Racing to the Bottom or Racing to the Top?

While nonstate actors have gained prominence in research on global governance, companies have received little attention. The bulk of the literature has concentrated on the role of civil society organizations (Reinicke 1998; Clark et al. 1998; Fox and Brown 1998; Waterman 2001). There are studies, which have explored the rise of “private authority,” exploring the opportunities and constraints of private self-regulation (Cutler et al. 1999; Ronit and Schneider 2000; Hall and Bierstecker 2002; Bohle 2008). Yet, the impact of companies on governmental regulation is still contested. In an increasingly globalized economy, companies are assumed to escape strict national regulation by relocating their production sites to areas of limited statehood where regulation is low and enforcement is weak. While countries with high levels of regulation will respond by lowering their standards, countries with weak regulatory capacities are prevented from tightening regulation in order not to threaten direct foreign investments. Thus, the behavior of firms drives states into a “race to the bottom,” leading to the degradation of natural resources and the compromising of social standards for the sake of potential economic growth or the attraction of short-term foreign investment.2 On a more general level, transnational corporations are found to systematically undermine the regulatory capacities of states resulting in the “retreat” (Strange 1996) or even the “end” (Ohmae 1995) of the state as the main provider of governance functions (cf. Ruggie 1998).

However, avoiding strict governmental regulation is only one form of a firms’ behavior. Companies can also be “drawn into playing public roles to compensate for governance gaps and governance failures at global and national levels” (Ruggie 2004, 13). Empirical evidence abounds on companies, which voluntarily commit themselves to social and environmental standards and adopt private self-regulatory regimes—even in the absence of a regulatory threat by the state.3 Thus, some studies no longer doubt that companies can contribute to the provision of public goods and services, but rather ask “under what circumstances and to what extent companies can be expected to provide regulatory governance functions in the public interest” (Wolf et al. 2007, 295).

 
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