement action taken in lieu of any government enforcement on issues such as minimum wage, minimum age, maximum allowable overtime, and prompt payment of earned wages.
National labour and environmental inspectors in the countries where such suppliers are based would eliminate much of the need for individual companies to audit their suppliers for compliance with national laws, a system that is expensive for the companies. More importantly, a system of national implementation and enforcement would cover all producers in the country, not just those few that produce for the export market. That is perhaps the biggest flaw with enforcing standards via international supply chains: the vast majority of domestic companies produce for local markets and operate completely outside the scope of international supply chain management initiatives, and usually outside of the legal economy as well.
Effective enforcement of national labour and environmental laws would also help to address another persistent misconception that, like the “race to the bottom,” refuses to die despite the complete lack of evidence to support it, namely that multinational companies are somehow “unregulated”. All companies, regardless of size or home country, must obey the laws and regulations of the all the countries in which they operate. Period. Companies do not magically become unregulated simply by operating in two or more countries (unless one of those countries is Somalia, which has no functioning government).
Those calling for international regulations for multinational companies fail to recognise that multinationals are regulated, country by country. They also fail to recognize that developing international regulations would do nothing to change the situation on the ground simply because international laws only take effect through national implementation and enforcement, which brings us right back to the urgent need to develop the capacity of national governments to enforce their laws.
A current example of an effort to develop an international law that applies directly to private actors (as opposed to national governments, as all existing international laws do) is the proposal, from an independent advisory panel to the United Nations Commission for Human Rights, for international human rights responsibilities for business. Protecting human rights benefits us all, and indeed businesses and human rights defenders have a large common agenda to promote the rule of law, independent courts, freedom from arbitrary government action, free speech, individual liberty, and anti-corruption, to name just a few. However, the approach taken by the UN’s so-called “Norms for Business” is both unrealistic and unworkable, not because it would create new human rights laws, but because it would seek to use private actors – companies – to enforce human rights laws in place of national governments.
The effort behind the Norms rightly recognised that many national governments are not implementing their human rights obligations, but rather than address that issue directly, the decision was taken to shift the burden to another actor, in this case one without the mandate or the means to be the investigator, prosecutor and judge of human rights abuses. As with labour and environmental laws, human rights laws already exist at the national level and the most effective way to ensure compliance by all individuals and enterprises – regardless of size or home country – is to build the national capacity to enforce such laws.
As with many things in life, the best solution is often the simplest one. Building national capacity to enforce social and environmental laws isn’t as exciting or newsworthy as starting an international negotiation. It is rather a long, slow, and at times painfully difficult process that is nonetheless essential to expanding social and environmental protections. It is also the simplest approach and the one with the best chance of lasting success.
Adam Greene is vice president of labor affairs and corporate responsibility for the US Council for International Business
