Putting Regulation Before Responsibility: The Limits of Voluntary Corporate Social Responsibility

Abstract

Globalization of business has heightened concerns regarding corporate conduct in developing countries. Critics have charged that multinational firms in particular have exported social harms involving labor, the environment, bribery, and human rights to jurisdictions outside of their home countries. Opportunities for regulatory arbitrage and the associated collective action problem such opportunities suggest, highlight the need for strong regulatory responses to these issues. Rather than prioritize the strengthening of national or international regulatory actors to address these social harms, voluntary corporate social responsibility initiatives have emerged as a favored response within the international community. This article undertakes a critical examination of the rationale for these initiatives. It argues that the premises on which they are grounded are flawed insofar as they ignore basic research concerning the drivers of regulatory compliance, fail to remedy underlying social harms, contravene broader goals of fostering strong regulatory institutions in developing countries, and undermine economic development to the extent that they erode state capacity in setting economic and regulatory policies. As an alternative to purely voluntaristic measures, this article emphasizes the need to build the capacity of local regulatory authorities. It cites two cases involving the use of domestic regulatory and enforcement power in African states as examples of how the empowerment of state institutions can constitute more effective responses to significant social harms.

Keywords: corporate responsibility, corporate social responsibility, Africa

JEL Classification: G34, K22, O55