Forget corporate responsibility, institutions matter!

Corporate capitalists – evil, greedy monsters devouring voiceless African peasants in the name of profit. While the anti-war, anti-consumerism, anti-capitalism, anti-globalisation social movements have becoming increasingly mainstream and the everyday Western consumer is becoming increasingly irate with deforestation oils, sweatshop shoes, and swindle coffee, how much influence do retail economics and anti-corporate advocacy really have on corporate practice? Yes, recent years have seen important market innovation. We now have fair trade coffee, cocoa, and bananas, the RSPO, RSB, RTRS, BSI, and FSC. Following condemnation over its sourcing practices, Gap, Disney, and Nike have become increasingly mindful of labor rights. Clearly, civil society is inducing corporate accountability. Our collective buyer power for change – power to the people. The beauty, this can all be done without discarding our economic fundamentals, the free market principles.

But, what have we really achieved after almost half a century of enlightened consumerism? In 2010, 1.2% of global coffee consumption was certified by the Fairtrade Labelling Organization and 2.7% of global palm oil consumption was certified by the RSPO. These are two of the most widely adopted certification schemes in the world. With the new  international division of labor, the exploitation of competitive advantage in labor costs continue to define the global economic integration of many developing economies. With production networks also becoming increasingly regionalized, substantive labor reforms are few and far between. Moreover, with demand for soft commodities growing most pronounced in emerging and newly industrialized economies, Western market innovations are increasingly being undermined by new market outlets.

While nothing particularly wrong with using the market to encourage corporates to account, we do need to be realistic and critical of its achievements. Fundamentally, there remains too much maneuverability – US consumers too fickle, export to Asia; RSB too comprehensive, certify with 2BSvs; Tanzanian land laws too cumbersome, invest in Ethiopia. Arguably, with all this emphasis on the regulatory function of the market, we’re neglecting the utility of good old regulations and institutions.

If we consider all these new land-based investments in Africa, what role have hard regulations really played in shaping corporate sustainability? Many a study have highlighted the failure of host country governance systems – unsurprising considering the unrelenting donor discourse of foreign direct investment being integral to economic development. Most African governments are lining up to attract big foreign conglomerates, no matter the cost. Tax incentives, profit repatriation, duty exemptions, and cheap land all are all meant to draw in that much needed capital. Social and environmental safeguards are rarely effective: customary land rights, even when legislated, offer little practical tenure security, labor laws are systematically ignored, and environmental impact assessments have become mere technicalities.

But, consider the global capitalist milieu, we cannot really blame host country governments for looking to modernization in combating persistent poverty. Considering the cross-boundary dimension of these new capital flows, the burden of promoting sustainable production lies not just with host country governments, but with the entire system. And with that, the free market as an accountability mechanism is simply insufficient. What is needed is fundamental shifts in how consumer countries view trade, institutions, and its own registered production entities. Not market-based incentives, but hard regulations and strong institutions with enforcement capacity. Consumer country governments have to start taking responsibility – sadly, governmental accountability on such matters has not taken hold. Corporates will do what corporates do best. Let us not expect otherwise. Now let the state do what the state should do best.