The Transnationalization of Economies, States, and Civil Societies: New Challenges for Governance in Europe

The Transnationalization of Economies, States, and Civil Societies

László Bruszt · Ronald Holzhacker Editors

The Transnationalization of Economies, States, and Civil Societies New Challenges for Governance in Europe

123

Editors László Bruszt Department of Political & Social Sciences European University Institute Via dei Roccettini, 9 50016 San Domenico di Fiesole Italy [email protected]

Ronald Holzhacker Department of Political Science University of Twente 7500 AE Enschede Netherlands [email protected]

ISBN 978-0-387-89338-9 e-ISBN 978-0-387-89339-6 DOI 10.1007/978-0-387-89339-6 Springer New York Dordrecht Heidelberg London Library of Congress Control Number: 2009931579 © Springer Science+Business Media, LLC 2009 All rights reserved. This work may not be translated or copied in whole or in part without the written permission of the publisher (Springer Science+Business Media, LLC, 233 Spring Street, New York, NY 10013, USA), except for brief excerpts in connection with reviews or scholarly analysis. Use in connection with any form of information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed is forbidden. The use in this publication of trade names, trademarks, service marks, and similar terms, even if they are not identified as such, is not to be taken as an expression of opinion as to whether or not they are subject to proprietary rights. Printed on acid-free paper Springer is part of Springer Science+Business Media (www.springer.com)

Acknowledgments

This volume emerged by bringing a diverse group of scholars together from across Europe. We met, we debated and we talked about transnationalization and how it should be conceptualized and researched empirically. Our CONNEX European Research Colloquium (ERC), supported by funds from the European Union, gathered at the great universities and academies in the capital cities in Central Europe over a 2-year period from 2007 to 2008. Professors and graduate students at these institutions discussed and critiqued our work in progress. In addition to our scholarly approach, we learned from citizens and journalists about developments in their countries. This helped us feel first hand the processes of transnationalization that are impacting the economies, states and societies across Europe. The ERC was designed to provide secondary mentoring for PhD students from across Europe, conducting research in the emerging area of transnationalization. The directors, László Bruszt and Ronald Holzhacker, focused both on the theoretical innovations in this area and sound research design and methodological issues. We were able to carefully select our research team from top researchers at universities selected for excellence in research on Europe. Twelve PhD students participated directly in the programme, evenly divided by gender, with good representation from across Europe, including Eastern Europe and beyond to Turkey and Georgia. In addition, PhD students from the institutions which hosted our conferences participated while we were present on their campus. We first came together at the Polish Academy of Sciences, Institute of Philosophy and Sociology, in Warsaw. We would like to thank Prof. Josef Niznik, and his colleagues Krzysztof Jasiecki, Krzysztof Iszkowski, Natalya Ryabinska, Anna Lewicka-Strzalecka and Andrzej Rychard for their insightful commentary on our work. We would also like to thank Michal Miaskiewicz for hosting a visit to the College of Europe, Campus of Natolin, and our invited journalists – Krzysztof Iszkowski, Krzysztof Bobinski, Piort Maciej Kaczyski and Bartosz Weglarczyk – for a debate on Poland in the EU held on the campus. Our second meeting was held at the Central European University (CEU) in Budapest. We would like to thank Prof. Dorothee Bohle and her colleagues Zdenek Kudrna, Béla Greskovits and Katka Svickova. We would also like to extend special thanks for a key-note lecture held by Prof. Marie-Laure Djelic (Essec Business v

vi

Acknowledgments

School, Paris) on processes of transnationalization and her commentary on many chapters. We would also like to thank two very knowledgeable Hungarian journalists/political scientists who spoke about developments in Hungarian politics – Zoltán Ádám and Zoltán Pogátsa. Our final meeting, this time with finished papers, brought us to the Institute of International Relations, Prague, Czech Republic. Excellent commentary was provided by Vit Benes of the Institute and Juergen Grote from Charles University. We also had a very informative session with Aleš Vlk, a former advisor to the Czech Minister of Education, concerning developments of higher education in the Czech Republic and Eastern Europe. A noted success of the network came from the fact that the same core group of young scholars met three times over a 2-year period. This meant that we could follow their intellectual progress, pushing them forward into the field for their empirical research and moving them along towards publication of their research results. The PhD students grew to know a cohort of scholars from across Europe extremely well, during the conference day, over dinner and socializing afterwards. This is very important for future comparative work and for the scholarly integration of Europe. In this volume, we bring together both articles from senior scholars working in the field of transnationalization and the rich fruits of younger scholars who have brought together empirical and theoretical concerns to the study of Europe.

Contents

1 Three Converging Literatures of Transnationalization and the Varieties of Transnationalization: Introduction . . . . . . . László Bruszt and Ronald Holzhacker

1

2 Transnational Integration Regimes as Development Programmes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . László Bruszt and Gerald A. McDermott

23

3 From Employee Governance to Corporate Governance: Transnational Forces and the Polish Corporate Governance Debates Since the 1980s . . . . . . . . . . . . . . . . . . . . . . . . Arjan Vliegenthart 4 The Domestic Regulation of Transnational Labour Markets: EU Enlargement and the Politics of Labour Migration in Switzerland and Ireland . . . . . . . . . . . . . . . . Alexandre Afonso 5 The Transnationalization of Change in Economic Institutions: The Case of Industrial Standards Regulations in Ukraine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Julia Langbein 6 The Politics of the Competition State: The Agents and Mechanisms of State Transnationalization in Central and Eastern Europe . . . . . . . . . . . . . . . . . . . . . . . . . . Jan Drahokoupil 7 Transnationalization and Domestic Policy-Making Processes: Electricity Market Reform in Belgium and Switzerland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marie-Christine Fontana 8 Transnationalization and the Georgian State: Myth or Reality? . . Nina Dadalauri

61

83

107

135

157 179

vii

viii

Contents

9 Transnational Strategies of Civil Society Organizations Striving for Equality and Nondiscrimination: Exchanging Information on New EU Directives, Coalition Strategies and Strategic Litigation . . . . . . . . . . . . . . . . . . . . . . . . Ronald Holzhacker 10

219

National and European? Protesting the Lisbon Agenda and the Services Directive in the European Union . . . . . . . . . . Louisa Parks

241

Transnational Governance of Labour Standards: Insights from the Clothing Industry in Turkey . . . . . . . . . . . . . . . . Tugce Bulut

263

Transnationalization and Its Governance – Actorhood and Power in the Shadow of Global Crisis . . . . . . . . . . . . . . Marie-Laure Djelic

285

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

297

11

12

Contributors

Editors László Bruszt is professor at the Department of Political and Social Sciences at the European University Institute (Florence). A PhD in Sociology from the Hungarian Academy of Sciences, he has since 1992 been successively associate professor and professor at the Department of Political Sciences at the Central European University. He has taught in the United States at Notre Dame University, at the New School for Social Research and at Cornell University. He has been a research fellow at the EUI in 1987/88, and a visiting fellow at the Wissenschaftskolleg in Berlin, at the Budapest Collegium and at the Center for Advanced Study in Behavioral Sciences at Stanford. In his earlier research he has dealt with issues of economic and political transformation in the postcommunist countries. His more recent studies focus on the interplay between transnationalization, institutional development and economic change. He is currently conducting a research on the evolution of regional developmental regimes in Central Europe. His recent publications include ‘Rooted Transnational Publics: Integrating Foreign Ties and Civic Activism’, Theory and Society 2006 (with David Stark and Balazs Vedres); Organizing Technologies: Genre Forms of Online Civic Association in Eastern Europe , Annals of the American Academy of Political and Social Science 2004 (with Balazs Vedres and David Stark); ‘Making Markets and Eastern Enlargement: Diverging Convergence?’ West European Politics 2002; Postsocialist Pathways: Transforming Politics and Property in Eastern Europe (Cambridge University Press 1998) (with David Stark). Ronald Holzhacker is assistant professor of political science at the University of Twente and Head of Studies, social sciences, at Amsterdam University College. He is founding director of the European Research Colloquium of the Netherlands Institute of Government. He holds a PhD from the University of Michigan and a J.D. from the University of Minnesota. He is broadly interested in processes of Europeanization and transnationalization, in particular the impact of the European Union on democratic processes in the member states. He has recently been appointed by the European Commission as a senior EU expert for a network of experts in the area

ix

x

Contributors

of nondiscrimination, providing a particular emphasis on the role of civil society organizations in multilevel governance. He is an editor of two books, Democratic Governance and European Integration: Linking Societal and State Processes of Democracy (Edward Elgar 2007) and European Research Reloaded: Cooperation and Integration among Europeanized States (Springer 2006), as well as a special issue of the Journal of European Integration, ‘Democratic Legitimacy and the European Union’ (29: 3, 2007). He has published in such journals as Party Politics, Journal of European Integration, Journal of Legislative Studies and Nations and Nationalism. He has contributed to edited volumes prepared by scholars in Denmark, Germany, Ireland, Italy, Mexico and Australia, at times appearing in translation in a national language in order to be broadly accessible. He is a 2005–2006 recipient of a Jean Monnet Fellowship to the European University Institute.

Authors Alexandre Afonso is a PhD candidate at the University of Lausanne, Switzerland, and a visiting researcher at the University of Amsterdam. His work has been published in the European Journal of Industrial Relations and Social Policy and Administration. Tugce Bulut is a PhD candidate at the University of Cambridge and is writing a dissertation on the impact of private regulation and ethical trade initiatives on global labour standards. She received an MPhil degree on Modern Society and Global Transformations from the University of Cambridge and a Political Science and International Relations BA degree from Bogazici University, Turkey. She is ˙ the first author of the book entitled Diyarbakır’dan Istanbul’a 500 Milyonluk Umut Hikayeleri: Mikrokredi Maceraları (Stories of Hope of 500 Liras: Microcredit Stories from Diyarbakir to Istanbul) (˙Ileti¸sim Yayınları 2007), co-authored by Prof. Fikret Adaman. Nina Dadalauri is a PhD student at the Aarhus University in Denmark. She is working on her dissertation on mechanisms of tax policy change in Georgia. She holds a master’s degree in Social Sciences from the University of Roskilde, Denmark. She has been working as a Research Fellow at the Transnational Crime and Corruption Center in Tbilisi, Georgia. Marie-Laure Djelic is professor of management at ESSEC Business School, France. She has published in many different outlets on capitalism and its transformation, on the diffusion of practices, ideas and organizational forms as well as on globalization and its governance. She is, in particular, the author of Exporting the American Model (Oxford University Press 1998) – which won the 2000 Max Weber Award for the Best Book in Organizational Sociology from the American Sociological Association. She has edited, together with Sigrid Quack, Globalization and Institutions (Edward Elgar 2003) and, together with Kerstin Sahlin-Andersson,

Contributors

xi

Transnational Governance (Cambridge University Press 2006). She is currently working on another joint volume, together with Sigrid Quack, Transnational Communities and the Regulation of Business, forthcoming at Cambridge University Press. Jan Drahokoupil is senior research fellow at the Mannheim Centre for European Social Research (MZES), University of Mannheim. He obtained his PhD at Central European University in Budapest. His research deals with politics and political economy of Central and Eastern Europe, Russia and Central Asia. His publications include Globalization and the State in Central and Eastern Europe: The Politics of Foreign Direct Investment (Routledge 2008) and Contradictions and Limits of Neoliberal European Governance: From Lisbon to Lisbon (co-edited with Bastiaan van Apeldoorn and Laura Horn, Palgrave 2008). He is currently working, together with Martin Myant, on a monograph provisionally called Economics of Transition, forthcoming at Wiley-Blackwell. Marie-Christine Fontana is a PhD candidate at the University of Lausanne, Switzerland. She is working on a project within the National Centre of Competence in Research (NCCR) ‘Challenges to Democracy in the 21st Century’, funded by the Swiss Science Foundation, and is writing her dissertation on the impact of Europeanization on decision-making processes in small consensual states. She received her master’s degree (lic. phil.) from the University of Zurich. Julia Langbein is a PhD candidate at the European University Institute in Florence. She holds a diploma in political science from the Free University of Berlin and an MA in Russian Studies from the European University at St. Petersburg. In her dissertation Langbein analyses how European and Russian state and nonstate actors influence change in economic institutions in Ukraine through processes of transnationalization. In addition, she has a strong interest in comparative political economy, theories of International Relations and post-Soviet transitions. Gerald McDermott is associate professor of International Business at the Moore School of Business of the University of South Carolina. Prior to joining the Moore School, he was for 7 years assistant professor of multinational management at the Wharton School of the University of Pennsylvania and held a secondary appointment in the Department of Political Science. He specializes in international business and political economy. McDermott received his PhD from the Department of Political Science at MIT. His publications include articles in such scholarly journals as Comparative Political Studies, Industrial and Corporate Change, Review of International Political Economy, Academy of Management Review, Journal of International Business Studies, Organization Studies and Politics & Society as well as his book Embedded Politics: Industrial Networks and Institutional Change in Post-Communism (University of Michigan Press 2002). Louisa Parks recently completed her PhD at the European University Institute in Florence, Italy. Her research deals with social movements and campaigning in the

xii

Contributors

European Union in the social and environmental fields. Previously, she was an assistant in the European Parliament. Arjan Vliegenthart studied political science and history at the Vrije Universiteit (Amsterdam) and the Freie Universität (Berlin). Arjan Vliegenthart is Assistant Professor at the Department of Political Science at the Vrije Universiteit Amsterdam where he also works within the framework of the Amsterdam Research Centre for Corporate Governance Regulation (ARCCGOR) on the political dimension of the developments in corporate governance regulation in Central and Eastern Europe, that is, the former Visegrád Group.

Chapter 1

Three Converging Literatures of Transnationalization and the Varieties of Transnationalization: Introduction László Bruszt and Ronald Holzhacker

1.1 Transnationalization of Economies, States and Civil Societies Two decades after the fall of the Berlin Wall, we are witnessing an ever quickening dissolution of the boundaries among internal and external actors in the countries of Europe and the factors inducing domestic institutional change. If one takes the example of the 10 new Eastern and Central European member countries of the European Union, these countries best exemplify one new pattern of change that we discuss in this book. In the economies of these countries, international crossownership networks play a growing role (Bohle and Greskovits 2007; Stark and Vedres 2009). While 80–90% of the banks are in foreign ownership in the region, foreign companies also own key parts of the manufacturing sectors, and many of the firms in these sectors form part of transnational production chains. These economies are governed by states that share ever larger parts of their regulative powers with nondomestic actors (Bruszt and Stark 2003). As a condition of joining the European Union, these countries had to adopt tens of thousands of pages of EU regulations, ranging from rules of competition to state aid, environmental regulations and food safety regulations to institutions of corporate governance. The great quantity of rules of nondomestic origins has increased further with the participation of these states in diverse regional and global institutions with standard-setting and rule-making functions ranging from WTO and ILO to specific multilateral agreements. In the framework of encompassing EU programmes, the transposition of the thousands of EU rules in the domestic law books went hand in hand with building up transnational networks. Actors in these networks were domestic and external, public and private, and their role was to assist these countries in developing domestic capacities to implement, enforce and monitor new rules (see Chapter 2 of this volume). Parallel with the external promotion of domestic actors’ developmental capacities, several of the key functional units of these states responsible for fiscal, L. Bruszt (B) Department of Political and Social Sciences, European University Institute, Florence, Italy e-mail: [email protected] L. Bruszt, R. Holzhacker (eds.), The Transnationalization of Economies, States, and Civil Societies, DOI 10.1007/978-0-387-89339-6_1,  C Springer Science+Business Media, LLC 2009

1

2

L. Bruszt and R. Holzhacker

monetary or diverse sectoral policy-making became parts of Europe-wide regulatory networks. The growing inclusion of the diverse units of domestic states to transnational regulatory networks has changed their accountability relations, extending it upwards towards the diverse commanding units of the EU and horizontally towards similar units in other member states. The transnational embedding of domestic rule- and policy-making went hand in hand with the extension of political opportunities for a diverse group of domestic actors to participate in the contestation, monitoring, enforcement and changing of these rules. As a consequence, these new regulations of nondomestic origin are at times contested by civil societies that are increasingly based on networks of interlinked domestic and external NGOs or are parts of transnational social movements and advocacy networks (Tarrow 2005; see also Chapter 9, this volume). Besides sharing resources and information, these civic organizations increasingly participate in joint actions in domestic developmental projects. In these collaborations, stronger forms of transnational links go hand in hand with deeper patterns of embedding in local societies (Stark et al. 2006). NGOs in these countries, together or in rivalry with diverse domestic and nondomestic firms and their associations, can use several opportunities in the evolving multilevel and transnational governance to signal problems in enforcement or engage in the contesting of existing rules. The Central European countries represent but just one pattern of the transnationalization of economies, states and civil societies. Moving further east or south to countries like Ukraine or Turkey, aspiring members of the EU, we find weaker forms and less multifaceted content of transnational ties in the contexts of weaker states and weaker civil societies. Similar countries outside the EU represent cases of shallower patterns of transnationalization (on patterns of transnationalization, see Stark et al. 2006; Bohle and Greskovits 2007; Bruszt and Greskovits 2008; see also Chapters 5 and 11, this volume). In these countries, market pressure along with selectively imposed and implemented external rules plays a much bigger role in domestic institutional change than the complex private and public forms of foreign direct involvement mentioned above. Much weaker are the transnational mechanisms allowing for contestation of rules or increasing the domestic actors’ participation in transnational governance when making and implementing rules. The chances of various domestic actors to shape the rules and policies in their transnationalizing economy are further limited by the relatively lower level of domestic political integration and the volatility of political rights. In the new Eastern and Central European member states of the EU, the extension of accountability of domestic states to supranational actors was combined with EU conditionality that had stabilizing effects on maintaining the domestic political accountability of governments (Vachudova 2005). In countries like Ukraine and Turkey, the leverage of the external actors on domestic states is weaker, and transnational mechanisms of enforcing elementary rights are ineffective or frail. A combination of less inclusive and more limited transnational interactions with weaker domestic political integration yields shallower patterns of transnationalization. This means that less diverse domestic interests count in the process of defining rules, and it implies a more uneven distribution of gains and losses of the gradual transnational embedding of domestic institutional change (Bruszt and Greskovits 2008).

1

Three Converging Literatures of Transnationalization

3

In this volume, we focus on diverse mechanisms and patterns of transnationalization at the levels of the domestic economies, states and civil societies. When using the concept of transnationalization of economies, states and civil societies, we refer to the growing role played by diverse forms of interactions between domestic and external actors in defining the direction and the content of the evolution of domestic institutions and policies. Our goal is to contribute to the study of varying properties and dynamics present in the evolving transnationalizing fields on which domestic and nondomestic, public and private actors struggle to change or conserve domestic institutions and policies. The relevance of the study of transnationalization is dramatically accentuated by the most recent crisis that has started between the time when the contributions to this book were researched and written and the moment of publication. The fact that economies, states and civil societies are interdependent has become clear from the recent wave of financial and economic crisis even to those least interested in issues of international political economy or comparative politics. Starting in the United States as a problem of a few financial institutions – caused largely by excessive risk-taking and under-regulation of specific types of transactions in the financial markets – the crisis spread over to hit manufacturing sectors in nearly all the developed economies of Europe, driving several of them into recession. It further led to the near collapse or serious crisis of domestic monetary and fiscal regimes in widely different countries ranging from Iceland, Ireland, Ukraine, Belarus to Hungary. Countries around the world were hit in different ways and to different degrees by the crisis, exposing diverse typical vulnerabilities in specific groups of countries. The crisis has challenged basic elements of the developmental model in several of the evolving market economies that have put their bets on deepening their integration to regional and global markets. For example, the strong integration of their financial sector in European financial markets combined with dominating foreign ownership in banks and in the largest manufacturing firms leaves new Central European members of the EU highly vulnerable to decisions of nondomestic private and public actors. As the crisis is still far from being over and the outcomes are still unknown, the concluding notes by Marie-Laure Djelic outline some scenarios about potential consequences. In this volume we would like to advance the comparative study of patterns of transnationalization. The changes discussed above call for stronger collaboration among scholars of international relations, international political economy and comparative politics. Here we put the emphasis on the latter, stressing the need to further depart from the assumption of a degree of homogenization or institutional and policy convergence as a result of the more open movement of capital, people and ideas. The comparative study of ‘transnationalizations’ means, first, the study of variation in the properties of interacting domestic and foreign actors. It makes a difference, for example, whether FDI comes in a country in ‘easy to recover, fast to remove’ form or in a form that involves bigger local investment and implies more direct interests in local matters (Greskovits 2005; Callaghan and Hoepner 2005). As regards the properties of domestic actors, civil societies with strong interorganizational ties attract deeper forms of transnational interactions; domestic firms with cohesive inter-enterprise networks are more likely to get linked to more complex

4

L. Bruszt and R. Holzhacker

forms of external investments (Stark et al. 2006; Stark and Vedres 2006). Polities with extended forms of accountability have more means to prevent transnational integration that would result in domestic social disintegration or in the dissociation of the local from the global (Bruszt and Stark 2003). The comparative study of transnationalization patterns also means the study of differences in the mechanisms that mediate interactions among actors and govern domestic change in institutions or policies (on the diverse mechanisms of transnationalization, see Andonova 2003; Dyson 2006; Jordana and Levi-Faur 2006; Orenstein et al. 2008; Tarrow 2005). When we speak of patterns of transnationalization, we also speak of different combinations of diverse transnationalization mechanisms. We use the expression of regime to denote specific combinations of mechanisms of transnationalization. Transnationalization in some countries is primarily based on incentives, on positive and negative sanctions of more liberal markets and/or on (more or less strictly enforced) conditionality of an external organization. Other countries are parts of more complex transnational regimes in which markets and hierarchies are complemented by dense transnational horizontal networks and various forms of foreign direct involvement that help negotiate domestic institutional change (see Chapters 2, 5 and 11, this volume). One of the key tasks of the comparative study of transnationalization is the analysis of regional and subregional variations in patterns of transnationalization: specific combinations of actors, transnational interactions with diverse contents and mix of mechanisms employed. To borrow the metaphors used by Marie-Laure Djelic, the comparative study of transnationalization patterns calls for the study of variation in the topographies and the dynamics of evolving transnationalizing fields on which domestic institutions are changed or new ones are created. The approach represented here builds on studies of transnationalization that, by combining methods from comparative politics and international relations, have suggested a research focus on the coming about and the evolution of new transnational fields of action and their emerging properties (Djelic and Sahlin-Andersson 2006; Djelic and Quack 2003; Orenstein and Schmitz 2006; Morgan 2001; Tarrow 2005; della Porta and Tarrow 2005; Orenstein et al. 2008). Authors belonging to this approach went beyond earlier studies that focus either solely on the role of domestic factors and actors in international politics or alternatively on the role of nondomestic factors and actors in shaping the evolution of domestic institutions and policies (for an excellent overview, see Orenstein and Schmitz 2006). In this ‘new transnationalism’ the focus is on the interplay among domestic and nondomestic actors and factors, as well as on the coming about and evolution of new fields of action with emergent properties that are in the centre of research.

1.2 Three Converging Literatures of Transnationalization One can see the slow, and far from complete, convergence of three research interests in the evolution of this new approach to studying transnationalization. While the first of them focuses on the making, enforcing and monitoring of transnational

1

Three Converging Literatures of Transnationalization

5

rules, the second puts more (sometimes exclusive) stress on the study of the transfer of rules and policies from governments and international organizations of the more developed world to less developed countries. Studies of transnational governance belong to the first group (Djelic and Sahlin-Andersson 2006; Djelic and Quack 2003; Morgan 2001; Tarrow 2005; della Porta and Tarrow 2005), and the EU enlargement studies might be examples for the second (Orenstein et al. 2008; Schimmelfennig and Sedelmeier 2004). Finally, in the third group are those researchers who study the growing embedding of domestic institutional change in processes of transnationalization, focusing on the transformation of domestic organizational fields and policy areas. Let us start with the discussion of the first group that has made the biggest progress in developing the new research field. Researchers belonging to this group focus their attention on the parallel evolution of liberalized markets and on the spread of transnational (private and public) governance mechanisms that make and enforce regulations (Jordana and Levi-Faur 2006; Brunsson and Jacobsson 2000; Djelic and Sahlin-Andersson 2006; Power 1997; Bartley 2007; Tarrow 2005; Duina 2007; Botzem and Quack 2006). Marie-Laure Djelic (Chapter 12, this volume) provides a broad list of the key questions asked by researchers focusing on these aspects of transnationalization. Here we list only some of them: What are the factors that push forward the proliferation of regulatory activities, actors and networks? What explains the rapid expansion, the increasing scope and breadth of diverse transnational public and private regulations? Who are the actors whose interests are represented in the making of the new transnational norms, standards or frames of action? Which of these actors are ‘more equal than the others’ in shaping the outcomes of rule-making, and what are those factors that determine who has a say in the making of transnational rules and influence the rules of rule-making? What are the key mechanisms determining the content of these regulations? Is transnational rule-making pushed by economic and political factors towards making transnational norms that take noneconomic interests less and less into account? Or are there economic and political factors and actors at play that can counteract the ‘race to the bottom’? Are there mechanisms that could allow for negotiating transnational rules and accommodate a larger diversity of interests by taking into account the manifold social and economic consequences of the proliferation of transnational norms? Different attempts to answer these questions converge on stressing the need to go beyond the conceptual frameworks originally developed to understand rule-making and monitoring in a world where compact and sovereign nation states controlled the functional–territorial scope and the content of binding rules of economic action (see these ideas elaborated in Djelic and Sahlin-Anderson 2006). The evolution of new forms of transnational governance goes together with multidimensional changes in the making and enforcing of regulations. Regulatory institutions associate heterogeneous interests. They establish mandatory rules about which interests and values should count within a given domain of activity; often more implicitly than explicitly, they also rule on what interests and value frameworks should, or can, be excluded. The strong national regulative states that developed in the twentieth century were

6

L. Bruszt and R. Holzhacker

robust mechanisms for coordinating (some might say balancing) diverse interests and considerations by establishing binding associations of varied temporality. These associations bound the local with the national, producers with consumers, employers with employees and the requirements for participating in external competition with the requirements for fulfilling internal needs. In such ‘organized capitalisms’, strong groups within the economy and within civil society contributed to this coordination: first, by pressuring regulative states to take diverse interests into account, and second, by establishing a host of nonhierarchical mechanisms whose aim was to create various types of win–win coalitions among diverse domestic, propertied and nonpropertied economic actors (Bruszt and Stark 2003). The various national regulative orders were, finally, embedded in an international regime that until the 1980s smoothly provided an external environment that helped the reproduction of inclusive domestic compacts (Ruggie 1982). The emerging modes of transnational governance challenge key aspects of the earlier national regimes. The opening up of markets goes hand in hand with the transfer of parts of rule-making and policy formulation to supranational levels. New powerful nondomestic actors appear in the domestic scene that might have lesser interests to negotiate encompassing rules. These new actors might be inclined to weaken the coordinating action by domestic states and might press for regulations that cannot take the interests of diverse domestic actors into account. Some of the new actors might help to empower weaker domestic groups to make claims on their states or challenge aspects of the transnationalizing rule-making. The appearance of new actors and new mechanisms of governing institutional change also alters the role and position of domestic states, weakening and marginalizing them in some cases and contributing to their strengthening in others. While the proliferation of diverse new forms of transnational rule-making seems to belie excessive fears from the coming of a ‘disorganized capitalism’, the present crisis is a clear proof that talking about any kind of ‘reorganized capitalism’ would be excessively premature. Instead of some evolving coherent global governance, we find references to the spread of governance that is ‘embedded in particular geopolitical structures and hence enveloped in multiple and interacting institutional webs’ (Djelic and SahlinAnderson 2006) and to ‘patchwork political structures’ (Kobria 2002: 64 cited by Djelic and Sahlin-Anderson 2006). In the second group mentioned above, we find research that focuses on the emergence and proliferation of transnational mechanisms that transfer rules and policies, primarily from more developed countries or international private or public organizations to less developed and evolving market economies. Studies in this second group are sometimes just loosely linked (or make no reference whatever) to the research on transnational rule-making. The focus of research in this group ranges from research on the EU enlargement to studies of diverse mechanisms employed by international organizations (like the World Bank or the IMF) to achieve change in institutions or policies in developing countries (Stallings 1990; Vogel and Kagan 2002; Schimmelfennig and Sedelmeier 2004, 2005; Orenstein et al. 2008; Jacoby 2008). Research on mechanisms that are behind cross-national convergence in the content of regulative institutions could be located somewhere in between these two

1

Three Converging Literatures of Transnationalization

7

groups, the first focusing more on the making and the second more on the transfer of rules (e.g. Vogel and Kagan 2002). Drawing primarily on the international relations literature, the scope of research undertaken within the second group is sometimes overspecialized. Some of the authors belonging to this group still tend to separate the properties and motivations of external actors guiding the transfer of rules from the study of those domestic actors who have to cope with problems of implementation. But recent development in this field is towards focusing on interactions among diverse domestic and nondomestic actors (see the volume edited by Orenstein et al. 2008; Jacoby 2008). Also, the tendency is to move away from an exclusive concern about those factors that could allow for a seamless transfer of externally made rules. Instead, more attention is devoted to the study of the conditions that constrain or enable coordination among domestic and nondomestic participants and also allow for negotiating the costs and gains of rule transfer (Jacoby 2008). Besides the exhaustive discussion of rule-taking based on various incentives, one can also find in this literature a thorough analysis of ideational mechanisms of rule transfer (Jacint and Levi-Faur 2006; Epstein 2008). Some of the researchers in this field extend their interest to broader questions about the external factors of domestic institutional change (see e.g. Orenstein et al. 2008). Despite its built-in ‘externalist bias’, looking at domestic change from the perspective of the success or failure of an external intervention, this research orientation has produced valuable insights into diverse forms of interactions between domestic and nondomestic actors. Also, because of its careful analysis of the mechanisms of rule transfer, this approach can serve as a bridge between studies of transnational governance, on the one hand, and research focusing on the transnationalization of domestic organizational fields on the other hand. Because researchers in this field devote lesser attention to the issues discussed in the transnational governance literature, sometimes they tend to take as granted that the policies or rules to be transferred represent the long-term interests of recipients. External actors, the ‘principals’ in rule transfer, in this view, are assumed to have the right incentives and the necessary knowledge to transfer rules that best serve recipients’ interests (see Easterly 2006 for a critique). Domestic societies are largely ‘exogenous’ factors in such research which, taken to the extreme, might present domestic actors and institutions as ‘veto points’ that realize their real interests only helped by perfected external hierarchies or impersonalizing markets (e.g. Kelley 2004). Due to its ‘externalist bias’, this literature devotes lesser attention to broader questions of the governance of domestic institutional change or to general developmental effects of rule transfer on shaping relations among domestic actors. Also, lesser attention is devoted to the search of those conditions that could allow attaining sustainable domestic institutional change after external incentives of rule transfer end (but see Sedelmeier and Epstein 2008). At the most general level, countries taking external rules that were made without their participation might face a dilemma: the more they succeed in meeting the externally imposed norms, the more limited their room for maneuver might become when taking local interests and considerations into account. To be sure, externally imposed rules might

8

L. Bruszt and R. Holzhacker

at times limit the power of domestic rent-seeking groups or can prevent regulative competition that would marginalize the weakest domestic groups. Such ‘beneficial constraints’ might even improve the capacity of domestic states to make encompassing policies that take into account a larger diversity of domestic interests (Bruszt 2002). Successfully transferred strict regulation of competition or more transparent rules for state aid and state procurement might be examples for such ‘beneficial constraints’. Their implementation in domestic settings might lead to redistribution of power, wealth and opportunities from the stronger domestic groups to weaker ones and also might strengthen the bargaining powers of domestic states vis-à-vis the strongest economic groups, be they domestic or foreign. Several times, however, this is not the case. Take the example of the EU eastern enlargement. In meeting the European standards, domestic states were often forced to act as transmitters of norms and standards that were the outcomes of associating/balancing the diversity of interests of the EU ‘insiders’. Associating the domestic regulative fields to the European at times posed challenge for ECE governments: how to manage these externally mandated regulations (themselves balancing diverse interests) without dissociating too many of the local interests. Also, the deeper integration of the ECE economies into the European competitive regime has increased the pressure on governments to use regulation more as a means of adjustment to short-term requirements of increasing global competitiveness and less as a means of creating enlarged, more inclusive alliances of local considerations. In short, the dilemma of the ECE countries is that regulative regimes developed elsewhere for the purpose of producing orderly associations of interests might have the outcome, compelled by supranational standardization and regulative competition, of dissociating the local from the European and the global. While meeting the requirements of inclusion into the European Union, regulative states in these countries might act as agents of social and economic exclusion (Bruszt and Stark 2003). Another issue closely linked to the previous one that gets less attention in research that focuses on transnational rule transfer is the question about the governance of rule transfer. As mentioned above, in several of the studies in this research orientation, it is taken as granted that the ‘principal’ in rule transfer has perfect knowledge and the right incentives to care about the effects of the transferred rules. This is, however, many times not the case. Mechanisms that would increase the accountability of the ‘principal’ and could increase the chances of combining rule transfer with learning are in some cases weak or absent; in others they are present. The presence or absence of such mechanisms is one of the key dimensions that make the difference among modes of governing rule transfer. Take the example of the EU. While during the eastern enlargement the EU could rely on highly asymmetrical power relations in transferring its rules to the new member states (Vachudova 2005; Sedelmeier and Epstein 2008), it could not completely disregard the above considerations concerning institutional convergence in the aspiring countries. More concretely, unlike in the case of most international

1

Three Converging Literatures of Transnationalization

9

financial institutions and developmental organizations, complex accountability relations within the EU did not allow the commission to allege perfect knowledge about the effects of imposed policies and institutions. In the process of implementing its own conditionality, the EU could not claim to have perfect knowledge about feasibility and viability of the transfer and implementation of a huge amount of rules concerning 30 different policy areas in widely diverse local contexts in 10 evolving Eastern European market economies. Also, the closer these countries got to the date of actually joining the EU, the clearer it became that the EU cannot rely solely on the hierarchical mechanisms of conditionality and cannot take as granted either the incentives or the capacities of domestic actors to implement and sustain EU rules. As of the late 1990s, the EU had gradually started to develop a new experimental mode of governing rule transfer that went way beyond the traditional hierarchical means of conditionality (on experimental governance, see Sabel and Zeitlin 2007). This experimental governance, still underexplored in the literature, integrated external setting of goals for domestic institutional change with extensive assistance to domestic actors in becoming players and adjusting these rules to diverse local contexts. The external fostering of the capacities of domestic state and nonstate actors was combined with their integration in joint monitoring of progress in implementation. This combination of local capacity building and transnational multilevel monitoring allowed for learning some of the local constrains and the potential negative consequences of rule transfer (see Chapter 2, this volume). Finally, in the third research area within the literature on transnationalization, transnationalization of domestic fields of action comes in focus. Here attention is devoted primarily to the analysis of different mechanisms and patterns of transnationalization at the level of the domestic economies, states and civil societies (Koslinski and Reis 2008; Stark et al. 2006; Bohle and Greskovits 2006; Stark and Vedres 2006). The typical units of analysis are either national-level organizational fields (like civil society) or one specific domestic policy area. Most chapters in this book belong to this research area. Alternatively, groups of countries with diverging patterns of transnationalization might also be used as cases for comparative analysis (e.g. Bohle and Greskovits 2006; Bruszt and Greskovits 2008). Researchers in this group focus on the growing embedding of domestic institutional change in fields created by the interactions between domestic and external actors. Research questions investigate the pace of transnationalization unfolding under diverging patterns and speeds across societies and among the different organizational fields of economies, states and civil societies. Further questions investigate how differences in domestic integration shape the characteristics of interactions with nondomestic actors. Much attention is devoted to the role played by differences in the properties of nondomestic actors shaping characteristic interactions with the domestic players of institutional change. In this third research orientation within the literature, the description and analysis of different patterns of transnationalization is one of the key focuses. In the next section, we turn to this question.

10

L. Bruszt and R. Holzhacker

1.3 Varieties of Transnationalization As stated above, with this volume we want to contribute to the comparative study of patterns of transnationalization. Along with the growth of transnational interactions, transnationalizing domestic states, policy areas, economies and civil societies increase their relevance as units of comparative analysis. Among groups of countries, and within countries across policy fields and economic sectors, there is a large variation in the modes of embedding domestic institutional change in processes of transnationalization. Variation in the modes of embedding domestic institutional change implies different ways of defining rules and distributing roles among diverse groups of domestic and nondomestic actors. Patterns of transnationalization vary on several dimensions. One dimension is whether they result in more lasting forms of engagement among participating actors; another is whether and in what way they allow for negotiating rules and distributing the costs and gains of cooperation. A third dimension is whether they result in the emergence of ‘transnational communities’ and whether they bring about more complex forms of governance of relationships among the actors (Morgan 2001; Stone 2004; Bohle and Greskovits 2007; Stark et al. 2006; Bruszt and McDermott, Chapter 2, this volume). Shallower patterns of transnationalization might imply less durable relationships that exploit power asymmetries among participating actors. These rely primarily on mechanisms mobilizing short-term interests and are reproduced by forms of governance that do not give room to contestation or negotiation. Deeper patterns of transnationalization bring actors in more lasting engagements: they imply more direct involvement, negotiated settlement of the rules, use of mechanisms that allow for learning and capacity building and less hierarchical modes of governance allowing domestic actors to play roles in contesting and monitoring rule-making. The study of variations in patterns of transnationalization lies at the core of an emerging research agenda in the field of international development that focuses on the relationship between processes of transnationalization and domestic integration (Stark et al. 2006). That agenda examines how the rapid transnationalization of states, economies and civil societies involves networks spanning national boundaries and asks how these networks interact with networks in the domestic setting. Can global connectedness coexist with local rootedness? For economists and economic sociologists of development, this question is formulated to investigate whether and how foreign direct investment is integrated in the networks of local economies (Gereffi and Fonda 1992; Gereffi 2004). The corresponding question for students of states and political societies is whether and how the growth of transnational ties relates to processes of association or dissociation at the level of domestic social and political alliances (Burawoy et al. 2000; Evans 2000; O’Riain 2000; Streeck 1995). A similar question for students of the political economy of development, or for the comparative study of transnationalizing capitalism, is whether and how increase in the openness of domestic economies is related to changes in the level of domestic political, economic and social cohesion (Bohle and Greskovits 2007; Haggard and Kaufman 2008). With regard to regional integration regimes, this question is formulated to see whether meeting the requirements for ‘European

1

Three Converging Literatures of Transnationalization

11

enlargement’ enlarges or restricts the scope of social actors that are included in a development strategy. Further, when domestic political elites are accountable, by new accounting rules, to supranational bodies, how does this shape the forms and mechanisms by which they are accountable to their citizens (Bruszt and Stark 2003)? At the level of civil societies, finally, the corresponding question is whether civic organizations connected to transnational flows of information, resources and partnership are more likely to be disconnected from their members, constituents and other organizations in the civic sector (Stark et al. 2006). Does the reach of transnational NGOs into these organizations restrict their patterns of domestic associations? The chapters in this volume contribute to the comparative study of patterns of transnationalization by examining the role of differences in the properties of diverse actors, the variety of strategies they use and the mechanisms that are at play in shaping relations among them. They also examine properties of the evolving transnationalizing fields from diverse perspectives: who and what counts, what are the rules governing interactions among actors, how stable are the settlements regulating interactions among actors with potentially conflicting interests and finally what are the factors that might help or hinder making more encompassing and inclusive alliances among them? One theme repeated in several of these chapters is the relationship between characteristics of domestic integration and forms of transnational interactions. The findings here are similar to the ones in the broader literature on transnationalization: there is an elective affinity between stronger forms of domestic integration and richer forms of transnational interactions. More encompassing domestic integration goes hand in hand with more complex forms of transnational interactions, and their combination yields a deeper pattern of transnationalization. Shallow patterns of transnationalization, on the other hand, are more likely to be cases where weaker forms of domestic social cohesion and political integration meet less complex forms of transnational interactions. The correlation between forms of domestic integration and characteristics of transnational interactions does not imply a one-way causality. Low level of domestic social cohesion might prevent the furthering of deeper forms of transnationalization. Alternatively, external actors might have strong incentives to exploit weakness in domestic integration. Weak organizing capacity of domestic actors and the absence of mobilizing frames that would allow domestic actors to combine imply weaker domestic agency and lesser capacity to detect and capitalize on the possibilities of transnational interactions and/or to resist shallower forms of transnationalization. More complex forms of transnational interactions in the framework of transnational integration regimes might, however, change the capacities of domestic actors and improve the conditions of maintaining or improving domestic integration. At the same time, in countries where transnationalization of domestic organizational fields is based solely on the sanctions of more liberal markets and/or more or less strictly enforced conditionality, the growth of transnational interactions might leave patterns of domestic integration intact or might even contribute to the weakening of domestic social cohesion.

12

L. Bruszt and R. Holzhacker

1.4 Overview of the Volume We begin this volume by looking at the transnationalization of the economy and changing patterns of social and economic governance in Europe. We begin here, because processes of economic transnationalization are more extensive and arguably much older than the transnationalization of the state or civil society. The proliferation of horizontal ties across the economies predates the creation of the European nation-state system and may be seen in the early trading routes along the Silk Road between Europe and the Middle East and China, the development of imperial and colonial trade routes and the emergence of multinational corporations. While most of the earlier interactions between domestic and nondomestic actors had some impact on the conditions of domestic processes and conditions of institutional change, the more recent changes, we argue, increasingly transform the basic properties of economic fields. The transition to market economies in Central and Eastern Europe went hand in hand with the transnationalization of their economies in which the ‘domestic private’ economy is just a part of the evolving new economic field. In these emerging transnationalizing economic fields, diverse patterns of evolving combinations between domestic and foreign firms shape in divergent ways the properties of the new ‘mixed economy’ (Stark and Vedres 2006). The expansion of the EU and the single market to include countries previously incorporated in the planned economy of the Soviet Union or countries previously members of the COMECON in Eastern Europe also altered the parameters of the public setting of the rules of the game in the private economy. Economic action in these countries is increasingly embedded in a transnational regulative frame, a still evolving dynamic structure of institutions based on complex interactions between domestic and nondomestic actors trying to implement, monitor and enforce regulative institutions. The different elements of EU conditionality ranging from multiplex assistance programmes involving a large diversity of domestic state and nonstate actors to the integration of various state and nonstate actors in multilevel governance mechanisms have also profoundly shaped the properties of the evolving transnational regulative fields. The transition to democracy and to a market economy in Eastern Europe has resulted in transnationalization processes and flows from Western Europe. Additionally, with the collapse of communism and the Soviet Union and the waves of EU enlargement, there are many new countries looking towards the EU, including Ukraine, Georgia and countries in Southeast Europe such as Bosnia-Herzegovina and Turkey. The research we present in this volume concerns processes of transnationalization which encompass the EU member states; countries closely tied to the EU and part of the common economic area, like Switzerland; applicant states like Turkey; and countries with close ties to the EU and the member states, such as Ukraine and Georgia.

1.5 Transnationalization of the Economy We will now provide an overview of the main approaches and conclusions from the chapters to come in this volume. We begin with the section on the

1

Three Converging Literatures of Transnationalization

13

transnationalization of the economy. László Bruszt and Gerald McDermott discuss transnational integration regimes as development programmes. They draw on recent advances in international and comparative political economy and argue that diverging paths of institutional development among emerging market democracies are driven by Transnational Integration Regimes (TIRs) in which a country is embedded. TIRs are more than trade agreements, aid projects or harmonization systems; they argue TIRs should be seen as development programmes. Research to date on the role of international factors shaping local institutional development has done little to move beyond references to markets and hegemonic hierarchies as the main mechanisms of change, compliance and commitment. Thus, previous works are largely based on a depoliticized view of institutional change and overlooks the growing literature on the evolution of regulative capitalism and the diverse patterns of transnationalizing the modern state. By integrating this latter work into their analysis, they show how TIRs differ less in terms of their incentives and largess and more in terms of their emphasis on institutional capacities and ability to merge monitoring and learning at both the national and supranational levels. They develop a comparative framework to show these systematic differences through an analysis of the impact of the EU Accession Process on postcommunist countries and NAFTA on Mexico. Next, we turn to the chapter by Arjan Vliegenthart, who is interested in the emergence of corporate governance regulation in the Visegard countries, in particular in Poland. Corporate governance regulation embodies a wide variety of laws and public codes of conduct regulating the behaviour of firms and is seen as a necessary step in the consolidation of market economies in the region. Vliegenthart presents empirical evidence from Poland to argue that while transnational networks emerged to push for these codes, these networks must be embedded domestically and form coalitions with domestic actors to be effective. He begins by asking why Polish policy-makers opted for an external ownership model, whereas two other corporate governance concepts also featured in the country’s debates since the early 1980s: a state socialist concept and an employee ownership concept. He argues that the choice for the external ownership model cannot be adequately understood without taking the transnational context of the post-socialist restructuring process into account. He argues that the post-socialist corporate governance system is the result of the interplay between domestic and transnational actors, where transnational forces have pushed the Polish system towards an external ownership model. We next turn from corporate governance to labour regulation. Alexandre Afonso analyses the impact which the free movement of labour and service liberalization in the EU has on the regulation of domestic labour markets in small European states. He focuses on the case of Switzerland and Ireland. Afonso finds that the transnationalization of the labour markets has created stronger incentives for domestic coordination, including the automatic extension of collective labour agreements, minimum wage laws, enhanced monitoring of wages, workplace standards and compliance with welfare contributions. Afonso analyses the domestic politics of the opening of the labour market due to EU single market and then the subsequent re-regulation of the labour market after the 2004 enlargement in the EU. He states that labour market regulation can

14

L. Bruszt and R. Holzhacker

best be conceptualized as a transnational system of governance where EU rules interact with domestic regulations. The EU processes surrounding first the creation of the single market and later enlargement left a feeling among powerful actors in Ireland and Switzerland that a regulatory gap had emerged. He finds that the power relationships between export-oriented and domestically oriented businesses strongly determine re-regulation outputs in the two countries. In Switzerland, the strength of domestic industries with protectionist preferences converged with trade union preferences with regard to labour market protection, resulting in a more protectionist pattern of re-regulation. In the case of Ireland, the economy was already very open to foreign competition, and the transnational business community wished to maintain this. The trade unions attempted to place the issue of labour market protection on the agenda in the framework of ‘social pacting’, but achieved only limited success in the face of pressure from transnational business. Next we turn our attention towards the impact which the desire for extensive trade ties with the EU has on industry regulation in third countries. Julia Langbein analyses the transnational impact of EU standardization policy on the Ukraine. She finds the large EU market creates a great incentive for exporting countries to adopt EU product standards. Thus, Langbein explores the dynamics of change in economic institutions in an emerging market economy, based on a case study of the changes in industrial standards regulations. She explains that the selective and gradual change in the Ukrainian case is not purely domestic driven. This is because domestic actors neither on the demand side for institutional change nor on the supply side have the incentives and the capacity to induce change if we ignore the impact of external forces. While she maintains that the source for change is of a nondomestic nature, she also reveals the limits of approaches that treat externally induced or imposed economic or political incentives as explanatory variables for domestic change. She thus distances herself from the Europeanization scholarship that emphasizes the power of political conditionality and of structural accounts that emphasize market liberalization as sufficient conditions for institutional change. Instead, she shows that market liberalization and EU conditionality are two necessary conditions for change in the Ukrainian case. She argues that only in combination with the concept of transnationalization, through which external actors turn into domestic agents of change and thus alter incentives and capacities of domestic actors, can a sufficient explanation for selective and gradual change in Ukraine’s industrial standards regulation be provided.

1.6 Transnationalization of the State Turning to the transnationalization of the state, we begin with the contribution by Jan Drahokoupil about the politics of the ‘competition state’. He analyses the agents and mechanisms of the transnationalization of the state in Central and Eastern Europe, focusing on the Visegrad Four. The theoretical argument is closely related to that made previously in the volume by Vliegenhart – here Drahokoupil provides a political understanding of the forces of convergence in the international political economy

1

Three Converging Literatures of Transnationalization

15

in the post-1989 transition and post-transition period. He specifically focuses on the development of industrial policies, including privatization and investment promotion in the Czech Republic, Slovakia, Hungary and Poland. He argues that the processes of state internationalization work only when both the structural opportunities and the political possibilities of the moment allow domestic groups linked to transnational capital to come to the fore and are successful in translating the structural power of transnational capital into tactical forms of power within national social formations. These groups, which he refers to as the ‘comprador service sector’, constitute nodal points in the broad coalition of forces constituting the political underpinning of the competition state in East Central Europe. Thus, Drahokoupil theoretically and empirically analyses a critical time of transformation in states’ economic and industrial policy that emerges from an interaction of domestic actors and transnational actors. In this section on the state, we next turn to the chapter by Marie-Christine Fontana. She is interested in the impact which transnationalization has on domestic politics and decision-making. She compares the impact of transnational development in electricity policy in two different countries: Belgium and Switzerland. Electricity has undergone a paradigmatic shift in recent years: a strategic state monopoly has become a market commodity. The chapter argues that the new research agenda of transnationalization allows the understanding of that worldwide liberalization process: the blurring of boundaries and the role of transnational activities of domestic actors affect domestic policy-making. The chapter assumes that transnationalization changes the opportunity structure for political actors, and it proposes two mechanisms to explain how this affects policy-making: informational asymmetry and justification. While the two case studies of Belgium and Switzerland confirm modifications of policy-making, the interaction between transnationalization and the configuration of the policy field before liberalization results in different policy-making processes. In Belgium, the need of new legislation reinforced the government to the detriment of the social partners, while in Switzerland, a coalition between business and the government weakened the trade unions. However, both cases demonstrate that transnationalization affects not only the specific policies of a country but also the policy-making process. Next in this section we move beyond the EU, to consider the impact which transnationalization processes within the EU may have on nearby states undergoing transition. Nina Dadalauri investigates how neoliberal tax policy principles diffused in the post-Soviet Georgia. She begins by discussing conventional explanations provided by policy diffusion and the politics of taxation literature on tax policy reform. These include domestic and external factors, such as external influence through conditionality, party ideology, veto players and trade unionism. Her empirical research method is to apply process-tracing to explore the Georgian case of tax policy (re)making over a 15-year period. The chapter develops two arguments. First, that Georgian state-making and tax policy formation are interlinked processes. The creation of a capable Georgian state was a by-product of a tax policy and administrative shifts after the political changes of 2003. Her second argument is that the transnationalization of this policy arena came about through the interventions

16

L. Bruszt and R. Holzhacker

of nonstate actors, who internalized external policy norms and preferences. These processes led to a tax policy shift towards neoliberalism. She concludes that transnationalization can explain the process of policy reforms in the reduction of marginal tax rates, the adoption of a flat tax rate and simplification of tax policy to attract capital and promote economic growth.

1.7 Transnationalization of Civil Society Finally, we turn from the consideration of the economy and states to the transnationalization of civil society. Ronald Holzhacker looks at the transnationalization of the civil society organizations working for equality and nondiscrimination in the EU and the member states. He is particularly focused on how gay and lesbian groups across Europe forged transnational coalitions with other groups to press for EU action against discrimination. The advent of institutional changes at the EU level and the inclusion of sexual orientation in the antidiscrimination directives galvanized and provided new opportunities for gay and lesbian civil society organizations across Europe to work together transnationally. The announcement in 2008 by the European Commission that they will attempt to extend the protection beyond the area of employment provides new impetus for such cooperation. Thus, the Europeanization of the policy area has led to a growing transnationalization of the human rights movement, in which national groups learn and are assisted by groups in other countries in a horizontal process and also in the creation of umbrella organizations at the EU level in a vertical process. Next we turn to the chapter by Louisa Parks and her discussion of transnational activism and framing in the social arena in two areas, the Lisbon agenda and the services directive. A good deal of scholarly literature discusses a received wisdom about social movements that when they enter the EU arena, they begin to institutionalize and tend to abandon protest and contentious politics for insider strategies like lobbying. Parks draws on the evidence from her two case studies, focusing on campaigns by social movements surrounding the Lisbon Agenda and the services directive to take a new look at this received wisdom. In both cases there was a high level of mobilization of social movements with protests both in Brussels and at national levels. Parks finds that new opportunities for contention of EU issues have arisen because of the increasing frequency of national debates on the future of the EU surrounding treaty referendums. She asserts that some apparently national protests must now be seen as part of EU-level campaigns, and the many protests around Europe on these issues show an emerging transnational character of protest. It also may be an indication not only that the ‘permissive consensus’ around European integration is declining, but that the classical democratic action repertoire seen at the national level is now seen on European issues and expressed transnationally. Next, the chapter by Tugce Bulut turns our attention from the reaction of states towards labour market liberalization within the EU and the EU economic area to

1

Three Converging Literatures of Transnationalization

17

that of transnational advocacy networks focused on labour standards in countries currently outside this region. She focuses on the role which such transnational advocacy networks have played in establishing corporate codes of conduct with respect to labour in the clothing industry in Turkey. One of her key findings is that market forces and the lack of government oversight and enforcement make the gains sought by transnational civil society through codes of conduct agreed to by companies, difficult to monitor and enforce in practice. She finds in Turkey four different transnational forces which interact to impact the regulatory structure and enforcement of labour standards. These include the interaction between the national government and the EU in processes of preaccession conditionality, transnational civil society initiatives, the codes of conduct of multinational brands and global market forces. She finds that an attitude of state officials turning a blind eye towards violations of labour law creates an environment for employers to use various methods to lower labour costs. While certain labour standards are vigorously enforced, the violation of which would likely incite public reaction, for example child labour and occupational health and safety standards, both the state and buyer firms are less likely to act in other areas, for example wage levels and overtime standards. In this context, monitoring of compliance with many kinds of labour standards falls on transnational civil society initiatives that have in their arsenal publicity against global brands. Here, transnational civil society is stepping in and providing governance functions, where government in practice is refusing to act. Bulut’s case is an important reminder that while transnational civil society may indeed have an impact on labour practices, it is often limited and its effectiveness is greatest in economic sectors open to the international economy with global brands which have an interest in preserving their international reputations. Our final chapter is a reflection by Marie-Laure Djelic on what we have accomplished in this volume and reflections on future research in the field of transnationalization. She stresses the importance of continued theoretical and empirical work in this emerging field, especially during this time of global crisis. Intense debate has emerged by scholars, leaders and publics about the appropriate response to the global crisis in the financial sector which has rapidly spread throughout the economies of both developed and developing economies. Initial reactions by governments seem to be a partial retreat from international responses to the pressures from globalization, with national measures, national stimulus measures, the nationalization of banks and the reassertion of the powers of national regulatory agencies. Certainly the state is back as an important actor in the international political economy, and nation states are playing drastically increased roles in national economies. But in addition to these national responses, there have also been calls for a reregulation at the global level. European leaders like Angela Merkel of Germany and Gordon Brown of the UK have called for new transnational regulatory bodies. Merkel has said that ‘a new charter for a global economic order’ should be incorporated within the United Nations. She has even said that ‘this may lead to a UN Economic Council, just as the Security Council was created after the Second

18

L. Bruszt and R. Holzhacker

World War’ (Davos 2009, confronting the crisis, Merkel Proposes global regulator, International Herald Tribune, 31 January 2008, p. 14). Brown argues that institutions like the IMF and the World Bank were created for particular circumstances which existed 60 years ago. ‘We now have global markets. Instead of simply having national supervisors we need a global way of supervising our international system’. He has called for a College of Supervisors consisting of representatives of national supervisory bodies (Banking Crisis: FSA Urges Global Action, Sunday Times, 19 October 2008). Part of the impetus behind these various proposals is a realization that American regulation and oversight over banks, financial firms and financial products have been very lax and clearly inadequate. Additionally, failures in the US financial section have had a rapid contagion effect throughout Europe and beyond. Djelic offers three possible scenarios as to how these events may play out over the coming months and years. First, there may be a reorientation back towards national and regional horizons, with a return of the nation state conducting regulatory activity and governance using much more coercive systems and processes to guide economic activity than in the recent past. A second scenario she offers is that pressure may build that the locus for tighter governance and oversight be seen in the international system, in order to preserve the advantages of transnationalization. This would mean a transfer of power from the Westphalian state to international institutions, such as the United Nations, World Trade Organization or the International Monetary Fund. She finds this scenario not very plausible, because of the great commitment of resources, legitimacy and tools of coercion which would need to be transferred by powerful states. Her third scenario seems to be that states and international institutions will be muddling through, and one will see both a renationalization and attempts at greater international regulation of transnational processes. She finds one of the big obstacles of the development of greater international regulation is the persistent question of democratic legitimacy of these international institutions. Certainly one of the issues here is the relation of the nation state to these new international mechanisms. One can see the reluctance of strong national governments giving up power in a time of great crisis in the proposal to not strengthen or create a new regulatory body of financial supervision, but instead a College of Supervisors made up of representatives of national regulatory bodies. Like the European states have done within the context of EU integration and institution building, the Westphalian state endures even if these states may at times be willing to pool sovereignty and share competencies. However, during times of great crisis and stress, the Westphalian state also preserves its power. This appears to be a time of the reassertion of the nation state in the economy and society. The state will be looking to the international system to acquiesce to this new assertion of state power, for example in new national intrusions in the economy despite prior commitments to the EU to refrain from such state intervention. If the international system can complement and support that increased power, the states will support it, but this time of crisis is one where states will be reluctant to be unconditionally ceding power to other actors.

1

Three Converging Literatures of Transnationalization

19

This volume presents extensive empirical research to analyse the processes of transnationalization which are greatly impacting the economies, states and civil societies of Europe. This has been combined with a theoretical appreciation for developments in the field of transnationalization. It is apparent that the accelerating processes of globalization and transnationalization are creating new challenges for governance in Europe, at both the EU and the member states levels.

References Andonova, Liliana. (2003): Transnational Politics of the Environment: The European Union and Environmental Policy in Central and Eastern Europe. Cambridge, MA: MIT Press. Bartley, Tim. (2007): ‘Institutional emergence in an era of globalization: The rise of transnational private regulation of labor and environmental conditions.’ American Journal of Sociology. 113: 297–351. Bohle, Dorothee and Greskovits Béla. (2007): ‘Neoliberalism, embedded neoliberalism and neocorporatism: Towards transnational capitalism in East-Central Europe.’ West European Politics. 30(3): 443–466. Botzem, Sebastian and Quack Sigrid. (2006): ‘Contested rules and shifting boundaries: International standard-setting in accounting,’ in Marie-Laure Djelic and Kerstin SahlinAndersson (eds.), Transnational Governance. Institutional Dynamics of Regulation. Cambridge and New York: Cambridge University Press, 266–286. Brunsson, Nils and Jacobsson Bengt (eds.) (2000): A World of Standards. Oxford: Oxford University Press. Bruszt, László. (2002): ‘Making markets and Eastern enlargement: Diverging convergence?’ West European Politics. 25(2): 121–140. Bruszt, László and Greskovits Bela. (2008): ‘Transnationalization, social integration and capitalist diversity in the East and the South’. Paper presented at the workshop “International Inequality, Then and Now: Revisiting Cardoso and Faletto’s Dependency and Development in Latin America” held at the Watson Institute for International Studies at Brown University on April 4–5, 2008, Manuscript. Bruszt, László and David Stark. (2003): ‘Who counts?: Supranational norms and societal needs.’ East European Politics and Societies. 17: 74–82. Burawoy, Michael, Joseph Blum, Sheba George, Zsuszsa Gille, Teresa Gowan, Lynne Haney et al. (2000): Global Ethnography Forces, Connections, and Imaginations in a Postmodern World. Berkeley: University of California Press. Callaghan, Helen and Martin Hoepner. (2005): ‘European integration and the clash of capitalisms: Political cleavages over takeover liberalization.’ Comparative European Politics. 3: 307–332. della Porta, Donatella and Sidney G. Tarrow. (2005): Transnational Protest and Global Activism. Lanham: Rowman & Littlefield. Djelic, Marie-Laure and Kerstin Sahlin-Andersson. (2006): ‘Introduction: A world of governance: The rise of transnational regulation,’ in Marie-Laure Djelic and Kerstin Sahlin-Andersson (eds.), Transnational Governance. Institutional Dynamics of Regulation. Cambridge: Cambridge University Press, 1–28. Djelic, Marie-Laure and Quack Sigrid. (2003): ‘Theoretical building blocks for a research agenda linking globalization and institutions,’ in Marie-Laure Djelic and Quack Sigrid (eds.), Globalization and Institutions: Redefining the Rules of the Economic Game. Cheltenham: Edward Elgar. Djelic, Marie-Laure and Kerstin Sahlin-Andersson (eds.) (2006): Transnational Governance. Institutional Dynamics of Regulation. Cambridge: Cambridge University Press. Duina, Francesco. (2007): The Social Construction of Free Trade: The European Union, NAFTA, and Mercosur. Princeton: Princeton University Press.

20

L. Bruszt and R. Holzhacker

Dyson, Kenneth (ed.) (2006): Enlarging the Euro Area: External Empowerment and Domestic Transformation in East Central Europe. Oxford: Oxford University Press. Easterly, William R. (2006): The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good. New York: Penguin Press. Epstein, Rachel. (2008): ‘Transnational actors and bank privatization,’ in Mitchell A. Orenstein, Stephen Bloom, and Nicole Lindstrom (eds.), Transnational Actors in Central and East European Transitions. Pittsburgh: University of Pittsburgh Press. Evans, Peter (ed.) (2000): ‘Fighting marginalization with transnational networks: Counterhegemonic mobilization.’ Contemporary Sociology. 29(1): 230–241. Gereffi, Gary and Stephanie Fonda. (1992): ‘Regional paths to development.’ Annual Review of Sociology. 18: 419–448. Gereffi, Gary. (2004): ‘The global economy: Organization, governance, and development,’ in Neil Smelser and Richard Swedberg (eds.), Handbook of Economic Sociology. New York: Russell Sage Foundation. Greskovits, Béla. (2005): ‘Leading sectors and the varieties of capitalism in Eastern Europe.’ Actes de Gerpisa. 39: 113–128. Haggard, Stephan and Robert R. Kaufman (2008). Recrafting Social Contracts: Welfare Reform in Latin America, East Asia and Central Europe. Cambridge: Cambridge University Press. Jacoby, Wade. (2008). ‘Minority traditions and postcommunist politics: How do IGO’s matter,’ in Mitchel Orenstein, Stephen Bloom, and Nicole Lindstrom (eds.), Transnational Actors in Central and East European Transitions. Pittsburgh: University of Pittsburgh Press, 56–76. Jordana, Jacint and David Levi-Faur. (2006): ‘Towards a Latin American Regulatory State? The diffusion of autonomous regulatory agencies across countries and sectors.’ International Journal of Public Administration. 29(4–6): 335–366. Kelley, Judith. (2004): Ethnic Politics in Europe: The Power of Norms and Incentives. Princeton: Princeton University Press. Koslinski, Mariane Campelo and Elisa P. Reis. (2008): ‘Transnational and domestic relations of NGOs in Brazil.’ World Development. 37(3): 714–725. Morgan, Glenn. (2001): ‘Transnational communities and business systems, in: Global Networks.’ A Journal of Transnational Affairs. 1(2): 113–130. O’Riain, Sean. (2000): ‘The flexible developmental state: Globalization, information technology, and the “Celtic Tiger”.’ Politics and Society. 28(2): 157–193. Orenstein, Mitchell and Hans Peter Schmitz. (2006): ‘The new transnationalism and comparative politics.’ Comparative Politics. 38(4). Orenstein, Mitchel, Stephen Bloom, and Nicole Lindstrom (eds.) (2008). Transnational Actors in Central and East European Transitions. Pittsburgh: University of Pittsburgh Press Power, Michael. (1997): The Audit Society. Oxford: Oxford University Press. Ruggie, John Gerard. (1982): ‘International regimes, transactions, and change: Embedded liberalism in the postwar economic order.’ International Organization. 36(2): 379–415. Sabel, Charles F. and Jonathan Zeitlin. (2007): ‘Learning from Difference: The new architecture of experimentalist governance in the European Union’. European Governance (EUROGOV) Papers. Schimmelfennig, Frank and Ulrich Sedelmeier. (2004): ‘Governance by conditionality: EU rule transfer to the candidate countries of Central and Eastern Europe.’ Journal of European Public Policy. 11(4): 661–679. Schimmelfennig, Frank and Ulrich Seidelmeier (eds.) (2005): The Europeanization of Central and Eastern Europe. Ithaca, NY: Cornell University Press. Sedelmeier, Ulrich and Rachel Epstein. (2008): ‘Beyond conditionality: International institutions in postcommunist Europe after enlargement.’ Journal of European Public Policy. 15(6): 795–805. Stallings, Barbara. (1990): ‘The role of foreign capital in economic development,’ in Gary Gereffi and Donald L. Wyman (eds.), Manufacturing Miracles. Paths of Industrialization in Latin America and East Asia. Princeton: Princeton University Press, 55–89.

1

Three Converging Literatures of Transnationalization

21

Stark, David, Balazs Vedres and Bruszt László. (2006): ‘Rooted transnational publics: Integrating foreign ties and civic activism.’ Theory and Society. 353: 323–349. Stark, David and Balazs Vedres. (2006): ‘Social times of network spaces: Network sequences and foreign investment in Hungary.’ American Journal of Sociology. 111(5): 1367–1411. Stark, David, Balazs Vedres and Bruszt Laszlo. (2006): ‘Rooted transnational publics: Interfacing civic activism and foreign ties.’ Theory and Society. 353: 323–349. Stone, Diane. (2004): ‘Transfer agents and global networks in the “transnationalization” of policy.’ Journal of European Public Policy. 113: 546–566. Streeck, Wolfgang. (1995): ‘Neo-voluntarism: A new European social policy regime?’ European Law Journal. 1(1): 31–59. Tarrow, Sidney. (2005): The New Transnational Activism. New York: Cambridge University Press. Vachudova, Milada. (2005). Europe Undivided: Democracy, Leverage and Integration After Communism. Oxford: Oxford University Press. Vogel, David and Robert A. Kagan. (2002): ‘National Regulations in a Global Economy’ UCIAS Edited Volume 1. Dynamics of Regulatory Change: How Globalization Affects National Regulatory Policies. University of California International and Area Studies Digital Collection. http://repositories.cdlib.org/uciaspubs/editedvolumes/1/Introduction

Chapter 2

Transnational Integration Regimes as Development Programmes László Bruszt and Gerald A. McDermott

2.1 Introduction This chapter offers a framework to analyse the ways in which transnational integration regimes (TIRs) shape the evolution of economic institutions in emerging democracies and in turn builds on the growing intersection of research between international and comparative political economies. The work on globalization has shifted from a focus on individual economic and political variables to an emphasis on distinct regional commercial, military or geopolitical arrangements shaping domestic institutions (Dezalay and Garth 2002; Djelic and Sahlin-Andersson 2006; Pastor 2001). Scholars of development have increasingly shifted attention away from an emphasis on rapid market liberalization towards the role of state and nonstate actors in building new institutions to help stabilize, legitimize and regulate domestic economic activity (Barth et al. 2006; Jordana and Levi-Faur 2005; Majone 1996; Rodrik et al. 2002). However, the attempts to integrate these debates tend to conclude that the optimal mechanisms for influencing domestic institutional change take the forms of either markets or externally acting hierarchies. On the one hand, development depends on the extent to which current and capital accounts are liberalized so that powerful economic incentives can force state and nonstate actors to continue down the path of reform and build the ‘right institutions’. On the other hand, students of international political economy often argue that reforms stick when robust external conditionality is backed by clear goals, strong incentives and asymmetric power. In this view, cronyism is so rampant that market forces alone cannot be trusted to gain the commitment of elites in domestic countries. Taken to its limit, the ‘right’ models of reform can be consolidated only when advanced nations take the backward ones into full receivership.1 Indeed, on the heels of Argentina’s historic collapse in 2001,

L. Bruszt (B) Department of Political and Social Sciences, European University Institute, Florence, Italy e-mail: [email protected] 1

This is not immediately apparent as scholars often speak about strong incentives and policy anchoring. But such incentive systems appear to work when the criteria are so clear that they

L. Bruszt, R. Holzhacker (eds.), The Transnationalization of Economies, States, and Civil Societies, DOI 10.1007/978-0-387-89339-6_2,  C Springer Science+Business Media, LLC 2009

23

24

L. Bruszt and G.A. McDermott

some scholars even proposed that the UN take over the country and install a board of internationally known central bank governors to run economic policy (Caballero and Dornbusch 2002). This chapter, in contrast, argues that divergent paths of domestic institutional development are products largely of the TIRs, in which they are embedded. TIRs are more than trade pacts, aid projects or harmonization systems, as they increasingly offer developing countries normative models, resources and integration mechanisms to engage in institutional change. In acting as development programmes, TIRs differ not simply in terms of their incentives and largess but particularly in terms of their emphasis on institutional capacities, their empowerment of diverse stakeholder groups and their ability to merge monitoring and learning at both the national and supranational levels. In this view, the development problem is less about external actors finding the optimal incentive structure to impose a particular policy on an emerging democracy and more about the ways in which TIRs alter or reinforce existing roles of and balance of power among the state and domestic stakeholders to partake in new collective institutional experiments. A key weakness in much of the research on the roles of domestic or international factors in development is its reliance on the depoliticization approach to institution building. Regardless of whether one advocates the limited ‘market preserving state’ or the interventionist ‘developmental state’, the common view is that the ideal international mechanisms are those that circumvent domestic politics and empower an insulated change team to impose on society ideal designs (Stark and Bruszt 1998; McDermott 2002). This approach overlooks the burgeoning literature that shows how economic development is underpinned by the gradual creation of complex institutions, in which public and private actors experiment with policies and coalitions to form the regulatory state or regulatory capitalism (Bruszt 2002a; Cohen and Sabel 1988; Levi-Faur 2006). Introducing this concept of the experimental regulatory state into the equation changes the developmental game in three fundamental ways. First, at the domestic level, institution building is impeded less by state capture per se than weaknesses on the demand and supply sides. Demand is impeded because potential beneficiaries, dormant minority groups (Jacoby 2000, 2004), lack the resources and voice in shaping existing or new institutional domains. Supply is impeded because states lack the incentives, resources, skills and knowledge needed for institutional upgrading. Second, TIRs can alter or conserve the status quo of the demand and supply sides of domestic institutional change by the extent to which they empower a diverse set of stakeholder groups and focus attention on building institutional capacity. The reliance on incentives tends to favour entrenched groups but provides little new resources or participatory channels for weaker groups (Collier and Handlin; are self-evident and the penalties are so strong that noncompliance appears impossible. Hence, hierarchical power, akin to the traditional notion of international hegemony, appears to be the key solution for change. One can see this in how Amsden (2007) understands the imposition of international economic models and when Schimmelfennig & Sedelmeier (2002, 2005) describe the force of EU incentives. See also Tovias & Ugur (2004).

2

Transnational Integration Regimes as Development Programmes

25

2005; Karl; 2008; Schneider; 2004). The emphasis on empowering a variety of often minority socioeconomic groups can facilitate alternative institutional experiments and create countervailing sources of power. TIRs also help to upgrade and strengthen the supply side by providing material and knowledge resources to build administrative and regulative capacity. Third, the emphasis on building regulatory capacities changes not simply the resource commitments of TIRs but especially the integration mechanisms for both the developing country and the TIR. Typically, integration and development are framed in terms of binary, unidimensional conditionality, in which arms-length incentives and enforcement are used to achieve a well-defined policy outcome. In our view, conditionality is a multidimensional iterative process, in which TIRs deliver resources via different types of mechanisms that merge monitoring and learning at both the country and supranational levels (Sabel and Zeitlin 2007). But because of the different starting points of developing countries and the experimental process of institution building, such mechanisms evolve, requiring the TIR to be self-adapting. That is, a comparative analysis of TIRs requires not simply identification of resource transfers and policy content but especially how the mechanisms evolve over time to transform the institutional foundations of the developing country and the TIR itself. Our aim here is to identify the key mechanisms of integration, which capture the varying impact of TIRs on the institution-building process in emerging market democracies. We do so through a comparative analysis of the impact of EU Accession Process on postcommunist countries and NAFTA on Mexico. We find this a useful comparison since it helps control for geography, several starting conditions and the active members of advanced countries in the TIR. Indeed, several leading Latin American countries appeared better positioned to modernize, given their deeper, more recent experience with market-based economics and democratic governance. However, the countries of East Central Europe find themselves on the leading edge of institutional development. We argue that the relative success of institution building in the postcommunist countries is related to the way the EU has experimented with a variety of monitoring and assistance mechanisms to improve the institution-building process of the aspiring member countries. These mechanisms become particularly effective as they force candidate countries to submit themselves to iterative external evaluation, invest in administrative upgrading and incorporate a variety of public and private actors into the institution-building process. In contrast, Mexico appears as a laggard because of the reliance on economic incentives and lack of institutionalization of learning and monitoring within the NAFTA framework. Notice here that for this view, EU accession is no longer a process of institutional harmonization but rather a potentially profound innovation in international development. Section 2.2 reviews some of the basic data contrasting the economic and institutional development of countries in East Europe and Latin America. In Section 2.3 we argue that the construction of institutional capacities is an experimental process in which a variety of public and private actors must coordinate their resources and information. Section 2.4 shows how this view helps one to clarify the key

26

L. Bruszt and G.A. McDermott

mechanisms of integration – the linchpin for TIRs in providing effective guidance for domestic institutional development in emerging market democracies. In Section 2.5, we compare NAFTA and the EU accession process in terms of these mechanisms. In Section 2.6, we illustrate the impact of these different sets of integration mechanisms on the institutional development in Mexico and new EU accession countries in general and via focused cases on the policy domains of food safety and regional development.

2.2 East Europe and Latin America Compared I see no grounds for the future of Bulgaria, Hungary or Poland to be different from that of Argentina, Brazil or Chile. Adam Przeworski (1991, p. 23)

In noting that the ‘East becomes South’, Adam Przeworski highlights the similarities between the liberalizing countries of Latin America and the postcommunist countries of East Central Europe, including ‘states weak as organizations, political parties and other associations that are ineffectual in representing and mobilizing, economies that are monopolistic, over-protected and over-regulated, agricultures that cannot feed their own people, public bureaucracies that are overgrown, welfare services that are fragmentary and rudimentary’ (Przeworski 1991, p. 24). Moreover, given the slight advantages Latin American countries generally had over their East European counterparts in terms of wealth and implementing market-liberalizing reforms by the early 1990s (see Figures 2.1 and 2.2), one might have even thought that Przeworski was underestimating the South.

GDP per Capita

Constant 2000 US $

9000 8000

Bulgaria, Romania

7000 5000

Czech Republic, Hungary, Poland, Slovenia, Slovakia

4000

Mexico

3000

Argentina

2000

Brazil

1000

Chile

6000

Year

Fig. 2.1 Comparison of GDP per capita, 1990–2004 Source: World Development Indicators

20 04

20 02

20 00

19 98

19 96

19 94

19 92

19 90

0

2

Transnational Integration Regimes as Development Programmes

27

Evolution of the freedom of markets East-South CATO Economic Freedom

8 Czech Republic, Hungary, Poland, Slovakia, Slovenia

7

Estonia, Latvia, Lithuania Croatia, Bulgaria, Romania

6

Argentina, Bolivia, Brazil, Peru

5

Chile, Uruguay 4 1995

2000

Fig. 2.2 The South liberalizes faster than the East Source: Cato Economic Freedom index

But virtually every available institutional indicator proves these views wrong – the East, particularly those countries participating in the EU Accession Process, has surpassed the South. In this section we review some of these data mainly to suggest that the development difference cannot be explained by domestic factors alone but rather by regional effects. During the discussion we pay special attention to Mexico in comparison with postcommunist countries. Although the two regions had similar income and technological starting points, the stark divergence in high-technology exports has led analysts of Latin America, such as those in CEPAL (2002) and the World Bank (Lederman, Maloney & Serven 2005), to point to key weaknesses not only in economic policy but especially in the institutional and regulatory foundations of these countries (see also Figure 2.3). High Technology Exports as % of GDP 1994–2003 8.00% 7.00%

Exports

6.00% 5.00%

Latin America

4.00%

Eastern Europe

3.00% 2.00% 1.00%

03

02

01

20

20

20

00

99

20

98

19

19

97

95

96

19

19

19

19

94

0.00%

Year

Fig. 2.3 Technology change accelerates in the East Note: Central Europe includes Slovakia, Slovenia, Poland, Hungary and the Czech Republic. Latin America includes Mexico, Chile, Brazil and Argentina. Source: WDI online

28

L. Bruszt and G.A. McDermott a

Voice and Accountability

1,5 LAT1 LAT2

1

06

Bulgaria, Romania, Slovakia

20

20

04 20

20

02 20

20

98 19

19

05

Belarus, Moldova, Russia, Ukraine 03

0 00

Poland, Hungary, Czech Republic, Slovenia, Baltics

96

0,5

–0,5

Mexico

–1

b

Government Effectiveness

1 LAT1

0,8 0,6

LAT2

0,4

Poland, Hungary, Czech Republic, Slovenia, Baltics

0,2 0 6

–0,2 199

98

19

00

20

02

20

03

20

04

20

05

20

06

20

–0,4

Belarus, Moldova, Russia, Ukraine

–0,6

Romania, Bulgaria, Slovakia

–0,8

Mexico

–1

c

Regulatory Quality

1,5 LAT1

1

LAT2 Poland, Hungary, Czech Republic, Slovenia, Baltics

0,5

–0,5

06 20

20 05

20 04

20 03

20 02

20 00

19 98

19 96

0

Belarus, Moldova, Russia, Ukraine Bulgaria, Romania, Slovakia

–1 Mexico

–1,5

Fig. 2.4a-c Comparisons governance and institutional quality, 1996–2006. NB: LAT1 = Argentina, Brazil, Chile, México, Uruguay; LAT 2 = Bolivia, Colombia, Ecuador, Paraguay, Venezuela, Peru Source: “Governance Matters VI: Governance Indicators for 1996–2006”, Kaufmann et al. (2007)

Transnational Integration Regimes as Development Programmes

Aggregate Score Difference from the Income Group Average

2

29

0.8 0.6 0.4

Bulgaria, Romania

0.2

Czech Republic, Hungary, Poland

0 1996

1998

2000

2002

2003

2004

2005

2006

Mexico

0.2 –0.4

Fig. 2.5 Regulation quality and government effectiveness – distance from income group mean Source: “Governance Matters VI: Governance Indicators for 1996–2006”, Kaufmann et al. (2007)

Figure 2.4a–c reports the trends in key areas of institutional and regulatory quality using the World Bank governance indicators constructed by Kaufmann et al. (2007). Figures 2.5 and 2.6 take selected countries and plot the difference in their given score from that of average in their income group, as defined by the World Bank. This allows us to control for the effects of wealth endowments. The data reveal three notable patterns. First, although the leading postcommunist countries do not have dramatic improvements, they do tend to outperform countries in their own income category and do not witness dramatic drops. In contrast,

Difference from the Income group average

0.8 0.6 0.4 0.2

Bulgaria, Romania

0 –0.2 1996

1998

2000

2002

2003

2004

2005

2006

Czech Republic, Hungary, Poland Mexico

–0.4 –0.6 –0.8 –1

Fig. 2.6 Control of corruption and rule of law – distance from income group mean Source: “Governance Matters VI: Governance Indicators for 1996–2006”, Kaufmann, Kraay and Mastruzzi (2007)

30

L. Bruszt and G.A. McDermott 40 Czech Republic, Hungary, Poland, Slovakia, Slovenia

Mosley Labour Rights Data

35

Estonia, Latvia, Lithuania 30 Croatia, Bulgaria, Romania 25 Argentina, Bolivia, Brazil, Peru

20

Chile, Uruguay 15 Mexico 10 1995

1996

1997

1998

1999

2000

Fig. 2.7 Comparison of Labor Rights Institutions, 1995–2000 Source: Mosley and Uno (2007)

countries like Mexico often decline over time and underperform in their income category. Second, another way to control for legacy biases is to compare the evolution of countries that appear very similar at the start of the timeline. In this respect, countries like Slovakia, Bulgaria and Romania, some of the laggards in the region, are trending upwards, while Mexico and other South American countries are slipping, sometimes dramatically. Third, the data reveal that there is a growing divergence in governance indicators between different groups of East European countries. Countries of the former Soviet Union remain at the bottom of the ratings, while those participating in EU Accession remain stable or rise. The concern for some Latin American countries, especially the second-tier countries like Venezuela, Bolivia and Peru, is their possible convergence to the laggards from the former Soviet Union. The capacity of the regulative state is also revealed when the strongest economic actors cannot set the rules for themselves but are constrained by rules and rights that are enforced by the state and can empower weaker actors. One of the most fundamental forms of regulation is the enforcement of rights for labour to organize, form associations, enter in collective dispute and make collective agreements (Sunstein 1990). Mosley and Uno (2007) have done extensive comparative research on labour rights violations and protection. Figure 2.7 presents their aggregate scores that measure 37 potential violations of personal and collective labour rights.2 In the countries with much lower scores, typically the strongest economic actors can rule in the labour market without much state involvement. The graph shows a clear 2

Labour rights violations range from incapacity (or unwillingness) to uphold labour’s right to establish and join union and worker organization, through murder or disappearance of union members or organizers to the state incapacity to uphold, or outright state action to prevent collective agreements. Overall points around 30 might be said to indicate the presence of public control over the rules of the game in the highly asymmetrical labour–business relations.

2

Transnational Integration Regimes as Development Programmes

31

distinction between the performance of Latin American countries and Central East European (CEE) countries in this regard. State capacity to prevent excessive forms of the misuse of power asymmetries in the labour market is relatively strong (and close to the EU 15 averages) in the CEE countries. Such state capacities are weak in the Latin American countries, especially Mexico. In sum, the data suggest that there are diverging patterns between distinct groups of countries within East Europe and especially between those countries participating in the EU accession process and those in Latin America. More pointedly, we see this divergence between Mexico and those leading postcommunist countries, despite similar starting points, despite more than 15 years of pursuing ostensibly market-based reforms and despite being associated with the two leading TIRs. Our suggestion that TIRs have strongly shaped these trends is an increasingly common finding among regional specialists. For instance, scholars tracking the impact of NAFTA on Mexico note that NAFTA has done much to improve Mexican exports and foreign direct investment, but equally emphasize that it has done little to improve a wide range of institutions in Mexico from education to innovation to labour to basic economic regulation (Lederman et al. 2005; Studer and Wise 2007). In contrast, the Europeanization literature has shown how the EU accession process has transformed a wide range of institutions in East Central Europe, despite several shortcomings of the process (Sedelmeyer 2006). The key issue for development scholars is identifying the mechanisms of the TIRs that can be broadly applied to other regions. In the following section we present a framework for doing so, first clarifying how the domestic process of building the regulative state reframes one’s understanding of the role of external factors, namely the mediating role of TIRs and their different mechanisms of integration.

2.3 Institution Building and External Factors 2.3.1 The Limits to Incentives and Conditionality: Optimal Designs and Depoliticization The search for optimal incentives and enforcement mechanisms has a long tradition in explaining the varying influence of international programmes or TIRs on the institutional development of emerging market democracies (Mansfield and Milner 1997). Scholars of political economy have amply noted the limits of purely economic incentives, typically via capital and current account liberalization, in compelling state and nonstate actors to broaden their time horizons and undertake the collective action for the consolidation of regulatory institutions. Instead they have increasingly stressed the role of political incentives and asymmetric power. Students of externally induced institutional change have sought to articulate the role of political factors in two related ways. In their analysis of democratization in 12 developing countries, Levitsky and Way (2006) argue that institutional

32

L. Bruszt and G.A. McDermott

development is shaped by the combination of a country’s economic, social and communication linkages with the advanced world and external political leverage – the strong incentives for reforms via access or denial of key benefits from advanced countries. Slovakia and Mexico finish first and second in their ranking since both countries have relatively strong socioeconomic linkages with advanced countries. But only Slovakia, not Mexico, is subject to strong external leverage vis-à-vis possible denial of benefits gained from entering a TIR, in this case the EU. The Europeanization literature has further sought to articulate the role of leverage, arguing that sustained institutional change depends not simply on incentives but rather on vigilantly enforced and meritocratic conditionality (Schimmelfennig and Sedelmeir 2005; Vachudova 2005). For instance, in her detailed analysis of the EU Accession Process, Vachudova (2005) argues conditionality is effective and has meritocratic demonstration effects when the external actor (e.g. TIR) uses clear detailed goals and builds the capacity to enforce compliance. At the limit, conditionality becomes so precise in its policy goals and consequences that the candidate country has no other option but to comply. This view was extended as well to proposed improvements in NAFTA (Hufbauer and Schott 2005; Pastor 2001; Studer and Wise 2007). While the introduction of the terms ‘conditionality’, ‘compliance’ and ‘commitment’ into the debate helps focus analysis on the problems of adverse selection and moral hazard, their generic use undermines both market and hierarchical approaches to capturing the external influences on domestic institution building. As Easterly (2006) has shown in his forceful critique of Western aid programmes, this search for optimal conditionality has three problematic assumptions. First, one assumes that external actors have ex ante sufficient information about which types of institutional reforms or detailed adjustments need to be achieved, why they failed and what adjustments are needed. Second, one assumes that domestic actors have the sufficient resources, knowledge and political conditions to enact requested reforms. Third, one assumes that both external and domestic commitments to reforms are binary, whereas they are often incremental and iterative as the process of institutional change unfolds. In our view, the current approaches cannot overcome these problematic assumptions because of a mis-specification of the institution-building process itself, namely taking as their starting point the ‘depoliticization approach’ to reform. In this view, governments can and should insulate powerful reform teams from particularistic interests and impose rapidly on society a well-defined set of new rules and highpowered economic incentives that would facilitate transactions and spur investment (McDermott 2002, 2004). Regardless of whether one advocates external actors utilizing greater trade incentives, policy anchoring or hierarchical conditionality, the common ground is that the further a country is from the ideal institutional setting, the more imperative it is for external actors to defend domestic actors from themselves. Since the optimal rules and incentives are well known, there is little need for the participation of a variety of state and nonstate actors on further adjustments in the basic institutional designs. Indeed, arrested development is

2

Transnational Integration Regimes as Development Programmes

33

largely due to particularistic interests capturing the state and infecting the optimal designs. However, this view overlooks the burgeoning literature on what we call experimental ‘regulative state’ or ‘regulative capitalism’, which dramatically changes one’s understanding of the politics of the institution-building process and, in turn, the role of external forces. We now highlight how institution building is a process in which a variety of public and private actors can be empowered to coordinate and monitor one another’s efforts to enhance regulatory capacities. In turn, TIRs play key roles not by helping institution building circumvent domestic politics but rather by structuring the domestic political game via their integration mechanisms.

2.3.2 Regulative Capitalism and the Role of TIRs Experimental regulative capitalism has two important characteristics. First, modern societies are noted not simply for a limited state that enforces a set of rules to constrain opportunism (Boycko, Shleifer and Vishny 1995; North and Weingast 1998), but especially for their broad constellation of state-backed institutions that enable public and private actors to share risk, monitor one another and enhance knowledge diffusion. For instance, the comparative literature on corporate governance and finance increasingly emphasizes how states in both developing and advanced countries create institutional capacities to both regulate transactions and redistribute risk to facilitate fundamental private sector investments that would not otherwise be taken (Hall and Soskice 2001; Moss 2002; Pistor 2000). From Silicon Valley to national innovative systems to export-led growth models for developing countries, research shows how innovative capacities emerge through public–private institutions that facilitate knowledge creation and diffusion for both large and small firms (Doner et al. 2005; McDermott 2007; Piore and Sabel 1994; Saxenian 1994). Second, the experimental nature of the institution-building process itself demands both capacity creation and public–private coordination. As the developmental statist literature has well documented, sustained development is noted by the creation of state capacities, in which the public actors have the skills and resources to provide and monitor collective goods where firms and individuals, alone or via their associations, are too weak to do so (Evans 1995; Evans and Rauch 1999; Riaian 2000). But because the state often ex ante does not have the requisite skills, knowledge or resources, governments must often coordinate with a variety of stakeholder groups who together have complementary resources and information (McDermott 2007; Tendler 1997). In this view, the politics of institution building is less about the insulation of the state and more about the reconfiguration of the public–private boundary that exploits the empowered participation of a variety of public and private actors in joint problem solving. Variety is vital not only to improve the types of information and resources to be recombined but also to limit malfeasance and especially self-dealing by past entrenched stakeholders (Bruszt 2002a; McDermott 2004, 2007; Sabel 1994;

34

L. Bruszt and G.A. McDermott

Schneider 2004; Stark and Bruszt 1998). In turn, this view redefines the causes of arrested institutional development and expands the notion of accountability. First, arrested institutional development emerges from a low equilibrium trap in which state and nonstate actors have neither the interest nor the resources to explore new courses of experimentation. On the demand side, groups that might have an interest in building new institutional capacities often lack the resources and channels to gain the sustained attention of the state. Entrenched groups maintain the status quo not only because they profit from it but also because there are no encompassing structures to facilitate horizontal ties to weaker groups, which can open new possibilities for experimentation and extend time horizons (Schneider 2004; Tendler 1997). On the supply side, states often lack what Michael Mann calls the ‘infrastructural capacities’ – the relevant skills, resources and knowledge needed for coordinating institutional upgrading – be it for the development of regulatory and compliance capacities, as in food safety, labour rights or prudential bank regulation, or for the development of innovative capacities, as in training services, R&D and export promotion (Mann 1984). Second, institutionalizing rule-based participation of a variety of public actors and relevant nonstate groups into particular policy networks, governments are engaging in what has been called ‘extended accountability’ (Stark and Bruszt 1998; Ansell 2000). Reflecting pluralist traditions, state executives are constrained by a multiplicity of autonomous nonstate groups competing for voice and participation (Hellman 1998; Ekiert and Hanson 2003). Reflecting the corporatist tradition, the state empowers relevant groups to undertake certain public responsibilities and also uses rules of participation to build collaborative relationships (Streeck and Schmitter 1985). In this view of institution building, TIRs influence the supply and demand problems, in turn the problem-solving capabilities of developing countries, in three key ways. First, regardless of normative models, TIRs vary in their emphasis on administrative and institutional capacity building in the target country and, in turn, the provision of resources and assistance to compensate for deficiencies at the domestic level. Resource transfer is not simply an incentive but a strategic tool in institutional change and can come in a variety of forms. Second, TIRs vary in the ways that they empower a variety of public and private actors, not simply via resources but by particularly enhancing their political and functional participation in institution-building efforts. TIRs can be more or less proactive not only in highlighting overlooked areas of institutional development, in turn giving credence to relevant domestic stakeholders, but also in facilitating cross-border professional and policy networks among relevant state and nonstate actors. Third, TIRs vary in their own ability to coordinate and adapt as they attempt to merge monitoring and learning at both the supranational and national levels. While a TIR attempts to accelerate compliance and learning in a certain country, it itself has to build the capacity to learn why a country is diverging from ex ante defined path and determine the degree to which it must alter its own monitoring, training and

2

Transnational Integration Regimes as Development Programmes

35

resource transfer strategies. In turn, integration is a process that potentially transforms national institutional capacities as well as the existing transnational regulatory framework itself.

2.4 Beyond Conditionality In this view of experimental regulatory capitalism, the traditional arms-length, binary notion of conditionality loses analytical meaning because of the incremental, interactive process underpinning capacity creation. Rather, TIRs can be more readily distinguished by four integration mechanisms – breadth and depth, assistance, monitoring and coordination, which shape the institutional project and the ability of domestic actors to build it. Here we define these mechanisms and then discuss how the EU Accession Process and NAFTA vary in their influence on institutional development in the CEE countries and Mexico. Breadth refers to the different institutional criteria that the regime principals define are necessary for the participating countries to meet. They can be rather narrow, such as a few economic trade rules, or quite extensive, such as programmes for other policy domains. Depth refers to the emphasis a TIR places on building institutional capacity instead of only a policy change. While some TIRs emphasize changes to certain laws, others emphasize the need for a constellation of institutions to adequately regulate the given policy domain, regardless of the letter of law. Assistance refers to the amount and type of resources and knowledge, be they financial, social or human resources, that the TIR offers the country in order to help the latter build the capacities necessary to undertake the mission at hand. Monitoring refers to the TIR’s capabilities to acquire and process two types of information. The first concerns the degree to which the country is meeting the requisite institutional criteria or benchmarks. The second concerns why the country may or may not be reaching the expected benchmark. The sources of problems can range from the technocratic to the political. Both assistance and monitoring can vary according to whether they are dyadic or multiplex. Dyadic refers to a single line of transmission between the principal and the agent. Different types of information and resources can be transmitted in a dyadic linkage, but virtually all communication and decision-making lies between two actors, such as two governments or a multilateral agency and the target government. The two mechanisms are multiplex when a variety of public and private actors from both sides of the mission are involved in capacity building. For instance, an original basic agreement can be dyadic, but then the counterparts empower different governmental and nongovernmental actors to engage each for an extended period in a particular policy domain. The key structural distinction is that in a multiplex context there is no single gatekeeper in the developing country controlling resources, contacts and information about the given policy domain. Moreover, while dyadic and multiplex channels are widely present, TIRs vary to the extent to which they proactively harness and shape these channels.

36

L. Bruszt and G.A. McDermott Table 2.1 Mechanisms TIRs employ for domestic institutional development

Mechanism

Substantive Issue

1. Breadth and depth

Breadth

2. Assistance 3. Monitoring 4. Coordination

Form

Variety of policy and institutional domains Depth Focus on policy vs. institutional capacity Quantity and type of material and Dyadic knowledge resources Multiplex Information on compliance and Dyadic reasons for shortcomings Multiplex The extent to which actors within the above three components regularly exchange information and reshape one another’s activities

Coordination refers to the extent to which the TIR institutionalizes the sharing of information and joint problem solving among its officials across different policy domains and especially between those who lead the assistance and monitoring mechanisms within a given policy domain. For instance, even if criteria are nonnegotiable and inflexible, repeated information from assistance and monitoring about why the country is falling short in one domain can force deliberations within the TIR in several directions, such as revising the sequencing of steps within the domain, altering the type of assistance being delivered or targeting resources towards particular groups better suited to undertake the given reform. Table 2.1 summarizes these mechanisms. We argue that a TIR is more likely to induce sustained institutional development not simply because of its largess or bargaining power, but mainly to the extent it (a) emphasizes institutional capacity building, (b) invests in multiplex assistance and monitoring capabilities and (c) institutionalizes coordination in such a way so as to merge monitoring and learning.

2.5 Comparing EU Accession and NAFTA as Development Programmes If a comparison between the EU Accession Process and NAFTA were limited to the former TIR’s budget, bargaining power and administrative size, then the lessons for the role of external actors in development may not be very portable to other contexts (Pastor 2001; Struder and Wise 2007). Scrutiny of development programmes has also increasingly illustrated how the reliance on incentives and hierarchy easily leads to wasted investment, a misuse of power and an undermining of local solutions to sustained institution building (Easterly 2006). Hence, comparing these two TIRs according to the key integration mechanisms outlined above allows one to identify potential sources of different development paths that can be applicable elsewhere.

2

Transnational Integration Regimes as Development Programmes

37

These differences were not evident in the early 1990s. Although NAFTA was created in 1994 with the US–Canada Trade Agreement as a template, it did intend to embed Mexico into the region in such ways as to advance democracy and marketization of the southern partner. Indeed, NAFTA would establish procedures to ensure Mexican compliance with liberalized trade, investment, labour and environmental standards (Mattli 1999; Duina 2006). Through the mid-1990s the EU member states did not view the integration of postcommunist countries as vital nor did they envision the need for a new system to help these countries upgrade their institutions (Vachudova 2005; Jacoby 2004). By the mid-1990s, even after the Copenhagen Conference, the EU saw the possible incorporation of postcommunist countries within the framework of harmonization and incentives. Only after observing backsliding in the East and great variation in meeting the Copenhagen criteria did the EU begin adjusting its approach towards a model focused on developing institutional capacities in a variety of policy domains.

2.5.1 Breadth and Depth EU Accession remains unparalleled in these dimensions, as represented in the 31 chapters and 80,000 pages of the acquis which each candidate country must satisfy. Candidate countries have to address policy changes in a broad range of political, social and economic domains ranging from consumer protection to corporate governance, from banking regulation to state aid policies and from environmental protection to public procurement. But candidate countries were required not only to incorporate the already extensive community legislation into national legislation, but even more importantly ‘to implement it properly in the field, via the appropriate administrative and judicial structures set up in the Member States and respected by companies’.3 That is, adoption of the acquis means building up institutional capacity – remaking the administrative state and the way economic relations are regulated (Bruszt 2002b; Orenstein et al. 2008; Vachudova 2005). Compliance in all 31 chapters is a nonnegotiable criteria for full membership, but compliance, as we will see, is often about ranking a country’s institutional capacity. In contrast, NAFTA for Mexico is much narrower and shallower, even in areas where additional measures were taken. NAFTA focuses mainly on economic and trade policy domains, with some attention to the environment and labour rights, as specified in post-1994 agreements (the NAALC and NAEEC). NAFTA focuses on legal harmonization, with great deference to a country’s own interpretation and definition (Duina 2007; Pastor 2001). That is, even in areas such as agriculture and phytosanitary regulation where there are many regulatory and product definitions, NAFTA largely refers to standards in international trade agreements and sectoral

3

See ‘Progress Reports and Enlargement Strategy Papers 1998–2003 of the European Commission’ http://ec.europa.eu/enlargement/key_documents/index_archive_en.htm

38

L. Bruszt and G.A. McDermott

federations as goals for harmonization. But the de facto standards for Mexico in many sectors are those of the US regulatory agencies, which are the gate keepers to the most important market. Hence there is not much institutional depth even when standards are clarified. While compliance is effectively ex-post for Mexico, it can be an ongoing process with incentives to the extent that the NAFTA commission can authorize retroactive penalties, such as fines or temporary trade restrictions, for violations in trade, investment and labour standards. The use of ex ante compliance is used more regularly in environmental projects, where NAFTA provides assistance to Mexico.

2.5.2 Assistance Assistance in EU accession is noteworthy for its large and varied resources as well its multiplex channels of delivery (Andonova 2004; Jacoby 2004; Vachudova 2005; Sabel and Zeitlin 2007). A summary of the main programmes is provided in Table 2.2. Pre-accession assistance to the 10 new member states from the CEE during 1990–2005 totalled about 28 billion Euros (EU Commisssion 2006). Although programmes are often criticized for waste and delays, observers have noted that the

Table 2.2 Summary of EU pre-accession assistance programmes Programme Date

Countries

Financing

PHARE I

1990

Poland, Hungary, 10 CEE

EBRD takes on 10 CEE in 1992–1993

TAIEX

1995

PHARE II

1998

Twinnings

1998

Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovak Republic, Slovenia All countries undergoing accession All

SAPARD

2000

All

ISPA (EC)

2000

All

Source: PHARE Brochure 0503

Goals

Functioning market economy, Democratic institution building Yearly 24 million Technical assistance Euros for adopting PHARE, Transition legislation from Facility acquis

Approx. 1.6 billion Euro annually

Capacity to implement acquis in 31 different policy areas 30% of PHARE funds Institution building set aside, 475 through increased projects from 1998 human capital and to 2001 knowledge sharing Approx. 0.5 billion Agricultural Euro/yr competitiveness, CAP Approx. 1 billion Environmental and Euro/yr transport infrastructure

2

Transnational Integration Regimes as Development Programmes

39

staffing and budgets have been relatively low when compared to typical international aid benchmarks (Mayhew 1998; Peter 2000). Part of the reason appears to be the EU’s use of a variety of forms of assistance, including policy networks of nonstate experts for on-site training and its emphasis on triggering domestic and international actors to partake and invest in institution building. For instance, as technocrats in Brussels became overwhelmed with requests, the EU launched the Twinnings Program that teams existing and former policymakers from the West to work with their CEE counterparts on particular areas. The expansion of Twinnings and the decentralization of such programmes as PHARE, ISPA and SAPARD were also proactive attempts by the EU to build a multiplex structure of assistance, as CEE government and nongovernment actors engaged in joint problem solving with a variety of similar counterparts from the West (Bailey and Propris 2004). Assistance in NAFTA is demand driven but notoriously minimal and dyadic. Although the NAFTA commission is a standing body with oversight powers, it is mainly an intergovernmental forum. According to Duina’s (2007) estimates, the budget of the NAFTA for the Secretariat, NAALC and NAEEC included, is only $25 million. Mexico largely relies on a trade and aid model, using the World Bank and the Inter-American Development Bank mainly for external assistance. Assistance from relevant ministries or secretaries in Canada and the US is on an ad hoc basis, largely as part of intergovernmental discussions to resolve a particular trade problem. While multiplexity can also come from voluntary collaboration between Mexican firms, NGOs and social groups, on the one hand, and their counterparts in the US and Canada, on the other, it is not part of NAFTA’s concerted approach, as it is in the EU. The only focused assistance comes in the domain of environmental policy and related infrastructure, as part of the NAEEC side agreement, which is administered by the Border Environmental Cooperation Commission (BECC), Commission for Environmental Cooperation (CEC) and the North American Development Bank (NADB). These three entities help the NADB plan, evaluate and study environmental infrastructure projects, largely along the US– Mexcian border. Public or private actors can present projects and apply to the NADB for loans (Pastor 2001; Hufbauer and Schott 2005). While some of the 36 projects to date have made significant advances for Mexico, the overall programme is criticized for its lack of depth and funding. For instance, as of 2005, the NADB had about $450 million in capital for making loans up to $2 billion. The World Bank estimates a need for $25 billion in annual infusions for 10 years to modernize Mexico’s infrastructure. Moreover, the cost of the loans appears to be inaccessible in Mexicans and uncompetitive in the United States (Studer and Wise 2007, pp 61–62; Lederman et al. 2005).

2.5.3 Monitoring The EU Accession Process is also noteworthy for its investment into robust and varied monitoring capabilities in order to enhance meritocracy, accountability and

40

L. Bruszt and G.A. McDermott

efficient use of funds (Sabel and Zeitlin 2007; Vachudova 2005). Besides evaluating whether a country was meeting the institutional criteria within a particular chapter or policy domain, EU monitoring focused on becoming iterative and reflexive as well as multiplex. Through the detailed annual reports on pre-accession progress and regular on-site inspections, external actors increasingly married accountability with problem solving. That is, evaluations were forward looking, emphasizing what needs to be done rather than penalizing permanently the candidate for previous deficiencies. By benchmarking a country’s progress, relative to its past and its neighbours, their aim was to update and modify both detailed criteria and the mode of implementation. The key issue was not simply nonnegotiable compliance but rather encouraging and shaping local solutions to generate effective forms of regulatory screening and enforcement to meet EU standards. In studies of compliance in domains as varied as health care, consumer protection, environmental safety and regional development, scholars note how the detailed criteria varied according to context, and sequencing was adapted to ensure that a foundation of institutional capacity was being built (Andonova 2004; Jacoby 2004; Hughes et al. 2004). As with assistance programmes, monitoring became increasingly and purposefully multiplex, as the EU sought to ground institution building in a diverse transnational network of state and nonstate actors. For each policy domain or acquis chapter, an EU unit worked with its counterpart in the candidate country to collect and process relevant information. Within each assistance programme, bureaucrats, outside consultants and NGOs were filing progress reports based on their visits and interactions with their counterparts. This may not be surprising, as the EU appears to have established the concerted multiplex approach for many years when entering a new policy domain. For instance, Kelemen and Tarrant (2007) and Sabel and Zeitlin (2007) show that in several domains the EU provides strong support for the creation and mobilization of relevant nonstate organizations to act as both channels of decentralized information and coalition builders for the diffusion and coherence of new standards. In contrast, monitoring in NAFTA is largely market driven and dyadic. National and subnational governments have the main responsibility to regulate the standards of goods traded and to identify violations in trade rules. The NAFTA-level intergovernmental working groups, including those of the side agreements, monitor the activities of the national and subnational agencies via annual reports to the commission about their respective policy domains. These reports largely catalogue possible areas of dispute and trade discrimination with minimal attention to problem solving and identification of root causes (Mattli 1999; Pastor 2001). Private actors also have the right to bring grievances to relevant NAFTA bodies. Agencies such as the BECC and the NADB screen and conduct ex-post monitoring of the particular programmes they certify according to preset, clear conditions. As Duina notes, however, such actions are rare as the procedures are cumbersome and the intergovernmental body governing NAFTA seeks to prioritize sovereignty over forced harmonization (Duina 2007). Moreover, monitoring is largely dyadic as most of the ties into Mexico remain concentrated in the hands of the Ministry of Economy, which oversees all aspects of NAFTA administration.

2

Transnational Integration Regimes as Development Programmes

41

2.5.4 Coordination Although problematic at times, coordination in the EU Accession Process was increasingly robust. As suggested above, as actors attempted to improve assistance and monitoring, they increasingly shared information across functional and policy domains. In addition to the commission’s investment into a centralized, fully accessible database for all areas, the most obvious evidence for coordination comes from extensive research on the ways that EU actors have identified persistent problems in programmes and sought to revise them (Vachudova 2005; Jacoby 2004; Schimmelfennig and Sedelmeier 2002 Bailey and Propris 2004; Sabel and Zeitlin 2007). The diffusion of information from different resources and the creation of cross-functional working groups have forced consultants and bureaucrats to reveal their respective actions and results and subject themselves to scrutiny from one another as well as from the candidate countries themselves, which are highly sensitive from being left behind and incorrectly compared with one another. In turn, programmes like PHARE and Twinnings have been not only periodically revised but also implemented in a manner in which joint problem solving becomes virtually indistinguishable from compliance detection. Moreover, the coordination among actors has helped the EU launch new, more focused programmes, such as ISPA and SAPARD, to both relieve the administrative burden within existing programmes and improve specialization in different policy domains. Because of the limited forms of assistance and monitoring and their dyadic structures, coordination is not strong in NAFTA (Hufbauer and Schott 2005; Studer and Wise 2007). Coordination largely takes place via intergovernmental work groups, but the work groups themselves have limited horizontal ties. The NAALC provides for communication between national labour administrations, but this is largely ad hoc as disputes arise. Moreover, triggering occurs only when the domestic labour unions press their NLA to look into a problem on the other side of the border. Coordination within the border environmental domain appears more active in recent years, but this is limited to the BECC and representatives from the relevant national agencies. The most important initiatives, Border XXI and Border 2012 Program, focus on creating common metrics and means to monitor compliance by businesses, but do not target changes in Mexican institutional capacity at the national, state or municipal levels. We summarize the main differences between the EU accession process and NAFTA in Table 2.3.

2.6 The Integration Mechanisms Shaping Domestic Institutional Change We now show how differences between the sets of integration mechanisms shape domestic institution building and the upgrading of the regulative states via a comparison of the food safety policy domain in the two TIRs and a focused analysis of

42

L. Bruszt and G.A. McDermott Table 2.3 Comparing the integration mechanisms of EU Accession and NAFTA

Mechanism

EU Accession

NAFTA

1. Breadth and depth

Economic, political, institutional – wide variety of policy domains Focus on administrative capacity; ex-ante compliance; detailed standards

2. Assistance

Large and various resources; move from pure demand-driven to targeted missions, focus on institutional convergence Increasingly decentralized and multiplex, resulting in extended public private and transnational networks Integrated compliance and problem solving; regular, intense scrutiny

Focus on economic and trade policies Focus on broad standards and harmonization; possible ex-post sanctions; deference to national laws Limited largely to environment, weak resources; ad hoc requests to multilaterals and governments

3. Monitoring

Increasingly multiplex 4. Coordination

Regular exchange of information and joint problem solving; reflexive and adaptive

Largely centralized and dyadic; use of market and voluntary ties; environment becoming multiplex Ex-post compliance; annual centralized review; depends on market; environment more frequent and problem solving Mainly dyadic, with exception of environment Commission administers; weak horizontal communication; greater coordination in environment

regional development programming in the EU accession process.4 We start with a general overview of the mechanism effecting domestic institutional change and then proceed to case studies. Most development programmes are criticized not only for weak external monitoring but also for their lack of attention to harnessing the initiatives and political participation of a wide range of relevant actors (Easterly 2005). The impact of the integration mechanisms of the EU accession process and NAFTA is most different in this regard. The EU process alters demand for regulative change in the aspiring member countries in several different ways, while the emphasis on economic incentives and resolving trade disputes in NAFTA provide weak bottom-up pressure for changing the structure and substance of the regulative state. The differences in the integration mechanisms reveal these trends in four key ways. First, by investing in multiplex mechanisms of monitoring and assistance that linked economic reforms with political participation, the EU helped keep domestic

4

We do not enter here in the discussion of variation in the effects of EU conditionality across countries or policy domains. Here we just stress that EU is neither a homogeneous polity nor a regime of homogenizing: its effects might vary by policy sector, and these effects are mediated by diverse domestic conditions that might differ dramatically.

2

Transnational Integration Regimes as Development Programmes

43

voice constant. The references to the importance of labour rights within NAFTA, in contrast, are not coupled with effective monitoring and empowerment. Closely monitoring the upholding of political rights and the rules of fair political competition, the EU stabilized and, in some cases, helped to increase the likelihood that governments took into account a greater diversity of interests (Vachudova 2005). Indeed, the EU has recently made explicit that a key lesson from problematic cases of institutional reform is the need for assistance programmes to support more directly a variety of domestic groups demanding improved administrative and regulative capacities (EU Commision DG-General Enlargement 2007). Second, the EU’s relatively strong focus on building administrative capacity in a variety of domains above all and not simply rules adoption or imitation helped create an institutional foundation that could ensure future compliance and the empowerment of a variety of domestic actors to gain the benefits of integration. On the one hand, as candidate countries focused on strengthening regulatory institutions and created administrative units to evaluate and implement pre-accession projects, they have linked these new agencies to EU-wide agencies of rule-making, monitoring and enforcement. In turn, parallel to building domestic administrative capacities, they have also built the capacity of the domestic state to say no to the most powerful economic interests and have opened opportunities for weaker groups to make legitimate demands for the types of rules to be enforced. For instance, Epstein (2008) and Jacoby (2004) have shown that in policy domains as diverse as agriculture and transportation, the introduction of new standards and regulations helped trigger the mobilization of both state and nonstate actors in the institution-building process that had previously been overlooked. In contrast, NAFTA’s narrow focus on trade liberalization and honouring the domestic regulative status quo (Duina 2007) conserved the position of the strongest domestic economic actors (Studer and Wise 2007). Without a focus on building regulative capacities, trade liberalization embeds domestic struggles for institutional change in a competitive market environment and constrains the room of the forces trying to make demands to increase the diversity of interest and considerations that should count in the making of the rules of the economy. On the other hand, as Andonova (2004) notes, the creation of ‘enabling institutions’ initiated by the state with EU assistance helped a variety of firms to incorporate international practices and participate in the market, while subnational government and nongovernment actors obtained the resources and training to implement new community standards. In contrast, work on NAFTA in a broad scope of sectors has shown how the lack of public programmes undermines the ability of most domestic firms to learn new skills and develop new capabilities. At the same time, many sectors are too poor and fragmented to develop sectoral associations to fill this gap or pressure the government to provide requisite resources. In turn, both manufacturing and agricultural firms often cannot meet international standards to simply hook into international value chains, let alone invest in capabilities to participate in more value added activities (Lederman et al. 2005; Hufbauer and Schott 2005; Pastor 2001).

44

L. Bruszt and G.A. McDermott

Third, the multiplex nature of assistance and monitoring empowered previously marginalized or weaker economic and social groups. By requiring compliance in a variety of policy domains and setting clear metrics for success, the EU has expanded the range of legitimate demands and altered the structure of political opportunities differentially empowering diverse domestic groups (Börzel and Risse; 2000). Besides altering the structure of political opportunities, multiplex assistance and monitoring offered relatively weaker stakeholder groups a diverse set of resources, contacts and information, which together strengthened their abilities to participate actively in institution building, both before and after accession. Several of the assistance programmes have directly targeted nonstate actors and aimed at empowering subnational actors. For instance, Buskova and Pleines (2006) show that EU assistance programmes aimed at domestic NGOs have helped create powerful local allies in the upgrading of environmental regulations. Jacoby (2004, 2008) argues that this ‘coalitional approach’ to policy change is a concerted action on the part of the EU – directly and coordinated with nonstate actors – to build transnational and domestic alliances to diffuse standards and to reinforce the variety of groups to participate in the institution-building process. The empowerment of a wide variety of stakeholder groups into policymaking can improve not only accountability through multiparty monitoring but also institutional experimentation via the use of actors that have better knowledge and resources for the given policy issue (McDermott 2007; Schneider 2004). The key issue here is that while NAFTA hopes multiplexity comes about via market incentives, the EU accession process makes a concerted effort to coordinate and empower the development of multiple channels among state and nonstate actors. The result in NAFTA is a narrowing of actors, resources and information relevant to transforming a given policy domain. Even when there are focused vehicles for dispute resolution or policy programmes, as in the environment and labour, only those with existing strong economic and political resources can participate with a focus on blocking the advance of new entrants to the game, be they foreign or domestic. The ‘empowered multiplexity’ of the EU undermines notions that the accession process is namely a game of hierarchy. The EU relies often on vibrant horizontal ties among state and nonstate actors to improve and implement standards and regulations (Sabel and Zeitlin 2007; Kelemen and Tarrant 2007). Similarly, Jacoby (2004) and Andonova (2004), among others, have shown that the EU coordinates with transnational and domestic nonstate actors to strengthen public–private networks within a target country and to improve all parties’ abilities to learn and monitor one another. Fourth, institution building became increasingly viewed as an experimental, iterative process, in which CEE actors used new standards by recombining and improving existing capacities (Jacoby 2004; Sabel and Zeitlin 2007). Just as the EU focused on constantly evaluating their own programmes, so too did the CEE countries begin to institutionalize self-evaluation. A typical example is the requirement by the EU that candidate governments produce an annual National Accession Partnership report. These large reports detailed the progress to date in every policy domain as well as clarified the steps that the country was taking to fulfill the various objectives. In turn, the given government was setting real-time benchmarks for

2

Transnational Integration Regimes as Development Programmes

45

itself that both the candidate country and the EU would use to gauge commitment and new areas of focused assistance. In contrast, even where NAFTA defines standards for market activities and goods, there is little detail about the role and composition of institutions related to the policy domain. For instance, although NAFTA aims to provide material assistance and coordinate activities between US and Mexican agencies in border environment programmes, the focus is on common monitoring standards rather than harnessing the potential capacity upgrading of government and nongovernment actors (Studer and Wise 2007). Institutional formation would come mainly from the government’s interests in maintaining open market access to the US and Canada as well as from the economic interests of firms – for example by directly building the infrastructure to implement standards and/or lobby the government to take the requisite action. Since the intergovernmental coordinating committees focus monitoring and negotiations on ways to avoid retaliatory trade measures, they become mainly forums for powerful interests to compete rather than collaborate with other parties. For instance, Hufbauer and Schott (2005) and Pastor (2001) detail how not only powerful corporations and sectoral interest groups are the main participants but also how they use both their market power and political leverage to use standards as a method to improve their market share or access and not a means to trigger upgrading. In what follows, we offer brief analyses of policy domains in the two regimes to illustrate the differences with respect to our framework above.

2.6.1 The Development of Food Safety Standards and Institutions The politics of agriculture in general and of food safety in particular for developing countries, be they in East Europe or in Latin America, has two common dynamics. On the one hand, the potential benefits of using product and process standards can often be undermined by turning standards into simply a dispute domain of trade barriers. On the other hand, the domestic landscape is marked often by a political and economic structural imbalance that pits a few resource-rich firms and their related trade association against numerous, fragmented small holders. These traits were clearly present in the cases of the new EU candidate countries and Mexico, as we will see below. 2.6.1.1 Food Safety for EU Accession Countries Through much of the 1990s, the CEE-5 and the EU regularly experienced trade disputes over the trade of food products, causing both government and market actors to become very suspicious of the use of food safety measures. Hence, as the accession process became more clearly defined, the EU was highly concerned with the development of high-quality food safety institutions in potential candidate countries and avoiding a paralyzing political dispute. At the same time, the domestic political landscape of agriculture in most CEE countries was greatly shaped by two

46

L. Bruszt and G.A. McDermott

important legacies. The industry was composed of privatized large farms and foodprocessing companies and numerous, fragmented small firms in the form of family firms and cooperative. The historical lack of autonomous trade associations under communism permitted a distorted structure of interest group representation during the early 1990s, with typically the relative few large firms forming a strong association with lobbying capabilities and most other firms residing in weak associations, if any (Gatzweiler et al. 2002). By most accounts, the state of food safety was problematic in East Europe by the late 1990s. Outside experts as well as EU officials noted several severe problems, including the utter lack of relevant legislation, weak government certification and monitoring institutions, deficient border inspection posts and information systems as well as substandard practices all along the value chains. However, these same observers note that by 2004–2005, most of these problems had been addressed. For instance, by 2004, PHARE deemed that only 8% of foodprocessing establishment in the CEE-5 were subpar and subject to transition periods.5 For the sake of brevity, we illustrate how the mechanisms of integration for the EU accession process helped upgrade food safety in the case of the Czech Republic. As with other countries, the Czech Republic was required by the EU to address all the issue areas just mentioned as a condition of membership. The responsibility for overseeing these reforms fell to the EU’s Agriculture DG and increasingly the Health and Consumer Protection DGs, while SAPARD and PHARE gave support in focused assistance and assessments. These organizational units simultaneously launched top-down and bottom-up approaches that focused on the strengthening of government institutional capacity as well as improving the practices of both firms and their trade associations. The top-down approach came in two parts. First, EU authorities provided resources and training to Czech government officials to establish four departments related to food safety within the Ministries of Agriculture and Health by 2002 (Dolezal and Janackova 2005). Teams from the DGs as well as SAPARD also established a system of on-site inspections all along the value chain, from farms to food-processing plants to border inspection posts. Second, as the EU authorities gained greater confidence in the capacities of the Czech authorities, they reduced their direct inspections and firm-level training programmes, leaving these in the hands of the Czech agencies, while focusing on the practices of the Czech agencies themselves as well as border inspection posts. By the end of 2003, the EU and the Czech government had invested over 90 million Euros in the food safety and processing institutions and industry. Compliance, while generally inflexible, was not a purely all or nothing game. The EU developed measures to both identify problems and move the client along.

5

We draw here on several sources. The relevant EU reports on these countries can be found at http://ec.europa.eu/agriculture/external/enlarge/publi/index_en.htm. See also, Garcia-Martinez et al. (2006), Gatzweiler et al. (2002), Mishev & Valcheva (2005) and Yakova (2005/2006).

2

Transnational Integration Regimes as Development Programmes

47

For instance, as government institutional deficiencies were identified, trade could be slowed by closing border posts, but then linked to further negotiations to clarify the terms of Common Agricultural Policy (CAP) funds. As late as 2002, PHARE found deficiencies in 16 border inspection posts and immediately launched a joint programme with the Czech authorities to improve practices. Food-processing establishments were given 3-year transition periods to invest in the adequate systems and standards. In the meantime, their food was allowed to be sold in domestic markets, given different labelling in the EU markets, and in some cases completely shut out of the EU markets for the suspension period. Assistance came in two forms. PHARE II and SAPARD provided funds to the candidate countries to both invest in new agricultural institutions and have the relevant agricultural sectoral associations aid their member firms in adopting new standards. TAIEX and Twinnings were reinforced to provide consultants and training programmes for both government personnel and firms (Bailey and Propis 2004). EU reports document numerous cases, in which traditional and organic farms, milk processors and meat processors upgraded their processes and products to meet new standards via training from local institutions and Twinnings as well as financial assistance from both EU and national government sources. Hence, the EU provided ways for the candidates to improve their organizational capacities, adopt new infrastructure and systems and train people at various levels. These assistance and monitoring activities highlight the characteristics of coordination and multiplexity. Coordination at multiple levels led to adaptation in assistance programmes and compliance paths. Relevant committees within the DGs, PHARE and SAPARD, coordinated their monitoring and assistance activities. Through regular visits and a centralized database, the EU actors inspected compliance from the level of slaughterhouse to the border inspection posts to the functioning of the relevant ministries and agencies in the candidate countries. Part of the aforementioned overhaul of the Twinnings programs in 1998 included more defined assistance, such as in the use and implementation of ISO 9000 standards. Projects to improve communication systems within countries and with the EU were improved to better identify problem actors and areas. Transition periods for producers were combined with more focused training, and CAP negotiations were tied into improvements with food safety. The EU’s concerted effort to enhance multiplexity helped empowering diverse domestic interest groups and increased the speed and variety of knowledge transfer grew, as Twinnings and on-site inspections fostered the creation of communication channels at the subnational and sectoral levels. A good example of this process is captured in Yakova’s (2005/2006) detailed study of the transformation of Czech agricultural associations. By the late 1990s, the strongest association, economically and politically, was dominated by a few large food-processing and producer firms. A few other associations were weak, largely due to the limited resources and their fragmented membership of small family firms and cooperatives. While the accession period drew the attention of these diverse firms and associations towards food safety issues, the larger firms were much better positioned to improve their capacities and meet new standards as well as gain access to public resources. Yakova

48

L. Bruszt and G.A. McDermott

notes that by 2004, although these associations were still actively competing with one another and at times in open political conflict, even the weaker ones were able to channel resources and services to their members, influence government policy and graft a focus on regional development and farmer support programmes onto their rent-seeking tendencies. As Yakova details, the key component to this transformation was not simply the presence of public resources or EU standards, but particularly the ways in which the accession process supported core EU country associations and nongovernment actors, such as the EU-wide COPA-COGEC to help upgrade Czech firms and associations. For instance, early on, PHARE financed conferences and forums to enable representatives from EU and Czech associations to build professional ties. Although at the early stages there was little success for EU officials in transferring the EU model of interest group organization and mediation, these efforts did result in strengthening horizontal, transnational networks between the different Czech associations and their EU counterparts. These relationships became the vehicles through which PHARE and Twinnings channelled upgrading resources, allowing the EU associations with superior hands-on information and experience to establish regular programmes to train the Czech associations how to improve their organizational capabilities, influence government policies and provide services to their members. In turn, as much as the agenda-setting nature of EU accession awoke the dormant minorities, the coordinated multiplex investment into transnational, nongovernment networks empowered and upgraded the capacities of these Czech groups as well as a diversity of interest group representation. 2.6.1.2 NAFTA, Mexico and Food Safety NAFTA provided two major regulatory changes for Mexican food producers (Duina 2007; Lederman et al. 2005; Hubauer and Schott 2005). First, it phased out the antiquated form of government subsidies to producers and formally opened trade, with a 10- to 15-year phase out of relevant barriers. Second, Article 722 defined a full set of international food standards and established a new committee on Sanitary and Phytosanitary matters (SPS), but kept regulatory authority largely in the hands of national actors. Given this overall architecture, the mechanisms of integration in this policy domain closely reflect the overall scheme of NAFTA that we outlined earlier. First, the criteria are rather narrowly defined and not deep. While the broader issues of agriculture focus on lowering trade barriers and strengthening market forces, food safety focuses on the encouraged use of international standards but not on discussion about direct support or priorities in building the institutional capacity in, that is Mexico for public or private actors. Second, monitoring and assistance reside mainly at the national levels. The SPS committee has constrained capacity and scope. It is comprised of two representatives from each country, has limited resources and, indeed, met only seven times between 1994 and 1999. Its main role is to act as an intergovernmental coordinating body, focusing on reducing related trade barrier disputes. By default, the USDA, because of market size, is the most important actor.

2

Transnational Integration Regimes as Development Programmes

49

Third, the structure of interaction is dyadic – regardless of the level of prodding by the SPS. Cross-border initiatives reside principally via negotiations between the federal agencies in Mexico and the US. Hence, the logic for upgrading in this domain is that Mexican public and private actors would have strong incentives from market forces and the enforced standards of the US agencies to improve their practices at both the regulatory and firm levels. There have been four main consequences of the policies towards agriculture in general and food safety in particular. First, as has been well documented, the agricultural industry in Mexico has dramatically increased its sales to the US and Canada but also witnessed a dramatic consolidation, with significant increases in rural unemployment and poverty (Lederman et al. 2005; Studer and Wise 2007). Although the Mexican government enacted a limited rural support programme, large domestic and foreign firms quickly came to dominate the sector. These were the very actors that already had the distribution systems and resources to organize proprietary value chains and invest in the need capabilities, be they for improved efficiencies or for quality control. Second, the ability to meet new food safety standards was haphazard for most producers, be they suppliers to large chains or direct distributers. The most significant evidence of this was the continued ban on many Mexican products through the 1990s and recurring violations (or at least accusations) of USDA standards as late as 2002 – from health problems of US consumers eating contaminated Mexican strawberries and cantaloupes to concerns about pestilence and fungous from Mexican avocados, limes and mangos (Alvarez 2006; Calvin 2003; Stanford 2002). Part of this problem was due to the strong lobbying efforts by US producers. But another key reason was the lack of preparation on the part of the Mexican government not only to effectively monitor food safety practices but also to provide broad-based support for producers to meet the new standards. Third, the relevant agencies were clearly reactive and poorly coordinated. Mexican and US officials acted largely in response to violations, and when they did, it was dyadic and limited in scope. For instance, in reaction to violations, few subsequent programmes focused on research and detection standards over a short period of time. Indeed, the US agencies themselves appeared unprepared for cross-border capacity building and diffusion. The FDA, for instance, does not have a mandate to have countries exporting to the US mimic US procedures, nor does it instruct a violating firm how to correct the problem (Calvin 2003). In turn, the forces of change in Mexico come from those with pre-existing strong economic and political resources. On the one hand, the efforts to use alternative channels to improve food safety have been blocked for many producers. For instance, in the wake of the strawberry contamination in 1997, the California Strawberry Commission created a Quality Assurance Food Safety programme, but refused to allow the Mexican producers to partake in the commission or programme. On the other hand, the largest firms, which monopolize most of the distribution links with US firms, came to dominate support programmes and standards rule-making. For instance, Alvarez (2006) has documented that the large majority of mango and lime producers could not

50

L. Bruszt and G.A. McDermott

meet US standards not only because of cost constraints but also because the system that the US officials wanted in place would cause a massive reorganization of the orchards and storing locations. Large firms came to dominate the certification process. They had the resources to implement the new protocols. And they were able to control the relevant associations responsible for implementing key areas of the regulations. For instance, although the USDA and Mexican government helped establish EMEX, an organization that regulated packing sheds, provided assistance to packers, and promoted exporters, as it became a nonstate body, the largest exporter gained control by requiring that voting be proportional to the number of boxes exported. In turn, the relatively few largest exporters adopted standards, rules of certification and support programmes that served principally their own interests. Fourth, given the limited emphasis by NAFTA on capacity building and the weak cross-border coordination mechanisms, food safety has become a domain in which resources are directed towards trade disputes. That is, rather than devoting economic, political and social capital towards creating institutions to help improve and implement standards, public and private actors focus on discussing standards in terms of trade conflict. Sometimes Mexican officials have success in gaining greater market access for their products, but the benefits tend to accrue to the largest firms (Hufbauer and Schott 2005). A good example of these trends is the case of the avocado producers from the Mexican state of Michoacán, which accounts for 80% of Mexican avocados and about 40% of the world’s avocados (Stanford 2002). Until 1996, the US allowed Mexican avocados to be sold only in Alaska, for fears of spreading fruit flies. US and Mexican officials reacted to this source of conflict in two ways. First, US agencies collaborated with Mexican federal agencies to establish a limited research programme to conduct field experiments and monitor certain farms. These efforts helped clarify to the Mexicans the types of standards and practices the USDA required and educate the US actors about the variety of producers that could be certified. Second, although growers had historically been quite fragmented and poorly organized, they created an association in the 1990s to support certification efforts and lobby the state and federal governments for new regulatory laws and institutions. These efforts extended to the US, namely gradually convincing the USDA to allowing limited exports of avocados under strict conditions. However, the conditions meant that only 1% of the estimated 6,000 growers could meet these standards and enter the US market in 1997. By 2000, this number grew to only 8%, but represented the largest, most powerful exporters. At the same time, as these exporters vastly increased the volume of avocados shipped to the US, the prices for avocados dropped dramatically. In turn, although Mexican avocados have made in-roads to the US market, the large majority of producers have little power in the new association, little influence in the US or Mexican governments and fewer revenues to invest in the capabilities to meet the USDA standards. In sum, we find that the integration mechanisms of NAFTA, when applied to agriculture in general and food safety in particular, have allowed Mexico to increase its sales to the US, but have not been able to induce broad-based institutional

2

Transnational Integration Regimes as Development Programmes

51

upgrading – be it for regulation or supply-side support. In terms of our framework, there were few resources provided by NAFTA or the US government to the Mexican government and few channels of coordination and coalition building. On the demand side, the mechanisms allowed the most entrenched, powerful actors in Mexico to invest in new capabilities, develop international trade relations and lobby government officials to improve their market access and regulatory needs.

2.6.2 Regional Developmental Regimes in the New Member Countries The strengthening of regional development capacities epitomizes the ways in which the EU integration mechanisms create new policy fields in the aspiring member countries and also the conditions of sustained institutional change by way of empowering a diversity of local actors and including them in a transnational multilevel governance regime. As has been well documented (Hooghe 1996; Ansell 2003), the EU’s regional developmental policies, reformed in 1988, have aimed to reduce social and economic disparities within Europe by gradually distributing authority in developmental policy making towards mainly the supranational and subnational levels while ensuring coordination with national governments. To increase the likelihood that distributed authority would result in joint learning and monitoring, the creators of the new policies initiated programmes that focused on upgrading the skills and capacities of regional/local-level state and nonstate actors. The principles of disbursement made it difficult for national governments to use the related EU funds in completely hierarchical and centralized ways. Investing into the capacities of subnational state and nonstate actors empowered them to participate actively in ‘bottom-up Europeanization’. The introduction of territorial developmental institutions in the CEE countries constituted a de novo policy field. None of these countries had explicit regional developmental policies or institutions. Regional economic and social problems were addressed, if at all, primarily through centralized and uncoordinated sectoral programmes, which lacked the resources and skills to coordinate decentralized policymaking. There was limited demand-side pressure from below, as most regions lacked elected councils and subnational state and nonstate actors were weak and disorganized. In turn, regional development demanded the creation of new institutions with the knowledge and coordination capabilities to create and implement integrated developmental programmes with thousands of projects meeting the strict criteria of getting access to the otherwise nonnegligible EU funds.6 Such an undertaking

6

The commission’s conditionality on the way of introducing ‘partnership’ across the different levels of the state and between state and nonstate actors was the ‘soft’ part of the conditionality. On the other hand, issues of the administrative, management and monitoring capacities were nonnegotiable (Hughes et al, 2005).

52

L. Bruszt and G.A. McDermott

had several components: create new administrative regions; build the capacity to provide statistical information and analysis at all levels; coordinate policy among relevant national and subnational agencies; train bureaucrats at these different levels to design, implement and monitor developmental programmes; build a network of decentralized agencies to monitor the management and implementation of developmental programmes; create a diverse set of institutions to aid the generation of tens of thousands of projects that could fit in the framework of the developmental programmes, meet the administrative criteria of the EU and increase regional ‘absorption capacity’; and develop a network of sectoral and regional institutions for project quality pretesting and evaluation. While the EU’s Enlargement DG and Regional Policy DG oversaw the reforms, PHARE became a focused vehicle for supporting institution building. Relevant criteria were developed incrementally and iteratively, as EU experts and then local actors trained by the EU created measure to identify problems and suggest ways of solving them. Just as the annual comprehensive progress reports of the commission were complemented by domestic ones, the general problem-solving reports were complemented by dozens of commissioned studies focusing on the various details and specific aspects of transferring and implementing the EU rules. Similar to the process described in food safety, assistance and monitoring were both top-down and bottom-up to ensure a multiplex approach. On the one hand, the EU provided templates and training to central governments to establish administrative units with the capacity to generate and coordinate national development plans and diverse sectoral programmes as well as to evaluate the implementation of subnational development programmes. As the commission lacked the powers to enforce a particular institutional design, it had to adopt a differentiated approach relying on regular progress reports for cross-country comparisons. The commission also used the knowledge generated on the ground by specialists brought to the CEEs from the old member countries via the Twinnings Programs and by domestic agencies with personnel trained in the PHARE programmes. It was one of the goals of assistance from very early on to help diversify and multiply sources of monitoring institutional change. While the commission was itself divided on the issue of what constitutes progress in administrative capacities, the EU gradually developed measures to identify problems and suggest solutions that responded to practical experience. On the other hand, PHARE and Twinnings helped empower diverse subnational actors by providing them with information and skills via training and exchange programmes as well as including them in domestic and transnational projects with possibilities for intraregional and cross-regional networking. The beneficiaries of the assistance programmes included associations of small municipalities, local selfgovernments, regional authorities, cross-border alliances of diverse subnational units and different types of NGOs ranging from environmental organizations to those specialized in reducing social and economic exclusion. In our survey of subnational developmental partnerships done in the Czech Republic, Hungary and Poland, we found that nearly two-fifths of local self-governments and more than one-fourth of NGOs have participated in at least one pre-accession assistance programme.

2

Transnational Integration Regimes as Development Programmes

53

The scale of the EU support programmes set aside exclusively for NGO capacity building, with a yearly 1–2 million Euros per country, was rather modest in comparison to the resources provided to strengthening central governments’ administrative capacities. Nonetheless, a variety of PHARE programmes supported different forms of developmental collaboration between local and subnational state and nonstate actors. One of the goals of these programmes was to enhance subnational actors’ abilities to influence the making and implementation of regional developmental policies. In our aforementioned survey, we found that participation in EU pre-accession assistance programmes was the strongest predictor of participation in national and subnational developmental policies by subnational state and nonstate actors in the post-accession period. A side effect of these programmes was increased subregional ‘associativeness’– the creation of links among diverse types of domestic subnational actors and the proliferation of ties between them and different transnational actors. These ties facilitated producing complex integrated projects, experimenting with new institutional forms and lobbying for changes in goals or principles of developmental programmes. For instance, in the Czech Republic, three regions were selected in the framework of a PHARE assistance programme for the simulation of Regional Operational Programs (North West Bohemia, Northern Moravia and Central Moravia). In Hungary, PHARE experimented with programmes to enable the government to include actors from the ‘statistical regions’ in policymaking. PHARE assisted in the setting up of some of the first Regional Developmental Agencies in Hungary, and through PHARE the EU influenced the number and shape of the developmental regions as well as their organizational structure (Hughes et al. 2004). In Poland the encompassing PHARE Economic and Social Cohesion Program (ESC) played a similar role. As assistance and monitoring became increasingly multiplex, domestic national and subnational actors learned how to use ties in the transnational multilevel governance system to acquire information, get support for solving specific problems and become participants in transnational policy alliances pressing for modifications in local regional policies. Regions and diverse associations of nonstate actors, some of them created by pre-accession EU programmes, were quick to open official representations in Brussels, participating in the creation of monitoring reports. Even in Hungary, one of the most centralized among the new members without elected regions, bottom-up developmental alliances were formed by municipalities and a variety of nonstate actors. One of these alliances has already opened the first regional representation in Brussels, independent from the central government. By 2005, when preparations for the 2007–2013 plans started, the regional actors in the new member countries became vocal and successfully lobbied for decentralization of significant parts of regional development programming and implementation. Besides enabling subnational actors to use transnational alliances and the EU to leverage over national-level officials, the regional programmes helped create domestic allies for the bottom-up enforcement of the goals and principles of EU development policies and regulations. Rather than directly evaluate the details of tens of thousands of projects across the 10 new member countries, the commission

54

L. Bruszt and G.A. McDermott

has largely relied on the country reports and self-assessments of implementation. In particular, the EU relies on a diverse set of domestic actors to act as ‘watchdogs’ and extend the accountability of domestic governments (FERN 2000; Buskova and Pleines 2006).

2.7 Conclusions This chapter has attempted to offer a framework to compare the ways in which TIRs shape the institutional development of emerging market democracies in constructing the modern regulative state. As the evidence presented in Section 2.2 suggests, the divergent paths of development between Latin America and East Central Europe cannot be attributed solely to domestic factors. But rather than attributing this divergence to the strength of market incentives or hierarchical conditionality, our framework focused on four integration mechanisms of TIRs that can alter or conserve the supply and demand sides of institution building in the emerging market democracies. In doing so, we also aspired to introduce concepts that could be incorporated into development programmes and TIRs beyond those affecting Mexico and the postcommunist countries. We have argued that the postcommunist countries participating in the EU Accession Process have surpassed Mexico via NAFTA largely because of the ways in which the EU has emphasized the following: (a) the construction of institutional capacities in a variety of policy domains, instead of just policy outcomes; (b) the multiplex nature of assistance and monitoring; and (c) the investment into robust coordination among EU actors. The combination of these mechanisms has reshaped the supply side not only by affording governments access to diverse forms of knowledge and material resources but also by pushing them to build multilevel state capacities that can resist the pressures of powerful entrenched interests and open policymaking to weaker groups. They have reshaped the demand side by empowering a variety of state and nonstate actors to participate in institution building and recombine their resources. This was achieved not only through the vertical transfer of resources and rights but also through the concerted creation of multiple social, economic and political linkages among domestic and foreign state and nonstate actors. In contrast, NAFTA’s focus on a narrow set of policy goals and reliance on incentives derived from economic and political markets tended to reinforce the relative power of entrenched elites, whose superior economic and political resources allowed them to shape regulations and institutions towards their narrow interests. Naturally a key background condition becomes the commitment to multidimensional integration made, at least in these cases, by the advanced countries. But one should qualify the use of commitment in much of the same way we understood the use of ‘conditionality’. External commitment is not a binary concept, but iterative and constructive, closely linked to the experimental, incremental process of domestic institution building. The latter grows stronger as hurdles are overcome and progress made in the emerging democracy. Moreover, commitment from the

2

Transnational Integration Regimes as Development Programmes

55

‘big brothers’ is reinforced by the combination of adaptability and accountability in the TIR they promote. The relationship between evolving notions of conditionality and commitment can be seen in two important ways. First, we have stressed the institutional innovations used by EU in the governance of externally induced transformation of domestic institutions. Besides using high-powered incentives relying on markets and hierarchies, the experimental governance of transnational rule transfer within the EU nurtures and uses networks among empowered domestic actors both to detect problems in the implementation and to increase the chances for the sustainability of institutional change. Instead of depoliticizing institutional change and experimenting with externally imposed ‘institutional monocropping’ (Evans 2004), the EU invests in building capacities of domestic players on both the demand and supply sides, and it uses empowered domestic diversity to support transnational institutional convergence. Second, we have stressed the role played by a new form of ‘FDI’ (Foreign Direct Involvement): the inclusion of a large diversity of external state and nonstate actors in assisting and monitoring domestic institutional change. This combination of direct involvement of supranational actors in domestic institution building with enhancing capacities of domestic state and nonstate actors is a new and still understudied aspect of transnational economic development. The authors may be contacted at: Professor László Bruszt, Department of Political and Social Sciences, European University Institute, [email protected] and Gerald A. McDermott, Associate Professor, Sonoco International Business Department, Moore School of Business, University of South Carolina, gerald. [email protected].

Bibliography Alvarez, R., 2006, “The Transnational State and Empire: U.S. Certification in the Mexican Mango and Persian Lime Industries”, Human Organization, 65(1), 35–45. Amsden, A.H. (A. Hoffenberg), c. 2007, Escape from empire: the developing world’s journey through heaven and hell, Cambridge, Mass: MIT Press. Andonova, L.B., c. 2004, Transnational politics of the environment: the European Union and environmental policy in Central and Eastern Europe, Cambridge, Mass: MIT Press. Ansell, C., 2000, “The Networked Polity: Regional Development in Western Europe”, Governance, 13(2), 279–293. Anyul, M.P. and L.F. Punzo, 2001, Mexico beyond NAFTA: perspectives for the European debate, London, New York: Routledge. Bailey, D. and L.D. Propris, 2004, “A Bridge Too Phare? EU Pre-Accession Aid and CapacityBuilding in the Candidate Countries”, Journal of Common Market Studies, 42 (1): 77–98. Barth, J.R., G. Caprio, and R. Levine, 2006, Rethinking bank regulation: till angels govern, New York: Cambridge University Press. Berensztein, S. and M. Bohmer, 2004, “Institution Building: Twinning Projects- A Look at Europe and Latin America”, Working Paper, Series No. 3A, March. Borras, S. and H. Johansen, 2001, “Cohesion Policy in the Political Economy of the European Union”, Cooperation and Conflcit, 36 (1): 36–60.

56

L. Bruszt and G.A. McDermott

Bortolotti, B. and E. Perotti, 2007, “From Government to Regulatory Governance: Privatization and the Residual Role of the State”, The World Bank Research Observer, 22 (1): 53–66. Börzel, T. and T. Risse, 2000, When Europe Hits Home: Europeanization and Domestic Change EUI Working Papers.’ RSC No. 2000/56. Boycko, M., A. Shleifer, and R. Vichny, 1995, Privatizing Russia. Cambridge MA: MIT Press Bratton, M. and E.C.C. Chang, 2006, “State Building and Democratization in Sub-Saharan Africa: Forwards, Backwards, or Together?”, Comparative Political Studies, 39 (9): 1059–1083. Brown, D.S., J.C. Brown, and S.W. Desposato, 2008, “Who Gives, Who Receives, and Who Wins?: Transforming Capital Into Political Change Through Nongovernmental Organizations”, Comparative Political Studies, 41 (1): 24–47. Bruszt, L., 2002a, “Making Markets and Eastern Enlargement: Diverging Convergence?”, West European Politics, 25 (2): 121–140. Bruszt, L., 2002b, “Market Making as State Making: Constitutions and Economic Development in Post-communist Eastern Europe”, Constitutional Political Economy, 13: 53–72. Buskova, K. and H. Pleines, 2006, “Case Study: Czech Environmental NGOs and the EU”, in Pleines Heiko (ed.) Participation of Civil Society in New Modes of Governance Part 3 Forschungstelle Osteuropa Bremen Arbeitspapiere and Materialen. CEPAL, 2002, Globalization & development, Santiago: ECLAC. Caballero, R. and R. Dornbusch, 2002, Argentina: A rescue plan that works, Mimeo, MIT. Calvin, L., 2003, “Produce, Food Safety, and International Trade: Response to U.S. Foodborne Illness Outbreaks Associated with Imported Produce,” in J. Buzby, (Ed.) International trade and food safety: Economic theory and case studies. Washington DC: United States Department of Agriculture, Agricultural Economic Report 828 Chase, K.A., c. 2005, Trading blocs: states, firms, and regions in the world economy, Ann Arbor: University of Michigan Press. Cohen, J. and C.F. Sabel, 2003, “Sovereignty and Solidarity: EU and US” in Zeitlin, J. and Trubek, D. (Eds) From governing work and welfare in a new economy: European and American experiments. Oxford: Oxford University Press Collier, R.B. and S.P. Handlin, 2005, “Shifting Interest Regimes of the Working Classes in Latin America” Working Paper Institute of Industrial Relations, University of California, Berkeley. Dezalay, Y. and B.G. Garth (Eds.) c. 2002, Global prescriptions: the production, exportation, and importation of a new legal orthodoxy, Ann Arbor: University of Michigan Press. Djelic, M.-L. and K. Sahlin-Andersson (Eds.), 2006, Transnational governance: institutional dynamics of regulation, Cambridge: Cambridge University Press. Doner, R., B.K. Ritchie, and D. Slater, 2005, “Systemic Vulnerability and The Origins of Developmental States: Northeast and Southeast Asia in Comparative Perspective” International Organization, 59, 327–361. Duina, F., 2007, The social construction of free trade: The European Union, NAFTA, and Mercosur. Princeton, NJ: Princeton University Press. Easterly, W.R., 2006, The white man’s burden: why the West’s efforts to aid the rest have done so much ill and so little good, New York: Penguin Press. Ekiert, G., and S.E. Hanson (Eds), 2003, Capitalism and democracy in Central and Eastern Europe. Assessing the legacy of communist rule. Cambridge: Cambridge University Press. European Commission DG-General Enlargement, 2007, “Supporting Enlargement – What Does Evaluation Show? Ex post evaluation of Phare support allocated between 1999–2001, with a brief review of post-2001 allocations July 2007” http://ec.europa.eu/enlargement/pdf/ financial_assistance/phare/evaluation/consolidated_summary_report_phare_ex_post_eval.pdf Evans, P., 1995, Embedded autonomy: states & industrial transformation, Princeton, NJ, USA: Princeton University Press. Evans, P., 2004, ‘Development as Institutional Change: The Pitfalls of Institutional Monocropping and the Potentials for Deliberations”, Studies in Comparative International Development, 38 (4): 30–52.

2

Transnational Integration Regimes as Development Programmes

57

Evans P. and J. Rauch, 1999, “Bureaucracy and Growth: A Cross-National Analysis of the Effects of Weberian state structure on Economic Growth”, American Sociological Review, 64 (Oct): 748–765. FERN, 2000, “The EU Phare Programme” Forests and the European Union Resource Network; Briefing Note http://www.fern.org/pubs/briefs/phare.htm Gallagher, K.P., 2004, Free trade and the environment: Mexico, NAFTA, and beyond, Stanford, Calif: Stanford Law and Politics. Garcia-Martinez, M., N. Poole, C. Skinner, C. Illes, and J. Lehota, 2006, “Food Safety Performance in European Union Accession Countries: Benchmarking the Fresh Produce Import Sector in Hungary”, Winter 2006, 22 (1): 69–89. Garett, G., 1998, “Global Market and National Politics: Collision Course of Virtuous Circle?”, International Organization, Autumn: 787–824. Gatzweiler, F.-W., R. Judis, and K. Hagedorn, (Eds.), 2002, Sustainable Agriculture in Central and Eastern European Countries: The Environmental Effects of Transition and Needs for Change. Institutional Change in Agriculture and Natural Resources, vol. 10. Aachen, Germany: Shaker. Grugel, J., 2004, “New Regionalism and Modes of Governance- Comparing US and EU Strategies in Latin America”, European Journal of International Relations, 10 (4): 603–626. Hall, P.A., and D. Soskice (Eds), 2001, Varieties of capitalism, The institutional foundations of comparative advantage. Oxford: Oxford University Press. Heil, P., 2000, PHARE in Hungary: The anatomy of a pre-accession aid programme, 1990–1999. Unpublished PhD Dissertation, Budapest. University of Economics. Hellman, J., 1998, “Winners Take All: The Politics of Partial Reform in Postcommunist Transitions”. World Politics, 50(2), January, 203–234. Hooghe, L. (Ed.), 1996, Building a Europe with the regions: the changing role of the European Commission. Oxford: Oxford University Press. Hufbauer, G.C. and J.J. Schott assisted by P.L.E. Grieco and Y. Wong, 2005, NAFTA Revisited: Achievements and Challenges, Peterson Institute. Hughes, J., G. Sasse, and C. Gordon, 2004, Europeanization and regionalization in the EU’s enlargement to Central and Eastern Europe: the myth of conditionality. Basingstoke: Palgrave Macmillan. Jacoby, W., 2000, Imitation and politics: redesigning Germany, Ithaca, NY: Cornell University Press. Jacoby, W., 2004, The enlargement of the European Union and NATO: ordering from the menu in Central Europe, Cambridge; New York: Cambridge University Press. Jordana, J. and D. Levi-Faur, 2005, “The Diffusion of Regulatory Capitalism in Latin America: Sectoral and National Channels in the Making of a New Order”, The Annals of the American Academy, 598: 102–124. Karl, T., 2006, “From Democracy to Democratization and Back”, in Colin Crouch and Wolfgang Streck (eds.), Diversity of democracy: in honor of Philippe C. Schmitter, London: Elsevier. Karl, T., 2008, “The Vicious Cycle of Inequality in Latin America”, in Susan Eva Eckstein and Timothy P. Wickham-Crowley (eds.), The politics of injustice in Latin America, Berkeley: University of California Press, forthcoming. Kaufmann, D., A. Kraay, and M. Mastruzzi, 2004, “Governance Matters III: Governance Indicators for 1996, 1998, 2000, and 2002” The World Bank Economic Review, 18(2), 253–284. Keleman, D., and A. Tarrant, 2007, “The Politics of Eurocracy: Designing EU regulatory agencies and networks” Paper presented at the European Union Studies Association Convention, Montréal, Canada, 18–20 May 2007 Kelley, J., 2006, “New Wine in Old Wineskins: Promoting Politica Reforms through the New European Neighbourhood Policy”, Journal of Common Market Studies, 44 (1): 29–55. Lederman, D., W.F. Maloney, and L.L. Servén, 2005, Lessons from NAFTA for Latin America and the Caribbean, Washington, DC: World Bank; Stanford: Stanford University Press. Levi-Faur, D., 2005, “The Global Diffusion of Regulatory Capitalism”, The Annals of the American Academy, 598: 12–32.

58

L. Bruszt and G.A. McDermott

Levi-Faur, D., 2006, “Regulatory Capitalism: The Dynamics of Change beyond Telecoms and Electricity”, Governance: An International Journal of Policy, Administration, and Institutions, 19 (3): 497–525. Levi-Faur, D. and J. Jordana (Eds.), “The Rise of Regulatory Capitalism: The Global Diffusion of a New Order”, Quick Read Synopsis Prepared by Herb Fayer (Consultant). Majone, G., 1996, Regulating Europe, London: Routledge. Mann, M., 1984, “The Autonomous Power of the State: Its Origins, Mechanisms, and Results”, Archives européenes de sociologie, 25: 185–213. Mansfield, E.D. and H.V. Milner (Eds.), 1997, The political economy of regionalism, New York: Columbia University Press. Mattli, W., 1999, The logic of regional integration: Europe and beyond. New York: Cambridge University Press. Mayhew, A., 1998, Recreating Europe: the European Union’s policy towards Central and Eastern Europe. Cambridge: Cambridge University Press. McDermott, G.A., 2007, “The Politics of Institutional Renovation and Economic Upgrading: Recombining the Vines that Bind in Argentina,” Politics and Society, 35(1), 103–143. McDermott, G.A., 2002, Embedded politics: industrial networks and institutional change in postcommunism. Ann Arbor, MI: University of Michigan Press. McDermott, G.A., 2004, “Institutional Change and Firm Creation in East-Central Europe: An Embedded Politics Approach” Comparative Political Studies, 37(2), 188–217. Mishev, P. and E. Valcheva, 2005, “Origin-labeled Products – Food Quality and Food Safety in Bulgaria”, Society and Economy, 27 (3): 299–308. Mosley, L. and S. Uno, 2007, “Racing to the Bottom or Climbing to the Top? Economic Globalization and Collective Labor Rights”, Comparative Political Studies, 40 (8): 923–948. Moss, D., 2002, When all else fails: government as the ultimate risk manager. Cambridge: Harvard University Press. North, D., and B. Weingast, 1989, “Constitutions and Credible Commitments: The Evolution of the Institutions of Public Choice”, in Alston, L.J. (Ed.) Empirical studies in institutional change. Cambridge: Cambridge University Press. Orenstein, M., S. Bloom, and N. Lindstrom (Eds), 2008, Transnational actors in Central and East European transitions. Pittsburgh: University of Pittsburgh Press Organization for Economic Co-operation and Development, 2007, “Getting It Right: OECD Perspectives on Policy Challenges in Mexico” Pastor, R.A., 2001, Toward a North American community: lessons from the Old World for the New. Washington, DC: Peterson Institute. Piore, M., and C. Sabel, 1984, The second industrial divide. New York: Basic Books. Pistor, K., 2000, ‘The Standardization of Law and Its Effect on Developing Economies’ G-24 Discussion Paper Series N4 Research papers for the Intergovernmental Group of Twenty-Four on International Monetary Affairs. Przeworski, A., 1991, Democracy and the market; Political and economic reforms in Eastern Europe and Latin America. New York: Cambridge University Press. Republica Argentina. Central Bank of Argentina, 2004, “The Private Sector Foreign Debt 2001– 2003: Statistics from the Central Bank Debt Survey”. República Argentina. Dirección Nacional de Cuentas Internacionales, 2003, “La Inversión Extranjera Directa en Argentina 1992–2002”. Riaian, S., 2000, “The Flexible Developmental State: Globalization, Information Technology”, Politics Society, 28: 157–193. Rodrik, D., A. Subramanian, and F. Trebbi, 2002, “Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development” Kennedy School of Government, Harvard University. Sabel, C., 1994, “Learning by Monitoring: The Institutions of Economic Development.” in N. Smelser and R. Swedberg, (Eds), Handbook of economic sociology. Princeton: Princeton University Press and Russell Sage Foundation, pp. 137–165.

2

Transnational Integration Regimes as Development Programmes

59

Sabel, C.F. and J. Zeitlin, 2007, “Learning from Difference: The New Architecture of Experimentalist Governance in the European Union”, Working Paper No. 2007-020, La Follette School, Forthcoming as a European Governance (EUROGOV) Working Paper, Revised May 7, 2007. Saxenian, A., 1994, Regional advantage: Culture and competition in Silicon Valley and Route 128. Cambridge, MA: Harvard University Press. Schimmelfennig, Frank, and Ulrich Seidelmeier (Eds), 2005, The Europeanization of Central and Eastern Europe, Ithaca, NY: Cornell University Press. Schimmelfennig, F. and U. Sedelmeier, 2002, “Theorizing EU Enlargement: Research Focus, Hypothesis and the State of Research”, Journal of European Public Policy, 9: 500–528. Schneider, B.R., 2004, “Varieties of Semi-Articulated Capitalism in Latin America”. Paper presented at the Annual Meeting of the American Political Science Association, Chicago, September 2–5. Schwarts, H., 2007, “Dependency or Institutions? Economic Geography, Causal Mechanisms, and Logic in the Understanding of Development”, Studies in Comparative International Development, 42: 115–135. Sedelmeier, U., 2002, “Sectoral Dynamics of EU Enlargement: Advocacy, Access and Alliances in a Composite Policy”, Journal of European Public Policy, 9: 627–649. Sedelmeier, U., 2006, “Europeanisation in New Member and Candidate States”, Living Reviews in European Governance, 1 (3), http://www.livingreviews.org/lreg-2006-3, cited on 12.10.2007. Stanford, L., 2002, “Constructing ‘Quality’: The Political Economy of Standards in Mexico’s Avocado Industry”, Agriculture and Human Values, 19: 293–310. Stark, D. and L. Bruszt, 1998, Postsocialist pathways: transforming politics and property in East Central Europe, New York and Cambridge: Cambridge University Press. Streeck, W. and P.C. Schmitter, 1985, “Community, Market, State – and Associations?: The Prospective Contribution of Interest Governance to Social Order”, European Sociological Review, 1 (2): 214–243, September 1985. Studer, I. and C. Wise (Eds.), c. 2007, Requiem or revival?: the promise of North American integration, Washington, DC: Brookings Institution Press. Sunstein, C., 1990, After the rights revolution. Cambridge, Boston, MA: Harvard University Press. Tendler, J., 1997, Good government in the tropics. Baltimore, MD: Johns Hopkins University Press. Tovias, A. and M. Ugur, 2004, “Can the EU Anchor Policy Reform in Third Countries?: An Analysis of the Euro-Med Partnership”, European Union Politics, 5 (4): 395–418. Vachudova, M.A., 2005, Europe undivided: democracy, leverage, and integration after communism, Oxford; New York: Oxford University Press. Yakova, I., 2005/2006, “Czech Republic, ‘Europe’ and its farmers: How is Agricultural Interest Intermediation Affected by Accession to the EU”, European Political Economy Review, 3 (2): 112–142.

Chapter 3

From Employee Governance to Corporate Governance: Transnational Forces and the Polish Corporate Governance Debates Since the 1980s Arjan Vliegenthart

3.1 Introduction This chapter discusses the corporate governance debate in postsocialist Poland in the light of processes of transnationalization. With the collapse of state socialism at the end of the 1980s, the countries in Central Europe faced a wide variety of ‘transition models’ from which they could choose. As Marangos (2004) points out, the former state socialist countries were to choose from a broad array of economic arrangements ranging from the introduction of a neoliberal market economy to a pluralistic socialist model, to mention but two totally different systems. This chapter aims to broaden our insights of why countries choose their distinct path. More concretely, it focuses on corporate governance debates, that is policy discussions on the distribution of ownership and control. Such debates have been of vital importance in the context of Central Europe, where the collapse of state socialism and its replacement with a decentralized market economy fundamentally altered the role of the firm within the economy. It seeks to establish what kind of corporate governance concepts featured in these debates and which corporate governance in the end prevailed and was translated into actual corporate governance policies. Poland in this respect provides an important opportunity to study this process. In general, the country’s economic transformation towards a capitalist market economy provides ‘an excellent laboratory to analyze the diffusion and innovation of corporate governance practices’ (Aguilera 2005: 41), but with regard to corporate governance regulation, there are two additional arguments. First, Poland was among the first postsocialist states to introduce corporate governance regulation and has been among the forerunners in the region ever since (Kozarzewski 2007). Poland is even pointed out as an example for other postsocialist states to follow (Dzierz˙ anowski and Tamowicz 2003). Second, the Polish case presents a concrete example of explicit policy discussions over the ‘right’ kind of corporate governance regulation for the postsocialist restructuring process, whereas in other cases

A. Vliegenthart (B) Vrije University Amsterdam, The Netherlands e-mail: [email protected] L. Bruszt, R. Holzhacker (eds.), The Transnationalization of Economies, States, and Civil Societies, DOI 10.1007/978-0-387-89339-6_3,  C Springer Science+Business Media, LLC 2009

61

62

A. Vliegenthart

these debates were less outspoken (Lewandowski 1997; Wedel 2003). This allows to scrutinize more closely the underlying mechanisms of corporate governance politics. As I will demonstrate in this chapter, three distinct corporate governance concepts featured in the Polish debates since the early 1980s: a state socialist concept that was part and parcel of the state socialist system, an employee ownership concept that was brought to the debates by the Solidarity trade union movement during the early 1980s and an external ownership model that was advocated by a group of Polish economists and subsequently backed by international institutions such as the International Monetary Fund (IMF), the World Bank (WB) and the European Commission (EC). Whereas the employee ownership concept enjoyed wide support among the Polish population, it never materialized into corporate governance regulation. Instead, the emerging Polish corporate governance model was highly inspired by the external ownership model. This chapter sets out to investigate this development. Why did Polish policy makers opt for a corporate governance system which has been based on external ownership, whereas there were also different models available? The main point this chapter seeks to make is that these Polish policy discussions have been deeply influenced by various transnational forces. These forces have had considerable impact on the Polish balance of power, strengthening those actors that pushed for a Western style of corporate governance where ownership and control do not rest in the hands of the state or the workers of a company. Transnational actors such as the IMF, the WB and the EC introduce a transformative agenda for the postsocialist economies that moves beyond the existing historical, economic and cultural heritages. The introduction of a corporate governance system that was conducive to external ownership fits into a more general translation of neoliberal thoughts and practices into the postsocialist context (see also Shields 2004; Soederberg 2003). At the same time, the neoliberal environment in which this transformation occurred is by itself not enough to explain the Polish events. The effectiveness of transnational corporate governance ideas rests on its ability to engage into effective coalitions with internal forces. The interplay between Polish policy makers is of key importance if we want to understand the process of economic transformation that has been taking place since the late 1980s. In this respect, this chapter challenges much of the existing corporate governance literature that (implicitly) departs from apolitical description of corporate governance issues. Here corporate governance issues are discussed in terms of their economic efficiency (Estrin et al. 2000: 1; see also Mallin 2000 and Boycko et al. 1996). Moreover, they are treated as a national affair and at best only related to other national institutional debates. As Shields (2004: 132) has rightly argued, transnational forces in most of the postsocialist literature are considered as ‘an external concern . . . in a secondary constraining sense rather than determining’. This study, however, points out the key importance of these forces and their interaction with internal actors in the reconstructing of states, societies and economies in postsocialist Europe. In this respect, this chapter is closely linked to argument Jan Drahokoupil puts forward in his contribution to this volume. Both chapters see the process of

3

From Employee Governance to Corporate Governance

63

postsocialist economic restructuring as a part of the transnationalization of the state, that is a process of state restructuring that is aimed at securing transnational capital a privileged access to the national economy. Such a process is brought about by a dialectical interplay between neoliberal transnational forces and their internal allies in the Polish state and society. The empirical evidence in this study is – apart from an analysis of the relevant corporate governance documents and an extensive literature review – largely based on two sets of interviews with Polish and transnational corporate governance practitioners, which were conducted in 2006 and 2007. In this regard, I have spoken to specialists at the World Bank, the International Finance Corporation (IFC) and large international banks. Moreover, I have spoken to Polish corporate governance experts from different professional fields (journalists, financial experts and institutional investors working in and around the Warsaw stock exchange) on the basis of open interviews on topics of their expertise. Based on their information, I have adopted a process-tracing approach, in order to establish the mechanisms behind the spread of the Polish corporate governance concept and subsequent regulation (following George and Bennett 2005: 179). The remainder of this chapter is organized as follows. First, I will go into the question how we can theorize these developments in the light of what I call the transnational political economy of corporate governance regulation. I will point out that corporate governance debates in a postsocialist context cannot be understood as a merely national affair, but that they are embedded in a transnational discourse on what constitutes ‘good’ corporate governance, a notion that in practice results in the spread of corporate governance arrangements that safeguard the interests of transnational capital in emerging market economies (Section 3.2). Subsequently, I will briefly discuss the three corporate governance concepts that have featured in the Polish policy debates since the 1980s (Section 3.3). Third, I will sketch the policy discussions over these corporate governance concepts. Various transnational actors have impacted deeply on these debates, which have led to the dominance of an external ownership model (Section 3.4). Section 3.5 concludes.

3.2 Theorizing the Impact of Transnational Actors on the Polish Corporate Governance Debate: The Transnational Political Economy of Corporate Governance Regulation This chapter’s central notion is that the postsocialist economic restructuring can only be adequately understood as a transnational process. The term transnational in this respect refers to the notion that political processes in a globalizing world are no longer fundamentally defined by national boundaries, but occur simultaneously at sub-national, national and international levels that are integrated through structures and forces that simultaneously operate at different levels (Van Apeldoorn et al. 2007: 6–7). As a result, the division between these divisions gets increasingly blurred; politics is not confined to national boundaries, but is transnationally constituted as

64

A. Vliegenthart

Jan Drahokoupil also points out in his chapter, and national regulation can thus no longer be understood as the result of national processes, but needs to be understood as the outcome of processes at various levels. This implies, more concretely, that we need to study the interplay between national processes and actors, including national historical legacies and transnational processes and actors that are fundamentally shaped by the neoliberalist thought and practices for the period of this study. In this section, I will lay down some of the mechanisms that underlie the kind of interaction between transnational and national forces that will be explored empirically in the remainder of this chapter. The transnational actors that are studied in this chapter are embedded in an environment that is often characterized as ‘neoliberal’. Neoliberalism in this respect refers to both ideas and policies that equate the interest of capital to the general interest (following Overbeek 2004). It is therefore not a surprise that, according to Soederberg (2003: 8–9), transnationally generated concepts of ‘good’ corporate governance in emerging market economies serve the following two mutually reinforcing goals. First, they seeks to ensure that these economies play by the exigencies of the neoliberal market economy. Second, by promoting the importance of ‘shareholder value’ rather than the interests of other stakeholders within the firm, they protect the interests of (predominantly foreign) investors. In this respect, it fits into a wider model of how national institutional frameworks ought to look like in the age of global neoliberalism. To be successful, states are considered to meet the criteria set by transnational capital: open markets and adequate institutional safeguardings for (foreign) investors. These transnational concepts of what constitutes good corporate governance are the result of a process of consensus formation in international organizations such as the IMF, the World Bank and the OECD (see Soederberg 2005) and are transmitted to different national contexts in various ways where they are translated into distinct national policies. They involve the transfer of policies and ideologies through transnational policy networks (Stone 2002: 7), are brought along with transnational corporations entering the country (Meyer 2000) or are part of the membership criteria of certain international organizations (Grabbe 2003) to name the three most important mechanisms that reflect both the structural component as well as the actor-related component of transnational involvement. It is this dual process that is captured in the concept of the transnationalization of the state. It relates not only to processes of consensus formation at the international level that take place through official (interstate) bodies, but also to the implementation of an emerging consensus into different national contexts (Cox 1992). Such implementation requires – among others – a restructuring of the state apparatus in the sense that those state agencies that have close connections to the world economy gain importance vis-àvis those agencies that cater primarily for internal constituencies (Cox 1987: 253). Along similar lines we can also expect that actors with close ties to transnational forces that represent this global consensus gain strength vis-à-vis those actors who do not. The outcomes of the Polish corporate governance debates can be seen as the result of the interaction between transnational actors that are embedded within

3

From Employee Governance to Corporate Governance

65

this world economy and national alliances. This sets the Polish developments in a wider context of a global restructuring process that has been taking place since the late 1970s and that is now generally under the heading of neoliberalism. The outcomes of the Polish debates can also be considered as implementation of neoliberalism in a postsocialist context (see also Shields 2003, 2004). The introduction of marketization principles in the Polish corporate governance system and the acceptance of the rules of market over other organizing principles and the prioritization and institutional safeguarding of capital are part and parcel of neoliberal thoughts and practices. The kind of corporate governance regulation that underpins these developments in Poland during the last two decades exemplifies the way in which neoliberalism spread throughout postsocialist Europe in the 1990s and 2000s (Vliegenthart and Overbeek 2007; Drahokoupil 2008). This is not to say that the Polish processes are predetermined by what happens in international organizations. First, because the general consensus on what constitutes good governance does not need to be a one-to-one prescription of what needs to be done in each individual country. Rather than providing regulatory templates, such a consensus lays out certain general goals and points reformers into a certain direction. Second – and of greater importance – is the fact that the kind of consensus mentioned above does not go without political contestation. Its implementation is by no means always successful or complete as it always runs the risk of running into internal opposition that might even be rooted in an alternative transnational network and policy discourse. Therefore, the starting point of the empirical analysis rests on the national level where we actually witness the interplay between transnational and internal forces. It is important to stress this last point. In many accounts of transnationalization, the ‘transnational’ is discussed as operating outside the national realm. Such a conceptualization is inadequate to capture the developments in postsocialist Europe. Rather than operating from the outside and leaving an imprint on domestic structures through conditionalities and other restrictions, transnational actors have actually actively shaped the Polish corporate governance debate from within (following Panitch 1996). This does not imply that transnational actors operate against national forces and national political, economic, social and cultural traditions. Rather it means that the success of transnational actors rests on the indigenous support they are able to obtain among national politicians, policy makers and academics. It is their interplay with those forces that needs to be studied in order to capture the success and failure of transnational forces in the restructuring of the postsocialist landscape. Therefore, the developments discussed in this chapter cannot be understood without a specific knowledge of distinct history and culture of the region that also impact on these discussions. It is the mixture of these distinct national configurations and transnational forces that gives this case its particular ‘flavour’. Despite its transnational embedding, postsocialist states remain to have their own base, rooted within their national constituency. It this respect, this chapter theoretically paraphrases what the French historian Bayart (1993: 260) has said on the state in Africa: the postsocialist states rest on autochthonous foundations and a process of reappropriation of institutions

66

A. Vliegenthart

of transnational origin which gives it its own historicity; it can no longer be taken as a purely exogenous structure.1 In Section 3.4, I will discuss the interplay between transnational and internal forces and how transnational ideas of what constitutes a proper corporate governance framework shaped the postsocialist debates. Before doing so, I first elaborate on the different corporate governance concepts that featured during the policy debates since the 1980s. These concepts help us to identify some of the alternatives faced by Polish policy makers. Each of these concepts adheres to a different political ideology and enjoys internal support by different groups within the Polish society.

3.3 Three Corporate Governance Concepts Corporate governance issues play an important role in any economy as they relate to the role of the firm in society (Albert 1991), a subject that often provokes policy discussions. This is even more keenly the case for countries that are in a process of redefining their essential economic mechanisms. In postsocialist Europe, the introduction of private property in place of state ownership has altered the role of the firm dramatically. Such a transformation introduces actors and institutions such as shareholders and stock exchanges that were unknown during the state socialist period and subsequently alters the balance of power between the different stakeholders within the firm, such as workers, owners and the state. In this section I briefly discuss the three corporate governance concepts that have dominated the Polish policy debates. I have arrived at these three concepts inductively on the basis of the empirical account, but for reasons of clarity I will first clarify their main features. I use the notion of a corporate governance concept to identify the different corporate governance arrangements that have featured during the debate in Poland since the late 1980s. The term corporate governance concept refers to an ideal set of ideas on the role of the firm within society. It – among others – contains ideas on who ought to be the rightful owners of a corporation and what ought to be the driving mechanisms behind corporate activities. Corporate governance concepts more or less consistently characterize the contours of a desired corporate governance model in which these issues are regulatorily addressed. Arguably, a corporate governance concept does not contain a full and complete overview of the necessary corporate governance institutions but rather points in a certain direction when it comes to the question of what policies are to be desired. Corporate governance concepts function as a compass in political debates where they are translated into distinct corporate governance policies. Such translations are not always unproblematic as a compass always only points to a direction but never informs us when the destination is reached. Moreover, corporate

1

The only alteration from the original quote is based on the reference Bayart to colonial past Africa, which I have replaced by the word ‘transnational’.

3

From Employee Governance to Corporate Governance

67

Table 3.1 Three concepts of corporate governance

Owner of the enterprise Highest decision-making platform Driving force behind corporate activities Relation to privatization issues Transnational embedding

State Socialist

Employee Ownership

External Ownership

State

Workers

Shareholders

Government

Works Council

Shareholders meeting

Central planning

Self-management

Market forces

No privatization needed Soviet Bloc

Employee privatization

Capital privatization

Global labour movement

Neoliberal consensus

governance concepts can contain different corporate governance principles that are theoretically combined but which contradict each other in their practical translation. This, however, seems to be an adequate representation of political debates that are often dominated by broader notions of the ‘good’ that initially lack accompanying practical policies that are only constructed in the run of the policy-making process. Table 3.1 introduces three corporate governance concepts that have featured in the Polish corporate governance debates. These three concepts are quite different with regard to essential aspects. They advocate different owners and argue for distinct decision-making processes, which result in diverse mechanisms that determine corporate activities. First, there is the state socialist corporate governance concept, which has been dominant in ECE during much of the post–World War II period and which has directed corporate governance policies until 1989 (Marangos 2004: 10–12). The state socialist corporate governance concept argues for state ownership and control over firms, as they are to operate in the interest of the general public as it is defined by the state (Thompson and Smith 1992). Due to the superiority of state planning over market forces in this model, central bureaucratic planning is to determine the kind of production and the necessary investments. In this model, privatization is unnecessary, as ownership ought to remain in the hands of the state. Historically speaking, the state socialist concept has been an integral part of the state socialist policies, as they existed in those countries that belonged to the Soviet Bloc between 1945 and 1989. These policies were endorsed by the Soviet Union that acted as a regional hegemon during this period. Officially, substantial reforms were ruled out as Soviet authorities considered themselves the protectors of the systems and occasionally showed their willingness to uphold the system with coercive means as the events in Hungary in 1956 and Czechoslovakia in 1968 demonstrated. In practice, however, there existed a substantial gap between the state socialist regulation and the actual practices. In this chapter the state socialist corporate governance concept will feature as a background model. At the start of the 1980s, this concept already had the most of its appeal among the general public. The mismatch between the state socialist ideological rhetoric that supported this concept and the practical

68

A. Vliegenthart

(non-)implementation had effectively undermined the general public’s confidence that this concept would ever function in practice. The second corporate governance concept that will figure in this chapter is the employee ownership concept. In this concept the workers in the firm are also the owners of its assets and production process (Smith 1994). Key decisions are to be made in a meeting where all workers are represented, normally the works council. This kind of self-management determines how the production is to be organized and what kind of investments are to be made. As this corporate governance concept argues for employee ownership, its adherents advocated the privatization of the Polish state firms through schemes that transferred ownership rights to the workers. According to the adherents of the employee ownership concept, such privatization schemes would be the best way to protect the rights of the employees while increasing the economic efficiency of the former state enterprises. As we will see in the next section, this concept made its appearance in the early 1980s as part of the rise of the Solidarity trade union that protested the then existing state socialist practices. Employee ownership is a way of establishing workers’ representation through ownership (Aguilera and Jackson 2003: 456). Throughout the postwar period, trade unions in Western Europe have advocated this model of corporate governance as a way of ‘influencing strategic decision making and restricting management’s largely “unchecked independence”’ (Faleye et al. 2006: 495). The last concept that will feature in this chapter is the so-called external ownership concept.2 In this concept, it is neither the state nor the workers that own the corporation but rather external shareholders that have acquired the corporation by buying its shares on the stock market. As the bearers of the residual rights, shareholders are to approve strategic decision making in annual shareholders’ meeting. As shareholders benefit from the maximization of their assets, market forces that push for such maximization are the driving forces when it comes to providing the impetus for corporate activities. During the privatization debates, adherents of this concept advocated rapid capital privatization, that is the sale of state corporations to the highest bidders. According to the adherents of the external ownership concept, the sooner the state corporations would be in private hands, the better it would be. Private ownership would start a process of industrial restructuring that would lead to an efficient functioning of these enterprises. The external ownership concept bears the closest resemblance to the neoliberal ideas of what constitutes a good corporate governance framework. The implementation of the privatization policies mentioned above in combination with the liberalization of the economy to foreign capital opens the economy for (foreign) investors that seek the highest profit rates for their investments. In this respect it serves the two goals Soederberg mentioned in the previous section. The external ownership advocates the free flow of (transnational) capital can flow in and out of 2

Please note that the notion of external ownership still allows for substantial variation in actual ownership structures, ranging from highly dispersed ownership to large block holders (see for instance Andreff 2007). The main element of outside ownership rests on the separation between ownership on the one hand and management and employees on the other.

3

From Employee Governance to Corporate Governance

69

firms and economies and ensures the rights of the providers of capital, rights that lie at the heart of neoliberal thoughts and practices.

3.4 Competing Corporate Governance Concepts and the Role of Transnational Actors All three of the corporate governance concepts discussed above have featured in the Polish policy debates since the early 1980s. Whereas the state socialist concept continued to figure as a benchmark for corporate governance policies throughout the 1980s, it came under increasing pressure due to continued economic problems and political contestation. With the collapse of state socialism, the two other corporate governance concepts that had been developed during the 1980s dominated the debates. As the economic transformation gained pace during the 1990s, it was the external ownership concept that provided most intellectual input for policy reforms as it had the benefit of substantive support from transnational forces. At the end of the 1970s, the Polish economic system stood under increasing pressure. The strategy of the state socialist government to facilitate economic growth and industrial upscaling through importing debt-financed technologies from Western Europe ran into large economic problems (Shields 2006). Between 1979 and 1983 the national GDP dropped more than 25% (World Bank 1987), which resulted in large-scale political unrest that was accompanied by a substantive discussion on how economic reforms were to enhance economic recovery. These discussions continued throughout the 1980s and did not wane after General Jaruzelski had seized power in 1981 and effectively suppressed political activity for most of the 1980s. In this respect the Polish trade union Solidarity played an important role. In its 1981 manifesto ‘The Directions of Solidarity’s Operations in the Current Situation’, which expressed clear commitment to both the democratic and the worker’s movement, the trade union laid down clear goals with regard to the question how the Polish enterprises ought to be run. Though the term corporate governance was not explicitly mentioned, it introduced the concepts such as employee self-management (Kowalik 1994: 137) and social ownership (Garton Ash 2002: 236–237) that were to provide the building blocks of a reformed corporate governance system. It rejected privatization to actors other than employees. Management teams were to be appointed through democratically elected work councils. ‘The goal of competitive self-management was the means of creating both stable property relations and establishing a system in which responsibility for decision making, and knowledge of the complexities and demands made by market competition, were facilitated by access to all records and information’ (Glasman 1994: 72). These ideas enjoyed broad popular support among the Polish population that considered these plans a realistic alternative to the state socialist concept. The concepts put forward were strongly rooted in the Polish radical union tradition since 1945 (Rainnie and Hardy 1995: 268). At the same time, there were also those who opposed the state socialist model, but favoured a different type of reform. Instead of handing over the ownership of state

70

A. Vliegenthart

enterprises to employees, they advocated quick privatization of state enterprises to external owners. Subsequently, market forces would be able to ensure effective economic restructuring and – in the end – a durable economic growth. This group consisted partly of economists within the Solidarity trade union that throughout had abandoned the idea of self-ownership of employees and partly of economists outside the opposition movement.3 As Bockman and Eyal (2002) have pointed out, such groups of intellectuals had close contacts with leading policy makers and academics in Western Europe and the US. These two different corporate governance concepts were set to dominate the policy debates after the collapse of the state socialism. The employee governance concept seemed to be in an advantageous position given its support – especially among the lower cadres of Solidarity that had been influential in overthrowing the state socialist regime (Orenstein 2001). However, this concept was gradually defeated by the coalition of Polish intellectuals and transnational actors who dominated the policy debates in the early years of transformation. Stuart Shields (2006: 475) in this respect refers to passive revolution in which ‘those social forces most intimately associated with transnational capital, irrespective of their party or social position, that became the most successful in the struggle over competing reform strategies’. At the end of the 1990s the external ownership concept would turn out to be the leading corporate governance concept that guided the corporate governance reforms that aimed at strengthening the position of (minority) shareholders vis-à-vis other stakeholders within the firm. Table 3.2 in this respect provides an overview of the postsocialist governments in relation to the corporate governance strategies they pursued.

3.4.1 Early Privatization Plans At the end of the 1980s, state socialist leadership in Central Europe slowly adapted to the idea that an overhaul of state socialist policies was the only way to maintain social peace in a system that was fundamentally undermined by a lack of internal support. To facilitate such a transformation, the leaderships in the region organized round table discussions with leading members of the oppositions and intellectuals during which a peaceful transition to a postsocialist order could be discussed (Stark 1992). In the Polish case, intellectuals with contacts to Western academics and policy makers were explicitly invited to join the round table discussions that were to settle a peaceful transition from a state socialist planned economy to a market-oriented democracy (Boughton 2001: 991). Moreover, Western economists were requested to attend the discussions. People like Jeffrey Sachs, the Harvard professor who had very tight links with international financial organizations such

3

With regard to the first group, Marc Weinstein (2000) mentions the names of Lewandowski, Szomburg, Bielecki and Merkel. With regard to the second group we can think of people such as Balcerowicz (see also Balcerowicz 1995).

3

From Employee Governance to Corporate Governance

71

Table 3.2 Postsocialist governments and corporate governance issues Type of Government

Prime Minister

Years

Mazowiecki

8/1989–4/1991

Bielecki

4/1991–12/1991 Care-taker government

- Policies aimed at resisting labour management and large-scale privatization with important employee ownership - Continued resistance in parliament

Olszewski

12/1991–6/1992 Right-centre

- Increasing attention for ‘vital national interests’ - Slow progress with regard to privatization

Suchocka

7/1992–10/1993 Right-centre

- Pact on public enterprises, regulating workers’ involvement in public enterprises - Radical privatization plans voted down in parliament

Pawlak Oleksy Cimoszewicz

10/1993–3/1995 Left-centre 3/1995–2/1996 Left-centre 2/1996–10/1997 Left-centre

- Employee ownership becomes part of privatization rhetoric. Concrete plans hardly materialize - Poland does relatively well on corporate governance issues compared to other countries in the region

Buzek

10/1997–10/2001 Right-centre

- Start of second round of privatization; part of process of entering the EU, favouring the external ownership model - Substantial number of corporate scandals - Explosion of foreign investments to Poland

Miller

10/2001–5/2004 Left-centre

- Introduction of the first Polish corporate governance code

Belka

5/2004–10/2005 Left-centre

- Further integration of the acquis in national legislation - Penetration of foreign capital in the Polish banking sector

Marcinkiewicz

10/2005–7/2006 Right-wing dominance

- Nationalist rhetoric against foreign investment

Kaczy´nski

7/2006

- Further fine tuning of the corporate governance system

Care-taker government

Right-wing dominance

Main Corporate Governance Issue - Radical privatization plan (preferring sales to outsiders). - Inspired by the World Bank and IMF - Fierce resistance in parliament

Source: De Raadt, data institutions of politics of ECE (unpublished data set), own findings. Dates printed in bold refer to shifts in governmental composition as the result of national elections for the Polish parliament.

72

A. Vliegenthart

as the IMF and served as an informal representative of these organizations, and David Lipton, who later became policy advisor to the Clinton government, visited the meetings and provided the attendants with policy advice. This composition of the round table clearly favoured reform ideas that were along the lines of an external ownership model. Whereas at the start of the economic transformation about 47% of the population supported the idea of employee ownership of state firms (Lewandowski 1997: 36), the first postsocialist privatization plans aimed to introduce a rapid privatization through either a voucher programme or direct sale. According to the first postsocialist minister of finance and the introducer of the Polish shock therapy, Leszek Balcerowicz, the presence and advice of Sachs and Lipton played a ‘very important role in Poland in persuading those who needed persuasion’ of the necessity of rapid privatization.4 As a result of these negotiations, the notion of self-government was dropped from the policy agenda (Glasman 1994: 71). Workers were allowed to buy only 20% of their company’s shares, however, with the possibility of buying the remaining shares if nobody would be interested in them (Lewandowski 1997: 36). This kind of interaction between transnational actors and Polish policy makers seems to be characteristic for the development of early postsocialist economic policy. As Janusz Lewandowski (1997: 36), the first Polish minister of privatization, recalls, a variety of international donors co-shaped the privatization programme. Lewandowski in this respect refers to the UK Know-How Fund, the World Bank, the International Finance Corporation, the PHARE programme and the European Bank for Reconstruction and Development. These kinds of institutions are of crucial importance in the creation of the transnational policy consensus mentioned in Section 3.2. The privatization plans put forward by these institutions closely resemble the external ownership concept discussed in Section 3.3. It is therefore not surprising that the initial privatization plans put forward by the first postsocialist government aimed at Western-style privatization through mechanisms such as public offerings (Woodward 1996). Within the Polish parliament, the Sejm, however, the plans of this coalition of transnational institutions and Polish policy makers ran into severe opposition. The initial plans put forward by the Mazowicki government as well as the revisions made by the Bielecki government were supported by large parts of the Sejm. Especially those parts of the Solidarity movement that advocated worker control over the state corporations objected the proposals for external privatization (Woodruff 2004: 93). Their resistance was so strong that the initial privatization plans were substantially changed to allow for other kinds of privatization as well, including employee ownership, but even these modified plans, however, were voted down in parliament in March 1993 during the Suchocka government. The response to this initial defeat was the introduction of a so-called pact on public enterprises that sought to find the

4

Interview with Balcerowicz, retrieved from Commanding Heights. The battle for the World economy. http://www.pbs.org/wgbh/commandingheights/shared/minitextlo/int_leszekbalcerowicz. html (20-1-2003).

3

From Employee Governance to Corporate Governance

73

support of large parts of worker movement for predominantly outside privatization in exchange for concessions with regard to wage policies – the end of an added tax of wage increases (the so-called popiwek) – and a guaranteed one-third of the seats in the Company Board of privatized firms. The pact divided the labour movement that already was highly undecided on the ‘right’ privatization policies, but never saw its materialization as the Suchocka government was voted out of office in 1993, which gave the power to coalition of reform socialists under the leadership of Waldemar Pawlak (Allio 1997: 223–224). The Pawlak government effectively politicized the transnational assistance of the World Bank and the IMF. They depicted the ideas of external ownership that would allow foreign capital to participate in postsocialist restructuring as part of a more general plan to colonize the Polish economy. In this respect, the coalition of technocratic reformers and their transnational advisors that proposed such plans was aggressively attacked as ‘a vehicle for foreign exploitation’ (Meaney 1995: 119). These tendencies went well beyond the division between governing parties and opposition though most of these fierce attacks were primarily based on rhetorics rather than concrete policies. Telling in this respect is that after his resignation in 1995, Prime Minister Pawlak declared that he had done his utmost to prevent foreign investors taking over Polish companies (Sinn and Weichenrieder 1997: 207). The Pawlak rhetorically adhered to those parts of a now-divided labour movement that advocated employee ownership. This rhetoric was however highly symbolic and hardly materialized.

3.4.2 Second Round of Privatization Reforms As a result of the stalemate between the advocates of external privatization and those who favoured modes of employee ownership privatization, the Polish privatization programme lagged behind compared to other countries in the region such as the Czech Republic and Hungary by the mid-1990s. This would however change as Poland slowly moved towards membership of the European Union. This change coincided with shift from a centre-left, socialist government to a centre-right government under the leadership of Jerzy Buzek and with Balcerowicz as minister of finance. This government launched a second round of private initiatives in order to meet EU membership criteria that were accompanied by simultaneous company law revisions that strengthened the position of external (minority) owners vis-à-vis other stakeholders. Whereas in the first privatization round, the external ownership model ran into substantial resistance, the widespread agreements among the Polish political spectrum in favour of EU membership lowered this resistance dramatically. As a result, in the early 2000s the external ownership model had nearly become the only game in town at the expense of the employee ownership model. Although the European Commission did not officially prescribe a distinct method of privatization or a particular corporate governance structure, ‘the EU’s accession policy documents do contain implicit policy models’ (Grabbe 2003: 259). These implicit models are, for instance, found in the Accession Partnership that Poland

74

A. Vliegenthart

signed in 1998. Part of this partnership that laid out the necessary steps the Polish government had to take to become full member of the EU was the continuation of the privatization process in important sectors such as the steel industry and the opening of the Polish market for foreign investors that had had only restricted access due to particular sectoral legislation (Mayhew 2000). In the build-up towards EU membership, the European Commission actively and successfully promoted state strategies that allowed for external ownership and foreign investments (Hanley et al. 2002; Vliegenthart 2008a). In an attempt to take the necessary steps for EU membership, government strategies in the region responded by a U-turn vis-à-vis foreign investments as Jan Drahokoupil points out in his contribution to this volume. This was particularly the case in Poland where in 1999 alone, FDI amounted up to $3 billion, whereas the revenues from privatization from Polish investors reached only $120 million (Uminski 2001: 90). This shift was accompanied by an increasing involvement of private transnational actors such as the American Chamber of Commerce in Poland (AmCham Poland), British Polish Chamber of Commerce and the Centre for International Private Enterprise (CIPE). These organizations found a willing ear with the Polish government. The AmCham Poland, for instance, actively supported the government’s Committee to De-Bureaucratize the Economy and advocated the benefits of foreign investments, whereas at the same time it supported American and other foreign investors in Poland and simultaneously the Polish lobby for NATO membership at the US Senate.5 Institutionally, the second wave of Polish privatization was marked by the reconstitution of the Ministry of Privatization as the Ministry of the State Treasury in 1996 (Kochanowicz et al. 2005: 57–79). The reconstitution was accompanied by the introduction of a new act on privatization that replaced the earlier Privatisation Act. In comparison to the older Act, the 1996 Act increased the options for external ownership and limited the options for other kinds of privatization schemes (Kozarzewski 2003: 6–8). As a result, the privatization process accelerated after the mid-1990s, especially because of direct sales of large domestic companies and banks to strategic foreign investors. As a result, the government revenues from privatization between 1997 and 2001 were four times higher than the ones between 1990 and 1996 (Biggelli and Ghini 2005: 17). Simultaneously, the Polish regulation was reformed in order to meet the criteria laid out in the acquis.6 In 2000, the 1926 Commercial Code that was reintroduced in 1989 was substantially revised (Oplustil 2000). The new Commercial Code is inspired by German regulation and introduced a strict separation between management and control (Herdan and Krasodomska 2005: 3). As Kozarzewski (2003: 10) concludes, the 2000 Company Law ‘does not take into account concern of stakeholders in corporate governance structures’. It, for instance, did not prescribe a statutory number of employee representatives in supervisory boards. Most of the employee rights in privatized firms were regulated in 5

The historic overview of AmCham Poland’s activities can be found under http://www.amcham. pl/index.php?mod=page&page=1_history&PHPSESSID=b7ba6d3edba877e5e308114254d232f1. 6 The acquis refers to the EU regulation that needed to be implemented prior to EU membership.

3

From Employee Governance to Corporate Governance

75

the 1996 privatization law, but it remained rather ambiguous how long privatized corporations were to abide by the rules prescribed in this law. The EU attention for institution building reflects what Julia Langbein also points out in her contribution to this volume, that market making under EU influence is inherently also about the re-regulation of relations between social actors in a postsocialist economy (see also Bruszt 2002). But what is more, the reshaping of postsocialist institutions as part of the enlargement process also gently pushes the postsocialist states into a more marketized socioeconomic order in which the rights of transnational capital are widened, whereas at the same time the region is subordinated to the discipline of the market (Vliegenthart and Horn 2007). In this respect it fits into the transnationalization tendencies discussed in Section 3.2, where I have pointed out that transnational influence has been aimed at safeguarding the rights of transnational capitals, whereas it simultaneously seeks to strengthen the regulatory framework under which transnational capital can operate.

3.4.3 Corporate Governance Finetuning in the Early 2000s The clear victory of the external ownership model over other corporate governance models did, however, not put an end to the corporate governance discussions. The Buzek government was haunted by corruption scandals that spilled over to the corporate sector. The late 1990s and early 2000s saw an explosion of corporate scandals that led to serious political upheaval. Some of these scandals involved an alleged misuse of government influence in companies that were (partly) state owned. In the early 2000s, PKN Orlen, Poland’s biggest oil company, became the object of various corporate scandals in which the Polish state played a crucial role. Despite the privatization of PKN Orlen, the Polish state had retained a ‘golden share’ that according to other shareholders hindered an equal treatment of all shareholders. Also in other fields, such as the insurance and banking scene, state involvement got remarkable attention. The most prominent example in this respect is probably the controversy between the Polish state and the Dutch insurer Eureko over the PZU, Poland’s biggest insurance company that dragged on for more than 4 years. But also in earlier years the Polish state got into conflict with several other foreign investors that accused the Polish government of unfair corporate governance behaviour. In other cases, foreign investors received considerable criticism for their role in undermining the establishment of an effective corporate governance system. The best-known cases in this respect are the involvement of the French company Michelin in the Polish tire manufacturer Stomil Olsztyn, where Michelin as a large block holder was accused of mistreating minority shareholders, and French Pernod Ricard that was accused of doing the same with the Polish subsidiary Agros.7

7

For an overview of Polish corporate governance scandals, see Dzierz˙ anowski and Tamowicz 2003, Kobrak and Obloj 2002 and Tamowicz 2006.

76

A. Vliegenthart

These scandals coincided with a shift from a centre-right government to a centreleft one under the leadership of Leszek Miller in 2001. The new government launched a renewed debate on what kind of corporate governance mechanisms would offer adequate ‘solutions’ to prevent the misconduct of certain actors within the corporation, but did not give rise to attempts to increase employee involvement in the corporations. Rather, it led to policies that would strengthen the outside owner vis-à-vis the management and the employees. In this light, foreign ownership, although politically controversial, was considered rather beneficial in solving some of the pressing corporate governance problems as also the European Commission pointed out to the Polish government (EC 2002). But apart from the EU, other transnational actors were also very active in the creation of the arrangements; their attention especially focussed on those kinds of soft regulation that would further socialize the different actors with the rules of the capitalist game. One of these solutions constituted the introduction of a Corporate Governance Code that fine tuned the existing regulations to the rules of the market and was aimed at increasing the levels of effectiveness that had lagged behind the quality of the formal regulation (Jordan and Levi-Faur 2005). The code points out that it is the goal of a corporation ‘to further the interest of the company, i.e. to increase the value of the assets entrusted by its shareholders’8 The word ‘employee’ is mentioned on only three occasions in the code9 without any reference to ownership issues or to any specific rights that employees would enjoy. On the contrary, it is the position of the external owners that is strengthened through increasing control over managerial behaviour, reflecting the notion that the spread of such codes is primarily in the interest of the providers of capital to a firm (Thomsen 2006). The introduction of the Polish Corporate Governance Code has been a transnational process. It fits in a global tendency to introduce such codes. Especially after 1999 when the OECD had launched its principles for ‘good’ corporate governance, policy makers throughout the world and especially in Central Europe actively worked on the translation of these principles into national codes of conducts (Collier and Zaman 2005). In the case of Poland, two separate groups of agents worked on such a code. In Gdansk, the Institute for Market Economics worked on a code for listed firms, whereas in Warsaw, the Institute for Business Development– Privatization Center that had close ties with the Warsaw Stock Exchange also introduced its own corporate governance code. Both initiatives were actively supported by a diverse set of transnational actors. The Gdansk initiative received support from American think tank CIPE (Centre for International Private Enterprise) and the German Adenauer Stiftung that is closely connected to the German Christian Democratic Party. The World Bank, the International Finance Corporation (IFC) and representatives from transnational banks supported both initiatives as they saw only marginal differences between the

8

See Best Practices in Public Companies in 2002, retrieved from http://www.ecgi.org/codes/ documents/practices_2002.pdf, 24 April 2008. 9 Whereas the term ‘shareholder’ is mentioned 26 times.

3

From Employee Governance to Corporate Governance

77

two approaches.10 Both competing Polish attempts aimed at strengthening the position of the shareholder vis-à-vis other stakeholders. The boards and managers are encouraged to fulfil the highest levels of transparency about their decisions, calculations and behaviour in order to give shareholders sufficient information to decide on their investments. Based on their stronger support among influential actors in and around the Warsaw Stock Exchange, the stock exchange adopted the Warsaw Code (Vliegenthart 2008b). The introduction of the Polish Corporate Governance Code in 2002 and its update in 2005 in some ways constitutes a final step in the process of economic transformation from state socialism to a market economy. Despite the still existing gap between corporate governance regulation and corporate governance practices, it seems that the fundamentals of the Polish corporate governance system are well established. The shift towards a right-wing government that uses nationalist rethorics when it comes to foreign ownership in crucial sectors of the economy, such as the banking section, does not seem te reverse the existing policies with regard to corporate governance issues and the dominance of a model characterized by external ownership. As the World Bank (2005: 30–31) reported, most Polish corporations abide with almost all demands of the Polish Corporate Governance Code. It moreover concluded that ‘it is expected that over time, as they become more familiar with corporate governance issues, Polish judges will look to the corporate governance code as a standard for the professional conduct of directors’. Simultaneously, EU membership still seems to polish the Polish corporate governance framework.11 In this respect it seems that external ownership is now well locked into the postsocialist institutional framework. Whereas it faced severe resistance during the early 1990s, external ownership concept seems ubiquitous in the current corporate governance debates that are all about strengthening the rights of shareholders vis-à-vis the management. Substantial alternatives to this model seem to have disappeared behind the political horizon.

3.5 Conclusion In this chapter, we can identify three different, though interrelated, phases of corporate governance discussions in postsocialist Poland. During the first years we witness a clash between the external ownership model and the employee ownership model. These models have been put forward by different parts of the Polish opposition during the state socialist era. After the first years and a failed attempt to launch a large privatization, the two models were more or less in a stalemate. During the

10

Interviews with Raimondo Eggink, former Chief Executive Officer, ABN AMRO Asset Management Poland, June 2006 Warsaw, and with Mike Lubrano, International Finance Corporation, July 2007. 11 Interview with Tomasz Prusek, correspondent on corporate governance for the Gazeta Wyborcza, June 2006.

78

A. Vliegenthart

second half of the 1990s, new privatization initiatives that were part of the Polish attempts to acquire EU membership were launched that clearly fitted the external ownership model. As a result, the external ownership model had in neogramscian terms become hegemonic corporate governance concept at the end of the 1990s (following Cox 1983). Policy discussion in the early 2000s then focussed on the fine tuning of the emerged corporate governance system, paying particular attention to the right of minority shareholders. How then do these findings relate to the general topic of this volume, the transnationalization of the state, society and economy? The evidence presented in this chapter points out that in a globalizing world, a strict separation between the ‘national’ and the ‘international’ does not hold any longer. Actors and forces that are not constituted within distinct national boundaries, but rather emerge and operate beyond them, fundamentally shape many of the developments that occur within a given national context. The process of postsocialist state restructuring is deeply determined by the developments of the neoliberal global economy and the forces that operate in it. The transnationalization of the state in this respect reflects the ongoing nature of this restructuring process. This is worth stressing in times where many in the public and academia still consider the national realm to be of unique importance. The empirics presented in this chapter imply that if we want to understand the emergence of the Polish corporate governance system, we need a focus that moves beyond studying the developments in the domestic arena because such an analysis misses out on the impact of transnational actors that can tip the balance of power. As this chapter demonstrates, there were at least two quite different postsocialist corporate governance concepts that had an indigenous basis within Polish society during the socialist era. The employee ownership concept, however, never made it into practice as it was defeated by the external ownership concept that opted for the creation of a distinct class of owners outside the workforce. This model of privatization later paved the way for the inflow of large amounts of FDI. The fact that the Polish postsocialist governments opted for a model that did not enhance employee ownership in former state corporations cannot be explained by arguing that all other ideas were domestically discredited after the collapse of state socialism. Rather, these decisions must be seen in the light of substantial transnational influence on the postsocialist decision-making process. The transnational policy circle around Sachs together with its Polish counterparts, of which Balcerowicz is probably the most prominent example, paved the way for nonemployee privatization. Subsequently, the European Union through its negotiations with the Polish state further enhanced this market-oriented strategy pushing Poland to open its economy for foreign investments that were to contribute to restructuring process. Finally, private think tanks and international organizations such as the World Bank contributed to the fine tuning of the Polish corporate governance system that had emerged in the 1990s. Conversely, what this chapter also points out is that powerful transnational forces do not shape processes of transnationalization only externally. History is not determined by external forces that operate in an international vacuum, nor are national

3

From Employee Governance to Corporate Governance

79

historical legacies and national actors irrelevant for the outcome of the transnationalization processes. What this chapter demonstrates empirically is that the emergence of the Polish postsocialist corporate governance framework can only be understood in the interplay between transnational forces and actors within the Polish policy debates. Only an analysis of such interplay between these various forces can help us to understand the developments on the ground. It is not the conclusion of this chapter that a completely different corporate governance concept based on the notion of self-management would have been put into practice if transnational forces would not have integrated in the policy-making process. Yet what stands out is that transnational actors have played an important role in the process of postsocialist restructuring, both on the ideational and on the practical level. Acknowledgments I am grateful to Henk Overbeek, Andreas Nölke, László Bruszt and Jasper de Raadt for their extremely insightful feedback and useful suggestions on earlier versions of this study. Research support by the Netherlands Organisation for Scientific Research (NWO) is gratefully acknowledged. The usual caveats apply.

References Aguilera, R. (2005). ‘Corporate Governance and Director Accountability: An Institutional Comparative Perspective’, British Journal of Management, 16(S1): S39–S53. Aguilera, R.V. and Jackson, G. (2003). ‘The Cross-National Diversity of Corporate Governance: Dimensions and Determinants’, Academy of Management Review, 28: 447–465. Albert, M. (1991). Capitalism against Capitalism. London, Whurr. Allio, L. (1997). ‘Institutional Structures, Labor Interests, and Evolving Privatization Bargains in Poland’, in: D.L Weimer (ed.) The Political Economy of Property Rights. Cambridge University Press, pp. 208–231. Andreff, W. (2007). ‘Corporate Governance Structures in Postsocialist Economies: Towards a Central Eastern European Model of Corporate Control?’, in: B. Van Apeldoorn, A. Nölke, H.W. Overbeek (eds.) The Transnational Politics of Corporate Governance Regulation. London, Routledge, pp. 155–176. Balcerowicz, L. (1995). Socialism, Capitalism, Transformation. Budapest, Central European University Press. Bayart, J.F. (1993). The State in Africa. The Politics of the Belly. Harlow, Longman. Biggelli, M. and Ghini, G. (2005). Eastward Enlargement and Privatisation in EECs: A Survey. University of Bologna – Department of Management and University of Bologna – Department of Management, Working Paper Series. Bockman, J. and Eyal, G. (2002). ‘Eastern Europe as a Laboratory for Economic Knowledge: The Transnational Roots of Neoliberalism’, American Journal of Sociology, 108(2): 310–352. Boughton, J.M. (2001). Silent Revolution the International Monetary Fund 1979–1989. Washington, DC, IMF. Boycko, M., Shleifer, A. and Vishny, R.W. (1996). ‘A Theory of Privatisation’, The Economic Journal, 106(435): 309–319. Bruszt, L. (2002). ‘Making Markets and Eastern Enlargement: Diverging Convergence?’, West European Politics, 25(2), 121–140. Collier, P. and Zaman, M. (2005). ‘Convergence in European Corporate Governance: the audit committee concept’, Corporate Governance: An international Review, 13(6), 753–768. Cox, R.W. (1983). ‘Gramsci, Hegemony and International Relations: An Essay in Method’, Millennium - Journal of International Studies, 12(2), 162–175.

80

A. Vliegenthart

Cox, R.W. (1987). Production, Power, and World Order: Social Forces in the Making of History. New York, Columbia University Press. Cox, R.W. (1992). ‘Global Perestroika’, in: R. Miliband, L. Panitch (eds.) The Socialist Register. London, Merlin Press, pp. 26–43. Drahokoupil, J. (2008). Globalization and the state in Central ean Eastern Europe: The Politics of Foreign Direct Investment. London: Routledge. Dzierz˙ anowski, M. and Tamowicz, P. (2003). ‘Setting Standards of Corporate Governance: The Polish Experience of Drafting Governance Codes’, European Business Organization Law Review, 4: 273–299. European Commission (2002). Regular Report from the Commission on Poland’s Progress Towards Accession. Brussels, European Commission. Estrin, S., Nuti, D.M., and Uvalic, M. (2000). ‘The Impact of Investment Funds on Corporate Governance in Mass Privatization Schemes: Czech Republic Poland and Slovania’ MOCTMOST: Economic Policy in Transactional Economics, 1: 1–26. Faleye, O., Mehrotra, V., and Morck, R. (2006). ‘When Labor has a Voice in Corporate Governance’, Journal of Financial and Quantitative Analysis, 41: 489–510. Garton Ash, T. (2002). The Polish Revolution: Solidarity, Third Revised Version. London, Granta Books. George, A.L., and Bennett, A. (2005). Case Studies and Theory Development in the Social Sciences. MIT Press. Glasman, M. (1994). ‘The Great Deformation: Polanyi, Poland and the Terrors of Planned Spontaneity’, New Left Review, 204, 59–86. Grabbe, H. (2003). ‘European Integration and Corporate Governance in Central Europe: Trajectories of Institutional Change’, in: M. Federocwicz, R.V. Aguilera (eds.) Corporate Governance in a Changing Economic and Political Environment. Trajectories of Institutional Change. Basingstoke, Palgrave, pp. 247–266. Hanley, E., King, L., and János, I.T. (2002). ‘The State, International Agencies, and Property Transformation in Postcommunist Hungary’, American Journal of Sociology, 108(1): 129–167. Herdan, A. and Krasodomska, J. (2005). ‘The Implementation of Corporate Governance Code by Polish Companies’, Paper presented at the British Accounting Association. Annual Conference, Edinburgh, 30 March to 1 April 2005. Jordana, J. and Levi-Faur, D. (2005). Politics of Regulation: Institutions and Regulatory Reform for the Age of Governance, Cheltenham, Edward Elgar Publishing. Kobrak, C. and Obloj, K. (2002). ‘Foreign Direct Investment and Corporate Governance in Emerging Markets: Poland’s Search for a Workable Model’, Paper presented at the European International Business Academy, Athens, December 2002. Kochanowicz, J., Kozarzewski, P., and Woodward R. (2005). Understanding Reform: The Case of Poland. CASE Reports 59. Kowalik, T. (1994). ‘A Reply to Maurice Glasman’ New Left Review, July/August: 133–144. Kozarzewski, P. (2003). Corporate Governance and Secondary Privatization in Poland: Legal Framework and Changes in Ownership Structure. CASE Studies and Analyses, Warsaw. Kozarzewski, P. (2007). Corporate Governance Formation in Poland, Kyrgyzstan, Russia, and Ukraine. Centre for Social and Economic Research (CASE), Studies and Analyses No. 347. Lewandowski, J. (1997). ‘The Political Context of Mass Privatization in Poland’, in: I.W. Lieberman, S.S. Nestor, R.M. Desai (eds.) Between State and Market. World Bank Studies of Economies in Transition, pp. 35–39. Mallin, C. (2000). ‘Developments in Corporate Governance in Central and Eastern Europe’, Corporate Governance: An International Review, 8(1): 43–51. Marangos, J. (2004). Models of Economic Transition. London, Ashgate. Mayhew, A. (2000). Enlargement of the European Union: An Analysis of the Negotiations with the Central and Eastern European Candidate Countries. European Institute, Sussex, Working Paper no. 39.

3

From Employee Governance to Corporate Governance

81

Meaney, C.S. (1995). ‘Foreign Experts, Capitalists, and Competing Agendas. Privatization in Poland, the Czech Republic, and Hungary’, Comparative Political Studies, 28: 275–305. Meyer, K.E. (2000). ‘International Production Networks and Enterprise Transformation in Central Europe’, Comparative Economic Studies, 42: 135–150. Oplustil, K. (2000). Gläubigerschutz durch reale Kapitalaufbringung im deutschen und polnischen Recht der Kapitalgesellschaften: eine rechtsvergleichende Untersuchung. Frankfurt am Main, Lang. Orenstein, M. (2001). Out of the Red: Building Capitalism and Democracy in Postcommunist Europe. Ann Arbor, MI, University of Michigan Press. Overbeek, H. (2004). Global Governance, Class, Hegemony: A Historical Materialist Perspective. Vrije Universiteit, Amsterdam, Working Papers Political Science (01). Panitch, L. (1996). ‘Rethinking the Role of the State’, in: J. Mittelman (ed.) Globalization: Critical Reflections. Boulder, CO, Lynne Rienner, pp. 83–113. Rainnie, A. and Hardy, J. (1995). ‘Desperately seeking capitalism: Solidarity and Polish industrial relations’, Industrial Relations Journal, 26(4): 267–279. Shields, S. (2003). ‘The Charge of the Right Brigade: Transnational Social Forces and the Neoliberal Configuration of Poland’s Transition’, Political Economy, 8(2): 225–244. Shields, S. (2004). ‘Global Restructuring and the Polish State: Transition, Transformation, or Transnationalisation?’, Review of International Political Economy, 11(1): 132–154. Shields, S. (2006). ‘Historicizing Transition: The Polish Political Economy in a Period of Global Structural Change – Eastern Central Europe’s Passive Revolution?’, International Politics, 43(4): 474–499. Sinn, H.-W. and Weichenrieder, A.J. (1997). ‘Foreign Direct Investment, Political Resentment and the Privatization Process in Eastern Europe’, Economic Policy, 12(4): 178–210. Smith, S.C. (1994). ‘On the Law and Economics of Employee Ownership in Privaitszation in Developing and Transition Economies’, Annals of Public and Cooperative Economics, 65(3): 437–468. Soederberg, S. (2003). ‘The Promotion of “Anglo-American” Corporate Governance in the South: Who benefits from this new international standard?’, Third World Quarterly. 24(1), 7–28. Soederberg, S. (2005). ‘The Transnational Debt Architecture and Emerging Markets: Politics of Paradoxes and Punishment’, Third World Quarterly, 26(6): 927–950. Stark, D. (1992). ‘Path Dependence and Privatization. Strategies in East Central Europe’, Eastern European Politics and Societies, 6(1), 17–54. Stone, D. (2002). ‘Introduction: Global Knowledge and Advocacy Networks’, Global Networks, 2(1): 1–11. Tamowicz, P. (2006). ‘Corporate Governance in Poland’, in: C. Mallin (ed.) Handbook on International Corporate Governance, Country Analyses. Cheltenham, Edward Elgar Publishing, pp. 91–107. Thompson, P. and Smith, C. (1992). ‘Socialism and the Labour Process in Theory and Practice’, in: P. Thompson, C. Smith (eds.) Labour in Transition. The Labour Process in Eastern Europe. London, Routledge, pp. 3–33. Thomsen, S. (2006). ‘The Hidden Meaning of Codes: Corporate Governance and Investor Rent Seeking’, European Business Organization Law Review, 7: 845–861. Uminski, S. (2001). ‘Foreign Capital in the Privatization Process in Poland’, Transnational Corporations, 10(3): 75–92. Van Apeldoorn, B., Nölke, A., and Overbeek, H.W. (2007). ‘The Transnational Politics of Corporate Governance Regulation: Introducing Key Concepts, Questions and Approaches’, in: B. Van Apeldoorn, A. Nölke, H.W. Overbeek, (eds.) The Political Economy of Corporate Governance Regulation. London, Routledge, pp. 1–24. Vliegenthart, A. (2008a). ‘EU membership and the rise of a foreign-led type of capitalism in the Czech Republic’ In: J. Pickles & R.M. Jenkins (eds.), State and society in post-socialist economies. Basingstoke: Palgrave MacMillan, 47–68. Vliegenthart, A. (2008b). The Transnational Political Economy of Corporate Governance Codesthe Case of the Polish Corporate Governance Code. Unpublished paper.

82

A. Vliegenthart

Vliegenthart, A. and Horn, L. (2007). ‘The Role of the EU in the (Trans)formation of Corporate Governance Regulation in Central Eastern Europe- The Case of the Czech Republic’, Competition and Change, 11(2): 137–154. Vliegenthart, A. and Overbeek, H.W. (2007). ‘Corporate Governance Regulation in East Central Europe: The Role of Transnational Forces’, in: B. Van Apeldoorn, A. Nölke, H.W. Overbeek (eds.) The Political Economy of Corporate Governance Regulation. London, Routledge, pp. 177–198. Wedel, J.R. (2003). ‘Clans, Cliques and Captured States: Rethinking “Transition” in Central and Eastern Europe and the Former Soviet Union’, Journal of International Development, 15(4): 427–440. Weinstein, M. (2000). ‘Solidarity’s Abandonment of Worker Councils: Redefining Employee Stakeholder rights in Post-socialist Poland’, British Journal of Industrial Relations, 38(1): 49–73. Woodruff, D.M. (2004). ‘Property Rights in Context: Privatization’s Legacy for Corporate Legality in Poland and Russia’, Studies in Comparative International Development, Winter 38(4): 82–108. Woodward, R. (1996). ‘Management-Employee Buy Outs in Poland’, in: D. Boda, J. Karsai, L. Neumann, R. Woodward (eds.) Management-Employee Buy Outs in Hungary and Poland. Warsaw, Case, pp. 21–41. World Bank. (1987). Poland: Reform, Adjustment, and Growth. Washington, World Bank. World Bank. (2005). Report on the Observance of Standards and Codes. Corporate Governance Country Assessment Poland. Retrieved at: http://www.worldbank.org/ifa/rosc_cg_pol_05.pdf (26-10-2006).

Chapter 4

The Domestic Regulation of Transnational Labour Markets: EU Enlargement and the Politics of Labour Migration in Switzerland and Ireland Alexandre Afonso

4.1 Introduction For a century the dynamics of modern society was governed by a double movement: the market expanded continuously but this movement was met by a countermovement checking its expansion in definite directions. [. . .] Accordingly, the countermove consisted in checking the action of the market in respect to the factors of production, labour, and land (Polanyi 1957: 130–1).

The entry of 10 new eastern countries in the European Union on 1 May 2004 raised several debates in Europe regarding the maintenance of national wage and labour standards in the EU 15. The significant wage differentials between ‘old’ and ‘new’ member states were believed to potentially give rise to important migration flows that individual member states would not be able to control if the rules of the Single Market, and especially freedom of movement, were directly extended to the EU 10. Among ‘old’ member states, many governments were especially afraid that Eastern European workers, once they would have gained access to the Single European Market and its four freedoms, would move massively to more affluent countries and exert great pressure on wages, labour standards and welfare states (Boeri and Brücker 2000; Kvist 2004). This was believed to be possible either through independent migration or through the use of posted workers from low-wage countries (Menz 2005). The fear of the ‘Polish plumber’ raised during the ratification of the European Constitution in France in 2005 mainly revolved around this latter issue. The enlargement and increasing integration of labour markets in the EU can be considered as an important instance of economic transnationalization, defined as a process which ‘makes various transactions [. . .] easier or less expensive across national borders’ (European Science Foundation 2006). Along with other measures of ‘negative integration’ in the EU, that is, measures that foster an ever closer integration of markets for goods, labour, services and capital (Scharpf 1999), this process is believed to severely restrict the ability of states or organized interests to A. Afonso (B) University of Lausanne, Lausanne, Switzerland e-mail: [email protected] L. Bruszt, R. Holzhacker (eds.), The Transnationalization of Economies, States, and Civil Societies, DOI 10.1007/978-0-387-89339-6_4,  C Springer Science+Business Media, LLC 2009

83

84

A. Afonso

keep a grip on their national economies. This is especially true in countries where nonmarket arrangements (coordinated wage bargaining, collective labour agreements) played an important role in the governance of labour markets, since these arrangements conflict with the pro-market orientation of European integration. This chapter is concerned with how transnationalization in this domain interacts with such nonmarket arrangements. This chapter tackles transnationalization both as a process to be explained and as an explanatory factor. First, it analyses the domestic politics of labour market opening, and then of labour market re-regulation after the 2004 enlargement of the EU in two small open economies, Switzerland and the Republic of Ireland. This process is understood as a form of economic transnationalization to be explained by domestic political factors (institutions and power relationships). Secondly, it investigates the impact of transnational influences on this political process with a comparative research design. After outlining the conception of transnationalization used, the aim of the analysis and some elements of methodology, this chapter sets out the main stakes of labour market transnationalization in the EU framework. Then, it provides evidence on the political process of transnationalization and re-regulation aimed at preventing wage dumping in Switzerland and Ireland with a focus on institutional and power determinants of policy outcomes. I conclude with some remarks on patterns of market re-regulation and transnational influences.

4.2 Research Question At a general level, two main research questions are addressed in this chapter. On the one hand, what are the political determinants of labour market opening and re-regulation in small open economies? That is, which domestic actors, resources and institutions shape patterns of economic transnationalization in this context (transnationalization as a dependent variable)? On the other hand, how does transnationalization affect patterns of labour market opening and re-regulation (transnationalization as an independent variable)? Methodologically, this second question is tackled by comparing two countries displaying different levels of transnationalization of the economy and varying power relationships with regard to transnational and national actors. As to the first aspect, transnationalization is essentially related to the process of opening of labour markets in the framework of the EU Single Market, which fosters the creation of an open space of circulation of labour and services and most importantly a space where both transnational and national modes of regulation coexist. Here transnationalization is used as the creation of markets across national boundaries. Indeed, the establishment of the rules of the Single Market in this domain has made obsolete a great deal of domestic regulations, thereby opening a regulatory gap in certain domains of national competence and causing an entanglement of regulatory regimes, for instance regarding the rules to which foreign companies employing their own workers can be submitted to in one member state (e.g. collectively agreed pay rates and social provisions that are not directly

4

The Domestic Regulation of Transnational Labour Markets

85

set in the law). Hence, transnationalization in this domain can best be conceptualized as a transnational system of governance where EU rules interact with domestic regulations. On the one hand, the rules of the Single Market impose rules of nondiscrimination so that, for instance, companies based in a member state can provide services and employ their workers in another member state without the host country being able to restrict this access to their domestic market. On the other hand, states have the competence to re-regulate their labour market as long as they do not contravene to EU rules of competition. As to the second aspect, this chapter also deals with transnational influences on the politics of labour market opening and on interactions between state and nonstate actors across national boundaries (Djelic and Sahlin-Andersson 2006; Orenstein and Schmitz 2006). In this respect, the conception of transnationalization used is similar to that employed by Langbein, Vliegenthart, Drahokoupil and others in this volume. More precisely, it compares a country where these transnational influences and actors (mainly multinational companies and foreign direct investment) are weak (Switzerland) with another where transnational influences are strong (Ireland), and it investigates the role of these differences on policy outputs. Here, empirical evidence will show, among others, the ways and means by which transnational actors, most importantly the FDI community in the Irish context, have influenced patterns of opening and re-regulation in a market-friendly way, whereas a more protectionist coalition in Switzerland has fostered a more stringent re-regulatory response.

4.3 Scientific and Social Significance of the Research Among the processes of transnationalization that may impact on national economies, labour mobility is certainly that which may affect most closely people’s lives. Fears related to immigration and its possible effect on wages and living conditions have been among the most sensitive issues of politics in many countries (Cornelius and Rosenblum 2005). European integration and EU enlargement in particular are important in this respect because they have marked a qualitative shift in the capacity of nation states to regulate labour migration flows in the EU. Indeed, whereas the capacity to determine who may or may not enter their national territory has been at the core of national sovereignty of nation states, the emergence of the EU Single Market and its four freedoms, which by essence transcend national boundaries, has severely challenged this capacity: member states are no longer allowed to restrict the entry of nationals of another member state nor companies based in another member state that may employ its workers in another country. As will be shown below, EU enlargement has enhanced concerns in this debate with regard to wage and employment standards in the EU 15.

4.4 Case Selection and Methods The case selection used here is aimed at discerning general patterns regarding mechanisms of labour market transnationalization in small European states (similarities),

86

A. Afonso

as well as checking for the impact of transnational factors in this process (differences). This section outlines the logic of case selection, provides some background information on the selected cases and outlines the data and methodology used. Switzerland and the Republic of Ireland display a set of similarities that make them cases in point to investigate issues of transnationalization. Switzerland and Ireland are among the wealthiest countries in Europe, which makes them privileged destinations for labour migration. Both are small, open economies deeply embedded in world markets. However, different forms of ‘transnationalization’ of the economy in both countries allow to check for the impact of transnational factors, here mainly FDI companies. Hence, in order to investigate the impact of transnational actors on processes of opening and re-regulation, I compare one country where these transnational actors are strong, the Republic of Ireland, with another where economic capacity has been built essentially on endogenous factors, Switzerland.

4.4.1 Similarities: Two Small Liberal Corporatist Economies Switzerland, despite not being a member of the EU, has established a set of bilateral agreements with the EU in many policy areas, notably on the free movement of workers, which make it at least functionally a quasi-member in this set of areas. Switzerland and Ireland are both small, affluent – this being more recent when it comes to Ireland – open economies which have developed a specific form of labour market regulation drawing upon the involvement of social partners in policymaking while maintaining a low level of public regulation of the economy (Hardiman 2002; Bonoli and Mach 2000). They have a lean welfare state, thereby distancing themselves significantly from ‘Nordic’ corporatist countries. In this regard, and despite somewhat different institutional forms of policy concertation (social pacts vs. issue-specific concertation), both can be considered as ‘market-liberal’ variants of corporatism since corporatist policy concertation between social partners coexists with a strong market-oriented model of regulation of the economy (lean public regulation of the labour market, low level of coverage of collective agreements, lean welfare state).1 These corporatist features are believed to date back from the early twentieth century in Switzerland (since the social peace agreements of the interwar period), while they have emerged much more recently in the Republic of Ireland with the rise of the ‘Celtic Tiger’ in the 1990s. In Switzerland, the emergence of concerted strategies of policymaking was explained by the strong dependence of the economy on world markets: external interdependence is believed to have fostered domestic compromises mainly elaborated in the preparliamentary arena (Katzenstein 1985). 1

Ireland, along with the UK and the USA, is traditionally classified among liberal market economies. However, its patterns of economic governance diverge significantly from these countries in the sense that coordinated economic governance (centralized wage bargaining, institutionalized involvement of social partners in policymaking), such as that encountered in other small European states, prevails (Hardiman 2002, 2006).

4

The Domestic Regulation of Transnational Labour Markets

87

Ireland, for its part, shared many features of the Anglo-Saxon model, but adopted a significantly different economic strategy from its bigger neighbour during the 1980s, opting for the involvement of employers and unions both in pay arrangements and in policymaking rather than a unilateral strategy by governments to achieve international competitiveness. In contrast to Switzerland, compromises have been elaborated in ‘social pacts’ struck between the government and social partners and including a wide variety of issues. In this respect, Ireland, along with the Netherlands, is often presented as the flagship of ‘competitive’ or ‘supply-side’ corporatism. The aim here will be to assess the interaction and resilience of these corporatist modes of coordination in the face of transnationalization in two liberal corporatist countries.

4.4.2 Differences: Different Levels of Transnational Influences Despite these similarities with regard to patterns of coordination between labour and capital, Switzerland and the Republic of Ireland also display a set of differences that allow to check for the impact of transnationalization in a comparative research design. In this regard, transnationalization as an independent variable is essentially operationalized as the weight of FDI and multinational companies in the economic structure of each country, the aim being to see to what extent these actors have influenced patterns of labour market opening and re-regulation. Hence, both countries also display different patterns of transnationalization: Ireland has relied strongly on economic openness and attracting foreign investment, whereas Switzerland has relied on a policy of ‘selective protectionism’ trying to reconcile the interests of the protected domestic economy and those of the endogenous export industry. As will be shown below, these diverging characteristics will have a significant impact on patterns of opening and re-regulation. Hence, whereas economic development in Switzerland from the nineteenth century onwards has relied on the development of competitive export industries specializing in high-value-added goods, economic success in Ireland is much more recent and has drawn upon a different pattern of industrialization. After abandoning unsuccessful attempts to protect local industries through protectionism in the 1950s, from the 1970s onwards the Irish government has deployed an explicit strategy of attracting FDI, which from the 1990s onwards has resulted in the settlement of a great number of foreign, mainly US-based, companies. Indeed, in terms of FDI, Ireland outweighed any other country in Europe, FDI accounting for 129% of GDP in 2002, with the foreign-owned sector accounting for about 90% of total exports in 1999 (Smith 2005: 67) (Figure 4.1). The strong reliance of the Irish economy on foreign-based investment has given a significant political power to US companies, which are very influential among employer organizations in Ireland. By comparing this much more ‘transnationalized’ pattern of economic ownership (Ireland) with a more domestic one in Switzerland, the empirical section will aim at checking if and how these factors impact on patterns of opening and re-regulation. More precise hypotheses about this impact is outlined below.

88

A. Afonso

140.00% 120.00% 100.00% 80.00% Ireland Switzerland

60.00% 40.00% 20.00% 0.00% 1990

2000

2006

Figure 4.1 FDI stocks as a percentage of GDP Source: UNCTAD, World investment report 2007

4.4.3 Methods The analysis draws upon two qualitative case studies of processes of labour market opening and re-regulation. It essentially relies on the method of process-tracing, which aims to ‘identify the intervening causal process – the causal chain and causal mechanisms – between an independent variable (or variables) and the outcome of the dependent variable’ (George and Bennett 2005: 206). It draws upon the analysis of official documents, newspaper articles as well as 17 semi-structured interviews with unions, employers, government officials and MPs conducted by the author in Switzerland and Ireland between March 2007 and February 2008 (see Appendix 4.1).

4.5 Labour Market Transnationalization and EU Enlargement As argued by Scharpf (1999) and others, although European integration has probably constituted the most ambitious project of international political integration ever, the most powerful dynamic leading to its development has been essentially economic. Due to a specific institutional configuration (supranational vs. intergovernmental decision-making), measures aimed at creating and extending markets have prevailed over measures or re-regulation or re-distribution through state action, the latter having remained essentially in the domestic realm. Hence, EU policies in the domains of welfare, labour standards, health or migration have been ‘accompanying and enhancing, but never obstructing or derailing the process of market-building’ (Menz 2002: 723). Since the Treaty of Rome and throughout the development of the Acquis Communautaire, the main purpose of the process of European integration has been to achieve the creation of a unified market for goods, capital and, most notably here, for services and labour. In these last two domains, the

4

The Domestic Regulation of Transnational Labour Markets

89

evolution of European integration can be best described by a concomitant process of ‘top-down liberalisation and bottom-up national re-regulation’ (Menz 2002, 2005). Hence, the main stakes in this domain have lain in the tensions between extending the freedom to work and reside anywhere in the EU and the protection by member states of their own labour markets and social standards (National Economic and Social Council 2006: 71). Free movement of workers in the EU framework comprises two intertwined elements which represent different challenges for domestic economic governance and different sets of incentives for domestic employers. While opening labour markets, both these aspects enter into account for actors’ preferences in terms of opening and re-regulation. First, individual migration is facilitated since states can no longer restrict entry into their national territory to citizens of another member state. At the level of economic governance, this affects only the supply of labour but in principle does not challenge domestic regulatory frameworks of labour markets: if immigrants are residents in a state, they are submitted, be it as employees or as independent workers, to the usual rules of the country. However, whereas existing immigration policies generally allowed public authorities to check for conditions of employment before granting a work permit, free movement no longer allows this possibility, and prior control is no longer possible. For domestic business, this allows to increase the supply of labour and moderate wage growth and is therefore perceived as only beneficial. Secondly, temporary migration for the purpose of service provision, which for instance happens if a company based in one member state is contracted to provide a service in another member state, is more ambiguous both for labour market regulation and for incentives for employers. On the one hand, it is problematic because of the uncertainty regarding rules applying to wages and social provisions for workers that this company may post in another country. Should rules of the home or the host country of the company apply? This was the main object of the first draft proposal of the services directive (so-called Bolkestein Directive), which could have had important effects in countries with a high level of regulation: if foreign companies can enter and provide services without complying with local norms and standards, local companies would have no incentives to comply with them either, thereby leading to a ‘race to the bottom’ in this domain2 (Menz 2005). On the other hand, it is also more ambiguous with regard to the interests of domestic business: the posting of workers by foreign companies can be perceived as an unwelcome form of competition by

2

A high-profile example of this issue was the case of Laval, a Latvian company contracted to renovate a school in Sweden. Laval posted its Latvian workers to Sweden and reportedly paid them 40% less than the terms set by the collective agreement for the construction sector in Sweden. Concerned with issues of social dumping, Swedish trade unions prompted Laval to comply with the local terms and conditions of employment laid down in the collective agreement, which was refused by Laval. Following industrial action led by trade unions, the case ended up in the European court of Justice which ruled that Swedish unions had conducted illegal action that distorted competition in the EU, thereby causing concerns with regard to social dumping (EIRO 2008).

90

A. Afonso

domestic companies that are active in sectors where posting is possible (construction or other sectors in services). By contrast, for businesses in sectors where posting is less likely (manufacturing), hiring cheaper foreign companies which post their workers to provide secondary services (for instance, construction work or computer maintenance) can be a way to bring costs down. Whereas internal migration flows had been fairly limited among the EU 15 due to fairly converging living standards, the 2004 enlargement has significantly modified the socioeconomic landscape of the EU in terms of wage differentials, incentives for migration and the posting of workers. Indeed, the number of potential immigrants living in low-wage countries has increased dramatically as a result of enlargement. Besides, countries that were hitherto labour exporters (countries of Southern Europe plus Ireland) have now become potential labour importers, given that wage levels in the EU 10 were much lower than in most other Western European countries. Indeed, at the time of accession, GDP per capita in purchasing power standards (pps) in the EU 25 varied by one to five.3 In the wake of the 2004 EU enlargement, several member states raised concerns about potential migration flows stemming from accession states. To respond to these concerns, the accession treaty provided for transitional arrangements for the free movement of labour, which would allow countries that wished to do so to postpone the full opening of their labour markets for a maximum period of 7 years post-accession (Doyle et al. 2006: 17–18; Gajewska 2006). This 7-year transitional period was divided into three stages after which community rules regarding free movement had to be applied. During the pre-accession debates, projections commissioned by the EU foresaw a relatively limited increase in immigration from ‘new’ to ‘old’ member states. Migration flows were estimated at around 300,000 people per year in the first 5 years post-accession, then declining steadily (Boeri and Brücker 2000). At the level of individual member states, the increase in immigration would therefore be fairly weak, ranging for instance from 3,400 to 12,600 for 2005 in Ireland and the UK, respectively (Doyle et al. 2006: 17). However, these projections were based on the assumption that all EU members would apply community rules, that is, full free movement from the outset, which did not prove to be the case. Indeed, most states chose to take advantage of transitional periods and apply different restriction measures, giving rise to four types of transitional arrangements: no restrictions (chosen by Sweden, Ireland and the UK), quotas (Portugal and Italy), a 2-year transitional period (Belgium, Denmark, Finland, Greece, Luxembourg, the Netherlands and Spain), a transitional period of about 5 years (France) and the longest possible period of 7 or more years (Austria and Germany) (Gajewska 2006: 380). Switzerland, which is not a member of the EU but has concluded a bilateral agreement on the free movement of workers with it, aligned with Germany and Austria on a transitional period of 7 years.

3

Whereas GDP pps accounted for 139% and 130% of the EU 25 average in Ireland and Switzerland, respectively, it accounted for 47% and 43% in Poland and Latvia (Eurostat 2005).

4

The Domestic Regulation of Transnational Labour Markets

91

In line with the mechanisms described above, member states remained free to regulate their labour market to prevent wage dumping or the deterioration of work and wage conditions that could be caused by quick mass immigration, as long as these did not contravene to EU rules. Some countries also introduced measures related to the issue of ‘social tourism’ in order to prevent possible increases in social expenses that could result from enlargement. This holds not only for countries which decided to open their labour market right from the outset, but also for those who opted for transitional measures. At the domestic level, many of them had to decide whether they would set up new rules to cope with enlargement and prevent risks of social and wage dumping, and if so, what they would consist of. In this context, it is argued that domestic coalitions and institutions are the determining factors in explaining national response strategies.

4.5.1 Domestic Response Strategies: Preferences, Power and Institutional Determinants The empirical section of this chapter is concerned with domestic response strategies, understood as policy measures aimed at opening the labour market for workers of new EU countries (pace of opening, transitional measures), on the one hand, and re-regulating it (through labour law, collective labour agreements or compliance mechanisms with local employment standards) in order to prevent risks of social or wage dumping that may result from quick mass immigration, on the other. I do not argue that immigration necessarily causes wage dumping, but one can consider that incentives for the employment of workers below local standards have increased with enlargement. What matters here is the political construction of preferences in this domain, and concerns about this have been raised, most notably by trade unions, in many countries. For instance, response strategies can be closed or open with regard to pace of opening and protectionist or liberal with regard to patterns of reregulation. Re-regulation measures can be put in place in the regulatory framework itself (establishment of minimal wages where they do not exist, regulatory measures to make wages below collectively agreed rates not possible and measures to make foreign companies comply with collectively agreed pay rates) or increased resources devoted to compliance with this regulatory framework (e.g. labour inspectors or agencies devoted to labour market control). I argue that the main explanatory factors for domestic response strategies are domestic preferences, power configurations within business and between business and labour as well as institutional settings. On the one hand, strong transnational actors and export-oriented business can be believed to have an interest in open and liberal response strategies, whereas domestic businesses, especially those in highly regulated sectors, may have an interest in protectionist response strategies. As argued above, transnational and export-oriented business is already exposed to foreign competition on international markets and has in principle little to fear from foreign competition that may be caused by the posting of workers. On the

92

A. Afonso Table 4.1 Preferences with regard to free movement

Protected business Export/transnational business Trade unions

Individual migration

Worker posting

Beneficial Beneficial

Threat, increased competition Beneficial: costs brought down

Favourable, but risks of exploitation

Threat on wages and labour standards if no compliance with regulatory framework

contrary, increased competition with regard to certain outsourced services (like computer maintenance) may allow to bring down costs. For domestic business oriented towards internal markets, whereas individual migration may be perceived as beneficial, the posting of workers by foreign companies is essentially a threat, in the sense that it represents increased competition on the domestic front (Table 4.1). Power relationships between domestic protected business and export-oriented or transnational business are central in this respect. Whereas domestic business can rely on close ties with government and parliament to advance their agenda, exportoriented business can rely on their exit power to exert pressure on governments. Hence, the political power of transnational business mainly lies in its mobility. More easily than domestic business, transnational capital can threaten governments to leave for more favourable economic environments if favourable economic policies and regulatory frameworks are not put in place (Milner and Keohane 1996). For their part, trade unions may be more interested in re-regulatory measures and strengthening compliance mechanisms than in closing labour markets: ideological commitments prevent trade union elites from opposing migration. Hence, I argue that countries where transnational actors are strong will produce more liberal and open response strategies, whereas countries where trade unions or small businesses are stronger will produce more protectionist response strategies. However, structural power relationships alone are not the only determinant of policy outcomes. One can argue that political, but also economic, interactions do not unfold in a vacuum and that institutions play an important role in re-regulation outcomes. Generally speaking, institutions can be understood as legal or administrative structures (laws, state structures, etc.) and rules (formal or informal) which stabilize a distribution of rights, power, costs and benefits (Hall and Taylor 1996; Immergut 1997). Institutionalized arenas where actors can oppose or propose policy options can be believed to be factors of utmost importance in determining policy outcomes. In the framework of this chapter, two main types of institutions are considered in the two countries under scrutiny. First, policy veto points: referendum power in the case of Switzerland and social concertation arenas for wage coordination in Ireland. In both countries, the mobilization of these veto points by trade unions was used to put labour market control on the agenda, taking advantage of interdependency factors vis-à-vis employers. Second, labour market institutions, which essentially refer to the rules governing collective bargaining and employment regulation in both countries. Most importantly, of primary interest here are the rules whereby collective

4

The Domestic Regulation of Transnational Labour Markets

93

Actor coalitions and power relationships

Pattern of Labour Market Opening

- Trade union strength - Employer strength - Intra-employer cleavages (export vs. domestic business)

- Transitional measures and restrictions

Institutional determinants

Re-Regulation measures

- Political veto points - Labour market institutions

- Regulatory Framework - Compliance apparatus

Figure 4.2 Causal model

bargaining outcomes can be extended outside bargaining parties and made legally binding (Figure 4.2).

4.6 Domestic Response Strategies to Labour Market Transnationalization in Switzerland and Ireland This section outlines the determining power and institutional determinants of policy outputs in both countries, as well as the process of labour market opening and re-regulation. With regard to re-regulation patterns, it must be acknowledged that Switzerland proceeded to ex-ante re-regulation prior to opening its labour market, whereas Ireland proceeded to ex-post re-regulation after opening.

4.6.1 Switzerland: Re-regulation and Cross-class Coalitions Traditionally, economic governance in Switzerland has been structured by a liberal/conservative coalition uniting internationally competitive industries (chemicals,

94

A. Afonso

metal manufacturing, etc.) and domestic small businesses (construction and crafts). The trade union movement, which has suffered from chronic organizational weakness in comparison with employers, has been involved in policymaking as a ‘junior partner’. As a result, patterns of economic policymaking can be characterized by a ‘selective protectionist’ model combining free market policies necessary to the expansion of export industries in world markets, on the one hand, and forms of informal protection (cartels, private arrangements between firms) aimed at protecting domestic markets, on the other (Bonoli and Mach 2000). Labour market regulation is characterized by little public regulation (no legal minimum wage, light-touch labour law) and strongly relies on the institution of sectoral collective labour agreements which regulate wages, working time and many other aspects of employment contracts (Fluder and Hotz-Hart 1998). Collective bargaining is most strongly institutionalized at the sectoral level, with mechanisms of extension allowing sectoral agreements to be extended to whole economic sectors and made legally binding if they gather more than 50% of employees in 50% of companies in one sector. This is the case in a few sectors, most notably construction. The involvement of trade unions – at the cost of minority participation with regard to employers and strong moderation regarding their claims – is especially notable since it did not directly correspond to their organizational strength (Crouch 1993). In this context, the existence of direct democratic institutions appears as an important factor of empowerment of unions that has compensated to some extent their organizational weakness. Indeed, the Swiss political system subjects any decision made in parliament to optional referendum if political groups dissatisfied with it are able to gather 50,000 signatures (Papadopoulos 2001). If those are gathered, the decision is subjected to a vote by citizens. This specific institutional setting is believed to have fostered the involvement of potential veto players, and here especially unions, in policymaking before bills were handled by the parliament, in a wide variety of socalled preparliamentary ‘expert committees’ where social partners were represented. In policies where they constituted a potential veto player, it was more rational for governments to integrate their claims in advance in order to avoid referendum battles, which always include a great deal of uncertainty for the government. This factor will play an important role in the politics of labour market opening in Switzerland. The opening of the Swiss labour market for workers of the EU 10 is set in the continuity of a progressive ‘Europeanization’ of Swiss immigration policy despite nonmembership in the EU (Fischer et al. 2002; Afonso 2007). In 2000, the Swiss government concluded a bilateral agreement on the free movement of workers with the first 15 EU countries as part of a first package of seven bilateral agreements.4 On the EU’s request, Switzerland had to open its labour market for EU workers and abolish its immigration system based on yearly immigration quotas and work permits. Most importantly, this system allowed the bureaucracy to carry through prior

4

Besides free movement of workers, the other bilaterals agreements concerned road transport, technical barriers to trade, public procurement markets, agriculture, civil aviation and research. See Dupont and Sciarini (2006).

4

The Domestic Regulation of Transnational Labour Markets

95

control of work and employment conditions of workers for whom a work permit was requested (Afonso 2007). Since the entry into force of these bilateral agreements between Switzerland and the EU 15 was also subjected to optional referendum, trade unions asked for ‘flanking’ measures that were supposed to prevent wage dumping in order to gain their support (Interviews 1, 2, 6). They were particularly worried about the suppression of prior control of work and wage conditions to deliver work permits, which, in the system of quotas, was an important means to prevent the hiring of foreign workers at wages below usual standards. This was the case especially given the low level of regulation of the Swiss labour market (no minimum wages, low level of coverage of collective labour agreements, wide disparities regarding regulation between economic sectors) (Fluder and Hotz-Hart 1998). In this context, trade unions played a pivotal role since it was clear that the Swiss People’s Party, a powerful Eurosceptic populist party, would oppose the opening of the labour market for EU nationals in a popular vote, claiming that it would lead to an uncontrolled flow of immigrants. Since the government and employers could not afford the risks of an objective alliance between unions and the populist right against the free movement of workers, unions obtained significant measures of re-regulation providing for the establishment of cantonal tripartite commissions to observe the labour market and sanction cases of wage dumping, the facilitation of the extension of collective labour agreements to whole economic sectors if repeated abuse was observed as well as the establishment of minimum wages if dumping could be observed in sectors where no collective agreement existed. Free movement of workers between Switzerland and the EU 15 entered into force in 2002, and transitory quotas were lifted in June 2004. From 2003 onwards, EU enlargement imposed a renegotiation of the issue of free movement between the EU and Switzerland, which was negotiated simultaneously to a second package of bilateral agreements between Switzerland and the EU, the so-called Bilaterals 2.5 On the one hand, the EU could not accept Switzerland handling differently the 10 new EU countries by submitting their nationals to restrictive immigration rules while free movement prevailed for nationals of the ‘old’ EU countries. On the other hand, Switzerland asked for a long transitory period, so that nationals of eastern countries could not access the Swiss labour market before that of other member states that had maintained limitations like Germany and Austria. On the domestic front, once again, unions asked for side payments to guarantee their support to this extension. They considered that little had been provided for the implementation of the flanking measures in the framework of the first bilateral agreements and that the risks of wage dumping had become greater with the entry of the new member states (Interview 2). The Swiss Employers’ Union, the biggest employer association, and especially representatives of export industries such as the machine industry, were strongly

5

These included the taxation of savings, cooperation on fight against fraud, adhesion to Schengen/Dublin, processed agricultural products, media, education, pensions, environment and statistics. See Afonso and Maggetti (2006).

96

A. Afonso

opposed to any reinforcement of labour market control in the framework of extension, claiming that it would lead to enormous administrative costs for companies and contribute to an over-regulation of the labour market that would be damageable for Switzerland’s competitiveness (Interview 7). The government and bureaucracy were not favourable either to a further regulation of the labour market and were ready to extend free movement to eastern countries without amending the existing regulatory apparatus. At this point, unions actively used the media to put the issue of wage and social dumping on the agenda, notably by bringing cases of underpaid workers on building sites under attention (Interview 2). From the outset, it was clear that the eurosceptic Swiss People’s Party would launch a referendum against the extension of free movement to new countries. It was therefore too risky to have unions opposing it as well, especially given the fears within the population generated by immigration issues. At this point, the government decided to set up a tripartite (employers, unions, state) workgroup to envisage the possibility of reinforcing the already-existing flanking measures, following the procedure that had worked for the first set of re-regulatory measures (Interview 3). The constitution of this workgroup was a victory in itself for unions, since it would be difficult to come up with no deal in the end of the process (Interview 2). Partly prompted by the government, employers soon understood that a referendum could not be won without the unions, especially given the fears on immigration issues exacerbated by the Swiss People’s Party (Interviews 1, 4). The acceptance of the set of bilateral agreements between Switzerland and the EU was of vital importance to them; many of them feared to be discriminated in their access to the EU internal market in case it would be voted down. It was thus necessary to give guarantees to trade unions as to labour market protection, but employers were determined to make as few concessions as possible (Interview 1). In the end, even though employers had declared themselves absolutely opposed from the outset to the greater regulation of the labour market and refused the introduction of new flanking measures, they nevertheless agreed on two measures to improve the implementation of labour market control: the quorum of employers required to make collective agreements compulsory was abolished, thereby further facilitating the extension of collective labour agreements to whole economic sectors, and the hiring of ‘a necessary number’ of work inspectors by the cantons, partly subsidized by the federal state, was decided in order to provide the means for the tripartite commissions to control the labour market more effectively (Interview 7). As had been set up when Switzerland opened its labour market to the EU 15, paritary commissions can set up minimal wages in sectors not covered by collective bargaining in cases of ‘repeated abuse’. Hence, when it comes to policy outputs, significant re-regulation measures were imposed both at the level of the regulatory framework and in the compliance system. With regard to power configurations, trade unions took advantage of internal divisions within the employer side on labour market protection and formed an informal alliance with representatives of small and medium enterprises (SMEs), especially in the construction sector. Whereas the export economy (above all the powerful machine industry) had a strong interest in the acceptance of bilateral agreements but

4

The Domestic Regulation of Transnational Labour Markets

97

was strongly opposed to further re-regulation measures, the domestic economy (construction) had a strong interest in protecting the internal market from cheaper foreign competitors (Interviews 2, 4, 7, 8). Indeed, export industries (machines, chemicals), which did not have to fear the entry of foreign competitors, wanted to open the Swiss internal service market to more competition, because they would be able to contract with cheaper foreign companies for secondary work (most importantly, construction jobs, but also machine or computer maintenance) (Interview 7). On the other hand, domestic companies in the construction sector, dominated by SMEs, had no interest in allowing foreign companies to come and not comply with local collectively agreed wages, especially given that the construction sector is widely covered by collective labour agreements. Hence, they had an interest in setting strict rules for labour market control and compliance with local wages, thereby converging with the interests of trade unions. Hence, despite opposition by employers in the powerful export sectors and a traditionally market-liberal orientation of the economy, trade unions succeeded in imposing re-regulation of the labour market coupled with labour market opening by using the referendum threat and a specific coalition configuration (opposition by Swiss People’s Party, cross-class alliance between domestic economy and trade unions) which fostered a particularly strong corporatist decision-making pattern.6 Interestingly, trade unions and employers, despite the opposition of the latter, were able to find a compromise on this issue while corporatist policymaking seems to fade out on other issues, such as social policy (Mach, Haeusermann, and Papadopoulos 2004).

4.6.2 Ireland: Re-regulation as Part of Social Pacting From an uncoordinated approach to economic governance partly inherited from British rule, the Republic of Ireland has shifted over the last 20 years to a more coordinated approach linking pay determination with broader issues of economic governance and public policy in the framework of so-called social pacts (Hardiman 2002). It has been believed that the approach of social partnership and ‘social pacting’ has strongly contributed to the emergence of the so-called Celtic Tiger and its high growth rates unknown elsewhere in Western Europe in the 1990s (Baccaro and Simoni 2004). Since 1987, a series of seven social partnership agreements negotiated between unions, employers, the government and also associations of civil society has set negotiated terms regarding pay raises, taxes and other issues of economic and social policy. The main aim of such agreements was to ensure a coordinated steering of the economy (most importantly, low inflation and low taxes) that 6

It is also particularly interesting to note that the number of extended collective labour agreement has increased as a result of labour market opening: even in economic sectors in which no extended collective labour agreement existed and in which companies were weakly organized in employer associations, companies have organized in order to make local rules enforceable vis-à-vis foreign companies and protect local standards (Oesch 2007).

98

A. Afonso

would make Ireland an attractive place for foreign investment (Hardiman 2002). Interestingly, these terms left a minority role for trade unions, making the Irish model of social partnership comparable with the Swiss: no initiatives that would compromise objectives of competitiveness would be accepted by employers or the government (Hardiman 2002). Labour market governance in Ireland is characterized by ‘light touch’ regulation with a strong focus on flexibility, the latter factor being put forward as an element of utmost importance to attract foreign companies (Interview 10). Indeed, the flexibility of the labour market is presented as one of the main comparative advantages of the Irish economy to attract foreign investment. Industrial relations have a voluntary dimension, collective bargaining endorsing a private and not legally binding form. Although social partnership at the national level, as argued above, has played a very important role in recent years, collective bargaining at lower levels is weakly institutionalized. There exists no mechanism of public extension of collective labour agreement, and the only sector with a voluntary registered collective agreement, that is, which has a statutory status and is therefore legally binding, is the construction sector. Interestingly, characteristics of collective bargaining and labour market regulation are also influenced by transnational factors. Hence, the important role of US-based companies in the economy has fostered a diffusion of US human resource practices focusing on individual-level relationships and individualized pay structures rather than collective bargaining. Trade union recognition is an important issue here. Multinational companies are markedly reluctant to recognize trade unions, thereby reducing bargaining coverage significantly in the private sector (Wallace et al. 2004: 249; EIRO 2005). In the wake of effective EU enlargement, the Irish labour market was in a strong expansion phase: low unemployment and strong employment growth generated a strong demand for labour. Irish employers were already sourcing an important part of their workforce from abroad (Doyle et al. 2006: 9). In the face of tight labour market conditions, the government saw enlargement as an opportunity to expand the labour force that would help meet employment needs and sustain economic growth (Interview 10). The decision taken by other governments to set up restriction did not alter the Irish stance regarding the immediate establishment of free movement. In a context of strong economic expansion, this decision was backed by both employer and trade unions, although no formal consultation was conducted by the government (Interviews 10, 13, 14). Concerns on the government and employer side were rather focused on potential costs on the welfare system protection (social benefits tourism) than on the protection of local wages. Similar to Britain, Ireland chose to set up restrictions regarding access to social benefits, but not regarding access to the labour market neither regarding the protection of wages. It must be acknowledged that the existence of the Common Travel Area between the UK and Ireland determined to some extent the Irish decision (Interviews 9, 10). Different policy choices would have been difficult to implement because of this, as it was already a form of ‘transnational’ influence. After EU enlargement on 1 May 2004 and the full opening of its labour market, immigration from the EU 10 to Ireland increased to a very important extent,

4

The Domestic Regulation of Transnational Labour Markets

99

partly due to strong labour demand but probably also due to redirection mechanisms, given that most other countries had set up immigration restrictions. The number of nationals of the EU 10 in employment in Ireland more than trebled between the first quarter of 2004 and the end of 2005, increasing from less than 20,000 to more than 60,000 (Doyle et al. 2006). The quantity of Personal Public Service Numbers, which allow workers to take jobs or access benefits even for a short stay in Ireland issued to EU 10 nationals, doubled between 2004 and 2005, increasing from 59,000 to 112,000 (Doyle et al. 2006: 13). Even though most political parties and organized interests had endorsed the view that EU enlargement would not lead to a ‘flood’ of immigrants setting pressure on wages, some cases of job displacement related at least to some extent to enlargement caused significant concern on the side of trade unions (Interviews 14, 15). In particular, the case of Gama in 2005, a company based in the Netherlands which was accused of employing Turkish workers below agreed standards in Ireland, and the case of Irish Ferries, a company operating transport services between Ireland, France and the UK which announced its intention to offer redundancy terms to 543 seafarers and replace them with agency workers from Latvia, attracted great media attention. The issue of job displacement was placed at the core of debates on the negotiation of the next social partnership agreement. These issues were considered by trade unions as sufficiently serious breaches in the social partnership agreement to put forward the reinforcement of protection of labour standards as a condition of their participation in the next agreement on pay terms (Interview 15). At the end of 2005, the terms of the social partnership agreement ‘Sustaining Progress’ were coming to an end. When the government issued an invitation to the social partners to participate in a new partnership agreement that would set new employment and pay terms for the future, the Irish Congress of Trade Unions deferred its participation, pending clarification that issues relating to employment protection, job displacement and enforcement of agreed wages and employment conditions would be discussed before the negotiation on rates of pay under a new national agreement. The initiative to make this issue on the agenda of social partnership came primarily from SIPTU, the biggest trade union in Ireland (Interview 15). The Gama and Irish Ferries cases were used as examples of flagrant failures of the existent regulatory regime to ensure compliance with the terms of pay and standards agreed in the framework of social partnership. According to trade unions, if compliance was not ensured, this could undermine all the process of social partnership. This issue protracted significantly the negotiation of this social partnership agreement ‘Towards 2016’, whose negotiations were the longest since the emergence of the social partnership approach in 1987. At the outset, employers, and particularly FDI companies, were opposed to changes in existing legislation, which they saw as an intolerable move away from the existing lowly regulated Irish labour market. If they were ready to support better enforcement, they advocated doing it in the existing legal framework, whereas trade unions proposed a new legislative act devoted exclusively to these issues. An important issue with regard to the regulatory framework in which trade unions did not succeed in imposing their claims was the legal

100

A. Afonso

enforceability of ‘going rates’ of pay, that is, pay rates which may be considered ‘standard’ for one specific function (Interviews 14, 16). Hence, the only wage that remains legally enforceable is the national minimum wage. Considering issues of trade union recognition and weakly institutionalized sectoral level bargaining, this solution would have strongly departed from the essentially voluntarist framework of Irish industrial relations, to the extent that public authorities, or other entities, would have been allowed to decide which wage levels could be considered standard for a specific position (Interview 16). In this regard, multinationals were strongly opposed to such a solution which would have imposed wage and social standards to companies that they would not have freely agreed upon. Even if those multinationals often practice high wages, the loss of flexibility that this would have introduced was judged unbearable for them. This was a very important issue for governmental departments responsible for these issues, which entertain close ties with FDI companies (Interview 10). Eventually, an agreement was reached on an amendment of existing legislation providing for a package of measures aimed at ensuring enforcement of employment rights. This issue is contained in a section of its own in ‘Towards 2016’: the establishment of a new, statutory office dedicated to employment rights compliance (now called the National Employment Rights Authority); a trebling in the number of labour inspectors; greater coordination among organizations concerned with compliance; new requirements in respect of record keeping; enhanced employment rights awareness activity; the introduction of a new and more user-friendly system of employment rights compliance; increased resourcing of the system; and higher penalties for noncompliance with employment law (Department of the Taoiseach 2006: 92–107). An enforceable system of control of agency workers and the establishment of the NERA were important issues in this respect. When compared to Switzerland, where social partners themselves were charged with monitoring compliance, the strong opposition to trade union recognition at enterprise level, particularly among foreign-owned companies, would have made this tool difficult to implement (Interview 17). Similarly, the focus on the compliance apparatus and weak changes in the regulatory framework were also partly due to opposition by transnational actors. The flexibility and light regulation of the labour market in Ireland, more than the level of wages, was considered by authorities as a central element to attract and keep FDI in Ireland (Interview 10). Attempts to introduce further regulation which would make the Irish labour market less attractive stood little chances to be enforced. The embeddedness of labour market re-regulation in the framework of social pacting in Ireland, which comprises pay terms so important for government and employers alike to ensure a level of coordination in economic governance, has played an important role in empowering trade union claims in the domain of labour market regulation, although these claims were clearly tempered by flexibility concerns in line with strong employer preferences, and more particularly the FDI community. Contrary to Switzerland, the political power and preferences of small businesses in Ireland did not constitute a counterpoint to the liberal preferences of big and transnational business. A far more free trade-led path in Ireland, in

4

The Domestic Regulation of Transnational Labour Markets

101

opposition to a more selective protectionist path in Switzerland, has structured more liberal policy preferences on the side of Irish small business as well.

4.7 Conclusion Several conclusions can be drawn from the comparison of Switzerland and Ireland with regard to the role of power relationships and institutional determinants in the process of economic transnationalization (labour market opening and re-regulation). First, the power relationship between export-oriented and domestically oriented business strongly determines re-regulation outputs in both countries. In Switzerland, the relative strength of domestic business with protectionist preferences, which converged with trade union preferences with regard to labour market protection, yielded a more protectionist re-regulation pattern. By contrast, in Ireland, no such protectionist political force coalesced with trade unions on an agenda of labour market protection. The Irish internal market was already very much open to foreign competition, and needs for protection were not expressed by business at the political level. Trade unions alone, although they could impose the issue of labour market protection on the agenda in the framework of social pacting, only achieved limited measures in this respect and could not constitute a counterpoint against the preferences of strong transnational business on which the Irish economy is very much dependent and whose interests are very much taken into account by governmental departments. Second, in both countries, the existence of institutionalized arenas of policy concertation (social pacting in Ireland and preparliamentary arenas in Switzerland) allowed trade unions to impose the issue of labour market protection on the political agenda. This was much more marked in Switzerland, where the institution of referendum endowed trade unions with a strong veto power; they played a pivotal role especially given the ideological divisions of the right over the issue of European integration. Although Irish social pacting arenas provided a space to discuss this issue, they did not provide such a powerful leeway over policymaking for trade unions as the tool of referendum in Switzerland. Third, pre-existing regulatory arrangements proved to play an important role in re-regulation processes related to labour market opening, and some form of path dependence pattern can be observed as regards responses to economic transnationalization. Indeed, although both Ireland and Switzerland can be characterized as lightly regulated economies, collective bargaining in Switzerland is more institutionalized at the sectoral level, and existing tools aimed at extending outcomes of collective bargaining (extension procedures of CLAs) were available, whereas they were not in Ireland. Hence, in the Swiss context, existing regulatory tools could be drawn upon in designing re-regulation, whereas new tools had to be designed in the Irish context, which is more based on market solutions. Besides this, it must be taken into account that there is no national minimum wage in Switzerland, whereas there is one in Ireland. Hence, it can be argued that there were more important ‘regulatory gaps’ in the Swiss regulatory framework – that potential outsiders could

Limited: selective protectionism and endogenous development

Strong: free trade and attraction of FDI

Switzerland

Ireland

Country

Transnationalization pattern

Social pacting arenas

Referendum

Institutional framework of concertation Trade unions and small business impose regulation against will of big business Populist right opposed to labour market opening Big business and transnational actors (FDI) oppose further regulation of labour market proposed by weak trade unions

Policy coalitions

Table 4.2 Synthesis of results

No transitional measures Ex-post regulation

Ex-ante regulation Long transitional measures

Pace of opening

Establishment of National Employment Rights Authority supported by labour inspectors

Facilitation of collective labour agreement extension, minimal wages Hiring of labour inspectors

Re-regulation measures

102 A. Afonso

4

The Domestic Regulation of Transnational Labour Markets

103

take advantage of – than in Ireland, where a ‘secure floor’ regarding wages existed. However, the Swiss re-regulation process remains more important in its extent with regard to pre-existing conditions.

4.7.1 Economic Transnationalization and Political Re-regulation Free movement of workers and the liberalization of service provision in the framework of EU negative integration imply the transnationalization of labour markets, that is, the facilitation of the circulation of labour across national boundaries. Drawing upon work on processes in similar areas, many scholars argue that national boundaries are no longer pertinent units of analysis to grasp the functioning of markets: supply and demand for labour are no longer confined within nation states but rather operate at the transnational level, since the capacity of governments to restrict access of foreign workers and foreign companies has become significantly weaker. However, even if it is largely true that the economy has gone largely transnational, its regulation is still to a large extent in the hands of nation states and determined by domestic political power relationships and institutions. A central issue of the research on transnationalization should therefore be the complex set of entanglements between transnationalized economies and domestic means of re-regulation. In the cases analysed here, empirical analysis has allowed to assess political processes at work in the process of economic transnationalization. In the cases analysed here, economic transnationalization has been accompanied by a concomitant process of re-regulation aiming at limiting the possibly damaging impact of this expansion. This can be considered an interesting instance of the process of ‘double movement’ already outlined long ago by Karl Polanyi, cited in the opening quotation of this chapter. Here, I have argued that institutional determinants (social pacting in Ireland and direct democracy in Switzerland) have played an important role in empowering social forces willing to achieve a re-regulation of labour markets to cope with risks of social dumping resulting from EU enlargement. Hence, the countermovement is strongly determined by domestic institutional frameworks that actors may use to achieve their ends. In the context of economic transnationalization, these factors play a central role in the establishment of rules governing ever-expanding markets.

List of Interviews Switzerland 1. Member of Direction Council, Swiss Employers Union, Bern, 11.05.2007; 2. Central Secretary, Swiss Federation of Trade Unions, Bern, 03.04.07; 3. Former Federal Councillor and Head of Federal Department for Economy, Fribourg, 02.04.07; 4. Vice Director of the Swiss Union of Crafts and SMES, Bern, 26.03.07;

104

A. Afonso

5. President of Special Commission “Flanking Measures” of National Council, Social Democratic Party, Bern, 20.03.07; 6. President, Swiss Trade Union Federation, Bern, 20.03.07; 7. Former Head of Sector Labour Relations, State Secretariat for Economics, Neuchatel, 09.03.07; 8. MP Council of States, Member of special commission “flanking measures”, Social Democratic Party, Geneva, 01.03.07;

Ireland 9. Social Policy Analyst, National Economic and Social Council, Dublin, 17.01.08; 10. Secretary General, Department of Enterprise, Trade and Employment, Dublin, 29.01.08; 11. Social Affairs Officer, Irish Congress of Trade Unions, Dublin, 25.01.08; 12. Director of Industrial Relations and Research Officer (joint interview), Construction Industry Federation, Dublin, 08.02.2008; 13. Senior Social Policy Executive, Irish Business and Employers Confederation, Dublin, 28.01.2008; 14. Legislation Policy Officer, Irish Congress of Trade Unions, Dublin, 21.01.2008; 15. Regional Secretary – Dublin Region, Services, Industrial, Professional & Technical Union (SIPTU), Dublin, 07.02.2008; 16. Director of Industrial Relations, Irish Business and Employers Confederation, Dublin, 05.02.2008; 17. Director, National Economic and Social Council, Dublin, 18.01.2008. Acknowledgments The author would like to thank the editors and contributors of this volume, as well as André Mach and Yannis Papadopoulos for their helpful comments on earlier drafts of this chapter. Funding by the Swiss National for Scientific Research is gratefully acknowledged.

References Afonso, A. (2007). “Policy Change and the Politics of Expertise: Economic Ideas and Immigration Control Reforms in Switzerland”. Swiss Political Science Review 13 (1): 1–38. Afonso, A. and M. Maggetti (2006). “Bilaterals 2: Reaching the Limits of the Swiss Third Way?” In Church, C., ed., Switzerland and the European Union. London: Routledge: 215–233. Baccaro, L. and M. Simoni (2004). The Irish Social Partnership and the “Celtic Tiger” Phenomenon. Geneva: International Institute for Labour Studies, DP/154. Boeri, T. and H. Brücker, eds (2000). The Impact of Eastern Enlargement on Employment and Labour Markets in the EU Member States. Berlin and Milano: European integration consortium DIW, CEPR, FIEF, IAS, IGIER. Bonoli, G. and A. Mach (2000). “Switzerland: Adjustment Politics Within Institutional Constraints”. In Scharpf, F. W. and V. Schmidt, eds., Welfare and Work in the Open Economy. Oxford: Oxford University Press: 131–173. Cornelius, W. A. and M. Rosenblum (2005). “Immigration and Politics”. Annual Review of Political Science 8: 99–119.

4

The Domestic Regulation of Transnational Labour Markets

105

Crouch, C. (1993). Industrial Relations and European State Traditions. Oxford: Clarendon Press. Department of the Taoiseach (2006). Towards 2016: Ten-Year Framework Social Partnership Agreement 2006–2016. Dublin: Stationery Office. Djelic, M.-L. and K. Sahlin-Andersson (2006). Transnational Governance: Institutional Dynamics of Regulation. Cambridge, UK; New York: Cambridge University Press. Doyle, N., G. Hughes, and E. Wadensjö (2006). Freedom of Movement for Workers from Central and Eastern Europe: Experiences in Ireland and Sweden. Stockholm: Swedish Institute for European Policy Studies. Dupont, C. and P. Sciarini (2006). “Back to the future: Bilaterals 1”. In Church, C., ed., Switzerland and the European Union. London: Routledge: 2002–214. EIRO (2005) “Union Density Declines to Around a Third”. European Industrial Relations Observatory Online (10) available at http://www/eurofound.europa.eu/eiro/ (accessed 07 July 2008). EIRO (2008). “Unions Fear ECJ Ruling in Laval Case Could Lead to Social Dumping”. European Industrial Relations Observatory Online (1) available at http://www/eurofound. europa.eu/eiro/ (accessed 07 July 2008). European Science Foundation (2006) “Globalisation, Transnationalisation and Increasing Uncertainty in European Countries”, available at http://www.transeurope-project.org/ page.php?id=300 (accessed 02 June 2008). Eurostat (2005). GDP per capita Varied by One to Five Across the EU 25 Member States (press release). Luxembourg: Eurostat. Fischer, A., S. Nicolet, and P. Sciarini (2002). “Europeanisation of Non-EU Countries: The Case of Swiss Immigration Policy Towards the EU”. West European Politics 25 (4): 143–170. Fluder, R. and B. Hotz-Hart (1998). “Switzerland: Still as Smooth as Clockwork?” Ferner and Hyman (eds) Changing Industrial Relations in Europe 262–282. Gajewska, K. (2006). “Restrictions in Labor Free Movement after the EU-Enlargement 2004: Explaining Variation Among Countries in the Context of Elites’ Strategies Towards the Radical Right”. Comparative European Politics 4 (4): 379–398. George, A. L. and A. Bennett (2005). Case Studies and Theory Development in the Social Sciences. Cambridge, MA: MIT Press. Hall, P. A. and R. C. Taylor (1996). “ Political Science and the Three New Institutionalisms”. Political Studies 44 (5): 936–957. Hardiman, N. (2002). “From Conflict to Co-ordination: Economic Governance and Political Innovation in Ireland”. West European Politics 25 (4): 1–24. Hardiman, N. (2006). “Politics and Social Partnership: Flexible Network Governance”. The Economic and Social Review 37 (3): 343–374. Immergut, E. (1997). “The Normative Roots of the New Institutionalism: Historical Institutionalism and Comparative Policy Studies”. In Benz, A. and W. Seibel, eds, Theorieentwicklung in der Politikwissenschaft: Eine Zwischenbilanz. Baden-Baden: Nomos. Katzenstein, P. (1985). Small States in World Markets: Industrial Policy in Europe. Ithaca: Cornell University Press. Kvist, J. (2004). “Does EU Enlargement Start a Race to the Bottom? Strategic Interaction among EU Member States in Social Policy”. Journal of European Social Policy 14 (3): 301. Mach, A., S. Haeusermann, and I. Papadopoulos (2004). “Social Policy Making under Strain in Switzerland”. Swiss Political Science Review 10 (2): 33–59. Menz, G. (2002). “Patterns in EU Labour Immigration Policy: National Initiatives and European Responses”. Journal of Ethnic and Migration Studies 28 (4): 723–742. Menz, G. (2005). Varieties of Capitalism and Europeanization: National Response Strategies to the Single European Market: Oxford: Oxford University Press. Milner, H. V. and R. O. Keohane (1996). “Internationalization and Domestic Politics: An Introduction”. In Milner, H. V. and R. O. Keohane, eds, Internationalization and Domestic Politics. Cambridge: Cambridge University Press: 3–24. National Economic and Social Council (2006). Migration Policy. Dublin: National Economic and Social Council.

106

A. Afonso

Oesch, D. (2007). “Weniger Koordination, mehr Markt? Kollektive Arbeitsbeziehungen und Neokorporatismus in der Schweiz seit 1990“. Swiss Political Science Review 13 (3): 337–368. Orenstein, M. and H.-P. Schmitz (2006). “The New Transnationalism and Comparative Politics”. Comparative Politics 38 (4). Papadopoulos, I. (2001). “How Does Direct Democracy Matter? The Impact of Referendum Votes on Politics and Policy-Making”. In Lane, J.-E., ed., The Swiss Labyrinth: Institutions, Outcomes and Redesign. London: Frank Cass: 35–58. Polanyi, K. (1957). The Great Transformation. Boston: Beacon Press. Scharpf, F. W. (1999). Governing in Europe: Effective and Democratic? Oxford: Oxford University Press. Smith, N. J.-A. (2005). Showcasing Globalisation?: The Political Economy of the Irish Republic. Manchester: Manchester University Press. Wallace, J., P. Gunnigle, and G. McMahon (2004). Industrial Relation in Ireland –Third Edition. Dublin: Gill & McMillan.

Chapter 5

The Transnationalization of Change in Economic Institutions: The Case of Industrial Standards Regulations in Ukraine Julia Langbein

5.1 Introduction 5.1.1 Research Question and Argument This chapter examines the dynamics of change in economic institutions in an emerging market economy. Empirically, I conduct a case study of change in economic institutions regulating the application and monitoring of industrial standards in Ukraine. I seek to explain why economic institutions in this policy field change and why they change selectively, albeit gradually? I will show that change in industrial standards regulations is not domestic driven. Instead, the incentives and capacities of domestic actors to change institutions are altered by external factors. This result may not come as a surprise because industrial standards regulation encompasses one of the core regulations facilitating international trade. Yet the research question is puzzling because the dominant external factors advanced by scholars studying domestic change, that is, conditionality and market liberalization, do not suffice to explain the Ukrainian case. In contrast to the major bulk of literature, I will argue that these externally imposed or induced incentives are only necessary conditions for the piecemeal transnationalization of domestic arenas of decision-making regarding industrial standards regulations in Ukraine. The piecemeal transnationalization, through which external actors turn into domestic agents of change, partly alters not only the incentives but also the capacities of Ukrainian actors, leading to the selective, albeit gradual, change in Ukraine’s industrial standards regulations. This chapter limits its analysis of external factors to the Western influence on domestic change in Ukraine, which may be exerted by the EU, other European actors as well as international organizations such as the WTO or the World Bank. However, the process of domestic change in market institutions is likely to be influenced by Russian actors as well. This is due to Ukraine’s position between ‘Brussels’ and J. Langbein (B) European University Institute, Florence, Italy e-mail: [email protected] L. Bruszt, R. Holzhacker (eds.), The Transnationalization of Economies, States, and Civil Societies, DOI 10.1007/978-0-387-89339-6_5,  C Springer Science+Business Media, LLC 2009

107

108

J. Langbein

‘Moscow’ and the longstanding economic, political and social linkages between Russia and Ukraine as a result of their shared Soviet heritage. It will be a subject for future research to what extent the Russian factor challenges the explanation for selective, albeit gradual, change, which I will present in this chapter.

5.1.2 Social and Scientific Relevance From a social perspective, the analysis of institutional change in an emerging market economy like Ukraine aims to contribute to the question, relevant to both politics and economics, of how Western market institutions can be reproduced in emerging market economies in order to foster economic prosperity and stability. More specifically, this chapter presents a first detailed analysis of the implementation of EU assistance policies in a neighbouring country. In terms of scientific relevance, the analysis contributes to theories of institutional change. The study challenges standard approaches that examine the external impact on domestic change merely in terms of externally imposed or induced incentives such as political conditionality or market liberalization. Instead, it advances the concept of transnationalization as a complementary explanatory variable for why and how institutions change.

5.1.3 Outline of the Chapter In order to examine the research question, the chapter is structured as follows: In Section 5.2, I briefly discuss the research design and methodology applied in the study. In Section 5.3, I unfold the dependent variable of this chapter: the selective, albeit gradual, change in economic institutions regulating Ukraine’s industrial standards. In Section 5.4, I discuss the relevant literature in order to develop an analytical framework that will explain the Ukrainian case. In Section 5.5, I present the main results of my study. In the concluding section, I summarize my arguments.

5.2 Research Design and Methodology The analysis of transnational interactions and their effects on change in economic institutions in an emerging market economy is based on a single case study: The unit of my analysis is one emerging market economy (Ukraine), my case is one set of economic institutions regulating the interactions between the polity and the economy in one policy field (industrial standards regulations) and my observations encompass all incidents that reveal how the interactions between domestic and external factors have affected change in economic institutions in this specific case.1 While the results of a single case study are not suitable to make a general argument about the explanatory power of the variable(s) under scrutiny, scholars of 1

As previously mentioned, the analysis will be limited to the Western influence.

5

The Transnationalization of Change in Economic Institutions

109

social science methodology agree that single-unit studies may be suited to refine theoretical assumptions (George and Bennett 2005, pp. 80–81; Rueschemeyer 2003, pp. 310–318; Yin 1994). However, the explanatory factors that provide a sufficient explanation for the Ukrainian case may not be necessarily applicable in other emerging market economies. This is because the study does not control for other explanatory variables such as varying levels of democratization, economic performance or political turnover that a multiple-unit study would need to take into account. In terms of methods, the analysis of the case study is based on process tracing in order to ‘identify the intervening causal process – the causal chain and causal mechanisms – between an independent variable (variables) and the outcome of a dependent variable’ (George and Bennett 2005, p. 206). The process tracing is operationalized through document analysis and 24 semi-structured interviews with EU officials, experts, Ukrainian government officials and regulators, representatives of business associations and Ukrainian companies conducted in Brussels between September and October 2007 and in Kyiv and other Ukrainian cities between January and March 2008.

5.3 Specification of the Dependent Variable: What Is Changing and How? In my definition of economic institutions, I follow Peter Hall, who conceives them as ‘the formal rules, compliance procedures, and standard operating practices that structure the relationships between various units of the polity and the economy’ (Hall 1986, p. 19). The anchor for the change in economic institutions is the EU model of industrial standards regulations. This is because alignment with EU standards and practices in order to facilitate trade with the EU has been already promoted as an integrationist choice for Ukraine in the framework of the Partnership and Cooperation Agreement (PCA) of 1994 (European Commission 1994). More recently, the EU went one step further in its European Neighbourhood Policy (ENP) by offering Ukraine a stake in the internal market (European Commission 2004). Respective guidelines to reach this goal were laid down in the EU Action Plan for Ukraine (European Commission 2005). In February 2008, negotiations started between the EU and Ukraine on a Deep Free Trade Agreement (FTA+). In contrast to simple Free Trade Agreements, the FTA+ foresees not only the abandonment of tariffs and quotas on specific commodities but also regulatory convergence. Different from the members of the European Economic Area (EEA) – Iceland, Liechtenstein and Norway – who acquired a full stake in the internal market, the FTA+ allows for a certain degree of selectivity. Given the different political and economic situation of EEA members and Ukraine, the selectivity of the FTA+ is more feasible since the EU and Ukraine only seek regulatory convergence in areas that are of interest for both sides (Emerson 2006; Langbein 2008). Industrial standards regulation depicts one of these areas since change in Ukraine’s institutions in this area is necessary to reduce barriers to the trade

110

J. Langbein

of industrial products between the EU and Ukraine. This is because the current Ukrainian model applies different product standards and regulatory arrangements to monitor manufacturers’ compliance. With regard to the regulatory arrangements, the most important differences concern the existence of a centralized regulatory body in Ukraine that performs all tasks regarding industrial standards regulation while the EU model requires the breakup of this monopoly. Further, the EU model ascribes more responsibilities to the manufacturer in terms of premarket control. Basically, premarket control means that the manufacturer is expected to put industrial products on the market that meet required quality and safety standards. It is only in the postmarket situation that public or private bodies monitor the producers’ compliance with the EU standards. In Ukraine, the public regulatory body is instead in charge of both premarket control and post-market inspections (European Commission 2005; UEPLAC 2008). Against this background, I operationalize formal change in economic institutions regulating industrial standards in Ukraine along two dimensions: The first concerns the harmonization of Ukraine’s industrial standards with European ones. Here, I will look at those four priority sectors that the Ukrainian government selected in 2005 for the negotiations of an Agreement of Conformity Assessment of Industrial Products (ACAA) with the EU. The ACAA is supposed to be concluded by 2011 (European Commission 2006a).2 The second dimension concerns the alignment with the European model of monitoring manufacturers’ compliance with industrial standards. Here, I will look at four laws that Ukraine needs to adopt and implement to comply with EU requirements.3 Empirical evidence, based on secondary literature and document analysis, suggests that change in this policy field has followed a selective but gradual pattern from 2000 to 2007, as can be seen from the summary in Table 5.1 (UEPLAC 2008; AFNOR-SWEDAC-UNI 2004; European Commission 2008). Change is selective, because technical norms and laws are aligned at very different speeds and levels over time. For example, Ukraine’s harmonization with the EC Low Voltage Directive, which applies to electric and electronic equipment, proceeds faster than harmonization with the EC Machinery Directive. The same holds true for the alignment with EU laws that regulate the monitoring of the producers. Change is gradual, because core institutions regulating industrial standards regulations change constantly, although old laws regulating the monitoring of manufacturers’ compliance with product standards sometimes continue to exist and contradict the EU compliance of the new laws.4 2

As early as 2000, 5 years before the EU and the Ukrainian government agreed to prepare ACAA negotiations, Ukraine started to work on harmonizing the standards of those four sectors that the country selected for the ACAA. 3 These include (a) the Law of Standardization, (b) the Law on Assurance of Conformity Assessment, (c) the Law on Accreditation of Authorities of Conformity Assessment, and (d) the Law on Market Surveillance. 4 For a definition of gradual change and an overview over its various patterns, see Streeck and Thelen (2005).

5

The Transnationalization of Change in Economic Institutions

111

Table 5.1 Change in economic institutions regulating Ukraine’s industrial standards regulations in order to conclude an ACAA with the EU, 2000–2007 Standards harmonization

Regulating manufacturers’ compliance

Year

Standards

Status

2000

Four technical norms

Not harmonized Four laws

2004

One technical norm∗

Partly harmonized

One law†

One technical norm∗∗

Major part harmonized

One law††

2007

Laws

One technical norm∗∗∗ Partly harmonized One technical norm∗∗∗∗ No change

One law††††

One technical norms∗

Major part harmonized

One law†

One technical norm∗∗

No change

One law††

One technical norm∗∗∗ No change One technical norm∗∗∗∗ Partly harmonized

One law†††

One law††† One law††††

Status EU-compliant laws not drafted Adopted, partly EU compliant, not implemented Adopted, partly EU compliant, not implemented Adopted, EU compliant, partly implemented EU-compliant law not drafted More EU-compliant amendments rejected by legislative Partly implemented, more EU-compliant amendments rejected by legislative No change Draft law in major parts EU compliant, waiting for first reading

∗ The

Low Voltage Directive. Electromagnetic Compatibility Directive. ∗∗∗ The Simple Pressure Vessels Directive. ∗∗∗∗ The Machinery Directive. † The Law on Standardization. †† The Law on Assurance of Conformity Assessment. ††† The Law on Accreditation of Authorities of Conformity Assessment. †††† The Law on Market Surveillance. ∗∗ The

5.4 Theorizing Change in Economic Institutions 5.4.1 Ontological Assumptions The study follows the notion that institutions ‘do not change of their own accord; they are changed’ (McFaul 1995). Institutional change comes about when actors realize that current institutional arrangements do not accommodate their interests any longer (Streeck and Thelen 2005). In the literature, the interests of actors are conceptualized differently according to the two dominant logics of action underlying institutional change. The rationalist approach assumes that actors are utility maximizers who follow a ‘logic of consequence’ by weighing the costs of new

112

J. Langbein

institutional arrangements against the benefits of institutional change. The social constructivist approach argues that actors have ideational incentives to change institutions and follow a ‘logic of appropriateness’ by internalizing new norms and rules through a process of socialization and social learning (March and Olsen 1989, 1998). I deny the importance of neither material nor ideational incentives for actors to support institutional change. Still, I reject both the rationalist notion that interests are exogenous and the constructivist focus on ideational incentives. Instead, I follow a relational ontology based on the works of Durkheim and Weber (Durkheim 1938; Weber 1949, 1978). Hence, the incentives of actors to change institutions are shaped by social interactions. The behaviour of actors is rational, that is, utility maximizing. It can follow instrumental motivations and can as well have ideational roots depending on the specific social interactions actors take part in. The outcome may, however, not be the most beneficial one for rational actors due to limited information (March 1978; Simon 1995).

5.4.2 Domestic Factors for Institutional Change Change in economic institutions alters the power relations among economic actors and between them and the state (Bruszt 2002; Hall 1986). Hence, domestic agents of institutional change are situated on the demand and the supply sides and must have the incentives and capacities for change (Chayes and Handler-Chayes 1993; Milhaupt and Pistor 2008; Rodrick 2007). The task of the supply side, government officials or other state actors, is to promote measures for regulation and to influence market regulation directly through law-making or other forms of regulatory activity (Martin 2005). The incentives for the supply side to change institutions are political gains, for example, through the attraction of voters for upcoming elections, whereas its capacity to change is of political (e.g., strength of party affiliation among legislators to adopt new laws) or administrative nature (e.g., knowledge, skills and resources). On the demand side, companies or business associations may address the need for institutional change through lobbying. In order to do so, the demand side must have incentives for change, which is the increase in profit. In addition, the demand side must possess the capacity to shape the political decision-making process by getting access to the supply side. It can be assumed that institutional change is comprehensive and rapid where there are strong incentives and capacities on both the domestic supply and demand sides. Since the Ukrainian case reveals selective but gradual change, the following hypothesis can be formulated in order to test whether domestic factors alone can serve as (necessary and sufficient) explanatory variables: Hypothesis 1 (domestic factors hypothesis): If domestic factors explain selective but gradual change, then domestic actors either on the supply or on the demand side for institutional change must have altered their incentives and the capacity for change without any external impact.

5

The Transnationalization of Change in Economic Institutions

113

5.4.3 External Factors: Political Conditionality and Market Liberalization If neither the supply nor the demand side has the incentives and capacities to change institutions, scholars emphasize the role of external factors in explaining change. Jacoby reminds us that external actors are successful in shaping domestic change if they can build coalitions with domestic actors (Jacoby 2006). In other words, external actors need to alter the incentives and capacities of domestic actors to change institutions. The following section will discuss to what extent dominant approaches explaining the external impact on domestic change incorporate that idea.

5.4.3.1 The Power of Political Conditionality One widely accepted approach to explain the influence of external forces on institutional change in emerging market economies stresses the importance of political factors and the significance of hierarchy for institutional change. This notion is particularly widespread among the Europeanization scholarship that focuses on how the EU shapes domestic change in member countries, candidate countries and beyond EU borders by using conditionality. Since Ukraine is a neighbour of the EU and committed itself to align with the EU model of industrial standards regulation, the country is a case of Europeanization beyond the EU. Students of Europeanization argue that conditionality, defined as EU accession conditionality, has been the most effective EU strategy to promote domestic change in Central and East European candidate countries. Accordingly, they argue that conditionality has none or at most only limited effects on compliant behaviour among EU neighbouring countries without a membership perspective (Bauer, Knill, and Pitschel 2007; Schimmelfennig, 2007; Sedelmaier, 2006). Other scholars argue that EU conditionality, which is applied in the case of non-candidate countries through the PCAs or more recently through the ENP, has an effect on domestic change, albeit weaker than in the case of candidate countries (Kelley, 2006; Wolczuk, 2008). Whereas the carrot for the neighbouring states to pursue domestic change under the PCA was technical and financial assistance for institutional reforms through the TACIS and other programmes, the ENP has added the carrot ‘Stake in the Internal Market’ for the neighbouring countries (Gould 2004). Accordingly, scholars arguing within the conditionality framework ask for more incentives that the EU needs to offer in order to bring about faster, comprehensive and sustainable domestic change in neighbouring countries. Recent scholarship has started to criticize that view. This is because the conditionality argument neglects that institutional change often fails because domestic actors lack the capacities to pursue the reforms. In order to explain divergent outcomes in institutional change, the analysis of varying degrees of externally supported capacity-building should thus complement the analysis of varying degrees of conditionality (Bruszt and McDermott 2008; Easterly 2006; Lederman et al. 2005). Still, the conditionality argument may provide a necessary condition for change

114

J. Langbein

because it alters material incentives of domestic actors and may be a precondition for external actors’ activities in capacity-building: Hypothesis 2 (conditionality hypothesis): If external actors apply conditionality, material incentives of domestic actors to change institutions will alter according to the desires of the external promoters of change.

5.4.3.2 The Market Argument Another approach that is widely applied to explain the influence of external forces on institutional change in emerging market economies emphasizes the power of market liberalization and increasing trade flows (Aslund 2007; Frankel and Romer 1999). Consequently, market liberalization triggers two mechanisms through which institutional change is induced: First, foreign companies gain access to the domestic market of an emerging market economy and start lobbying the demand or supply side or both to promote institutional change. Second, the domestic demand side, for example, companies, realize the great potential for trade and profit and will pressure their governments for institutional upgrading or will undertake change themselves. Recent scholarship has revealed that the liberalization of markets does not necessarily lead to change in economic institutions. Again, the argument does not take into account that the demand and the supply side have to gain the capacity for changing institutions, which is a particularly crucial precondition in an emerging market economy (Bruszt and McDermott 2008; Lederman et al. 2005; Rodrick 2007). Despite this criticism, the two mechanisms through which institutional change is promoted according to the market argument shed light on the question: how material incentives of domestic actors to change are altered. The following hypothesis can thus be formulated to test whether market integration serves at least as a necessary condition for domestic change: Hypothesis 3 (market liberalization hypothesis): If trade flows increase, the material incentives for foreign companies and the domestic demand side to start lobbying for institutional change or to build institutions will also increase.

5.4.4 Linking the Domestic with the External Arena: Transnationalization and Institutional Change The previous discussion has shown that externally induced or imposed incentives such as market liberalization and conditionality may not provide a sufficient explanation for change in economic institutions. Therefore, I draw upon various works of the emerging scholarship of transnationalization by stressing the importance

5

The Transnationalization of Change in Economic Institutions

115

of interactions between non-state and state actors across national borders when explaining institutional change (Djelic and Sahlin-Andersson 2007; Orenstein and Schmitz 2006). In the vein of the other contributions to this volume, I advance the existing concept by defining transnationalization as a process that describes how these regular interactions lead to the ‘domestification’ of external actors: I argue that external actors become part of domestic arenas, for example, the political decisionmaking process, and may alter the material and ideational incentives and capacities of domestic actors to support change. Starting from the literature on institutional isophormism (DiMaggio and Powell 1991), I identify three mechanisms of how transnationalization effects institutional change: The first concerns the fostering of appropriate behaviour. External actors such as the EU or the World Bank aim to reproduce the regulatory model governing liberal market economies in emerging market economies (Djelic 2007). Following the logic of appropriateness, external actors try to alter the ideational incentives of domestic policymakers to change institutions. They do so by addressing the ‘shortcomings’ of specific domestic institutional arrangements in emerging market economies that deviate from ‘best practice’ in advanced liberal market economies. Hence, nondomestic ideas become part of the domestic decision-making process. The second mechanism is lobbying. While lobbying for institutional change by foreign companies or business associations is a consequence of market liberalization, the transnational lens sharpens our understanding for the specific mechanism leading to institutional change: Foreign companies or business associations lobbying for institutional change do not remain external actors but turn into domestic forces by getting access to the supply side of institutional change. Following a logic of consequence, domestic actors on the supply side may hence support the changes because they realize that the costs of undermining the reforms, for example, loss of FDI, exceed the costs of facilitating reforms, for example, increasing adjustment costs. Hence, foreign companies turn into a transnational force because they acquire a political voice in domestic decision-making processes. The third mechanism is the transfer of knowledge, skills and financial resources and addresses the lack of capacity among the demand and supply sides to pursue the change (Keck and Sikkink 1998). Here, externally imposed conditionality, for example, in the form of the ENP Action Plan, may create necessary conditions for the transfer to happen. External experts thus turn into domestic agents of change when they start training domestic supply or demand side actors. Transfer may also happen through transnational government networks, in which component institutions of governments – regulators, judges and legislators – increasingly cooperate with their nondomestic counterparts (Slaughter 2004). In addition, foreign companies may diversify the demand side by linking with domestic companies or business associations and provide training on-site (Gereffi and Wyman 1990). Table 5.2 summarizes the above-mentioned mechanisms of transnationalization.

116

J. Langbein

Table 5.2 Mechanisms of transnationalization through which incentives and capacities among the domestic demand and supply side for institutional change are altered Demand and supply side for institutional change Ideational incentives Mechanisms of Fostering appropriate transnationalization behaviour

Material incentives

Capacity

Lobbying

Transfer of knowledge, skills, and resources

Since change in Ukraine is selective but gradual, it is possible to hypothesize that transnationalization of the political decision-making process affects the incentives and capacities of the demand and supply sides for institutional change in a rather piecemeal manner. Hypothesis 4 (transnationalization hypothesis): If piecemeal transnationalization of the political decision-making process alters the incentives and capacity for change on the demand and supply sides, then selective but gradual change is likely.

5.5 Main Results In the following paragraph I will test the explanatory power of the four hypotheses stated above for the selective but gradual change in economic institutions regulating the application and monitoring of industrial standards in Ukraine.

5.5.1 The Domestic Factors Hypothesis Any analysis studying the domestic-driven incentives and capacities of the Ukrainian demand and supply sides for institutional change has to take into account the Orange Revolution, which took place in 2004. This is because the event has brought a more pro-European political elite to power that was expected to spur domestic reforms taking the EU and European integration as an anchor (Wolczuk 2008). For the case of industrial standards regulation, I will therefore compare the domestic-driven incentives and capacities of domestic actors before and after the Orange Revolution. Since it is the aim of this section to analyse domestic-driven change, I will, however, not take into account how EU conditionality or the incentives of market liberalization have altered the incentives and capacities of Ukrainian actors. 5.5.1.1 The Domestic Demand Side Following the domestic factors hypothesis, it is assumed that on the demand side only those Ukrainian companies that produce for the domestic market should have

5

The Transnationalization of Change in Economic Institutions

117

the incentives and the capacities to change economic institutions regulating the field of industrial standards. Exporters’ preferences are instead not included here as these are shaped by external factors such as access to foreign markets. Although the Orange Revolution has predominantly caused a shift among domestic political elites, Ukraine’s business elites have been shaped as well. This particularly concerns the so-called oligarchs. The Orange Revolution coincided with the change in the Ukrainian oligarchs from ‘roving’ to ‘stationary’ bandits (Olson 2000): The ‘roving’ oligarchs fought over the distribution of national wealth in rather murky privatization auctions during the 1990s and early 2000s. By the end of the Kuchma era the majority of assets were distributed among them (Dubrovskyi et al. 2007). Consequently, Ukrainian oligarchs turned into ‘stationary’ bandits; they became increasingly interested in formal and reliable institutions through which they can protect their wealth and become eligible for the capitalization of their assets on international markets. Ukrainian oligarchic business groups thus realized the chance to expand their businesses abroad by supporting a more EU-friendly government (Puglisi 2008). Still, their incentives to push for changes in industrial standards regulations are small. Although Ukrainian oligarchs own assets in the industries under scrutiny in this chapter, that is, machinery, their major assets are in energy, metallurgy (steel) and banking (Puglisi 2008). At this stage, changes in Ukraine’s industrial standards regulations (or technical regulations in general) as a means to simplify export to Europe are not on the priority list of the Ukrainian business elite. This becomes quite evident in a 2008 report on Ukraine’s Economic Development Agenda published by the Foundation for Effective Governance (FEG), which is a private initiative by the Ukrainian oligarch Rinat Akhmetov (FEG 2008). The report emphasizes the potential of Ukrainian machinery on the CIS market and therefore sees no immediate need for investing energy into the harmonization with EU regulations in this area. In addition, alignment with the European model would impose adjustment costs on Ukrainian machinery producers because European product norms will have to be applied on the Ukrainian market as well (Jakubiak 2006).5 5.5.1.2 The Domestic Supply Side Before and after the Orange Revolution, the Ukrainian regulator DSSU has always lacked domestic-driven incentives to change the current Ukrainian model of industrial standards regulation in order to align it with the EU model. This is because the

5

Unfortunately, I do not know any study that analyses how a removal of technical barriers to trade would affect those companies that are currently producing only for the Ukrainian market but would need to prove conformity with EU standards as soon as the ACAA is concluded. It can be assumed that the percentage of production costs that Ukrainian manufacturers, who are currently producing only for domestic and CIS markets, would need to invest is significantly higher than the 4.4% of production costs that Ukrainian companies exporting machinery already to the EU market would save as soon as the industrial standards regime in Ukraine is aligned with the EU model (ECORYS & CASE 2007; Jakubiak 2006)

118

J. Langbein

regulatory body will lose lots of its power in the aftermath of the changes (interviews 5, 20). According to the Ukrainian model, DSSU is in charge of all tasks related to industrial standards regulations in Ukraine.6 While the regulator will still be in charge of standardization after the changes have been pursued, other tasks will be divided among various public or private bodies that need to be founded. Therefore, even after the Orange Revolution when some changes in DSSU’s leadership took place, the new heads of Ukraine’s regulatory body did not support the alignment with the EU model more consistently than their predecessors. If change happened then it was because external forces have altered the incentives and capacities of some parts of DSSU’s staff as will be shown in Section 5.5.4. The same holds true for the Ukrainian executive, in particular the Ministry of Economy and the Ministry of Industrial Policy, who will have to reform, re-organize and develop the whole infrastructure for industrial standards regulations if they strive for the alignment with the EU model. This will cause high adjustment costs because re-organization will involve large training programmes for the employees of DSSU (interview 16). Domestic-driven political gains in terms of winning electoral votes for both the Ukrainian executive and legislative have been low before and after the Orange Revolution because the main group of constituencies, domestic producers for the Ukrainian markets, is not interested in the reform. Consequently, the Ukrainian executive and legislative have lacked domestic-driven incentives to promote institutional change, both before and after the political events in late 2004. There is no need to analyse whether the supply and demand sides would have the capacities to change institutions because actors will not use their capacities without incentives. Following hypothesis 1, the Ukrainian model of industrial standards regulations must not change under these circumstances. Instead, we observe selective but gradual change. Hence, purely domestic-driven incentives and capacities depict neither a necessary nor a sufficient condition for change in economic institutions in the case of industrial standards regulations.

5.5.2 The Market Liberalization Hypothesis Following the market liberalization hypothesis, increasing trade flows in ACAArelevant sectors will increase the demand among Ukrainian companies for changing institutions regulating industrial standards according to the EU model. In the Ukrainian case it is, however, important to note that the country is situated between the Russian/CIS and the EU single market, each of them operating on the basis of different regulatory models for industrial standards. Whereas the Russian/CIS model is compatible with the Ukrainian model due to the common Soviet past, the EU model is not, as described in Section 5.3. Although the importance of the EU-25 as an export destination for machinery and equipment has slightly increased from 1996 to 2005, the majority of Ukrainian exports go to Russia 6

These are standardization, certification, conformity assessment, and market surveillance.

5

The Transnationalization of Change in Economic Institutions

Figure 5.1 Ukraine’s exports of machinery (Movchan and Sysenko, 2007)

119

2500 2000 1500

Russia

1000

EU-25

500 0 1996

2005

(Figure 5.1). Further, a high level of intra-industry trade with Russia characterizes the Ukrainian machinery sector (Pindyuk 2006). Due to same standards, rules and procedures regarding industrial standards regulations on the Russian market, Ukrainian exporters to Russia lack incentives to support change because the new regulations do not concern them. The group of Ukrainian exporters to the EU, who have incentives to support the reform because they would no longer have to pay for double conformity assessment procedures on the Ukrainian and the EU market, is in contrast much smaller (Figure 5.1). Still, the market argument would expect Ukrainian exporters to the EU to lobby the domestic supply side for change or to build new institutions themselves. However, Ukrainian exporting companies lack the capacity to do so. It is not common among Ukrainian companies to provide financial and other resources in order to fund business associations and think tanks that would defend and advance their interest (interviews 10, 11, 18). Given the ‘collusive linkages’ between business and politics in Ukraine (Wolowski 2008), businessmen try to address their problems directly to politicians or are themselves members of the Ukrainian parliament. The group of Ukrainian machinery exporters to the EU is, however, a lot smaller than the group of domestic producers and exporters to the CIS markets. In addition, they also fear ‘punishment’ by DSSU, the Ukrainian regulatory body, in the form of increasing inspections, if they start pressuring for reforms (interview 18). As foreign companies are concerned, it is important to note that European exports of machinery and equipment to Ukraine rose four times between 1996 and 2005 (Figure 5.2). As a result and in accordance with the predictions of the market argument, European companies started lobbying the supply side, that is, the Ukrainian regulator and the executive, to support change in Ukraine’s industrial standards regulations through the European Business Association in Ukraine (EBA), which was founded in 1999 (interview 12). About 50 out of 726 corporate members of the EBA are operating in ACAA-relevant sectors and have hence a direct interest in the reform (EBA 2008). They will benefit from the harmonization with industrial standards and legislative alignments in this area due to decreasing expenditures on conformity assessment procedures and a decreasing number of inspections by the Ukrainian regulator. At this point, I will not further explore how European companies exactly lobby the domestic supply side for institutional change or link with the

120 Figure 5.2 Ukraine’s imports of machinery (Movchan and Sysenko, 2007)

J. Langbein

5000 4000 3000

Russia

2000

EU-25

1000 0 1996

2005

Ukrainian demand side. This is because I consider the framework of transnationalization as a more suitable framework to trace the process through which foreign companies’ lobbying efforts effect domestic change. As the supply side is concerned, the market argument does help to understand that the costs for the Ukrainian regulator DSSU and the Ukrainian executive of refusing institutional change increase due to lobbying efforts by European companies. Still, the opportunities for political gains in terms of winning electoral votes for both the Ukrainian executive and legislative are low. This is because only a small number of Ukrainian constituencies on the demand side for institutional change, Ukrainian exporters to the EU, will benefit immediately from the reforms. Through market liberalization and increasing trade flows, the material incentives of the Ukrainian executive, the legislative and the regulator to promote institutional change are hence only partly altered.7 The market argument, however, neglects that domestic demand and supply side actors also need to have the capacities, for example, knowledge, resources and enforcement power, to change and build new institutions. In sum, market liberalization partly alters the material incentives of the domestic demand and supply sides but neglects the significance of capacity-building for institutional change. Hence, the market argument offers a necessary but not sufficient condition for explaining change in economic institutions. Hypothesis 2 can be confirmed for the Ukrainian case.

5.5.3 The Conditionality Hypothesis Following the conditionality hypothesis, conditionality applied by external actors will alter material incentives for domestic actors to change institutions according to the desires of the external promoters. The beginning of Ukraine’s WTO negotiations in 1995, the ratification of the PCA between the EU and Ukraine in 1998, and the

7

Again, there is no need to analyze to what extent the capacity of the supply side to change institutions explains the change in economic institutions in the Ukrainian case because actors will not use their capacities without incentives.

5

The Transnationalization of Change in Economic Institutions

121

conclusion of the Action Plan in the framework of the ENP in 2004 are indicators for the conditionality applied by external actors towards Ukraine. However, WTO conditionality was not applied in a very strict sense. WTO membership encouraged the harmonization of Ukraine’s product standards and regulatory practices with international and European standards and practices, but it has never directly linked the prospect of membership to these changes. The main concern of the WTO is the reduction in tariffs. This becomes evident since Ukraine became WTO member in May 2008 although the Ukrainian model of industrial standards regulations does not meet international practices (see Table 5.1). Still, the prospect of WTO membership went hand in hand with technical and financial assistance for institutional reforms. In the field of industrial standards regulations, assistance was and is provided by the International Finance Corporation, which is part of World Bank Group, through a project that started in 2001.8 The EU has been active in the field of standardization and certification since 1996: Until the end of 2004, the TACIS programme under the umbrella of the PCA financed EU activities in the field of standards regulation. Under the PCA, EU conditionality was rather weak since it was based on the incentives of enhanced partnership and cooperation that included assistance but did not mention the prospect of membership. Nevertheless, the conditionality applied by the WTO, World Bank and the EU has already altered the incentives of the Ukrainian supply side to start changing institutions in industrial standards regulations when President Kuchma was still in power (interviews 6, 7, 12, 16, 17). Under Kuchma’s leadership the first legal acts to change Ukraine’s regulatory model of industrial standards were initiated and product standards were partly harmonized with international or European standards. These facts stand in contrast to the argument advanced by some scholars who maintain that European integration was treated as a foreign policy issue rather than as an anchor for domestic reforms under the Kuchma regime (Wolczuk 2008; Wolczuk, 2003). At least the case of industrial standards regulation demands a more nuanced assessment. This becomes even more evident when the changes in industrial standards regulation under Kuchma are compared with those that were made in this policy field after the Orange Revolution. In fact, the progress that has been achieved under the leadership of President Yushchenko from 2005 onwards does not outweigh the changes made until 2004 under his predecessor (see Table 5.1). The impact of the political changes in late 2004 on the institutional change under scrutiny is thus rather limited despite the fact that the new political elites express a somewhat stronger commitment to promote domestic reforms in order to prove their ‘Europe-worthiness’ (Wolczuk, 2008). Further, change did not happen in a more comprehensive way despite stronger conditionality that was applied by the EU from 2004 onwards in the framework of the ENP by offering Ukraine a ‘stake in the internal market’.

8

For more information, consult the project’s homepage at http://www.ifc.org/ifcext/uspp.nsf/ Content/Home, latest access on August 10, 2008.

122

J. Langbein

Yet with the Action Plan for Ukraine, the EU has provided much-needed guidelines for Ukrainian policymakers in order to channel their commitment into the right direction. Apart from the institutional changes between 2004 and 2007 (see Table 5.1), examples for the more declaratory success of ENP conditionality are the 2005 agreement between the EU and the Ukrainian government to start negotiating an ACAA, which is supposed to become effective by 2011. In the aftermath, President Yushchenko has issued the first comprehensive decree ‘On measures improving activities in the technical regulation and consumer policy sphere’ in order to facilitate preparations for ACAA negotiations. In addition, even the Ukrainian regulator DSSU, which does not have any interest in changing the current model of industrial standards regulations, has published a Green Paper in 2006, in which it discusses its past efforts to harmonize technical norms and legislation with EU and international requirements. Besides, DSSU commits itself to continue with its work in order to spur alignment with European standards and regulatory practices (interview 23).9 In sum, conditionality applied by external actors is a necessary condition for the selective but gradual change in Ukraine’s industrial standards regulation because it altered the material incentives of Ukraine’s political elites to start changing institutions. Hypothesis 2 can thus be confirmed. In addition, the application of conditionality provided guidelines for domestic reform (particularly under the ENP) and created the framework under which technical and financial assistance for capacity-building could be provided. However, the concept of conditionality does not shed light on the underlying mechanisms through which capacities of domestic actors are altered. Further, the analysis of ENP conditionality and its impact on domestic change in industrial standards regulations present evidence that stronger conditionality does not trigger faster or more comprehensive change.

5.5.4 The Transnationalization Hypothesis In the following section, I examine the explanatory power of the transnationalization hypothesis. The following implications that were gained from the analysis of the conditionality hypothesis will be incorporated: Both, WTO membership conditionality and EU conditionality, have altered the material incentives of the Ukrainian supply side to support change in industrial standards regulation. In addition, they entail financial and technical assistance for building capacities among domestic actors for institutional change. In terms of the market liberalization hypothesis, the following necessary conditions for change in Ukraine’s industrial standards regulation are relevant for further analysis: Market liberalization (a) alters the incentives of foreign companies to interact with domestic demand and supply side actors and (b) partly alters the incentives of the demand side and supply side to support institutional change. 9

DSSU (2006).

5

The Transnationalization of Change in Economic Institutions

123

I will examine to what extent the analytical framework of transnationalization takes other mechanisms into account through which non-domestic and domestic actors interact and thus effect domestic change. It will be tested, whether conditionality, market liberalization and transnationalization are complementary elements in order to come up with a sufficient explanation for the selective and gradual pattern of institutional change in the Ukrainian case. 5.5.4.1 First Initiatives from 2000 Onwards As previously discussed, Ukrainian executives became increasingly exposed to the influence of Western experts and politicians with the beginning of WTO negotiations in 1995, the ratification of the PCA between the EU and Ukraine in 1998, and the conclusion of the Action Plan in the framework of the ENP in 2005 (interviews 16, 17, 23). Apart from the conditionality that has been applied by these external actors towards Ukrainian policymakers, the World Bank and the EU criticized Ukraine’s existing standards regime because it ‘[. . .] adds to the cost of doing business in Ukraine and hinders the country’s integration into the world economy’ (World Bank 2004, p. 226; European Commission 2006b). Further, World Bank studies have emphasized the low quality of Ukraine’s business environment when compared not only to OECD countries but also to the average value for the transition economies in Europe and Central Asia (World Bank 2004, p. 142). As a result, Western actors transnationalized the decision-making process in Ukraine with their ideas regarding industrial standards regulations. They turned into domestic forces of change by fostering appropriate behaviour among Ukrainian executives and regulators and did not remain in the external arena as the conditionality argument suggests. Consequently, Western actors altered the ideational incentives of Ukrainian executives and regulators who thus started to show commitment for reforms because they did not want to be recognized as backward-oriented policymakers by the West. It is not possible to clearly separate the effects of conditionality and the fostering of appropriate behaviour on the Ukrainian decisionmaking process since interview partners have constantly referred to both aspects (interviews 2, 5, 6, 7, 12, 16, 17). It is therefore safe to conclude that both conditionality and the fostering of appropriate behaviour have an impact on domestic change in industrial standards regulations. 5.5.4.2 The Laws on Standardization, Conformity Assessment and Accreditation of Conformity Assessment Bodies When President Kuchma ordered the drafting of laws on standardization, conformity assessment and accreditation of conformity assessment bodies in a Presidential Decree of 2000, European TACIS experts began to serve as legal advisors to the Ukrainian regulator DSSU and representatives of the Ukrainian Ministry of Economy. Due to the resistance of DSSU, the draft laws on standardization and conformity assessment were finally not fully compliant with EU requirements because they did not foresee the unbundling of DSSU (interviews 17, 18). Still, European

124

J. Langbein

experts could convince the Ukrainians to draft a EU-compliant law on accreditation of conformity assessment bodies by arguing that some evidence for progress would be helpful for future negotiations with the EU and the WTO. The Ukrainian parliament adopted the three draft laws in 2001. There are some modest attempts to implement them, but partly the laws are still contradicted by existing national law (AFNOR-SWEDAC-UNI 2004). For example, existing laws still assign the tasks of accrediting conformity assessment bodies to DSSU and not to a separated public body. As a result, only DSSU’s own certification body, Ukrmetrteststandard, has an accreditation. However, Ukrmetrteststandard has been acquiring the capacity to pursue the tasks of conformity assessment in line with EU requirements for one ACAA-related technical norm in 2006 despite lacking incentives of DSSU to pursue the reforms.10 This is because Ukrmetrteststandard’s staff is interacting with international and European standardization organizations11 and is becoming increasingly aware of internationally recognized concepts of conformity assessment and market surveillance (interviews 9, 20). The selective implementation can therefore be explained by various degrees of transnationalization across domestic actors: Where interactions between nondomestic and domestic forces exist, institutional change is more likely to happen than if interactions do not take place or take place at a lower level. The lack of full compliance with EU requirements and slow implementation efforts have attracted a lot of criticisms by the European Business Association in Ukraine (EBA). As previously mentioned, European exports have increased four times between 1996 and 2005. In accordance with the predictions of the market liberalization argument, European companies started lobbying the Ukrainian supply side through the EBA, which was founded in 1999. The EBA has heavily criticized the partial compliance of the three laws with EU and international practices as well as the lack of implementation efforts in its yearly reports called ‘Barriers to Investment in Ukraine’ from 2001 onwards (EBA 2007). Further, the EBA has access to the Ukrainian supply side because its representatives participate in various government councils of the Ministry of Economy, the Presidential Office and the Ukrainian regulator. The EBA’s efforts to challenge the status of the three laws under scrutiny were supported by the advisory work undertaken by World Bank experts for the Ukrainian Ministry of Economy.12 As a result, the ministry requested World Bank and local 10

This concerns the Low Voltage Directive. The problem, however, is that Ukrmetrteststandard is still part of the Ukrainian regulator DSSU. In order to align with EU requirements, Ukrmetrteststandard has to be separated from DSSU. 11 Since 1993, Ukrainian regulators have been cooperating with the International Standards Organization (ISO) and the International Electrotechnical Commission (IEC) due to the start of WTO negotiations. Cooperation with the European Committee for Standardization (CEN) and the European Committee for Electrical Standardization (CENELEC) started only in 2004 due to efforts by European experts working for the mentioned TACIS projects between 2003 and 2004. As a result, DSSU acquired the status of a partner authority with CEN and the status of an associate with CENELEC, in 2005. 12 As previously mentioned, the World Bank Group launched a project aimed at improving Ukraine’s business environment pursued by the International Finance Cooperation (IFC) in 2001.

5

The Transnationalization of Change in Economic Institutions

125

experts to draft respective amendments to the existing laws on standardization and conformity assessment in 2006 to make them more compliant with EU requirements. The draft laws were discussed and approved by a working group consisting of World Bank and local experts, Ukrainian state officials, and EBA in summer 2007. Then, the Presidential Secretariat handed over the amendments for approval to the Ukrainian parliament in January 2008. On 8 April 2008, the amendments were rejected by the majority of the parliament due to the lobbying efforts of the current chair of DSSU’s public council, Leonid Shkolnik. He lobbied through Yuriy Karmazin, who is the head of the Party of Motherland Defenders, which was then part of President Yushchenko’s ‘Our Ukraine – People’s Self-Defense’ party bloc. Reforms are thus also hampered because the Ukrainian executive lacks the political capacity to promote institutional change due to the weakness of the Ukrainian party system and internal power struggles (interview 18).

5.5.4.3 The Law on Market Surveillance In 2001, the Ukrainian Council of Ministers came up with a resolution that mandated the Ukrainian regulator DSSU to draft a law on market surveillance.13 Only 5 years later, in September 2006, the Ukrainian regulator DSSU presented the draft law at its public council; the delay came about because the Ukrainian executive had not placed any pressure on it to act faster. In addition, DSSU’s public council had started meeting only in October 2005.14 As a result, lobbying DSSU became a lot easier since private actors such as Ukrainian business and consumer associations and the EBA got the possibility to influence the agenda by raising subjects of their concern and to criticize DSSU’s activities. When DSSU presented its draft law in market surveillance in the public council, the EBA heavily criticized it because the draft did not foresee the decentralization of the regulator’s tasks as required by the EU internal market rules. The business organization called upon its members to send protest letters to DSSU and the Ministry of Economy. The EBA also asked the EC to put pressure on the government to refuse this draft law. Since the Head of the Trade and Economic Section from the EC Delegation to Ukraine is a member of the EBA’s board and sits on a number of EBA’s committees, the EC addressed the EBA’s issues during meetings with Ukrainian government officials (interview 12). In an interview, a representative of the Ukrainian Ministry of Economy mentioned that he and his colleagues did not

13

The law is supposed to disentangle the premarket control of industrial products from the regulatory body and assign it to the manufacturers. It further released the regulator from pursuing inspections and assigns these tasks to separate public or private bodies. See European Commission (2005). 14 DSSU introduced the Public Council following a Presidential Order of 2004 and a related Order of the Cabinet of Minister of Ukraine of May 2005. For more detailed information, consult DSSU’s homepage at http://www.dssu.gov.ua/control/en/publish/article/ main?art_id=87458&cat_id=87313, last accessed on August 10, 2008.

126

J. Langbein

want to support DSSU’s draft law on market surveillance anyway because it was noncompliant with EU requirements. But protest by European importers and the EC accelerated their decision to initiate the drafting of a more compliant market surveillance law (interview 17). The Ukrainian Ministry of Economy asked World Bank and local experts to develop the new draft on market surveillance, which was then discussed by the above-mentioned working group consisting of Ukrainian executives, local and international experts and the EBA in summer 2007. After its approval, the Presidential Office handed over the draft law to the Ukrainian parliament in January 2008. The Presidential Office, however, keeps postponing the first reading of the law by the Ukrainian parliament in order to save it from the aforementioned described fate of the amendments to the laws on standardization and conformity assessment (interview 18). 5.5.4.4 Standards Harmonization Apart from changing the regulatory framework for industrial standards regulations in Ukraine, the country also needs to harmonize its product standards with respective EU standards. Selective progress in terms of standards harmonization can be observed: While harmonization with the EC Directives on Low Voltage (LV), Electromagnetic Compatibility (EMC) and Simple Pressure Vessels (SPV) progresses, harmonization with the EC Machinery Directive does not. How to explain this variation? The market liberalization hypothesis provides a necessary condition for the selective change: Whereas Ukraine’s machinery sector is heavily integrated with the Russian/CIS market, the sector of electronic, electric and optical devices, which is mainly covered by the LV, EMC and SPV directives, is not. In fact, exports to Russia in the two sectors heavily deteriorated after the breakdown of the Soviet Union until the mid-1990s. In contrast to Ukraine’s machinery sector, the sector of electronic, electric and optical devices did not recover. Instead, Ukrainian producers of these devices have been increasingly crowded out by European/Western imports, whereas Ukraine’s domestic production of machinery still has a more significant share in the Ukrainian market as well as in the export volume to Russia and other CIS countries (UEPLAC 2008; Pindyuk 2006, p. 7). Therefore, the Ukrainian government agencies do not fear the breakup of present production chains with Russia following the harmonization with EU product standards as electronic, electric and optical devices are concerned. The picture is rather different in the domestic machinery sector, which constituted 13% of Ukraine’s production output in 2007 (FEG 2008). Consequently, standards harmonization in the case of the Machinery Directives has been a lot slower than in the case of the other three EC directives. The fact that change has taken place in the area of standards despite low domestic incentives is due to the gradual transnationalization of the Ukrainian decisionmaking on standards harmonization: The first TACIS project that aimed explicitly at promoting the harmonization of Ukrainian industrial standards with EU standards took place from 2003 to 2004 (AFNOR-SWEDAC-UNI 2004). Training

5

The Transnationalization of Change in Economic Institutions

127

courses were conducted with representatives from the Ukrainian regulator DSSU, the body in charge of standards harmonization. During the trainings, differences between existing Ukrainian standards and EU standards were identified and guidance to implement the technical norms was provided. Further, the projects provided financial assistance for the translations of relevant EC directives (interview 8). Yet Ukrainian regulators remarked that the resources provided do not cover the costs for interpreters (interview 17). According to the report on the previously mentioned TACIS project, harmonization with the EC Machinery Directive could not be promoted to the same extent as harmonization with the other three EC directives, because the respective partners from DSSU did not show up at meetings that were set up to discuss further steps to harmonize Ukraine’s machinery standards with EU standards (AFNOR-SWEDAC-UNI 2004). 5.5.4.5 The Forgotten Demand Side The previous analysis has shown that market liberalization, conditionality and piecemeal transnationalization of the domestic decision-making process regarding industrial standards have altered the material and ideational incentives of parts of the demand and supply sides to support the reforms. Whereas World Bank and EU conditionality created the framework for technical and financial assistance, piecemeal transnationalization has helped to build capacities of the supply side to pursue them. However, capacities of supportive actors on the demand side, Ukrainian exporters to the EU, have not been changed. Neither has transnationalization led to a diversification of the demand side since incentives of neutral Ukrainian companies (exporters to Russia) or opposing Ukrainian companies (companies producing for the domestic market) have not been changed. This is because negotiations between Ukraine and the EU or the WTO are happening on an intergovernmental level. Consequently, the criticisms and advice expressed by the EU, the WTO, or the World Bank become only part of the governmental decision-making process regarding institutional reforms in Ukraine. Further, European business associations working on the European level lack contacts with their Ukrainian counterparts (interviews 1, 3, 4). Even the EBA in Ukraine does not invest a lot of efforts in building up alliances with Ukrainian companies or business organizations by providing trainings about industrial standards regulations in Ukraine (interviews 12, 13). In addition, previous EU TACIS and World Bank projects did not focus on the Ukrainian demand side.15 As a matter of fact, these projects have, for example, not adequately addressed the previously mentioned inactivity of Ukrainian companies to lobby for their interest. As a result, transnational forces have altered neither the material or ideational incentives of the neutral and opposing actors on the Ukrainian demand side for institutional change nor the capacities of Ukrainian exporters to the EU to lobby for the reforms. 15

The European Commission, however, plans to address Ukrainian companies through a number of TACIS projects in order to disseminate information from 2008 onwards (interview 8).

128

J. Langbein

5.6 Conclusion The study has presented evidence that the selective but gradual change in Ukraine’s industrial standards regulations is not domestic driven because actors on the domestic demand and supply sides lack either the incentives or the capacities or both to promote institutional change. Instead, I show that external forces partly alter the incentives and capacities of domestic demand and supply side actors to change institutions in industrial standards regulation. If analysed as separate explanatory factors, the conditionality, the market and the transnationalization arguments do provide necessary but not sufficient conditions for the change in economic institutions regulating the application and monitoring of industrial standards in Ukraine. Yet if treated as complementary explanations, a sufficient explanation for the selective but gradual pattern of change in the Ukrainian case can be provided: Change is being pursued gradually because of three mechanisms: First, the World Bank and the EU foster appropriate behaviour among the Ukrainian supply side and thus provide ideational incentives for change by criticizing the shortcomings of the current Ukrainian model in terms of competitiveness. Second, the market argument explains why European companies lobby the Ukrainian supply side: Their exports of ACAA-relevant products to Ukraine have increased since 1996. European producers thus take a dominant position on the Ukrainian market. The transnationalization argument, however, sharpens our understanding of the process: Through the EBA, European companies take on tasks traditionally ascribed to the domestic demand side. They lobby at Ukrainian government councils or at the EC, exert pressure and make it more costly for the supply side to completely resist the reforms. Hence, European companies alter the material incentives of Ukrainian actors on the supply side. Third, conditionality applied by the WTO, the World Bank and the EU partly alters the material incentives of Ukraine’s supply side. One of the elements of the applied conditionality, the provision of financial and technical assistance, creates a framework for international and European experts to transnationalize the domestic decision-making process on industrial standards regulations: They provide knowledge and resources and again fulfill traditional tasks of the domestic supply side by drafting EU-compliant legislation. Consequently, these experts alter the administrative capacity of the domestic supply side, that is, of the regulator and the executive. The selective character of the change can be also traced back to three factors: First, the benefits for the Ukrainian supply side provided by externally applied conditionality, market liberalization, as well as transnational forces do neither cover the adjustment costs nor increase their political gains. Second, transnational forces did not address capacity-building among the domestic demand side to pressure their government or build institutions by themselves. Third, transnational forces have focused only on altering the administrative but not the political capacity of the executive to increase support among Ukrainian legislators and regulators. Apart from the specificity of the Ukrainian case, this chapter makes a more general argument by revealing the limited explanatory power of the dominant

5

The Transnationalization of Change in Economic Institutions

129

approaches to explain how external forces shape domestic change: Market liberalization and political conditionality do not sufficiently explain the ‘domestification’ of externally promoted incentives and the capacity-building that allows domestic actors on the supply and demand sides to pursue the reforms. Instead, the concept of transnationalization needs to be included into the analysis. If scholars treat the three concepts as complementary explanations, they may be better suited to explain how external forces shape domestic change. Testing the robustness of that argument will certainly deserve further empirical studies. The author may be contacted at the European University Institute in Florence at [email protected].

List of Interviews In Brussels (September–October 2007) 1. Representative of the European Round Table of Industrialists, 19 September 2007. 2. Official, DG Trade, 20 September 2007. 3. Representative of Business Europe, 1 October 2007. 4. Representative of Eurochambers of Commerce, 2 October 2007. 5. Official, DG Enterprise, 5 October 2007. In Kyiv (January–March 2008) 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21.

Ukrainian expert (a), 24 January 2008. Official, Delegation of the European Commission to Ukraine, 1 February 2008. Official, Delegation of the European Commission to Ukraine, 1 February 2008. European expert (a), 8 February 2008. Representative of a big Ukrainian company exporting household appliances to the EU, 6 February 2008. Representative of a medium-sized Ukrainian company exporting electrotechnical devices to the EU, 6 February 2008. Representative, European Business Organization, 11 February 2008. Representative of a Ukrainian business association (a), 15 February 2008. European expert (b), 15 February 2008. Representative of a Ukrainian business association (b), 20 February 2008. Two state officials, Ukrainian Ministry of Industrial Policy, 25 February 2008. State official (a), Ukrainian Ministry of Economy, 28 February 2008. Ukrainian expert (b), 18 March 2008, and written comments by the same expert, 14 and 24 April 2008. Representative of Ukrainian regulator DSSU (a), 18 March 2008. Representative of Ukrmetrteststandard (DSSU’s conformity assessment body), 18 March 2008. State official (b), Ukrainian Ministry of Economy, 18 March 2008.

130

J. Langbein

22. State official (c), Ukrainian Ministry of Economy, 18 March 2008. 23. Two representatives of Ukrainian regulator DSSU (b), 19 March 2008. 24. Representative of a Ukrainian subsidiary of a European company exporting electrotechnical products to Ukraine, 25 March 2008.

Acknowledgments I would like to thank László Bruszt, Ronald Holzhacker, Dorothee Bohle, Sabine Fischer as well as all participants of the European Research Colloquium on the Transnationalization of Economies, States, and Civil Societies: New Challenges for Governance in Europe, for their helpful comments on earlier drafts of this chapter. Further, particular thanks are owed to Michael Emerson, Ildar Gazizullin and Olga Shumylo, who helped in various ways during the research. The usual disclaimer remains.

References AFNOR-SWEDAC-UNI Consortium (2004). The European Union’s programme “Application of a Foreign Trade Regime – Standards, Technical Regulations and Conformity Assessment in Ukraine,” Final Report. Aslund, A. (2007). The Impact of the Outside World. In A. Aslund (Ed.), How Capitalism Was Built (pp. 281–304). Cambridge: Cambridge University Press. World Bank (2004). Ukraine Trade Policy Study (In Two Volumes), Volume II: Main report, Poverty Reduction and Economic Management Unit Europe and Central Asia Region. Washington D.C.: World Bank. Bauer, M.W., Knill, C., & Pitschel, D. (2007). Differential Europeanization in Eastern Europe: The Impact of Diverse EU Regulatory Governance Patterns. Journal of European Integration, 29(4), 405–424. Bruszt, L. (2002). Making Markets and Eastern Enlargement: Diverging Convergence. West European Politics, 25(2), 121–140. Bruszt, L., & McDermott, G. (2008). Transnational Integration Regimes as Development Programs. Unpublished manuscript. Chayes, A., & Handler-Chayes, A. (1993). On Compliance. International Organization, 47(2), 175–205. DiMaggio, P., & Powell, W. (Eds) (1991). The New Institutionalism in Organizational Analysis (pp. 63–82). Chicago, IL: University of Chicago Press. Djelic, M.-L. (2007). Marketization: From Intellectual Agenda to Global Policy-Making. In M.-L. Djelic & K. Sahlin-Andersson (Eds), Transnational Governance. Institutional Dynamics of Regulation (pp. 53–73). Cambridge: Cambridge University Press. Djelic, M.-L., & Sahlin-Andersson, K. (Eds) (2007). Transnational Governance. Institutional Dynamics of Regulation. Cambridge: Cambridge University Press. DSSU (2006). Green Paper on Adapting Domestic Legislation on Technical Regulation and Consumer Policy to European Standards [Electronic Version]. Retrieved 15 November 2007, from http://www.icps.com.ua/doc/Green%2009%20-%20Technical%20Regulation %20Committee%20E.pdf Dubrovskyi, V., Paskhaver, A., Verkhovodova, L., & Blaszczyk, B. (2007). Conditions of Resuming and Completing Privatization in Ukraine. Kyiv/Warsaw: Center for Social and Economic Research. Durkheim, E. (1938). The Rules of Sociological Method (8th ed.). Translated by Sarah A. Solovay and John H. Mueller, edited by E.G. Catlin. New York: The Free Press. Easterly, W. (2006). The White Man’s Burden. Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good. New York: Penguin Press.

5

The Transnationalization of Change in Economic Institutions

131

ECORYS & CASE. (2007). Global Analysis Report for the EU-Ukraine TSIA – Final report, August 2007, Retrieved 20 August 2007, from http://trade.ec.europa.eu/doclib/docs/2007/ june/tradoc_135010.pdf Emerson, M. (2006) (Ed.). Prospects for Deep Free Trade between the European Union and Ukraine. Brussels: Centre for European Policy Studies. European Business Association (EBA) (2007). Barriers to Investment in Ukraine, Kyiv. Retrieved 16 November 2007, from http://www.eba.com.ua/files/Investment_ paper/Inv_Paper_2007_ENG.pdf European Business Association (EBA) (2008): The Annual Report 2007, Kyiv. European Commission (1994). Partnership and Cooperation Agreement between the European Communities, and their Member States and Ukraine. Retrieved 12 January 2007, from http://ec.europa.eu/external_relations/ceeca/pca/pca_ukraine.pdf European Commission (2000). Guide to the implementation of directives based on the New Approach and the Global Approach [Electronic Version]. Retrieved 8 February 2008, from http://europa.eu.int/comm/enterprise/newapproach/newapproach.htm European Commission (2004): European Neighbourhood Policy Strategy Paper, COM (2004)373, Brussels, 12 May 2004 [Electronic Version]. Retrieved 10 December 2007, from http://ec.europa.eu/world/enp/pdf/strategy/strategy_paper_en.pdf European Commission (2005). The EU-Ukraine Action Plan, 21 February 2005 [Electronic Version]. Retrieved 10 January 2007, from http://ec.europa.eu/world/enp/pdf/action_plans/ ukraine_enp_ap_final_en.pdf European Commission (2006a). Ukraine: Action Plan for the Free Movement of Industrial Products, 21 February 2006 [Electronic Version]. Retrieved 10 October 2007, from http://www.dssu.gov.uacontrolenarchivedocviewtypeId=87519&sortBy=1&orderBy=1&doc Id=87520&docs_stind=1 European Commission (2006b). Barrier Fiche [0689] Industrial Standards and Conformity Assessment in Ukraine, Market Access Database provided by DG Trade [Electronic Version]. Retrieved 18 February 2008, from http://mkaccdb.eu.int/madb_barriers/barriers_ details.htm?barrier_id=970170&; version=2 European Commission (2008). Progress Report Ukraine, Commission Staff Working Document, Accompanying the Communication from the Commission to the Council and the European Parliament ‘Implementation of the European Neighbourhood Policy in 2007, SEC(2008) 402, Brussels, 3 April 2008 [Electronic Version]. Retrieved 10 June 2008, from http://ec.europa.eu/world/enp/pdf/progress2008/sec08_402_en.pdf. Frankel, J., & Romer, D. (1999). Does Trade Cause Growth? American Economic Review, 89, 379–399. Foundation for Effective Governance (FEG) (2008): Ukraine’s Economic Development Agenda for 2008–2015, Preliminary Version for Discussion, 9 April 2008, Kyiv. Retrieved 20 May 2008, from http://www.feg.org.ua/docs/ua_economics_en.pdf. George, A.L., & Bennett, A. (2005). Case Studies and Theory Development in the Social Sciences. Cambridge, MA: MIT Press. Gereffi, G., & Wyman, D.L. (Eds.). (1990). Manufacturing Miracles: paths of industrialization in Latin America and East Asia. Princeton: Princeton University Press. Gould, T. (2004). The European Economic Area: A Model for the EU’s Neighbourhood Policy? Perspectives on European Politics and Societies, 5(2), 171–202. Hall, P. (1986). Governing the Economy. Cambridge: Polity Press. Jacoby, W. (2006). Inspiration, Coalition, and Substitution. External Influences on Postcommunist Transformations. World Politics, 58(4), 623–651. Jakubiak, M. (Ed.). (2006). Non-Tariff Barriers in Ukrainian Export to EU, Case Report No. 68. Warsaw: Centre for Social and Economic Research. Keck, M., & Sikkink, K. (1998). Activists Beyond Borders. Advocacy Networks in International Politics. Ithaca and London: Cornell University Press. Kelley, J. (2006). New Wine in Old Wineskins: Promoting Political Reforms through the New European Neighbourhood Policy. Journal of Common Market Studies, 44,(1), 29–55.

132

J. Langbein

Langbein, J. (2008). FTA+ statt Mitgliedschaft: Über ukrainische Interessenlagen und europäische Handlungsspielräume. Ukraine-Analysen, 44, Bremen: Forschungsstelle Osteuropa, 7–11. Retrieved 1 October 2008, from http://www.laender-analysen.de/dlcounter/ dlcounter.php?url=/ukraine/pdf/UkraineAnalysen44.pdf Lederman, D., Maloney, W.F., & Servén, L. (2005). Lessons from NAFTA for Latin America and the Caribbean. Stanford: Stanford University Press. March, J.G. (1978). Bounded Rationality, Ambiguity, and the Engineering of Choice. The Bell Journal of Economics, 9(2), 587–608. March, J.G., & Olsen, J.P. (1989). Rediscovering institutions: the organizational basis of politics, New York: Free Press. March, J.G., & Olsen, J.P. (1998). The Institutional Dynamics of International Political Orders. International Organization, 52(4), 943–969. Martin, L. (Ed.). (2005). International Institutions in the New Global Economy. Cheltenham: Edward Elgar. McFaul, M. (1995). State Power, Institutional Change, and the Politics of Privatization in Russia. World Politics, 47(2), 210–214. Milhaupt, C., & Pistor, K. (2008). Law and Capitalism: What Corporate Crises Reveal about Legal Systems and Economic Development Around the World. Chicago: Chicago University Press. Movchan, V., & Sysenko, N. (2007). Mezhdu rynkami Rossii i EC [Electronic Version]. Otechectvennye zapiski, 34(11). Retrieved 20 February, 2008 from http://www.stranaoz.ru/?numid=34&article=1410 Olson, M. (2000). Power and Prosperity: Outgrowing Communist and Capitalist Dictatorship. New York: Basic Books. Orenstein, M., & Schmitz, H.-P. (2006). The New Transnationalism and Comparative Politics. Comparative Politics, 38(4). Pleines, H. (2005). Ukrainische Seilschaften. Informelle Einflussnahme in der ukrainischen Wirtschaftspolitik 1992–2004. Münster: LIT. Puglisi, R. (2008). A Window to the World? Oligarchs and Foreign Policy in Ukraine. In S. Fischer (Ed.), Ukraine: Quo vadis? Chaillot Paper No. 108 (pp. 55–86). Paris: Institute for Security Studies. Pindyuk, O. (2006). Ukraine: Foreign Trade and Industrial Restructuring. Paper prepared within the 6th EU Framework Program project “Industrial restructuring in the NIS: experience of and lessons from the new EU Member States” (INDEUNIS, No.516751). Retrieved 2 March 2008, from http://indeunis.wiiw.ac.at/index.php?action=filedownload&id=66. Rodrick, D. (2007). One Economics, Many Recipes. Princeton: Princeton University Press. Rueschemeyer, D. (2003). Can One or a Few Cases Yield Theoretical Gains? In J. Mahoney & D. Rueschemeyer (Eds.), Comparative Historical Analysis in the Social Sciences (pp. 305–332). Cambridge: Cambridge University Press. Schimmelfennig, F. (2007). Europeanisation beyond Europe [Electronic Version]. Living Review on European Governance, 2. Retrieved 12 January 2008, from http://www.livingreviews.org/ lreg-2007-1. Sedelmaier, U. (2006). Europeanisation in new member and candidate states [Electronic Version]. Living Review on European Governance, 1. Retrieved 12 February 2007, from http://www.livingreviews.org/lreg-2006-3. Simon, H.A. (1995). Rationality in Political Behavior. Political Psychology, 16(1), 45–61. Slaughter, A.-M. (2004). A New World Order. Princeton: Princeton University Press. Streeck, W., & Thelen, K. (2005). Introduction. In W. Streeck & K. Thelen (Eds), Beyond Continuity (pp. 1–39). Oxford: Oxford University Press. UEPLAC. (2008). Regulatory impact analysis of the introduction of the EC Low Voltage directive into Ukrainian legislation, Kyiv 10 April 2008. Retrieved 20 April 2008, from http://ueplac.kiev.ua/downloads/ria/lvd_full_ria_for_ukraine.pdf Weber, M. (1949). Objectivity. In M. Weber (Ed.), Social Science and Social Policy. In the Methodology of the Social Sciences. Translated and edited by Edward A. Shils and Henry A. Finch. Glencoe, Ill.: Free Press.

5

The Transnationalization of Change in Economic Institutions

133

Weber, M. (1978). Economy and Society: An Outline of Interpretive Sociology. Edited By Guenther Roth and Claus Wittich. Translated by Ephraim Fishoff et al. Berkeley: University of California Press. Wolczuk, R. (2003). Ukraine‘s Foreign and Security Policy 1991–2000. London and New York: Routledge. Wolczuk, K. (2008). Ukraine and its Relations with the EU in the Context of the European Neighbourhood Policy. In S. Fischer (Ed.), Ukraine: Quo Vadis? Chaillot Paper No. 108 (pp. 87–117). Paris: Institute for Security Studies. Wolowski, P. (2008). Ukrainian Politics after the Orange Revolution. In S. Fischer (Ed.), Ukraine: Quo Vadis? Chaillot Paper No. 108 (pp. 25–53). Paris: Institute for Security Studies. Yin, R. (1994). Case Study Research. Design and Methods (2nd ed.). London: Sage Publications.

Chapter 6

The Politics of the Competition State: The Agents and Mechanisms of State Transnationalization in Central and Eastern Europe Jan Drahokoupil

Around 2000, after a period of distinct national strategies, the states in the Visegrád Four (V4) region converged towards a competition state.1 The dominant state strategies aim at promoting competitiveness by attracting foreign direct investment (FDI). The states are thus increasingly internationalized, forging economic globalization by facilitating capital accumulation for transnational investors. After the collapse of the Eastern Bloc, many had expected foreign investors to play crucial role in ‘transition’. However, little of that had materialized. State strategies aimed at promoting national accumulation dominated the region up until the mid-1990s. Inward-oriented regimes had been transformed into the states that were fine-tuned to compete for mobile transnational capital by the end of the decade. So why did the state strategies converge towards the competition state only around 2000? What does it tell us about the processes in which the states adapt to the environment of economic globalization, on the one hand, and help to reproduce it, on the other? What are political and social preconditions for the rise of the competition state, and what are its implications? Analysing recent transformations of the state and politics in the region as shaped by the environment of globalization, this chapter investigates the politics of state internationalization in the region. Closely related to the argument made in this volume by Arjan Vliegenthart, this chapter provides a political understanding of forces of convergence in the international political economy by identifying the carriers and mechanisms for internationalization. Thus, it attempts to repoliticize major understandings of the contemporary state, which provide essentially functionalist explanations of (multiple) convergence (see Hay 2004b). In particular, the analysis focuses on evolution of industrial policies, including privatization and investment promotion. This policy field is analysed in the context of the changing logic and role of state intervention in respective economies. This chapter thus explains the

J. Drahokoupil (B) Mannheim Centre for European Social Research (MZES), University of Mannheim, A5, 6, D-68159 Mannheim, Germany e-mail: [email protected] 1

The V4 includes the Czech Republic, Hungary, Poland and Slovakia.

L. Bruszt, R. Holzhacker (eds.), The Transnationalization of Economies, States, and Civil Societies, DOI 10.1007/978-0-387-89339-6_6,  C Springer Science+Business Media, LLC 2009

135

136

J. Drahokoupil

rise of a specific type of the competition state that emerged in the V4 and identifies its political support. I characterized it as the Porterian competition state, aiming at upgrading domestic industrial basis by attracting strategic FDI through targeted subsidies (see Drahokoupil 2007a, 2007b). Focusing primarily on the transformations of state strategies, this analysis does not attempt to explain trends in actual FDI inflows and activities of foreign investors. An explanation of the latter would have to go beyond state strategy and involve a different set of factors. Here, privatization policies and investment incentives could arguably play a relatively minor role (see, e.g., Stark and Vedres 2006). Focusing on the states in the V4, the research presented here employs a caseoriented design drawing on Mill’s method of agreement (Ragin 1987): it focuses primarily on similarities within the group of countries with different histories and path dependencies that nevertheless converged to similar models of the competition state (cf., Bohle and Greskovits 2007; Drahokoupil 2007b). Adopting a processtracing approach, common mechanisms of internationalization linked to a specific FDI-based model of development are identified. In addition, a method of difference comparison with Slovenia is invoked at a number of places in order to discuss the degree of contingency and necessity in the V4 pathway. Existing scholarship offers a number of insights to understand the question of convergence in the V4. Two debates are particularly relevant here. Both of them concern the relative importance of various mechanisms of convergence and divergence. First, there is a debate on the adaptation of state strategies to the globalization process. On the one hand, there is a group of scholars emphasizing homogenizing pressures and convergence of state strategies and institutions (Strange 1996; Cerny 1997; Jessop 2002; van Apeldoorn 2002). On the other hand, there is an immense body of literature putting emphasis on divergence of outcomes in adapting to manifold and uneven globalization processes (Hall and Soskice 2001; Weiss 2003; Hay 2004a). Yet the convergence scholars rarely predicted actual convergence of outcomes, and their frameworks allowed for such divergence. Thus, it is more appropriate to understand the differences between the respective approaches as a matter of emphasis and different analytical focus. Second, there is a similar division of labour among scholars studying the transformations in CEE. The ‘transitology’ literature that dominated the academic mainstream in the aftermath of 1989 has attributed analytical primacy to internal determination and path dependence of postcommunist transformation (Stark and Bruszt 1998; Dobry 2000). By implication, this argument leads us to expect divergence of state transformation. This literature has been later criticized by neo-Gramscian scholars who emphasized the centrality of the global context of transition and underscored the external determination of transition (Bohle 2002; Holman 1998, 2004; Shields 2003, 2004; van der Pijl 2001). It may seem that the divergence approaches are appropriate for explaining the internal outcomes of the early 1990s, while the late 1990s provide support for the convergence approaches. This would, however, lead us into a trap of circular explanation in which divergence is explained by divergence and vice versa. Even if this were true, we need to identify what explains the shift from one explanation

6

The Politics of the Competition State

137

to another. I argue that both of these accounts indeed grasp many important processes that shaped the transformation of state strategies in the region throughout the 1990s. What makes it possible to bring these accounts together is a relational understanding of transnationally constituted domestic politics (see Drahokoupil 2008; Drahokoupil et al. 2008, Vliegenthart, this volume). This notion also opens space for introducing a necessary linking variable: the gradual emergence of a hegemonic comprador service sector. This helps to resolve the illusory shift from one theoretical framework to another. While fully acknowledging local constraints and agency, my argument confirms the importance of the global environment. However, neither the external or internal approach alone nor their additive combination provides a satisfactory understanding of the process in which state strategies adapt to the environment in general and of the moment of convergence in the V4 in particular. Local outcomes are determined neither externally nor internally. They are produced transnationally within domestic politics. The realm of transnational ‘extends across, and thereby links as well as transcends’ different scales of social action (van Apeldoorn 2004, p. 144). Transnational processes thus do not confront nation states from outside, but rather materialize within them in distinct forms (Poulantzas 1974/1978, p. 73, 1976, p. 22). Internationalization of the state is not just externally imposed, though it is also that; it is produced in local politics by local social forces with locally specific political and institutional constraints. These forces, however, are constituted, and constitute themselves, transnationally in their deepening linkages with transnational forces of increasing importance. In order to understand the global production of local outcomes, we need a relational understanding of the economic policy-making process as part of the reproduction, reconstitution and transformation of hegemony on the regional, national and global scales. This chapter makes three claims that explain the lag in the convergence to the externally oriented strategy. First, the internally oriented strategies reached their economic limits by the end of the 1990s. Second, it took some time until the foreign investors became really active in the region. Both of these developments could have been predicted as they were determined by the structural setting of ‘transition’, both internal and external. The third could not. The processes of state internationalization could work only when both the structural opportunities and political possibilities of the moment allowed domestic groups linked to transnational capital to come to the fore and translate the structural power of transnational capital into tactical forms of power within national social formations. These groups, the comprador service sector, constitute nodal points in the broad coalition of forces constituting the political underpinning of the competition state in Eastern Europe. The competition for FDI, or the systemic power of TNCs, was thus the major mechanisms producing the convergence towards the competition state. The structural preconditions for competition were in place already in the early 1990s. They were, nevertheless, significantly reinforced in the late 1990s with a surge of investors relocating to the region. These structural mechanisms were translated into actual competition only when domestic actors promoting the externally oriented project

138

J. Drahokoupil

prevailed in the domestic politics (i.e. the impact of the policy process). The activities of the comprador service sector thus tied together changes in the political economic environment with domestic politics in which the transformation of the state is forged. As will be evident particularly in the Hungarian case, the process of transnational class formation and elite socialization did play an important role in this context. Yet even in these processes, the complexities of domestic politics introduced a number of contingencies as far as the strategy of internationalized segments and its outcome was concerned. An explanation of a variety of distinct national strategies in the early 1990s is outlined in the next section. It is argued that neither domestic political situations nor structural constraints were favourable to ‘externally’ oriented strategies. In fact, an FDI-oriented restructuring was on option only in the Czech Republic and Hungary. Then, reorientation of state strategy towards FDI in the Czech Republic is investigated. There, a political environment hostile to FDI made the careers of internationalization particularly active and organized. The sections that follow discuss the mechanisms of internationalization as well as the political support of the competition state in detail by drawing on the comparative experience of individual countries in the V4 region. Particular attention is paid to the constitution and function of the comprador service sector and the political role of the multinationals.

6.1 The National Strategies of the Early 1990s The peripheral mode of international economic integration, produced by neoliberal transition policies, made the economies in the V4 structurally dependent on foreign capital, which controls access to technology, know-how and major distribution networks. These structural exigencies represent the main factor accounting for the convergence towards the competition state in CEE. In the early 1990s, the reform strategies throughout the V4 followed the neoliberal doctrine of macroeconomic stabilization, market liberalization and privatization. This installed political economic structures that made the exigencies of global accumulation a political prerequisite for national strategies in the region (Gowan 1995; Boer-Ashworth 2000). However, state strategies were relatively hostile to FDI and focused on promoting domestic accumulation throughout the 1990s. So why were the structural factors translated into political outcomes only at the end of the 1990s?2 First, constraints and limits of the international political economic environment notwithstanding, the actual outcomes were largely contingent on domestic politics. Only in Hungary did the external constraints in the form of debt predetermine state strategy and outcomes of industrial restructuring. The peripheral mode of integration indeed reflected the ‘American strategy’, which was materialized in the policies of Western European states and the US towards the region and in the agency of

2

Further details and supporting evidence for claims made in this section can be found in Drahokoupil (2008).

6

The Politics of the Competition State

139

international financial institutions within and in relation to CEE states. In this environment, however, Slovenia implemented policies that significantly departed from the global policy orthodoxy. It pursued a much more gradualist strategy including elements of economic and social protectionism. Slovenian exceptionalism shows that it was possible and feasible to pursue more protectionist and gradualist strategies. In general, neoliberalism won through domestic political struggles. The external pressures and support did not play a decisive role. Anti-communism and delegitimation of the left provided important political advantages to neoliberals over other forces in the V4. These domestic advantages were missing in Slovenia, which had a long record of relatively successful reforms implemented by the Communist Party. At the same time, neoliberalism, both in East and West, was produced transnationally. Neoliberal ideas developed in Western centres of ideational production had an important impact on intellectual formation of East European reformers, who were well integrated into international networks connecting East and West decades before the transition. It is likely that the trust begotten from the international networks provided the reformers in CEE autonomy – within the margins of the Washington Consensus. Thus, as ever, domestic politics was transnationally constituted. Second, with the exception of Hungary, domestic political situation and structural constraints were not favourable to externally oriented strategies in the early 1990s. What is more, in case of Slovakia and also Poland, the international environment in fact did not provide opportunities for an FDI-reliant restructuring either. At the beginning of the ‘transition’, the structural autonomy of the state – determined by the structure of enterprise control and the nature of international indebtedness – allowed for relatively open outcomes in Czechoslovakia only. Only there were the reformers and state managers relatively free to decide about enterprise restructuring. What is more, the political weakness of labour and enterprise managers made the actors based within the state a considerable autonomous social force. This was not the case in Poland, where the enterprises were largely controlled by insiders. In Hungary, the privatization strategy was subordinated to the need of obtaining cash to repay its large external debt to private investors. Furthermore, the approach of foreign investors narrowed the options for Poland and Slovakia. Foreign investors were quite cautious as far as getting involved in Poland was concerned, and they were actually not interested in getting involved in Slovakia at all. Only in Hungary and the Czech Republic were foreign investors interested in high-commitment involvement and – at the same time – the state managers controlled enterprises and could have transferred them to foreign investors if wanted. Domestic political struggles – transnationally constituted, however – put the Czech Republic on the internally oriented track. In Hungary, the externally oriented outcome was not just exposed by the imperative of debt service. Hungarian strategy largely reflected (transnationally constituted) preferences of domestic elites. Moreover, earlier strategy of Hungarian central bank contributed to locking Hungary in the externally oriented path. Hungarian cash-based privatization strategy provided a huge advantage to foreign investors who, in contrast to local subjects, disposed of capital. The hands of the government were particularly tied, thanks to the debt management strategy of Hungarian central bank, which had switched a large part of the debt to bonds. At the

140

J. Drahokoupil

same time, the foreign-oriented strategy had a broad domestic support. Hungarian financial cadres were integrated into respective international networks. Moreover, there was a significant fraction of transnationally linked managerial elite that was very eager to cooperate with foreign investors. Finally, a transnational dialogue on FDI and development between Hungarian economists working in the US and those based in Hungary provided a theoretical justification for FDI-led industrialization. Czech state strategy was shaped in a struggle between two groups within the state. The ‘industrialists’, on the one hand, advocated a privatization programme that would find strategic owners, foreign investors, for main enterprises. On the other hand, neoliberal reformers promoted a hands-off, voucher-based privatization model. There were a number of foreign investors ready to bid for the commanding heights of the Czech economy. However, the neoliberals – for reasons largely contingent upon idiosyncrasies of domestic popular politics – won a path-shaping political struggle, and most of the investors were turned down in the end. The strategy of the early 1990s prevented rapid internationalization of the commanding heights of the Czech economy. It produced a distinctive economic dynamic, the Czech capitalism, and created a coalition of reform winners that provided political support to the internally oriented project. At the same time, the strategy in the end, when the economic dynamics of Czech capitalism were exhausted, reinforced structural advantages of foreign investors.

6.2 The Politics of State Internationalization On 29 April 1998, the Czech Republic rolled out the most generous investment scheme yet seen among CEE countries. The introduction of this scheme, with targeted subsidies including cash grants in its core, ignited a race for greenfield investors in the V4. The competition catalysed convergence of state strategies in the region. The Czech policy U-turn was followed by the introduction of similar investment schemes in Slovakia and Poland, and reinvention of the investment subsidies in Hungary. The Czech case allowed for investigation of the carriers and mechanisms for internationalization as if under a magnifying glass. The rapid process of internationalization induced by economic crisis made those mechanisms particularly visible. What is more, the environment hostile to FDI made the carriers of internationalization – the domestic groups linked to foreign investors – particularly active and organized. In other countries, where domestic politics did not hinder the translation of structural factors – that is, systemic power of foreign investors enhanced by the competition for them – into policy outcomes, the role of these groups was not that apparent and so prominent. The turning point in Czech approach to FDI came in 1997 when the previous government, led by the major figure of Czech neoliberals, reconsidered its hostile approach to FDI at the time when it was reacting to an economic crisis caused by an exhaustion of Czech capitalism (see Box 6.1). The U-turn can be directly linked to the structural dependence of the country on foreign capital, which was heightened

6

The Politics of the Competition State

141

by the economic failure of Czech capitalism. The government got a lesson about the falsity of its belief in the country’s ‘natural comparative advantage’ as an investment site during its negotiations with American investors. The cogency of investors’ arguments was confirmed by past experiences with investment withdrawals after the government did not offer incentives that investors requested.

Box 6.1 Czech policy U-turn in relation to foreign investors In 1997, Intel and General Motors (GM) were looking for investment sites in Europe and explored possibilities in the Czech Republic. CzechInvest informed the government that the Czech Republic was not competitive without investment subsidies, which were provided by direct competitors, most notably Hungary. In contrast, Czech Prime Minister Klaus believed in the country’s natural comparative advantages.3 Yet in the words of CzechInvest’s CEO, ‘the negotiations with the managements of Intel and GM gave him [Klaus] a lesson. They simply laughed at him’. Czech policy turn can be related to a combination of these hard lessons and mounting economic crisis, and the fact that the Czech Republic was a regional laggard in terms of FDI inflows made the Klaus government to reconsider its approach to foreign investors (compare Figure 6.1).4 In June 1996, Central Bank’s tightening of monetary restraint triggered a series of events that showed economic limits of the ‘Czech Way’ (Myant 2003). Following IMF criticism and pressure on the currency, the government adopted its first emergency ‘package’ of budget cuts in April 1997. With key economic ministers resigning from government, currency speculation led to another ‘package’ of emergency measures in May 1997. In August 1997, the government offered Intel a package of subsidies as it had demanded.5 In November 1997, just few days before its resignation, it offered a similar package to GM.6 As a part of ‘little packages’ reacting to the economic crisis, Klaus assigned the minister of industry and trade to draft an investment incentive

3

Established in interviews with people who were in contact with Klaus at that time (e.g. Havelka and Vrba). For additional evidence, see Myant (2003). 4 As observed by key observers (interviews with Jan A. Havelka, Prague, 30 December 2005; Radomil Novák, CzechInvest’s advisor to CEO and director in 2004, Campbell, CA, 29 March 2006; Martin Kavka of Ministry of Industry and Trade, Prague, 21 November 2005; Martin Jahn, ˇ CEO of CzechInvest in 1999–2004, now on the board of directors of Skoda-Volkswagen, Mladá Boleslav, 13 March 2006). 5 Resolution of the Czech Republic’s government #476, 13 August 1997. See, for example, ‘Vláda pootevˇrela dveˇre investici amerického Intelu [The government open the door to Intel],’ Mladá fronta Dnes, 14 August 1997. 6 Resolution of the Czech Republic’s government #723, 19 November 1997. In the end, neither Intel nor GM invested in the Czech Republic.

142

J. Drahokoupil

scheme. Havelka, who was present at the subsequent meeting of the government, recalls: ‘Klaus fuzzed out and uttered: “You know I don’t agree with this. But if you wish, minister, prepare a proposal about what should happen, including the investment incentives.”’7 However, the political development did not allow Klaus’s team to vote on the proposal from the ministry. Thus, it was the Tošovský government that approved the investment support scheme in April 1998.8

Figure 6.1 FDI stocks as percentage of GDP in the context of European FDI inflows

The government’s realization of its structural dependence on transnational capital and its implications allowed social forces that had been developing the externally oriented project within the state to come to the forefront. These social forces – the comprador service sector – were the actual carriers of internationalization within the state, organizing the mechanisms for internationalization on the domestic level and shaping the emergence of the competition state. The comprador service was facing a hostile environment within the state in most of the 1990s. Nevertheless, it managed to thrive. Along with other foreign donors, the EU provided a crucial source of funding that allowed this group to develop in that time period. Moreover, EU-financed advisors used the Irish experience to make the case for existence of the investment promotion agency CzechInvest and helped with its further development. Throughout the 1990s, the investment promotion agency worked on winning the government’s trust, gaining its support and changing the public’s perception

7 8

Interviews with Jan A. Havelka, Prague, 30 December 2005. Resolution of the Czech Republic’s government #298, 29 April 1998.

6

The Politics of the Competition State

143

of foreign investment. During that period, the comprador service sector became organized. This social group has since played a major role in the power bloc underpinning the competition state. However, not the activities of the group alone, but also the 1997 experience with foreign investors allowed CzechInvest to push through its project of investment incentives. In order to demonstrate the positive impact of FDI, the agency needed to show quick results. Greenfield projects were considered to have great potential for creating good publicity through job creation. This went hand in hand with a new wave of interest among investors from these sectors in getting involved in the region in late 1990s. Social Democrats, who came to power in July 1998, could cash in on the wave of greenfield investors and make the foreign investment support the flagship of their industrial policy. The U-turn in industrial policy was accompanied by the massive sale of the state’s stakes in major banks. The pressures from the EU and the process of Europeanization had a major impact on the dissolution of so-called banking socialism in the Czech Republic and on the process of bank privatization. Like elsewhere in the region, the EU consistently pushed for bank privatization in its annual assessments of country’s performance. At the same time, the Slovenian case shows that there was a room for manoeuvre for policy makers, who could interpret EU’s pressure differently and negotiate various outcomes (cf. Lindstrom and Piroska 2007). Thus, it was important that domestic forces resisting bank sales to foreigners were marginal or absent in the V4 by the mid-1990s. After the enlargement was completed, EU competition regulation effectively prevented attempts to promote national ownership not only in the banking sector.

6.3 Why Did the States Start to Pursue the Competition Strategies? The structural dependence on foreign investors, EU regulatory framework and scalar organization of governance are the main structural features constituting a field of force that provided the externally oriented project important strategic advantages. This field of force eventually gave rise to the power blocs led by the comprador service sector. Table 6.1 illustrates the importance of foreign investors in Eastern European economies. It shows that Eastern European economies are as internationalized as the most open small European states, with most of the leading sectors controlled by foreign investors (cf. Bohle and Greskovits 2007). Yet they are internationalized in a dependent way as there is only very little Eastern European outward FDI (Vliegenthart and Overbeek 2007; UNCTAD 2007). The structural power of capital is further enhanced by a competition for investors in the V4 region through various subsidies, most notably cash grants. While the EU competition regulation could mitigate the competition race through direct subsidies, its actual impact has been much more significant in preventing attempts to promote national accumulation. Rescaling within the states, shifting power to regional bodies, has provided

144

J. Drahokoupil

significant advantages to the externally oriented project. It strengthens representation of actors who are directly exposed to the structural power of capital within the state. However, the externally oriented strategies were implemented only when both structural opportunities and political possibilities of the moment allowed the domestic groups linked to transnational capital to come to the forefront in individual social formations. In order to be effective within the nation states, the structural power of foreign capital needs to be translated into what Wolf (1990) calls ‘tactical power’, that is power that controls settings of interaction. In this translation, the multinational capital becomes embroiled with local social actors. As seen in the Hungarian case, the process of transnational class formation and elite socialization did play a major role in putting the country on the externally oriented path in the early 1990s. Yet the contrasting trajectories of Slovenia and Hungary – countries that were most internationalized by 1990 – demonstrate that the high degree of transnational integration alone cannot predict outcomes. The interests and capabilities of domestic allies of the transnational class and/or connected cadres – as well as their structural literacy (cf. Gramsci 1971, p. 113) – are relatively contingent upon the domestic Table 6.1 Foreign-controlled enterprise in the nonfinancial economy

Hungary (1) Slovakia (2) Czech Republic Poland (3) Estonia (4) Latvia Lithuania Romania (5) Sweden Netherlands France (6) Spain (7)

Value added in nonfinancial business, 2003 (% share of total)

Employment in nonfinancial UNCTAD transnationality indices business, 2003 (% share of total) 1999∗ 2002∗

37.3 32.1 31.2

14.5 21.6 18.7 9.6 19.6 12.7 10.2 13.1 21.2 12.2 14.6 9.6

29.2 24.0 22.1 23.7 28.2 20.2 18.6 14.7

27.6 7.1 17.6 11.5 23.2 18.3 13.2 9.4 33.0 25.2 9.4 14.7

30.9 27.5 30.9 15.6 39.0 18.8 23.3 12.1 28.5 38.4 13.5 20.5

(1) Legal units, instead of enterprises; (2) Foreign-controlled enterprises with 20 or more persons employed as a share of the total enterprise population; foreign ownership based on first shot concept; (3) Foreign and mixed, data for 2002, Source: Polish Central Statistical Office, www.stat.gov.pl; (4) Foreign-controlled enterprises with 20 or more persons employed as a share of the total enterprise population; (5) Foreign-controlled enterprises with 50 or more persons employed as a share of the total enterprise population; foreign ownership based on first shot concept; (6) Number of employees instead of number of persons employed; (7) Excluding construction; (8) 2002; ∗ UNCTAD transnationality index is an average of four ratios expressed in percentage terms: average of FDI inflows as percentage of gross capital formation; FDI inward stocks as percentage of GDP; value added of foreign affiliates as percentage of GDP; employment of foreign affiliates as percentage of total employment. Source: Eurostat (SBS), with the exception of (3), UNCTAD (2002, 2005).

6

The Politics of the Competition State

145

context. Thus, internationalization of the state was forged in transnationally constituted domestic politics. In this process, the agency of the comprador services sector had a crucial role. It translated the structural power of multinationals into the tactical power of power blocs centred around the foreign investors. Such ‘translation’ took place only in the late 1990s. In the Czech Republic, the strategy of neoliberals not only lacked any protective measures for domestic producers of high value-added goods, but also effectively destroyed much of the viable potential in the domestic industrial base. The economic exhaustion of Czech capitalism then forced the policy makers to open up to preferences of foreign investors. Polish strategy allowed for significant domestic sector to emerge. Yet it did not produce strong competitive domestic sectors. The leading sectors became gradually dominated by the multinationals. In Slovakia, the political dynamics of party alteration in the illiberal regime catalysed the introduction of externally oriented strategy. It also brought into power a government which was well connected to international financial institutions and enjoyed credibility among the investors. However, Slovenian deviation from the neoliberal strategy, along with its favourable legacies, produced structural preconditions allowing for a different political economic model in the same international political economic context. Thus, Slovenia developed a distinctive model of the competition state, putting more emphasis on promoting competitiveness of domestic capital and on social inclusion. With the advent of EU enlargement and general expansion in FDI stock in the world economy, the late 1990s witnessed a surge of investors relocating their activities to Eastern Europe (see Figure 6.1). This turned policy experimentation with FDI promotion into apparent success stories and a source of political capital. The FDI inflow then reinforced the region’s dependency on FDI and led to social transformation that made the investors and related social forces important social and political actors. The eventual EU accession then narrowed the space for attempts at promoting domestic accumulation. The activities of the comprador sector thus linked changing ‘investment climate’ with domestic politics. The increasing interest of the investors in the region provided opportunities to the respective fractions of the sector to accumulate economic as well as political capital. They thus increased their political activities to make sure the political climate as well as policy packages would match the interest of the investors.

6.4 Competition State as a Hegemonic Project The competition state had been predominant all around the V4 by 1999. It has been pursued by governments regardless of ruling party coalitions (cf. Bohle 2006). The political support of the competition state goes beyond narrow short-term interest and immediate material concession; it transcends party divisions and party politics, even though it can occasionally become politicized and connected with the party in power, giving rise to a false impression that the competition state is a project of the ruling party rather than a broader hegemonic project. The competition state has solid political, institutional and structural underpinning within the V4 (see

146

J. Drahokoupil

Drahokoupil 2008). The structural dependence on foreign investors, territorial noncorrespondence between the scales of political regulation and capital accumulation, European regulatory framework, scalar organization of governance and some of the interpretative frameworks that prevail among policy makers are the main structural features that provide the project of the competition state and the social forces promoting it important strategic advantages. Implementation of the competition-state project cannot be understood just as an outcome of unequal distribution of power between foreign investors and the governments as the state-centric understanding of state-multinational bargaining would have it (e.g. Vernon 1998; Eden et al. 2005; Meyer and Jensen 2005). The governments are not social actors independent of other social forces, including the investors. The actual policy outcomes are a product of the agency of particular social forces mediated through structures of representation. It is the privileged position of social forces connected to FDI, what I call the comprador service sector, within respective states and societies that explains the support for the competition agenda. The emergence of the competition state in CEE has brought forward the comprador segments of domestic elites in respective states. At the same time, it was also conditioned upon their unfolding hegemonic role. Political position and agency of the comprador service sector do not explain policy transformation per se. They worked as a linking factor that influenced when, in which way and in what form such a shift towards the competition state took place. International political economic environment and the neoliberal transition strategies created a field of force that allowed this sector to come to the forefront as its interests become increasingly ‘universal’. The comprador service sector helped to translate the structural power of transnational capital into tactical forms of power that enabled agential power to work in sync with the interests of the multinationals.

6.5 What Is the Comprador Service Sector? The literature on (FDI-)dependent development has emphasized the crucial role of domestic actors in the political coalitions underpinning the externally oriented projects. Poulantzas used the term comprador bourgeoisie to describe class relation in the periphery. Comprador bourgeoisie was defined as ‘that fraction whose interests are entirely subordinated to those of foreign capital, and which functions as a kind of staging-post and direct intermediary for the implantation and reproduction of foreign capital’ (Poulantzas 1976, p. 42; cf. Baran 1957). In CEE, Holman argued that the new power elites in the region cannot be characterized as propertied comprador bourgeoisie, but rather as managerial and administrative elites that have the same function as that of the comprador bourgeoisie (Holman 2004, p. 223). Lane proposed that a transnational political class, an alliance between internal elites and external global political class in particular, was a crucial agent of change in CEE in the 1990s, which effectively precluded development of social democratic or corporatist forms of national capitalism (Lane 2005, 2006). From an elite perspective,

6

The Politics of the Competition State

147

Machonin, Tuˇcek and Nekola observed that the influence of domestic elites is limited by an ‘apparent hegemony of foreign capital’. They argued that influence of local managers working for foreign affiliates is not based on wealth, but ‘mandate from abroad’ (Machonin et al. 2006). However, the comprador segments are not specified empirically in these accounts. Holman and Lane offer an analytical (rather than empirical) understanding, yet they do not identify differences among domestic elites in their approach to FDI and fail to distinguish important differences between the limited importance of FDI in the early 1990s and its hegemonic role later in the decade. I characterize the domestic actors linked to FDI as the comprador service sector. The comprador service sector comprises various groups providing service for foreign investors. It includes local branches of global consulting and legal advisory service firms and their local competitors, companies providing other services to foreign investors and officials from FDI-related state bodies. Structurally, this sector is not a bourgeoisie as it constitutes neither a propertied class nor a professional managerial class, whose interests are linked to that of company owners. Yet recent trends, most notably emergence of regional developers such as the IPEC Group,9 indicate the processes of embourgeoisment within this sector. Functionally, this group is comprador as it is structurally dependent on transnational capital, whose interests it represents. The comprador service sector is a nodal point and organizer of the transnational power bloc centred around multinational investors. The strategies pursued by the comprador service sector often facilitated the learning process in which the policy makers realized the imperatives of the structural power of multinationals and reoriented the internally oriented polices towards the externally oriented framework. In general, the comprador service sector helps to translate the structural power of transnational capital into tactical forms of power that enable agential power to work in sync with the interests of the multinationals. The structural power of capital is derived from the dependency of the state and society at large on the investment decisions that are controlled by capital (e.g. possibility of investment strike and state revenue dependence).10 The power through agency is exercised by direct participation of business within and in relation to the state institutions. The notion of tactical power introduces an intermediate level between the structural and agential faces of power. The tactical power refers to the ability to control settings of interaction or the respective field of force (Wolf 1990). It enables the structural power to work in sync with its agential counterpart.11

9

See www.ipec-group.com. See, inter alia, Hirschman (1970); Przeworski & Wallerstein (1988); Offe and Ronge (1975); Gough (1979). For a detailed discussion of structural/agency power of capital, see Gill and Law (1989) and Farnsworth (2004). 11 Wolf’s notion of tactical power largely corresponds to the agenda-setting face of power as conceptualized by the faces of power debate in the political science (see Hay, 2002, pp. 174–178). 10

148

J. Drahokoupil

6.6 Varieties of the Comprador Service Sector The comprador service sector constitutes the major element and organizer of the power blocs underpinning the competition state in the V4 states. Nevertheless, its composition and role differ. It is particularly integrated in the Czech Republic and Hungary. In Poland, it is more fragmented and organized on the regional bases. In the Czech Republic, the comprador service sector also had an important political role in the U-turn in the approach of the government towards FDI in the mid1990s. The state fraction of the power bloc, the investment promotion agency in particular, has had major role in organizing the comprador service sector. This is somewhat exceptional. The importance and consolidation of the state fraction in the Czech Republic can be explained by the necessity of concerted action in order to be able to deliver some service for the investors within the state and to push for more favourable policy to FDI in the environment, which was particularly hostile to such efforts in the political sphere and, at the same time, ripe with FDI opportunities in the sphere of accumulation. State and corporate fractions of the comprador service sector are linked by the common interest of promoting FDI; they are integrated through personal links, institutional channels, material benefits and recruiting patterns. First, the two fractions are integrated through flows of people between them. The main protagonists would switch from working for governments to jobs in consulting agencies, as developers, or as law offices and often back. Second, the state and public fractions developed a number of institutional channels and fora of cooperation. For instance, such linkages have been established through inclusion of private-sector representatives into supervisory-board structures of investment promotion agencies (see McMenamin and Hill 2004). In the Czech Republic, the comprador service sector created a special networking and lobbying body, the Association for Foreign Investment. Elsewhere, foreign chamber of commerce play important roles. Third, flows of material benefits between state and private fractions of the comprador service sectors are also important mechanisms of integration. The externally oriented project provides above-average contracts for the comprador service sector and great potential of material benefits in the form of various commissions and fees for its state fraction. Finally, the two fractions of the comprador service sectors are integrated through recruitment patterns. A position in the state fraction, followed by work for the comprador service sector or direct work for multinationals, often works as two logical steps in career ladders, especially for graduates (Drahokoupil 2008). Working in ‘a truly welcoming land for foreign investors’,12 the Hungarian investment promotion agency has had only a minor political role. Only in 2007, it started to develop events and networking activities such as those of CzechInvest.13 Similarly, Polish Information and Foreign Investment Agency does not play such

12

Csaba Kilián (investment director of ITDH), ‘Background information for the Max PlanckITDH meeting’, Budapest, 16 November 2007. 13 Interview with Tibor Takács, Katalin Zsámboki and János Rajki of ITDH, Budapest, 16 November 2007.

6

The Politics of the Competition State

149

important role in organizing the comprador service sector. While it organizes conferences and discussion, its networking role is limited.14 Importantly, however, it works as a mechanism translating the structural pressure of incentives competition in the region to the agenda of Polish government. Its publications and reports to the government would analyse cases when Polish regions were outbid by their competitors, identify disadvantages of the Polish incentive scheme in comparison to regional competitors and propose more competitive measures.15 In Hungary, the American Chamber of Commerce in Hungary (AmCham Hungary) – along with organizations like the Hungarian European Business Council (HEBC),16 the Joint Venture Association (JVA),17 British Chamber of Commerce in Hungary and German–Hungarian Chamber of Industry and Commerce – constitutes the core of the comprador service sector. Established in November 1989 by 32 American companies, AmCham Hungary has been particularly active as far as both lobbying and networking activities are concerned.18 AmCham Hungary has transformed from a representative of US business into a major hub of networking and lobbying activities of large transnational companies active in Hungary – including the domestic multinationals, such as Hungarian oil giant MOL. As foreign investors had had a record of involvement in the country and since Hungary was the first country to open to foreign investors in the privatization process, foreign investment banks and consulting agencies, such as PricewaterhouseCoopers, established a strong presence in the country at the beginning of the 1990s. They advised both the government and the investors in privatization and often were introducing investors to respective ministers and bureaucrats.19 They also quickly established formal networking fora and channel of influence. It is important to note in this context that – despite important differences in the way and timing of its consolidation – the social composition of the comprador elite personnel is similar to its Czech counterpart: global consulting agencies, investment banks and affiliates of other investors would hire Hungarians with local histories even to very senior positions.

14

Interview with Wojciech Szelagowski, vice president of PAIiIZ, Munich, 25 October 2007. Interview with Wojciech Szelagowski, 25 October 2007. See PAIiIZ (2004, pp. 21–22, 65). 16 The Hungarian European Business Council was established in 1998 upon the initiative of the ERT. HEBC is the Business Council of the Chairmen and CEOs of Hungarian affiliates of ERT enterprises, significant investors of the Hungarian economy such as ABB, Akzo Nobel, BAT, BT, Electrabel, Electrolux, Ericsson, MOL, Nestlé, OMV, Philips, SAP, Suez Environnement and Unilever. 17 Established already in 1986, the JVA aims to ‘represent, protect and exert by all legal means the specific interests of partly or wholly foreign-owned companies registered in Hungary’ (The JVA’s mission statement, available at http://www.jointventure.hu/index.php?cat=intro&lang=en). Its 400-member base includes ABB, Alstrom, Flextronics, Nokia Hungary, Deloitte and PricewaterhouseCoopers. 18 See annual reports of AmCham Hungary. The 2000–2007 volumes are available at http://www.amcham.hu/annualreport/. 19 Interview with György Csáki, economic advisor to the government in 1994–1998, member of the board of directors of the State Privatization Holding in 1996–1998, Budapest, 15 November 2007. 15

150

J. Drahokoupil

In Poland, development of extensive relations with various domestic actors and hiring of Polish managers were also vital components in TNCs’ strategy of ‘learning the ropes in a generally unknown business and social environment’ (Doma´nski 2005, p. 157). As elsewhere, global consulting agencies were very active in advising in privatization processes, developing real-estate infrastructure for foreign businesses and establishing links with relevant parts of state apparatus (Shields 2003, p. 236). Foreign business organizations, most notably the British Polish Chamber of Commerce and AmCham Poland, have been also very active in organizing networking and lobbying activities. Their events are frequently attended by senior servants and politicians. Established in the 1990 through an initiative of the US Embassy in Warsaw, AmCham Poland developed various lobbying activities to support more open policies to FDI and a favourable business climate in Poland. It also promoted positive attitudes towards FDI in Poland. For instance, in 1999, when a series of articles condemned foreign investment as responsible for Poland’s large trade deficit, AmCham responded by a campaign emphasizing the benefits of foreign investment.20 However, foreign business chambers, as well as other business organizations, are not considered to be very influential in Poland (Jasiecki 2002). Business groups, including the multinationals, are not particularly integrated. Lobbying tends to take place through individual channel and particularistic networks rather than through collaborative efforts (Doma´nski 2005). At the same time, strong FDI-growth coalitions often consolidate in regions.21 Finally, AmCham is the most active business association also in Slovakia. It is constituted of the usual mix of Slovak managers hired by multinationals and people working for global consulting companies. Its events host politicians and senior servants from across the political spectrum. Among others, AmCham Slovakia was involved in the consultation of legislation enacting the neoliberal offensive of the early 2000s. In particular, it significantly influenced radical reform of the Labour Law (AmCham Slovakia 2002; Bohle and Husz 2005; Bohle and Greskovits 2006). The Slovak investment promotion agency lacked political agency22 and had virtually no impact on changing the approach to FDI (MIGA-FIAS 2005, pp. A-8, A-9, cited in Trník 2007, p. 27). The contrast with the Czech case can be explained with much smaller lost opportunities from FDI for a would-be CSS in the early and mid1990s. However, not much changed later. This was largely because other bodies of state apparatus, most notably the Ministry of Economy and the Governmental

20

Tony Housh, AmCham executive director, American Investor, June 1999, cited in ‘AmCham’s 15 year history’, http://amcham.pl/index.php?mod=page&page=1_history. 21 Interview with Bolesław Doma´ nski and Krzysztof Gwosdz, Cracow, 6 November 2007; Wojciech Jarczewski, Instytut Rozwoju Miast [Institute of Urban Development in Cracow], 8 November 2007, Cracow. See also Banaszek et al. (1999, pp. 61–71). 22 See Peter Barecz. SARIO agency playing catch-up to region. The Slovak Spectator 6 (35)/2000; Keith Miller. SARIO promising to bring vital FDI. The Slovak Spectator 6 (28)/2000; Trník (2007).

6

The Politics of the Competition State

151

Assignee for Development of Automotive (functioning in 1997–2003),23 established themselves as centres of representation of the comprador service sector within the state and benefited from the surge of FDI in the late-1990s (Trník 2007; cf., Zamkovský 1999).

6.7 The Multinationals The multinational corporations investing in the CEE region represent the main productive element or material base of the externally oriented power bloc. In a classic understanding, mobile asset holders like multinationals would prefer to exert influence by using their structural power (exit strategy of silent withdrawal), while the less mobile fractions would have more incentives to invest in the influence through agency (voice) (Hirschman 1970). The empirical record indeed shows that mobility or the scale on which the respective actors operate influences the strategies that the respective actors employ. However, the strategies of multinationals show that exit and voice are by no means exclusive. On the contrary, the multinationals have been employing both exit strategies – including playing off the states against each other when making their investment-location decision – and agency through voice. While the comprador service sector played the major role in representing the transnational capital within the states, the multinationals did not leave political agency to this sector only. The multinationals get more concerned with local policy environment, and thus get more politically active, when they become more committed in their local operations. In the early 1990s, foreign investors preferred to engage in low-commitment strategies, such as involvement through trade and subcontracting, rather than investing in the V4 directly (Martin 1998, 1999). The quality of local regulatory environments and the stability of institutional frameworks are major concerns for investors engaging in the low-commitment activities that were predominant in the early 1990s. The association agreements with the EU provided sufficient guarantee in this respect. Since the mid-1990s, however, the investors have shifted into highercommitment and less mobile activities. Comparative quantitative evidence based on a large company-level survey showed that TNCs – those operating in East Europe and Central Asia in particular – enjoy a better business climate than the domestic firms because of their bargaining power in negotiating entry conditions and their subsequent political activism in the host country (Desbordes and Vauday 2007). After the state strategies reoriented, the multinationals did not leave the political agency to the comprador service sector only. On the contrary, they proved to be quite active in promoting their interests through direct agency. Apart from supporting and taking part in the activities organized by the comprador service sector, foreign investors sometimes engage in independent lobbying activities. Direct lobbying

23

The function of governmental assignee was created by the resolution of Slovak government #447/1997, 17 June 1997, and the resolution #750/2000, 20 September 2000.

152

J. Drahokoupil

through particularistic networks is especially important in Poland. Agency-based activities of the multinationals are very efficient in addressing investors’ concerns and promoting favourable policies throughout the V4 (see Bohle and Husz 2005). In Poland, for instance, the TNCs were ‘an active force’ lobbying for the country’s integration into the EU (Doma´nski 2003, p. 105).

6.8 Conclusion The belief in the importance of the international political economic environment for transition strategies, which led initially to false predictions about the prominence of FDI in the postcommunist transition, was ultimately not mistaken. The international environment in which transition and post-transition policy-making took place had indeed a crucial role in explaining final outcomes. But there is a missing link. The pressures of the transnational environment had first to be translated, embodied and expressed by key actors in the state – the comprador service sector. Domestic politics plays a crucial role in this process. However, it cannot be understood as completely internally determined. It must be treated as an instantiation of locally materializing transnational processes. Transnationally constituted domestic politics explains both the initial inward-oriented outcomes and the later shifts towards the competition state. The emergence of externally oriented competition states has been conditioned upon the unfolding hegemonic role of what I call the comprador service sector. This created a field of force that allowed this sector to come to the forefront as its interests become increasingly ‘universal’. The role and agency of this sector, however, do not explain the policy as such. They work as a linking factor that influences when, in which way and in what form such a shift towards the competition state takes place. The comprador service sector helped to translate the structural power of transnational capital into tactical forms of power that enabled agential power to work in sync with the interests of the multinationals. Activities of the sector tied together changing investment climate with domestic politics in Eastern Europe. The sector now constitutes the major organizer of the power blocs, underpinning the competition state in Central and Eastern Europe. The concept of transnationally constituted domestic politics allows bringing together multiple factors of convergence and divergence and dissolving the false distinction between the internal and external factors. It also invites for bringing the history back in and account for the considerable degree of contingency in the internationalization processess. Acknowledgments I am grateful to László Bruszt, Arjan Vliegenthart and other participants of ERC colloquium for their insightful feedback on earlier versions of this chapter.

References AmCham Slovakia. (2002). Report on the activities of the labor law task force of AmCham Slovakia. Bratislava: AmCham Slovakia.

6

The Politics of the Competition State

153

Banaszek, D., Dziemianowicz, W., Papliñski, A., Seges, R., Szemplinska, M., & Wolff, J. (1999). Inwestycje zagraniczne w gminie [Foreign investment in a region]. Warsaw: Skigraf on behalf of PAIZ. Baran, P. (1957). The political economy of growth. New York: Monthly Review Press. Boer-Ashworth, E. d. (2000). The global political economy and post-1989 change: The place of the Central European transition. New York: Palgrave Macmillan. Bohle, D. (2002). Europas neue Peripherie: Polens transformation und transnationale integration. Münster: Westfälisches Dampfboot. Bohle, D. (2006). Neoliberal hegemony, transnational capital and the terms of EU’s eastwards expansion. Capital and Class, 88, 57–86. Bohle, D., & Greskovits, B. (2006). Capitalism without compromise: Strong business and weak labor in Eastern Europe’s new transnational industries. Studies in Comparative International Development, 41(1), 3–25. Bohle, D., & Greskovits, B. (2007). Neoliberalism, embedded neoliberalism, and neocorporatism: Paths towards transnational capitalism in Central-Eastern Europe. West European Politics, 30(3), 443–466. Bohle, D., & Husz, D. (2005). Whose Europe is it? Interest group action in accession negotiations: The cases of competition policy and labor migration. Politique Europeenne, 15, 85–112. Cerny, P. G. (1997). Paradoxes of the competition state: The dynamics of political globalization. Government and Opposition, 32(2), 251–274. Desbordes, R., & Vauday, J. (2007). The political influence of foreign firms in developing countries. Economics and Politics, 19(3), 421–451. Dobry, M. (Ed.). (2000). Democratic and capitalist transitions in Eastern Europe: Lessons for the social sciences. Dordrecht and London: Kluwer Academic Publishers. Doma´nski, B. (2003). Industrial change and foreign direct investment in the postsocialist economy: The case of Poland. European Urban and Regional Studies, 10(2), 99–118. Doma´nski, B. (2005). Transnational corporations and the postsocialist economy: Learning the ropes and forging new relationships in contemporary Poland. In C. G. Alvstam & E. W. Schamp (Eds.), Linking industries across the world: Processes of global networking (pp. 147–172). Adershot: Ashgate Drahokoupil, J. (2007a). Analyzing the capitalist state in post-socialism: Towards the Porterian workfare postnational regime. International Journal of Urban and Regional Research, 31(2), 401–424. Drahokoupil, J. (2007b). The state of the capitalist state in east-central Europe: Towards the Porterian workfare post-national regime? In B. S. Sergi, W. T. Bagatelas & J. Kubicová (Eds.), Industries and markets in Central and Eastern Europe (pp. 175–196). Aldershot, UK: Ashgate. Drahokoupil, J. (2008). Globalization and the state in Central and Eastern Europe: The politics of foreign direct investment. London: Routledge. Drahokoupil, J., Van Apeldoorn, B., & Horn, L. (2008). Introduction: Towards a critical political economy of European governance. In B. Van Apeldoorn, J. Drahokoupil & L. Horn (Eds.), Contradictions and Limits of Neoliberal European Governance: From Lisbon to Lisbon (pp. 1–17). Basingstoke: Palgrave. Eden, L., Lemway, S., & Schuler, D. A. (2005). From the obsolescing bargain to the political bargaining model In R. Grosse (Ed.), International business and government relations in the 21st century (pp. 251–272). Cambridge: Cambridge University Press. Farnsworth, K. (2004). Corporate power and social policy in a global economy: British welfare under the influence. Bristol: The Policy Press. Gill, S., & Law, D. (1989). Global hegemony and the structural power of capital. International Studies Quarterly, 33(4), 475–499. Gough, I. (1979). The political economy of the welfare state. London: Macmillan. Gowan, P. (1995). Neo-liberal theory and practice for Eastern Europe. New Left Review, I/213, 3–60.

154

J. Drahokoupil

Gramsci, A. (1971). Selections from the Prison notebooks. New York: International Publishers. Hall, P. A., & Soskice, D. W. (2001). Varieties of capitalism: The institutional foundations of comparative advantage. Oxford and New York: Oxford University Press. Hay, C. (2002). Political analysis. Basingstoke and New York: Palgrave. Hay, C. (2004a). Common trajectories, variable paces, divergent outcomes? Models of European capitalism under conditions of complex economic interdependence. Review of International Political Economy, 11(2), 231–262. Hay, C. (2004b). Re-stating politics, re-politicising the state: Neo-liberalism, economic imperatives and the rise of the competition state. In A. Gamble & T. Wright (Eds.), Restating the state? (pp. 38–50). Oxford: Blackwell. Hirschman, A. O. (1970). Exit, voice and loyalty: Responses to decline in firms, organizations and states. Cambridge, MA: Harvard University Press. Holman, O. (1998). Integrating Eastern Europe: EU expansion and the double transformation in Poland, the Czech Republic, and Hungary. International Journal of Political Economy, 28(2), 12–43. Holman, O. (2004). Integrating peripheral Europe: The different roads to ‘security and stability’ in Southern and Central Europe. Journal of International Relations and Development, 7(2), 208–236. Jasiecki, K. (2002). Elita biznesu w Polsce: Drugie narodziny kapitalizmu [Polish business elite: Capitalism’s second birth]. Warsaw: IFiS PAN. Jessop, B. (2002). The future of the capitalist state. Cambridge, UK and Malden, MA: Polity Press. Lane, D. (2005). Revolution, class and globalization in the transition from state socialism. European Societies, 7(1), 131–155. Lane, D. (2006). From state socialism to capitalism: The role of class and the world system. Communist and Post-Communist Studies, 39, 135–152. Lindstrom, N., & Piroska, D. (2007). The politics of privatization and Europeanization in Europe’s periphery: Slovenian banks and breweries for sale? Competition and Change, 11(2), 117–135. Machonin, P., Tuˇcek, M., & Nekola, M. (2006). The Czech economic elite after fifteen years of post-socialist transformation. Czech Sociological Review, 42(3), 537–556. Martin, R. (1998). Central and Eastern Europe and the international economy: The limits to globalisation. Europe-Asia Studies, 50(1), 7–26. Martin, R. (1999). Transforming management in Central and Eastern Europe. Oxford: Oxford University Press. McMenamin, P., & Hill, S. (2004). Survey of performance of investment promotion agencies. In Promoting foreign direct investment in Central and Eastern Europe and the CIS (pp. 25–38). Geneva: United Nations Publications. Meyer, K. E., & Jensen, C. (2005). Foreign direct investment and government policy in Central and Eastern Europe. In R. Grosse (Ed.), International business and government relations in the 21st century (pp. 119–146). Cambridge: Cambridge University Press. MIGA-FIAS. (2005). Competing for FDI: Inside the operations of four national investment promotion agencies. Washington: Multilateral Investment Guarantee Agency and Foreign Investment Advisory Service. Myant, M. (2003). The rise and fall of Czech capitalism: Economic development in the Czech Republic since 1989. Cheltenham, UK and Northampton, MA: Edward Elgar. Offe, C., & Ronge, V. (1975). Theses on the theory of the state. New German Critique, 6, 137–147. PAIiIZ. (2004). Yearbook 2003. Warsaw: Polish Information and Foreign Investment Agency. Poulantzas, N. (1974/1978). Classes in contemporary capitalism. London: NLB. Poulantzas, N. (1976). The crisis of the dictatorships. London: New Left Books.

6

The Politics of the Competition State

155

Przeworski, A., & Wallerstein, M. (1988). Structural dependence of the state on capital. The American Political Science Review, 82(1), 11–29. Ragin, C. C. (1987). The comparative method: Moving beyond qualitative and quantitative strategies. Berkeley: University of California Press. Shields, S. (2003). The ‘charge of the right brigade’: Transnational social forces and the neoliberal configuration of Poland’s transition. New Political Economy, 8(2), 225–244. Shields, S. (2004). Global restructuring and the Polish state: Transition, transformation, or transnationalization? Review of International Political Economy, 11(1), 132–154. Stark, D., & Bruszt, L. (1998). Postsocialist pathways: Transforming politics and property in East Central Europe. Cambridge and New York: Cambridge University Press. Stark, D., & Vedres, B. (2006). Social times of network spaces: Network sequences and foreign investment in Hungary. American Journal of Sociology, 111(5), 1367–1411. Strange, S. (1996). The retreat of the state: The diffusion of power in the world economy. Cambridge: Cambridge University Press. Trník, M. (2007). The role of investment promotion agencies at attracting foreign direct investment and their impact on economic development in Central Europe (The Czech Republic and Slovakia in comparative perspective). Unpublished MA, Central European University, Budapest. UNCTAD. (2002). World investment report: Transnational corporations and export competitiveness. New York and Geneva: United Nations Conference on Trade and Development. UNCTAD. (2005). World investment report: Transnational corporations and the internationalization of R&D. New York and Geneva: United Nations Conference on Trade and Development. UNCTAD. (2007). World investment report: Transnational corporations, extractive industries and development. New York and Geneva: United Nations Conference on Trade and Development. van Apeldoorn, B. (2002). Transnational capitalism and the struggle over European integration. London and New York: Routledge. van Apeldoorn, B. (2004). Theorizing the transnational: A historical materialist approach. Journal of International Relations and Development, 7(2), 142–176. van der Pijl, K. (2001). What happened to the European option for Eastern Europe? In A. Bieler & A. D. Morton (Eds.), Social forces in the making of the new Europe (pp. 185–204). Basingstoke and New York: Palgrave. Vernon, R. (1998). In the hurricane’s eye: The troubled prospects of multinational enterprises. Cambridge, MA: Harvard University Press. Vliegenthart, A., & Overbeek, H. (2007). The transnational politics of corporate governance regulation. In H. Overbeek, B. van Apeldoorn & A. Nölke (Eds.), The transnational politics of corporate governance regulation (pp. 177–197). London: Routledge. Weiss, L. (Ed.). (2003). States in the global economy: Bringing domestic institutions back in. Cambridge: Cambridge University Press. Wolf, E. R. (1990). Facing power – old insights, new questions. American Anthropologist, 92(3), 586–596. Zamkovský, J. (1999). Ako sa loví plachá zver pod Tatrami: Prípad BMW [Hunting shy animals under the Tatras: The case of BMW]. Poniky: Friends of the Earth – CEPA.

Chapter 7

Transnationalization and Domestic Policy-Making Processes: Electricity Market Reform in Belgium and Switzerland Marie-Christine Fontana

Abbreviations CCEG CSC FEB FEBELIEC FGTB IEA OECD SFOE SGB SPE TSO UCPTE UCS UCTE UNICE Unipede VPOD

Control Committee of Electricity and Gas, Belgium Confédération des Syndicats Chrétiens (Christian Democratic Trade Union, Belgium) Fédération des Entreprises Belges (Federation of Belgian Firms) Federation of Belgian Large Industrial Energy Consumers Fédération Générale du Travail de Belgique (Socialist trade union, Belgium) International Energy Agency Organisation for Economic Cooperation and Development Swiss Federal Office for Energy Schweizerischer Gewerkschaftsbund (Association of the Swiss trade unions, without the Christian trade unions) Société Productrice d’Electricité, Belgium Transmission system operator (operator of the high-voltage network) Union for the Co-ordination of the Production and Transmission of Electricity Union des Centrales Suisses d’électricité (Union of Swiss Electricity Companies) Union for the Co-ordination of Transmission of Electricity Union of Industrial and Employers’ Confiderations of Europe International Union of Producers and Distributors of Electrical Energy Verband des Personals Öffentlicher Dienste (Trade Union of Public Services, Switzerland)

M.-C. Fontana (B) University of Lausanne, Lausanne, Switzerland e-mail: [email protected] L. Bruszt, R. Holzhacker (eds.), The Transnationalization of Economies, States, and Civil Societies, DOI 10.1007/978-0-387-89339-6_7,  C Springer Science+Business Media, LLC 2009

157

158

M.-C. Fontana

7.1 Introduction 7.1.1 Research Question The electricity sector has undergone and continues to experience a fundamental transformation. Liberalization, deregulation and re-regulation have spread around the world, which has led to a far-reaching restructuring of the sector. In Europe, this trend has been reinforced by a European Union (EU) directive adopted in 1996. This directive alone, however, cannot sufficiently explain how and why most countries, some of them not members of the EU, decided to liberalize their electricity sectors. First, the directive gave large leeway to the member states about how to implement liberalization, and second, the phenomenon is an almost global trend, not limited to Europe. Therefore, Europeanization as an explanation for the electricity market’s liberalization has been criticized for overemphasizing the impact of the EU (Fligstein and Merand 2001; Jordana et al. 2006; Levi-Faur 2004; Verdier and Breen 2001). A more encompassing approach to explain why governments decided to liberalize their electricity markets is offered by the recent research agenda of transnationalization. Transnationalization can be defined as ‘[. . .] the regular interactions between state and non-state actors across national boundaries aimed at shaping political and social outcomes at home, abroad, and in an emerging global sphere of governance’ (Orenstein and Schmitz 2006: 7). The approach of transnationalization includes both state and nonstate actors. They are active across several levels and often involved in international organizations or transnational networks (Djelic and Sahlin-Andersson 2006; Slaughter 2004; see also Bulut, Dadalauri, Langbein, and Vleigenthart, this volume). The EU is considered part of this process of transnationalization. This means that the EU is not only an independent variable, as in the Europeanization literature, but itself influenced by global trends, such as marketization. Marketization is a main characteristic of the contemporary process of transnationalization (Djelic 2006; Vliegenhart, this volume) and refers to the global diffusion of market ideologies (the belief in the efficiency of markets) and marketoriented reforms since the early 1980s. This approach of transnationalization is useful to explain the process of electricity liberalization, which is one aspect of the more general trend of marketization, where the European directive is part of a more global development and where several state and nonstate actors, often within transnational organizations, participated in domestic policy-making – that is the decision of countries to liberalize their electricity sector. Hence, the research question of this chapter is: How does transnationalization of a policy sector, here the electricity sector, affect domestic decision-making processes in this sector? Although the literature on transnationalization assumes effects on domestic politics, they have hardly been studied empirically (Orenstein and Schmitz 2006). We argue that transnationalization affects domestic policy-making processes by creating new opportunities and constraints for actors, which alter the domestic power constellation and, as a result, the policy outcome. Empirically, the policy-making

7

Transnationalization and Domestic Policy-Making Processes

159

processes leading to the decision to liberalize the electricity market in Belgium and Switzerland are analysed and compared. Before we further elaborate the concept and mechanisms of transnationalization, we explain why electricity can be considered a transnationalized sector. The blackouts that affected citizens in several countries simultaneously illustrate best the transnational nature of electricity.1 What is more, there is a long tradition of transnational interaction in the sector, due to the construction of transborder connections and the growing importance of importing and exporting electricity (see Eurelectric 1997: 8). As a result, several intergovernmental organizations and networks among electricity undertakings or their national peak associations emerged during the twentieth century: In the 1920s, the need to coordinate activities across borders for the construction of connections led to the creation of the International Union of Producers and Distributors of Electrical Energy (Unipede); transnational interaction among national peak associations of the electricity sector was reinforced with the creation of the Union for the Co-ordination of the Production and Transmission of Electricity (UCPTE) in 1951 and of Eurelectric in the 1970s, and also in the 1970s, the intergovernmental organization International Energy Agency (IEA) was founded as an autonomous agency linked with the OECD.

7.1.2 Scientific and Social Significance of the Research The research agenda regarding the phenomenon of transnationalization, which is assumed to affect the state and politics within the states (Orenstein and Schmitz 2006), is still in emergence. We know relatively little about this process and about the mechanisms behind it. The scientific significance of this chapter is that it proposes an analytical framework with two mechanisms of how transnationalization of the state affects domestic policy-making: informational asymmetry and legitimacy. The framework is applied in the analysis of two specific cases, electricity liberalization in Belgium and Switzerland, and these case studies allow further insights into and adaptations of the theoretical assumptions. If transnationalization indeed affects policy-making processes, as is assumed in the literature, this can be considered as part of a larger process of the transnationalization of the state. Understanding such a development and the conditions under which the distribution of power between domestic actors and the actors’ influence is affected is also of social and political significance. Moreover, changes in policy-making processes are challenges to the legitimacy of the democratic system if policy-making practices change, but beliefs about it remain the same (Schmidt 2005).

1

Examples are the blackout in Switzerland in September 2003, which affected almost all Italy, and the blackout in Germany in November 2006, which affected several European countries after a transmission interruption for the debarkation of a cruise ship.

160

M.-C. Fontana

7.1.3 Research Design and Methodology The two case studies of the Belgian and the Swiss policy-making processes leading to the decision to liberalize their electricity markets will be analysed using the technique of process tracing in order to uncover the causal mechanisms involved (George and Bennett 2005; Gerring 2007). This technique comprises data collection from different documents, such as official reports, annual reports of collective actors, written comments and newspapers and interviews with actors involved in the decision-making process. Belgium and Switzerland are small European states with open economies and consensual policy-making processes (Katzenstein 1985; Lijphart 1999); in both countries, concertation with societal actors – mainly social partners, but also associations of the electricity sector and others – is an important part of policy-making. The concertation phase advances the debate in parliament, and its aim is to find a proposal that is supported by as many actors as possible.2 The informal rules organizing concertation are supposed to be particularly sensitive to effects of transnationalization. Hence, concertation in the two countries will be the focus of this contribution. This shared characteristic of concertation in policy-making allows us to consider the countries as similar systems. They differ, however, in EU membership, which may be a significant difference regarding the influence of the European directive of 1996 on the liberalization of the electricity sector. They also differ in the organization of their electricity sectors. Nevertheless, the electricity sectors have an important element in common: they are highly interdependent with other countries. Belgium is one of the most open countries for imports, due to the interconnection of its network (Vincent and Declercq 2000: 43), and international electricity exchange increased greatly between 1970 and 2000 (De Lovinfosse and Varone 2004: 78). Switzerland is considered a turning platform for electricity trading in Europe (see, e.g., Federal Council 1999: 6661). The two cases allow us to analyse the mechanisms of how transnationalization of the sector affects domestic policy-making: both because of the openness of the electricity sectors and because of the relatively balanced power constellation in the concertation phase, transnationalization is more likely to make an impact than in other cases with more independent markets and/or dominant actor coalitions (for the latter argument, see Knill and Lehmkuhl 2002: 261).

7.2 Transnationalization of the State and Domestic Policy-Making: An Analytical Framework Transnationalization can be understood as a new opportunity structure for those actors who are present at two levels, the domestic level and the international 2

While Katzenstein argued that this is a consequence of the exposure of small countries in the world economy, Lijphart argued that this compromise is necessary to guarantee the stability of the political system in culturally divided societies such as Belgium and Switzerland.

7

Transnationalization and Domestic Policy-Making Processes

161

or transnational level (Knill and Lehmkuhl 2002; Milner and Keohane 1996; see also Parks, this volume). A new opportunity structure means that the distribution of power and resources between domestic actors is challenged by their transnational activities. However, transnationalization affects domestic policymaking only if domestic actors, such as the government, social partners or peak associations, make use of it (Mach et al. 2003; Streeck and Thelen 2005: 21; Thatcher 2007: 31). The interaction of the domestic and the international level is often described as a two-level game, where the government strengthens its position in domestic negotiations by referring to international commitments. In the context of the EU, Moravcsik has argued that ‘international negotiations and institutions reallocate political resources by changing the domestic institutional, informational and ideological context in which domestic policy is made’ (1994: 1). He has developed a theory of four causal mechanisms as to how European integration affects the domestic level: shifting control over agendas, altering decision-making processes, magnifying informational asymmetries and multiplying the potential domestic ideological justifications for policies. However, unlike the two-level game approach and Moravcsik’s intergovernmentalist understanding of the EU, where only the executive branches of national governments (its executive branch) are strengthened, we argue that in the broader context of transnationalization, other actors may benefit from these additional resources too. Mainly two of the mechanisms, informational asymmetry and ideological justification, can be used by several state and nonstate actors. If they use these resources, they are expected to strengthen their position within domestic policy-making – that is to have more influence than usual (and than other actors without transnational activities) – and therefore to transform the traditional way of policy-making. Still, these opportunities of transnationalization should not obscure the importance of the domestic context. Given differences between countries (and sectors), both the policy-making processes and the outcomes (the legislation) are expected to vary. In the context of electricity sector reform in Belgium and Switzerland, differences in the political system and in the organization of the electricity sector will result in a different use of the opportunities of transnationalization and hence in a different transformation of the policy-making process. Based on these theoretical explanations, a first hypothesis can be formulated: it is expected that domestic actors who are involved in transnational activities gain relative political influence (H1). Not only national governments but also other actors, such as interest groups or firms, are involved in activities in both domestic and transnational arenas where they receive information they can use in domestic policy-making processes. Thus, through informational asymmetry, they are advantaged compared to other actors without transnational activities. As a consequence, these actors may influence agenda setting by introducing new ideas or topics into domestic debates. However, transnationalization offers opportunities not only to transnationally active actors, but to all domestic actors whose preferences are in line with transnational trends such as marketization and liberalization. This can be explained by the mechanism of justification. Arguments such as the necessity to adapt to global trends, to international competition or to European legislation – and this as fast as possible –

162

M.-C. Fontana

Information

Transnationalised domestic actors (H1)

Transnationalisation of the sector: networks, IOs, trade

Justification

Not transnationalised domestic actors in favour of liberalisation (H2)

+ EU membership (H3)

++

Justification

+

Domestic power constellation (=influence)

–

Not transnationalised domestic actors against liberalisation

Figure 7.1. Transnationalisation of the sector and transformation of domestic policy-making

may be used to demonstrate the need for a reform corresponding with one’s own preferences. Therefore, the second hypothesis assumes that even purely domestic actors may be strengthened if the reform corresponds to their policy preferences and if they use transnationalization in order to justify the necessity of this reform (H2). Several scholars have stated that transnationalization is most developed in Europe, a process facilitated by the EU (Djelic and Sahlin-Andersson 2006; Slaughter 2004). So although liberalization and marketization of the electricity sector are global processes that can be observed in the United States, Australia, New Zealand and Latin America (Levi-Faur 2004), in Europe, the European directive is expected to have facilitated reforms in member states. As a consequence, we formulate a third hypothesis that expects that in Belgium, a EU member state, these mechanisms are stronger than in Switzerland (H3). The three hypotheses and the mechanisms of how transnationalization of a sector affects domestic policy-making are illustrated in Figure 7.1. The transnational sector, with its networks, intergovernmental organizations and other transborder activities, such as trade, is assumed to transform domestic policy-making: it affects the influence of domestic actors and thereby the power constellation. We distinguish three types of domestic actors: those active in transnational arenas (transnationalized domestic actors, H1); those not active in transnational arenas, but in favour of the reform that spreads transnationally (liberalization/marketization, H2); and those neither involved in transnational networks nor in favour of liberalization and marketization of the sector. The mechanisms by which transnationalization offers support to actors are information and justification of their preferences. Finally, EU membership is expected to reinforce these mechanisms (H3).

7.3 Policy-Making of Electricity Liberalization in Belgium and Switzerland Before presenting the analysis regarding the impact of transnationalization on domestic policy-making, we will first briefly present the organization of the

7

Transnationalization and Domestic Policy-Making Processes

163

electricity sector before liberalization the two countries and give an overview over the decision-making process in the two cases.

7.3.1 Organization of the Sector in the Two Countries Before Liberalization In Switzerland, the sector was highly fragmented into local and regional monopolies due to the federal system. There were more than 1,000 electricity firms of different sizes and structures, often intertwined horizontally and vertically with each other. The sector was also characterized by the coexistence of private and public firms, but the majority was under control of local administrations. While some firms were engaged only in production, transportation or distribution, others were active in all three areas. Seven vertically integrated companies dominated the sector, and they were mainly active in high-voltage transmission and trade with foreign companies. Switzerland was an important place of international electricity exchange, tightly integrated into the European electricity network and market. Regulation of the sector before liberalization is best described as self-regulation, with some competencies for the cantons (concessions, water management) and some for the federal authorities (nuclear energy, renewable energies, rational energy use). The most important actors in the policy field at the federal level were the executive branch of the government and the Swiss Federal Office for Energy (SFOE), the electricity industry and environmental associations. The electricity industry was organized under the umbrella of the Union of Swiss Electricity Companies (UCS) (Sager 2006). As in Switzerland, public and private companies coexisted in the Belgian electricity sector. Otherwise, the structure of the two sectors mostly diverged. In Belgium during the 1980s and the 1990s, several mergers took place, leading to a dominant private actor, Electrabel, which controlled 80–90% of production, transmission and distribution and which was also active internationally, in production and sales (Vincent and Declercq 2000: 11). The public company SPE held the remaining 10–20% and was linked to Electrabel by a common organization of production and transmission, controlled by the latter. Since 1955, the sector was regulated by the Control Committee of Electricity and Gas (CCEG), in which social partners (the Federation of Belgian Firms [FEB] and the Christian, Liberal and Socialist trade unions), the electricity industry and public authorities were represented and where decisions were made unanimously. Electrabel played a dominant role in the CCEG: The secretariat of the CCEG was financed by and housed in Electrabel’s headquarters (De Lovinfosse 2008: 105; Verbruggen and Vanderstappen 1999: 161f.). Because energy policy was delegated to the CCEG, it was no issue in Belgian politics (De Lovinfosse 2008: 87; interview 1). In Switzerland, however, energy policy had been highly politicized since the 1970s, mainly because of the issue of nuclear energy (Jegen 2003). Besides these differences, there were at least three common aspects of the electricity sector and its regulation in Belgium and Switzerland. First, federalism limited

164

M.-C. Fontana

the competencies of the federal authorities regarding electricity policy (in Belgium, competencies had been shared with the regions since the 1980s) (De Lovinfosse and Varone 2004: 96). Second, the electricity industry (Electrabel, UCS) was an important actor in regulation, and finally, the electricity sectors were structured by the presence of both public and private actors. Nevertheless, taking into account the differences in the institutional features of the sectors defined by Thatcher (2007) and the level of politicization, summarized in Table 7.1, a differential impact of transnationalization on policy-making is expected. Table 7.1 Electricity sector in Belgium and Switzerland before liberalization Belgium

Switzerland

Fragmented sector: many small Organizational position of Domination of a vertically and seven large, vertically supplier integrated firm; coexistence integrated companies. of (and cooperation with) a Most under local public control, small public firm but also private participation Rules governing supply De facto private monopoly Local, mainly public, monopolies Cantons and self-regulation by Regulatory powers Regulation by the CCEG: electricity companies, limited common decision-making competencies of federal of social partners, authorities electricity sector and, to a lesser degree, state actors Politicization of the issue Low (closed circle of the High, mainly in nuclear energy CCEG)

7.3.2 The Decision-Making Process in the Two Countries The European directive on electricity liberalization in 1996, which was adopted after a long and controversial debate in the Council of Ministers and which prescribed that the member states must liberalize their electricity markets step by step, was the impulse for a legislative process in both countries. The directive had to be transposed by February 1999 and liberalization was scheduled over a period of 6 years. However, it was possible for member states to accelerate liberalization, in which case first movers were protected by a reciprocity clause. The directive included the following elements: for the organization of the high-voltage electricity network, a transmission system operator (TSO)3 had to be created. If it remained part of an integrated electricity company, separate accounts for generation, transmission and distribution activities had to be provided (so-called unbundling of activities). Access 3

The transmission network is considered a natural monopoly, and its regulation is a crucial challenge to liberalization. Two institutions guarantee nondiscriminatory access to the transmission network: an independent transmission system operator (TSO) and a regulatory authority that oversees the work of the TSO.

7

Transnationalization and Domestic Policy-Making Processes

165

to the network could be organized by ‘third party access’ or by a ‘single buyer’ system (compromise made to France). And for regulation, the member states had to designate a competent authority. Finally, the directive allowed the nation states to define measures for renewable energies and public service obligations; these measures were not considered a contradiction to the liberalized market. The Belgian tradition of electricity regulation within the CCEG was challenged by the European directive, which had to be transposed into Belgian legislation (the last law on electricity dated back to 1955). Although the debate about a law started in the CCEG, it was soon blocked by diverging preferences and the rule to decide unanimously (Control Committee of Electricity and Gas 1998; Declercq and Vincent 2000: 19; interviews 2, 3, 4). There was disagreement regarding the planning (or not) of electricity production, the independence of the TSO, the type of access to the network and the pace of liberalization. As a consequence, the responsible minister and his collaborators (the so-called cabinet4 ) became active and drafted a bill (interview 2) which was adopted by the parliament. Hence, although concertation formally took place, it did not fulfil its objective, which is a compromise among the most important actors, in particular the social partners. As a consequence, the role of the executive was strengthened. The Swiss tradition of policy-making (Papadopoulos 1997; Sciarini 2004) was formally respected with two workgroups, a formal consultation procedure and informal consultation and lobbying. However, unlike the traditional process, the workgroups included only a few actors (civil servants and representatives of the electricity industry and of the economy in the first group) or did not aim at a compromise (second group) (Cattin et al. 1995; Kiener et al. 1997). The concerns of the trade unions and consumer and environmental associations – more regulation and supply security, more control over the TSO and more promotion of renewable energies – were not integrated into the reports and the bill proposals (Federal Council 1999; SFOE 1998). Hence, in Switzerland too, concertation formally took place but did not result in a compromise among all involved actors. At the end, the trade unions contested the law and launched a referendum, which they won (to the general surprise) against a large coalition of proponents of liberalization. A comparison of the decision-making processes (Table 7.2) shows that in both countries, concertation took place formally, but did not have the expected outcome, a compromise among the involved actors. In Switzerland, objections by the trade unions were not taken into account, and in Belgium, social partners could not agree on a common position. As a result, concertation was weakened, and the power constellation of actors differed both from the general (textbook) decision-making process and from the decision-making in the sector. In the next section, we analyse how transnationalization as a new opportunity structure affects the influence of different actors in the domestic policy-making process.

4

The cabinet, a ‘sort of personal secretariat of the Minister highly politicised’. The role of the administration is generally limited to policy implementation (De Lovinfosse 2008: 106).

166

M.-C. Fontana

Table 7.2 Decision-making processes in the case of electricity liberalization in Belgium and Switzerland Belgium

Switzerland

Impulse

European directive

Concertation (social partners)

CCEG: no agreement

Consultation

Informal consultation, in particular with electricity industry (Electrabel) and large consumers

Executive, cabinet and administration

Lead of project, drafts (framework law)

Parliament

Very minor modifications, no influence

Policy outcome

Legislation accepted

European directive Ideology of neoliberalism Workgroups: more or less inclusive, no compromise (unbalanced proposition) Formal consultation of all actors, adjustment to preferences of large clients and right-wing parties (less promotion of renewable energies); informal consultation Lead of project, drafts (framework law), adjustments mentioned above also in the sense of the executive Minor modifications (more promotion of renewable energies), little influence Legislation rejected in popular referendum (new legislation adopted in 2007)

7.3.3 Transnationalization and the Influence of Actors in the Belgian Case When the European directive was adopted in 1996, in Belgium most domestic actors participated actively in the regulation of the sector via the CCEG and were therefore sceptical about liberalization: there was no need for change. The only actor in favour of liberalization was FEBELIEC, the association of the large electricity consumers founded at the end of the 1980s in order to promote competition in the electricity sector (interview 5). Nevertheless, Belgium transposed the directive in a rather short decision-making process in 1999, without using the 1-year derogation it received from the EU because of its complicated network and the complexity of its federal system. The executive branch of the government, mainly the responsible minister and his cabinet, and Electrabel were the most influential actors in this policy-making process (see Table 7.3). Unlike the traditionally passive role of the executive in electricity policy (De Lovinfosse 2008; Verbruggen and Verheyen 1997: 59), the cabinet elaborated the bill and controlled the process, putting other actors such as the social partners, the regions and the parliament under time pressure (Sénat 1999; Verbruggen and Vanderstappen 1999: 159; interviews 2, 7, 9). However, the cabinet did not benefit from informational advantages. Although it participated in the debate in the EU, it started the domestic decision-making process only in 1998, 2 years after the adoption of the European directive and after the debate in the CCEG. Nevertheless, the EU served as an important argument for justifying the

7

Transnationalization and Domestic Policy-Making Processes

167

Table 7.3 Transnationalization and the influence of actors in the Belgian electricity market liberalization Actors

Influence

Resources from transnationalization

+ Transnational activities: EU + Agenda setting (1998) (Council of Ministers) → + Participation in concertation informed about electricity + Influence content liberalization + Self-perception and perception + Argumentation: EU directive, by others other countries, economic competition Electricity industry, that + Participation in concertation + Transnational activities: is Electrabel + Influence content UCPTE, Eurelectric → + Self-perception and perception informed about electricity by others liberalization + Well prepared (fenced market) + Transnational activities: – Agenda setting Large industrial UNICE, Ifiec-Europe → + Participation in concertation consumers informed about electricity ± Some influence content (FEBELIEC) and liberalization ± Self-perception and perception business association + Argumentation: economic by others (FEB) competition Trade unions – Participation in concertation + Transnational activities: ETUC − Self-perception and other networks → ± Perception by others informed about electricity − Influence content liberalization − Argumentation: no, against liberalization Executive and cabinet

Explanation: + present, ± more or less present, − absent

need for liberalization (Chambre 1999: 1; Poncelet 1998b). In addition, in order to explain why the 1-year derogation should not be used, the executive referred to the development in neighbouring countries. An accelerated process of liberalization was considered necessary in order to assure the competitiveness of the Belgian industry (Chambre 1999: 8ff.; Poncelet 1998a, 1998b: 6). The other most influential actor was Electrabel. It was the main interlocutor of the cabinet and participated actively in the elaboration of the law (interviews 7, 9). The result was a general framework law, leaving great room for manoeuvre to the electricity sector. The influence of Electrabel was due to the executive’s dependence on information provided by the electricity sector, both about technical aspects and about regulation (the executive was almost excluded from electricity policy for 50 years). In addition, Electrabel was one of the biggest firms and thus an important employer in Belgium, and the cabinet wanted a legislation that would preserve its strong role as a ‘national champion’ (interview 9; Schutyser and Deridder 1999). The effect of transnationalization on Electrabel’s influence was therefore indirect, but crucial. A ‘national champion’ is only needed in a transnational electricity market, and the dominant position of Electrabel in Belgium was a consequence

168

M.-C. Fontana

of transnationalization: as a particularly active member of UCPTE and Eurelectric (Eurelectric 1997: 15; interviews 1, 19), Electrabel had been aware of the coming liberalization process since the beginning of the 1990s. In order to anticipate its consequences, Electrabel was engaged in mergers and cooperation in order to fence the Belgian market and to be ready to expand abroad (interview 6; also Verbruggen and Verheyen 1997: 54). In short, the transnational activities of Electrabel strengthened its position within the Belgian electricity sector and the Belgian economy in general. Indirectly, these activities also affected its influence in the decision-making process regarding liberalization. The large electricity consumers (FEBELIEC) and the business association FEB participated in policy-making; however, although they were active members of transnational associations such as UNICE (the European business association) and the International Federation of Industrial Energy Consumers (Ifiec-Europe), their influence was limited (interviews 4, 5). While FEBELIEC lobbied actively in favour of liberalization at the European level (interview 5), it was rather passive regarding domestic agenda setting, and the integration of its preferences into the bill was mainly due to their congruence with those of the executive (interviews 2, 5). And although a former member of FEB was assigned to the cabinet, the FEB was considered a rather weak actor without a clear agenda, because both electricity producers (Electrabel) and consumers were members (interviews 1, 5). Finally, the trade unions were mainly ignored, although traditionally they had been important actors in this policy field (FGTB 20.4.1999; interviews 2, 3). Whereas they participated in the debate in the CCEG, where no agreement was found, they were hardly consulted during the elaboration of the bill in the cabinet (interviews 2, 3). So although the trade unions were informed about the topic through their participation in several transnational associations, such as the European Trade Union Confederation (ETUC) (interview 3), they had no informational advantage compared to other actors, and transnationalization offered no arguments to them, because the general trend was towards liberalization. In sum, transnationalization affected the Belgian policy-making process mainly in an indirect way. First, through transnationalization (and its anticipation), Electrabel succeeded in achieving a dominant position in the electricity sector and even in the Belgian economy, which also strengthened its role in policy-making. Secondly, because the European directive had to be transposed into a law, which was in contradiction to conventional policy-making in the CCEG, the executive developed into a crucial actor. However, the role and influence of the actors during the decision-making process itself were less due to transnationalization and more due to domestic factors.

7.3.4 Transnationalization and the Influence of Actors in the Swiss Case The most influential actors (before the trade unions launched the referendum) were the executive branch of the government and the administration, together

7

Transnationalization and Domestic Policy-Making Processes

169

with business associations, and they were indeed involved in transnational activities or justified their preferences with arguments related to transnationalization. Table 7.4 presents the influence of actors and the resources they gained from the transnationalization of the electricity sector. The executive, with the support of the administration, dominated the policymaking process: after already having set liberalization of the electricity market on the agenda in 1992, the administration controlled the concertation, and the executive modified the bill proposal according to its own preferences, which corresponded

Table 7.4 Transnationalization and the influence of actors in the Swiss electricity market liberalization before the launch of the referendum Resources from transnationalization

Actors

Influence

Executive (and SFOE)

+ Agenda setting (1992) + Transnational activities: + Participation in concertation Swiss Mission EU, + Influence content meetings EU, UCPTE, IEA + Self-perception → informed about electricity liberalization + Argumentation: development EU, neighbouring countries, economic competition + Agenda setting: pushed + Transnational activities: towards liberalization UNICE, representation in + Participation in concertation Brussels → more or less + Influence content informed about electricity liberalization + Argumentation: economic competition, lower prices + Participation in concertation + Transnational activities: ± Influence content UCTE, Eurelectric, other ± Self-perception contacts → informed about − Perception by others electricity liberalization + Argumentation: electricity platform, transborder trade: necessary adaptation − Transnational activities: not − Participation in issue specific → partially concertation informed, but no priority − Self-perception − Argumentation: no ± Perception by others ± Influence content (parliament) − Transnational activities: not − Participation in issue specific → not concertation informed − Self-perception − Argumentation: no − Perception by others − Influence content

Large industrial consumers and business associations

Electricity industry, in particular UCS

Environmental associations

Trade unions

Explanation: + present, ± more or less present, − absent

170

M.-C. Fontana

with those of business interests (SFOE 1998). The dominant role of the executive and the administration, and in particular their agenda setting, resulted from the informational advantage they had over several other actors (interview 10). Although Switzerland was not a member of the EU, the Swiss executive was well informed about the debate on electricity liberalization via the Swiss Mission in Brussels, meetings with representatives of the EU and discussions in the IEA5 and UCPTE (interviews 10, 11, 13). The executive also referred to the European directive and to international competitiveness to justify the reform (Federal Council 1999; Kiener et al. 1997). Large industrial consumers and business associations had favoured liberalization since the beginning of the 1990s. On the one hand, they expected lower energy prices (Cattin et al. 1995; Kiener et al. 1997; interviews 10, 13, 16), and on the other hand, electricity liberalization was part of a general trend of neoliberal reforms (Mach 2002; Mach et al. 2003). They were actively involved in the decision-making process and had considerable influence on the legislation, in particular regarding the pace of the opening-up of the market and the absence of regulatory measures (Le Temps 8.6.1999; NZZ 1999; SFOE 1998; interview 11). Transnationalization was used to justify their preferences; they argued that liberalization of the electricity market was necessary for the competitiveness of the Swiss economy (Kiener et al. 1997: 3, 67) and that it was a global trend to which Switzerland had to adapt (Economiesuisse 2002). In addition, their influence was facilitated by the congruence of their preferences with those of the government. Unlike the executive and business associations, transnational activities did not strengthen the position of the electricity sector. Although the actors of the sector participated actively in the debates within Unipede, UCPTE and Eurelectric, and although they were well prepared for the debate in Switzerland (NZZ 1997a, 1997b, 1998; interviews 10, 13, 19), they had little influence over the content (Le Temps 8.6.1999; NZZ 1999; interview 18). They succeeded only if their preferences corresponded with those of other actors – for example weak regulation, also advocated by business associations. The integration of UCS in the concertation phase was mainly due to its technical knowledge, and collaboration between the administration and representatives of the electricity industry was often difficult (interviews 10, 13). The internal divide of the sector further weakened the position of the UCS (interviews 12, 17).6 Although environmental associations participated traditionally in energy policy, they were not considered important actors in discussing market liberalization (interview 10). Even more, they themselves attached little importance to this new topic and were more concerned with the traditional issue of nuclear energy

5

In the years 1992 and 1995, the IEA published reports on Switzerland, and in 1995, it recommended to the country to open up its electricity market (IPW 1999: 155). 6 The large, vertically integrated electricity companies were strongly in favour of liberalization (NZZ 1997c; interview 16), which offered new opportunities for trade. Small and local companies were sceptical.

7

Transnationalization and Domestic Policy-Making Processes

171

(interview 12). So despite their participation in transnational networks and international organizations (e.g. the WWF and Greenpeace), they had little influence on the bill. Finally, the trade unions illustrate how being absent from transnational involvement can result in exclusion from the domestic process. Due to a lack of knowledge about the implications of electricity liberalization (VPOD 2002: 1ff.; interviews 12, 14, 15) at the beginning of the process, they were somewhat indifferent and did not oppose liberalization (SGB 1998). They needed some time to collect information and to organize opposition; therefore, they started to oppose the bill actively only when it was discussed in parliament.7 In sum, transnationalization had a much more direct impact on policy-making in Switzerland than in Belgium. The dominant role of the executive and the administration was enabled through their informational advantage, and the electricity industry as an actor in policy-making was weakened by the challenges of liberalization. However, the impact of transnationalization could mainly be observed in agenda setting and concertation. In parliament, the debate was more structured by domestic topics.

7.4 Discussion Comparing the policy-making processes in the two countries reveals more concrete insights as to how transnationalization affects and is used by actors in different situations. And while the effect of transnationalization on policy-making was rather direct in Switzerland, it was more indirect in Belgium. Before concluding our hypotheses, we first compare the role of actors in the two countries in order to better understand the dynamics of the transnationalization process. Although both policy-making processes were characterized by an unusually dominant role of the executives, in Switzerland the executive benefited more from transnational resources than in Belgium. Despite not being a member of the EU, the Swiss executive was aware and well informed about electricity liberalization in Europe. More importantly, it immediately started the legislative process at the domestic level, even before the EU finally adopted the directive, therefore benefiting from informational advantage vis-à-vis other domestic actors. The Belgian executive, on the contrary, started the transposition process only 2 years after the adoption of the European directive, under the impact of the accelerated opening-up

7

However, in the referendum campaign, references to negative experiences abroad (e.g. in California) and also high electricity prices in liberalized neighbouring countries were used as an argument against liberalization (Komitee gegen das Elektrizitätsmarktgesetz 2001: 3; Maillard 2001). Another argument was the risk of privatization (interview 15). These arguments helped them to win the referendum (interviews 10, 12, 15).

172

M.-C. Fontana

in neighbouring countries.8 But despite these differences, both executives used the resources offered by transnationalization, which helped them to set the domestic agenda and to justify liberalization of the electricity sector. The electricity industry in both countries was well integrated into transnational networks (UCPTE, Unipede, Eurelectric) and transnational trade. As small but important places in the European electricity network, they were aware of the general trend towards liberalization, and they started to adapt themselves to this trend early, despite the implied loss of their monopolies. Besides these similarities, the influence of the electricity sector in domestic policy-making differed due to domestic factors. In Belgium, the sector was dominated by a single actor, which was, in addition, one of the most important employers of the country. Transnationalization can be considered an additional, but not necessary, factor for its influence. In Switzerland, the electricity sector was fragmented, and liberalization with its unequal consequences for different types of electricity companies provoked diverging positions. The electricity industry had difficulties in speaking with one voice and was often perceived as hindering the liberalization process. Nevertheless, we can assume that without their transnational activities and the early preparation within the UCS, the role of the Swiss electricity sector would have been even weaker. The role of large consumers and business associations cannot be explained by transnationalization alone; it also depends on their relationship with the executive. In Switzerland, their influence was high because their preferences were in line with those of the executive and with the transnational trend of liberalization. The latter fact allowed them to use the resource of justification, arguing about competitiveness and the need for low electricity prices. However, if the executive is not interested in collaboration with business associations, their influence and even their participation in policy-making remain limited, despite transnational activities; this was the case in Belgium. Finally, trade unions had little influence on the legislation to liberalize the electricity market in both countries (before the referendum in Switzerland). While they were poorly informed about the liberalization process and its implications in Switzerland, they were involved in transnational networks and informed about developments at the supranational level in Belgium. Nevertheless, they had no informational advantage compared to other domestic actors, and in addition, the general trend in Europe offered no supporting arguments to oppose liberalization and marketization. However, with the referendum in Switzerland, trade unions regained influence on the policy-making process and temporarily stopped the liberalization process.9 The referendum is a resource that differs from the resources offered by transnationalization, and it empowered the opponents of marketization 8

However, the legislative process was then much shorter in Belgium. In less than a year, the Belgian law was adopted. In Switzerland, despite the early beginning, the parliament adopted the law only in the year 2000, and it was then refused in a popular referendum in 2002. 9 After the rejection of liberalization in the referendum vote in 2002, the government started a new attempt to liberalize the electricity market in 2003. The electricity liberalization act was finally adopted in 2007.

7

Transnationalization and Domestic Policy-Making Processes

173

and liberalization. This demonstrates the limits of the impact of transnationalization. Nevertheless, transnationalization affected policy-making in Switzerland, notably the role of the executive during the concertation phase, and the referendum was a reaction to this process. With these results, we can differentiate our hypotheses. Transnational activities provide actors with information, here about liberalization of the electricity sector, but this does not necessarily lead to informational asymmetry and differential empowerment, as supposed in the first hypothesis. Only if transnational activities regarding the topic vary considerably among domestic actors, as in the Swiss case, they have an impact on the policy-making process. The second hypothesis regarding justification of preferences in line with marketization is supported by the case studies: Actors in favour of liberalization indeed use such arguments, while this is not possible for actors in opposition, namely the trade unions. However, the two case studies also indicate that it is difficult to assess the impact of these arguments compared to other explanatory factors, such as being part of the dominant coalition. The use of arguments may be helpful, but it is not sufficient as the limited influence of the Swiss electricity industry shows. Finally, there is no support for the third hypothesis on the effect of EU membership: there were no stronger effects of the EU in Belgium than in Switzerland. Although the pressure to transpose was weaker in Switzerland, in both countries, the executive was well informed about the directive, and it was an important source for the national legislation. And in both countries, the argument that the EU demands liberalization was frequent, but references to the development in the neighbouring countries and economic competitiveness were more important than mere transposition. This can be explained by the fact that transposition in Switzerland and transposition without the 1-year derogation in Belgium could not be justified by the EU directive alone. In sum, the two case studies demonstrate that transnationalization indeed affects domestic policy-making. However, in order to better understand this process, domestic factors such as the structure of the sector, the traditional policy-making process and the complex interaction between transnational and domestic factors have to be taken into account.

7.5 Conclusion The aim of this chapter has been to examine how transnationalization of a sector affects domestic policy-making. The two case studies about electricity liberalization demonstrate that the postulated mechanisms of transnationalization, informational resources through participation in transnational networks and resources of arguments to justify a reform in line with the transnational trend of marketization indeed affect the influence of actors in the domestic policy-making process. Transnationalization of a sector offers new opportunities to actors, within the limits of the institutional framework (such as the referendum in Switzerland). The case studies also reveal conditions under which domestic actors have been able to use

174

M.-C. Fontana

these resources: On the one hand, additional pieces of information make a difference only if the level of transnationalization and of information varies among actors. This was the case in Switzerland, where it strengthened the executive and the administration, but not in Belgium. On the other hand, arguments justifying preferences in line with transnational trends reinforce a dominant position of an actor, such as the executive, rather than create influence. Still, their frequent use indicates that actors consider them useful. Besides the two postulated mechanisms, the case studies reveal an effect of transnationalization that has not been much discussed in the literature so far: transnationalization implies not only opportunities but also constraints. In the cases we examined, we observed that transnationalization can result in internally divided actors. In Switzerland, the electricity industry and its peak association, UCS, were divided between those in favour of and those rather sceptical towards liberalization, and in Belgium, the employers’ association FEB was divided between electricity producers (mainly Electrabel) and consumers. Participation of these actors in domestic policy-making is difficult because they lack credibility, and hence their influence remains limited, independent of the resources offered by transnationalization. Having described the mechanisms by which transnationalization affects policymaking, we turn to the question of whether it is a useful concept to explain contemporary policy-making. On the basis of the case studies, we discuss both a limitation and a strength of this concept. On the one hand, the resources transnationalization offers to domestic actors in order to increase their influence can mainly be used at the beginning of the policy-making process (agenda setting and concertation), and they become less important the longer the process continues. This is even more true for informational asymmetry, which becomes counterbalanced during the policy-making process, as shown by the Swiss trade unions that regained information and by the Belgian decision-making process, where agenda setting started late and no informational advantage remained. But although this limits the impact of transnationalization on domestic policy-making, effects at the beginning of the decision-making process may be consequential for the rest of the process (such as the exclusion of the Swiss trade unions). On the other hand, the concept of transnationalization allows for better integration of the role of market developments, which are often considered outside of policy-making. In the case of electricity liberalization, the anticipating behaviour of the electricity industry affected the policy-making processes, although more in Belgium than in Switzerland. Hence, although often presented as loser of liberalization, and although it had a limited impact on policy-making in Switzerland, the electricity industry arranged itself rather well with the new situation, thanks to its transnational activities in networks and trade. These indirect effects of transnationalization on domestic policy-making are as important as the more direct ones. Concluding the two case studies, we find that transnationalization affects domestic policy-making, indirectly by transforming the sector under consideration (here the electricity sector) and more directly regarding agenda-setting power and

7

Transnationalization and Domestic Policy-Making Processes

175

concertation. The effect of transnationalization is difficult to predict, because it can be direct or indirect and because it interacts with domestic factors. While some domestic institutions such as veto points (like the referendum in Switzerland) reduce the impact of transnationalization, other arrangements interact with transnationalization and result in case-specific outcomes – such as, the unanimity rule within the CCEG, which added to the strengthening of the Belgian executive through transnationalization. In sum, transnationalization affects domestic policy-making by offering resources and by provoking divisions within domestic collective actors. However, more research is needed regarding different forms of interactions with domestic factors and regarding long-term effects on the style of policy-making within a specific policy field. Acknowledgments This research is based on the project ‘The impact of internationalization on Swiss policy processes in comparative perspective’, NCCR Democracy. It is funded by Swiss National Science Foundation. I would like to thank Ronald Holzhacker, László Bruszt, and the participants of the European Research Colloquium on the Transnationalization of Economies, States, and Civil Societies: New Challenges for Governance in Europe, as well as Yannis Papadopoulos and André Mach for their helpful comments on earlier drafts of this chapter.

References De Lovinfosse, Isabelle (2008). How and why do policies change? A Comparison of Renewable Electricity Policies in Belgium, Denmark, Germany, the Netherlands and the UK. Action publique/Public Action. Bruxelles: Peter Lang. De Lovinfosse, Isabelle and Frédéric Varone (2004). From Private Self-Regulation to Public Renewable Electricity Policy: A Paradigmatic Change in Belgium. In Renewable Electricity Policies in Europe. Tradable Green Certificates in Competitive Markets, edited by Isabelle De Lovinfosse and Frédéric Varone. Louvain-la-Neuve: Presses universitaires de Louvain. Declercq, Christine and Anne Vincent (2000). L’ouverture du marché de l’électricité. Le cadre institutionnel. Courrier Hebdomadaire. Bruxelles: CRISP Centre de recherche et d’information socio-politiques. Djelic, Marie-Laure (2006). Marketization: From intellectual agenda to global policy-making. In Transnational Governance: Institutional Dynamics of Regulation, edited by Marie-Laure Djelic and Kerstin Sahlin-Andersson. Cambridge: Cambridge University Press. Djelic, Marie-Laure and Kerstin Sahlin-Andersson (2006). Introduction: A World of Governance: The Rise of Transnational Regulation. In Transnational Governance: Institutional Dynamics of Regulation, edited by Marie-Laure Djelic and Kerstin Sahlin-Andersson. Cambridge: Cambridge University Press. Fligstein, Neil and Frederic Merand (2001). Globalization or Europeanization? Evidence on the European Economy Since 1980. In “Shareholder Value-Capitalism and Globalization” Hamburg: FRG. George, Alexander L., and Andrew Bennett (2005). Case Studies and Theory Development in the Social Science. Cambridge, Massachusetts; London, England: MIT Press. Gerring, John (2007). Case Study Research: Principles and Practices. Cambridge: Cambridge University Press. Jegen, Maya (2003). Energiepolitische Vernetzung in der Schweiz: Analyse der Kooperationsnetzwerke und Ideensysteme der energiepolitischen Entscheidungsträger. Basel: Helbling & Lichtenhahn.

176

M.-C. Fontana

Jordana, Jacint, David Levi-Faur, and Imma Puig (2006). The limits of Europeanization: Regulatory reforms in the Spanish and Portuguese telecommunications and electricity sectors. Governance-An International Journal of Policy and Administration 19 (3):437–464. Katzenstein, Peter (1985). Small States in World Markets. Industrial Policy in Europe. Ithaca: Cornell University Press. Knill, Christoph and Dirk Lehmkuhl (2002). The national impact of European Union regulatory policy: three Europeanization mechanisms. European Journal of Political Research 41: 255–280. Levi-Faur, David (2004). On the “Net Impact” of Europeanization. The EU’s Telecoms and Electricity Regimes Between the Global and the National. Comparative Political Studies 37 (1):3–29. Lijphart, Arend (1999). Patterns of Democracy. New Haven; London: Yale University Press. Mach, André (2002). Economists as policy entrepreneurs and the rise of neo-liberal ideas in Switzerland during the 1990s. Economic Sociology – European Electronic Newsletter 4 (1): 3–16. Mach, André, Silja Häusermann, and Yannis Papadopoulos (2003). Economic regulatory reforms in Switzerland: adjustment without European integration, or how rigidities become flexible. Journal of European Public Policy 10 (2):301–318. Milner, Helen V., and Robert O. Keohane (1996). Internationalization and Domestic Politics: An Introduction. In Internationalization and Domestic Politics, edited by Helen V. Milner and Robert O. Keohane. Cambridge: Cambridge University Press. Moravcsik, Andrew (1994). Why the European Union Strengthens the State: Domestic Politics and International Cooperation. In Annual Meeting of the American Political Science Association. New York. Orenstein, Mitchel A. and Hans-Peter Schmitz (2006). The new transnationalism and comparative politics. Comparative Politics 38 (4). Papadopoulos, Yannis (1997). Les processus de décision fédéraux en Suisse. Paris: L’Harmattan. Sager, Fritz (2006). Infrastrukturpolitik: Verkehr, Energie und Telekommunikation. In Handbuch der Schweizer Politik, edited by Ulrich Klöti et al. Zürich: NZZ Verlag. Schmidt, Vivien A. (2005). Democracy in Europe: The Impact of European Integration. Perspectives on Politics 3 (4):761–779. Schutyser, Frederik and Lennart Deridder (1999). Belgium’s draft (federal) law on the organisation of the electricity market. Util Law Review 10 (4):158–163. Sciarini, Pascal (2004). Decision-Making Processes. In Handbook of Swiss politics, edited by Ulrich Klöti et al. Zurich: Neue Zürcher Zeitung Publishing. Slaughter, Anne-Marie (2004). A New World Order. Princeton: Princeton University Press. Streeck, Wolfgang and Kathleen Thelen (2005). Beyond Continuity. Institutional Change in Advanced Political Economies. Oxford: Oxford University Press. Thatcher, Mark (2007). Internationalisation and Economic Institutions: Comparing the European Experience. Oxford: Oxford University Press. Verbruggen, Aviel and Erwin Vanderstappen (1999). Electricity sector restructuring in Belgium during the 90’s. Utilities Policy 8:159–171. Verbruggen, Aviel and S. Verheyen (1997). Implementation of the EU-directive on internal market for electricity in Belgium. ENER bulletin 21:52–74. Verdier, Daniel and Richard Breen (2001). Europeanization and Globalization. Politics Against Markets in the European Union. Comparative Political Studies 34 (3):227–262. Vincent, Anne and Christine Declercq (2000). L’ouverture du marché de l’électricité. Organisation et stratégie des acteurs. Courrier Hebdomadaire. Bruxelles: CRISP Centre de recherche et d’information socio-politiques.

7

Transnationalization and Domestic Policy-Making Processes

177

Documents Belgium Chambre (1999). Doc. parl., 1933/1 (98/99). Projet de loi relatif à l’organisation du marché de l’électricité. Bruxelles: La Chambre des représentants de Belgique. Control Committee of Electricity and Gas, (CCEG) (1998). Avis du Comité Restreint du Comité de Contrôle au sujet de l’avant-projet de loi relatif à l’organisation du marché de l’électricité. Bruxelles: CCEG. FGTB (20.4.1999). Lettre ouverte aux Sénateurs des partis démocratiques. Bruxelles: FGTB. Poncelet, Jean-Pol (1998a). Note au Conseil des Ministres. Objet: Avant-projet de loi relatif à l’organisation du marché de l’électricité. Bruxelles: Ministre de la Défense national et de l’Energie. Poncelet, Jean-Pol (1998b). Un nouveau marché de l’électricité pour le 21ème siècle. Transposition en droit belge de la directive européenne 96/92 concernant des règles communes pour le marché de l’électricité. Note d’orientation. Bruxelles: Ministre de la Défense national et de l’Energie. Sénat (1999). Rapport: Projet de loi relative à l’organisation du marché de l’électricité. Rapport fait au nom de la Commission des finances et des affaires économiques par M. Weyts. Bruxelles: Sénat de Belgique.

Switzerland Cattin, Jean, et al. (1995). Ouverture du marché de l’électricité. Berne: Office fédéral de l’énergie. Economiesuisse (2002). Das Elektrizitätsmarktgesetz – eine schweizerische Lösung. Sichere Stromversorgung zu marktgerechten Preisen. Zürich: Economiesuisse. Federal Council (1999). Message du CF concernant la loi sur le marché de l’électricité du 7 juin 1999. Berne: Feuille Fédéral: 6646–6740. IPW (1999). Année politique suisse. Bern: Institut für Politikwissenschaft, Universität Bern. Kiener, Eduard, et al. (1997). Marktöffnung im Elektrizitätsbereich. Bericht des Bundesamts für Energiewirtschaft an das Eidg. Verkehrs- und Energiewirtschaftsdepartement. Bern: Budesamt für Energiewirtschaft. Komitee gegen das Elektrizitätsmarktgesetz (2001). Kein Kurzschluss bei unserer Stromversorgung. Nein zum Elektrizitätsmarktgesetz. Zürich:VPOD. Le Temps (8.6.1999). L’ouverture accélérée du marché de l’électricité révolte les producteurs. Genève: Le Temps SA. Maillard, Pierre-Yves (2001). Die Netze müssen staatlich bleiben. links.ch. 1(4): 8. NZZ (1997a). Die CKW unter dem Druck der Liberalisierung. Deutlich gestärkte Ertragskraft. Zürich: Neue Zürcher Zeitung: 21. NZZ (1997b). Die EGL vor der Konstituierung der Watt AG. Verbessertes Ergebnis trotz rückläufigem Umsatz. Zürich: Neue Zürcher Zeitung: 27. NZZ (1997c). Ungewisser Fahrplan für die Marktöffnung. Seilziehen in der Schweizer Elektrizitätswirtschaft. Zürich: Neue Zürcher Zeitung: 25. NZZ (1998). Statt einer nun zwei Netzgesellschaften. Groteske in der schweizerischen Elektrizitätswirtschaft. Zürich: Neue Zürcher Zeitung: 23. NZZ (1999). Mut zum Abbruch der Strommonopole. Zürich: Neue Zürcher Zeitung: 21. SFOE (1998). Loi sur le marché de l’électricité. Synthèse des résultats de la consultation. Berne: Office fédéral de l’énergie. SGB (1998). Elektrizitätsmarktgesetz (EMG); Vernehmlassung. Bern: Schweizerischer Gewerkschaftsbund. VPOD (2002). DV-Bericht, 7. Dezember 2002. Zürich: VPOD.

178

M.-C. Fontana

Transnational Networks Eurelectric (1997). Annual Activity Report. Brussels: Eurelectric.

Interviews Belgium 1. Expert: lawyer, dissertation on electricity liberalization in Belgium (January 2008) 2. Member of the cabinet elaborated the bill. Former member of the FEB and representative of the FEB in the CCEG (February 2008) 3. Representative FGTB and former representative of the FGTB in the CCEG (February 2008) 4. Member of FEB and CCEG (February 2008) 5. Representative FEBELIEC (February 2008) 6. Expert (economist), as such invited to a hearing by the parliament (January 2008) 7. Representative Electrabel (January 2008) 8. Representative CSC, participated in CCEG (January 2008) 9. Chief of cabinet of Minister Poncelet (October 2008)

Switzerland 10. 11. 12. 13. 14. 15.

High civil servant in SFOE (March 2007) Civil servant who participated in elaboration of the legislation (June 2007) Representative of an environmental association (March 2007) Representative of the electricity sector (March 2007) Proponent of the referendum, MP of the Social Democrats (April 2007) Representative of the trade unions and proponent of the referendum (April 2007) 16. Member of parliament, Liberal, president of the parliamentary commission of the Council of States (April 2007) 17. Expert: political scientist, dissertation on energy policy in Switzerland (March 2007) 18. Member cantonal executive and representative of the sector (June 2007)

Transnational Networks 19. Secretary General Eurelectric (February 2008)

Chapter 8

Transnationalization and the Georgian State: Myth or Reality? Nina Dadalauri

Abstract This chapter investigates the diffusion of neoliberal tax policy principles post-Soviet Georgia. I discuss the conventional explanations from the literature on policy diffusion and the politics of taxation and tax policy reform. These include domestic and external factors, such as external influence through conditionality, party ideology, veto players and trade unionism. I apply a process-tracing method to explore how Georgian tax policy was (re)made over a period of 15 years. Two arguments are developed: one that the making of the new Georgian state and tax policy formation are interlinked processes; second, the transnationalization of a policy arena, that is infiltration by nonstate actors who internalize external policy norms and preferences, can lead to a tax policy shift towards neoliberalism. However, the creation of a capable Georgian state was a by-product of changes in tax policy and administration after the political changes of 2003. I conclude that transnationalization can explain the process of policy reforms in reducing marginal tax rates, adopting a flat tax rate and simplifying tax policy to attract capital and promote economic growth.

8.1 . . . And the Revolution Came! [Tax policy] has traditionally been thought of as an entirely domestic matter. [But] in an increasingly global world economy, nations can no longer afford to design their tax systems without accounting for the effects on international trade and investment. Joel Slemrod Tax Principles in an International Economy1

In November 2003, the ‘Rose Revolution’ was born in Georgia. Former president Edward Shevardnadze was forced to step down and let Mikheil Saakashvili, representative of the Georgian politicians reformist group, take the helm. Similar political

N. Dadalauri (B) Department of Political Science, University of Aarhus, Aarhus, Denmark e-mail: [email protected] 1

Quoted from Steinmo (1993: 156).

L. Bruszt, R. Holzhacker (eds.), The Transnationalization of Economies, States, and Civil Societies, DOI 10.1007/978-0-387-89339-6_8,  C Springer Science+Business Media, LLC 2009

179

180

N. Dadalauri

changes swept Eurasia with varying success,2 under the banner of democratization and neoliberal market formation (Beissinger 2007; Bunce and Wolchik 2006; Hale 2005; Herd 2005). Postrevolutionary Georgia was left with a gloomy political and economic inheritance from the previous government: rampant corruption,3 a stagnated economy4 and frozen conflicts in Abkhazia (1992–1993) and south Ossetia (1991). The country only collected tax revenues up to 10% of GDP before 2003 (see Table 8.2). Foreign direct investment lagged behind (see Table 8.3). External dept was on the rise, reaching 50% of GDP in 2003.5 Table 8.1 Statutory tax rates in CIS countries 1992–2006 1992

Georgia

1997

2001

2005

VAT CIT PIT VAT CIT SST VAT CIT PIT

SST VAT CIT PIT SST

28

28

20

20

34

20

20

12–20

18

20

12

20

Source: Fritz 2005; Invest in Georgia 2008 (online: www.investingeorgia.org).

Table 8.2 Tax revenue, excluding grant (% of GDP)

Georgia Uzbekistan Turkmenistan Ukraine Tajikistan Russian Federation Kyrgyz Republic Kazakhstan Azerbaijan Armenia Belarus Moldova

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

12 – – – – – – 14 15 – 32 29

11 – – – 9 19 – 11 18 – 29 31

12 – – 23 10 21 – 9 18 – 29 24

10 – – 27 11 25 – 11 – – 29 25

10 – – 27 11 27 – 11 – – 28 21

10 – – 29 – – – 13 – – 27 25

10 – – 30 13 – – 14 – 18 29 27

16 – – 31 13 – – 15 – 18 30 29

18 – – 35 – 30 – 21 – 19 33 32

22 – – 37 – 29 18 17 – 19 36 34

Source: WDI, World Bank 2007.

A new phase of state formation was begun in Georgia after the ‘Rose Revolution’. The postrevolutionary government declared its commitment to democratic and market economic principles and launched complex reforms. Integration into the 2

‘Orange Revolution’ in Ukraine in 2004, ‘Tulip Revolution’ in Kyrgyzstan in 2005. On the Corruption Perception Index, Georgia is ranked among the highly corrupt countries with a 2.2 average score, where a score 0 indicates highly corrupt and 10 the least corrupt; source: www.transparency.org. 4 GDP growth per capita was weak in Georgia. In 1992, it reached –44.1% but began to recover in 1995, reaching 13% in 1996. But since 1998 (4.3%) the Georgian economy has begun to stumble again. GDP per capita was 6.7% in 2002 and grew to 10.3% by 2006. Source: World Development Indicators 2008. 5 World Development Indicators 2008. 3

3,227 933 7,958 9,727

15,763 10,558

24,187 10,748 564,078 560,087

2,373 1,582

3,907 1,598

5,517 1,358

495,399 492,622

121

53 –

340 4

113 1

450 2

–

2003

742,143 877,301

40,258 13,995

26,871 13,772

15,444 13,782

3,535 1,205

219 2

499 10

2004

945,795 837,194

41,169 14,520

26,045 14,032

12,766 12,763

1,679 1,221

258 7

450 −89

2005

37.1 –

−601 705

1,305,852 1,215,789

69,283 18,689

42,934 18,126

7.8 7.9

5.8 1.6

5.2 20.0

4.4 3.0

17.5 –

15.5 –

343 3

1,076 −18

28,732 17,979

2006

8.5 10.1

20.7 7.6

17.7 9.3

14.3 12.8

72.0 24.5

27.2 0.3

33.6 0.8

2004

10.4 9.2

16.1 6.1

13.3 7.3

9.2 9.2

30.7 22.3

19.0 0.5

24.0 −4.8

2005

12.6 11.8

20.8 6.1

17.1 7.4

16.3 10.2

−9.6 11.2

16.4 0.1

54.5 −0.9

2006

as a percentage of gross fixed capital formation 1990–2000 (Annual average)

Transnationalization and the Georgian State

Source: UNCTAD, World Investment Report 2007; www.unctad.org/wir or www.unctad.org/fdistatistics

Georgia Inward Outward Memorandum Armenia Inward Outward Azerbaijan Inward Outward Russian Federation Inward Outward Commonwealth of Independent States Inward Outward South−East Europe and the CIS (Transilition economies) Inward Outward World Inward Outward

FDI flows

1990–2000 (Annual average)

Foreign direct investment (FDI) overview, selected years (Millions of dollars and percentages)

Table 8.3 FDI overview for the period 1990–2006

8 181

182

N. Dadalauri

Euro-Atlantic alliance became the main goal of the new government’s foreign policy (Papava 2006; Wheatley 2005). The new government’s sweeping reforms were welcomed and supported by the Western community. They declared their support by providing increased funding.6 In 2004 a new cooperation scheme emerged: The EU created a European Union Neighbourhood Policy (ENP) with the aim of supporting and promoting democratic and market principles among its neighbours. Georgia7 joined the ENP that year and began to implement pro-market reforms to complete its obligations under the cooperation scheme.8 The Georgian government continues to push for reforms in tune with the neoliberal principles of reducing the role of the state to regulatory activities, while market liberalization and privatization continue. Economic growth and attracting foreign direct investments were the end goals of the tax system reform. A new tax code was adopted in 2004, which embraced neoliberal principles of a reduced corporate tax rate, a flat income tax and a much simplified tax administration (ibid). The ambition was to become a tax competitive country and attract more FDI by promising to become even more simplified and business friendly (ET 2004). Policy changes were coupled with complex measures of anti-corruption campaigns, reintegration of the Adjara region and a massive restructuring of the public sector. The results were promising: FDI has increased from $340 million in 2003 to $1,076 million in 2006 (Table 8.3). Tax collection doubled, reaching 22% of GDP annually – the first time in the recent history of post-Soviet Georgia that the budget was not in deficit and tax collection increased (Table 8.2). Such radical changes could not just happen overnight. The processes that led to a changed economic policy (and particularly tax policy) in Georgia towards neoliberal principles were begun long before the results were achieved. Having said that, this chapter aims to investigate how and why the Georgian tax system embraced neoliberal principles after the ‘Rose Revolution’. While focusing on a tax policy that is made up by tax code and related amendments, this chapter developes two main arguments: one, that the making of the new Georgian state and tax policy formation are interlinked processes; second, the transnationalization of a policy arena, i.e. infiltration by non-state actors who internalize external policy norms and preferences – can lead to a tax policy shift towards neo-liberalism. However, the creation of a capable Georgian state was a by-product of changes in tax policy and administration after the political changes of 2003.

6

The 2004 Joint EU and World Bank Donor Conference in Brussels gave the new government of Georgia the opportunity to present their ‘Strategic Vision and Development Priorities in 2004– 2006’. Georgia was subsequently awarded approximately $1 billion (850 million Euros), almost three times more than the Georgian government had received from the EU during 1992–2003. In addition, the American government also chose Georgia as a recipient of 5 year’s worth of financial assistance to the tune of $295.3 million through the Millennium Challenge Account (MCA). Source: http://www.delgeo.cec.eu.int/en/press/communication_0503_en.pdf. 7 Other signatories in post-Soviet space are Ukraine, Belarus, Moldova, Armenia and Azerbaijan. 8 ENP online: http://ec.europa.eu/world/enp/pdf/action_plans/georgia_enp_ap_final_en.pdf.

8

Transnationalization and the Georgian State

183

External Influence

Transnationalization

Bargaining process

Tax Policy

Domestic Factors

Fig. 8.1 Causal model

Thus, like modern state-making a modern tax policy goes beyond domestic politics and is transnationally embedded. A tax system is not just imposed from outside, nor is it domestically crafted. It is the result of a transnational policy making involving global, European-level and domestic forces. Neoliberal tax policy diffusion is the result of the transnationalization of the policy arena that evolves over years as necessary conditions are met. The latter is the second argument developed in this chapter. Transnationalization (see the causal model in Figure 8.1) is an explanatory variable that affects policy output (i.e. adoption of neoliberal tax policy principles). Based on the secondary literature and interviews with local experts, an in-depth case study of the Georgian tax system formation will be conducted by applying process-tracing method over a period of 15 years, from 1991 to 2006 (George and Bennett 2005). The process-tracing method allows an investigation of the causal chain that led to the outcome. The illustration of the process is demonstrated in Figure 8.2. Investigating a 15-year period of making a new tax policy permits acrosstime comparisons within the case. The reason Georgia was chosen as a case study is twofold: first, it is a transition country that went through a ‘revolution’ aimed at breaking the previous path of ‘competitive authoritarianism’ (Levitsky and Way 2002), after what it intensified reforms in the taxation system, thus providing rich materials for the purpose of this chapter – to see how the transnationalization of a policy arena can lead to change. And second, the Georgian case illustrates how ‘passive leverage’, that is linkages

USSR Collapsed;

Coup d’tat;

Constitution adopted;

First Tax Code ‘Rose Revolution’ New Tax Code Reforming adopted; adopted; tax policy;

Presidential & parliamentary Elections; /_________/__________/__________/___________________/___________/__________________/ 1991 1992 1995 1997 2003 2004 2006

Fig. 8.2 The 15-year long process of Georgian taxation systems making

184

N. Dadalauri

between domestic and external actors, works in relation to the creation of a new tax policy, while coercive mechanisms fail to affect the policy outcome. While exploring the path of tax policy change in Georgia, this chapter is structured as follows: after describing the scientific and social significance of this contribution, I describe the background of the concept of neoliberal tax policy. Second, arguments in support of domestic as well as external factors as explanations of tax policy making and shift towards neoliberal principles in the post-Soviet realm will be contrasted. Third, I will develop the theoretical arguments on transnationalization as an explanatory factor of the process. Fourth, all arguments will be applied to the Georgian case. Finally, I will conclude on the basis of the findings.

8.2 Scientific and Social Significance The scientific contribution of this chapter is twofold: first, it contributes to the emerging literature on transnationalization. In the Georgian case the argument about tax policy diffusion demonstrates that transnationalization is an important explanatory variable for the path of neoliberal policy change. The analysis shows how domestic public policies were changed through transnational linkages and cooperation among domestic and external actors. Moreover, it shows the role nonstate actors play in policy change in transnationally embedded states. Second, this chapter deepens our understanding of how tax policy are made in transition countries and brings the less explored topic of taxation to the transition literature. The social significance of this chapter is that it shows how transition countries, and particularly Georgia, have overcome the hardships associated with state formation and policy making. I explore why it is now more transnational than it was in other periods and why it is able to act more responsibly towards its citizens through public goods provision than was the case before the ‘Rose Revolution’. In addition, this chapter demonstrates that in transition countries state-making involves a complex set of actors and the project of state-making are no longer exclusively domestically shaped.

8.3 Neoliberal Tax Policy Neoliberalism emerged and was proliferated through reforms of institutions and public policies across the globe in the late twentieth century and has influenced the way national taxation systems are created or reformed (Campbell and Pedersen 2001; Swank 2004). Pro-market economic reforms initiated in the USA in the 1980s were claimed to lead to tax policy changes elsewhere based on policy learning and assessments of costs and benefits to other nations. The core of neoliberal tax policy consisted of the following: shifting the tax burden from corporations and capital to labour, broadening of a tax base and reduction of tax exemptions. Tax competition and economic growth are the drives and the subsequent outcome of neoliberal tax

8

Transnationalization and the Georgian State

185

policy. Neoliberal tax policy is seen as part of the neoliberal economic orthodoxy known as the ‘Washington Consensus’ (Swank 2004:3). Neoliberal tax policy diffusion was first associated with globalization processes that led to statutory tax rates cuts across nations (Steinmo 1993). Swank and Steinmo (2002), as well as other authors (Garret 1998), found no evidence of a ‘race to the bottom’ pattern of policy change, that is shifting the tax burden on labour and consumption in favour of high-income earners and mobile capital. The globalization thesis of tax policy convergence has been challenged, and a trend towards convergence across nations was refuted, while general trends in policy change were still acknowledged (Swank and Steinmo 2002; Swank 2004). Globalization and tax policy changes in democratic countries raise debates over tax competition within the European Union (Radaelli 1999). Though much research on neoliberal tax policy diffusion has been carried, two main issues have emerged. Some argue that neoliberal tax policy diffusion from outside into national states leads to convergence of national policies in accordance with its principles (race to the bottom argument) (Swank 2002; Slemrod 2004). Others, however, note that nonconvergence persists due to domestic economic and political factors (Peck 2004; Campbell 2001; Baruto and Gray 2007). Beyond the globalization and Europeanization arguments in policy diffusion, the claim for transnationalization emerged (Peck 2004; Bloom and Orenstein 2005). The main argument of this literature is that in the modern world, nonstate actors are important players in policy bargaining and they contribute to policy making, thus affecting the policy output. Policy issues that travel across borders facilitate transnationalization, and nonstate actors need to be included in policy transfer models to explain how and why policy norms and preference are diffused (Stone 2004). On a regional basis, neoliberal tax policy diffusion research has been limited to strong democracies with developed economic institutions. A few scholars have investigated neoliberal tax policy diffusion in weak democracies, particularly in postcommunist countries (Campbell 2001; Baruto and Gray 2007). In view of the scarcity of resources and the weakness of economic institutions in developing countries, neoliberal policy diffusion is often seen as imposed by external forces through funding conditionality. International organizations promoting neoliberal tax policy principles are the International Monetary Fund, The World Bank and the European Union. Meanwhile, the claim for transnationalization in policy diffusion seeks to open the policy debate beyond the domestic versus external argument. It claims that horizontal ties among domestic and external actors have led to an empowerment of domestic actors. In addition, the emergence of nonstate actors in the policy reform process shows that policy diffusion can take place without coercion when nonstate actors mediate and form links with external and domestic actors. This chapter will show that the technical assistance provided by the EU empowered domestic state institution such as the Ministry of Finance, which initiated a change in tax policy after the ‘Rose Revolution’. At the same time, but before the change occurred, nonstate actors such as the Georgian Young Lawyers’ Association (GYLA), the Liberty Institute (LI), the International Center for the Reformation and Development

186

N. Dadalauri

of the Georgian Economy (ICRDGE), which turned into a Georgian Economic Development Institute (GEDI), and the Horizonti Foundation were exposed to new policy ideas and became active in policy norm diffusion domestically. The linkages those NGOs had with funders and international organizations made for horizontal diffusion of knowledge in various Georgian policy arenas. This chapter approaches each theoretical claim separately in order to unravel the process whereby a neoliberal tax policy was adopted in Georgia. Due to the focus of this chapter, I restrict myself to the process that led to the changes in marginal tax rates and to adoption of a market-friendly tax policy. I will therefore leave out the issues of tax policy implementation and state capacity (i.e. policy effectiveness and the state’s extractive capacity measured by collected tax revenue [Cheibub 1998; Chaudhry 1997]). Neoliberal tax policy is here defined and operationalized as a particular public policy entailing codified norms over personal (flat rate) and corporate income tax rates (low) aimed at increasing the country’s competitiveness in attracting foreign direct investment. The dynamics of change in marginal tax rates in personal and corporate income in tax policy is demonstrated in Table 8.4. Georgia has moved from a graduated personal income tax (ranging from 12% to 20%) to a flat tax rate (12%) after the ‘Rose Revolution’ and proclaimed tax competition as the central issue in reforming the tax system. Having defined and operationalized neoliberal tax policy for the sake of our investigation, the theoretical arguments of neoliberal policy diffusion will be discussed below.

Table 8.4 Tax Revenues as percentage of GDP PIT

Armenia Azerbaijan Belarus Georgia Kazakhstan Kyrgyzstan Moldova Russia Tajikistan Turkmenistan Ukraine Uzbekistan CIS EU – 8 Balkan Countries EU – 15

CIT

VAT & Excise

91–95 99–02 91–95 99–02 91–95

99–02

1.3 2.2 0.0 0.6 2.0 1.9 1.7 2.3 2.6 0.3 3.2 3.6 1.8 5.9

9.6 7.2 11.3 6.8 5.4 8.3 12.2 10.0 7.5 7.0 10.1 12.6 9.0 11.4

0.9 1.9 3.0 1.9 2.1 1.4 1.4 2.1 1.2 1.9 4.9 3.6 2.2 5.7

5.2 7.6 12.1 1.0 2.2 3.1 4.6 9.1 6.8 4.1 7.9 6.4 5.8 5.0

Source: Grabowski (2005:303), Table 4.

1.3 2.5 3.6 1.1 6.5 1.5 1.9 4.3 0.6 2.5 4.3 3.2 2.8 1.8

3.8 5.6 1.7 3.2 6.0 10.8 7.2 7.0 8.1 8.9 12.9 7.1 10.8

Contributions

GG Revenue

91–95 99–02

91–95 99–02

1.8 9.9 0.9 6.3 5.9 2.9 9.7 9.2 3.5 11.4 0.7 6.3 11.1

2.8 2.2 11.9 1.8 3.6 3.5 7.4 7.7 1.9 3.4 9.0 6.7 5.2 11.5

23.8 45.8 50.0 9.2 18.2 24.7 21.7 37.7 34.2 18.7 34.1 33.7 29.3 43.3 36.8

21.2 19.9 44.3 15.4 19.6 21.1 27.5 37.0 13.6 23.4 34.2 28.7 25.5 39.7 34.6

46.1

45.7

8

Transnationalization and the Georgian State

187

8.4 External Influence – Conditionality and Beyond External influence on domestic matters is often viewed as a conditionality that is mainly exercised on two issues: first, on membership of a particular club such as the European Union (EU), and second, on access to financial resources from the international financial institutions: The International Monetary Fund (IMF) and The World Bank (WB). Global and European forces, regardless of the differences in the end goals of those processes promote neoliberal economic principles within their realm of influence (Campbell 2001:105). Literature on aid-related conditionality studies the effect of conditionality on the policy change. The mechanism in such processes is coercive, as often needed financial resources that IFIs have and can provide to developing countries are conditioned on the fulfilment of requirements imposed on governments. Similar logic is underling the literature studying EU membership. Europeanization theory intensely studied how the conditionality associated with EU membership in the integration process affected policy making in candidate states (Schimmelfennig 2007; Schimmelfening and Sedelmeier 2005; Vachudova 2002; Kelley 2004). The key argument was that EU membership conditionality mattered more than processes of social learning (Kelley 2004; Vachudova 2002). Conditionality is the stick, while prospective membership of the EU is the carrot – benefits that adoption of recommended policy reforms can bring. Nonadoption is often not a choice and can lead to loss of the carrot. The Europeanization literature has studied the EU integration processes in the Central and Eastern European countries and sees the membership of the EU as the end goal. However, the conditionality of EU membership as an incentive for domestic policy reform in noncandidate or even accession countries is less powerful. In this respect, one would not expect little from Europeanization theory to explain how external influence is exercised in transition countries such as Georgia. However, the indirect influence, known as ‘passive leverage’ (Vachudova 2002) similar to the notion of ‘linkages’ developed by Levitsky and Way (2005, 2007), should not be overlooked in transition countries undergoing reforms. Linkages based on bilateral agreements between the EU and transition countries provide a frame of possible legal harmonization of domestic norms with EU directives. The EU does not have a ‘stick’, nor is there an actual ‘carrot’ for countries that would lead to a policy change. However, the EU is often portrayed as a democratic club that newly emerged democracies express a desire to join at some point in time. Whether this claim is strictly a campaign tactic aimed at accumulating votes or is truly a goal of the new governments in postrevolutionary CIS countries has yet to be seen. However, in the case of Georgia, possible EU membership has dominated politicians’ rhetoric, and grand political and economic reforms were implemented under the banner of ‘embracing values of free market and democracy’. Diffusion of policy preferences from the EU to the transition countries is expected to be mediated through close cooperation schemes, one example of which is the EU Neighbourhood Policy created in 2004. If and when policy learning from the EU to domestic policy makers and nonstate actors occurs is a matter of empirical

188

N. Dadalauri

investigation. However, EU’s role in tax policy change can be viewed as noncoercive. That is because the incentives for change are not as strong or explicit as they are for EU candidate states. The reasons is the lack of real ‘carrot’, be it membership or access to EU internal market (Chilosi 2007). Nonetheless, if and when the EU manages to play a role in tax policy changes in ENP signatory countries towards neoliberalism, it will contribute to the argument of transnationalization rather than to that of conditionality. That is to say, instead of a coercive mechanism of policy change, there is a noncoercive mechanism through horizontal ties with the EU and other international organizations in the form of knowledge and material resource provision, both of which have played a vital role. In the process of tracing the changes of Georgian tax policy, I will investigate whether the EU was present, and if so, to what extent. I now turn to the theoretical outline of the neoliberal tax policy change and a further discussion of it in the case of Georgia.

8.5 Domestic Factors Domestic factors matter in policy diffusion. While external influence is argued to lead to policy convergence, domestic factors are expected to lead to cross-national divergences as they affect pace and degree of national policy change (Swank 2004:9; Campbell 2001:129). Governments and particularly incumbents face challenges: while external influence might urge them to mould national tax policies according to neoliberal principles, they have to ensure first that voters approve of the policy changes and second that they actually manage to raise revenues (Cobham 2007; Genschel 2005). As tax policy is a public policy that often triggers strong sentiments in the public, politicians often adopt policy changes that might not seem rational based on economic calculations. Therefore, tax policy is argued to be subject not only to economic calculations, but also to political ones (Peters 1991; Lieberman 2003). The literature on taxation and policy diffusion argues that tax policy making is affected by political party ideology, the strength of trade unions and the number of veto players (Peters 1991; Steinmo 1993; Easter 2002, 2008; Campbell 2001).

8.5.1 Veto Players Policy stability and change in comparative politics are often explained by the theory of veto players. Tsebelis’ theory on veto players posits that there is a potential for policy change related to veto players and their preferences. The basic prediction of the theory is that when the number of veto players and their ideological distances increases, policy stability also increases (only small departures from the status quo are possible) (Tsebelis 1995, 1999, 2000, 2002). The latter can lead to presidential system instability (Ganghof 2003:7). One of the greatest contributions of the veto player theory is its potential to unify our understanding of political systems where

8

Transnationalization and the Georgian State

189

the main difference is the agenda-setting and control potential of veto players (ibid). The theory defines ‘veto players’ as individuals or institutions whose agreement is required for a change of the status quo. Thus, governments or political parties who can veto any policy can be considered veto players. Veto players were incorporated even in early studies of tax policy in the postSoviet era. Baturo and Gray (2007) investigate how the flat tax model diffused in postcommunist countries. The number of veto player as a political constraint (domestic factors) on policy diffusion was included in their model and proved to have powerful influence on the process. Though not explicitly referring to the veto player theory, Campbell (2001) found that neoliberal tax policy diffusion was negatively affected if the electoral system in a country was fragmented. At the same time, the tax policy literature argues that party ideology is a strong factor that influences fiscal policy (Steinmo 1993). When this argument is applied to transition countries that have weakly institutionalized political parties, however, its importance becomes debatable (Baruto and Gray 2007). Concerning the importance of veto players in the adoption of a neoliberal tax policy in Georgia, two considerations are vital. First, in countries with hypo-presidentialism and a dominant ruling party, the number of veto players (i.e. political parties) in the parliament becomes less vital. The attitude of the incumbent is essential. Second, as parties have been leader oriented rather than programme oriented, the political ideas and policy preferences of the president are echoed in the political parties, but that does not prove that the ideologies of veto players matter separately as a domestic factor in policy change.

8.5.2 Trade Unions A progressive tax policy is based on the principle of “ability to pay” and is usually designed to redistribute wealth and income. It is therefore perceived as fair by individual taxpayers and advocates of their rights (Peters 1991). Trade unions promoting and advocating labour rights have traditionally favoured progressive taxation. In countries where trade unions have managed to gain influence on tax policy decisions, adoption of neoliberal policy principles were slow because labour and consumption were burdened for the benefit of capital and corporate income. In strong democracies trade unions continue to influence tax policy debates. In the postcommunist countries, particularly in Central and Eastern Europe, trade unions played a significant role in fiscal policy negotiations as well (Campbell 2001; Easter 2002, 2008). Easter (2002; 2008) argued that the Polish taxation system was heavily influenced by trade unions, whereas in Russia, oligarchs and the political elite dominated policy bargaining. Campbell (2001) also discusses the roles of trade unions and their capacity to influence fiscal policy discussions in Eastern Europe, where outcomes were different in three cases – Poland, Hungary and Czechoslovakia (respectively the Czech Republic and Slovakia) – due to domestic politics. Strong trade unions in Poland managed to put a stop to the diffusion of neoliberal tax policy early in the transition.

190

N. Dadalauri

Thus, if trade unions had a stake in tax policy bargaining and managed to influence the process, one should expect slow change towards market-conforming reforms, including a shift in tax policy reforms towards more neoliberal principles.

8.6 Transnationalization Argument Research on transnationalization has emerged in political science as a new frontier. The core of transnationalizatioin is that the boundaries between domestic and nondomestic actors progressively disappear in explaining domestic and supranational institutional change, and while in the supranational arenas, diverse nonstate actors appear as new players, nondomestic actors play a growing role in changes at the national level.9 Djelic and Sahlin-Andersson (2006) argue that transnationalization is an authentic concept that better explains complex processes involving multiple actors. Transnationalization is related to the proliferation of regulatory activities (Levi-Faur and Jordana 2005) and the emergence of transnational governance (Djelic and Sahlin-Andersson 2006). This emergence is also evident when transnational investments enter nation states (Schields 2004), social networks form links and diffuse ideas and values (Keck and Sikkink 1998) and financial markets contribute to the non-national state-controlled processes (Weiss 1999:179) and through transnational actors in world politics and their influence on nation states (Slaughter 2004; Risse 2002). Defining transnationalization is quite tricky. Since it is a newly emerged research field, definitions often match the research interest of a particular author. I define transnationalization as a process (similar to the contributors of this volume by Langbein, Fontana and Afonso). Transnationalization brings nonstate actors in vis-à-vis state and external actors and endows them with the power to influence policy making. Transnationalization is formed through interaction and linkages among various domestic and external actors. Linkages are channels through which policy is diffused, while resources are provided and new ideas introduced. Interaction among actors facilitates knowledge transfer and internalization of policy preferences from external actors to domestic ones through learning. As Bruszt and McDermott argue in Chapter 2 of this volume, the transnationalization mechanism creates a supply– demand equilibrium among domestic and external actors. When local actors (state or nonstate) are empowered because they are able to provide material resources and knowledge, it is called supply side of institution building. Empowered domestic actors create a demand side of change and obviate the need for vertical ties through the conditionality mechanism. The demand side enhances the horizontal ties of a change. Linkage and diffusion of knowledge have proved to facilitate the process of reshaping the policy preferences of domestic actors, thus sustaining policy change if and when it occurs (Levitsky and Way 2005). Transnationalization contradicts a coercive mechanism, of policy change theorized in the conditionality

9

I owe this input to Laszlo Bruszt.

8

Transnationalization and the Georgian State

191

literature. At the same time, it does not a priori empower any of the actors in policy debates, be they domestic or external, to state or nonstate. Transnationalization occurs when ideational allies come together. This is where the fundamental difference between transnationalization and international influence through conditionality arises. Transnationalization rests on two conditions. First, there must be nonstate actors who involve themselves in a policy debate, and that debate must be open to nonstate actors, and second, knowledge diffusion has to take place continuously so that policy preferences are shaped among domestic actors in accordance with the dominant policy paradigm. Needless to say, all those processes take time. I argue that transnationalization goes beyond policy influence mechanisms of globalization and Europeanization (i.e. coercion and hierarchical power relations). This process turns exogenous policy preferences into endogenous ones. I argue that including transnationalization as an explanatory variable in the causal model provides a better explanation why the Georgian tax policy shifted towards neoliberal policy principles after the ‘Rose Revolution’.

8.7 The Georgian State and Tax Policy-making 8.7.1 Georgian Tax Policy Georgia gained its independence in 1991 when the Soviet Union collapsed and the difficult process of state formation was launched. By 1993 Georgian tax policy was still based on the old Soviet tax code with a few new legal acts that introduced three main innovations – personal income tax, VAT and excise – while payroll tax was abolished (Papava 1997: interview 1). The first Georgian tax code was adopted in 1997 (Martinez-Vazquez and McNab 2000). Georgia was one among other transition countries in the region (Tajikistan and Uzbekistan) to adopt new tax codes as a result of intensive involvement of the IMF and WB.10 The Georgian government had little experience in modern tax policy making, and therefore the IMF had issued a guidebook called ‘taxastan’ that provided essential components of a modern tax policy, but alas, did not consider the local particularities of the adopting countries. Yet this model was used by Georgian policy makers to create a tax code aimed at matching Western standards (Papava 2002: interview 2). The first Georgian tax code defined state and local taxes, the rules according to which they were to be administered, provisions on forced collection and tax flows (Bolashvili 2002:65). The tax rate on personal income was set between 12% and 20% and on corporate income at 20%. Nonetheless, this code was criticized for its ambiguity – rules and procedures for filing tax returns were difficult to interpret for professionals and entrepreneurs alike. It enabled tax inspectors to extort money from entrepreneurs, thus leading entrepreneurs to try to avoid paying taxes 10

Among Former Soviet Union countries, after the Baltic States, Kazakhstan was the first to from a modern and comprehensive tax code in 1990. Georgia, Tajikistan and Uzbekistan followed. However, in countries such as Belarus and Turkmenistan, tax policy reform was defective. Soon after the tax reforms, Georgia and Ukraine experienced a backsliding due to the amendments for exemptions and tax holidays made to the tax code (Martinez-Vazquez and McNab 2000:9).

192

N. Dadalauri

or to offer bribes to avoid ‘extra trouble’ (interview 2). Even IMF reports point to this fact as a negative factor in tax administration (Papava 2002:63). The contents of the code have been changed over time, so that from the day of its creation up to 2000 it had already been amended 20 times and by 2003 included 58 changes (Bolashvili 2002:66; Chelidze 2003). The tax policy changes moulded the tax code to suit particularistic interests, which increased frustration among advocates for policy change. A Georgian parliamentarian once jokingly suggested that photos should be included of individuals for whom the tax code amendments were adopted, just to make it easier to put amendments in alphabetic order (interview 2). New amendments often contradicted provisions or previously issued legal acts already in the tax code or introduced provisions on taxes that were technically impossible to monitor. This type of tax policy was a boon for law breaking and tax avoidance among taxpayers (Chelidze 2003). In addition, high tax rates drove businesses underground (Khaduri 2005; Papava 2002). The Georgian tax administration came into existence on 31 March 1990 under the Ministry of Finance. In March 1992 it became the independent State Tax Inspectorate, until it was again incorporated into the Ministry of Finance in mid-1997 as the tax administrative body – Tax Inspectorate of Georgia (TIG). With the task of reorganizing the institution internally, the TIG had to ensure resource-sufficient extraction and overcome factors that hindered their work such as inadequate financing and heavy interference from central and local executive bodies in their daily work (Tanzi 2001:67–69). Problems of policy makers interfering in tax administration remained high. Besides the TIG, the Georgian police, the public prosecutor’s office and the Chamber of Control claimed their right to investigate taxpayers’ activities in terms of tax payment (Tanzi 2001:69). However, early in 1995 the Large Taxpayer Inspectorate (LTI) was created under the TIG, which started to receive funding for reforms from the IMF. IFIs have supplied Georgia with know-how and financial resources to carry out the reforms of the tax administration. The LTI began by controlling 140 large taxpayers in Georgia and increased its control to cover more than 250 of them soon after. Even though local governments and even Tbilisi City Mayor opposed the creation of the LTI, it was an important step forward in tax administration reform in the early 1990s. At the same time, Mkhedrioni’s (paramilitary grouping outlawed in 1995) racketeering during 1993–1995 was stopped, thus allowing for a reform of the Georgian taxation system (Tanzi 2001:69–70). Tax administration reform has been funded and closely monitored by the IMF, the US Treasury and USAID (Rider 2001:2). The restructuring of the tax administration agency was put in place based on a Memorandum of Understanding signed by US and Georgian governments in 1999 (ET 2000:17). USAID has played an important role in providing technical assistance in this process. Interestingly, the reform also included a provision to empower the Ministry of Finances to act as ‘gatekeeper for tax policy’. Therefore, a tax policy analysis unit within the MoF was included in the USAID assistance programme (Rider 2001:3). This fact illustrated the IFI’s efforts to increase the demand by Georgian representatives for a change and enhanced their capacity to analyse the ongoing processes and become domestic vehicles (Jacoby 2008).

8

Transnationalization and the Georgian State

193

Georgia developed its tax code and set up administrative bodies during the early stages of transition. Meanwhile, it has remained as one of the most inept tax collectors compared not only to the EU or the Balkan countries, but also to the other CIS states from 1991 to 2002 (see Table 8.4). The compiled numbers in Table 8.4 shows the tax revenues as a percentage of GDP in the CIS countries, focusing on personal income tax (PIT), corporate income tax (CIT), value-added tax (VAT) and excise, contributions to social security and general government (GG) revenue. Average tax revenues in CIS countries are low – 29.3% of GDP for 1991–1995 and 25.5% of GDP for 1999–2002. Meanwhile, the Balkan countries have retained high tax collection – 36.8% and 34.6% of GDP in respective years. Georgia collected only 9.2% of tax revenues in 1991–1995, but managed to increase up to 15.4% of GDP by 2002. In the same period, the highest tax collection rate was found in Belarus, reaching 50% of GDP (1991–1995), and lowest after Georgia was Kazakhstan, collecting tax revenues up to 18.2% of GDP (1991–1995). By 2002 Georgia collected slightly more revenues than Tajikistan (13.6% of GDP). The biggest collector, however, was still Belarus (44.4% of GDP). Deficiencies in tax collection were often blamed on the entrenched corruption in the tax administration and the nonexistence of political will to deal with this problem in the central government (Papava 2002:53). Tax obligations in Georgia be could avoided paying taxes in various ways. Big businesses have enjoyed informal protection by their political protégés and avoided paying taxes in the amount they were supposed to pay. Individual taxpayers depended on their employers to report their salaries and pay levied income tax. Employers often avoided paying income tax, either by not registering their employees or by registering their salaries as less than originally paid in cash (interview 2). Meanwhile, state employees were the only ones contributing to the tax system without being able to distort the numbers. However, their contribution was limited due to delays in salary payment to state-funded organizations, part of the reason for the low level of tax collection. As for the nongovernmental organizations, their representatives claimed that they were honest taxpayers, while the business sector was avoiding taxes (Khidasheli 2002). However, Georgian NGOs have been fiercely battling the legislative body, for imposing taxes on their activities, and demanded exemptions for their income, often quite successfully (interview 2). In such a corrupt system of tax collection, voluntary tax compliance was low. And as argued elsewhere (Dadalauri and Johannsen 2009), during the presidency of Shevardnadze (1995–2003), legal confusion was intentionally maintained to create an ‘absurdity fair’, where the rule of law was selective and was only used in order to punish.11 Under such circumstances, the notion of tax compliance as a collective action for the general purpose of building a state has been missing from the processes of tax system formation in Georgia. As demonstrated below, capable state formation (i.e. tax collection and distribution of common

11

It was at the end of the December of 2003, soon after the ‘Rose Revolution’ that the anticorruption campaign was launched and top officials (such as minister of energy, head of the Chamber of State Audit, head of Georgian Railways) and known businessmen (head of Georgian Football Association, head of the cell phone company MAGTI owned by the son-in-law of former president Edward Shevardnadze) were arrested on charges of tax evasion (Dadalauri 2007b: 159).

194

N. Dadalauri

goods) was a by-product of the tax system reforms. Neither domestic actors nor external ones have promoted the greater project of a state formation but supported reforms in the name of market-friendliness, investment attraction or protection of domestic business. Though the restructuring and improvement of tax administration was put on the political agenda in the late 1990s (Papava 2000:52), tax collection was improved only after the ‘Rose Revolution’ (see Table 8.4). By 2003 the Georgian budget deficit was USD 90 million, that is 15% of the budget for 2003, that had begun to escalate since 1998. Internal state dept due to unpaid salaries and pensions reached USD 120 million for the entire period after budget crisis in 2003 (Papava 2006: 661). Political change came suddenly in Georgia. November 2003 marked an important turn in Georgian politics that created spill-over effects in neighbouring countries. The ‘Rose Revolution’ brought a new government to rule the country, and the pace of reforms, which had begun a decade before, was intensified. The new government announced its commitment to the values of Western democracies and that it would promote market-friendly economic reforms in line with EU and IMF policy principles. Thus, the neoliberal tax policy paradigm was whole-heartedly embraced by the postrevolutionary government. Under the auspices of the Ministry of Finance, the new government launched a preparation process for a new tax code. While international best practice standards were considered in these processes, a number of independent experts, the business sector and NGOs were consulted as well (BIZCLIR 2006). A new Tax Code was adopted by the Georgian Parliament on 22 December 2004. It took effect from 1 January 2005 (ET 2004). The former list of different 22 taxes in Georgia were reduced to 7: VAT (reduced from 20% to 18%), tax on profit (20%), social tax (reduced from 33% to 20%), flat income tax was introduced (reduced from 20% to 12%), property tax (now 1%), gambling tax (rate varies), while corporate income tax remained at 20%. While the main problem of the previous tax code was that it tended to favour certain goods on the domestic market, thus leading to internal market competition and tax ‘nepotism’, the aim of new code was to tackle the tax favouritism of the previous regime (Khaduri 2005:53). The tax policy change was accompanied by large-scale tax administration reforms. On 29 August 2004, the Tax Inspectorate and the Antimonopoly Service were reorganized and the State Agency for Free Trade and Competition created in their place (ET 2004:78). A financial police was created under the auspices of the Ministry of Finance to fight economic and financial crime in order to reduce tax evasion and improve tax collection in Georgia. The tax department and customs service were unified as well. A digital system was created to ease business operations for Georgian entrepreneurs (ET 2006:10). Moreover, the procedures for setting up new business activities in Georgia were implemented in June 200512 , reducing number of licences required from 909 to about 156 (CG 2005).

12

The new initiative was approved by civil society as well, on the grounds that it would cut bureaucracy and give more freedom and help to entrepreneurs to start new businesses. These conclusions have also been backed by the research results of the Georgian Young Lawyers Association (GYLA), which claims that ‘83% of all papers requested by officials made no logical sense and were used solely for extortion’. (CG 2005).

8

Transnationalization and the Georgian State

195

Moreover, on 20 February 2004, the Georgian president stated that criminal activities by businessmen who operated under the previous regime and were involved in tax evasion would be pardoned if they declared the amount they were hiding before April1 2004, provided they agree to pay their dues (ET 2004:68). This initiative was codified into the law ‘On legalization of undeclared tax liabilities, finances and property’ of the businessmen (ET 2004:80). Further, restructuring of tax debts was initiated by the Ministry of Finance on 13 February 2004 to attract foreign investments (ET 2004:67). The United Center for Serving the Investors was created for the same purpose on 8 April 2004 (ET 2004:70). The reforms initiated by the new government were complex and reached far beyond fiscal policy and administration. It included an anti-corruption campaign, reunification of Adjara region with the rest of the Georgian economy,13 after almost 13 years of Modus Vivendi with the previous government and finally, an aggressive privatization programme (Dadalauri and Johannsen 2009; Papava 2006:661; Civil Georgia 2004). The net result was that the budget of 2004 was the first without a deficient. Tax collection increased and this tendency continued to 2006, when the consolidated budget revenue structure showed 73.3% of tax revenue in 2006, falling slightly to 67.3% (ET 2007–2008). The Georgian government was credited as the ‘sole initiator’ of the new tax code. Its tax system reforms were received positively by donor organizations. However, throughout those processes, the Georgian government, and particularly the Ministry of Finance, had consulted by various organizations through numerous assistance programmes. The United Nations Development Programme (UNDP), USAID and the US Treasury, along with the TACIS programme, were all involved in the tax system change (BIZCLIR 2006; APG 2004). Meanwhile, the Georgian government has managed to repay ‘frozen’ pensions and salaries from the state budget and has been able to continue grand reforms in the economic, social and political fields (Papava 2006). Soon after the ‘Rose Revolution’, Georgian state was again capable of extracting revenues and distributing common wealth. Finally, taxes made the state. That is easily said, but it must be investigated who how did affecting this process of tax policy change and the process of state formation through taxation and how they did it. The postrevolutionary tax policy is pro-market oriented and approved by international organizations that promote neoliberal reforms in the country. The process of making it involved multiple actors and was influenced by a vast array of domestic and external factors. I will address them separately to see how they affected the output of the policy making process.

13

For almost 13 years, Adjara region stayed under the leadership of Aslan Abashidze, who turned the region into his fiefdom refusing to contribute to the central budget with the regions income through oil terminal, Batumi Port and Sarpi customs at Turkish border amounting to 900 million GEL (USD 450 million) exceeding 9% of GDP per annum (Civil Georgia 2004).

196

N. Dadalauri

8.7.2 Party Ideologies Political parties emerged in Georgia in the early 1990s. Their role was often limited to the creation of a political legitimacy base for their political candidates for the presidency or parliament (Dadalauri and Johannsen 2009). Lack of coherent programmes and ideologically laden political platforms were common features of post-Soviet political parties. Mostly they were ephemeral (often disappearing without a trace) and they tended to swing between the extreme poles of political ideology (Nodia and Scholtbach 2006). It has been difficult to determine the political ideology of Georgian political parties with any certainty. Party ideologies are restricted to the leaders they support and the issues they promote. The conventional mix of liberal cultural values and economic principles against conservative outlooks on the economy and values known to the West are not present in Georgia (ibid). Political parties that support individual freedom, property rights and free market principles are not necessarily against national symbols and traditions being sustained in the country. The communist past is blamed for the combination of cultural conservatism and economic liberalism among Georgian political parties (Nodia and Scholtbach 2006:126). Though their ideological profiles are difficult to define, there are two premises on which the Georgian political parties can be clustered together. One is the links with international like-minded organizations or political parties, and second is the issues they lobby for (ibid). And needless to say, the parties are identified with their leaders, thus rendering them personalistic political groupings. Most interestingly, the ruling parties in Georgia – the Round Table-Free Georgia, the Citizens’ Union of Georgia and the United National Movement – are argued to intentionally avoid ideological positioning, instead preferring to represent the whole nation and all strata of society (Nodia and Scholtbach 2006:121). Georgian political parties have so far remained weakly institutionalized, and they still have weakly developed ideological foundations.14 By the late 1990s some issue-oriented political parties had emerged with clear ideas about whose interests they wanted to serve. Political parties that promote political and economic liberalization such as ‘Industry Will Save Georgia’, ‘New Conservatives Party’, ‘Republican Party’ and ‘United National Movement’ also include social issues similar to the ‘Labour Party’ in the knowledge that they can win votes that way. The ‘Labour Party’ supports the idea of state ownership of land and opposes privatization of power plants. They promote the idea of statesupported social security and education system, while local manufacturing and small businesses are to be supported through tax code liberalization (Nodia and Scholtbach 2006:239). It has close relations with International Republican Institute and often attends conferences in the European Forum for Democracy and Solidarity ((Nodia and Scholtbach 2006:243). The United National Movement (the ruling

14

One of the local experts suggested that political parties be called the ‘fan clubs’ of their political leaders, indicating that the ideological basis and coherent programme of a political party were absent in the political reality of parties in Georgia (interview 2).

8

Transnationalization and the Georgian State

197

party) supports tax liberalization and licence simplification to support business, particularly small and medium-size business; however, its stated priority is the territorial integrity of Georgia. It cooperates with the National Democratic Institute and the International Republican Institute offices in Georgia, while having links with European People’s Party (Christian Democrats) and the Dutch Liberal Party (Nodia and Scholtbach 2006:256, 260). The ‘Republican Party’ was founded in 1978 as an underground organization and has been active in Georgian politics since the parliamentary elections in 1992. Its main interest is to develop democratic institutions and a free market economy in Georgia and to protect property and minority rights. It has close relations with US and Western European political parties with liberal democratic ideological inclinations (Nodia and Scholtbach 2006:251, 254). There are two politically strong parties with very clearly defined business interests in Georgia. Both emerged at the end of and at the very beginning of the millennium. ‘Industry Will Save Georgia’ and the ‘New Conservative Party’ promote business interests. However, they have a different view of the economic integration of Georgia into the global market. While the former views globalization as a threat, the latter argues that national values have to be merged and thus preserved in the globally integrated market systems (Nodia and Scholtbach 2006:119–151). ‘Industry Will Save Georgia’ was established in 1999 by industry lobbyists under the leadership of the successful Georgian entrepreneur Gogi Topadze. The party was built on the ruins of the Union of Industrialists, created in 1990 by medium-size enterprises, which fiercely opposed IMF tax policy recommendations in the early 1990s (Jones 2000). The main programme of the party ‘Industry Will Save Georgia’ was to promote national production and a pro-business environment, including changes in tax policy. Its leader, Gogi Topadze, is known as a beer baron and founder of the company Kazbegi (Devdariani 2004:98). The party is poorly connected with international parties and often relies on its own resources. The party mainly cooperates with international NGOs based locally such as the National Democratic Institute and the International Republican Institute in conducting educational programmes (Nodia and Scholtbach 2006:237). He has been unequivocally opposed to IMF economic policy in Georgia, arguing that their policies destroyed local production by putting them into an equal competitive environment along with foreign companies. ‘Industry Will Save Georgia’ entered parliament after the elections in 1999. Their main political agenda was to support the business environment and influence the economic policies that government was implementing under the influence of the IMF. Interestingly, ‘Industrialists’ have supported (along with other governmental and nongovernmental institutions) the creation of a new tax policy project in 2002, and they tried to lobby for it in parliament. The new project proposed a reduction of taxes from 12 state and 6 local taxes to just 3 state taxes: VAT, income tax and excise, and one local property tax, but without success (ET 2002:74; ET 2003:65). The new tax policy was developed in accordance with Russia’s experiences in tax policy change. The latter was created under the auspices of the IMF and the World Bank and was evaluated positively (interview 2). The concept of a new tax policy did not get through parliament in 2003. It seems that the ‘Industrialists’ lost interest in

198

N. Dadalauri

getting this policy through parliament as they got a ‘great surprise’. The amendment in tax law allowed for import of a commodity that is crucial component in beer production. This played a significant role when the party slowed down its efforts to push for the innovative tax policy ideas they supported before (interview 2). Another political party that included tax policy in its programme is the New Conservative Party, formed in 2001 by young businessmen. The founders of this party were previously members of the ruling party Civil Union of Georgia (Shevardnadze’s political party). However, internal conflict led to a split of the party and the establishment of a new one. Allegedly, David Gamkhrelidze was promised a position as state minister because of his generous contributions to the elections in 2000, but powerful members of the ruling party did not allow this to happen. In 2001 Gamkhrelidze and his supporters left the CUG and established the business-interest lobbyist party, the New Conservative Party. It won seats in the parliamentary elections both in 2003 (just before the ‘Rose Revolution’) and in 2004. The leader of the New Conservative Party is the founder of the large Georgian insurance company ‘Aldagi’, which under Shevardnadze’s regime enjoyed protectionism. Established in 1994, ‘Aldagi’ provided obligatory car insurance for individuals and fire damage insurance for companies (Devdariani 2004:114, fn. 14). The NCP has links to the International Democrats Union and cooperates with parties in Germany (Christian Democrats), Greece (Nea Democratia), Poland (Civil Platform) and Ukraine (Our Ukraine) (Nodia and Scholtbach 2006:249). Similar to the ‘Industrialists’, they too support business interests in parliament. However, unlike the ‘Industrialists’, they see economic openness as necessary for Georgia. Moreover, they supported the tax policy innovation, that is the imposition of a ‘flat’ tax on personal income. Two parties with explicit interest in promoting business-friendly policies have succeeded in entering the Georgian Parliament. However, both are in opposition to the ruling party ‘United National Movement’. The latter promotes liberal policy adoption and implementation across the country in various spheres. However, only the ‘New Conservative Party’ has been explicit about adopting a ‘flat’ tax. Meanwhile, a tax policy change consisting of simplification and reduction of tax rates for the business sector has been a shared issue in the opposition and the ruling party. The pro-liberalization stance was stated by at least five political parties – ‘Industry Will Save Georgia’, ‘New Conservatives Party’, ‘Republican Party’ and ‘United national Movement’. Of these five, only two have actively promoted business interests and their own visions of a tax system – ‘Industry Will Save Georgia’ and ‘New Conservatives’. The others have chosen to support tax liberalization, but advocate other political and economic issues rather than concrete principles on tax policy. However, I argue that even though political parties support liberalization of the tax policy, their stance does not matter in the face of the centralized power of the current government and the dominant role played by the ruling party in parliament. Moreover, party ideologies were insignificant factors in policy change towards neoliberal principles for two reasons: they were easily co-optable and shifted their policy preferences as the particularistic interests of the party leaders (or powerful members) were met. For instance, during 4 years in parliament (1999–2003),

8

Transnationalization and the Georgian State

199

‘Industry Will Save Georgia’ participated in no major improvements in the Georgian tax policy shift towards neoliberal policy norms.15 Second, political pluralism has been gradually reduced as the entrance thresholds for parties have been made higher. Before 2003 the ruling party was dominated by so-called old guards – postcommunist elite with strong economic interests in trying to close the domestic market to international business actors. The ‘Civil Union of Georgia’ was replaced in 2004 after the ‘Rose Revolution’ by another dominant party, the ‘National United Movement’ led by Mikheil Saakashvili. As demonstrated below, the political circle of a new government has been more open to neoliberal ideology. It has promoted change on its own initiative. Therefore, political parties and their ideology per se were insignificant, but the stance of a ruling party and commitment of its leaders in government mattered a great deal.

8.7.3 Trade Unions Georgian trade unions had no grassroots experience and were usually organized by sector. The collapse of the Soviet Union increased number of unemployed and the closing of industries reduced the trade unions’ political power to influence tax policy bargaining. In 1992 the Association of Georgian Trade Unions was formed on the ruins of its Soviet predecessor. It struggled to advocate labour rights and promote welfare provisions in the Georgian legislative body. However, the influence of trade unions through legal initiatives, organized strikes or lobbying in the ministries and parliament has been estimated as weak. Moreover, their influence on tax policy in particular has been insignificant, only advocating a maximum work hour week of 40 hours and 24 days of paid holiday for workers (Jones 2000:61). The organizational coherence of the Georgian trade unions is weak, and so is their political influence. Therefore, the fact that marginal personal income tax rate remained progressive (12–20%) in Georgia while unemployment was high and corporate tax was just 20% cannot be explained by political influence in tax policy bargaining (UNDP 2002). In other words, there is no evidence that neoliberal policy diffusion in Georgia was in any way opposed by the trade unions. Moreover, it cannot be argued that the trade unions played an active role in halting change until the ‘Rose Revolution’. The final conventional explanation of tax policy change discussed above is the external influence claim – the power of conditionality.

8.8 External Influence: Conditionality and Beyond External influence through conditionality is an instrument of coercive influence excreted by external actors, which has been imposed on Georgia by the IMF and

15

In the 2004 parliamentary elections, the ‘Industrialists’ entered parliament by joining with the New Conservative Party, thus managing to surpass the threshold. Since 2006 it has established itself as a separate fraction in parliament (Nodia and Scholtbach 2006: 239).

200

N. Dadalauri

the WB over the last 15 years. At the same time, I argue that Georgia has been subjected to ‘passive leverage’, that is noncoercive mechanism of policy norm diffusion from the EU under various schemes of cooperation discussed below. Though the mechanisms applied in pushing for a policy shift towards neoliberalism in Georgia by external actors varied in degree and form, they all are dedicated promoters of neoliberal policies (Campbell 2001). The IMF and the WB were among the first external actors in Georgia soon after independence. Some argue that the relationship between the IFI and the Georgian state went through two phases: the first, from 1992 to 1994, was characterized by resistance to IMF recommendations by Georgia, and the second, 1994 onwards, when conditionality was used to impose reforms on Georgia (Papava 2005). Georgia received the first tranche in 1994 to start saving an economy devastated by armed conflicts, reduced production and trade across borders, skyrocketing inflation and growing unemployment (ibid). After Georgia began to stabilize after a sharp economic crisis and a civil war, exacerbated by separatist conflicts in the early 1990s, from 1995 it chose to adopt a ‘shock therapy’ model of economic reform. Later on, the architect of the ‘shock therapy’ policy, former Polish Finance Minister Leszek Balcerowicz, went on to advise the president of Georgia in economic matters for about 2 years from 2000. In 2002 an agreement between the Georgian and US governments (who financed the programme) was reached to continue the programme of Balcerowicz working as a consultant for the Georgian government to restructure its economy (ET 2002:73). The Georgian version of shock therapy has been heavily criticized as a failed model of reform that hindered economic growth and institutional formation more than a gradual approach would have in a case like Georgia (Papava 2005). Nonetheless, being the darling of the IMF and the WB, the adoption of these measures was justified by the Georgian government, then heavily dependent upon the goodwill of external donors. Georgian economic reforms, including tax policy, were slowed down and hampered by the end of the millennium. The IMF and the WB have been equivocal in their criticism of the Georgian government’s negligence in its commitment to reforms. The Georgian state slide into huge external debt (Papava 2006:661). The Georgian government has obtained massive help from both institutions. The IMF has provided USD 515 million between 1994 and 2006 under the programmes General Resources Account (GRA), the Poverty Reduction and Growth Facility (PRGF) and the Enhanced Structural Adjustment Facility (ESAF) (EBRD 2006:50). The WB has disbursed USD 830.8 million under 39 IDA credits since early 1994, and 19 out of 39 projects are still ongoing (ibid). Meanwhile, Georgia was very susceptible to external influence – conditionality. The IMF threatened to suspend funding for the Georgian government in 1998 and actually did so in 2001 and in 2003 (NT 2001:432; EBRD 2006:50). Also the World Bank has suspended funding for its projects in both years and only resumed its programmes after the ‘Rose Revolution’ (ibid). Nonetheless, suspension of funding from two of the biggest sources of financing for the impoverished

8

Transnationalization and the Georgian State

201

Georgian state did not lead to shift in policy reforms towards pro-neoliberal principles. Tax policy remained as distorted as before. Tax rates remained unfriendly to the business sector, leading to a growing shadow economy and tax evasion. The conditionality that failed to change Georgian tax policy does not imply that technical assistance was not important. Technical assistance has empowered domestic actors – state and nonstate – and reinforced the mechanism of policy change through learning. The European Union, an important player in tax policy reforms, only came to Georgia after the IMF and the WB. Moreover, its role in tax policy reform was limited to particular tax types and the avoidance of double taxation. From 1992 to 2006 the EU supported Georgia through various programmes, mainly emphasizing development assistance. In the early 1990s, basic humanitarian aid and food assistance were added to the EU programmes. The Partnership and Cooperation Agreement (PCA) between the EU and Georgia entered into force in 1999. The PCA paved the way for future cooperation schemes between the EU and Georgia. While its immediate priority was Georgian legislative approximation with the EU, the PCA stipulated four main objectives in the framework of the EU–Georgian relationship such as promoting democratic principles, trade, investment and harmonious economic relations with the EU and strengthening basis for legislative, economic, social, financial and cultural cooperation (PCA 1999:5). Under the PCA framework the burden of EU trade quotas was lifted from Georgia, which now enjoys a ‘general system of preferences’. Moreover, PCA stipulated areas of legislative cooperation and the ways in which technical assistance would aid this process. Harmonization of customs laws, company accounts and taxes, property rights and indirect taxation was among other spheres of cooperation outlined in the documents. Assistance included exchange of experts, seminars and training as well as provision of relevant information for the legislature (PCA 1999:13–14). Technical Assistance to the Commonwealth of Independent States (TACIS) was the main financial instrument for PCA implementation. It covered institutional, legal and administrative reforms in the country. In 2000–2001 the TACIS National Programme allocated 15 million Euros to priority areas such as institutional, legal and administrative reforms; infrastructure development; and support for the private sector and economic development (Shengelia 2007:17–18). During 2002–2003, Georgia received 14 million Euros under the TACIS programme, with an indicative budget to deal with institutional reforms.16 Between 1998 and 2004, Georgia was given 110 million worth of Euro loans and 65 million Euro grants as ‘Exceptional Financial Assistance’ from the EU to help repay Georgian external grants for areas such as tax and budgetary issues, business climate, privatization, energy, telecommunications and land ownership (CSP 2001:12). Moreover, the EU’s cooperation instruments with Georgia were actively financed by the World Bank. For the years 2002–2004, a USD 103.4 million lending programme was made between the World

16

EU assistance, online: http://ec.europa.eu/external_relations/georgia/eu_georgia_summary/ index_en.htm.

202

N. Dadalauri

Bank and Georgia that included revenue mobilization and civil service reform (CSP 2001:14). These instances demonstrate that external actors worked in unison, coordinating priority areas and providing assistance to the country. However, as stated above, the change of a policy was initiated domestically and was not the government’s reaction to coercion exerted through conditionality. In this regard, technical assistance is more important than conditionality. After the ‘Rose Revolution’ the new European Neighbourhood Policy (ENP) was adopted in 2004, followed up by an action plan in 2006.17 This step was taken in order to intensify cooperation and to promote democratic values along with market economy principles in non-accession countries. Four areas were identified for special emphasis under the ENP action plan: regional cooperation, rule of law, social reforms and regulatory reforms.18 From 1992 to 2006, Georgia received a total of 505 million Euros in financial assistance from the EU through various programmes.19 A revised country strategy paper was developed in 2003 along with an Indicative Programme for 2004–2006. The emphasis of both documents was put on the rule of law, good governance, human rights and democratic institutions, poverty reduction, conflict resolution and rehabilitation.20 2004 saw the creation of Action Programme II for Georgia with the money Georgian government obtained at a major donor’s conference in Brussels. It included reforms in fiscal policy to be achieved by building capacity in the tax administration department and by launching a public awareness campaign (APG 2004:5). Under this scheme, a large project on a tax administration reform is currently running in Georgia (under the auspices of the Ministry of Finance) financed by the EU with 1.5 million Euros with collaboration of Hulla & Co. Human Dynamics KG (Vienna), Louis Berger SAS of Paris and the Center for Social and Economic Research (CASE). The project started in March 2006, and over 2 years the aim is to facilitate new tax code implementation and to transform the tax administration into a European-style institution.21 After the ‘Rose Revolution’ collaboration between the EU and Georgia has increased and intensified. However, before then the EU was less ambitious in helping reform Georgian tax policy as a whole. While the IMF was directly involved in fiscal policy reforms in Georgia, the EU has played a minor role in this respect and limited its interests in economic policy to trade and customs legislation. In this respect, the main focus was to avoid double 17

http://ec.europa.eu/external_relations/georgia/eu_georgia_summary/index_en.htm. For more on this, see Georgia’s ENP Action Plan, online: http://ec.europa.eu/world/enp/pdf/ action_plans/georgia_enp_ap_final_en.pdf. 19 For a detailed account of the financial assistance and programmes, see Annex III to the Country Strategy Paper 2007–2013, online: http://ec.europa.eu/world/enp/pdf/country/enpi_csp_ georgia_en.pdf. 20 EU assistance, online: http://ec.europa.eu/external_relations/georgia/eu_georgia_summary/ index_en.htm. 21 European Commission Delegation to Georgia and Armenia, online: http://www.delgeo. ec.europa.eu/en/press/1March2006.htm. 18

8

Transnationalization and the Georgian State

203

taxation and to harmonize indirect taxation with EU directives as part of the PCA provisions (Article 39)22 . These provisions were enacted to further and imitate dialogue on the principles of the EU Code of Conduct for Business Taxation to ensure that Georgian market integration into EU was included in the ENP Action Plan as well. The aim of the EU was to push for harmonization of Georgian taxation of VAT, excise and customs duties to conform to EU directives to facilitate cooperation between the EU and Georgian enterprises and to create a comparable legal environment. The EU has not taken up the issue of personal or corporate income taxes as harmonization of tax policy entailed only the indirect taxes mentioned above.23 Until today, bilateral agreements on double taxation are in the process of being negotiated with various EU members such as France, Denmark and Spain.24 However, it has financed project for preparing a tax administration restructuring framework by domestic and European experts in 2003–2004 (interview 2; APG 2004:8). The postrevolutionary governments’ efforts to reform the tax administration – successfully establishing a ‘one-stop-shop’ system, registration and customs and tax administration – were merged to ease business registration (ET 2006). EU reports on Georgia’s success in implementing the provisions of the ENP action plan received positive evaluations (Communication of EU 2008). Regardless of the long-term cooperation between Georgia and the EU, the role of the latter in Georgian tax policy reforms was limited compared to the direct and, at times, intrusive way in which the IMF and the World Bank influenced the tax policy making. The role of ‘passive leverage’ is not to be dismissed here. However, as mentioned above, it cannot run in parallel with the coercive mechanism of conditionality. Harmonization of particular policies, among which certain aspects of tax policy were included, has not entailed any coercion, and if and when the Georgian government decides not to incorporate the tax policy preferences of the EU into its national legislation, it will not face any harsh consequences. Nonetheless, ‘passive leverage’ is present because EU’s tax policy priorities on double taxation have been taken up by the current government and bilateral agreements are under negotiation with EU members.25 Moreover, with the aim of getting closer to the West, and particularly to forge closer bonds with the EU, the new Georgian government has made some obvious commitments. First, it created a position of state minister for European Integration and appointed Mrs Tamara Beruchashvili, the former TACIS national coordinator (APG 2004:2). Second, the intensified process of drafting and adopting legislation, also within tax code, was carried out by the state institutions in consultation with European experts. The Georgian Tax Code is one example. This example of

22

PCA and Georgia, online: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:1999: 205:0003:0038:EN:PDF. 23 Personal communication with a Georgian tax expert working on the tax administration reform, 10 December 2008. 24 For more, see: http://www.mfa.gov.ge/files/59_68_444155_doubletaxnew2005-english2.doc. 25 See footnote 23.

204

N. Dadalauri

‘passive leverage’ applied to the postrevolutionary Georgia contributes to my argument on transnationalization. However, there is more to be discussed in this regard. Transnationalization leads to policy diffusion and further ensures its sustainment. Diffused policy preferences become internalized by domestic nonstate actors, who then promote them among domestic actors.

8.9 Transnationalization The transnationalization process in this Georgian policy arena has been slow, taking place over many years, even in the period when the tax policy reforms were frozen. Over the last 15 years, two necessary conditions for transnationalization of the tax policy arena occurred – nonstate actors emerged and they got involved in policy debate.26 NGOs were funded mostly by external resources. State or private sources of funding were almost unheard of (USAID 2002:76). The United States Agency for International Development (USAID),27 The Soros Foundation, ISAR-D.C. and the Eurasia Foundation (primarily funded by USAID and providing grants for Georgian NGOs) have been long-term donors to local NGOs in Georgia since the early 1990s (interview 2; Wheatley 2005:146). Since then, the Mercy Corps and CARE have also provided grants for Georgian NGOs (USAID 2002:78), who were financially vulnerable while struggling to influence legislation. It is also worth noting that there were proposals that large grants to the Georgian state were to be implemented by NGOs, thus involving nonstate actors in processes related to governance.28 Nongovernmental organizations have advocated and acted as pressure groups on a variety of issues in Georgia (NT 2001:185). Their role in revising legislation has been significant. Particularly the Georgian Young Lawyers’ Association (GYLA) and the Liberty Institute have been active in drafting legislation in general (ibid). Section 3 on freedom of information, which was added to the Administrative Code in Georgia, was a direct result of lobbying by NGOs. NGOs such as the International Center for the Reformation and Development of the Georgian Economy and the 26

Nonstate actors, such as NGOs, were slow to emerge in Georgia. While in 1992 not one nongovernmental organization had been established in Georgia, their number reached around 3,000 in 1997 (Jones 2000: 61). This number was trebled in 10 years, reaching 10,000 registered NGOs in 2007 (USAID 2007: 107). However, during all those years, only several hundred of them have been active, while the ‘others are involved in political or business activities or have simply become a mechanism for securing foreign funds’ (Jones 2000: 68). Though some argue that only 20 of the numerous Georgian NGOs in fact had an impact on the legislation drafting processes (Wheatley 2005: 145). 27 USAID has been involved in economic reforms in Georgia along with the IMF and the World Bank. They have collaborated closely with the Ministry of Finance and have actively promoted pro-market reforms (USAID Georgia, website: http://www.usaid.gov/locations/europe_eurasia/ countries/ge/georgia.pdf). 28 A recent overview of donor grants to Georgia and their financial mechanisms, that is entities who implement relevant projects, is available on the website of the Ministry of Finance of Georgia, www.mof.ge.

8

Transnationalization and the Georgian State

205

GYLA were behind the proposed laws on grants and granted goods and services (Jones 2000:69; USAID 1998: 41). In 1997 both GYLA and Horizonti were involved in proposed amendments to the Civil and Tax Code to accommodate NGO activities (ibid). In 2002, the NGOs united to stop a proposed 3% tax on NGO grants, and they succeeded in halting the government plan (USAID 2002:77). Moreover, GYLA along with Georgian commercial banks managed to change the initiative of the municipality of Tbilisi to empower tax inspectors to investigate the licences of businesses (Jones 2000:69). Economic reforms in Georgia were carried out with the intensive involvement of the NGOs, among which the International Center for the Reformation and Development of the Georgian Economy was the most influential (ibid). The latter was involved in drafting the first Georgian tax code in 1997 and continued its involvement in economic policy reforms (interview 2). The Georgian NGOs that were active in drafting legislation and promoting public policy norms while being supported financially by international organizations also enjoyed the informal backing of the Embassy of the United States (interview 2). When NGOs experienced and made public instances of discrimination or repression by the government, US Embassy representatives denounced. Hence, the Georgian executive was well aware of this support for the ‘third sector’ in Georgia, and they were therefore careful in restricting NGO access to the policy-making domain. Most of the NGOs that worked closely with Georgian legislators were established by young, reform-minded individuals, who have built and maintained links with international organizations from which they obtained funds, project frameworks and policy goals they could promote domestically. Below I will concentrate mainly on the Georgian Young Lawyers’ Association (GYLA), the Liberty Institute (LI), and the International Center for the Reformation and Development of the Georgian Economy (ICRDGE) (which turned into the Georgian Economic Development Institute (GEDI)), and the Horizonti Foundation, because these were the most active on the policy arena and they have retained a strong advocacy capacity. I argue that their power was based not only on the financial resources that enabled them to engage in policy drafting, but also on the access to knowledge required to formulate policies reflecting the ‘best practice’ of Western democracies. The Georgian Young Lawyers’ Association (GYLA)29 is a nonprofit organization founded in 1994 by young intellectuals, who have been actively involved in rewriting the Soviet Constitution and preparing legislation for democratic elections before the Soviet Union collapsed. They continued their work in informal working groups. The founders were all law students from the State University of Georgia. It is one of the largest and oldest NGOs in Georgia, and it has been active in the political arena since its creation. Its budget was 2 million GEL (1 million USD) in 2003 and 1.5 million GEL in 2005. Currently, most of them are involved in politics or hold high-ranking positions (Irakli Okruashvili was minister of defence from 2004 to 2007; Koba Davitashvili is the leader of the Conservative Party and currently in opposition to Mikheil Saakashvili’s government; Kote Kublashvili was appointed

29

GYLA’s official website: www.gyla.ge.

206

N. Dadalauri

chairman of the Supreme Court in 2005). GYLA’s mission comprises four arenas of activities: human rights protection, capacity building in legal rights in society, a transparent and accountable government and providing legal education and training. GYLA has received grants from a large number of organizations, among them NOVIB, IRIS, CODAID, OSCE, Eurasia Foundation and Save the Children. GYLA has been active in drafting laws. The head office of the organization systematically receives all new drafts of laws prepared in parliament. Each draft is reviewed and commented upon in writing and sent back to parliament. The members of the organization often attend parliamentary discussions and sit on expert committees working on various legislation (GYLA 2008). The Liberty Institute (LI)30 was founded as a nongovernmental organization in 1996 by two young journalists who worked for the independent TV channel Rustavi TV, Giga Bokeria and Levan Ramishvili (Wheatley 2005:146). It is a liberal public policy advocacy foundation that ‘through civic campaigns, debates, surveys and educational activities, strives to establish values of civil liberties, active citizenship, public accountability, rule of law, transparency and free market in public life, politics, legislation and within public agencies’ (Mission Statement, LI, 2008). LI primarily promoted freedom of speech and supported the interests of journalists who exposed corrupt officials. Financial resources were provided through grants from the Soros Foundation, the Eurasia Foundation, UNDP, USAID and IRIS, for each particular project undertaken by LI. LI was actively involved in the anti-corruption campaign of 2000s, and they also harshly criticized the suppression of religious minorities and illegal arrest and torture of individuals. They were also involved in supporting the youth movement ‘Kmara’, which has played a vital role in antigovernment protests before the ‘Rose Revolution’. The LI advocated and drafted legal acts covering a wide area of state activities: the ‘Freedom of Information’ chapter in the Administration Code was prepared with its participation in 1997. The law on public schools and that on broadcasting were initiated by the LI in 2004.31 Horizonti, the foundation for the third sector, is a Georgian NGO, which in 1994 was set up as a local chapter of ISAR-Georgia of Washington D.C.-based ISARD.C. (ISAR 2002:6). ISAR-D.C. was offered support by USAID in 1993 to start its programmes in the former Soviet Union (FSU) (ISAR 2002:7). The initiative was based on shared values, interests and principles between the two organizations. ISAR-Georgia has acquired a tremendous experience in the area of civil initiatives through their headquarters. They have received grants from such funds as the

30

LI’s official website: www.liberty.ge. Its founders and active members have since the revolution held important positions in the state administration and parliament. For instance, Giga Bokeria entered the parliament in 2004 and became the deputy chairman of the committee on legal issues, member of the committee on defense and security and head of the ruling party, United National Movement. Givi Targamadze is the chair of the Georgian Parliamentary Committee on Defense and Security and has been actively involved in the ‘Rose Revolution’ processes. Sozar Subari, another member of LI, was elected ombudsman for a term of 5 years by parliament in 2004. The LI continues its policy advocacy and is still active in providing input on various drafts of legislation in the postrevolutionary parliament.

31

8

Transnationalization and the Georgian State

207

Wallace Genetic Fund (1994) and World Learning (1995), and since then also from the Eurasia Foundation, the Soros Foundation and Save the Children (ISAR-Georgia 1996:2–3). It was very active in producing information on Georgian NGOs, their development and general funding situation. ISAR-Georgia became an independent Georgian NGO in 1997. It continued its activities and retained its original profile from when it was a local representative of ISAR-D.C., but now under a new name. Horizonti Foundation has trained NGO representatives in various regions of Georgia to enhance their capacity (Jones 2000:70, fn. 81). It also provided small grants for local NGOs (ISAR-Georgia 1996:5). It has assessed NGO needs on a regular basis since 1996 (Jones 2000:68, 70, fn. 76, 81). It began to issue a magazine for the third sector in Georgia in the second half of 1990s (Jones 2000:68, fn. 76; ISAR 2002:6–8). The International Center for the Reformation and Development of the Georgian Economy (ICRDGE) was established in 1994 under the leadership of economic expert Niko Orvelashvili. In this process, the ICDRGE, like a few other NGOs in Georgia, was supported to enhance its capacity as a nonstate actor by Michael Clayton, former programme manager of ISAR-Caucasus. Since its creation, the ICDRGE has been engaged in writing legislation on investment and economic policy for the government. In 1998 it was re-registered as the Georgian Economic Development Institute (GEDI). It has retained its policy focus and continues to operate actively in commenting on the government’s economic policy initiatives.32 It has cooperated actively with international organizations operating in Georgia such as USAID, the Eurasia Foundation and the Soros Foundation, and there are EU experts on its active staff, the consultant and doctor of public administration Steven Tupper (interview 2). The Institute of Economic Development of Georgia was the driving force behind the new tax policy project in 2002. This project involved some 42 foreign and Georgian economists and financial experts. It was initiated by the parliamentary fraction ‘Entrepreneurs’ and funded by Gogi Topadze’s fund and the Open Society Soros Fund. The aim of the project was to provide a new tax code to replace the one created in 1997 (which entailed more amendments than the original code itself) (interview 2). The new tax policy project incorporated basic neoliberal principles found in tax systems elsewhere. It promoted the idea that tax policy was to support economic growth, while tax administration was to service taxpayers (interview 2). The four main principles were as follows: (i) to reduce the number of payments, make the calculation and payment processes transparent; (ii) see to it that the new tax system suited its environment in order to make it an enforceable legal act; (iii) a sharp reduction of tax evasion and (iv) setting up a tax system that promoted economic growth by stimulating investment (Orvelashvili 2002: 62–67). The project proposed two personal income tax regimes with single rates, thus introducing the notion of a flat tax. One of the income tax systems operated with a tax of 20% including family exemptions, and one of 10% without exemptions (ibid). However, as already

32

GEDI’s official website: www.gedi.ge.

208

N. Dadalauri

mentioned, this project was abandoned by the ‘Industrialists’ and did not get through parliament until the postrevolutionary government took office in 2003.33 In addition to cooperation between domestic and external nonstate actors, there are numerous cases of cooperation between the nonstate actors during the presidency of Shevardnadze. Zurab Zhvania, chairman of parliament and former leader of the Greens, was known for his reformist policy preferences, and he was the one among old guards who surrounded himself with young, progressive individuals in the government. Moreover, he initiated the building of bridges between state institutions and nongovernmental organizations34 (Jones 2000: 71; Wheatley 2005:146). For instance, the young chairman of the Parliamentary Committee for the Constitution, Legal Issues and Legal Reform worked closely with NGOs while drafting the Civil Code (Wheatley 2005:145). Likewise, the Parliamentary Committee on Economic Policy and Reforms worked closely with NGOs on the issues of NGO funding and tax exemption, helping them to guide those laws through the legislative body in the face of resistance from the IMF in the mid-1990s (Jones 2000:69). Some of the old guard in Shevardnadze’s circle had by then realized the benefits of involving NGOs in the policy arena. However, cooperation sometimes failed to bring about any actual change in the areas they were involved in. Hence, these instances of cooperation were perceived as superficial (USAID 2000:79). In 1998, for instance, an advisory council was formed by NGOs under the State Chancellery to mediate relations between the president and the third sector (i.e. NGOs). However, the results were meagre (ibid). In 1996 the Georgian government set up the Georgian Investment Social Forum (based on funding from the USA and Japan) to finance projects on economic, social and environmental rehabilitation, in which NGOs were the major recipients of funds (Jones 2000:71, fn. 84). There is consensus on the fact that Georgian NGOs played an important role in political reforms, policy and revision of legislation (Wheatley 2005:145–148; Jones 2000:68–72). The Georgian NGOs were staffed by young and better educated youngsters (Jones 2000: 70). The organizations depended on external funding, however, and they also received training and information after the nongovernmental entities became established in the country (Jones 2000: 71–72; Wheatley 2005:146– 147; USAID 1998–2002). NGOs were often perceived not only as reformist

33

There are two different opinions as to why the ‘Industrialists’ abandoned the new tax policy. As described in the section on political parties, some argue that the ‘Industrialists’ were co-opted by the former government by designing a legal act to their economic interests (interview 2). Another version of the possible explanation is that support of the ideas presented by NGOs was perceived to be in opposition to the then ruling party and government. Therefore, the ‘Industrialists’ opted to abandon all lobbying in favour of the policy (USAID 2002). 34 The Greens were established as an NGO by the young biologist Zurab Zhvania in 1988. Soon after it was turned into a political party and entered the parliament in the 1992 elections. In 1993, when the Civil Union of Georgia was established, the Greens merged with them in CUG (Encyclopedia Britannica 2008).

8

Transnationalization and the Georgian State

209

groups in post-Soviet political and economic developments, but also as substitutes for the state in the provision of social services (Jones 2000:72; Khidasheli 2002). Thus, the NGOs were gaining legitimacy as important domestic actors in the policy-making arena. They slowly, but steadily, became involved in the process of policy making, but the pace and degree of their participation intensified by the end of the millennium. The window of opportunity for nonstate actors to infiltrate state institutions started to open by the end of 1990s. Beginning in 1999, political decision-makers’ positions were gradually handed over to former NGO members, when Koba Davitashvili (a lawyer from the GYLA), Zurab Adeishvili (lawyer from the Liberty Institute) and Vano Merabishvili (chairman of the Association of Landowners’ Rights) entered parliament on the CUG party list (Wheatley 2005:147). Soon after the elections, all three former-NGO members became active in different parliamentary committees – Adeishvili chaired the Committee on Legal Issues, Rule of Law and Administrative Reforms; Merabishvili chaired the Committee on Economic Policy; and Davitashvili sat on other committees as well as on Adeishvili’s committee (Wheatley 2005:147). This way of recruiting from the third sector in state institutions took place under the auspice of the ‘reformist’ group aligned with Zurab Zhvania and Mikheil Saakashvili. All three former-NGO members and the parliamentarians from the CUG list merged with Saakashvili’s party before the ‘Rose Revolution’ in 2003. The postrevolutionary government is currently staffed by individuals who were formerly counted among the young reformists. Most of them were educated in Western countries and had experienced life in democratic states and market economies. The new government was eager to break away from the legacy of the previous government, which ignored IMF and WB recommendations, or if adopted, paid lip service to the donors as emblems of Georgia’s past. The new beginning meant embracing neoliberal policy norms and making Georgian the state attractive to foreign investment by simplifying the tax code and reducing rates (Papava 2006). Nonstate actors had domestic roots but maintained transnational links. They acted as carriers of new ideas and knowledge, which they promoted domestically. As the executive director of ISAR, Elisa K. Klose, formulated it, the partnerships between US and Eurasian nongovernmental organizations were beneficial in many ways, and moreover, were sources of change towards democratization on the grassroots level. Why Partnership? There are all the obvious reasons. Partnering with an organization in the FSU extends the possibilities and expands the resources of both sides. Partnering gives the American organization access to the information, experience and unique knowledge of its FSU partner. Through the US organization, the FSU partner gains access to international contracts, financial and technical resources, opportunities to expand its own expertise, and knowledge. Whatever capabilities each side has on its own are multiplied enormously by joining forces (ISAR 2002:6).

The policy debate was one step forward in the transnationalization of Georgian tax policy that began later in the 1990s, but it was limited in scale. Before the political change in 2003, policy making was dominated by individuals who did not

210

N. Dadalauri

approve of neoliberal policy principles neither wanted to fight corruption and nepotism and promote competition. The process of NGO creation and NGO participation in the policy-making processes has taken almost a decade. The process of transnationalization was in motion before the ‘Rose Revolution’ because nonstate actors emerged and formed transnational linkages long before 2003. However, political change accelerated the process and brought marked changes in tax policy output. Once the policy arena was open to nonstate actors, the need for coercion was reduced. External influence was facilitated by nonstate actors’ involvement in policy changes.

8.10 Conclusion The aim of this chapter was to explain how the Georgian tax policy emerged and shifted towards neoliberal principles. Two arguments were developed in this chapter: first, that state-making and tax policy formation are interlinked processes, while the creation of a capable Georgian state was a by-product of the tax policy and administration changes that followed the political changes of 2003; second, the transnationalization of a policy arena, that is policy making infiltrated by nonstate actors who internalize external policy norms and preferences, can engender a tax policy shift towards neoliberalism. Conventional explanations along with the argument of transnationalization of the policy arena of the Georgian tax policy reforms were discussed. Finally, two conclusions were drawn. First, the conventional explanations on policy reform did not provide sufficient explanation why the Georgian tax policy was changed by adopting flat tax and low corporate income tax and reduced marginal tax rates to attract capital and promote economic growth. Party politics and trade unionism had little influence on policy reform in post-Soviet countries. As for the fragmentation of Georgian policy arena and the number of veto players in decision-making, I conclude that the consolidated policy arena produced two different results. During Shevardnadze’s presidency, it failed to lead to reforms within the neoliberal policy paradigm, while it succeeded during Saakashvilis’s presidency. External influence on policy changes demonstrated that the Georgian government was compelled to honour their commitment to market-oriented reforms. However, it did not work when Georgia was extremely vulnerable to external pressure for change. In two instances, suspension of funding by the IMF fell on deaf ears even though it was expected to succeed because the Georgian state was heavily indebted. Meanwhile, the noncoercive mode of collaboration between Georgia and the EU, which often limited its role to legislative harmonization, supplanted the IFIs coercive approach with ‘passive leverage’. The latter played some role in Georgia as a mechanism of policy change, but it did not account for the whole process of transnationalization of a policy arena. Policy learning and the desire to change Georgian tax policy to reflect Western tax system were stated unequivocally and initiated by the government that came into power after the ‘Rose Revolution’. The Ministry of

8

Transnationalization and the Georgian State

211

Finance initiated this change. Currently, the EU’s interest in avoidance of double taxation and regulating indirect taxes to correspond to EU directives is reflected in various agreements with EU member states and in tax policy in general. The ‘passive leverage’ mechanism has contributed to the main transnationalization argument in this chapter by rejecting the role of conditionality, instead advancing the role of capacity building among domestic actors. Moreover, the section on nonstate actors illustrated the transnationalization of a policy arena in Georgia, internalization of external norm as well as the promotion of it domestically by nonstate actors. The Georgian case demonstrated that neoliberal ideas have been transmitted from external actors to domestic nonstate actors. The latter have internalized these concepts so that new tax policy proposal put forward by third sector was already steeped in the dominant neoliberal policy paradigm. One example of this process is the tax code project in 2002, which illustrates this hidden mechanism of knowledge diffusion and internalization of external policy norms and preferences. Neoliberal principles, for so long advocated by external actors, have been proposed domestically by local experts and then advanced in parliament. Before the political changes of 2003 the old regime and incumbent refused to abandon their patron-clientelistic mode of managing the Georgian business sector, but they still left some room for foreign business. Competitiveness and economic openness required changes in tax policy and administration. However, the changes only came after the policy-making arena was infiltrated, and finally dominated, by neoliberal idea-carrying individuals, former NGO members and those who had cooperated closely with them under the old regime. Having said that, now I turn to the first argument presented in this chapter. I have stated that capable state-building in Georgia was a by-product of setting up a new tax policy and tax administration. Transnationalization of the tax policy arena went hand in hand with the creation of a capable state. The claim that the capable state was a by-product of the transnationalization process and not an ultimate goal is demonstrated by the narrow focus of the actors involved in designing the new Georgian tax system. The initial goal of the new tax system was to promote economic growth by creating an equally competitive business environment for domestic and foreign entrepreneurs. However, the Georgian tax system has long been used to keep the rulers’ clientele loyal, and it did not provide a financially adequate basis for a capable state. The shift in tax policy towards a neoliberal model was not aimed at creating a capable state, but to enhance implementation of market-friendly reforms. Neoliberal principles in economic sphere advocate a minimal state. However, the complex administrative reforms that supplemented the shift in tax policy towards neoliberal principles facilitated increased tax collection and enabled the state to redistribute public goods to its citizens. Finally, taxes made a state. Acknowledgments I am very grateful to László Bruszt and Ronald Holzhacker for their insightful comments and suggestion for this chapter. I have also benefited greatly from generous comments of the participants in the three workshops organized under the European Research Colloquium during 2007–2008. I also owe thank you to Niko Orvelashvili and Davit Chelidze for providing with needed information on Georgian tax system.

212

N. Dadalauri

Bibliography ‘Adjara Boosts Government’s Financial Hopes’ Civil Georgia, 2004.05.08, www.civil.ge Aves, Jonathan. (1996). “GEORGIA: From Chaos to Stability?” The Royal Institute of international Affairs, Russia and Eurasia Programme. Baruto, Alexander and Julia Gray. (2007). “Flatliners: Flatliners: Ideology and Rational Learning in the Diffusion of the Flat Tax.” IIIS Discussion Paper No. 210. Beissinger, Mark. (2007, June). “Structure and Example in Modular Political Phenomena: The Diffusion of Bulldozer/Rose/Orange/Tulip Revolutions.” Perspectives on Politics, 5(2): 259–276. Best Practices for the Business Environment (BIZCLIR). (2006). “Tax Simplification: Lessons from Georgia.” Issue 11; online: www.bizclir.com Bolashvili, Paata. (2002). “Fiscal Autonomy Problems of Local Government in Georgia.” policy paper published online by Local Governance and Public Service Reform Initiative at the Open Society Institution, online: http://lgi.osi.hu/publications/2002/102/Davey-Georgia.pdf Blom-Hansen, J. Monkerud, L.C. Sorensen. (2006). “Do parties matter for local revenue policies? A comparison of Denmark and Norway.” European Journal of Political Research, 45(3): 445–465. Bloom, Stephen and Mitchell A. Orenstein. (2005). “Transnationalism and Nationalism in Postcommunist Politics.” Paper Prepared for the Conference, “Postcommunist States and Societies: Transnational and National Politics,” Maxwell School of Syracuse University, September 30–October 1, 2005. Bunce, Valerie, and Sharon Wolchik. (2006, October).“Favourable Conditions and Electoral Revolutions.” Journal of Democracy, 17(4): 5–18. Cameron, David. (1985). “Does Government Cause Inflation? Taxes, Spending, and Deficits.” In Leon N. Lindberg and Charles S. Maier (Eds.), The Politics of Inflation and Economic Stagnation. Washington, DC: Brookings Institution. Campbell, John L. (1996). “An Institutional Analysis of Fiscal Reform in Postcommunist Europe.” Theory and Society, 25: 45–84. Campbell, John L. (2001). “Convergence or Divergence? Globalization, Neo-liberalism and Fiscal Policy in Postcommunist Europe.” pp. 107–139. In Steven Weber (Ed.), Globalization and the European Political Economy, New York: Columbia University Press. Campbell, John L. and Ove K. Pedersen. (2001). The Rise of Neo-liberalism and Institutional Analysis. Princeton, NJ: Princeton University Press. Carlsen, Frederick. (1997). “Counterfiscal Policies and Partisan Politics: Evidence from Industrialized Countries.” Applied Economics, 29: 145–151. Chaudhry, kiren Aziz (1997). The Price of Wealth: Economies and Institutions in the Middle East. Ithaca: Cornell University Press. Cheibub, Jose Antonio. (1998). “Political Regimes and the Extractive Capacity of Governments: Taxation in Democracies and Dictatorships.” World Politics, 50(3): 359–376. Chelidze, David. (2003). “Tax Evasion Schemes and Their Analysis.” Research Report published on TRACCC-GO website http://www.traccc.cdn.ge (last accessed on March 27, 2008). Chilosi, Alberto. (2007). “The European Union and its Neighbours: ‘Everything but Institutions’?” The European Journal of Comparative Economics, 4(1): 25–38. Cobham, Alex. (2007). “The Tax consensus has failed! Recommendations to policymakers and donors, researchers and civil society.” The Oxford Council on Good Governance, http://ocgg.org/fileadmin/Publications/ER008.pdf Curnow, Bill. (2006). “Tax Administration Reform in Georgia.” Part III. Economic Reform Agenda, GELPAC, Tbilisi, Georgia. Online: http://www.geplac.org/newfiles/ GeorgianEconomicTrends/Curnow%20(engl)%20june%202006.pdf Cusack, Thomas R. (1999, June). “Partisan Politics and Fiscal Policy.” Comparative Political Studies, 32: 464–486. Dadalauri, Nina. (2007a). Political Elite(s) of Georgia: How Did it (they) Come Along and What Did it (They) Bring Along . . .? unpublished manuscript.

8

Transnationalization and the Georgian State

213

Dadalauri, Nina. (2007b). “Political Corruption in Georgia.” In Sarah Bracking (Ed.), Corruption and Development: The Anti-Corruption Campaigns, New York: Palgrave Macmillan. Dadalauri, N., Johannsen, L. (2009). “Shevardnadze’s Political Strategies: The Rise and Fall of the Incumbent”, i Johannsen, L., Pedersen, K.H. (red.) Pathways: A Study of Six Post-Communist Countries, Aarhus University Press, Aarhus, s. 52–68. Devdariani, Jaba. (2004). “Georgia: Rise and Fall of the Façade Democracy.” Demokratizatsiya, 12(1): 79–115. Djelic, Marie-Laure and Kerstin Sahlin-Andersson (Eds.). (2006). Transnational Governance. Cambridge, UK: Cambridge University Press. Dobbin, Frank, Beth Simmons, and Geoffrey Garrett. (2007) “The Global Diffusion of Public Policies: Social Construction, Coercion, Competition, or Learning?” Annual Review of Sociology, 33: 449–472. Dolowitz, David P. and Marsh, David (2000). “Learning from Abroad: The Role of Policy Transfer in Contemporary Policy-Making.” Governance, 13(1): 5–23. Easter, Gerald M. (2002). “Politics of Revenue Extraction in Post-Communist States: Poland and Russia Compared.” Politics and Society, 30(4): 599–627. Easter, Gerald M. (2008). “Capacity, Consent and Tax Collection in Post-Communist States.” In Deborah Bräutigam, Odd-Helge Fjeldstad, and Mick Moore (Eds.), Taxation and StateBuilding in Developing Countries: Capacity and Consent. Cambridge, UK: Cambridge University Press. Economic Trends Reports (ET) 1996–2008 by “Georgian and European Legal Policy Center, “http://www.gelpac.org” www.gelpac.org Encyclopedia Britannica (2008). online: http://www.britannica.com/ Fjeldstad, Odd-Helge, and Mick Moore. (2008). “Tax Reform and State-Building in a Globalised World.” In Deborah Bräutigam, Odd-Helge Fjeldstad, and Mick Moore (Eds.), Taxation and State-Building in Developing Countries: Capacity and Consent. Cambridge, UK: Cambridge University Press. Fritz, Verena. (2007). State-Building : a Comparative Study of Ukraine, Lithuania, Belarus, and Russia. Budapest, Hungary: Central European University Press. Ganghof, Steffen. (2003). “Promises and Pitfalls of Veto Player Analysis.” Swiss Political Science Review, 9(2): 1–25. Garrett, Geoffrey. (1998). Partisan Politics in the Global Economy. Cambridge, UK: Cambridge University Press. Gaven, Venelin. I. (2005). “Postcommunism as a Historical Episode of State-Building: A Reversed Tillyan Perspective.” Working Paper #289, Kellogg Institute for International Studies, Notre Dame University. George, Alexander L., and Andrew, Bennett. (2005). Case Studies and Theory Development in Social Sciences. Cambridge, MA: MIT Press. ‘Georgia Moves to Cut Red Tape in Licensing’, Civil Georgia, 2005.06.11., www.civil.ge Genschel, Philip. (2005). “Globalization and the Transformation of the Tax State.” European Review, 13(Suppl. 1): 53–71. Grabowski, Maciej H. (2005). “Reforms of Tax Systems in Transition Countries.” Transition Studies Review, 12(2) September. Gurgenidze, L. Lobzhanidze, M. and Onoprishvili, D. (1994). “Georgia: From Planning to Hyperinflation” Communist Economies & Economic Transformation, 6(3): 259–289. Hallerberg, M., and S. Basinger. (1998). “Internationalization and Changes in Tax Policy in OECD Countries: the Importance of Domestic Veto Players.” Comparative Political Studies, 31, 321–353. Hale, Henry E. (2006). “Democracy or Autocracy on the March? The Colored Revolutions as Normal Dynamics of Patronal Presidentialism.” Communist and Post-Communist Studies, 39: 305–329. Herd, Greame P. (2005). “Colorful revolutions and the CIS: ‘Manufactured’ Versus ‘Managed’ Democracy?” Problems of Post-Communism, 52(2): 3–18.

214

N. Dadalauri

Henisz, Witold J. (2000). The institutional environment for economic growth. Economics & Politics, 12(1): 1–31. Hovi, John. Robert Huselby, and Detlef F. Springz. (2005). “When do (imposed) economic sanctions work?”’ World Politics 57: 4709–4799. Information was obtained in 2008 from the Georgian Young Lawyers Association Homepage, www.gyla.ge Information was obtained in 2008 from the Liberty Institute Homepage, www.liberty.ge Jacoby, Wade. (2006). “Inspiration, Coalition, and Substitution: External Influences on Postcommunist Transformations.” World Politics, 58(4): 623–651. Jacoby, Wade. (2008) “Minority Traditions and Postcommunist Politics: How do IGOs Matter?” In Mitchell A. Orenstein, Stephen Bloom, and Nicole Lindstrom (Eds.), Transnational Actors in Central and East European Transitions. Pittsburgh, PA: University of Pittsburgh Press. Jones, F. Stephen. (2000). “Democracy from Below? Interest Groups in Georgian Society.” Slavic Review, 59(1): 42–73. Keck, Margaret and Sikkink, Kathryn. (1998). Activists Beyond Borders. Advocacy Networks in International Politics. Ithaca and London: Cornell UP. Kelley, Judith. (2004). “International Actors on the Domestic Scene: Membership Conditionality and Socialization by International Institutions.” International Organization, 58(3): 425–458. Khaduri, Nodar. (2005). “Mistakes Made in Conducting Economic Reforms in Postcommunist Georgia.” Problems of Economic Transition, 48(4): 18–29. Khidasheli, Tinatin. (2002). “Georgia’s Independent Sector: Feeling the Heat.” Online: http://www.efc.be/cgi-bin/articlepublisher.pl?filename=TK-SE-10-02-1.html Levi-Faur, David and Jacint Jordana. (2005). “Globalizing Regulatory Capitalism.” The ANNALS of the American Academy of Political and Social Science, 598: 6 Levitsky, Steven and Lucan A. Way. (2002). “The Rise of Competitive Authoritarianism.” Journal of Democracy 13(2): 51–65. Levitsky, Steven and Lucan A. Way (2005), “International Linkage and Democratization.” Journal of Democracy, 16(3): 20–34. Levitsky, Steve, and Way, Lucan A. (2005). “Linkage versus Leverage: Rethinking the International Dimension of Regime Change”, Sawyer Law and Politics Program, Campbell Public Affairs Institute, online www.campbellionstitute.org. Lieberman. Evan S. (2003). Race and Regionalism in the Politics of Taxation in Brazil and South Africa. New York: Cambridge University Press. Martinez-Vazquez, Jorge, and McNab, Robert M. (2000, June). “The Tax Reform Experiment in Transitional Countries.” National Tax Journal, 53(2): 273–298. Moore, Mick. (2008). “Between Coercion and Contract: Competing Narratives on Taxation and Governance.” pp. 34–63. In Deborah Bräutigam, Odd-Helge Fjeldstad, and Mick Moore (Eds.), Taxation and State-Building in Developing Countries: Capacity and Consent. Cambridge, UK: Cambridge University Press. Nations in Transition (2001). Freedom House Country Report on Georgia, http://www.freedomhouse.hu/ Nodia, Ghia and Álvaro Pinto Scholtbach. (2006). The Political Landscape of Georgia: Achievements, Challenges and Prospects. Delft, The Netherlands: Eburon Academic Publisher. Orvelashvili, Niko. (2002). “Concept of the New Taxation System of Georgia.” Georgian Economic Trends, (1): 62–67. Papava, Vladimer. (1997). “Post-Communist Development of the Georgian Economy.” Problems of Economic Transition, 40(7/8): 5–19. Papava, Vladimer. (2002). International Monetary Fund and Post-Communist Georgia. Tbilisi: Georgian Foundation of Strategic and International Studies (GFSIS). Papava, Vladimer. (2005). “Necroeconomics: The Political Economy of Post-Communist Capitalism (Lessons from Georgia).” New York Lincoln Shanghai: iUniverse Inc. Papava, Vladimer. (2006, Autumn). “The Political Economy of Georgia’s Rose Revolution.” Orbis, 50(4): 657–667.

8

Transnationalization and the Georgian State

215

Peck, Jamie. (2004). “Geography and Public Policy: Constructions of Neo-Liberalism.” Progress in Human Geography, 28(3): 392–405. Peters, Guy B. (1991). The Politics of Taxation: A Comparative Perspective. Cambridge MA & Oxford UK: Basil Blackwell. Radaelli, Claudio. (1999). “Harmful Tax Competition in the EU: Policy Narratives and Advocacy Coalitions.” Journal of Common Market Studies, 37(4): 661–682. Rider, Mark. (2001). “Assessment of USAID’s Fiscal Reforms and Options for Further Intervention: Tax Policy and Tax Administration Reforms.” Report, USAID Georgia. Risse, Thomas. 2002. “Transnational Actors and World Politics.” In W. Carlsnaes, T. Risse, and B. Simmons (Eds.), Handbook of International Relations. London: Sage. Schields, Stuart. (2004). “Global Restructuring and the Polish State: Transition, Transformation, or Transnationalization?” Review of International Political Economy, 11(part 1): 132–154. Schimmelfenning, Frank. (2007). “Europeanization beyond Europe.” Living Reviews in European Governance, 2: 1 Online: http://www.livingreviews.org/lreg-2007-1 . Schimmelfennig, Frank and Sedelmeier, Ulrich. (2005). “Introduction: Conceptualizing the Europeanization of Central and Eastern Europe.” pp. 1–29. In Frank Schimmelfennig, and Ulrich Sedelmeier (Eds.), The Europeanization of Central and Eastern Europe. Ithaca, New York: Cornell University Press. Shengelia, George. (2007). Development of Georgia. Kentucky World Trade Centre. Online: Simmons, Beth and Zachary Elkins. (2004). “The Globalization of Liberalization: Policy Diffusion in the International Political Economy.” American Political Science Review, 98(part 1): 171–190. Slaughter, Anne-Marie. (2004). A New World Order. Princeton: Princeton UP. Slemrod, J. (2004). “Are Corporate Tax Rates, or Countries, Converging.” Journal of Public Economics, 88(6): 1169–1186. Slider, Darrel. (1997). “Democratizaton in Georgia.” pp. 156–198. In Karen Dawisha and Bruce Parrot (Eds.), Conflic, clieavage, and Change in Central Asia and the Caucasus. Cambridge: Cambridge University Press. Steinmo, Sven. (1993). Taxation and Democracy: Swedish, British and American Approaches to Financing the Modern State. New Haven: Yale University Press. Stone, Diana. (2004, June). “Transfer agents and global networks in the ‘transnationalization’ of policy.” Journal of European Public Policy, 11(3): 545–566. Swank, Duane. and Sven Steinmo. (2002). “The New Political Economy of Taxation in Advanced Capitalist Democracies.” American Journal of Political Science, 46(3): 642–655. Swank, Duane. (2002). Global Capital, Political Institutions, and Policy Change in Developed Welfare States. New York: Cambridge University Press Swank, Duane. (2004). “The Spread of Neo-Liberalism: U.S. Economic Power and the Diffusion of Market-Oriented Tax Policy.” Working Paper No. 120, Center for European Studies. Tanzi, Vito. (2001). “Creating Effective Tax Administrations: The Experience of Russia and Georgia.” pp. 53–74. In Janos Kornai, Stephan Haggard, and Robert R. Kaufman (Eds.), Reforming the State: Fiscal and Welfare Reform in Post-Socialist Countries. Cambridge, UK: Cambridge University Press. Tilly, Charles. (1985). “War Making and State Making as Organized Crime.” In Peter Evans, Dietrich Rueschemeyer, and Theda Skocpol (Eds.), Bringing the State Back, Cambridge, UK: Cambridge University Press. Tsebelis, G. (1995, July). “Decision Making in Political Systems: Veto Players in Presidentialism, Parliamentalism, Multicameralism and Multipartyism.” British Journal of Political Science, 25: 289–326. Tsebelis, George. (1999, September). “Veto Players and Law Production in Parliamentary Democracies: An Empirical Analysis.” American Political Science Review, 93: 591–608. Tsebelis, George. (2000). “Veto Players and Institutional Analysis.” Governance, 13(4): 441–474. Tsebelis, George. (2002). Veto Players: How Political Institutions Work. Princeton, NJ: Princeton University Press/Russell Sage.

216

N. Dadalauri

USAID (2000). NGO Sustainability Index, Scores on Georgia, online: http://www.usaid.gov/ locations/europe_eurasia/dem_gov/ngoindex/2000/georgia.pdf USAID (2007). NGO Sustainability Index, Scores on Georgia, online: http://www.usaid.gov/ locations/europe_eurasia/dem_gov/ngoindex/2007/georgia.pdf Vachudova, Milanda Anna. (2002). “The Leverage of the European Union on Reform in Post-Communist Europe”. Conference paper presented at ECPR Joint Session workshop in Turin, 22–27, March, 2002. Wallace Genetic Fund granted funding in 1994 and this is not to refer to the source of information but the name of the Fund only. The reference is indicated in the text (ISAR-Georgia 1996:2–3). Way, A. Lucan, and Levitsky, Steven. (2007). “Linkage, Leverage, and the Post-Communist Divide.” East European Politics, and Societies, 21(1): 48–66. Weiss, Linda. (1999). The Myth of Powerless State: Governing the Economy in a Global Era. Cambridge, UK: Polity Press. Weyland, Kurt G. (2005). “Theories of Policy Diffusion: Lessons from Latin American Pension Reform,” World Politics, 57: 262–295. Wheatley, Jonathan. (2005). “Georgia from National Awakening to Rose Revolution: Delayed Transition in the Former Soviet Union”, Post-Soviet Politics. Aldershot: Ashgate Publishing.

Reports Action Programme for Georgia, 2004 – II, European Commission. Communication from the Commission to the Council and the European Parliament, Implementation of the European Neighbourhood Policy in 2007, Brussels, 2 April 2008, SEC (2008) 393 EBRD (2006). Strategy for Georgia. Online: http://www.ebrd.com/about/strategy/country/georgia/ strategy.pdf Economic Trends Reports (ET) 1996, 1997, 2004, 2008 by Georgian and European Legal Policy Center, “http://www.gelpac.org” www.gelpac.org Nations in Transition, 2002, Freedom House Country Report on Georgia. Country Strategy Paper (CSP). (2001). Country Strategy Paper 2002–2006, National Indicative Programme 2002–2003 of Georgia, EU/EC. ISAR-D.C. (2002). “Give and Take: A Decade of NGO Partnerships.” A Journal on Civil Society in Eurasia, Winter. Online: http://www.isar.org/pubs/GT/GT4-4.pdf ISAR-Georgia. (1996). ISAR-Georgia Final Report. USAID, 1998, NGO Sustainability Index, Scores on Georgia. Online: http://www.usaid.gov/ locations/europe_eurasia/dem_gov/ngoindex/1998/final98a.pdf USAID, 2002, NGO Sustainability Index, Scores on Georgia. Online: http://www.usaid.gov/ locations/europe_eurasia/dem_gov/ngoindex/2002/georgia.pdf United Nations Human Development Report on Georgia (2001/2002). Online: http://www.undp. org.ge/nhdrfrset2002.htm

Online News Georgia Moves to Cut Red Tape in Licensing, Civil Georgia, 25.06.11., www.civil.ge

Interviews Interview 1 was conducted with a local tax expert through telephone in December 2008. Interview 2 was conducted with a local tax expert through telephone in January 2009.

8

Transnationalization and the Georgian State

217

Official Websites ENP online: http://ec.europa.eu/world/enp/pdf/action_plans/georgia_enp_ap_final_en.pdf EU Assistance, online: http://ec.europa.eu/external_relations/georgia/eu_georgia_summary/index_ en.htm Millennium Challenge Account (MCA). Source: http://www.delgeo.cec.eu.int/en/press/ communication_0503_en.pdf Ministry of Finance of Georgia, www.mof.ge; http://www.mfa.gov.ge/files/59_68_444155_ doubletaxnew2005-english2.doc PCA and Georgia, online: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:1999: 205:0003:0038:EN:PDF Strategy Paper 2007–2013. Online: http://ec.europa.eu/world/enp/pdf/country/enpi_csp_georgia_ en.pdf USAID Georgia, website: http://www.usaid.gov/locations/europe_eurasia/countries/ge/georgia.pdf) ALPE http://www.aplr.org/?id=5 http://www.friends-partners.org/partners/georgia/sub/dbsa.htm http://www.fgb.ge/english/cgi-bin/index2.pl?what=abac Privacy International Online: http://www.privacyinternational.org/article.shtml?cmd[347]=x347-559536

Chapter 9

Transnational Strategies of Civil Society Organizations Striving for Equality and Nondiscrimination: Exchanging Information on New EU Directives, Coalition Strategies and Strategic Litigation Ronald Holzhacker

During the Pride March in London last year, the Mayor of London Ken Livingstone implored the thousands gathered in Trafalgar square to ‘Follow the spark, follow the spark of San Francisco and Copenhagen and Amsterdam’ to bring about equality for gays and lesbians across Europe.1 These large public demonstrations and celebrations – Gay Pride events – held in many large and medium-sized cities across Europe each summer are important for broad social movements to create ‘social capital’ (Putnam 2000). This social capital is important for a movement, in terms of both creating a sense of individual identity and ‘bonding’ within the community and reaching out and ‘bridging’ to the broader society. These events have become an integral part of the Western European movement for equality for gays and lesbians and are now spreading across the continent. These events are also taking place where they have been resisted by local and national authorities – for example in Eastern European capitals such as Warsaw and Riga. Groups want to show their strength, show that they are visible and proud and proclaim their demands of equality towards state and society. Large public manifestations are only part of the strategies pursued by gay and lesbian civil society organizations (CSOs) which have emerged across Europe as the institutional embodiment of a broader social movement. These CSOs are arguing for social acceptance, antidiscrimination measures, new laws against hate crimes and increasingly state-recognized same-sex partnerships or the right to marriage. Possible strategies pursued by these groups may be to communicate with the broader public, to form domestic coalitions with other CSOs or labour unions or to reach out transnationally – up to the EU level and across to similar groups in other countries. R. Holzhacker (B) European Studies, Department of Political Science and Methodology, University of Twente, Postbus 217, 7500 AE Enschede, The Netherlands e-mail: [email protected] 1

Speech by Ken Livingstone, mayor of London, at the Gay Pride event, Trafalgar Square, 30 June 2007.

L. Bruszt, R. Holzhacker (eds.), The Transnationalization of Economies, States, and Civil Societies, DOI 10.1007/978-0-387-89339-6_9,  C Springer Science+Business Media, LLC 2009

219

220

R. Holzhacker

This particular chapter will focus on the transnational strategies of contemporary lesbian, gay, bisexual and transgender (LGBT) CSOs in Europe. Transnational activities of CSOs build social capital beyond the confines of a member state and ‘bridge’ to umbrella organizations at the EU level and to similar groups in other countries. Do these transnational activities make a difference? While CSOs may be visible and active in raising awareness, institutional actors are often seen as more decisive for policy outcomes than the activities of CSOs (see Mazey and Richardson 1993; Greenwood 2003). But nevertheless, groups are active in reaching out to society to increase social acceptance and to press governments for favourable action (see Lowry 2007). Institutional arrangements and political opportunity structures affect the chance for success (Tarrow 1998; Kitschelt 1986). Michalowitz (2007) uses the literature of EU and US interest intermediation and policy change (i.e. Baumgartner and Jones 1993) to argue that the influence of interest groups varies by the degree of conflict, the type of interest sought and the structural conditions of the decision-making process. In the case of LGBT groups across Europe, they face various degrees of conflict and opposition to their claims for equality; the type of interest they seek is not a narrow private one, but a public good based on moral claims of equality, and increasingly the structural conditions for favourable government action are influenced by processes of Europeanization and transnationalization.

9.1 Europeanization and Transnationalization Europeanization is concerned with the impact which the EU and European integration have on domestic politics in the member states (Holzhacker and Haverland 2006; Graziano and Vink 2007; Cowles et al. 2001; Featherstone and Radealli 2003; Goetz and Hix 2001). The strategies of human rights groups in the member states began to evolve in a particular way in the late 1990s because of the expansion of the EU into new areas of social policy, a policy area traditionally reserved for the nation states. A crisis of legitimacy after public referendums during the ratification of the Maastricht Treaty, and a new social democratic majority in the European Council after 1997, meant that a new employment policy focused on social policy and social inclusion – supplementing earlier efforts at market integration – began to emerge at the EU level (Schäfer 2006; 186). This resulted in a wide variety of CSOs concerned with social and human rights issues beginning to work transnationally to take advantage of these institutional developments above the level of the nation state. Transnational relations may include predominately ‘horizontal’ links between nonstate actors themselves (Keohane and Nye 1971) or ‘vertically’ to supranational actors like the EU (Tarrow 2005; Sikkink 1993; Keck and Sikkink 1998). This represents two types of transnational ‘bridging’ by national civil society organizations. More specifically, nationally based CSO began to learn from the goals and strategies pursued by CSOs in other member states in a horizontal process and began to work together vertically to create umbrella organizations at the European level to press claims at

9

Transnational Strategies of Civil Society Organizations

221

the supranational level. Processes of transnationalization may occur either by groups deliberately working together and coordinating activities or through a process of diffusion of ideas and action repertoires (Chabot and Duyvendak 2002). The processes of Europeanization and transnationalization are highly linked and influence the strategies pursued by these equality organizations. CSOs may use European policies and institutions to assist their efforts in pressing for domestic change. For example, groups may remind governments of their obligation to transpose EU directives in a timely and correct manner. CSOs may also point to resolutions of the European parliament, for example calls for the recognition of same-sex partnerships, to back their call for domestic change in family law. CSOs may also use arguments related to existing case law of the European Court of Justice or attempt to bring new cases before the court to argue for the protection of fundamental rights.2 CSOs may also bring matters related to democracy and the right of assembly for public demonstrations in front of the Council of Europe or the European Court of Human Rights. National groups have also come together to create a lobbying effort at the EU level. However, because the development of social policy remains limited at the EU level and important legislative gains must be still made at the national level, horizontal processes of transnationalization are important and groups in one country are learning and being aided by groups in other countries. Thus, we are witnessing a process of Europeanization of the policy area and the horizontal and vertical transnationalization of a social movement, institutionalized through particular civil society organizations. While the opportunity structures of these CSOs have expanded into a two-level game with the gradual advancement of the EU into the area of social policy, the conflictual contestation of these issues so far remains largely grounded at the member state level. Putnam (1988) introduced the concept of the two-level game to analyse the link between international developments and domestic politics. Others have applied this concept to the EU and the member states, including using it to analyse the negotiations during the intergovernmental conference leading to the Treaty of Amsterdam, a treaty which included significant gains in the area of antidiscrimination (Hug and König 2002). In other policy areas, it may be best to view the political and policy process as more intertwined between the various decision-making levels, in a process of multilevel governance (Marks and Hooghe 2001). In the area of social policy and nondiscrimination, the process is closer to a two-level game between actors, because it is national law that is most impacted by these developments and the demands of gay and lesbian groups involve issues related to criminal law, labour law and family law – traditionally areas where national law predominates. Although there has been considerable research on Europeanization (See Cowles et al. 2001; Featherstone and Radaelli 2003; Goetz and Hix 2001; Graziano and Vink 2007), relatively underexplored are effects that are by definition indirect, for 2

The European Court of Justice in the decision in Mangold vs. Helm (Case C-144/04, judgement 22 November 2005) held in a case related to age discrimination that nondiscrimination is a fundamental right within the EU and deserving of special protection by the court. This case may be important for other grounds of discrimination as the case law develops further.

222

R. Holzhacker

instance on democratic input processes involving political parties, interest groups, civil society organizations as well as patterns of democratic legitimization (Hix and Goetz 2000: 15). The establishment of a new set of institutions at the European level with legislative, executive and judicial powers provides actors with a new layer of access to political decision making. The EU creates new exit, veto and informational opportunities for domestic actors and therefore changes the opportunity structure for exerting political influence (Börzel and Risse 2003; Kohler-Koch 2003; Knill and Lehmkuhl 2002; Geotz and Hix 2001; Radaelli 2000). While social policy is a policy area which has been subject to limited pressure from the EU since at least the 1970s, the Europeanization pressure has been growing since the mid-1990s (Falkner 2007). Traditionally, social policy has been based on national competency and hierarchical relationships between public and private actors, but this has been slowly changing (Falkner 1999: 89). Falkner in her research on the 1991 Inter-Governmental Conference (IGC) found a pattern of interdependence between the ‘action capacity at the EU level on the one hand, and the development of relevant interest politics on the other’ (Falkner 1999:89). She concludes that this constitutes a co-evolution of the structures of the state and of organized interests (Eichener and Voelzknow 1994). One part of that process of coevolution is the creation of transnational networks by civil society organizations. This has also been spurned on by the action of the European Commission, through the creation of the social dialogue and funding for umbrella groups to establish a presence in Brussels. Increasingly, CSOs are active in the law and policy-making process in EU social policy, in particular in the area of antidiscrimination (Butler 2008; Mabbett 2005; Prechal 2004; Bouget and Prouteau 2002). Consultation with civil society by the European Union is part of the ‘civil dialogue’ and parallels structures of the social dialogue with trade unions and employers (Ruzzo 2007; 50). The hope is that civil society, ‘as a differentiated component of the demos, can provide an intermediating civic sphere to connect European societies to transnational governance’ (Ruzzo 2007; citing Armstrong 2002). Ruzzo identifies four reasons for the EU to consult with civil society: to improve output legitimacy, to address the relocation of power due to globalization, to further develop the identity of European citizens and to build a European public sphere. Building on the work of Ruzzo, one can identify two distinct types of consultation marking the relationship between the European Commission and civil society. The early period of consultation with civil society may be seen as type 1 consultation. Important documents here were the White Paper on Governance3 (2001) which conceptualized and extended existing best practices within the EU itself and was seen as part of the reform of EU governance structures. But beginning with the requirements for national governments to consult with national civil society when preparing reports according to the Open Method of Coordination procedure after the European Council of Lisbon in March 2000, a new type of consultation was increasingly emphasized. This type 2 consultation focuses on objectives outside

3

See http://eur-lex.europa.eu/LexUriServ/site/en/com/2001/com2001_0428en01.pdf.

9

Transnational Strategies of Civil Society Organizations

223

of the EU institutions themselves, to focus on the member states, and encourages greater consultation with civil society by national governments. These type 2 objectives have been especially important in the area of antidiscrimination and employment policy. Member states have national labour codes, various relationships between unions and employers, and rules and everyday practices around employer–employee relations which vary greatly. This means the EU needs to encourage national discussions surrounding discrimination in the employment context and beyond. This type 2 consultation is also very important for discussions around same-sex marriage and other forms of relationship recognition, part of family law, once again where national law has predominated.

9.2 Overview of the Chapter In this chapter, we will first discuss European policy developments in the area of social policy and antidiscrimination. Here we will place stress on the actions of civil society organizations at the EU level to push forward this agenda during preparations for the Treaty of Amsterdam. The focus is on the broad range of CSOs involved, but with special focus on LGBT groups, especially the umbrella organization at the EU level, the International Lesbian and Gay Association – Europe (ILGA-Europe). Next we will turn to a case study investigating the development of both vertical and horizontal processes of transnationalization during the 2008 annual conference of ILGA-Europe. Here representatives from the national member organizations gathered in Vienna to share information, inspiration, ideas and successful strategies with other national groups and with the umbrella organization in Brussels. The focus of the case study concerns the exchange of information on the newly proposed EU legislation – the ‘Horizontal Directive’ crafted to extend the prohibition of discrimination on all six grounds beyond the employment context to provide full protection. We then turn from this exchange of information between the umbrella and the member organizations concerning the Horizontal Directive to discuss first coalition strategies with other CSOs representing other grounds of discrimination, labour unions and allies in government, and then strategic litigation. This research was conducted by participant observation at the 2008 meeting by the author, plus informal interviews with participants and an examination of documents from the EU and civil society organizations. This research offers an in-depth empirical investigation of transnational developments of civil society in Europe, moving beyond existing theoretical work in the emerging field of transnationalization.

9.3 The Antidiscrimination Directives and Lobbying by Civil Society Organizations The European Union during the intergovernmental discussions leading to the Treaty of Amsterdam, signed in 1997 and entered into force in 1999, took an important step forward in the area of social policy by taking a strong stance against discrimination.

224

R. Holzhacker

Yet Article 13 of the European Community Treaty, unlike earlier measures to combat discrimination based on nationality or gender, has no direct effect. The article merely extends the EU’s legal competency to this new area, but then directives must be issued which provide legally binding measures which are enforceable in court.4 Article 13 EC states: Without prejudice to the other provisions of this Treaty and within limits of the powers conferred by it upon the Community, the Council, acting unanimously on a proposal from the Commission and after consulting the European Parliament, may take appropriate action to combat discrimination based on sex, racial or ethnic origin, religion or belief, disability, age or sexual orientation (emphasis added).

The European Commission proposed two directives in 1999 pursuant to Article 13, and these were adopted by the Council of Ministers in 2000. What is most striking here is that the Commission decided to create a hierarchy within the grounds of discrimination articulated in Article 13. The Race Directive (Council Directive 2000/43/EC) prohibits discrimination on the basis of race in many areas, including employment, but also in important areas outside the employment context, including housing, public services and access to goods and services. The other directive, the Framework Directive (Council Directive 2000/78/EC), covers the remaining four grounds – religion and belief, disability, age and sexual orientation – but limits its applicability to the employment area. The Framework Directive prohibits direct discrimination, indirect discrimination, harassment and issuing instructions for others to discriminate in employment based on the four grounds. These two EU directives then moved to the member state level, and a time for the transposition of the directives into national law was given. Most of the member states have now transposed these directives, although some states extended the grounds for exemptions to the antidiscrimination law for religious employers beyond that foreseen in the directives. The European Commission has taken several member states to the European Court of Justice for the failure to communicate any implementing legislation and is in the process of bringing infringement proceedings against a wider group of states for incompatibilities between national legislation and the directives.5 In early 2008, the European Commission announced its intention to propose the new Horizontal Directive to expand the protection for four groups, religion, age, disability and sexual orientation, to include the protections granted based on gender and race to areas beyond the employment context.6 This is expected to be a major battle ground between the member states over the next year. The current 4

However, see footnote 2. In the Mangold vs. Helm decision of the European Court of Justice, the court held for a case concerning age discrimination that antidiscrimination is a fundamental right and may be enforceable by the court even prior to transposition by the member states. 5 For a press release on these developments from the European Commission, see http://ec.europa. eu/employment_social/fundamental_rights/news/news_en.htm#race. 6 Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: nondiscrimination and equal opportunities: a renewed commitment, 2.7.2008. see http://eur-lex.europa.eu/ LexUriServ/LexUriServ.do?uri=COM:2008:0420:FIN:EN:PDF.

9

Transnational Strategies of Civil Society Organizations

225

hope is that breakthrough will come in this area during the Swedish presidency of the EU, in the second half of 2009. CSOs representing women’s groups and race and immigrant groups had taken an early lead to press for an antidiscrimination clause to be included in the Treaty of Amsterdam (Bell 2002). But ILGA-Europe also began early to inform CSOs in the member states about the possibilities of the inclusion of treaty language prohibiting discrimination on the basis of sexual orientation. Here some recent archival research, achieved by contacting individuals with carefully maintained private files, has born fruit. Beginning in 1996, ILGA-Europe’s monthly newsletter ‘Euro-letter’ informed the national LGBT groups concerning developments at the EU level and tried to mobilize and coordinate support at critical junctures at both the EU and member state levels.7 The first reference in the ‘Euro-letter’8 on this subject was in January 1996 in an article concerning the preparations for the 1996 intergovernmental conference. The article mentions that the Reflection group, consisting of representatives from interested countries, proposed that an ‘explicit commitment by member-states to protecting human rights in general and to non-discrimination on grounds of sexual orientation in particular, (be made) in the European treaties.’9 The next issue of the ‘Euro-letter’ in February 1996 includes an article with more detailed information necessary for lobbying by the national groups: it gives an overview of the institutional process which will be followed during the upcoming intergovernmental conference, gives information that the Danish gay and lesbian organization, the ‘lbl’, has contacted all 16 of the Danish members of the European Parliament and the Danish foreign minister about the inclusion of an antidiscrimination clause in the new treaty and provides information about a petition circulating to all of the member organizations of ILGA at the national level in support of the antidiscrimination clause to include sexual orientation. Thus, while a broad group of CSOs representing a variety of groups were active early on to get an antidiscrimination article on the agenda, gay and lesbian rights groups mobilized to be sure that the eventual article in the treaty would include nondiscrimination on the basis of sexual orientation. Here a national group, the lbl in Denmark, took the lead within ILGA-Europe, which then shared this information broadly throughout the network.

9.4 ILGA-Europe Annual Conference 2008 ILGA-Europe benefits from funding from the European Commission as part of the EU’s policy of promoting a social dialogue between the institutions and civil society. Today the group is recognized as a well-organized and strategic actor involved at the

7

Archives of Steffen Jensen, Copenhagen, Denmark, one of the editors of ILGA-EU’s ‘Euroletter’. 8 ‘Euro-letter’ was published on behalf of ILGA, later ILGA-Europe, by the Eurosecretariat of the National Danish Organization of Gays and Lesbians (lbl), edited by Steffen Jensen, among others. The archive is available at http://steff.suite.dk/eurolet.htm. 9 ‘Euroletter’, no. 38, January 1996, p. 5: ‘European Union IGC-96 preparations’ by Alan Reekie.

226

R. Holzhacker

European level, for example in trying to extend antidiscrimination protection beyond the area of employment and transnationally in trying to strengthen the capacity of its member organizations across Europe.10 We will now focus on examples of transnational strategies being shared during the ILGA-Europe annual conference held over 5 days in Vienna from 29 October to 2 November 2008. While much of the transnational literature so far has been rather theoretical, empirical detail is now necessary to see what kinds of information and strategies are actually being exchanged between CSOs. This takes a very in-depth detailed look, and taking a participant observer role allows one to be immersed in the discussions being traded across the network. While email or telephone exchanges between members and leaders of a group no doubt occur sporadically, and at times systematically across a network, here the investigation concerns a more formal exchange of information and strategies during one particular conference where the participants are able to meet face to face. In these situations, a high degree of social capital is created through the intense ‘bonding’ of these representatives from national organizations, allowing them to fulfill their role in ‘bridging’ transnationally when they return to their home organizations. The participants become an important node in the institutional connections furthering transnational action. We focus on transnational learning and exchange of information through two types of processes – vertically between the umbrella organization and the national member organizations and horizontally between the organizations.11 The information exchanged focused on (1) political and policy developments at the national and EU levels, in particular on the newly proposed Horizontal Directive; (2) various forms of coalition behavior of LGBT groups, for example with other civil society organizations, labour unions and sympathetic governmental bodies, and (3) strategic litigation.

9.5 Exchanging Information on the New EU Horizontal Directive The EU’s proposed Horizontal Directive is an important step forward in the social policy of the EU and would bring significant protections and benefits to the lives of many Europeans. The lobbying surrounding this advancement brings many umbrella organizations and national CSOs together to discuss the directive at both the EU and national levels. Evelyne Paradis, ILGA-Europe’s policy specialist on EU legislation, first presented the four goals of the umbrella group for the new directive in a meeting consisting of one or two representatives from each national member

10

See ILGA Europe ‘Strategic Plan for ILGA-Europe 2005-2008’, Brussels, October 2005. For additional documents concerning ILGA strategy as the EU debates the new antidiscrimination directive, see Destination Equality magazine of ILGA Europe, Volume 8, Issue 2, autumn 2008, including the cover story by EU Commissioner Vladimir Spidla ‘The fith is not over yet!’

11

9

Transnational Strategies of Civil Society Organizations

227

organization from within the EU.12 She said that ILGA-Europe strongly welcomes the directive and is working very closely with other umbrella CSOs at the EU level based on the other grounds of discrimination found in Article 13. She delineated four goals of ILGA for the Horizontal Directive as it undergoes transformation in the political process. First, to ensure that the ‘personal scope’ of the directive covers all four grounds – age, disability, religion and sexual orientation. This is to eliminate the current hierarchy of discrimination which was created by the current two directives in force. Second, the goal is to have the new directive have the same ‘material scope’ as the Race Directive. Thus, the goal is to have full social protection, including nondiscriminatory access to all goods and services, housing and so on currently contained in the Race Directive. The Race Directive is considered the ‘gold standard’ and the basis for the discussion of the new directive. Third is the demand that all definitions of discrimination be consistent across these directives. Both direct and indirect discrimination should be covered, and legal definitions and standards of proof should parallel the existing Race Directive. Finally, the goal of ILGA-Europe is to insist that each member state create an equality body with powers to enforce, implement, educate and monitor discrimination based on all six grounds provided for in the Treaty of Amsterdam. During the exchange of views between ILGA-Europe and the member organizations in this meeting concerning the Horizontal Directive, various forms of transnational learning and exchange of information were evident. First, two-way vertical learning was evident. ILGA-Europe presented their position on the new directive and their strategy for achieving it. They also shared the information that they were able to gather about the positions of representatives from member state governments in Brussels on particular points of the new directive. Here the list was quite detailed, listing each country, whether in favour or not, and listing any particular concerns a country had with regard to specific provisions or particular language in the draft directive.13 ILGA-Europe also shared strategic concerns with their member organizations. Paradis said they were trying at the EU level to keep the discussion narrow and focused on antidiscrimination and to not expand the discussion too broadly. They were particularly careful to say that the directive should not be seen as interfering with laws in the member states with regard to marriage and partnerships. She cautioned the national groups to not conflate the issues – ILGA-Europe does not take the position that this directive in and of itself demands that member states recognize same-sex partnerships or marriage. ILGA-Europe recognizes that would be a step too far for many member states, so it is making a strategic choice to push for what is more likely achievable at the present. During the conference, the umbrella organization asked the national groups in their lobbying to also take the position

12

Presentation by Evelyne Paradis, ILGA Europe, 29 October 2008, Vienna, Austria. Internal ILGA Europe memorandum ‘Position of EU countries regarding the nondiscrimination Directive’ distributed to participants of the strategy session on the Horizontal Directive, Vienna, 29 October 2008.

13

228

R. Holzhacker

that the new directive does not interfere with an area of law seen as the prerogative of national governments – family law. This was a position that caused some grumbling in the room, because partnership recognition or same-sex marriage is a goal pursued by many of the national groups, but they at least heard the reasons why the umbrella organization was attempting to keep these issues separate at the EU level for strategic reasons. ILGA-Europe also used the conference to try to learn more about the national context impacting the negotiation position of countries at the EU level. They asked the national representative of the organizations in the member states: what do you know about your government’s position? Has there been any coverage in the media? What are the current debates in your country concerning antidiscrimination? Do you expect these issues will be raised in the upcoming election campaign that could have an impact on the position the government takes at the EU? These questions demonstrate a careful attention to detail and the need for the umbrella organization to try to follow political, media and public opinion developments across Europe on these issues. The ILGA representative then asked for information from the member organizations concerning what they knew about their own government’s position. Paradis said that sometimes the representatives of the member states may take slightly different positions than actors in the national capitals, so they wanted to gain a deeper understanding of the positions taken by countries. Respondents from Eastern Europe spoke up first. The Slovakian representative said her government is in favour of the new directive, but expresses its support quietly to avoid raising church opposition. The Bulgarian representative said her government is also in favour of the new directive, but added that the government’s attitude is generally ‘whatever comes from Brussels is okay, we are for it,’ so support is conditional on the general consensus which will emerge. Turning to Southern Europe, the representative from the Greek organization said the situation in Greece is difficult for them. The Greek government has introduced a bill to recognize some types of registered partnerships, but it excludes same-sex couples. The Greek CSO asked for more information from ILGA-Europe about precisely what they are asking their organization to request from their government. She said they will then translate this into the Greek language and lobby the government on behalf of the new directive. The Portuguese representative said that the government is not against the antidiscrimination directive, but pointed out that there are political concerns because a recent same-sex marriage proposal recently failed.14 Finally, turning to Western Europe, the German representative said that those within the ministry handling the file have been sceptical about their government’s support for the proposed directive. They said that because of the grand coalition between the Christian and Social Democrats, they would next try to get the Social Democrats to take a position on this and then press

14

Note here that ILGA Portugal is planning a spring 2009 conference in Lisbon on mainstreaming LGBT issues in policy-making, with the assistance of government representatives from other countries that have broadly implemented policies towards gays and lesbians.

9

Transnational Strategies of Civil Society Organizations

229

their conservative coalition partner to acquiesce. They also said that the opposition forces to antidiscrimination law, principally business organizations stating concerns about compliance, have been successful at getting media attention focusing on the costs for private actors to conform with the law. The potential complicating factor in the two-level strategy, the EU and the national, was apparent in Vienna, but not systematically discussed. It may be fine for the European level for ILGA-Europe to say they need to keep the discussions on discrimination and partnership recognition separate, because it will not be possible to press for the antidiscrimination also in relationships at this time at the EU level. They say there is broad agreement that family law is of national competence, so they accept there is likely to be some kind of language trying to exclude such issues from the reach of the directive. The goal here is to narrow the language to avoid broad interpretations of the exception and also to try to place this language in the preamble to the directive instead of the directive itself. But when ILGA-Europe asks their member organizations in the member states to lobby their government to support this EU directive, ILGA warns against conflating it with the issue of partnership recognition. But of course it is the same national civil society group that may be pressing their government for both issues at once and often may be the same lobbyist on the civil society side and may or may not be the same person that represents the government on the other side of the table. This makes the separation of the arguments at the two levels of government difficult in practice for civil society organizations. The opening plenary session of the ILGA conference began a day following the intensive meeting of the national membership organizations from across the EU discussing the strategies for passage of the Horizontal Directive. Belinda Pyke, from the European Commission, Civil Society Directorate of DG Employment, Social Affairs and Equal Opportunities, said the success of getting President Barroso and the European Commission to propose the new Horizontal Directive based on all four grounds in July 200815 was a ‘big tribute to ILGA and the membership related to ILGA.’16 The European Commission had received a barrage of criticism from CSOs in early 2008, from the European Women’s Lobby (EWL)17 , from the European Network against Racism (ENAR) and from ILGA-Europe and others after considering backing away from plans for offering a new directive based on all four grounds. The president was reminded by the groups of his commitment made in a speech to the European Parliament in 2004 to propose a directive based on all grounds of discrimination covered by Article 13 EC. The European Parliament also strongly called for the European Commission to propose a directive based on all four grounds. Once again, we see the success of strategies in which CSOs and official EU bodies, 15

Council Directive ‘on implementing the principle of equal treatment between persons irrespective of religion or belief, disability, age or sexual orientation.’ Issued 2.7.2008. See http://ec. europa.eu/employment_social/fundamental_rights/pdf/pubst/poldoc/propdir426_08_en.pdf. 16 Presentation by Belinda Pyke, European Commission, 30 October 2008, Vienna, Austria. 17 EWL calls the European Commission to ensure uniform protection on all grounds of discrimination, June 2008.

230

R. Holzhacker

especially the European Parliament, are able to come together with their different mandates and power resources. Pyke also reported that the Council of Ministers has begun their deliberations over the Horizontal Directive. She said that the Council Working group, brought together to discuss social questions, is particularly interested that a new directive is carefully grounded in Article 13 EC and applies the principle of subsidiarity. One of the goals of this council group is to make sure that gains that have been made during the French presidency on this issue are ‘banked‘ before the Czech presidency. The Czech government has already indicated this directive will not be a priority for them, so hope is turning to the Swedish presidency that follows. Pyke said that the European Network of Equality Bodies (EQUINET) has been working to get Sweden to make a pledge to give the new directive a priority during its presidency.

9.6 Coalition Strategies with Other Civil Society Organizations, Labour Unions and Governmental Bodies Next we turn to coalition behaviour of LGBT CSOs, reaching out to other CSOs, labour unions and governmental bodies. It is apparent from discussions in Vienna that the umbrella organization ILGA-Europe is able to do this effectively at the EU level, reaching out to other elite-level umbrella organizations. There was a discussion about recent ILGA-Europe outreach to women’s groups, disability groups and antiracist groups like ENAR to discuss the Horizontal Directive. A concrete example of this kind of coalition behaviour at the EU level is the discussion which ILGA-Europe has with the ENAR. While ENAR welcomes and supports the new directive, some of their members want to make sure that exemptions are crafted to protect religiously based schools. Some of these schools have an Islamic background. ILGA’s position is that the religious-based exemption is acceptable, but that the exception must be carefully crafted to not allow discrimination on nonreligious grounds. Thus, for example, Catholic schools might give preference to Catholics, but should not be free to discriminate based on other grounds like gender, disability or sexual orientation. The directive itself is not designed to have the EU impact school curriculum. However, there is language to protect individuals from ‘harassment‘ related to the six grounds of antidiscrimination. This may be beneficial to national groups which wish to introduce programmes in schools to fight harassment. This is a serious concern, as many instances of harassment of LGBT people happen in the school context. Next we will discuss recent examples of transnational action involving coalitional activity with trade unions, principally in Western Europe, to encourage them to be active to support antidiscrimination in the workplace. Sylvan Agius from ILGAEurope exchanged information on bringing together trade unionists and members of LGBT groups in workplaces to tackle discrimination in employment during a workshop session in Vienna.18 Increasingly, labour unions are also reaching out 18

Presentation by Sylvan Agius, ILGA Europe, 1 November 2008, Vienna, Austria.

9

Transnational Strategies of Civil Society Organizations

231

to labour unions in Eastern Europe and discussing the antidiscrimination agenda with them. One example of coalitional activity with labour unions which was discussed in Vienna occurred in early October 2008 between civil society and labour union groups in different countries. Activists and full-time staff members from major trade unions from Western Europe, including UNISON from the UK, Abvakabo from the Netherlands and GEW and ver.di from Germany, travelled to Warsaw to hold talks with leading members of the Polish trade union concerning the need for unions to be active against discrimination of LGBT people in the workplace.19 The delegation first met with representatives from the local LGBT organizations, including the KpH – the Campaign Against Homophobia – the national LGBT organization in Poland, and Trans-Fusja, the CSO concerned with transgender issues in the country. These preliminary meetings with these national LGBT groups were always mentioned to the trade unions, ministries and other CSO organizations that the delegation subsequently met with to strengthen and provide backing to these groups among other national actors. This was specifically designed to demonstrate how important these organizations are to the groups abroad.20 Seeking coalitions with governmental bodies, at both the European and national levels, is also important for civil society organizations. Governmental bodies have power and resources that can be crucial for CSOs to reach their strategic objectives. Morten Kjaerum, the director of the European Union Agency for Fundamental Rights (FRA), began his presentation at the ILGA-Europe conference by declaring that ‘freedom from discrimination is a fundamental human right.’21 He then talked about process, and how civil society could help achieve that end. He said his agency can help by ‘bringing civil society together to encourage dialogue and discussion among different groups and different countries’. He said that while he finds ‘dialogue is minimal between civil society groups based on different grounds’, the ‘common denominator, the avoidance of discrimination’ should be stressed in dialogue between them. He also demonstrated how governmental agencies, such as his own, can provide assistance to civil society. He said that his agency will assist LGBT groups in pushing their agenda forward, by preparing one- or two-page documents, in multiple languages, based on the sociological report on homophobia 19

Summary leaflet ‘Signs of Hope in Warsaw in October’ prepared by the Friedrich Ebert Stiftung, Warsaw, 2008. Full report available in Polish, English and German from the foundation at [email protected]. 20 The delegation was headed up by Svend Robinson, the Public Services Advocacy Officer for the Public Services International (PSI). The PSI first took a policy stance towards the rights of LGBT workers in 1993, and since 2004 it has been working together with Education National, another global union, to develop a plan of action towards reaching these goals. The declaration of the EI and PSI commits the unions to develop an action plan on the protection and promotion of LGBT workers rights, to submit a test case to the International Labor Organization (ILO) on the application of ILO conventions to LGBT workers and to develop training materials and capacity building in national unions. 21 Presentation by Morten Kjaerum, Fundamental Rights Agency, 30 October 2008, Vienna, Austria.

232

R. Holzhacker

across Europe prepared for the FRA. This is the second of a two-part report; the first one released in June 2008 was a legal report on the status of gays and lesbians across Europe.22 Kjaerum said that this new report moves beyond the first report to focus on the realities in the member states beyond legal measures. He said that there is a growing realization in the member states that more needs to be done in the area of antidiscrimination to make a real difference at the societal level. Kjaerum said that ‘leadership matters on these issues’ and said the report calls for more political leadership on LGBT rights to make sure these rights are better situated in society. Kjaerum also highlighted issues for EU citizens in a loving relationship and their rights to have this relationship recognized by other EU states when they exercise their right of free movement in the EU. He discussed three types of legal status for same-sex couples which have to be considered in this context. The first is whether the host country recognizes legal same-sex marriages, for example those recognized by Belgium, the Netherlands and Spain. The second is the recognition of various forms of civil partnership found in the laws of certain states. He said that seven member states have civil partnership laws that are considered equal to marriage, and other states have laws that give partial rights and obligations of marriage. Finally, is the situation faced by nonrecognized couples and the status an individual is given in such circumstances when the couple exercises their freedom of movement within the EU for work or pleasure. This discussion is recognition that although marriage and family law is an area where national law predominates, there are also legitimate EU issues to be raised so that EU citizens can exercise their rights throughout the EU on an equal basis. In addition to the discussion at the ILGA-Europe conference on EU-level institutions and agencies, there was discussion centered around national governments. Here the topic of mainstreaming LGBT policies is very important and follows earlier efforts to mainstream gender policy throughout governmental decision making. Here there was a transnational exchange by representatives of LGBT-friendly governments, focusing on the Netherlands, Catalonia in Spain and Flanders in Belgium. This inspired activists in other countries to think beyond the demands of legal changes to antidiscrimination law to also consider action programmes and policies for equal opportunities. The policymakers were good at explaining the range of programmes that they had established in their countries. Here Ben Baks, senior policy advisor, LGBT Policy Affairs, Dutch Ministry of Education, Culture and Science, took the lead to share important information regarding the relationship between government and civil society.23 He organized a panel to share experiences from ‘LGBT friendly governments’ across Europe. He emphasized the importance 22

European Union Agency for Fundamental Rights, 30 June 2008, report ‘Homophobia and Discrimination on Grounds of Sexual Orientation in the EU Member States Part I – Legal Analysis,’ see http://fra.europa.eu/fraWebsite/material/pub/comparativestudy/FRA_hdgso_ part1_en.pdf. 23 Presentation by Ben Baks, Dutch government, with Xavier Verdaguer Ribes (Catalonian government, Spain) and Martha Franken (Flemish government, Belgium), 1 November 2008, Vienna, Austria.

9

Transnational Strategies of Civil Society Organizations

233

of formal nodes of interaction between levels of government and between government and civil society in the area of antidiscrimination. In particular he stressed that it is important to ‘have a focal point in each government for interaction with civil society on LGBT’ so that dialogue is maintained.

9.7 Strategic Litigation Moving now from coalition strategies of CSOs, we turn to the exchange of information and strategies with regard to strategic litigation. Patricia Prendville, executive director of ILGA-Europe, said at the conference in Vienna that this new focus for the organization began about 2 years ago when the member organizations began asking what kind of human rights cases they should take.24 ILGA-Europe then established a litigation advisory group to decide what kind of third-party interventions to take at the EU level and to begin capacity building at the national level. They thus embarked on a dual strategy at both the national and European levels. One of the conference sessions was held by Andrea Coomber from the organization Interrights in London, explaining the uses of strategic litigation.25 She explained that strategic litigation is the use of law to create lasting effects beyond the individual – to establish or enforce important principles of law. She explained that strategic litigation achieves change by (1) establishing precedent by challenging statutory law or existing case law, (2) documenting and exposing social injustice and (3) highlighting gaps in legal protection or widespread practices which violate human rights. Coomber proceeded to inform the representatives of the member organizations to carefully consider their litigation strategy in terms of their overall political and societal strategy. She asked them to first consider the following questions: (1) What do you want to change? (2) How does litigation support your broader strategy, for example in terms of publicity, media and positioning of your group vis-à-vis the public? (3) What are the chances of prevailing in the litigation? And if the chances are not particularly high, what is the risk of losing, and is there a risk of a possible backlash? She also emphasized the importance of selecting the ‘right client’ to represent the broader issues in front of a judge and to the public. She also noted that one first proceeds with domestic litigation for the presentation of evidence and then European litigation to establish international principles that are enforceable throughout the EU. The session ended with a call that each group across Europe keep an eye out for potential cases. In addition, each national group should try finding parallel examples in their own countries and documenting them carefully, so cases one in one country can have a positive impact on another. Rob Wintemute, lawyer and professor of human rights law, King’s College, London, spoke about the ILGA-Europe litigation advisory group. He said that there 24 25

Presentation by Patricia Prendville, ILGA Europe, 30 October 2008. Presentation by Andrea Coomber, lawyer with Interrights, London, 30 October 2008.

234

R. Holzhacker

is a need to reach out to mainstream human rights organizations to ask them to intervene in LGBT cases. This broader involvement signals to judges the broader issues at stake in cases and helps with the acceptance of decisions by societies. He also said the group is reaching out to other CSOs to share with them the group’s priorities, so that they hear about other possible cases they could support. He said for example in the area of hate crimes, there has been some important case law regarding the Roma, and the principles in those cases could be extended also to incidents of LGBT hate crimes. Next, discussion turned to an important case winding its way through national and European courts, the Maruko case26 concerning equal rights to pension benefits. Here the European Court of Justice, in an important decision, has held that discrimination is not allowed in pensions, if the serving partner is in a ‘comparable relationship’ to marriage. Now the case returns to the national courts, in this case Germany, to determine that question. ILGA-Europe became a co-litigant in this case, represented by the lawyer Helmut Graupner,27 because the court does not have an intervention procedure in cases referred to it from national courts. The European Court of Justice, the highest court of the European Union, is not the only court that is important for fundamental rights and antidiscrimination cases. Thomas Hammarberg, the Human Rights Commissioner of the Council of Europe, urged the groups meeting in Vienna to also ‘bring cases to Strasbourg. The Court (European Court of Human Rights) is prepared to move forward’.28 He said that it is appalling that Pride marches have been banned at times in Europe or held, and violence occurs with very little police protection. He stressed to the representatives ‘how important it is to reach out to other human rights organizations’. He continued, ‘but they can be hesitant at times, so when I travel, I try to bring groups together, to build broader coalitions . . . .’ He talked about such organizations as Human Rights Watch and Amnesty International and their efforts on behalf of LGBT people across Europe and beyond.

9.8 Conclusion In this chapter, we first set forth Article 13 of the European Community Treaty as amended in the Treaty of Amsterdam and the subsequent issuance of the two antidiscrimination directives. The advent of these institutional changes at the EU level

26

European Court of Justice, Case C-267/06, Tadao Maruko vs.Versorgungsanstalt der deutschen Bühnen, see the decision at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri= CELEX:62006J0267:EN:HTML. Also see a presentation of Helmut Graupner, a lawyer on the case supporting Maruko, related to his presentation at ILGA Europe in Vienna. http://www.era.int/web/en/resources/5_1095_7900_file_en.14859.ppt#256,1. 27 Presentation by Helmut Graupner, lawyer, 31 October 2008, Vienna, Austria. 28 Presentation by Thomas Hammarberg, Human Rights Commissioner of the Council of Europe, 31 October 2008, Vienna, Austria.

9

Transnational Strategies of Civil Society Organizations

235

and the inclusion of sexual orientation in the antidiscrimination directives galvanized and provided new opportunities for gay and lesbian civil society organizations across Europe to work together transnationally. The announcement in 2008 by the European Commission that they will attempt to extend the protection beyond the area of employment with a new Horizontal Directive provides new impetus for such transnational cooperation. The Europeanization of antidiscrimination has thus laid a minimum ground floor, in which further extension of rights beyond the area of employment, to include equality in housing, the provision of services and other areas have become possible. The Europeanization of the policy area has led to a growing transnationalization of the LGBT movement, in which national groups learn and are assisted by groups in other countries in a horizontal process and in the creation of an active and well-organized umbrella organization at the EU level in a vertical process. The ILGA-Europe 2008 annual conference was an opportunity for national LGBT groups to exchange information on the new EU directive, as well as strategies involving coalition possibilities with other civil society organizations, labour unions and governments, as well as opportunities for strategic litigation. The traditional national processes of social capital formation of civil society organizations, being involved in ‘bonding’ within their group and ‘bridging’ to the broader society, is thus now being taken a step further by transnational bridging in a vertical process to the umbrella organizations at the EU level and horizontally to groups in other member states.

Bibliography Alter, Karen and Jeannette Vargas (2000). Explaining variation in the use of European litigation strategies. Comparative Political Studies 33 (4): 452–482. Altman, Dennis (1994). Power and Community: The Organizational and Cultural Responses to AIDS. London: Taylor and Francis. Armstrong. K. (2002) ‘Rediscovering civil society: The European Union and the White Paper on Governance,’ European Law Journal 8(1): 102–32. Baumgartner, Frank and B. Jones (1993). Agendas and Instability in American Politics. Chicago: Chicago University Press. Baumgartner, Frank and Beth Leech (1988). Basic Interests: The Importance of Groups in Political Science. Princeton, New Jersey: Princeton University Press. Bell, Mark (2002). Anti-Discrimination Law and the European Union. Oxford: Oxford University Press. Bell, Mark and Waddington (1996). The 1996 Intergovernmental Conference and the prospects of a Non-Discrimination Treaty Article. Industrial Law Journal 25 (4): 320–336. Beyers, Jan (2002). Gaining and seeking access: The European adaptation of domestic interest associations. European Journal of Political Research 41 (5): 585–612. Beyers, Jan (2004). Voice and access, political practices of European interest associations. European Union Politics 5: 211–240. Beyers, Jan and Bart Kerremans (2007). Critical Resource Dependencies and the Europeanization of domestic interest groups. Journal of European Public Policy 14 (3): 460–481. Blasius, Mark (1994). Gay and Lesbian Politics: Sexuality and the Emergence of a New Ethic. Philadelphia: Temple University Press.

236

R. Holzhacker

Börzel, Tanja A. and Thomas Risse (2003). Conceptualising the Domestic Impact of Europe. In Kevin Featherstone and Claudio Radaelli, eds. The Politics of Europeanisation. Oxford: Oxford University Press, pp. 55–78. Bouget, Denis and Lionel Prouteau (2002). National and Supranational Government-NGO Relations: Anti-Discrimination Policy Formation in the European Union. Public Administration and Development, 22: 31–37. Bouwen, Pieter and Margaret McCown (2004). Lobbying versus Litigation: Political and Legal Strategies of Interest Representation in the European Union, presented at ECPR Standing Group on European Politics, Bologna 2004. Bouwen, Pieter (2002). Corporate lobbying in the European Union: The logic of access. Journal of European Policy 9: 3. Bozzini, Emanuela, Stefano Fella, and Hans-Jörg Trenz (2007). ‘Anti-Rascist Movements in Britain, Germany, and Italy – Comparing Strategies, Political Opportunities and the Effects of Europeanization,’ article manuscript. Butler, Israel de Jesus (2008). Non-governmental organization participation in the EU law-making process: The example of social non-governmental organizations at the commission, parliament, and council. European Law Journal 14 (5): 558–582. Cichowski, Rachel. (2001). Judicial Rulemaking and the Institutionalization of European Union Sex Equality Policy. In Stone Sweet, Alec, Wayne Sandholz and Neil Fligstein, eds. The Institutionalization of Europe. Oxford: Oxford University Press. Chabot, Sean and Jan Willem Duyvendak (2002). Globalization and transnational diffusion between social movement: Reconceptualizing the dissemination of the Gandhian repertoire and the ‘coming out’ routine. Theory and Society 31: 697–740. Conant, Lisa (2002). Justice Contained: Law and Politics in the European Union. Ithaca: Cornell University Press. Cowles, Maria Green, James A. Caporaso, and Thomas Risse, eds. (2001). Transforming Europe. Europeanization and Domestic Change. Ithaca, New York. Crombez, Christophe (2002). Information, Lobbying and the Legislative Process in the European Union. European Union Politics, 3 (1): 7–32. Della Porta, Donatella, Hanspeter Kriesi and Dieter Rueth (1999). Social Movements in a Globalizing World. London: MacMillan. Della Porta, Donatella and Manuella Caiani (2007). Europeanization from Below? Social Movements and Europe. Mobilization 12 (1): 1–20. Dür, A. (2005). Interest Group power in the EU: access, influence, and resources, paper presented at the workshop,The State of the Art in EU Interest Representation’ Leiden, April 14–16. Duyendak, Jan Willem (1996) The de-politicization of the Dutch gay identity, or why Dutch gays aren’t queer. In Seidman, S., ed. Queer Theory/Sociology. Cambridge, MA: Blackwell Press, 421–438. Edwards, M. and J. Gaventa (2001). Global Citizen Action: Lessons and Challenges (Boulder. Col.: Lynne Rienner). Eichener, V. and H. Voelzkow (1994). Europaeische Integration und verbandliche Interessenvermittlung, Marburg: Metropolis. Eising, Rainer (2003). Europäisierung und Integration. Konzepte in der EU-Forschung. Europäische Integration. M. Jachtenfuchs and B. Kohler-Koch. Opladen, Leske + Budrich. UTB: 387–416. European Parliament (1994). Report for the Committee on Internal Affairs and Citizens Rights on Equal Rights for Homosexuals and Lesbians in the European Community (Roth) A3-28/94, Art. 14. Falkner, Gerda (1999). European Social Policy: Towards multi-Level and multi-actor governance in Beate Kohler-Koch and Rainer Eising, eds. The Transformation of Governance in the European Union. London: Routledge. Falkner, Gerda (2007). Social Policy. In Paulo Graziano and Maarten Vink, eds. Europeanization: New Research Agendas. Basinkstoke: Palgrave Macmillan, pp. 253–265.

9

Transnational Strategies of Civil Society Organizations

237

Farrell, Henry and Adrienne Heritier (2003). Formal and Informal Institutions Under Codecision: Continuous Constitution-Building in Europe. Governance: An International Journal of Policy, Administrations, and Institutions 16 (4): 577–600). Featherstone, Kevin and Claudio Radaelli, eds. (2003). The Politics of Europeanization. Oxford and New York: Oxford. Geddes, Andrew and Virginie Guiraudon (2004). Britain, France, and EU Anti-Discrimination Policy: The Emergence of an EU Policy Paradigm, West European Politics 27 (2): 334–53. Giugni, Marco (1998) Was is Worth the Effort? The outcomes and consequences of social movements. Annual Review of Sociology 24: 1. Giugni, Marco (2004). Social Protest and policy change. Lanham: Rowman and Littlefield. Goetz, Klaus and Simon Hix, eds. (2001). Europeanized Politics? European integration and National Political Systems. London: Frank Cass. Grande, Edgar (1996). The State and Interest Groups in a Framework of Multi-level Decisionmaking: The Case of the European Union. Journal of European Public Policy 3 (3): 318–338. Greenwood, J. 2003. Interest Representation in the European Union. Basingstoke: Palgrave. Graziano, Paolo and Maarten Vink, eds. (2007). Europeanization: New Research Agendas. Basinkstoke: Palgrave Macmillan. Haider-Markel, Donald P. and Kenneth J. Meier (1996). ‘The Politics of Gay and Lesbian Rights: Expanding the Scope of the Conflict. Journal of Politics 58 (2): 332–349. Helfferich, Barbara and Felix Kolb (2001). Multilevel Action Coordination in European Contentious Politics: The Case of the European Women’s Lobby. in D. Imig and S. Tarrow. Contentious Europeans: Protest and Politics in an Emerging Polity. New York and Oxford: Rowman. Héritier, Adrienne (1999). Policy-Making and Diversity in Europe. Escape from Deadlock. Cambridge: Cambridge University Press. Hix, Simon and Klaus H. Goetz (2000). Introduction: European Integration and National Political Systems. West European Politics, Special Issue 23 (4): 1–26. Holzhacker, Ronald (1999). Labor Unions and Sexual Diversity in Germany. In Gerald Hunt, ed. Laboring for Rights: Unions and Sexual Diversity Across Nations. Philadelphia: Temple University Press. Holzhacker, Ronald and Markus Haverland (2006). European Research Reloaded: Cooperation and Integration among Europeanized States. Dordrecht: Springer. Holzhacker, Ronald (2007). The Europeanization and Transnationalization of Civil Society Organizations Striving for Equality: Goals and Strategies of Gay and Lesbian Groups in Italy and the Netherlands. Florence: European University Institute. Hooghe, Liesbet and Gary Marks (2001). Multilevel Governance and European Integration. Oxford: Rowman and Littlefield. Hunt, Gerald, ed. (1999), Laboring for Rights. Philadelphia: Temple University Press. Hug, Simon and Thomas König (2002). In View of Ratification: Governmental Preferences and Domestic Constraints at the Amsterdam Intergovernmental Conference. International Organizations 56 (2): 447–476. Katz, Richard S., ed. (1999). The European parliament, the national parliaments, and European integration. Oxford. Keck, M.E. and K. Sikkink (1998). Activists Beyond Borders: Advocacy Networks in International Politics. Ithaca, NY: Cornell University Press. Keohane, Robert O. and Joseph S. Nye, Jr. (1971). “Transnational Relations and World Politics: An Introduction.” International Organization 25:3 (Summer), pp. 329–349. Kitschelt, Herbert (1986). Political Opportunity Structures and Political Protest: Anti-Nuclear Movements in Four Democracies. British Journal of Political Science, 16 (1): 57–85. Knill and Lehmkuhl (1999). How Europe matters: Different Mechanisms of Europeanisation. European Integration Online Papers 3 (7). http://eiop.or.at/eiop/texte/1999-007.htm Knill, C. and D. Lehmkuhl (2002). The National Impact of European Regulatory policy, three Europeanization mechanisms. European Journal of Political Research 41, 255–280.

238

R. Holzhacker

Kohler-Koch, Beate, ed. (2003). Linking EU and National Governance. Oxford, Oxford UP. Kohler-Koch, Beate (1999). The Evolution and Transformation of European Governance. In Beate Kohler-Koch and Rainer Eising, eds. The Transformation of Governance in the European Union. London: Routledge. Kohler-Koch, Beate and Rainer Eising (2004). Interessenpolitik in Europa. Baden-Baden: Nomos. Kollman, Ken (1988). Outside Lobbying, Public Opinion and Interest Group Strategies. Princeton, New Jersey: Princeton University Press. Krishnan, Jayanath (2002). Public Interest Litigation in a Comparative Context. Buffalo Public International Law Journal 19: 20. Liesbet Hooghe and Gary Marks. (2001). Multilevel Governance and European Integration. Rowman and Littlefield. Lowry, David (2007). Why do organized interests lobby? A Multi-goal, multi-context theory of lobbying. Polity 39: 29–54. Mabbett, Deborah (2005). The Development of Rights-Based Social Policy in the European Union: The Example of Disability Rights. Journal of Common Market Studies 43 (1): 97–120. Mahoney, Christine. (2007). Networking vs. allying: the decision of interest groups to join coalitions in the U.S. and the EU. Journal of European Public Policy 14 (3): 366–383. Marks, Gary and Doug McAdam (1996). Social Movements and the Changing Structure of Political Opportunity in the European Union. West European Politics 20: 111–133. Mazey, Sonia, and Jeremy Richardson (1993). Lobbying in the European Community. Oxford: Oxford University Press. Michalowitz, Irina (2007). What determines influence? Assessing conditions for decisionmaking influence of interest groups in the EU. Journal of European Public Policy, 14 (1): 132–151. Morgan, David and Kenneth Meier (1980). Politics and Morality. Social Science Quarterly 61: 144–148. Orenstein, M. and Schmitz, H.P. (2006). The New Transnationalism and Comparative Politics. Comparative Politics 38: 4. Page, Benjamin and Robert Shapiro 1992. The Rational Public. Chicago: University of Chicago Press. Pedersen, Ove (2006). Interest Organizations and European Integration. In Ronald Holzhacker and Erik Albaek, eds. Europeanization and Democratic Governance. Edward Elgar. Prechal, Sacha (2004). Equality of Treatment, Non-discrimination and social policy: Achievements in Three themes. Common Market Law Review 41: 533–551. Putnam, Robert (2000). Bowling alone: the collapse and revival of American community. New York: Simon and Schuster. Putnam, Robert (1988). Diplomacy and Domestic Politics. The Logic of Two-Level Games. International Organization 42 (2): 427–460. Radaelli, Claudio (2000). Whither Europeanization? Concept stretching and substantive change. European integration online Papers 4 (8). Rayside, David (1999). On the Fringes of the New Europe: Sexual Diversity Activism and the Labor Movement. In Gerald Hunt, ed. Laboring for Rights: Unions and Sexual Diversity across Nations. Philadelphia: Temple University Press. Reflection Group (1995) Final Report. http://europa.eu.int/ Risse, Thomas (2002). Transnational Actors and World Politics. In Walter Carlsneae, Thomas Risse, and Beth Simmons, eds. Handbook of International Relations. London: Sage, pp. 255–274. Richardson, Jeremy and Sonia Mazey (2001). Interest Groups and EU Policy-Making: Organizational Logic and Venue Shopping. European Union: Power & Policy-Making: Organizational Logic and Venue Shopping. London: Routledge. Risse-Kappen, T., ed. (1995). Bringing Transnational Relations Back In. Cambridge: Cambridge University Press.

9

Transnational Strategies of Civil Society Organizations

239

Ruzzo, Carlo (2007). Advocacy Coalitions and the participation of organized civil society in the European Union. In Ruzzo, C. and Della Sala, eds. Governance and Civil Society. England: Manchester University Press. Ruzza, Carlo (2000). Anti-racism and EU Institutions. European Integration, 22: 145–171. Sabatier, Paul. (1988). An advocacy coalition framework of policy change and the role of policyoriented learning therein. Policy Sciences 21: 129–168. Schäfer, Armin (2006). Beyond the Community Method: Why the Open Method of Coordination was introduced to EU policy-making. In Ronald Holzhacker and Markus Haverland, eds. European Research Reloaded: Cooperation and Integration among Europeanized States. Dordrecht: Springer, pp. 179–202. Schnattscheider, E.E. (1960). The Semi-Sovereign People. New York: Holt, Reinhart and Winston. Sabatier, Paul and Hank Jenkins-Smith (1999). The Advocacy Coalition Framework: An Assessment. In Paul Sabatier, ed. Theories of the Policy Process. Boulder: Colorado, pp. 117–166. Sikkink, Kathryn (2004). Patterns of Dynamic Multilevel Govenance and the Insider-Outsider Coalition. In Donatella Della Porta and Sidney Tarrow, eds. Transnational Protest and Global Activism. Lanham: Rowman and Littlefield, pp. 151–174. Sikkink, Kathryn (1998). ‘Transnational Politics, International Relations Theory, and Human Rights. Political Science and Politics, 31 (3): 516–523. Sikkink, Kathryn (1993). Human Rights, Principled Issue-Networks, and Sovereignty in Latin America. International Organization 47 (3):411–441. Schendelen, M.P.C.M. (2002). The Art of Lobbying the EU. The Netherlands: Amsterdam University Press. Szyszczak,E. (2000). The Evolving European Employment Strategy. In J. Shaw, ed. Social Law and Policy in an Evolving European Union. Oxford: Hart, pp. 197–220. Tarrow, Sidney (2005). The New Transnational Activism. Cambridge: Cambridge University Press. Tarrow (1998). Power in Movement: Social Movements and Contentious Politics. 2nd edition. Cambridge: Cambridge University Press. Theis, Wolgang (1997). Mach Dein Schwulsein öffentlich – Bundesrepublik. In Andreas Sternweiler and Hans Gerhard Hannesen, eds. Goodbye to Berlin?100 Jahre Schwulenbewegung. Berlin: Verlag rosa Winkel, pp. 279–293. Tocqueville, de, Alexis, 1835. (1990 edition). Democracy in America. New York: Vintage Books. Wessels, Bernard (2004). Contestation Potential of Interest Groups in the EU: Emergence Structure, and Political Alliances. In G. Marks and M. Steenbergen, eds. European Integration and Political Conflict. Cambridge: Cambridge University Press, pp. 195–215. Weiss, T.G. and L. Gordenker, eds. (1996). NGOs, the UN and Global Governance. Bolder, CO: Lynne Rienner. Willets, P., ed. (1996). The Conscience of the World: The influence of Non-Governmental Organizations in the UN System. London: Hurst and Co.

Chapter 10

National and European? Protesting the Lisbon Agenda and the Services Directive in the European Union Louisa Parks

10.1 Introduction The process of Europeanization, that is the growing importance of the European Union (EU) as a locus of political decision-making, affects its member states in an increasing number of policy areas and constitutes an important challenge for both institutional and noninstitutional political actors at both the national and European levels. Social movements, on the other hand, developed in the context of the nation state. Yet with the rise of transnational centres of power, movements too have become more transnational, directing their claims to organizations such as the WTO, the G8 and the EU. As one of the most developed examples of regional integration, the EU has attracted many kinds of interest groups, including the kinds of organizations we would consider to be part of social movements at the national level (or transnational social movement organizations, which may be considered a subset of non-governmental organizations that are ‘devoted explicitly to promoting social or political change’ [Smith 2005: 252]). Accordingly, scholars have sought to theorize and inspect how these organizations work when transplanted into the EU arena. One piece of received wisdom about social movements and the EU is that on entering this arena, SMOs institutionalize and tend to abandon their contentious roots and protest actions for more traditional tactics and in particular lobbying, since these are judged to be more effective (Marks and McAdam 1996). Protests concerning EU issues have been found to be ‘domesticated’, that is only or mostly taking place in national contexts (Imig and Tarrow 2001b). This chapter will draw on two original case studies of European Union social movement organization (EUSMO) campaigns on the Lisbon Agenda and the Directive on Services in the Internal Market in order to take a fresh look at these ideas.1 L. Parks (B) European University Institute, Florence, Italy e-mail: [email protected] 1

I would like to thank Professors Ronald Holzhacker and László Bruszt, as well as Tugce Bulut and all the other participants of the European Research Colloquium on the Transnationalization

L. Bruszt, R. Holzhacker (eds.), The Transnationalization of Economies, States, and Civil Societies, DOI 10.1007/978-0-387-89339-6_10,  C Springer Science+Business Media, LLC 2009

241

242

L. Parks

10.2 Research Question It may be argued that a fresh look at these ideas concerning the roles of protest and lobbying in the EU is in order, both as a result of changes at the EU level regarding ‘civil society’ and for theoretical reasons linked to the understanding of the EU as a multilevel system. Indeed, a fresh look is also in line with Marks and McAdam’s opinion, since they mention that ‘The groups strategies we have described are liable to change as the conditions which gave rise to them change’ (1999: 108). Changes made by the European Commission, such as the 2001 White Paper on Governance (Commission 2001 – see below for further comments) and subsequent rules on consultation with civil society groups (Commission 2002) and, more recently, ‘Plan D for Democracy’ (Commission 2005), may be cited as reasons for revisiting these findings. Accordingly, the main question addressed in this chapter is: when does protest occur in transnational campaigns on EU issues? Clearly, other questions flow from this: if protest does play a role in EU campaigns by social movement organizations, what role does lobbying play? And at what levels does protest take place and to what avail?

10.3 Scientific and Social Importance of the Research In scientific terms, investigating this question requires the adaptation of the political process approach in order to account for multilevel systems such as the EU, as underlined by Marks and McAdam themselves (1996: 119). Such a ‘variable opportunity structure’ approach accounts not only for interaction between actors on multiple levels, but also for interactions between opportunity structures on multiple levels, and admits the continued importance of national governments on the international stage (see below).2 Developing a fine-grained, variable model of the political opportunity structure of the EU and categories for assessing dynamic opportunities constitutes the central scientific contribution of this chapter. On a more normative level, investigating the roles of protest and lobbying in the EU is important for wider questions of democracy. If protest over EU issues is possible, this need not be entirely negative for the Union. It could be seen as an opportunity to overcome the problems connected to the end of the ‘permissive consensus’ where EU policies were legitimate according to ideas of output legitimacy only. That is, citizens’ ire as expressed through protest or by the actions of EUSMOs acting as representatives of citizens’ demands can be seen as a chance for the Union to respond to these, and thereby engage in input legitimacy. Turning this relationship around, if EUSMOs

of Economies, States, and Civil Societies: New Challenges for Governance in Europe, for their helpful comments on an earlier draft of this chapter. 2 A similar approach has recently been applied by Lahusen (2004: 57): ‘particularly in the case of the EU, we cannot speak of a uniform and formalised assimilation but of an undeclared and elastic accommodation’.

10

Protesting the Lisbon Agenda and the Services Directive in the European Union

243

are able to maintain real links with their members, they may engage in rendering the EU a less distant and incomprehensible body (Warleigh 2000).

10.4 Research Design and Methodology In order to approach the subject of protest and lobbying in EUSMO campaigns, therefore, I first adapt the political process approach to the EU arena. This model of political opportunity, which will be fully described in the following section, is then applied to two case studies of EUSMO campaigns (for another example of this approach, see Fontana, this volume). Both campaigns concern social issues in the broadest sense most often applied in the EU (Daly 2006: 463). The first case concerns the Lisbon Agenda, or more precisely the European Commission’s attempt to alter the wording of the Lisbon Agenda, in early 2005. The second concerns the Directive on Services in the Internal Market, better known as the Bolkestein Directive after its Commissioner architect, which was eventually adopted at the end of 2006. Both campaigns were selected as examples of recent campaigns with high levels of mobilization (by Brussels standards) in order to answer the research question of what role protest may play in transnational campaigns. Information on each of the campaigns was gathered from both documentary sources, mostly institutional documents and the websites of the main organizations involved in each campaign, and from semi-structured interviews conducted with the relevant staff members of the EUSMOs involved. From these sources (as well as pertinent scholarly articles), a thick description of how each campaign unfolded is provided. Each campaign can then, in a second step, be analysed using the model of political opportunity that will be introduced in the following section. The research results are presented alongside the theoretical analyses. Conclusions will then be drawn on the roles of protest and lobbying in EU campaigns, along with some observations about applying the political opportunity approach to the EU arena.

10.5 Theoretical Overview Political process, or political opportunity, approaches have been used to study social movements since the 1970s. They aim to explain social movements’ actions as rational courses followed in the light of perceived options, possibilities and barriers present in the political contexts within which they act.3 These options are judged on the basis of an assessment of several key variables in the political context, such as the openness of the system and the state’s capacity and propensity for repression. 3

It should be noted that political process or opportunity approaches thus describe not only opportunities for social movements to act but also threats to their campaigns.

244

L. Parks

The work of the four scholars mentioned briefly in the introduction provides a useful starting point for looking at both this theoretical approach and the role of protest at the European, transnational level. Marks and McAdam (1999) have a specific objective in applying their model of political opportunity to the EU – to link political contexts to the forms of mobilization used. Their model consists of four dimensions of political opportunity: the relative openness or closure of the system; the stability or instability of elite alignments; the presence or absence of elite allies; and the state’s capacity and propensity for repression (ibid 1999: 99). Following patterns established in earlier studies, they state that more open systems and new elite allies will encourage institutionalized mobilizations (i.e. lobbying), while a decrease in the will or the ability for repression and instability in elite alignments will be exploited with protest (ibid 1999: 101). Comparing the differences between the EU institutions and national states, they state that EUSMOs will not act in the EU in the same ways they do in national contexts.4 ‘Instead of demonstrating their grievances before the mass media, they lobby Commission officials, engage consultants to write reports, coordinate policy papers among themselves, instruct lawyers to pursue cases before the European Court of Justice, and, only on occasion, organize public protests outside the European Parliament in Strasbourg’ (ibid 1999: 102). Imig and Tarrow (2001a), in their work on protest in the EU, develop a nuanced, fourfold typology differentiated by targets and actors in order to inspect the state of transnational protest in the European Union. Routine domestic protests are the normal protest activities of national-level social movements, while cooperative transnationalism describes coordinated actions in different countries. Collective transnationalism is a cross-border act against a common European target, and finally, domestication refers to national actors acting on their home territory over a European issue (ibid 2001a: 17). The authors then draw on a body of evidence concerning contentious episodes in the EU identified in Reuters news line service texts for the years 1984–1997 to discover to what extent transnational protest over the EU actually takes place. Most of the instances of European contentious politics they subsequently identify fall into the ‘domestication’ category, leading them to conclude that instances of real transnational protest are firmly in the minority, albeit on the rise (ibid 2001a: 36) – a finding that they see as confirming the theoretical assertions of Marks and McAdam (1996, 1999). However, as mentioned above, it can be argued that the EU arena requires an altogether more fine-grained adaptation of the political opportunity approach. Such an approach would be able to take account of each of the EU’s institutions, of its different territorial levels (meaning that ‘domestication’ need not be discarded as

4

In particular, Marks and McAdam (1999) judge the European Commission to be more open to conventional than unconventional activity, since it is so thirsty for information. The European Parliament is also seen as open, since its members are not surrounded by any strong forms of party organization. The Council of Ministers may attract protest, but this will be at the national rather than the European level.

10

Protesting the Lisbon Agenda and the Services Directive in the European Union

245

transnational protest, as will be argued later) and of the different nature of various opportunities that may be related to its structural features (political opportunity structures [Kriesi 2004] or to more temporary political situations such as elections or other upheavals. Political opportunities vary within the same structures, through movement specificities as well as actor interpretations (Kriesi 2004): ‘[t]o understand why certain groups take certain actions at certain times, we need to know more about the precise relationships among groups and elites than the broad conditions pointed to by current political opportunity theory’ (Goldstone 2004: 350).5 It is for these reasons that in order to study contemporary cases of contentious European campaigns I have attempted to outline a more fine-grained model of the dimensions influencing political opportunity. Admittedly, these efforts only seek to take account of the ‘purely’ European level, since opportunities in various national contexts are already well documented. However, the approach deliberately acknowledges the importance of these national contexts as an integral part of the EU. Before introducing this model, some clarifications of terms are necessary. This is because the political process approach has often been accused of being a ‘catch all’ theory, too wide, with too many variables and too little consensus either on its actual meaning or on what it could explain6 (e.g. Goodwin and Jasper 1999; McAdam 1996; della Porta and Diani 1999; Koopmans 1999). Reacting to these criticisms, Koopmans (1999) provides useful clarifications which I use here. Thus, Opportunities are ‘options for collective action, with chances and risks attached to them that depend on factors outside the mobilizing group’ (ibid: 97). Political opportunities are options for collective action, with chances and risks attached to them that depend on political actors and institutions outside the mobilizing group (following ibid: 97–98). And finally, a Political opportunity structure is a constellation of opportunities ‘that cannot be influenced – at least not in the foreseeable future – by collective action’ (ibid: 99). The dual result of these clarifications is to place the theory in a bounded space and to admit the relevance of other factors. These considerations led to the development of the following lists of dimensions to be considered when identifying dynamic or structural political opportunities (or threats). The categories used for outlining both opportunities and opportunity structure are based on a synthesis of the most

5

Other authors suggesting the use of a variable approach include Peterson (1997) and della Porta and Kriesi (1999). 6 The theory has also been criticized in that it assumes political opportunities to be paramount in explaining various actions of social movements and thus implicitly assumes social movements’ inherently political nature. This leads theorists of this school to concentrate only on political social movements. Although true to some extent, applications of the theory to some New Social Movements, such as the European environmental movement, have been fruitful and robust (Koopmans 1999).

246

L. Parks Table 10.1 Variables for determining political opportunities at the EU level

Dynamic political opportunities (In)stability of elites

Elite allies/‘enemies’

Intra-elite conflict Electoral instability (= number of parties needed in voting coalition – variable from subject to subject) Proximity of elections Contingent events

Position held by ally Ability of ally to fulfil promises

Hostile elites Presence of counter-movements

Table 10.2 Political opportunity structure of the EU Elements determining openness/closure

Rules on dialogue with third parties

Institutions unitary or coalition

Characteristics of EU Where institutionalized formal and binding, extensive non-binding rules for non-institutionalized dialogue; inclusive for organized interests when addressing their ‘natural’ partners Commission lacking in resources – reliant for information on national civil services and third parties Multilevel system with decision-making shared between institutions at the EU and national levels Separate roles, although much mutual dependency in many legislative matters; judiciary highly independent of all other institutions Coalition in all institutions

Attitudes to differing opinions

Highly inclusive

Professionalism and resources of the administration

Degree of centralization

Extent of separation of powers

Elements determining prevailing culture

common variables found in the literature,7 each of which is then considered for its relevance at the EU level. Table 10.1 details the variables considered when identifying dynamic political opportunities, which are specific to each campaign. Table 10.2 outlines a political opportunity structure of the EU, an endeavour that requires some subsequent discussion.

7

The main sources, several of which are themselves syntheses, are as follows: Kitschelt 1986; Kriesi et al. 1995; McAdam 1996; Tarrow 1994, 1996; della Porta and Diani 1999.

10

Protesting the Lisbon Agenda and the Services Directive in the European Union

247

Overall, the table paints a picture of EU institutions that represent an accessible arena, tolerant of the opinions of third groups. Such an assessment does, however, require some qualification – how should we theorize each of these variables in terms of whether they denote opportunities or threats for EUSMOs?8 Some degree of access may be relatively easy to achieve, but at what price does this access become effective? In fact, the various criteria that must be fulfilled by those wishing to exploit these qualities of the EU’s political opportunity structure also represent a variety of constraints. First, the rules governing informal consultation by the Commission9 with third parties oblige groups to acquire a certain organizational form and culture, as is clearly demonstrated in the criteria allowing registration in the CONNECS database, which run as follows: ‘In order to be eligible, an organisation must be a non-profit representative body organised at European level, i.e. with members in two or more European Union or Candidate countries; be active and have expertise in one or more of the policy areas of the Commission, have some degree of formal or institutional existence; and be prepared to provide any reasonable information about itself required by the Commission, either for insertion in the database or in support of its request for inclusion’ (Commission 2002).10

Since the Commission is often the logical primary target for many campaigns (Greenwood 2003: 33), these requirements can be seen as a constraint on the organizational form of EUSMOs. Yet avoiding the Commission as a campaign target makes little sense. This is not only because ‘the devil is in the detail’, but also because of the simple statistical fact that in general a large share of the text of draft legislation remains intact at adoption. The Commission also represents a major source of funding for EUSMOs. Obtaining funding from the Commission also imposes constraints in terms of ‘Europeanness’, transparency and formal organization, and funding is usually provided for carrying out projects for the Commission,11 meaning that EUSMOs may be obliged to carry out work tailored to meeting the institution’s need for information instead of the work they would choose to carry out – a circumstance which may distance them from grassroots membership. Where an EUSMO has complied with these requirements, however, what rewards may be expected? Michalowitz (2002), in her study of the pluralist and corporatist

8

The repression variable included by Marks and McAdam (1999) is not included here, since, as mentioned above, we are dealing with the purely European level. 9 Although the Commission makes clear in the White Paper on Governance (Commission 2001) that the ‘principles of good governance’ should also be applied by other EU institutions both in general and in consultations with outside groups. 10 This database no longer exists. However, its closure came after the end of the campaigns studied here. In any case, it may be argued that these rules continue to be relevant for groups today, since they may have already made difficult to reverse changes in their organizational cultures in order to fulfil them and become partners for dialogue with the Commission. 11 Budget lines for funding civil society groups have been ruled to be illegal by the ECJ (Cullen 2005).

248

L. Parks

qualities of interest representation in the EU, has found that the Commission displays both, but at different stages of their consultation procedures. In a first, more pluralist step, a wide variety of parties is consulted for their opinions on a particular legislative initiative. In a second step, however, where the drafting of the legislation proper is undertaken, consultation is restricted to privileged partners who have secured seats in the Commission’s labyrinthine network of committees. When it comes to ensuring a say, this is where an EUSMO must secure a place. Yet such places are secured exactly by the ability to produce fresh information on demand12 – very difficult considering the relative lack of resources of most EUSMOs compared to industry groups. While the latter may often rely on substantial resources in terms of membership fees, industry-funded research and expertise, EUSMOs often rely on short-term Commission project funding and thus a small number of paid staff or the occasional voluntary services of their member organizations. Once the proposal was drafted, opportunities for consultation were found to be very much closed. In addition, the Commission represents further constraints as a result of its highly fragmented nature, where the cultures and interests of each separate DG may often be played off against one another in internal power struggles. Following Ruzza’s (2004) idea of the ‘institutional activist’, I therefore include the caveat of the ‘natural partner’ as a condition for more fruitful dialogue with the Commission. In many DGs, Ruzza asserts, the staff employed tend to share a certain ideology or at least a sense of the importance of their particular policy area. This means that some institutional actors are ‘naturally’ sympathetic to the ideas of certain groups. This can be theorized as a helping hand for a campaign or, in the opposite situation, as a hindrance. It should be noted, however, that those DGs that are more friendly to movements are not usually the most influential within the Commission. As Bieler puts it, ‘The DG for Competition and the DG for Economic and Financial Affairs are more decisive within the EU. Together with the DG Internal Market and DG Trade they are the hard core of the Commission’ (2005: 469). The more general theoretical point arising from these considerations is that it is crucial to consider the Commission as a group of smaller organizations jostling for power and influence amongst themselves, rather than as a unified, single institution. However, it may be argued that other institutions do not represent so many constraints. Significant opportunities to amend are to be had via the European Parliament under the co-decision procedure and, with the exception of the European Court of Justice, which obviously requires the construction of formal legal cases, the European Parliament and the Council of Ministers not only provide institutional channels of access but also invite more unconventional forms of action. Summits of European ministers are often targets for mass protests. The European Parliament, although not a magnet for protest on the scale of the Council of Ministers or the 12

Michalowitz (2002) in fact cites a case study of BEUC (Bureau Europeen des Union des Consommateurs – the European consumer groups’ union), which affirms that they strategically release information to the Commission over time in order to be able to provide fresh information as required to remain a player in the consultation process.

10

Protesting the Lisbon Agenda and the Services Directive in the European Union

249

European Council (Lahusen 2004), certainly attracts more unconventional actions such as letter writing and e-mail actions, as well as lobbying. Yet it remains that in an effective campaign all opportunities must be exploited and all methods and points of access exhausted (e.g. Hellferich and Kolb 2001). The inclusion of a group’s position in discussions from the start can be the surest route to inclusion in final legislation. Thus, we can say that the EU imposes formal organization, or institutionalization,13 and certain modes of information production on EUSMOs that wish to become trusted and regularly consulted partners of the Commission. While this may be considered an opportunity for more formally organized and resource-rich groups, it may be considered a disadvantage to more traditional, nationally based EUSMOs and their networks. Therefore, both opportunities and threats may be theorized. Those groups that do not institutionalize and become partners of the Commission face disadvantages in that they will find it harder to bring their message to the EU institutions at an early stage.14 However, they will conserve opportunities in that they are more likely to be able to maintain close contact with grassroots members, who may see institutionalized groups as having ‘sold out’ to the EU system. This brings a certain ‘moral’ authority to the organization and may hold more sway over processes in Parliament and Council, both of which are ultimately subject to reelection and thus more likely to be concerned about public opinion (Burstein 1999). The mirror image of these opportunities and disadvantages are repeated for those groups that do institutionalize at the European level. The assessment of the EU as highly decentralized, with a fairly clear-cut separation of powers, brings the other institutions into the explanation of European political opportunities. While different cultures may be said to reign in each of the institutions in a general sense, it must be remembered that within each institution different powers are still at play. In the European Parliament, the different committees may be thought of in a similar way as the different DGs in the Commission – different cultures and interests apply in each.15 The EP also illustrates the expertise constraints implied by coalition institutions: traditional differences along ideological lines also need to be borne in mind when carrying out actions in this institution. The affiliations of the rapporteur (and shadow rapporteurs), the committees, the 13

‘Civil society must itself follow the principles of good governance, which include accountability and openness. The Commission intends to establish, before the end of this year, a comprehensive on-line database with details of civil society organisations active at European level, which should act as a catalyst to improve their internal organisation’ (Commission 2001: 15, emphasis added). 14 Although, as mentioned above, the presence of institutional activists may be a powerful opportunity that may cancel out these threats. See Ruzza (2004) 15 This may be said to depend greatly on the committee chair’s personal style. For example, in a committee with relatively little legislative power due to its competence’s position in the pillar structure, such as the Culture and Education Committee, longer and more normative contributions may be the norm. In committees with a heavy legislative workload, such as the Environment, Public Health and Food Safety Committee, the pressure to ‘get through work’ will be higher, and stricter chairs more likely.

250

L. Parks

presidency and the parliament as a whole must be considered at different stages of a legislative proposal’s journey through this institution.16 The Council of Ministers, on the other hand, convenes according to policy area and requires a drastically different strategy again. Since lobbying opportunities at this stage are all but closed to EUSMOs because the Council must work to strict national mandates (Michalowitz 2002), it makes sense to theorize that groups must anticipate this stage and work to get their message across at the national levels where negotiation mandates are elaborated. The same logic applies to the European Council.17 The upshot of all of this in terms of political opportunities is that multiple access points, as well as complex legislative procedures and the relatively distinct separation of powers, place a heavy burden of knowledge and expertise on EUSMOs. They must be able to judge the appropriate tone and aim of each action that forms their European-level campaign, as well as be able to anticipate the entire European-level process with enough time to launch national-level campaigns in order to influence the Council. Therefore, EUSMOs need staff with detailed knowledge of the institutions, their composition and the legislative processes of the EU in order to mount effective campaigns at the European level. At the same time, they need to have good links with their national members or affiliates in order to mount campaigns to affect negotiating mandates in the Council. Once again, we find a relationship similar to that imposed by the constraints of becoming a consultation partner with the Commission. Expert members of staff at the European level are likely to find it difficult to keep up close contacts with national counterparts, or vice versa. Yet these contacts are needed to exploit all access points in the legislative process. Once again, it can be said that those groups able to draw on significant knowledge of the EU while simultaneously ensuring close links between European and national levels will mount more effective campaigns. Turning now to the final boxes of Table 10.2, coalition in all institutions and inclusive attitudes to the opinions of others, the story here in terms of opportunities and threats for EUSMO campaigns is already covered by the comments made above. While they obviously spell an opportunity for campaigning groups in terms of being listened to, other constraints apply concerning how seriously their positions are taken. Timing, expertise and the group’s standing then apply. Regarding the condition of coalition in all institutions, this presents a peculiar combination of threat or opportunity. While certain subjects at the EU level are easier to split into series of small, technical questions, to some extent smoothing over the bigger questions surrounding the subject, others are harder to split. This is very much related to ideology – while some issues do not fit into more traditional right–left ideological continuums, others do. Where coalitions are present in all institutions then, nonideological issues may have an advantage in that they potentially find a ready ear in actors of all political colours. Ideological issues, on the other hand, may create hostility on an almost automatic basis among one or another political grouping. 16

Especially where the co-decision procedure applies. Although both Councils are also, as mentioned earlier, more obvious targets for European-level protest.

17

10

Protesting the Lisbon Agenda and the Services Directive in the European Union

251

These thoughts on political opportunity in the EU underline two points in relation to forms of mobilization at the EU level: lobbying may not necessarily always be the most effective action to be taken, and opportunities for protest are available and appropriate, since the member state level is considered an integral part of the Union, in keeping with its institutional design. In addition, it has been made clear that the EU is not a single, unitary subject but a grouping of very different institutions which are themselves home to smaller clusters of differentiated institutions (as a consequence of this, not all of the variables relevant to identifying political opportunities are useful to every case). This political opportunity approach, which takes account of the EU’s multilevel structure, as well as of both fixed or structural and dynamic or case-specific political opportunities, will form the basis for the brief analysis (focusing precisely on the uses of lobbying and protest) of the two case studies.

10.6 The Lisbon Campaign: A Short, Sharp Shock In March 2000, the European Council met in Lisbon to discuss the future of ‘social Europe’ and developed a new, overarching strategy for the future of the EU. The goal of the Lisbon Agenda is to make the EU ‘the most competitive knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion, and respect for the environment by 2010’.18 This all-encompassing message proved popular with a range of organizations involved in those areas the agenda would affect – environmental, social and trade union organizations in particular. However, in February 2005, these groups formed a coalition to protest against a move made by President Barroso of the European Commission to limit the scope of the original Lisbon Agenda. In the Commission’s contribution to the midterm review of the agenda, published on 2 February 2005 and entitled ‘A New Start for the Lisbon Strategy’, President Barroso outlined the opinion that first and foremost the Lisbon strategy should concentrate on the issues of economic growth and jobs within the EU (Commission 2005). While the other parts of the Lisbon strategy, social cohesion and sustainable development, would not be forgotten, they would take a back seat for a period. In his own words, as he defended the communication to a plenary session of the European Parliament, ‘If one of my children is ill, I focus on that one, but that does not mean that I love the others less’. This was interpreted by many different groups, mostly members of the European Platform of Social NGOs (Social Platform) and trade unions, as a signal that the other parts of the Lisbon strategy were to be abandoned. The duration of the campaign that ensued was short – Barroso’s communication was published on 2 February 2005, and the Spring Summit that would endorse or discard it took place on 22–23 March 2005, giving the campaign around 7 weeks to 18

The environmental dimension of the Lisbon Agenda was officially added by the Council at its meeting in 2001 in Gothenburg.

252

L. Parks

make their case in an effective manner. Solidar, a social NGO, organized a no-logo petition entitled SOS Europe, which it then diffused through the Social Platform, of which it is a member. Social groups also met with the Council presidency and organized a day of action to raise awareness on the issue. By the time of the summit, the petition had attracted around 7,000 organizational signatures. In the meantime, the European Trades Union Congress (ETUC) included the issue on the agenda for its annual march at the Spring Summit. This march proved particularly strong in 2005 as a consequence of the contemporary mobilizations over the Bolkestein Directive, attracting around 75,000 participants from all over the Union. The presidency conclusions after the summit reiterated the institution’s commitment to the original formulation of the Lisbon Agenda, although subsequent EU legislation and policy belied this.

10.7 No Valentine for Bolkestein: The Directive on Services in the Internal Market The second case study concerns the directive on services in the internal market, more commonly known as the Bolkestein Directive after the Commissioner who proposed it in early 2004. This piece of legislation saw a large wave of mobilization across the EU culminating in a demonstration in Strasbourg on Valentine’s Day 2006 as a result of fears of ‘social dumping’. The directive, which aimed to create a free market in services similar to that functioning in the EU for goods through the Country of Origin Principle, was strongly opposed by European trade unions, affiliated at the EU level through the ETUC. Social groups were also set against the directive, and citizens were also mobilized through movement organizations such as ATTAC and a no-logo online petition and cyber-action website named Stop Bolkestein (www.stopbolkestein.org). The main protagonists of the campaign were, however, trade unions and sectoral organizations. The campaign saw many direct actions taking place at both European and national levels. Several demonstrations, including that mentioned in connection with the Lisbon Agenda and the final Strasbourg demonstration, were held to directly target the European institutions, and numerous petitions and e-mail campaigns were directed at MEPs and national governments. In terms of targets, the Bolkestein campaign’s main focus at the supranational level was the European Parliament, since the Commission released the legislative proposal unexpectedly and without consulting third parties. The campaigning groups drew extensively on political affiliations in the parliament – interviewees agreed that while the socialist group could be more or less relied on to support trade union positions, much time and energy went into convincing the centre and centre-right groups of the justice of their arguments. The campaign also saw a fairly extensive wave of mobilization within the member states, in particular in Italy, Belgium, France and Germany. These mobilizations, although certainly not ignoring the EU as a target, were more directly addressed to national governments as those with the power to accept or reject the proposal in

10

Protesting the Lisbon Agenda and the Services Directive in the European Union

253

the Council of Ministers. In the French case, mobilizations were strongly linked to the then upcoming referendum on the Constitutional Treaty, leading some to believe that French President Jacques Chirac was behind Commission President Barroso’s announcement following the 2005 Spring Summit that ‘the directive will not fly in its current form’. The main tactics of this campaign were therefore lobbying in the European Parliament, combined with occasional European-level mobilizations aimed at the European Council and the European Parliament, and more extensive national-level mobilizations directed towards national governments. In the end, the favourable results of the European Parliament’s first reading vote were carried through to the second reading of the legislation almost in their entirety, and the bill – now perceived as relatively harmless by the campaigning groups – was adopted in December 2006.

10.8 Discussion How did political opportunities determine the ways in which the campaigning groups mobilized over these issues? This will now be investigated by describing the various opportunities and threats, and groups’ reactions to these, for each of the cases in turn. In the Lisbon campaign, the theme of dialogue with third parties provides the most appropriate basis for interpreting actions. Two aspects here are particularly relevant in attempting to explain the more public course of action taken by the groups on this occasion. The first of these relates to the problem (or opportunity) of ‘natural partners’ within the Commission. The ‘natural partner’ for the campaigning groups is DG Employment and Social Affairs. But this good relationship with a ‘natural partner’ DG is accompanied by a poorer one with other departments, who ‘all push you back to Employment and Social Affairs rather than meeting you face to face’ (interview 319 ). The second relates to the perception that the Commission uses dialogue and consultations selectively, paying only ‘lip service’ to the idea. Several of the social groups make such comments in relation to both the Lisbon Agenda and the Bolkestein Directive (interviews 1 and 220 ). The combination of these two factors contributes to explaining the campaign tactics. Although DG Employment and Social Affairs is a campaign ally, it had no power to help the campaigning groups. With their ‘natural partner’ unavailable, the campaigning groups’ response was to tap into another resource – their grassroots members. Since the ultimate decision would be taken at the European Council, one of the EU institutions providing a clearer point of reference for public protests, more public events were chosen as the best additional path to lobbying actions. 19

An interview list is provided at the end of the chapter. Comparable comments were made by the ETUC in relation to the outcomes of their participation in the Social Dialogue and, more pertinently for this campaign, the Kok group – an expert group set up to carry out an evaluation of the Lisbon Agenda’s progress prior to the spring summit. Despite winning important concessions within these forums, the ETUC felt that documents subsequently released no longer reflected the decisions made.

20

254

L. Parks

Although a simplification, a basic picture of closed doors at the supranational level and the consequent return to more conventional actions is seen in this campaign. The beginnings of a kind of reverse boomerang effect (Keck and Sikkink 1998), where groups facing difficult circumstances at the international level revert to the national and local levels, can thus be made out. Lobbying tactics were not, however, altogether abandoned. Both the ETUC and the social groups continued high-level lobbying, with the ETUC meeting with national leaders and both meeting with the presidency and Barroso. In other words, while the groups continued their lobbying efforts, they also attempted to mobilize their grassroots members, thus mirroring the structure of the EU. As Solidar put it, ‘Usually we really try to operate on both levels. Because I think if we look at decision-making in the European Union, that is the most effective way’ (interview 4). High-level meetings with the presidency were, however, also the result of what may be classed as a ‘contingent event’ – that is the fact that Luxembourg’s Prime Minister Jean-Claude Juncker, the Council president at the time, was from the very first sympathetic to the views of the campaigning groups. Indeed, it was he who contacted the Social Platform extremely early on in the campaign in order to meet with them. The timing of these meetings suggests that Juncker was seeking an ally or support for his own point of view rather than convinced by arguments presented by the campaigning groups, an interpretation which is also corroborated by interview data. All of the groups involved cite the support of Juncker as important to the final outcome, and the social groups add that an invitation from a president of the Council was absolutely unprecedented for them. Meeting with the president was seen as useful in that the groups may have firmed up his resolve to act and drawn extra attention to resistance to the proposed changes to the Lisbon Agenda (interviews 1, 3, 5). In addition, this circumstance was mentioned as a spur to the use of more public actions, in order to provide him with clear support. The presidency was thus an important elite ally for the campaign and certainly a powerful one in that the Council president may have significant influence over debates. Juncker in particular was a Council president with a great deal of experience and is generally seen as a gifted ‘fixer’ of difficult issues within the body (Hearl 2006: 51). Another relevant contingent event in the campaign was the upcoming referendums in several member states on the new European Constitutional Treaty. The French referendum was particularly important, and many, not least the French government, were worried at the time about the strength of the ‘no’ campaign (with good reason, as it turned out). The campaign against the Constitutional Treaty in France included accusations about ‘Social Europe’. The Bolkestein Directive in particular was linked to a rejection of the constitution by the large French trade unions (see below). There was therefore the perception that other heads of state and government would respond to President Chirac’s alleged plea to reach a ‘social’ conclusion at the European Council, allowing him to present this as evidence in the ‘yes’ campaign. This interpretation was also shared by the campaigning groups: ‘The other thing that I think was also exerting pressure was the referendums on the Constitution that were coming up at that time. So Chirac, for example, was having problems – or Chirac was having an interest in supporting social Europe in order to appease his

10

Protesting the Lisbon Agenda and the Services Directive in the European Union

255

own public, his own public voice, in order to have a yes vote for the Constitution. So that probably also played a role in the Council conclusions’ (interview 1). Linking Lisbon to the Bolkestein Directive and Social Europe at the ETUC’s march also made much more sense than quiet lobbying, considering the mobilized atmosphere over the Constitutional Treaty. Looking at the Bolkestein case in light of political opportunities, it is interesting to note that because the Commission was (rather unusually) seen as completely closed to dialogue, the campaign’s efforts were almost entirely transferred to other institutions (interviews 6 and 10). Where attempts were made to meet with the leading DG internal market, groups felt that they were considered unsophisticated and unable to understand the directive (Fazi and Smith 2006: 63–65). By blocking dialogue, the Commission thus pushed the otherwise rather conservative ETUC (see Martin and Ross 2001) to exploit the EU’s separation of powers and the institutions more suited to protest actions – the Councils and the Parliament – and to return to their grassroots members for assistance. The European Parliament was targeted with both conventional lobbying actions and protests. The lobbying actions of this campaign may be interpreted as the exploitation of a mixture of structural and dynamic opportunities. Concerning the former, interviews showed that a number of factors were borne in mind when lobbying the Parliament’s members. The groups tended to rely on legal arguments (interview 10), to propose amendments (interview 8) and, wherever possible, to provide concrete examples of problems the draft directive would create (interview 7). This may be interpreted as a response to the parliament’s need for information from third parties, since individual MEPs must follow multiple dossiers and internal services are relatively small, leading them to rely on others to fill information gaps (interview 10). The participation of national groups is also seen as crucial for working with the parliament, since territorial links between regional members and MEPs can help to convince of the justness of an argument (interview 7), as well as reinforce the link between the national and local levels and the otherwise apparently dislocated European office (interviews 6 and 10). The strong participation of national members is an example of exploiting the opportunities afforded by a multilevel system. National groups were also, of course, important in protest mobilizations targeting the Council of Ministers and the European Council, both at the transnational European level and in the context of member states. All of those interviewed confirmed that national groups’ actions are indispensable when the Council of Ministers, or the European Council, is a target. Their links with national governments and knowledge of national systems are deeper, and their actions are more likely to be effective. Again, because the Commission was closed to dialogue, groups confirmed that they had earlier and more frequent contacts than usual with the Council and presidencies and underlined the need for national members’ support for this. Briefly put, because normal channels for European-level dialogue remained closed, exploiting the EU’s multilevel nature through a campaign including the close involvement of national groups became an important tactic. The plot thickens when we consider the dynamic opportunities of the case, however. The Parliament was particularly open to lobbying on this issue because of

256

L. Parks

a contingent event – the rejection of the Constitutional Treaty in France and the Netherlands. Combined with their view that the Commission and Council were weak following enlargement, this inspired the Parliament to try for a compromise, since its members felt some duty to reconcile the Union and its citizens: ‘because if we simply duplicate this model then we exclude for 4 years half of Europe from all the work to be done’ (interview 9).21 The Parliament’s attempt to seek a ‘grand coalition’ compromise22 on the Services Directive meant a serious opportunity for the campaigning groups in terms of the acquisition of a powerful ally that, although not necessarily always sympathetic, was willing to negotiate compromises and listen to all views for the greater prize of a stronger institutional role in the future. In order to properly exploit such an opportunity, the campaigning groups ensured not only that their arguments were tailored to various MEPs, but also that public pressure was kept up through a string of public actions, making the duty to reach a compromise ever present in parliamentarians’ minds (interview 10). Moving back to the story of the directive, the proximity of elections dimension, which in this case applies not only to the European Parliament but to a number of member states as well, contributes to explaining the high number of unconventional actions. Elections were exploited by campaigning groups by linking the directive to electoral campaigns (interviews 9 and 10) through national-level protests. The real linking actions, however, came from the coincidence of the Bolkestein campaign with national debates on the draft Constitutional Treaty. In France in particular this proved to be very important for the campaign – many interviewees point out that this link between the French debate and the Bolkestein Directive was exceptional in that never before had a piece of European legislation encroached to such an extent on a national debate (interviews 4 and 6 in particular). Discussions of ‘Social Europe’ mobilized French trade unionists and others in opposition to the directive, contributing to the European-level campaign and, according to some, pushing President Chirac to ask for social concessions at the 2005 Spring Summit, in turn named as the reason for Barroso’s announcement that the directive would not ‘fly in its current form’ (interview 1).23 Protests in other national settings, in particular Germany, Italy and Belgium, also targeted national leaders as members of the European Council. The remaining categories of dynamic opportunities useful for the present brief analysis are related to the presence of elite allies and enemies and contribute to explaining both lobbying and protest actions at the European Parliament. The actors considered as important and influential allies by the campaigning groups are all from the Parliament. The first is the socialist group, considered important for its role in 21

Considering the campaign’s role in promoting the Bolkestein issue in connection with the Constitutional Treaty in France, the campaign actually contributed to creating its own opportunities here. 22 In this sense these comments also count for the variable electoral instability, including considerations of how many groups are needed to form an absolute majority. 23 The French Trade Unions’ opposition to the draft Constitutional Treaty created problems between them and the ETUC, who were in favour of the treaty.

10

Protesting the Lisbon Agenda and the Services Directive in the European Union

257

shaping the debate in general (due to the fact that it held both of the key reports) from an early stage and especially in issuing invitations to hearings (interview 6). Similarly, the rapporteurs (Gebhardt and Van Lancker) are also viewed as powerful allies (interviews 5 and 9). Other parliamentary allies were found in the small negotiating team of MEPs from the socialist and people’s party groups charged with hammering out the compromise package of amendments to the draft directive. The group consisted not only of people that the campaigning groups had long been in contact with, but also of members that were more sympathetic to the campaign. The Belgian member had long been sympathetic to the Unions’ position, while the French member was obliged to tow Chirac’s line against the directive. The Austrian member had been convinced by Austrian trade unions, and even the UK member had, over time, at least come to accept that issues did need to be resolved (interview 10). In order to convince this small number of key players, one-on-one lobbying made sense. Yet in order to remind them and the Parliament as a whole of its duty to the compromise, a protest on the day of the first reading plenary vote also played a role. It was ‘the groundswell of feeling about the directive [that] put a lot of weight on their shoulders’ (interview 10) and contributed to their vote. To sum up these brief analyses based on a political process approach, three main features of the constellation of opportunities and threats seem paramount in explaining the presence of protest tactics in the two campaigns. First, in neither of the campaigns did the Commission play the role of the privileged interlocutor of the groups involved. In the Lisbon campaign this was because of the nature of the campaign, waged against a communication by the president of the Commission, not a ‘natural partner’ of the social groups, while in the Bolkestein campaign the institution was, unusually, perceived to be completely closed to dialogue. This, in turn, led to a situation in both campaigns where EUSMOs turned to their national-level members in an effort to target the European Council in the Lisbon case and predominantly the European Parliament in the Bolkestein case. Both of these were theorized as targets more likely to draw protest and other unconventional actions by national-level groups and individuals, since both ultimately rely on re-election and have closer ties to the national level. Dynamic opportunities constitute the other similarities between the campaigns: the presence of elite allies (President Juncker in the Lisbon case, and the European Parliament, rapporteurs and the socialist group in the Bolkestein case) and the contingent event of the debate on the Constitutional Treaty. Essentially, these circumstances can be said to have provided the campaigns with enough visibility and momentum to achieve the mobilization levels required for protest and other unconventional actions, like the SOS Europe petition. On the basis of these campaigns then, it is suggested that a combination of a weak or closed Commission, leading to effective exploitation of the EU’s multilevel system by targeting other institutions through national-level actors (always combined with lobbying, however, as also seen in both cases), as well as contingent events promoting the visibility of the campaign, and allies to give extra momentum and the hope of success, are the factors that both allow and render useful transnational protest.

258

L. Parks

10.9 Conclusion The two cases presented here do not, of course, allow for any real generalizations to be drawn about when exactly protest takes place at the EU level, nor about when it is useful. The Bolkestein case, itself an important factor in the Lisbon case, has been described as unprecedented as a result of the levels of mobilization it saw and represents a highly unusual combination of factors. Nevertheless, the findings do tie in with other scholarly findings, especially on the role of elite allies (e.g. Tarrow 1990; Kitschelt 1990; Giugni and Passy 1998), and with treaty rejections becoming ever more frequent since Maastricht, opportunities owed to national debates on the future of the EU may become more common. Although further research is necessary to draw more robust conclusions, the two campaigns investigated here at least prove that a fresh look at protest at the EU level is a worthwhile and timely endeavour, as they prove that protest in both national and transnational contexts can be a useful tool, alongside lobbying and more conventional methods, at the transnational level. They also, I believe, give us good theoretical reasons for considering some apparently national protests as part of EU-level campaigns. Therefore the conclusions of Marks and McAdam (1996, 1999) and Imig and Tarrow (2001b) that EUSMOs tend to leave protest activities to national members or counterparts are not overtly challenged by the cases. The point that I seek to make is that a more nuanced position is accurate. None of these authors actually exclude the possibility of EU protest. What this chapter has hopefully added to the discussion is an in-depth investigation of what may be termed the spatial strategies of EUSMO campaigns.24 It can be unhelpful to assume that national targets are purely national and not sometimes part and parcel of the European level itself. The cases, particularly Bolkestein, demonstrate that some protests and debates taking place in national contexts can in reality be European in nature and scope. ‘Domestication’, the label adopted by Imig and Tarrow for national protests with European targets, can therefore be misleading. The impression they give is of European-level groups leaving national groups to do what they will, when in reality the cases here show a much more meshed approach, where European groups may act on national initiatives, and vice versa, and where national protests specifically aim to aid European-level campaigns by targeting national leaders in their capacity as members of the European Council rather than as domestic governments, acting simultaneously alongside EU-level groups. In this sense, the national may be simultaneously European and transnational: perhaps even more than national and European, we may speak of the national as European. Finally, the cases also prove the need for a variable political opportunity model that reflects the complexity of the EU’s structure when approaching such campaigns. When arguably the most important political opportunities are still provided by the member states, taking account of the multiple levels and arenas of the Union is important. The EU cannot be considered a single ‘unit of analysis’, as is indeed

24

My thanks to Professor László Bruszt for bringing this argument to my attention.

10

Protesting the Lisbon Agenda and the Services Directive in the European Union

259

underlined by many scholars. Although the model of political opportunity used in this chapter cannot explain all aspects of campaigning, it does attempt to capture the specific contexts that may affect the political fortunes of a campaign and can help to explain why certain actions are used in certain situations. In short, it is a step on the road to explaining variations in the kinds of campaigns seen at the European level, be they carried out by private interest groups or by social movement organizations.

Interviews 1. Political Advisor, European Trade Union Confederation. Brussels, 13 September 2005. 2. President of the Platform of European Social NGOs and Director of AGE Europe. Brussels, 15 September 2005. 3. Vice president of the Platform of European Social NGOs and Director of the European Anti-Poverty Network. Brussels, 15 September 2005. 4. Social Affairs Co-ordinator, Solidar. Brussels, 16 September 2005. 5. Policy Officer, secretariat of the Platform of European Social NGOs. Brussels, 20 September 2005. 6. Secretary General of CECODHAS (European Liaison Committee for Social Housing) and Treasurer of the Platform of European Social NGOs. Brussels, 15 March 2006. 7. Campaign and Liaison Officer, European Public Services Union. Brussels, 16 March 2006. 8. Coordinator of the Stop Bolkestein web petition, Institut Emile Vanderwelde. Brussels, 16 March 2006. 9. Advisor on the Services Directive, European Trade Union Confederation. Brussels, 16 March 2006. 10. Policy Officer, Uni-Europa. Brussels, 21 March 2006.

Bibliography Bieler, Andreas, 2005. European Integration and the Transnational Restructuring of Social Relations: The Emergence of Labour as a Regional Actor? Journal of Common Market Studies, Vol. 43, No. 3, pp. 461–484. Burstein, Paul, 1999. Social Movements and Public Policy, in Giugni, Marco, Doug McAdam and Charles Tilly (eds.), How Social Movements Matter. Minneapolis, University of Minnesota Press. Commission of the European Communities, 2001. European Governance: A White Paper. COM(2001) 428. Commission of the European Communities, 2002. Towards a reinforced culture of consultation and dialogue – General principles and minimum standards for consultation of interested parties by the Commission. Communication COM(2002) 704. Commission of the European Communities, 2005. The Commission’s contribution to the period of reflection and beyond: Plan-D for Democracy, Dialogue and Debate. COM(2005) 494.

260

L. Parks

Cullen, Pauline P., 2005. Conflict and Cooperation within the Platform of European Social NGOs, in Bandy, Joe and Jackie Smith (eds.), Coalitions Across Borders: Transnational Protest and the Neoliberal Order. Oxford, Rowman and Littlefield. Daly, Mary, 2006. EU Social Policy after Lisbon. Journal of Common Market Studies, Vol. 44, No. 3, pp. 461–481. della Porta, Donatella and Hanspeter Kriesi, 1999. Social Movements in a Globalizing World: An Introduction, in della Porta, Donatella, Hanspeter Kriesi and Dieter Rucht (eds.), Social Movements in a Globalizing World. New York, Macmillan Press. della Porta, Donatella and Mario Diani, 1999. Social Movements: An Introduction. Oxford, Basil Blackwell. Fairbrass, Jenny and Andrew Jordan, 2001. Protecting Biodiversity in the European Union: National Barriers and European Opportunities? Journal of European Public Policy, Vol. 8, No. 4, pp. 499–518. Fazi, Elodie and Jeremy Smith, 2006. Civil Dialogue: Making it Work Better. Study Commissioned by the Civil Society Contact Group. Available at http://act4europe.horus.be/module/FileLib/ Civil%20dialogue,%20making%20it%20work%20better.pdf Giugni, Marco G. and F. Passy, 1998. Social Movements and Policy Changeç Direct, Mediated or Joint Effect? American Sociological Association’s Section on Collective Behaviour and Social Movements. Working Paper Series. Vol. 1, No. 5. Goldstone, Jack A. 2004. More Social Movements or Fewer? Beyond Political Opportunity Structures to Relational Fields. Theory and Society. Vol. 33, pp. 333–365. Goodwin, Jeff and James M. Jasper, 1999. Caught in a Winding, Snarling, Vine: The Structural Bias of Political Process Theory. Sociological Forum, Vol. 14, No. 1, pp. 27–54. Greenwood, Justin, 2003. Interest Representation in the European Union. New York, Palgrave Macmillan. Hearl, Derek, 2006. The Luxembourg Presidency: Size Isn’t Everything. Journal of Common Market Studies Annual Review. Vol. 44, pp. 51–55. Helfferich, Barbara and Felix Kolb, 2001. Multilevel Action Coordination in European Contentious Politics: The Case of the European Women’s Lobby, in Imig, Doug and Sidney Tarrow (eds.), Contentious Europeans: Protest and Politics in an Emerging Polity. Oxford, Rowman & Littlefield. Imig, Doug and Sidney Tarrow, 2001a. Studying Contention in an Emerging Polity, in Imig, Doug and Sidney Tarrow (eds.), Contentious Europeans: Protest and Politics in an Emerging Polity. Oxford, Rowman & Littlefield, pp. 3–26. Imig, Doug and Sidney Tarrow, 2001b. Mapping the Europeanization of Contention: Evidence from a Quantitative Data Analysis in Imig, Doug and Sidney Tarrow (eds.), Contentious Europeans: Protest and Politics in an Emerging Polity. Oxford, Rowman & Littlefield, pp. 27–49. Keck, Margaret E. and Kathryn Sikkink, 1998. Activists Beyond Borders: Advocacy Networks in International Politics. Ithaca, New York, Cornell University Press. Kitschelt, Herbert P., 1986. Political Opportunity Structures and Political Protest: Anti-Nuclear Movements in Four Democracies. British Journal of Political Science, Vol. 16, No. 1, pp. 57–85. Kitschelt, Herbert P., 1990. New Social Movements and the Decline of the Party Organization in Dalton, R.J. and M. Kuecheler (eds.), Challenging the Political Order. Cambridge, Polity Press. Koopmans, Ruud, 1999. Political. Opportunity. Structure. Some Splitting to Balance the Lumping. Sociological Forum, Vol. 14, No. 1, pp. 93–105. Kriesi, Hanspeter, 2004. Political Context and Opportunity, in Snow, David A., Sarah A. Soule, and Hanspeter Kriesi (eds.), The Blackwell Companion to Social Movements. Oxford, Blackwell. Kriesi, Hanspeter, Ruud Koopmans, Jan Willem Duyvendak, Marco G. Giugni, 1995. New Social Movements in Western Europe: A Comparative Analysis. New York, Routledge. Kriesi, Hanspeter, Ruud Koopmans, Jan Willem Duyvendad, and Marco G. Giugni, 1995. New Social Movements in Western Europe: A Comparative Analysis. Minneapolis, University of Minnesota Press.

10

Protesting the Lisbon Agenda and the Services Directive in the European Union

261

Lahusen, Christian, 2004. Joining the Cocktail Circuit: Social Movement Organizations at the European Union. Mobilization, Vol. 9, No. 1, pp. 55–71. Marks, Gary and Doug McAdam, 1996. Social Movements and the Changing Structure of Political Opportunity in the European Union, in Marks, Gary, Fritz W. Scharpf, Philippe C. Schmitter and Wolfgang Streeck (eds.), Governance in the European. London, Sage Publications. Marks, Gary and Doug McAdam, 1999. On the Relationship of Political Opportunities to the Form of Collective Action: The Case of the European Union in della Porta, Donatella and Hanspeter Kriesi, Social Movements in a Globalizing World. New York, St. Martins Press. Martin, Andrei and George Ross, 2001. Trade Union Organizing at the European Level: The Dilemma of Borrowed Resources in Imig, Doug and Sidney Tarrow (eds.), Contentious European: Protest and Politics in an Emerging Polity. Oxford, Rowman & Littlefield. McAdam, Doug, 1996. Conceptual Origins, Current Problems, Future Directions, in McAdam, Doug, John D. McCarthy, and Mayer N. Zald (eds.), Comparative Perspectives on Social Movements: Political Opportunities, Mobilizing Structures, and Cultural Framings. Cambridge, Cambridge University Press. Michalowitz, Irina, 2002. Analysing Structured Paths of Lobbying Behaviour: Why Discussing the Involvement of ‘Civil Society’ Does Not Solve the EU’s Democratic Deficit. Journal of European Integration, Vol. 26, No. 2, pp. 145–173. Peterson, John, 1997. States, Societies and the EU. West European Politics, Vol. 20, No. 4, pp. 1–23. Ruzza, Carlo, 2004. Europe and Civil Society: Movement Coalitions and European Governance. Manchester, Manchester University Press. Smith, Jackie, 2005. Building Bridges or Building Walls? Explaining Regionalization Among Transnational Social Movement Organizations. Mobilization: An International Journal, Vol. 10, No. 2, pp. 251–269. Tarrow, Sidney, 1990. The Phantom of the Opera: Political Parties and Social Movements of the 1960s and 1970s in Italy in Dalton, R.J. and M. Kuecheler (eds.), Challenging the Political Order. Cambridge, Polity Press. Tarrow, Sidney, 1994. Power in Movement: Social Movements, Collective Action, and Politics. Cambridge, Cambridge University Press. Tarrow, Sidney, 1996. States and Opportunities: The Political Structuring of Social Movements, in McAdam, Doug, John D. McCarthy, and Mayer N. Zald (eds.), Comparative Perspectives on Social Movements: Political Opportunities, Mobilizing Structures, and Cultural Framings. Cambridge, Cambridge University Press. Warleigh, Alex, 2000. The Hustle: Citizenship Practice, NGOs and ‘Policy Coalitions’ in the European Union – the Cases of Auto Oil, Drinking Water and Unit Pricing. Journal of European Public Policy, Vol. 7, No. 2, pp. 229–243.

Chapter 11

Transnational Governance of Labour Standards: Insights from the Clothing Industry in Turkey Tugce Bulut

11.1 Introduction Rapid transnationalization at the global scale has been transforming the governance structures of nation-states for more than three decades. One of the areas most influenced by transnationalization is the governance of the labour market at the national level. While the ever-increasing pressures to reduce cost in order to stay competitive in the global market have been influencing the labour market policies especially in developing countries, the proliferation and expansion of new modes of regulation such as standards, codes of conduct, certification and monitoring frames has introduced new dynamics into the governance structures. This chapter focuses on various patterns of transnationalization with an impact on the governance of labour market in the clothing industry in Turkey. Four different transnational forces with regulatory influences on domestic labour market are covered: (1) EU regulations and political conditionality exercised in the pre-accession process; (2) awareness campaigns, standards, and certification and monitoring frames of the transnational civil society initiatives; (3) codes of conduct of multinational branded companies; and (4) global market forces as conditioning factors. After mapping different processes and actors involved in the governance of labour market, the local responses to these different patterns of transnational regulation will be analysed with a view to their efficacy and social legitimacy. The question of which ideas, discourses, rules, social norms and conventions, be they formal or informal, shape local actors’ perceptions and structure their actions will be explored.

11.2 Research Questions The present study explores the main forces of transnationalization that shape the governance structure of the labour market in the clothing industry of Turkey. By mapping this field, it addresses the question of which transnational T. Bulut (B) University of Cambridge, Cambridge, UK e-mail: [email protected] L. Bruszt, R. Holzhacker (eds.), The Transnationalization of Economies, States, and Civil Societies, DOI 10.1007/978-0-387-89339-6_11,  C Springer Science+Business Media, LLC 2009

263

264

T. Bulut

actors/institutions shape patterns of labour market governance at the domestic level. What are the key processes? After spelling out the main dynamics of transnational governance in this particular area, it observes how these processes are received at the local level. What are the varying impacts of different modes of transnational regulation? In order to assess the efficacy of the intervention by transnational actors, this study moves beyond a consideration of the letter of the law and empirically examines the implementation of both hard regulation (national labour legislation influenced by EU regulations) and soft standards (corporate code of conducts, certification and monitoring schemes) in the context of Turkey. The following questions are addressed: What are the main institutional and discursive forces that frame these regulatory initiatives? Do they become embedded in the local setting? Is the diffusion of transnational norms into domestic practices accompanied by a process of societal legitimization at the domestic level? What is the nature of ideas and discourses surrounding the processes of transnational governance? Which values have prevailed? What are the cognitive and normative templates that structure the mindset of the local actors through which they perceive their interests? This chapter concludes by exploring the opportunities (or a lack thereof) offered by transnational interventions to labour to have a say in the governance of the labour market.

11.3 Research Design and Methodology The primary source of data for this chapter is the case study of the labour market in the clothing industry in Turkey. This case study was built on a triangulated qualitative research design involving documentary analysis, participant observation and interviewing embedded in ethnographic field research, conducted in Turkey in December 2006 and April 2007. The documentary analysis was carried out to review the Turkish Labour Law, codes of conduct, minutes of deliberations between activists and corporations on the content of the codes, documentation related to processes of certification and monitoring, websites of the relevant transnational organizations, information sheets, leaflets and internal project assessment reports. This comprehensive data was supported by relevant literature review to present a thorough account of the current situation of labour in Turkey. In order to gain insight into the dynamics of the economic relations on the shop floor, I paid visits to 11 clothing factories in Turkey. I also participated in multi-stakeholder meetings held by certain transnational civil society initiatives aiming to improve labour conditions in selected factories. In order to enhance the observational material, I conducted a total of 65 in-depth interviews in Turkey, 15 of which were with clothing industry workers. The rest of the interviews were held with a wide range of stakeholders, including factory owners, brand managers, corporate consultants, local coordinators of various civil society movements, independent social auditors and monitors, trade union leaders, representatives of

11

Transnational Governance of Labour Standards

265

business associations, academic analysts and opinion leaders. The data was analysed in two phases using a comprehensive analytic framework based on traditions of grounded theory (Glaser and Strauss 1967; Strauss and Corbin 1990) and sociological discourse analysis (Foucault 1969; Latour and Woolgar 1986; Ricouer 1983), involving processes of open and axial coding, and interpretative discourse analysis.

11.4 Theoretical Framework The spatial reorganization of production processes at the global level has raised certain dilemmas of governance. Globally connected corporations which have outsourced most of their manufacturing functions have managed to escape national regulations in their home countries, and regulatory frameworks in the host supplier countries are often insufficient or ineffective (e.g. Faust et al. 2004). Notwithstanding these apparent deregulatory features of globalization, many scholars have argued that regulatory standards for economic activity have proliferated in the global era due to the diffusion of regulatory capacity, as well as interest, to multiple actors. There is now a rich literature arguing that economic globalization is more about re-regulation than deregulation (Ayres and Braithwaite 1992; Campbell and Pedersen 2001; Levi-Faur 2005; Levi-Faur and Jordana 2005; Slaughter 2004). Going beyond the traditional demarcation lines between domestic and international polities, and between state and nonstate actors, these scholars have made the complexity of governance structures at the local, national and transnational levels a central concern of their research.1 Although some of these studies still emphasize the importance of the national state as the primary regulatory agency that can shape and mediate global tendencies (Campbell and Pedersen 2001), operating through global networks (Slaughter 2004), others remind us not to take the role of state in governance for granted (Keohane 1982; Moran 2002; Rosenau and Czempiel 1992). Keohane and Nye’s early work (1971) on transnational forces of world politics has become the forerunner of transnationalism studies that have focused on nonstate actors as autonomous agents that can bypass state power. Scholars have drawn attention to international organizations (Boli and Thomas 1999), ‘social networks’ (Van der Pijl 1998), ‘epistemic communities’ (Haas 1992), global social movements (O’Brien et al. 2000), ‘transnational advocacy networks’ (Keck and Sikkink 1998), ‘rooted cosmopolitans’ (Tarrow 2005) and various forms of private regulatory initiatives (Cutler et al. 1999; Hall and Biersteker 2002) as new forms of collective agency, bound together by shared ideas, interests, values or a common discourse across the national boundaries, that make a claim to various spheres of governance authority through agenda-setting, rule-making, labelling and monitoring.

1

See Gourevitch 1978 for an early study of the dynamics of the intricate relationship between domestic politics and foreign policy. See also Risse 2002 for an example of the revival of study of interwoven domestic and international political processes.

266

T. Bulut

Among private regulatory initiatives, the role of transnational networks in creating, implementing and monitoring international standards has attracted much scholarly attention. While Keck and Sikkink focus on the ‘boomerang pattern’ (1998), where domestic actors externalize local issues to gain the support of transnational coalitions, which they make use of to exert influence on their national government, Tarrow (2005) delineates a number of mechanisms which domestic activists can deploy to build support networks. By pointing to different processes of building transnational alliances such as ‘global framing’, ‘internationalization’, ‘externalization’, ‘international coalition formation’, ‘diffusion’ and ‘scale shift’, he illuminates how local causes can be globalized or advocacy strategies can be spread from one locality to another. After describing various processes of transnational activism, Tarrow argues that externalization and transnational coalition building are prone to be more effective since these processes involve the actions of ‘rooted cosmopolitans’ who are not detached from their domestic bases. These transnational activists not only mobilize international resources for their cause, but also advance their contention in their own local context. This engagement at the local level is deemed to be crucial to establish the legitimacy of transnational networks and organizations, as well as of the standards and norms they promulgate. Barnett and Finnemore (2004) argue that while global institutions may have output legitimacy (2004) due to their efficient functioning, their lack of accountability and representativeness threatens their credibility in the eyes of people whose rights they are set to defend. Khagram et al. (2002) also touch upon this issue of input legitimacy (2004) and argue that international institutions lack representative quality since they mostly originate from the west and seek to advance western norms and values. To overcome this legitimacy problem, Slaughter (2004) argues for an intergovernmental system built on horizontal networks of state institutions, supported by less accountable nongovernmental organizations, instead of self-appointed transnational activists or international experts. Building upon the transnationalism literature briefly discussed above, this chapter examines the impacts of transnational forces on national labour standards and empirically investigates the local reception of various processes of transnational governance in the case of the Turkish labour market in the clothing industry. By breaking down the transnational governance of this particular labour market into its distinct components, the new political and regulatory dimensions of labour market governance are mapped out. Through empirical analysis of the local reception of these different transnational processes, the embeddedness of transnational norms and standards is brought into question. The rarely posed questions concerning input and output legitimacy are then discussed in relation to the level of embeddedness of transnational regulatory networks. It is shown that transnational initiatives that are not rooted in the local context and do not offer clear and functioning mechanisms for inclusiveness, transparency and accountability do not only suffer from a lack of input legitimacy. The processes of norm- and standard-setting that emanate from regulatory initiatives which have not invited participation of local actors lack domestic networks that could support the implementation and enforcement of regulations. When an externally imposed change in norms and standards is not absorbed

11

Transnational Governance of Labour Standards

267

into the existing social contract of the community, their implementation becomes highly problematic, compromising the output legitimacy of a regulatory initiative as well. In light of the case study of labour standards in Turkey, it is argued that when new frames and values upon which new standards are built on are not formulated in a participatory manner and promoted within the local context, they do not enjoy widespread social acceptance. A lack of general social acceptance is translated not only into incentives for noncompliance with costly standards, but also into absence of support from domestic networks. A lack of full-hearted commitment to the new values and norms at the local level drastically increases the cost of monitoring and enforcement in noncompliance cases. Lack of local support becomes particularly crucial when there are competing forces that could orient transnational governance in different directions. As it is observed from the Turkish case study, transnational regulatory initiatives that aim to improve labour standards fall short of realizing this aim partly because the norms and rules they promote encounter resistance from certain groups whose economic interests are challenged, but also because these new set of rules are not embedded in, or adapted to, the pre-existing normative frames of the community.

11.5 Scientific and Social Significance of the Research This study aims to make three main contributions to the existing transnationalization literature. First, by focusing on transnational governance through private regulatory networks and voluntary standards, in addition to hard laws, it moves beyond state-centric approaches and methodological nationalism in the analysis of global governance mechanisms. Going beyond the separation of external and domestic processes and taking transnational governance system as a unit of analysis, it aims to better capture the interplay between complex and wide-ranging processes of domestic and transnational interactions. Secondly, by drawing the boundaries of the study as the processes of transnational governance, rather than transnational activism or transnational regulation, the present study draws attention to the existence of competing and conflicting forces within the governance system. Understanding the transnational system as a battlefield emphasizes the struggle dimension whereby different structuring forces seek power to either maintain the status quo or gain influence to bring about change by shaping value systems, cultural frames and normative commitments. By distinguishing different elements of transnational governance, it becomes possible to observe underlying forces and complex structure of labour market governance. Thirdly, by focusing on the empirical investigation of local reception of various transnational processes, this study shifts the attention away from mere introduction of regulations to questions of implementation and compliance, which are rarely addressed in the literature. Although the actions and potential of transnational regulatory mechanisms have been widely documented in the literature, its limitations have not received as much scholarly attention. Understanding the problem

268

T. Bulut

of noncompliance in relation to the embeddedness question reveals the structural limitations of transnational regulatory networks and affords a fresh look at the relationship between input and output legitimacy.

11.6 Forces of Transnational Governance One of the major areas transnational activism and regulatory networks directed their attention to has been labour standards. This section will examine four different patterns of transnationalization with an impact on the governance of the labour market in the clothing industry in Turkey. However, before embarking upon that task, it would be apt here to briefly review the current state of the clothing industry in Turkey in order to put the situation of labour standards in context. Turkey is the fifth largest clothing exporter in the world (DPT 2001) with a share of the world market of around 4% (CCC 2005). Ranking second as the European Union’s clothing supplier (behind China) and first as its textile supplier (Kaya 2004), Turkey is the largest producer of textile and clothing in the Euro-Mediterranean zone. Although Turkey has witnessed a rapid growth in textile and clothing exports from the 1980s until 2004, export performance has been slowing down in the postAgreement on Textiles and Clothing (ATC) period since January 2005. Exported clothing is mainly produced under contracts to western buyers who are either brands or retailers. However, since many manufacturers upgraded from simple assembly to fullpackage production, and some producers made the transition to original brand-name manufacturing (Tokatlı 2003; Tokatlı and Boyacı-Eldener 2004), it is argued that Turkey has remained competitive in the post-quota period (Birnbaum 2004). The presence of 60 textile and 15 clothing companies among Turkey’s top 500 companies reveals the significance of this industry for the Turkish economy and labour market today (CCC 2005). The Turkish state relies on this industry both for employment of the large urbanized labour force as well as for export earnings. According to 2004 figures, the formal textile and clothing sector constituted 17.5% of Turkey’s industrial production, 11% of total employment and 30% of industrial employment (CCC 2005). Of the formally employed, 31% are women (Sugur and Sugur 2005). In 2006, according to the official statistics of the Ministry of Labour and Social Security, the total number of workers employed in the sector passed half a million. However, associations of both employers and employees view this official figure as a gross underestimate of the real level of employment in this industry since it does not include unregistered workers employed in many small firms. Instead they estimate the total number employed in this sector to be at least 3 million people (CCC 2005; Jo-In 2004), 45–50% of which are women (Kaya 2004). In sum, in the clothing industry, a large informal sector, including many home workers, surpasses the formal sector in size. Around 80–90% of production takes place in small or medium-sized enterprises (Kaya 2004). Furthermore, the pressure from western buyers for lower prices has resulted in extensive outsourcing, both to unregistered

11

Transnational Governance of Labour Standards

269

domestic firms and, less so, to lower-wage countries in CEE, Central Asia and the Middle East (CCC 2005).

11.6.1 EU Regulations and Political Conditionality Exercised in the Pre-accession Process Although Turkey is not a member state of the European Union, it has been a member of the European Customs Union since 1996, and in 1999 it was declared an official candidate for full membership of the EU. During the pre-accession process, the EU could exercise active leverage (Vachudova 2005) over the Turkish government to promote domestic change in political, economic and legal areas through political conditionality. As a result, Turkey has been reforming a substantial part of its national legislation in order to bring it in line with the EU acquis communautaire and also to meet the political requirements of the Copenhagen criteria.2 Most of the amendments introduced to the law in this process constitute some progress in the democratization of society, the protection of disadvantaged – especially minority – groups and the provision of social welfare. The changes in labour law, which became effective by the adoption of the new Turkish Labour Act on 10 June 2003, in the same way, introduced improvements for workers. The new law contains clauses limiting discrimination and child labour, prohibiting forced labour as well as regulating working hours/overtime, occupational health and safety and various aspects relating to employment security. Overtime is regulated relatively tightly, setting a maximum of 45 hours per week and 270 per year, but permitting negotiation on distribution of working hours over time, provided that it does not to exceed 11 hours a day (Sural 2005). Occupational health and safety provisions are comparatively good but apply only to firms with more than 50 employees (Jo-In 2004). Provisions on termination of employment limit employers’ degree of discretion through instituting costly compensation measures. Finally, being a union activist does not constitute ground for dismissal (Kaya 2004). The new law also stipulates enhanced maternity leave, extends the application of workplace regulation to ‘home-based workplaces’ (Jo-In 2004) and introduces unemployment benefit (Kaya 2004). There has not been much improvement, however, in the legislation concerning freedom of association, which still includes many anti-democratic provisions. Trade unions have criticized the new law for enabling the extensive use of atypical types of employment and limiting the provision on increased job security to workplaces employing 30 or more workers (Jo-In 2004; Sural 2005). However, despite the fact that there are some restrictive and anti-democratic clauses,

2

Any candidate country seeking membership of the EU must meet three criteria established by the Copenhagen European Council in 1993 in order to join the Union: political criterion, economic criterion and the acceptance of the community acquis. The political criterion requires the achievement of ‘stability of institutions guaranteeing democracy, the rule of law, human rights and respect for and protection of minorities’ (Bull. EC 6/1993, pt. I.13).

270

T. Bulut

particularly in the Trade Union Act, a brief review of the new Labour Act clearly demonstrates that, at the level of legislation, workers in Turkey are relatively well protected against the insecurities embedded in the structure of the global labour market.

11.6.2 Transnational Civil Society Initiatives The civil society reaction against abusive labour practices and the violation of labour rights was first set off in the US in the mid-1990s with the campaigns against wrongdoings of US branded companies such as Gap, Nike and Kathie Lee Gifford. As the labour conditions that violate basic human rights and labour rights in some US factories became widely known through their wide media coverage, university students mobilized around the anti-sweatshop issue and in 1998 founded the United Students Against Sweatshops (USAS) network to investigate under what conditions their collegiate apparel was being produced. This student activism drew attention to the issue, and shortly thereafter, many NGOs, consumer groups and labour unions joined the protests to put pressure on branded companies to comply with international labour standards.3 Many initiatives, such as the Fair Labour Association (FLA), Social Accountability International (SAI) and Worker Rights Consortium (WRC), were formed in the 1990s. Some of them created a code of conduct or certificates and/or a monitoring body to watch the implementation of codes; some others engaged in investigating worker complaints and helping them organize. During the late 1990s, comparable initiatives developed also in Europe, such as the Clean Clothes Campaign (CCC), Ethical Trading Initiative (ETI) and the Fair Wear Foundation (FWF). The anti-sweatshop movement in the US initially addressed the labour abuses in the domestic industry. As production networks became more and more stretched across national borders from the 1980s, the focus of these initiatives shifted to suppliers of branded companies in developing countries. Most recent developments show that these civil society initiatives simulated the transnational nature of production networks with increasing global connectedness, collaboration and reach and density of their organizational infrastructures (Palpacuer 2006). A lack of an established transnational regulatory system that could enforce international labour standards has encouraged these civil society initiatives to assume the role of regulators by introducing private codes of conduct and monitoring the implementation of labour rights and standards. Most of the codes of conduct and certificates were based on ILO conventions or standards of international trade unions. Most of them go beyond the core standards and concern themselves with the problems of low wage levels, forced overtime and lack of labour rights.

3

For a critical survey of the history of consumer movements in support of labour rights from the late nineteenth century through the present, see Frank 2003. For a discussion of labour–civil society alliances that span the divide between them, see Anner and Evans 2004.

11

Transnational Governance of Labour Standards

271

Because implementing codes and monitoring noncompliance in suppliers of globally networked brands are extremely challenging tasks that require expertise and resources, many civil society initiatives joined forces with other private actors in multi-stakeholder initiatives (MSIs). Some initiatives have close relations with buyer firms, while others have built alliances with labour unions. Some industrybased bodies such as Worldwide Responsible Apparel Production (WRAP) in the US and Business Social Compliance Initiative (BSCI) in Europe were also formed where firms collaborate for implementation and monitoring of codes.

11.6.3 Code of Conducts of Transnational Branded Companies Since 1980s many transnational branded companies and retailers in the clothing industry have been outsourcing their production processes to remain competitive in the sector. Through outsourcing their manufacturing process, they could also outsource the responsibility of maintaining regular employment and transferred this risk to their suppliers. Low labour cost in developing countries where suppliers were based emerged as the main incentive for global reorganization of production processes. Through these global networks they could also escape regulatory systems in their home countries; and regulations in supplier countries are either underdeveloped or not strictly enforced (Chan and Ross 2003; Faust et al. 2004). Enjoying the increased flexibility attained by outsourcing practices, branded transnational corporations during the 1980s refused to assume responsibility for labour conditions in their supplier firms. However, in the face of mounting pressure from civil society initiatives, they reluctantly began to accept responsibility for the workers of their contractors from the early 1990 onwards (Esbenshade 2004). The protests that related abusive and inhuman labour practices to the image-sensitive brand names of transnational clothing corporations made them vulnerable to the destruction of their reputation. In order to save or restore their reputation, many of them adopted corporate codes of conduct for labour, regulating their relations with their suppliers (Esbenshade 2004; Palpacuer 2006). The ways firms implement and monitor labour codes greatly vary in terms of the range of adopted standards, the rigour of monitoring procedures and sanction in case of noncompliance. However, some of the corporate code initiatives engage with enforcement of ILO conventions and the law of the land regarding labour issues. Most companies developed and implemented their own labour codes, and some of the large companies have social compliance departments with dedicated staff for monitoring. In addition to their own codes, most of them join MSIs that consist of civil society organizations, companies and sometimes unions. Among MSIs, industrial associations such as WRAP and BSCI are the most popular ones among companies (Esbenshade 2004; Jenkins 2002; Wick 2005). According to a recent World Bank study, there are currently 1,000 corporate codes in existence, stipulating labour rights and environmental requirements for suppliers (World Bank 2003). The mode of these private regulation schemes ranges from individual supplier factories applying to be certified to transnational brands internally monitoring

272

T. Bulut

their suppliers or accrediting third-party auditors to conduct inspections, and to contractors that report their compliance status on a regular basis (Esbenshade 2004; O’Rourke 2003).

11.6.4 Global Market Forces While the EU has had an impact on regulation of labour standards in Turkey through political conditionality, civil society initiatives through transnational regulatory networks and branded companies through corporate codes of conduct, global market forces influence the governance of the labour market through a variety of mechanisms. These shape social and economic policies, organize political and economic actions and affect the general order of the economy and the position of labour within the economic system. In the last four decades, market liberalization has been one of the most dominant forces in the world economy. In order to ensure the liberalization of trade and capital flows by dismantling any kind of barriers to the international mobility of capital and goods, many developing countries in the late 1970s and 1980s were pressed to implement structural adjustment programmes, which would guide their transition from import-substituting industrialization (ISI) strategies to export-oriented growth (EOG) strategies. To succeed in EOG, the developing countries needed to attract foreign capital and buyer firms and to increase their export capacity. The liberalization of markets at the global level, while increasing the opportunities for global business, fuelled the competition between developing countries. In that climate, transnational corporations (TNCs) could easily impose favourable conditions that would reduce their costs and enhance their profits. Providing a business-friendly regulatory environment and ensuring low labour costs emerged as the key elements for improving international competitiveness. Market liberalization also had implications for the relationship between the state and the economy. Market deregulation, privatization of state-owned enterprises and civil service downsizing (Lash and Urry 1987; Przeworski 1995; Sassen 1996; Strange 1996) at the domestic level accompanied liberalization of markets at the global level. International competition that is driven by market liberalization also transformed industrial relations system by promoting increased labour market flexibility. Such transformations drastically altered the role of the state, the leverage of business and the bargaining power of labour. Economic and political policies in Turkey have also been moulded by these global forces. The increasing protectionism in the world market and hence shrinking export opportunities, the oil crisis and ensuing rise in oil prices and scarcity of foreign aid led to depletion of foreign exchange reserves of the Central Bank by 1977 (Keyder 1989). Inability to import inputs had interrupted the production process. This crisis situation induced Turkey to sign an agreement with the IMF in 1978, which was followed by adoption of an orthodox stabilization and structural adjustment programme in January 1980. This programme accompanied a shift from ISI to EOG strategy. The new growth strategy was centred on liberalization of capital flows

11

Transnational Governance of Labour Standards

273

and increasing the export capacity of the country by subsidies, incentives and low labour cost. Implementing this growth model which required a freezing of wages, a significant contraction of the public sector and a deflationist policy (Boratav et al. 1994; Senses ¸ 1989; Yeldan 1995) would have been a very difficult task for a civilian government to carry out in the midst of already existing political chaos. The 12 September 1980 coup and the following military regime guaranteed that the implementation of these policies would not be interrupted by political instabilities. In order to restore the deteriorating economy in 1980s, the military regime and the following government, it is widely argued, had exposed Turkey to financial liberalization too early before securing fiscal discipline in the country (Alper and Öni¸s 2003; Keyman and Koyuncu 2005). Without a strong domestic financial market, the country was left wide open to speculative capital inflows. This financial bubble boosted by unsustainable economic growth burst several times instigating severe economic crises in 1994, 2000 and 2001 (Cizre and Yeldan 2005). The working class was one of the groups most adversely affected by the final collapse of the economy in 2001. The unemployment rate, which was already high even during the periods of economic growth, reached an unprecedented level. Not surprisingly, the labour movement was hampered by these economic conditions. In addition to the problem of pervasive unemployment, a rapid increase in subcontracting activities and an intensification of the informal economy made it more and more difficult for the workers to organize and assert their rights. Increased pressures from global market forces have drastically altered the power balance between labour and business. Threatened by the constant fear of unemployment, labour lost a great deal of its already limited bargaining power.

11.7 Local Reception of Transnational Governance How various processes of transnational governance mapped out in the previous section have been received at the local level greatly varies depending on a combination of domestic economic, social and geographical factors. Implementation of transnational regulations is mediated by a variety of actors, and norms and standards introduced are reinterpreted during everyday transactions. In order to be able to evaluate output legitimacy of transnational governance mechanisms, it is crucial to explore how each mechanism functions at the local level. This section, therefore, examines how the main actors who mediate the implementation of regulations engage with them at the practical level. Suppliers, who are responsible for maintaining a regular workforce and complying with the National Labour Law, as well as a variety of transnational codes, have been deemed to be reluctant to strictly adhere to these regulations in many developing countries.4 Most of the employers in clothing factories in Turkey

4

For detailed studies of labour standards violations see, for example, Collins 2003; Esbenshade 2004; Rosenberg 2005 for Mexico; Brown 2001; Roberts et al. 2006; Sum and Ngai 2005 for China.

274

T. Bulut

consider labour legislation and corporate codes to be an obstacle in the way of running their business. Given the ever-increasing price pressure from buyer firms and squeezed profit margins, they believe that the cost of full compliance would drain their remaining profits. As a representative of a clothing industry business association underlines, many suppliers try and find ways to water down legal stipulations and private codes: Social compliance issues are now too popular to ignore. So, on the one hand suppliers do not want to get a reputation for being non-compliant, but on the other hand they are unable to face the costs full compliance would bring. So they look for shortcut solutions and easy fixes. (Business Association Representative 1)

One of the solutions widely employed in the industry is to conduct unregistered operations (Jo-In 2004). Informality takes three different forms: (1) unregistered workplaces; (2) employing some unregistered employees in registered workplaces – the most prevalent form; and (3) under-declaration of wages paid to registered workers by falsifying payroll records, to save on social security and tax payments (Kaya 2004; Renooy et al. 2004). Engaging in double book-keeping to hide excessive amount of overtime worked, firing and re-hiring workers at the end of each year to avoid high severance payments (CCC 2005) and coaching their workers to back up these false accounts if they are asked during a social audit are all common practice. Shifting work to unregistered/smaller subcontractors that are not known to buyers is another way often used to evade legal and private inspections while keeping labour costs low: Labour cost in my factory is so much higher compared to small production workshops. Because all the employees here are registered. But if I did all the production here, I would go bankrupt. I don’t have enough staff for that anyway. [. . .] I subcontract most of the work to smaller factories. Labour costs are much lower there. [. . .] All these small workshops are unregistered; so they can adjust their workforce according to demand. [. . .] It just economically makes sense. I mean, I did not invent these methods. Everyone does it. This is the only way to survive. (Supplier 1) In-house subcontracting is common practice in Turkey. Because 49 is the magic number. If any factory has 50 or more employees, they have to deal with added legal requirements such as provision of nursery and medical units. So all the factories try to keep the score under 50, at least on paper. So usually the boss gives some capital to one of his trusted workers and asks him to start up a company under his own name. That worker gets a high salary, but the profits are still collected by the boss. This is a very usual procedure in Turkey. (Social Auditor 1)

In an effort to justify their irregular practices, factory owners and managers state that they find themselves in a position obliged to violate labour law and private labour standards since they consider these requirements unreasonable in the first place. I don’t know any company that is fully compliant with labour law; not even the ones with 5,000 workers. It is not about the size. It would just be economic suicide. It is not possible to pay social security premiums, overtime payments, etc. and still make profit. The government is also aware of that. (Supplier 2) Let’s take a step back here and look at the situation they [buyer firms] put us in. They want us to raise labour standards whilst lowering our unit prices simultaneously. They want us

11

Transnational Governance of Labour Standards

275

to cut overtime just as they are requesting shorter lead times for quick response. They just need to do the maths. They cannot get it all. (Supplier 3) All the clothing factories are facing the same compliance problem today. Buyers are pressing for compliance without thinking about its implications for the business. They make these rules in Germany, in the US, but they do not think if it would work in Turkey. They say ‘get all your employees registered’. Sure! Easier said than done. If I do that, how am I going to keep prices down? (Supplier 1)

Because of the conflicting nature of the demands of buyer firms, many suppliers doubt their commitment to labour standards: Brands come and tell us not to have unregistered practices. But, do you think they would do anything, anything to contribute to the solution? They just say it for the sake of saying it. All the buyers working with Turkish suppliers know what is going on here, and they do nothing about it. They give us a warning once in a while, which yields nothing. I cannot see any incentives to undertake such a costly change in production processes. (Supplier 4)

Suppliers are one of the main stakeholders who are directly responsible for the implementation of transnational private labour standards, as well as legal stipulations. Given their reluctance to comply with standards and methods they developed to get around the inspections, it is clear that implementation of labour standards requires a rigorous monitoring process and sanctions attached to violations. Among various actors with enforcement capacity, governments are the most important source of authority that could monitor compliance and impose sanctions. Governments of many developing countries, however, are unwilling to conduct meticulous inspections with an iron hand since it is commonly believed that strictly enforcing legal regulations would not help the cause of creating a business-friendly environment to attract foreign contractors. Especially in the textile and clothing industry where there is a fierce competition among producer countries, full compliance with labour law, it is thought, could severely hinder the chances of this industry to survive in the global market. Despite the strong commitment of the Turkish Labour Act of 2003 to labour standards, the Turkish government tolerates certain violations by turning a blind eye to the informal sector and by easing factory inspections and enforcement procedures in registered workplaces (Kamrava 2004; Kaya 2004; Renooy et al. 2004). This general state attitude is evident in the approaches of labour inspectors to their inspection practices: There are a lot of small factories around Ca˘galo˘glu, Eminönü [in Istanbul]. All sweatshops. They are the worst in terms of labour standards. But we cannot inspect them. So why am I going to go to a registered factory and give them a hard time about one or two violations? They are at least registered. Should we punish them for being registered? Fines and sanctions would only encourage them to go informal. (Labour Inspector 1) Our job is not to go and bust employers and just impose fines for violations. This is why factory visits are announced in advance. We want them to get ready and be prepared. We want them to improve working conditions and comply with law. But if there are one or two small issues, well, sometimes it is for the best not to push too hard. (Labour Inspector 2) The important issue is safety. If there are safety issues I would fine the factory. But if there are unregistered workers or if they are exceeding overtime limits, well, these are delicate

276

T. Bulut

issues. You have got to let it go sometimes. If we followed the law line by line, there would not be one single open factory left in Istanbul. Would that be good for the Turkish economy? (Labour Inspector 3) Everyone expects government investigators to sort out all the problems of the industry. There is only so much we could do. 90 per cent of the factories do not even exist on paper. What do they expect us to do? God knows where they are doing their production. Where am I supposed to go to inspect? I am an inspector, not a detective. (Labour Inspector 4)

This common attitude among state officials of turning a blind eye to violations of labour standards creates a perfect environment for employers to employ various methods to lower labour costs. This climate, in some cases, encourages them to go beyond falsifying payroll records and engage in the suppression of their labour force. I used to be a union member, but I got into so much trouble because of that. I got arrested one day inside the factory. The police came in and took me. I was accused for being a member of PKK [The Kurdistan Workers Party]. That was insane. They kept me in detention for three days, constantly interrogating. Of course, I was fired right after being released. [. . .] It turned out later that it was the boss who started the gossip inside the factory that union members are PKK members. My friends said that they saw the same policeman in the factory a few more times. I don’t know how the boss managed to get the police to be involved, but it scared away all the union members. (Worker 1) I have always been a very active union member. That is probably why I never had a good relationship with my employers. In the last factory I worked, the manager one day called the police and got me arrested just outside of the gates of the factory. When I was leaving work at 6 pm, they came and took me for no apparent reason. They broke my arm when they were dragging me to the police office. They kept me in detention over night with no explanation. And they let me go in the morning. I resigned the next day. (Worker 2)

Although these kinds of corruption cases are not very common in the industry, it is undeniable that the attitude of turning a blind eye to violations creates an environment conducive to these violent practices. However, many state officials explicitly state that this is the best strategy to ensure international competitiveness and economic growth: We have to keep a blind eye on some violations. We just have to if we want Turkey to prosper and become a developed country. We could stop the informal economy; but low labour costs are important to attract foreign business. We need those investments. We need economic growth. I really don’t think the informal economy is bad for Turkey at this stage. (Bureaucrat, Ministry of Labour and Social Security 1) You cannot expect the state to stop the informal economy. It is not only about the capacity. These issues are much more complicated. It is about the national interest. Do we really want to give a halt to the informal economy? What is going to happen to all those people working in the informal economy? Who is going to pay them a salary? [. . .] The clothing industry is very important for Turkey. If we close down all the informal workplaces, the entire clothing industry would go bankrupt. (Bureaucrat, Ministry of Labour and Social Security 2)

As it is clear from the statements of employers and state officials, the labour standards stipulated by the Turkish National Labour Act are compromised during implementation and enforcement processes. Although the EU can exercise leverage over Turkey to diffuse its regulations through political conditionality, it hardly

11

Transnational Governance of Labour Standards

277

has any effect on compliant behaviour. Bearing in mind membership prospective, the Turkish state agrees to bring its labour legislation in line with the community acquis, but sees it as detrimental to its immediate economic interests and hence prefers not to strictly enforce it. Due to these mediating factors, EU intervention falls short of bringing about substantial improvement in labour standards in Turkey. Western buyers, with their considerable leverage over their suppliers, also have the capacity to monitor compliance and the power to enforce the standards. However, as is generally accepted in the literature, the rigour of monitoring practiced by buyers is also questionable. In many cases, social audits are conducted in a bureaucratic manner, focusing on quantifiable findings such as payroll records and overtime data. It is more often than not that audits are conducted by untrained people (Esbenshade 2004; O’Rourke 2003; Sum and Ngai 2005). Most of the brands do not use independent third-party monitoring and instead either conduct their own social audits or collaborate with industry-based bodies such as WRAP or BSCI, whose monitoring practices are less rigorous compared to civil society-based MSIs (Jenkins 2002).5 There is also a tendency among buyer firms to more rigorously monitor the implementation of certain standards, the violation of which is likely to incite public reaction such as child labour and occupational health and safety standards (Esbenshade 2004). However, the violations of standards in more complicated areas such as wage levels, excessive overtime and labour rights are usually tackled with more tolerance partly because these are more intractable problems that need to be resolved at the country, if not the international, level, but also because it would affect buyers’ ability to negotiate for lower prices and shorter lead times (Roberts et al. 2006). This approach influences the way social auditors conduct monitoring for buyer firms: Codes of conduct are not that different from labour law. Maybe there are one or two areas that codes are more demanding, but it is fine if a supplier cannot comply with those. I focus on more substantial issues such as use of masks, fire exits, hygiene of the cafeteria and of course child labour. But if they have some unregistered workers or excess overtime problems, buyers do not worry too much about these. (Social Auditor 2) It is important to have reasonable demands from the manufacturers. I mean, we cannot expect them to pay a “living wage” all of a sudden. But at least they can pay the salaries on time. This would be an important improvement. We cannot expect them to cut overtime at once, but they could invest more to improve compliance with occupational health and safety measures in the factory. In the end of the day, it is the manufacturers who need to pay for all these improvements. Brands do not spend a penny out of their pockets. (Social Auditor 3)

Another general problem with monitoring is that it is usually limited to first-tier contractors, which practically means that violations in smaller subcontractors, mostly operating in the informal economy, go unnoticed:

5

For a critical evaluation of various monitoring practices of different private regulatory initiatives, see Bulut and Lane (2009).

278

T. Bulut

It is not that difficult to find out if a supplier is outsourcing work to subcontractors without declaring it to the buyer. You can talk to a stock-keeper. They usually give it away because they don’t know that they need to hide it. You can also check shipping records. They always indicate where each order is produced so that in case of rejections from the buyer they would know which subcontractor is responsible for faulty products. You can also compare the manufacturing capacity of the factory with number of outputs per day. Sometimes the volume of output is five times bigger than what the factory could have possibly produced in one day. [. . .] The problem is not how to find out about subcontracting. The problem is these are the kind of findings brands do not like at all. It makes you a very unpopular auditor. (Social Auditor 1)

In many cases when auditors report serious violations of standards, buyers choose not to put too much pressure on suppliers to enforce compliance with the code: I was very surprised when I first realised that buyers are open to negotiation in terms of compliance with labour standards. They usually sit down with the supplier and negotiate how and when they can be compliant. Then, they draw a roadmap for remedial action to be undertaken within three years. And by the end of three years, if they are not compliant yet, they just draw a new plan. It can go forever like that. I cannot see how this is enforcement. (Representative of an MSI 1)

As this brief review of the local reception of transnational labour regulations makes it clear, many norms and standards introduced into the clothing industry in Turkey get compromised at the implementation level. Suppliers show reluctance to comply with certain standards that would incur high costs, and state officials and buyer firms are unwilling to strictly enforce these rules and regulations mostly for economic reasons. While states are worried about the competitiveness of the domestic economy, brands are concerned with securing low unit prices and quick delivery times. Therefore, both the state and buyer firms choose not to put too much pressure on suppliers for compliance unless the issue at stake is likely to incite widespread public sentiments. In this context, the role of the transnational civil society initiatives in monitoring and ensuring compliance with labour standards becomes ever more prominent. However, in a highly fragmented and globally dispersed industry, with several tiers of subcontractors, inspecting factories across the continents in dozens of languages with reference to varying legal stipulations confronts civil society initiatives with a task that exceeds their capacities. Moreover, many civil society-based MSIs draw their authority over suppliers from their membership base among buyer firms. The fact that buyers increasingly opt for collaborating with industry-wide associations further reduces their capacity, as well as authority, to monitor compliance. Many social auditors from these civil society initiatives state that it is almost impossible to enforce standards on suppliers unless they voluntarily get on board with it: I have been auditing for SA8000 certificate for over five years now. I believe factory managers always manage to find a way around the auditors if they want. You cannot impose rules by inspections. They have to first believe in it. (Representative of an MSI 2) If I come around and tell you that you have to abide by standards A, B and C, you can always tell me that you are going to do it, even if you think the request is unreasonable or impractical. And when I come around to check your compliance, it is not that difficult to

11

Transnational Governance of Labour Standards

279

make it look like you are compliant. Managers know their factory inside out. They know what to hide and what to change before auditors walk in. It is not possible to ensure compliance by use of force and threats. [. . .] Unless they start to think that these standards are necessary I don’t think we can achieve much. We have to come to an agreement on what constitutes humane standards. (Representative of an MSI 3)

Despite the fact that there are many more actors today, involved in the regulation of labour standards, none of them could achieve a comprehensive and durable impact in improving the conditions of labour. Suppliers, buyer firms and national states are not full-heartedly involved in implementation of hard regulations or soft laws; and transnational civil society initiatives lack the capacity and authority to ensure compliance. In the absence of meticulous inspections and strict enforcement of standards, protective labour legislation and comprehensive codes of conduct do not translate into good practice at the local level. As a result of that, we observe only minimal improvements in labour standards in the Turkish clothing industry. Although certain issues such as child labour and employment by force are not widespread in Turkey (Jo-In 2004), many other problems such as gender discrimination and sexual harassment, poor occupational health and safety measures, illegal overtime, low wages, termination of employment without a just cause, exploitative use of home-based workers and suppression of labour organizations are still common practice (CCC 2005; SOMO 2003). The most severe underlying problem is the prevalence of unregistered operations and informal factories, which are not even on the map of regulatory initiatives despite the fact that violations in these workplaces are much more severe than in the formal sector. Registered workers in the textile and clothing industry benefited from amendments in labour law which provided them with improved job security and better working conditions. Labour standards in the formal sector in Turkey are generally better than they are in other producer countries in Eastern Europe, Central Asia and the Middle East (cf. Jo-In 2004). However, because the unregistered industrial workplaces constitute a great part of clothing production, the overall working conditions remain poor and essentially unchanged (CCC 2005). Many Eastern European countries also face similar problems regarding working conditions in the clothing industry. Lack of genuine freedom of association and right to collective bargaining, low wages, excessive overtime, discrimination at work, poor health and safety standards, and most importantly prevalence of unregistered workplaces and the informal sector are common issues throughout Eastern Europe (CCC 2005). Serious violations of basic health and safety regulations, which lead to accidents, are widely reported in Bulgaria, Macedonia, Moldova and Romania (CCC 2005). Low wages below subsistence level and employers’ explicit hostility towards trade unions are also common practice. In most of the Eastern European countries including Macedonia, Moldova and Poland, these violations are tolerated by the government for fear of deterring western buyers, which would lead to a decline in export volumes and rise of unemployment rates. Giving up labour rights and not enforcing labour legislation is seen as acceptable to ensure competitiveness and integration into the free market economy (cf. Bourdieu 1998).

280

T. Bulut

11.8 Conclusion The case study of the clothing industry in Turkey has shown that there is a plethora of actors and networks at the domestic and transnational levels, who assume the responsibility to regulate labour standards. However, despite a strong National Labour Act, which was adopted partly for harmonization with the EU regulations, and a variety of private codes, there has been very little progress so far in improving working conditions and/or labour rights. The case study has made it clear that the reason why strong regulations are not translated into good practice is the way they are received at the local level. Suppliers show reluctance to implement standards since they believe it would severely harm their business which is already under price pressure; the state is unwilling to strictly enforce labour law for fear of discouraging western firms from outsourcing to Turkey; buyer firms choose not to put too much pressure on suppliers to ensure compliance in certain areas that could potentially increase unit prices, and finally transnational civil society initiatives do not possess the capacity and legitimate authority to impose regulations. The case study has also shown that the reason why many actors, including labour inspectors and social auditors, do not get on board with the implementation of standards is that they find code standards, as well as legal regulations, unreasonable, given the country conditions. They are commonly interpreted as an imposition of western norms and values and in some cases seen as protectionist measures (see also, Khagram et al. 2002). Lack of social acceptance of transnational standards in public in general encourages violations and creates an environment where informal operations of suppliers, as well as the state’s failure to fulfil its duty to enforce compliance, go unchallenged. Without the support of the public which would delegitimize the violation of standards, it proves impossible to effectively monitor and enforce compliance. It is also noted in the case study that when a variety of actors explain the reasons why they consider transnational labour standards to be infeasible, they define feasibility with reference to global market forces. International competition, price pressure and some other market factors are pointed out as the main constraints which impede compliance with labour standards. While the appropriateness of transnational standards is evaluated vis-à-vis market conditions, market conditions themselves are taken for granted. Since market forces have been able to shape cognitive principles and moral frames of the society in general, the normative system it entails ‘become invisible to embedded actors’ (Djelic 2006). Discourse of market forces, promoted through mass media, some international organizations, rightwing intellectuals, powerful business associations or military regimes, becomes so entrenched in the minds of many that it becomes impossible to imagine engaging in an activity that goes against market rationality, no matter for what cause. As a result, the rules the market imposes become common sense, the legitimacy of which is not questioned (Campbell and Pedersen 2001; Giroux 2005). The market forces set up the normative frame for all other practices (Bourdieu 1998). It can be concluded then, among the four transnational forces discussed above, global market forces emerge as the structuring force that sets the rules of the game

11

Transnational Governance of Labour Standards

281

for all other transnational processes. Private regulatory initiatives operate within a context, the boundaries of which are drawn by market dynamics. This context presents a structural obstacle for transnational regulatory initiatives in accomplishing their tasks since their aim of improving labour standards conflicts with market rationality. Instead of rendering this challenge visible and mounting a struggle against unquestioned acceptance of market forces, nearly all the actors and networks reviewed choose to make compromises from the implementation of labour standards and seek practical solutions, where practicality again is defined with reference to market conditions. Discussing the reasons why, while global market forces are enjoying an undisputed acceptance, transnational regulatory initiatives are neither accepted de facto nor considered deserving of acceptance is beyond the limits of this chapter. However, it would be apt here to emphasize that achieving durable improvements in labour standards requires a cognitive and normative shift that would enhance various actors’ ability and capacity to imagine alternatives to the current situation. Building that capacity would require active participation of local groups in the normsetting processes of transnational initiatives. As we have seen in the case study of the Turkish clothing industry, violation of labour standards and lack of enforcement are not only capacity problems, but also a matter of input legitimacy. In that sense, output legitimacy (or institutional effectiveness) becomes a function of input legitimacy (cf. Barnett and Finnemore 2004). Unless there are well-established mechanisms that effectively integrate different local stakeholders into rule-making and agendasetting processes, transnational regulations will not be able to enjoy wider social acceptance, the lack of which will continue to challenge their implementation at the local level.

List of Interviews Turkey 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.

Business Association Representative 1, Istanbul, 22.03.2007 Supplier 1, Istanbul, 05.04.2007 Social Auditor 1, Istanbul, 15.03.2007 Supplier 2, Bursa, 04.01.2008 Supplier 3, Istanbul, 30.03.2007 Supplier 4, Istanbul, 03.04.2007 Labour Inspector 1, Istanbul, 11.01.2008 Labour Inspector 2, Bursa, 06.01.2008 Labour Inspector 3, ˙Istanbul, 02.04.2007 Labour Inspector 4, Bursa, 07.01.2008 Worker 1, Istanbul, 25.03.2007 Worker 2, Istanbul, 08.04.2007 Bureaucrat, Ministry of Labour and Social Security 1, Ankara, 20.03.2007 Bureaucrat, Ministry of Labour and Social Security 2, Ankara, 21.03.2007

282

15. 16. 17. 18. 19.

T. Bulut

Social Auditor 2, Istanbul, 14.03.2007 Social Auditor 3, Istanbul 28.03.2007 Representative of an MSI 1, Istanbul, 16.03.2007 Representative of an MSI 2, Istanbul, 30.03.2007 Representative of an MSI 3, Istanbul, 29.03.2007

Acknowledgments The sections of this chapter that cover an overview of the current situation of the clothing industry in Turkey and a review of the code of conducts of transnational branded companies also appear in Bulut, T., and Lane, C. (2009) The private regulation of labour standards and rights in the global clothing industry: An evaluation of its effectiveness in two developing countries, unpublished manuscript, which can be obtained from the author. I would like to thank Fikret Adaman, László Bruszt, Marie-Laure Djelic and Christel Lane, as well as all participants of the European Research Colloquium, for their helpful comments on earlier drafts of this chapter. The usual disclaimer applies.

References Alper, C. E. and Öni¸s, Z. (2003). Emerging market crises and the IMF: Rethinking the role of the IMF in the light of Turkey’s 2000–2001 financial crises. Canadian Journal of Development Studies, 23(3), 267–84. Anner, M. and Evans, P. (2004). Building bridges across a double divide: Alliances between US and Latin American labour and NGOs. Development in Practice, 14(1–2), 34–47. Ayres, I. and Braithwaite, J. (1992). Responsive Regulation: Transcending the Deregulation Debate. Oxford: Oxford University Press. Barnett, M. and Finnemore, M. (2004). Rules for the World: International Organizations in Global Politics. Ithaca: Cornell University Press. Birnbaum, D. (2004). The rise and fall of the garment industries in Mexico and the Caribbean Basin. Textile Outlook International, July–August, 12–25. Boli, J. and Thomas, G. M. (Eds.). (1999). Constructing World Culture: International Nongovernmental Organizations since 1875. Stanford: Stanford University Press. Boratav, K., Türel, O., and Yeldan, E. (1994). Distributional dynamics in Turkey under structural adjustment of the 1980s. New Perspectives on Turkey, 11, 43–69. Bourdieu, P. (1998). Acts of Resistance: Against the Tyranny of the Market. New York: New Press. Brown, J. S. (2001). Confessions of a sweatshop inspector in China. Available: http://list.jca.apc.org/public/asia-apec/2001-December/001833.html [2007, 28 March]. Bulletin of the European Community. 6/1993, at I.13. Bulut, T. and Lane, C. (2009). The Private Regulation of Labour Standards and Rights in the Global Clothing Industry: An Evaluation of its Effectiveness in two Developing Countries. Unpublished manuscript. Campbell, J. L. and Pedersen, O. K. (2001). Introduction. In J. L. Campbell & O. K. Pedersen (Eds.), The Rise of Neoliberalism and Institutional Analysis (pp. 1–23). Princeton, NJ: Princeton University Press. CCC (2005). Workers’ Voices: The Situation of Women in the Eastern European and Turkish Garment Industries. Meissen: Evangelische Akademie and Clean Clothes Campaign. Chan, A. and Ross, R. J. S. (2003). Racing to the bottom: International trade without a social clause. Third World Quarterly, 24(6), 1011–28. Cizre, U., and Yeldan, E. (2005). The Turkish encounter with neo-liberalism: economics and politics in the 2000/2001 crises. Review of International Political Economy, 12(3), 387–408. Collins, J. L. (2003). Threads: Gender, Labor, and Power in the Global Apparel Industry. Chicago: University of Chicago Press.

11

Transnational Governance of Labour Standards

283

Cutler, A. C., Haufler, V., and Porter, T. (Eds.). (1999). Private Authority and International Affairs. Albany: State University of New York Press. Djelic, M.-L. (2006). Marketization: From intellectual agenda to global policy-making. In M.-L. Djelic & K. Sahlin-Andersson (Eds.), Transnational Governance. Institutional Dynamics of Regulation (pp. 53–73). Cambridge: Cambridge University Press. DPT (2001). Tekstil ve giyim sanayii özel ihtisas komisyonu raporu (Be¸s Yıllık Kalkınma Planı Özel ˙Ihtisas Komisyonu Raporu DPT: 2549 Ö˙IK: 565). Ankara: DPT. Esbenshade, J. L. (2004). Monitoring Sweatshops: Workers, Consumers, and the Global Apparel Industry. Philadelphia: Temple University Press. Faust, M., Voscamp, U., and Wittke, V. (Eds.). (2004). European Industrial Restructuring in a Global Economy: Fragmentation and Relocation of Value Chains. Goettingen: SOFI. Foucault, M. (1969). Archaeology of Knowledge (A. M. S. Smith, Trans.). London: Routledge. Frank, D. (2003). Where are the workers in consumer-worker alliances? Class dynamics and the history of consumer-labor campaigns. Politics & Society, 31(3), 363–79. Giroux, H. A. (2005). The terror of neoliberalism: Rethinking the significance of cultural politics. College Literature, 32(1), 1–19. Glaser, B. G. and Strauss, A. (1967). The Discovery of Grounded Theory. Chicago: Aldine. Gourevitch, P. (1978). The second image reversed: The international sources of domestic politics. International Organization, 32(4), 881–911. Haas, P. (1992). Introduction: Epistemic communities and international policy coordination. International Organization, 46(1), 1–35. Hall, R. D. and Biersteker, T. J. (Eds.). (2002). The Emergence of Private Authority in Global Governance. Cambridge: Cambridge University Press. Jenkins, R. (2002). The political economy of codes of conduct. In R. Jenkins & R. Pearson & G. Seyfang (Eds.), Corporate Responsibility and Labour Rights: Codes of Conduct in the Global Economy (pp. 13–30). London: Earthscan Publications. Jo-In. (2004). Background Study on Turkey: Basic Information on Labor Conditions and Social Auditing in the Turkish Garment Industry (Version 2004-1). ˙Istanbul: JO-IN. Kamrava, M. (2004). The semi-formal sector and the Turkish political economy. British Journal of Middle Eastern Studies, 31(1), 63–87. Kaya, E. S. (2004). Turkey’s Position within the Global Garment Industry. Amsterdam: Centre for Research on Multinational Corporations (SOMO). Keck, M. E. and Sikkink, K. (1998). Activists Beyond Borders: Advocacy Networks in International Politics. Ithaca, NY: Cornell University Press. Keohane, R. (1982). The demand for international regimes. International Organization, 36(2), 325–55. Keohane, R. O. and Nye, J. S. (1971). Transnational Relations and World Politics. Cambridge, MA: Harvard University Press. Keyder, Ç. (1989). Türkiye’de Devlet ve Sınıflar. ˙Istanbul: ˙Ileti¸sim Yayınları. Keyman, E. F. and Koyuncu, B. (2005). Globalization, alternative modernities and the political economy of Turkey. Review of International Political Economy, 12(1), 105–28. Khagram, S., Riker, J. V., and Sikkink, K. (Eds.). (2002). Restructuring World Politics: Transnational Social Movements, Networks, and Norms. Minneapolis: University of Minnesota Press. Lash, S., and Urry, J. (1987). The End of Organized Capitalism. Madison, WI: University of Wisconsin Press. Latour, B., and Woolgar, S. (1986). Laboratory Life: The Construction of Scientific Facts. Princeton, NJ: Princeton University Press. Levi-Faur, D. (2005). The global diffusion of regulatory capitalism. The ANNALS of the American Academy of Political and Social Science, 598(1), 12–32. Levi-Faur, D. and Jordana, J. (2005). The rise of regulatory capitalism: The global diffusion of a new order. The ANNALS of the American Academy of Political and Social Science, 598(1), 200–17.

284

T. Bulut

Moran, M. (2002). Understanding the regulatory state. British Journal of Political Science, 32, 391–413. O’Rourke, D. (2003). Outsourcing regulation: Analyzing nongovernmental systems of labor standards and monitoring. Policy Studies Journal, 31(1), 1–29. O’Brien, R., Goetz, A. M., Scholte, J. A., and Williams, M. (2000). Contesting Global Governance: Multilateral Economic Institutions and Global Social Movements. Cambridge: Cambridge University Press. Palpacuer, F. (2006, 17–20 May). Global Network Firms and Global NGO Networks: Towards a New Mode of Regulation? Paper presented at the EURAM, Oslo, Norway. Przeworski, A. (1995). Sustainable Democracy. New York: Cambridge University Press. Renooy, P., Ivarsson, S., Wusten-Gritsai, O. v. d., and Meijer, R. (2004). Undeclared Work in an Enlarged Union. Brussels: European Commission, Directorate-General for Employment and Social Affairs. Ricouer, P. (1983). Time and Narrative (Vol. 1). Chicago, IL: University of Chicago Press. Risse, T. (2002). Transnational actors and world politics. In W. Carlsnaes, T. Risse & B. Simmons (Eds.), Handbook of International Relations (pp. 255–74). London: Sage. Roberts, D., Engardio, P., Bernstein, A., Holmes, S., and Ji, X. (2006). Secrets, lies and sweatshops. Business Week, 4011, 50–8. Rosenau, J. and Czempiel, E.-O. (Eds.). (1992). Governance without Government: Order and Change in World Politics. Cambridge: Cambridge University Press. Rosenberg, M. (2005). Dreams, Denim, and Destiny. Unpublished MA thesis, Harvard University. Sassen, S. (1996). Losing Control? Sovereignty in the Age of Globalization. New York: Columbia University Press. Slaughter, A.-M. (2004). A New World Order. Princeton, NJ; Oxford: Princeton University Press. SOMO (2003). Garment and textile production: Focus on Turkey (SOMO Bulletin on Issues in Garments & Textiles No. 3). Amsterdam: Centre for Research on Multinational Corporations (SOMO). Strange, S. (1996). The Retreat of the State. The Diffusion of Power in the World Economy. Cambridge: Cambridge University Press. Strauss, A. and Corbin, J. M. (1990). Basics of Qualitative Research: Grounded Theory Procedures and Techniques. Newbury Park, CA: Sage. Sugur, N. and Sugur, S. (2005). Gender and work in Turkey: Case study on women workers in the textile industry in Bursa. Middle Eastern Studies, 41(2), 269–79. Sum, N.-L. and Ngai, P. (2005). Globalization and paradoxes of ethical transnational production: Code of conduct in a Chinese workplace. Competition and Change, 9(2), 181–200. Sural, N. (2005). Reorganization of working time and modalities of employment under the new Turkish Labour Act. Middle Eastern Studies, 41(3), 407–20. Senses, ¸ F. (1989). The nature and main characteristics of recent Turkish growth in export of manufacturing. Development Economics, 27(1). Tarrow, S. (2005). The New Transnational Activism. New York: Cambridge University Press. Tokatlı, N. (2003). Globalization and the changing clothing industry in Turkey. Environment and Planning A, 35(10), 1877–94. Tokatlı, N. and Boyacı-Eldener, Y. (2004). Upgrading in the global clothing industry: The transformation of Boyner Holding. Competition and Change, 8(2), 173–93. Vachudova, M. (2005). Europe Undivided: Democracy, Leverage, and Integration After Communism. Oxford: Oxford University Press. Van der Pijl, K. (1998). Transnational Classes and International Relations. London: Routledge. Wick, I. (2005). Workers’ Tool or PR Ploy? A Guide to Codes of International Labour Practice (4th revised ed.). Bonn: Friedrich Ebert Stiftung; Siegburg: Suedwind Institut fuer Oekonomie und Oekumene. World Bank (2003). Company Codes of Conduct and International Standards: An Analytical Comparison. Yeldan, E. (1995). Surplus creation and extraction mechanism under structural adjustment in Turkey, 1980–1992. Review of Radical Political Economics, 27(2), 38–72.

Chapter 12

Transnationalization and Its Governance – Actorhood and Power in the Shadow of Global Crisis Marie-Laure Djelic

The transnationalization of our world has multiple dimensions. Transnationalization has arguably quite an impact on many aspects of our everyday life. Many of the goods we consume have been produced through a transnational chain – think of a bag made up of high-quality Italian leather, designed in France and stitched and produced in China. The different goods or services we buy are increasingly defined and standardized, if not homogenized, through systems of rules or norms with a transnational scope. What a European consumer gets when she buys chocolate in her local store has been defined and standardized by the European Commission. Companies around the world are going through multiple certification processes and are bound to various categories of standards – efficiency, quality, ethical or environmental ones. Many of those standards have a transnational imprint and scope. Our banking and financial systems are also highly interconnected transnationally – for good or for worse as we have recently learnt! Even states, formally the seats of national grandeur, need to reposition themselves in this transnational context and in fact often reinvent themselves as transnational actors. A national state in Europe that passes a law those days does so quite often under the direct or indirect influence of European community treaties, directives or jurisprudence. In reaction to the recent crisis, states have felt the need to mobilize and act in an at least loosely coordinated way. For the near future, everybody knows that the necessary and portentous task of regulating financial activity cannot but have a transnational reach! Interestingly, the phenomenon of transnationalization does not impact only on our economic and political environments. It even reaches our identities and sense of selves. Cultural consumption – at least of a certain kind – increasingly crosses national boundaries. Individuals build their personal networks in part through virtual tools that easily bridge across national borders. Occupations and professions are increasingly having a transnational reach. A German university professor is expected to belong to a transnational peer community and to adapt to career development standards greatly at odds with national academic traditions. A software engineer in India will possibly have much more in common with other software engineers at the other end of the

M.-L. Djelic (B) ESSEC Business School, Cergy-Pontoise Cedex, France e-mail: [email protected] L. Bruszt, R. Holzhacker (eds.), The Transnationalization of Economies, States, and Civil Societies, DOI 10.1007/978-0-387-89339-6_12,  C Springer Science+Business Media, LLC 2009

285

286

M.-L. Djelic

world, in California or in Finland, than with many members of his or her local kin group. Even collective action and the organization of civil society cross over and beyond national boundaries. Mobilization around common or compatible agendas brings together great transnational diversity. This volume illustrates indeed the multidimensional nature of transnationalization. Transnationalization is profoundly transforming our economies, and the contributions in the first part of this volume show this quite clearly. Firms, markets, trade flows but also labour have all been profoundly impacted by this transnationalization trend, as the chapters by Bruszt and McDermott, Vliegenthart, Afonso, and Langbein convincingly argue. The transnationalization trend is also reflecting quite significantly upon politics, policy making and regulatory activities in many parts of the world. This is the focus of the second part of this volume. Drahokoupil, Fontana and Dadalauri document such a consequential transformation in quite different contexts. The third and last part of this volume, finally, proposes that the transnationalization trend is also changing the nature of civil society mobilization and contributing to the reinvention of our individual and collective sense of selves. The chapters by Holzhacker, Parks and Bulut are convincing illustrations of this. Transnationalization, in other words, is a powerful contemporary trend reflecting upon most dimensions of our lives. Concretely, this transnationalization trend is revealed and activated through intense regulatory activism, and below I explore rapidly the dynamics at play here. Undeniably, this consequential transformation of our lives comes together with a number of questions and challenges. I only select a few, central ones, here – the nature of transnational ‘actorhood’ but also the power and hegemony question. I would argue that those questions and challenges are important remaining frontiers for scholars working on transnationalization. In the end, and as concluding remarks, it is certainly interesting to reflect upon the potential impact of the contemporary world crisis on the trends and evolutions that generated this volume in the first place.

12.1 Regulatory Activism It has been well documented by now that the world we live in is characterized by ever more intense regulatory activities of all kinds. Some talk of a ‘golden era of regulation’ (Levi-Faur and Jordana 2005), others of an ‘audit society’ (Power 1997); some talk of a ‘world of standards’ (Brunsson and Jacobsson 2000) and others still of ‘regulatory activism’ (Djelic and Sahlin-Andersson 2006). Ultimately, beyond variable labels, a common trend is suggested. The proliferation of regulatory activities, actors, networks or constellations leads to an explosion of rules, systems of audit and control in most spheres of our lives. An increasing share of this intense activity, furthermore, has a transnational reach and scope. Our day-to-day activities are increasingly being framed and shaped in transnational fora. Regulatory activity of a transnational scope can be of at least two kinds. It can amount, first, to the re-regulation of spheres of human action and interaction that had been regulated before at the national level. The emergence and development of

12

Transnationalization and Its Governance

287

global standards for accounting and financial reporting is an interesting illustration (Tamm Hallström 2004; Botzem and Quack 2006). So is the Bologna process with its impact on education within the European Union but also well beyond (Reinalda and Kulesza 2006). A second kind of regulatory activity with a transnational scope is the one that targets, directly at the transnational level, areas that had not been regulated before. This is the case, for example, with environmental and pollution issues (Frank et al. 2000; Engels 2006; Buhr 2008); ethical, social and environmental aspects of corporate activities (e.g. Cutler et al. 1999; Kirton and Trebilcok 2004); the life and rights of animals (Forbes and Jermier 2002); the structuring of love and intimate relationships (Franck and McEneaney 1999) as well as with many other issues. This contemporary regulatory activism with a transnational scope is associated with a profound transformation of the nature of rule-making (Braithwaite and Drahos 2000). To characterize more precisely this transformation, we can distinguish between four dimensions of regulatory developments: who is regulating, the mode of regulation, the nature of rules and the nature of compliance mechanisms (cf. Baldwin et al. 1998). There have been developments and transformations along all four dimensions. First, we note the multiplication of regulatory actors. Many new regulations are issued by states and/or intergovernmental bodies, but there is an unmistakable expansion of regulatory constellations that transcend the state/nonstate divide. This development cannot be described as a simple move from state to nonstate regulation – but it is a development where state regulators are increasingly embedded in and interplay with many other regulatory actors. Second, changes in modes of regulation come together with this development. Regulation and rule-making often stem today from complex and multinodal processes, where competition combines with collaboration and where negotiation plays an important role. There is a consequence, third, on the nature of rules. We see an explosion of ‘soft rules’ and ‘soft law’ (Mörth 2004). ‘Soft law’ does not displace ‘hard law’ – rather it adds on, complements, modifies or reinforces it. Even when they lean on the shoulders of potentially harder modes of controlling, though, soft rules are typically expressed in general terms. They are open, as a consequence, to negotiations and translations by those who are regulated. In fact, this form of regulation requires the active participation of those being regulated during the phase of interpretation but also at the moment of elaboration and throughout processes of monitoring. Fourth, since many new rules are voluntary, those who comply should be attracted to following the rules rather than be forced to do so. This can take different forms. Some of the new regulatory regimes are constituted as ‘markets’ where the incentives for following the rules are essentially financial. The new market for CO2 emissions rights is a good illustration (Engels 2006). Other rule systems are also structured as markets but with reputation, trust and legitimacy as a combined set of incentives. This is the case, for example, with accreditation and rankings in management education (Hedmo et al. 2006), forestry certification schemes (McNichol 2006) or the UN global compact for corporate social responsibility (Sahlin-Andersson 2004). Compliance can also be obtained as new rules are presented as progressive and

288

M.-L. Djelic

contributing to prosperity broadly understood – usually with reference to science and expertise. Quite often, compliance will also rest on socialization, acculturation and peer or normative pressures (cf. Scott 2004).

12.2 Transnational ‘Actorhood’ Even from such a brief description, we can recognize that the dynamics of transnational regulatory activism are complex to say the least. Our account points, in particular, to the role and involvement of a multiplicity of actors. A number of questions emerge here that represent still today extremely interesting research frontiers. First, who are the ‘actors’ involved in transnational regulatory processes? Behind the sheer diversity, is it possible to identify broad categories? Second, how do those different actors behave, and how do they interact when they work together around transnational regulatory agendas? Third, what does transnational actorhood mean? What impact does it have in return on actors themselves? In other words, how does transnational regulatory activism reflect upon the actors involved – their identities, their networks, their sense of belonging and key defining features? At a first level, the ecology of transnational regulation appears to include a multiplicity of organizational actors – state departments or bureaux, private companies, international organizations or institutions, nongovernmental organizations, expert and consulting firms, professional associations, and so on. At another level, in any particular concrete regulatory arena or situation, those different organizations are represented by individuals or small groups of individuals. Hence, when negotiations around particular regulatory sets are formally happening between multiple organizations, the reality on the ground is often that transnational ‘actorhood’ becomes much more personalized. In fact, a quite striking feature of transnational regulatory activism is that it can be shown to be dominated if not manipulated by small and sometimes very small groups of individuals that in time tend to become tight networks. In other words, a small kernel of key individuals can turn out to have a pivotal role in the early and critical stages of a transnational regulatory process, with possibly an extremely broad reach and impact in time. This is documented across different regulatory fields by a number of empirical studies that take a historical perspective on regulatory emergence and construction. We find this in the case of international accounting standards (Botzem and Quack 2006). We find it also in the transnationalization of competition regimes (Djelic and Kleiner 2006) as well as in other areas (e.g. Engels 2006). Further research is certainly needed to validate this argument and to propose an explanation for it. If we focus at the organizational level, we can identify four broad categories of actors involved. The first category contains those actors that are parts of or directly associated with nation states and political administrations. States and administrative units have undeniably lost their monopoly position over regulation (Knill and Lemkuhl 2002; Jacobsson and Sahlin-Andersson 2006). Nevertheless, states and associated agencies or organizations remain powerfully involved in regulatory processes including a transnational scope. We have regulation (or rather ‘governance’

12

Transnationalization and Its Governance

289

for the play on words to really work) with rather than without government (Rosenau and Czempiel 1992). A second category of actors brings together international organizations of a public nature and transnational political constructions – the IMF, the World Bank, the GATT and later the WTO, the OECD or the various avatars of the European Union among others. The role, place and clout of this second category of actors have increased significantly since the end of World War II. Those international or transnational arenas and organizations have fostered and stimulated the generation of transnational regulation. The explosion of transnational regulation has in turn stabilized and reinforced those actors, their power and their reach. A third category is made up of ‘reinvented old actors’. Organizations that, in the national context, used to be ‘rule-takers’ or ‘rule-followers’ but also ‘rule-avoiders’ increasingly have to get involved in the regulatory game but this time as active participants. Universities, corporations, the media or professions are striking exemplars. They are having to reinvent themselves as regulatory coconstructors in spaces that often have a transnational reach. This, of course, has profound implications for the features and competences that those actors need to develop. In the fourth category, we put ‘new’ actors. ‘New’ can mean one of two things. Those actors – organizations, networks or entities – can be ‘new’ in terms of their structures, features or qualities. They can also be ‘new’ in the sense of having stood until then quite far away from regulatory activities. They can, naturally, be new on both counts. Nongovernmental organizations, whether national or international, enter this category. They are playing a key role in many transnational regulatory processes (Boli and Thomas 1999; Cutler et al. 1999; Mörth 2004). Standards or experts organizations also clearly fit there and are becoming increasingly important in those processes (Brunsson and Jacobsson 2000). Another type of new actors is what we have called elsewhere ‘transnational communities of interest’ (Djelic and Sahlin-Andersson 2006). Transnational communities of interest are somewhere in between epistemic and expert communities, professions and meta-organizations and a combination of all those. They have a transnational nature and dimension by construction; they span and bridge national boundaries. This latter form is increasingly a key element of contemporary regulatory dynamics. Examples range from the International Competition Network, the network of Central Bank Governors, the Forest Stewardship Council, the International Working Group of Sovereign Wealth Funds or even the World Social Forum – and naturally many more. An interesting direction for work at this stage would be to shift the focus towards personal networks. Who are the individual actors that come out as key players in the transnational regulatory game is a question well worth exploring. One would want to know, in particular, if there are common ‘types’ across regulatory fields. Another way to approach the question would be to test whether individual players with a key role there rather tend to be cosmopolitans of a ‘footloose’ kind or instead of a ‘rooted’ kind (Waldron 1992; Cohen 1992; Held 1995; Hannerz 1996; Tarrow 2005). There are many more questions, naturally, that beg to be explored. It could be useful, for example, to deconstruct the dynamics of transnational collective decision-making when it comes to rule-setting on complex issues. One may want

290

M.-L. Djelic

to get at an understanding of how long-term involvement in those types of transnational processes creates, in time, a sense of belonging or even a sense of community. It would certainly be interesting to unpack the mechanisms that encourage and sustain this kind of longer lasting transnational community building. In other words, there is still a flurry of research opportunities out there on and around transnationalization and its dynamics. The themes and questions suggested here have great scholarly interest. They are also of key relevance for policy makers – private or public, national or transnational – or even for those somewhere in between!

12.3 Power . . . and Hegemony The transnationalization of our world and the need for governance that comes together with it suggest another set of consequential issues. Governance is in great part about power, and the contemporary transnational scope of governance processes certainly generates particular issues and challenges. Contemporary fields of governance have an unmistakable tendency to wrap themselves in discursive references to efficiency and best practices. Three legitimizing mechanisms tend to be mobilized there – science, democratic representation and markets. First, science and scientists are called upon to quantify and measure, to ‘rationally’ compare and provide ‘expert’ advice. Second, the openness of regulatory processes in such transnational contexts suggests the possibility of involvement of multiple and diverse actors, at least at first sight. Representation is associated with a deliberative understanding of democracy that emphasizes dialogue, negotiation and the autonomy of participating actors (Mörth 2006). Finally, markets play out in the sense that a multiplicity of regulatory initiatives can emerge and compete, as it were, in parallel. The discursive rationale there tends to be that regulatory competition will generate in the end the more stable, more efficient and better solution. Hence, the dominant image tends to be one of great neutrality. Discursive presentations and self-presentations generally smooth the rough edges of the processes off. Naturally, we should take those accounts and discursive strategies for what they are. And we should certainly not take them at face value! If we consider transnational governance in its processual dimension, we soon find evidence of rough and complex battlefields (Bourdieu 1977). The benign picture of open collaborative efforts towards neutral and efficient rules of the game is no more than a glossy post hoc reconstruction. Transnational governance fields are relational topographies where many different actors vie, through time, for influence, power and control. Those different actors champion different ideas, practices or rule sets in accordance with their perception and representation of their own self-interest. The temporal dynamics of transnational governance include in fact contestation, struggle and strong power plays. The elaboration and deployment of new types of regulatory frames, with a transnational scale and scope, are in great part interest driven and reflect logics of power and control. Actors may use the neutral language of science and expertise. They may invoke coordination, collaboration, open deliberation and

12

Transnationalization and Its Governance

291

a common good. When we consider transnational governance processes from upclose, though, and follow them through time, we find that those processes evolve with and through struggles and conflicts between self-interested actors and through the formation of coalitions and counter movements (Djelic and Sahlin-Andersson 2006). Such processual studies also provide evidence that interests are not stable but that they are shaped and reshaped over time and across situations. Those few ideas point to what remain today interesting paths to explore. We certainly need to understand better how power games are played out and stabilized through time in this type of transnational arenas. Which kinds of resources are mobilized, which kinds of tactics and strategies are deployed – and to which effect? Which kinds of actors appear to be better able to make use of those resources and/or tactics efficiently? One might want to contrast, in particular, the nature of power games in transnational fields of governance with the types of power interactions we are used to in national rule-making arenas. This might allow us to assess the transferability of power positions from the national to the transnational level. It would also allow us to understand better how the cards might be reshuffled in the transnational context – with very different power topographies emerging and new sets of opportunities for influence. Finally, the dynamic interplay between the national and the transnational certainly deserves scrutiny. It could be the case that the emergent transnational power topographies reflect in time nationally and effectively contribute to a redefinition of power positions at the national level. In parallel, and through those complex back and forth interplays, interests are likely to shift and evolve. We certainly know very little about this process of interest transformation. These types of issues are in fact closely connected to the possible emergence and structuration of tight transnational networks if not communities. If transnational communities are formed, it is in part through the emergence of common interests, values and orientations. This implies in parallel at least a partial transformation of the original interest sets of component members. Scholars of transnationalization and its governance are certainly unlikely to run out of stimulating and relevant research questions – at least for the coming years! The empirical evidence available so far clearly shows that the complexity and multipolarity of a transnational world do not block, far from it, group activism and the expression of particularistic interests (Djelic and Sahlin-Andersson 2006; Graz and Nölke 2008). In fact, small numbers of organizations, bounded networks or even individuals can become extremely powerful and influential as they navigate through the densely organized transnational world and gain significant leverage in the process. There can be different explanations to the strength of particular actors – size, network centrality, resources are all possibilities. We focus here, though, only on one other possible explanation that we label ‘the first mover advantage’. This notion of ‘first mover advantage’ can be declined at many levels. Those who set and define the rules early on – or at least are involved at an early stage – are more likely to be able to influence the governance process as a whole, to influence the emergent set of rules to their advantage – so that they fit and serve their own interests and contribute to increasing their position of power and capacity to control and influence. There is another important way in which the ‘first mover advantage’ plays

292

M.-L. Djelic

itself out. Those participating in the definition of the rules of the game are more likely to better understand those rules and therefore to be able to manoeuvre within and around them. Knowledge means control and power, and an understanding of the rules of the game certainly gives a headstart to those actors that were involved early on in rule-setting. This suggests that beyond relational power games, we also need to pay attention to more indirect and subtle forms of power with a hegemonic potential (Gramsci 1971). As Foucault would put it, ‘power is everywhere; not because it embraces everything but because it comes from everywhere’ (Foucault 1990[1978]: 93). What is interesting and necessary, therefore, is to develop research strategies allowing us to combine a focus on power in its relational dimension with an interest for background hegemonic forms of control. We should be looking further into the complex interplay, in the context of transnational governance, between hegemonic logics and more classical and ‘visible’ resource and interest-based power games. There lays, I suggest, an important dimension of the contemporary dynamics of transnationalization and its governance. And a dimension that still requires a lot of scholarly investment!

12.4 Contemporary Crisis and Its Impact Between the time when the contributions to this book were researched and written and the moment of publication, our world has changed. We are now facing a major disruption, with financial, economic but also probably social and political dimensions and consequences. It is therefore only fair to ask, in closing, how the current global crisis might reflect upon the process of transnationalization as well as upon its governance. I would argue that there are three main possible scenarios. In a first scenario, our world would tend to shrink back. There would be a form of reorientation towards and recentring upon our national and/or regional horizons. The calls for a much tighter governance and oversight of economic activity and its social and political consequences would be heard and mostly played out nationally. This would probably mean a return of the state to front stage when it comes to regulatory activity and governance and the deployment of much more coercive systems and processes. This scenario has the merit of being simple and easily actionable. In that sense, it is quite plausible. If we were to move in that direction, obviously, it would impact quite significantly the transformations and developments identified and documented in this volume. This first scenario would probably slow down, if not reverse entirely, the trend towards transnationalization. In a second scenario, the need for tighter governance and oversight would be heard as a call to try and preserve the advantages of transnationalization. The concert of nations would recognize the need for strong and centralized authority in matters of governance. This second scenario would imply a partial transfer of Westphalian state Macht (power) to a number of international institutions – such as the United Nations, the World Trade Organization or even the International Monetary Fund. Those institutions would become in the process partial building blocks of a kind

12

Transnationalization and Its Governance

293

of ‘global state’. This type of scenario would require a serious collective political project between at least a majority of states. It would also call for an expressed and real will to delegate, at that level, resources, legitimacy and some tools of coercive control. As a consequence, this scenario is in fact not very plausible! In a third and final scenario, there would still be an attempt to preserve the overall dynamic of transnationalization – acknowledging that this requires efficient governance and serious oversight. In this scenario, the objective would be to build upon the existing architecture of transnational governance – as described above – but to overcome, as much as possible, its limitations. Those limitations are quite significant and the task, as a consequence, is not an easy one! A first issue to consider is that of legitimacy. There is a need to build up and stabilize the legitimacy of transnational governance and transnational governance arenas. A second issue has to do with democratic representativity in transnational governance. It is necessary to create mechanisms that can improve the democratic representativity of those governance processes and make them socially acceptable. A third issue has to do with the need to find a balance between the elaboration of transnational if not global rules and principles and the degree of local/national contextualization that might be necessary and is acceptable. Last but not least, naturally, we find the question of implementation and control. There is a need to ensure that governance rules defined at a transnational level become more than a discourse and get translated and embedded into the everyday behaviour of concerned actors. If we are going to make progress on those different but related issues, a place to start is certainly to turn to national states. National states would have to be willing to do at least two things. First, they would need to vest some of their legitimacy and democratic representativity into key arenas of transnational governance much more than they are doing today – those arenas dealing with capital markets and financial transactions, the environment or corporate social responsibility would make for a good beginning. Second, national states would need to be ready to relay transnational rules nationally and to participate in contextual implementation and control. For national states to go this way, the politicians that lead them will need to be convinced that the transnationalization of economic activity is on the whole positive and that it can only be governed through a multilevel system where the complementarities of national states and transnational governance arenas are fully coupled and activated. Needless to say, though, that this third scenario would call for exceptional political leadership – a leadership that would be at the same time ambitious and enlightened. Such leadership could be greatly helped by the production of quality knowledge on transnationalization, its dynamics and its limitations. This volume, with its diverse set of contributions, certainly qualifies as a production of that kind!

References Baldwin, R., C. Scott, and C. Hood (eds) (1998), A Reader on Regulation, Oxford: Oxford University Press. Boli, J. and G. Thomas (eds) (1999), Constructing World Culture, Stanford: Stanford University Press.

294

M.-L. Djelic

Botzem, S. and S. Quack. (2006), “Contested Rules and Shifting Boundaries: International Standard Setting in Accounting”, in Marie-Laure Djelic and Kerstin Sahlin-Andersson (eds), Transnational Governance, Cambridge University Press, pp. 266–86. Bourdieu, P. (1977), Outline of a Theory of Practice, Cambridge: Cambridge University Press. Braithwaite, J. and P. Drahos. (2000), Global Business Regulation, Cambridge: Cambridge University Press. Brunsson, N. and B. Jacobsson (eds) (2000), A World of Standards, Oxford: Oxford University Press. Buhr, K. (2008), Bringing Aviation into the EU Emissions Trading Scheme, Doctoral Thesis/Företagsekonomiska Institutionen, Uppsala Universitet. Cohen, M. (1992), “Rooted Cosmopolitanism”, Dissent, (Fall): 478–83. Cutler, A.C., V. Haufler, and T. Porter (eds) (1999), Private Authority and International Affairs, Albany: State University of New York Press. Djelic, M.L. and T. Kleiner. (2006), “The International Competition Network: Moving towards Transnational Governance”, in Marie-Laure Djelic and Kerstin Sahlin-Andersson (eds), Transnational Governance, Cambridge University Press, pp. 287–307. Djelic, M.L. and K. Sahlin-Andersson (eds) (2006), Transnational Governance, Cambridge, UK: Cambridge University Press Engels, A. (2006), “Market Creation and Transnational Rule-making: the Case of CO2 Emissions Trading”, in Marie-Laure Djelic and Kerstin Sahlin-Andersson (eds), Transnational Governance, Cambridge University Press, pp. 329–48. Forbes, L and J. Jermier. (2002), “The Institutionalization of Bird Protection”, Organization and Environment, 15: 458–74. Foucault, M. (1990[1978]), The History of Sexuality: An Introduction, vol.1, trans. By Hurley, R., New York: Vintage Books. Franck, D., A. Hironaka, and E. Schofer. (2000), “The Nation-state and the Natural Environment over the 20th Century”, American Sociological Review, 65: 96–116 Franck, D. and E. McEneaney. (1999), “The Individualization of Society and the Liberalization of State Policies on Same-sex Sexual Relations, 1984–1995”, Social Forces, 77: 911–44. Gramsci, A. (1971), Selections from the Prison Notebook, ed. and trans. by Hoare, Q. and G. Nowell Smith, London: Lawrence and Wishart. Graz, J.C. and A. Nölke (eds) (2008), Transnational Private Governance and its Limits, London: Routledge. Hannerz, U. (1996), Transnational Connections, London: Routledge Hedmo, T., K. Sahlin-Andersson, and L. Wedlin. (2006), “The Emergence of a European Regulatory Field of Management Education”, in Djelic and Sahlin-Andersson, cha. 15. Held, D. (1995), Democracy and the Global Order, Cambridge: Polity Press. Jacobsson, B. and K. Sahlin-Andersson. (2006), “Dynamics of Soft Regulation”, in Marie-Laure Djelic and Kerstin Sahlin-Andersson (eds), Transnational Governance, Cambridge University Press, pp. 247–65. Kirton, J and M. Trebilcok (eds.) (2004), Hard Choices Soft Law, Brookfield, VT: Ashgate. Knill, C. and D. Lehmkuhl. (2002), “Private Actors and the State: Internationalization and Changing Patterns of Governance”, Governance, 15(1): 41–63. Levi-Faur, D. and J. Jordana (eds) (2005), The Rise of Regulatory Capitalism, The Annals of the American Academy of Political and Social Science, vol. 598, London: Sage. McNichol, J. (2006), “Transnational NGO Certification Programs as New Regulatory Forms: Lessons from the Forestry Sector”, in Marie-Laure Djelic and Kerstin Sahlin-Andersson (eds), Transnational Governance, Cambridge University Press, pp. 349–74. Mörth, U. (ed) (2004), Soft Law in Governance and Regulation, Cheltenham: Edward Elgar. Mörth, Ursula (2006), “Soft Regulation and Global Democracy”, in Marie-Laure Djelic and Kerstin Sahlin-Andersson (eds), Transnational Governance, Cambridge University Press, pp. 119–38. Power, M. (1997), The Audit Society, Oxford: Oxford University Press.

12

Transnationalization and Its Governance

295

Reinalda, B. and E. Kulesza. (2006), The Bologna Process, Opladen and Bloomfield Hills: Barbara Budrich Publishers. Rosenau, J. and E. Czempiel. (1992), Governance without Goverment, Cambridge: Cambridge University Press. Sahlin-Andersson, K. (2004), “Emergent Cross-sectional Soft Regulations: Dynamics at Play in the Global Compact Initiative,” in Ulrika Mörth (ed), Soft Law in Governance and Regulation, Cheltenham: Edward Elgar, pp. 129–54. Scott, C. (2004), “Regulation in the Age of Governance: The Rise of the Post-regulatory State”, in Jordana and Levi-Faur, pp. 145–74. Tamm Hallström, K. (2004), Organizing International Standardization, Cheltenham: Edward Elgar. Tarrow, S. (2005), The New Transnational Activism, Cambridge: Cambridge University Press. Waldron, J. (1992).“Minority Cultures and the Cosmopolitan Alternative”, University of Michigan Law Review, 25: 5–14.

Index

Note: Locators with ‘n’ denote the note numbers.

A Accountability, 2, 4, 8, 9, 28, 34, 39, 44, 54, 249n13, 266, 270 Acquis Communautaire, 88, 269 Agenda-setting, 48, 147n11, 161, 167, 168, 169, 170, 171, 174, 189, 265 American Chamber of Commerce, 74, 149 Antidiscrimination, 16, 219, 221, 222, 223–225, 226, 227, 228, 229, 230, 231, 234, 235 Anti-sweatshop movement, 270 Article 13, Treaty of Amsterdam, 227, 234 Assistance, 9, 12, 25, 34, 35, 36, 38–39, 40, 41, 42, 43, 44, 46, 47, 52, 53, 54, 73, 108, 113, 121, 122, 127, 182n6, 185, 192, 195, 201, 228n14, 255 Austria, 90, 227n12, 229n16, 230n18, 231n21, 232n23, 234n27, 257 B Belgium, 15, 90, 157–175, 178, 232, 252, 256 Bolkestein Directive, 89, 243, 252, 253, 254, 255, 256 Bologna process, 287 Boomerang effect, 254 Brands, 17, 268, 271, 275, 277, 278 Bulgaria, 26, 27, 28, 30, 228, 279 Business associations, 109, 112, 115, 119, 124, 127, 129, 150, 167, 168, 169, 170, 172, 265, 274, 280 Buyer firms, 271, 272, 274, 275, 277, 278, 279, 280 C Campaign against Homophobia, Poland, 231 Capacity building, 9, 10, 34, 35, 36, 49, 50, 53, 113, 114, 120, 122, 128, 129, 206, 211n20, 233

Capital, 3, 6, 10, 11, 13, 15, 16, 23, 24, 31, 33–35, 38, 39, 50, 63, 64, 65, 67, 68, 69, 70, 71, 73, 75, 76, 83, 87, 88, 92, 117, 135, 137, 138, 139, 140, 142, 144, 145, 146, 147, 151, 152, 181, 184, 185, 189, 210, 218, 226, 228, 235, 272, 273, 293 Case studies, 14, 15, 16, 42, 88, 107, 108, 109, 159, 160, 173, 174, 183, 223, 241, 248n12, 251, 252, 264, 267, 280, 281 Civil society, 1–19, 194n12, 219–235, 241, 247n11, 249n13, 263, 264, 270–271, 272, 277, 278, 279, 280, 286 Civil society organizations, 16, 219–235, 271 Class, 78, 138, 144, 146, 147, 273 Clothing industry, 263–282 Coalitions, 6, 13, 15, 16, 24, 40, 44, 51, 62, 70, 72, 73, 85, 91, 93–97, 102, 113, 137, 140, 145, 146, 150, 160, 165, 173, 219–235, 249, 250, 251, 256, 266, 291 Code of conduct, 203, 264, 270, 271–272 Collective bargaining, 92, 94, 96, 98, 101, 279 Collective labour agreement, 13, 84, 91, 94, 95, 97n6, 98, 102 Commercial Code, 74 Competition for foreign investment, 87, 143 Competition state, 14, 15, 135–152 Compliance, 13, 17, 32, 34, 36, 37, 40, 41, 42, 43, 46, 47, 96, 97, 99, 100, 109, 110, 111, 124, 193, 229, 267, 271, 272, 274, 275, 277, 278, 279, 280 Compliance mechanisms, 91, 92, 287 Comprador service sector, 15, 137, 138, 142, 143, 146–147, 148–151, 152 Concertation, 86, 92, 101, 102, 160, 165, 166, 167, 169, 170, 171, 173, 174, 175

L. Bruszt, R. Holzhacker (eds.), The Transnationalization of Economics, States, and Civil Societies, DOI 10.1007/978-0-387-89339-6,  C Springer Science+Business Media, LLC 2009

297

298 Conditionality, 2, 4, 9, 11, 12, 15, 17, 23, 25, 31–33, 35–36, 42n4, 51n6, 54, 107, 108, 113–114, 116, 120–122, 123, 127, 128, 185, 187–188, 190, 191, 199–204, 211, 269–270 Conformity assessment, 110n3, 118n6, 119, 123–125, 126 Consumer associations, 125 Convergence, 3, 4, 6, 14, 30, 42, 55, 109, 135, 136, 137, 138, 140, 152, 185, 188 Coordination, 6, 7, 13, 33, 35, 36, 41, 42, 47, 50, 51, 54, 87, 92, 100, 222, 290 Corporate governance, 1, 13, 33, 37, 61–79 Corporate social responsibility, 287, 293 Corporatism, 86, 87 Council of Europe, 221, 234n28 Council of Ministers, 164, 167, 224, 244n4, 248, 250, 253, 255 Czechoslovakia, 67, 139, 189 Czech Republic, 15, 26, 27, 28, 30, 38, 46, 52, 53, 73, 138, 139, 140, 142n8, 143, 144, 145, 148, 189 D Debt, 69, 138, 139, 200 Deliberative democracy, 290 Denmark, 90, 203, 225 Developing countries, 6, 24, 25, 31, 33, 34, 35, 45, 185, 263, 270, 271, 272, 273, 275 Developmental state, 24 Differential empowerment, 173 Direct democracy, 103 Directive on Services in the Internal Market, 241, 243, 252–253 Domestication, 244, 258 E East Central Europe, 15, 25, 26, 31, 54 Economic institutions, 14, 23, 107–130, 185 Economic transformation, 61, 62, 69, 72, 77 Education, 31, 95n5, 196, 197, 231n20, 249n15, 287 Edward Shevardnadze, 179, 193n11 Electricity, 15, 157–175 Embeddedness, 100, 266, 268 Emerging market economy, 14, 63, 64, 107, 108, 109, 113, 114, 115 Employee ownership model, 73, 77 Empower, 6, 24, 30, 34, 35, 44, 52, 191, 192, 205 Enforcement, 2, 17, 25, 30, 31, 40, 43, 53, 99, 100, 120, 266, 267, 271, 275, 276, 278, 279, 281

Index Environment, 6, 17, 37, 42, 43, 44, 62, 95n5, 124n12, 135, 137, 138, 139, 140, 142, 146, 148, 150, 151, 152, 197, 203, 207, 249n15, 251, 272, 275, 276, 280, 293 Environmental associations, 163, 165, 169, 170, 178 EU enlargement, 5, 6, 37n3, 83–104, 145 European Business Association, 119, 124, 127, 168 European Commission, 16, 37n3, 62, 73, 74, 76, 109, 110, 125n13, 127n15, 129, 222, 224, 225, 229, 235, 242, 244n4, 251, 285 European Constitution, 83, 254 European Council, 220, 222, 249, 250, 251, 253, 254, 255, 256, 257, 269n2 European Court of Human Rights, 221, 234 European Court of Justice, 89n2, 221, 224, 234, 244, 248 Europeanization, 14, 15, 16, 31, 32, 51, 94, 113, 143, 158, 185, 187, 191, 220–223, 235, 241 European Neighbourhood Policy (ENP), 109, 202 European Network against Racism (ENAR), 229 European Parliament, 221, 224, 225, 229, 230, 244, 248, 249, 251, 252, 253, 255, 256, 257 European Platform of Social NGOs (Social Platform), 251 European Single Market, 12, 13, 83, 84, 85, 118 European Trades Union Congress (ETUC), 252 European Union (EU), 1, 8, 73, 78, 83, 158, 185, 187, 201, 222, 223, 234, 241–259, 268, 269, 287, 289 European Union Social Movement Organizations (EUSMO), 241 External ownership model, 13, 62, 63, 71, 72, 73, 75, 77, 78 F Financial crisis, 3, 17, 18, 285, 292 Finland, 90, 286 Foreign Direct Investment (FDI), 10, 31, 85, 135, 180, 181, 182, 186 Framework Directive, 224 France, 83, 90, 99, 144, 165, 203, 252, 254, 256, 285 Fundamental Rights Agency (FRA), 231n21

Index G Gay and lesbian, 16, 217, 219, 225, 235 Gay pride, 219 General Motors (GM), 141 Georgia, 12, 15, 180, 181, 182, 183, 186, 187, 188, 189, 191, 192, 193, 194, 195, 196, 197, 198, 199, 200, 201, 202, 203, 204, 205, 206, 210, 211 Georgian Economic Development Institute (GEDI), 186, 205, 207 Georgian Young Lawyers’ Association (GYLA), 185, 204, 205 Germany, 17, 159n1, 198, 228, 234, 252, 256, 275 Greece, 90, 198, 228 H Hegemonic forms of control, 292 Hegemony, 137, 147, 286, 290–292 Horizontal Directive, 223, 224, 226–230, 235 Horizonti Foundation (former ISAR-Georgia), 186, 205, 207 Human rights, 16, 202, 206, 220, 221, 225, 231, 233, 269n2, 270 Hungary, 3, 15, 26, 27, 28, 30, 38, 52, 53, 67, 73, 138, 139, 140, 141, 144, 148, 149, 189 I ILGA Europe, 223, 225–226, 227, 228, 229, 230, 231, 233, 234, 235 Imig, Doug, 241, 244, 258 Immigration, 85, 89, 90, 91, 94, 95, 96, 98 Incentives, 4, 7, 8, 9, 11, 13, 14, 23, 24, 25, 31–33, 34, 36, 37, 42, 44, 49, 54, 89, 90, 91, 107, 108, 112, 113, 114, 115, 116, 117, 118, 120, 122, 126, 127, 128, 136, 141, 142, 143, 149, 151, 187, 267, 271, 273, 275, 287 Industrial Standards Regulations, 14, 107–130 Inflation, 97, 200 Informality, 274 Informational resources, 173 Input legitimacy, 242, 266, 281 Institutional capacities, 13, 24, 25, 33, 34, 35, 36, 37, 40, 41, 46, 48, 54 Institutional Change, 1, 2, 4, 5, 6, 7, 9, 10, 12, 13, 14, 16, 23, 24, 31, 32, 34, 41–54, 108, 111, 112, 113, 114–116, 118, 119, 120, 121, 122, 123, 124, 125, 127, 128, 190, 234 institutional development, 13, 24, 25, 26, 31, 33, 34, 35, 36, 54, 220 Institutional experiments, 24, 25, 44

299 Institution building, 18, 24, 25, 31–35, 36, 38, 40, 41, 43, 44, 52, 54, 75, 190 Intel, 141 International Center for the Reformation and Development of the Georgian Economy (ICRDGE), 185–186, 204, 205, 207 International competition, 161, 272, 280, 289 International Energy Agency (IEA), 159 International Finance Corporation (IFC), 63, 72, 77n10, 121 Internationalization of the state, 137, 145 International Monetary Fund (IMF), 6, 18, 62, 71, 72, 73, 141, 185, 187, 191, 192, 194, 197, 200, 204n27, 208, 209, 210, 272, 289, 292 Investment incentives, 136, 141, 142, 143 Investment promotion agencies, 142, 148, 150 Ireland, 3, 13, 14, 83–104 ISPA, 38, 39, 41 Italy, 91, 159n1, 252, 256 K Koopmans, Ruud, 247n6 Kuchma, Leonid, 117, 121, 123 L Labour, 83–104, 230–233, 263–282 law, 17, 91, 94, 150, 221, 264, 269, 273, 274, 275, 277, 279, 280 market, 13, 14, 17, 30, 31, 83–104, 263, 264, 266, 267, 268, 270, 272 institutions, 92, 93 standards, 17, 38, 83, 88, 92, 99, 263–282 Latin America, 25, 26–31, 45, 54, 162 Latvia, 27, 30, 89n2, 90n3, 99, 144 Learning, 8, 9, 10, 13, 24, 25, 34, 36, 51, 112, 147, 150, 152, 184, 187, 190, 201, 207, 210, 221, 226, 227 Liberalization, 13, 15, 16, 23, 43, 68, 83, 89, 103, 114, 115, 158, 160, 162, 163–171, 172n9, 173, 174, 182, 196, 197, 198, 272, 273 Liberty Institute (LI), 185, 204, 205, 206, 209 Lisbon Agenda, 16, 241–259 Lobbying, 16, 45, 49, 53, 112, 114, 115, 116, 119, 120, 124, 125, 148, 149, 150, 151, 152, 165, 199, 208n33, 221, 223–225, 241, 242, 243, 244, 249, 250, 251, 253, 254, 255, 256, 257, 258 Logic of Appropriateness, 112, 115 Logic of Consequence, 111, 115 Luxembourg, 90, 254

300 M McAdam, Doug, 241, 242, 244, 246n7, 247n8, 258 Market economy, 12, 14, 38, 61, 64, 77, 107, 108, 114, 197, 202, 279 Market integration, 14, 107, 108, 113, 114, 116, 118–120, 122, 123, 124, 126, 127, 128, 129, 203, 220 Marketization, 37, 65, 158, 162, 172, 173 Market liberalization, 16, 23, 114, 115, 138, 167, 169, 170, 182, 272 Market regulation, 13, 86, 89, 94, 98, 100, 112, 163 Market surveillance, 110n3, 118n6, 124, 125–126 Marks, Gary, 221, 241, 242, 244n4, 258 Maruko case, 234 Media, 95n5, 96, 99, 228, 229, 233, 244, 270, 280, 289 Mexico, 13, 25, 26, 27, 28, 29, 30, 31, 32, 35, 36, 37, 38, 39, 40, 45, 48–51, 273n4 Mikheil Saakashvili, 179, 199, 205, 209 Monitoring, 2, 4, 5, 9, 10, 13, 17, 24, 25, 34, 35, 36, 39–40, 42, 43, 44, 47, 48, 51, 52, 54, 55, 100, 107, 110, 116, 128, 263, 264, 266, 267, 270, 271, 275, 277, 278, 287 Multinational companies, 85, 87, 98 N NAFTA, 13, 25, 26, 31, 32, 35, 36–41, 42, 44, 48–51, 54 National states, 41, 51, 52, 53, 185, 190, 244, 265, 279, 285, 293 Neoliberal, 15, 61, 62, 63, 64, 65, 67, 68, 69, 78, 138, 139, 140, 145, 146, 150, 170, 180, 182, 183, 184, 188, 189, 190, 191, 194, 195, 198, 199, 200, 201, 207, 209, 210, 211 Neo-liberal tax policy, 15, 183, 184–186, 188, 189, 194 Netherlands, 87, 90, 99, 144, 231, 232, 256 Networks, 1, 2, 3, 5, 10, 13, 15, 17, 34, 39, 40, 42, 44, 48, 52, 55, 64, 65, 115, 138, 139, 140, 150, 152, 158, 159, 160, 162, 163, 164, 165, 167, 171, 172, 190, 222, 225, 226, 229, 230, 248, 249, 265, 266, 267, 268, 270, 289, 291 Nice Treaty, 90 Noncoercive mechanism, 188, 200

Index Nonstate Actors, 9, 12, 16, 23, 31, 32, 34, 40, 44, 51, 52, 53, 54, 55, 85, 158, 161, 184, 185, 187, 190, 191, 204, 207, 208, 209, 210, 211, 220, 265 O OECD, 64, 76, 123, 159, 289 Opportunity structure, 15, 160, 161, 165, 218, 221, 222, 242, 245, 246, 247 Orange Revolution, 15, 116, 117, 118, 121, 180 Output legitimacy, 222, 242, 266, 267, 268, 273, 281 P Participation, 1, 2, 7, 32, 33, 34, 42, 53, 94, 99, 147, 164, 167, 168, 169, 171, 172, 173, 174, 206, 209, 253n20, 255, 266, 281, 287 Partnership and Cooperation Agreement, 109, 201 Passive leverage, 183, 187, 200, 203, 204, 210, 211 Periphery, 146 PHARE, 38, 39, 41, 46, 47, 48, 53 PHARE program, 52, 72 Poland, 13, 15, 26, 27, 28, 30, 38, 52, 53, 61, 65, 66, 71, 72, 73, 74, 75, 90n3, 135n1, 139, 140, 144, 148, 150, 152, 189, 198, 231, 279 Policy concertation, 86, 101 Policy-making, 2, 15, 44, 51, 53, 54, 67, 79, 86, 87, 94, 95, 97, 101, 137, 152, 157–175, 183, 184, 185, 187, 188, 190, 191, 203, 205, 209, 210, 211, 228n14, 286 Political conditionality, 14, 108, 113–114, 129, 263, 269–270, 272, 276 Political Opportunity Structure, 220, 242, 245, 246, 247 Political Process/Political Opportunity, 63, 84, 103, 220, 227, 242, 243, 245, 247, 251, 257, 265n1 Portugal, 90, 228n14 Postsocialism, 13, 61, 62, 63, 65, 66, 70, 72, 73, 75, 77, 78, 79 Power bloc, 143, 145, 147, 148, 151, 152 Privatization, 15, 67, 68, 69, 70–75, 76, 78, 117, 135, 136, 138, 139, 140, 143, 171n7, 182, 195, 196, 201, 272 Process tracing, 15, 63, 88, 109, 160, 183 Production networks, 270 Protectionism, 87, 102, 139, 198, 272 Protest, 16, 68, 125, 126, 206, 241–259, 270, 271

Index R Race Directive, 224, 227 Referendum, 16, 92, 94, 96, 97, 101, 102, 165, 166, 168, 171n7, 172, 173, 175, 218, 253, 254 Regional, 1, 3, 4, 10, 18, 23, 26, 27, 31, 40, 41, 48, 51–54, 67, 137, 141, 143, 147, 148, 149, 163, 185, 202, 241, 255, 292 Regulation, 1, 2, 3, 5, 6, 8, 13, 14, 17, 18, 29, 30, 31, 34, 37, 43, 44, 49, 50, 54, 61, 62, 63–66, 74, 76, 77, 83–104, 107–130, 143, 146, 158, 163, 164, 165, 167, 170, 263, 264, 265, 266, 269–270, 271, 272, 273, 275, 276, 278, 279, 280, 286, 287, 288, 289 Regulatory activism, 286–288 Regulatory capacities, 25, 33, 265 Regulatory response, 85 Regulatory state, 24 Relational power games, 292 ‘Rose Revolution’, 179, 180, 182, 184, 185, 186, 193n11, 194, 195, 198, 199, 200, 206n31, 209, 210 Rule-making, 1, 5, 6, 10, 43, 49, 265, 281, 287, 291 Rules of the game, 12, 30n2, 280, 290, 292 Russia, 28, 108, 118, 119, 120, 126, 127, 186, 189 S Sachs, Jeffrey, 70, 72, 78 Sanctions, 4, 11, 42, 96, 271, 275 SAPARD, 38, 39, 41, 46, 47 Shareholder, 64, 66, 67, 68, 70, 75, 76, 77, 78 Slovakia, 15, 26, 27, 28, 30, 32, 139, 140, 144, 145, 150, 189 Slovenia, 26, 27, 28, 30, 38, 136, 139, 144, 145 Small business, 92, 94, 100, 102, 196 Social audit, 264, 274, 277, 278, 280 Social capital, 50, 219, 220, 226, 235 Socialism, 61, 69, 70, 77, 78, 143 Social Movements, 2, 16, 217, 221, 241, 242, 243, 245n6, 259, 265 Social pacting, 97–101, 102, 103 Social partners, 15, 86, 87, 94, 99, 100, 160, 161, 163, 164, 165, 166 Social partnership, 97, 98, 99 Social policy, 89, 97, 220, 221, 222, 223, 226 Solidarity Trade Union, 62, 68, 70 Soviet Union, 12, 30, 67, 126, 191, 199, 205, 206 Spain, 90, 144, 203, 232

301 Standardization, 8, 110n3, 111, 118, 121, 123–125, 126 State capacities, 31, 33, 54, 186 Strategic litigation, 219–235 Suppliers, 49, 164, 265, 268, 270, 271, 273, 274, 275, 277, 278, 280 Sweden, 89n2, 90, 144, 230 Switzerland, 12, 13, 14, 15, 83–104, 157–175, 178 T TACIS program, 121, 195, 201 Tarrow, Sidney, 2, 4, 5, 246n7, 258, 265, 266, 289 Taxes, 97, 191, 192, 193, 194, 195, 197, 201, 203, 211 Tax policy/administration, 15, 16, 179, 182, 183, 184–186, 188, 189, 191–195, 197, 198, 199, 200, 201, 203, 204, 208n33, 209, 210, 211 Trade unions, 14, 15, 62, 68, 69, 89n2, 91, 92, 93, 94, 95, 96, 99, 100, 101, 163, 165, 167, 168, 169, 171, 172, 173, 174, 188, 189, 199, 210, 222, 230, 231, 251, 252, 254, 256, 257, 264, 269, 270 Transnational, 23–55, 61–79, 83–104, 217–235, 263–282 Transnational activism, 16, 266, 267, 268 Transnational actors, 13, 15, 53, 62, 63–66, 69–77, 85, 86, 91, 92, 100, 190, 264, 285, 288 Transnational corporations, 64, 271, 272 Transnational governance, 2, 5, 6, 7, 190, 222, 263–282, 290, 291, 292, 293 Transnational integration regimes, 11, 13, 23–55 Transnationalization, 1–19, 107–130, 135–152, 157–175, 179–211, 285–293 of policymaking, 192 of a sector, 162, 173 of the state, 12, 14–16, 63, 64, 78, 159, 160–162 Transnational Protest, 244, 245, 257 Transnational regulatory initiatives, 267, 281 Transnational Social Movement Organizations, 241 Transnational social networks, 190, 265 Treaty of Rome, 88 Turkey, 2, 12, 17, 263–282 U UCPTE, 159, 167, 168, 169, 170, 172 UK, 17, 86n1, 90, 98, 99, 231, 257

302 Ukraine, 2, 3, 12, 14, 28, 107–130, 180n2, 182n7, 191n10, 198 Unipede, 159, 170, 172 United Nations, 18, 195, 196, 206n31, 292 United States (USA), 3, 39, 86n1, 162, 184, 204, 205, 208 V Visegr´ad Four region, 14, 135 See also Czech Republic; Slovakia; Poland; Hungary W Wage coordination, 92 Wage differentials, 83, 90 Wage dumping, 84, 91, 95 Washington Consensus, 139, 185

Index Welfare state, 83, 86 Welfare system, 98 Westphalian state, 18, 292 World Bank (WB), 6, 18, 27, 29, 39, 62, 63, 64, 69, 71, 72, 73, 76, 77, 78, 107, 115, 121, 123, 125, 126, 127, 182n6, 185, 187, 197, 200, 201, 204n27, 271, 289 World Social Forum, 289 WTO, 1, 121, 122, 123, 124, 127, 128, 241, 289 Y Yushchenko, Viktor, 121, 122, 125 Z Zurab Zhvania, 208, 209