Politicians on the stump like to promise voters that government will support business. A recent initiative, Business for the Rule of Law (B4ROL), proposes the opposite: businesses should strengthen government by respecting and promoting the rule of law. Led by the UN Global Compact and promoted by LexisNexis and the Atlantic Council, B4ROL encourages businesses to build practices into their “operations and relationships” that reduce official corruption, improve adjudication and protect contract and property. Doing so, advocates claim, will benefit business too. Operating within more robust legal environments, companies may reduce their transaction costs and reduce barriers to innovation. The challenge of B4ROL is to square self-interest with fair conduct regulated by the rule of law. But aligning the best interest of business with a social good has long been an elusive goal. In fact, enhancing and protecting the rule of law is made much more complex by the global dimension.
In their materials promoting business and the rule of law, LexisNexis and the Atlantic Council offer as a basic definition: “law should govern” (Aristotle, Politics 3.16.1287a19-20) and suggest that this notion was “popularized” by Edmund Burke, an eighteenth-century British politician (Atlantic Council 2013). The Global Rule of Law Business Principles add that the rule of law must involve “fairness in the application of the law” and be “consistent with international rights norms and standards” (LexisNexis and Atlantic Council 2013).
But determining “fairness” as well as international “norms,” within a globalized economy, reminds us that the rule of law is an ongoing and contested process, not a static institutional state. Burke understood this well. In his own time, he and other Europeans participated in a similar discussion about law, markets and globalization as they debated the meaning of “fair trade” (Burke 1770, 187). Though now associated with practices to improve the treatment of producers in the developing world, the term’s original meaning appeared in the seventeenth century, when fair trade meant that people competed by respecting a shared set of legal rules in the market. Those who skirted the law through corruption, smuggling or avoidance, and thus out-competed the fair trader, were a source of grievance. As Adam Smith, Burke’s contemporary, observed, attempts to avoid or manipulate tariff regulations gave rise “to many frauds equally hurtful both to the revenue and to the fair trader” (1776, 4.4.260). Just as today, people at that time sought to understand how market processes could be made fair by having people follow the rule of law.
Smith and his contemporaries also realized the rules of law might themselves undermine fair-trading. Those who captured and capitalized on the legal rules, through grants or monopolies protected by law, could exclude fair traders from the market. With the market rigged in this way, the rule of law might then be brought into contempt. As Smith noted, even a smuggler could think he was justified in violating laws that “are little respected,” and so to “continue a trade which he is thus taught to consider as in some measure innocent” (1776, 5.2.209). American colonists proved the rule. Through extensive smuggling, they resisted laws that gave advantages to British traders. When Burke and others urged the British government to avoid strictly enforcing these laws, they were ignored. Soured by American defiance that was taken to undermine fair trade, the government clamped down and insisted that the law be followed. After an unfortunate tea party in Boston harbor in 1773, the American Revolution broke out three years later.
B4ROL, it is certain, will not lead to problems on this scale, but the initiative will have to grapple with many of the same issues. Early debates over fair trade illuminated how connecting market fairness with self-interest can be a persuasive and emotional combination. But in the international context, the application of a narrow concept of the rule of law can be controversial. Established businesses are capable of using local legal processes to resist or even expropriate global competitors. Arguments for “fairness” can also be contested, especially when conflicting with policy goals that attempt to level the market in other ways. What may be fair to a large multinational entering a regional market may not seem fair to smaller local companies that must now compete against them. Testing whether regional laws are “consistent with international rights norms and standards” presents a possible solution, but also further challenges, especially in a world of technical trade rules and multi-jurisdictional value chains. Developing the methods by which business can support the rule of law in its own self-interest requires both global perspective and regional sensitivity.
As B4ROL scales up, many of these issues will need to be considered. In its research on international, transnational and voluntary regulation of the global value chain and corporate social responsibility, CIGI’s International Law Research Program is examining questions such as:
- What factors enhance or weaken corporate conformity to the rule of law?
- How can international norms promote “fair markets” while respecting local conditions?
- In what ways can global value chains encourage the development of a more just global rule of law?
The rule of law itself, as the examples of Burke, Smith and fair trade reveal, is an ongoing and negotiated process. B4ROL is a laudable part of this centuries-old experimentation in achieving the elusive goal of “fairness.”
Works Cited
Smith, Adam. (1776) 1904. The Wealth of Nations. Edited by Edwin Cannan (fifth edition). Reprint, London: Methuen and Co.
Burke, Edmund. (1770) 1999. Select Works of Edmund Burke. Vol. 1. Reprint, Indianapolis, IN: The Liberty Fund.
Atlantic Council. 2013. “UN Global Compact to Adopt ‘Global Rule of Law Business Principles.’” September. www.atlanticcouncil.org/blogs/new-atlanticist/un-global-compact-to-adopt-global-rule-of-law-business-principles.
LexisNexis and the Atlantic Council. 2013. “Global Rule of Law Business Principles.” September. www.lexisnexis.com/pdf/9_10_13%20Global%20Rule%20of%20Law%20Business%20Principles%20FINAL.pdf.