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November 7, 2005

Corporate self-regulation falls short, says author

By Jennifer McNulty

When global justice activists took to the streets in the late 1990s to demand reforms such as higher wages and better working conditions for laborers around the world, corporate strategists saw the writing on the wall: Adopt voluntary codes of conduct or face increased government regulation. They opted for self-regulation.

James Rowe
UCSC doctoral candidate James Rowe
Photo: Jennifer McNulty

That response, and similarities to the corporate reaction two decades earlier to calls for corporate accountability, is critiqued by UCSC doctoral candidate James K. Rowe in a chapter of the new book Globalization, Governmentality and Global Politics: Regulation for the Rest of Us? (London: Routledge, 2005) by UCSC politics professor Ronnie Lipschutz.

The book examines social and environmental regulation in an era of globalization; Rowe's is the only chapter not written by Lipschutz.

Rowe's contribution, entitled "Corporate Social Responsibility as Business Strategy," analyzes the corporate response to the global justice movement, from intent to impact, over a 40-year span.

"Corporate social responsibility isn't about business ethics," said Rowe. "It's a business strategy meant to forestall popular power that might result in effective regulation. If corporations were serious about social responsibility, why do they oppose having responsibilities formalized in law by regulation?"

Rowe calls the global justice movement the "second wave" of public outcry over corporate malfeasance. The first wave took place in the 1960s and 1970s, when revelations about corporate corruption, tax evasion, and involvement in clandestine political activities, including the U.S.-backed coup that ousted Chilean president Salvador Allende, fueled populist attempts to rein in corporate power and increase accountability. In 1976, the United Nations began negotiating a binding international code of conduct for corporations.

Despite that wave of public pressure, deregulation accelerated under the administration of President Ronald Reagan, and corporate profits soared as global markets opened up in the 1990s under free-trade agreements negotiated by President Bill Clinton. Negotiations on the UN code stalled permanently in 1981, after it had been made voluntary instead of binding.

Driven by their legally binding quest to generate profits, corporations fanned out around the globe in search of cheap labor and lax environmental standards, according to Rowe. The accompanying "race to the bottom" of social, environmental, and human rights protections has contributed to "morbidly low wages, deforestation, and climate change," he said.

History shows that in the absence of strong government regulation, corporate responses to populist movements have minimal impact, said Rowe.

"If voluntary efforts worked, there would have been no second wave," said Rowe. "Empirical studies of corporate codes of conduct show that they fall short."

As revelations of sweatshop conditions swept the garment-manufacturing industry in the early 1990s, consumers expressed displeasure, and business promised to do better. In one high-profile case, Kathie Lee Gifford tearfully vowed to make amends after media reports revealed that child labor was used in the production of garments sold under Gifford's label.

Only government regulations can force corporations to internalize costs that are currently passed on to society, said Rowe, pointing out that low wages force workers to rely on the state for help with housing and other basic needs. Similarly, the absence of strict environmental regulations ensures that the costs of corporate pollution get passed on to taxpayers, who end up footing the bill for cleanup and restoration.

At the turn of the millennium, activists and organizations such as Amnesty International, Friends of the Earth, and the International Confederation of Free Trade Unions were willing to work with corporations to develop voluntary codes of conduct hoping they would improve wages, working conditions, and environmental degradation.

Just as the global justice movement was poised to make great strides, the September 11 terrorist attacks shifted attention and resources away from concerns about corporate behavior, said Rowe. Recently, however, as the movement regains momentum, he has detected signs that organizers have learned from history and are changing strategy.

"The consensus now is that voluntary corporate social responsibility isn't working," he said. "I think organizers are ready to bring government back into the marketplace to protect workers and the environment. If they want protections, they have to push for binding regulations. You can't rely on the market to cure the market's ills."


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