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Contemporary globalization has made economic, social and political developments increasingly interdependent across the world, yet local and national actors and processes still matter to how globalization unfolds. This raises important questions about how private, civil society and state actors from different locales, nations and regions engage in governance efforts across borders. What is global and what is local in contemporary capitalism? How can we regulate global markets, multinational companies and cross-border production? Who has access to regulatory knowledge? What is considered as relevant expertise in transnational governance? The book addresses these and similar questions, which all too evidently escape an analysis constrained by national borders and thematic boundaries, through a specific focus on transnational institution-building. An analysis of transnational governance fields as diverse as finance and accounting, labor and the environment, copyright and public domain, and microfinance and development reveals how social and political struggles between actors with different culturally and institutionally shaped perceptions, aims and strategies influence the direction and outcomes of transnational institution-building. They likewise highlight the importance of interactions between transnational rules and local practices, pointing to the fact that in the end it is the implementation on the ground which matters for effective transnational institution-building. Assembling the best contributions by 14 scholars from Europe, the USA and India, published on the research blog Governance across Borders, the book invites readers to browse and delve deeper into a rich set of empirically grounded analyses of cross-border regulation in the making. This multidisciplinary book will be of interest to scholars as well as the general public concerned with issues such as copyright and public domain, microfinance and development, international accounting rules and financial crisis, and labour and environmental standards.

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Governance across Borders: Transnational Fields and Transversal Themes

Imprint

First published 2013 ISBN 978-3-8442-4823-4

This work is also available as

Book-on-demand (ISBN 978-3-8442-4824-1)

Publisher: epubli GmbH, Oranienstraße 183, 10999 Berlin, Germany, online: http://epubli.de

Language Editing: Lucinda Rennison, Berlin Layout: Carmen Janiesch, Berlin

This work is licensed under a Creative Commons Attribution-Share Alike 3.0 Germany License, online: http://creativecommons.org/licenses/by-sa/3.0/de

This book comprises a collection of contributions published on the research blog ‘governance across borders’, online: http://governancexborders.com

This publication forms part of the Open Access Initiative of the Max Planck Institute for the Study of Societies and is committed to the Berlin Declaration on Open Access, launched by the Max Planck Society in 2003, online: http://oa.mpg.de/berlin-prozess/berliner-erklarung

All online publications and links were last accessed on December 7th, 2012.

Acknowledgements

We are grateful for the support of the Max Planck Institute for the Study of Societies in Cologne in making possible the publication of this collection of blog articles in an innovative format – combining an ebook, an open access pdf and an on-demand-print version. Our particular thanks go to Wolfgang Streeck, the MPIfGs managing director for his trust in this project, to Christel Schommertz for her excellent editorial advice, to Susanne Hilbring for her knowledgeable guidance in matters of open access, and to Cynthia Lehmann for always being there when a new technical question about formats or styles surfaced. This book could not been produced without Carsten Gerards’ infinite patience and reliability in editing links and footnotes, Lucinda Rennison’s superb language editing and Carmen Janiesch’s imaginative design for the cover page and the attractive layout of the book. We are very grateful to all of them. Ekaterina Gorbunova, Swantje Kasberg and Barbara Thiele at epubli have been a tremendous source of support in the production of this volume.

Berlin and Cologne, February 2013

Leonhard Dobusch, Philip Mader and Sigrid Quack

About the Blog

What?

This research blog deals with governing and institution building across borders. It provides a platform for discussions about the possibilities and problems of regulation in a world in which economic, social and political developments in one place increasingly impact on those elsewhere. The research blog is an invitation to reflect on participation, democracy and legitimacy in transnational governance.

Who?

Most of the authors are members and affiliates of the research group “Institution Building Across Borders” at the Max Planck Institute for the Study of Societies in Cologne. As some of the members of the group have taken the next steps in their careers as researchers, they have moved on to other institutions, such as the Freie Universität Berlin, ESSEC Paris and Technical University Munich. The research blog continues to provide a forum for sharing and discussing ideas across geographical distances and borders. It is also a platform for contributions from invited guest bloggers.

Why?

Several reasons: First, we love our work and like to write about it and discuss it. Second, we often meet people in the field or at conferences who are interested in our work. The blog and its feed make it easier to follow. Third, a lot of interesting stuff doesn’t make it into journals – it is or appears too speculative, too small a contribution, too practical, too theoretical, too special. But still, it may be helpful and interesting for someone, which brings us to the last question:

For whom?

First of all, for ourselves. We believe Weick is right when he says “people know what they think when they see what they say.” So, blogging can help us think. Second, for anybody interested in (discussing) our work on institution building and governance across borders.

About the Book

What?

The book assembles a selection of articles previously published at the research blog “governance across borders” between 2009 and 2012. Only minimally edited, the articles have been thematically (re-)grouped into chapters, which are opened with short introductory remarks.

Who?

The contributions in this volume come from a group of fourteen scholars, all working on issues in global and transnational governance, and representing a diversity of disciplinary and geographical backgrounds. They are sociologists, political scientists, organizational and management scholars; they come from France, Germany, Ghana, Great Britain, India, Russia, Slovenia and the US. Selecting, editing and grouping was conducted by the editors of the governance across borders blog, Leonhard Dobusch, Philip Mader and Sigrid Quack.

Why?

Blogging follows a chronological logic and is mostly inspired by current developments. Specifically, a blog run by an interdisciplinary and international group of researchers delivers a sequence of highly diverse articles. By selecting and thematically grouping the articles into an edited volume, we make it easier for potential readers to grasp lines of arguments and common themes that span single blog posts. We’ve found that many of our posts have a more lasting effect than expected, being sought out months or years after their publication, and evidently supplying information and insights worth preserving in a more structured format. This form of presentation also highlights the continuities and changes over time that cannot be grasped in an individual blog post, or in the thematic potpourri which our blog chronology may sometimes resemble. It is a way of tracing our topical and intellectual development over time, providing more coherent answers to the questions we grapple with day-to-day.

For whom?

The contributions in this volume address both a general and an academic audience. While we have received a lot of positive feedback to our blogging over the past three years, we have also recognized that the format is still alien to a substantial part of our potential audience. By combining the traditional book format – produced with print-on-demand technology – with the possibilities of the modern digital format of an ebook, we hope to make our writing more easily available to readers not yet familiar with subscribing to RSS feeds or not willing to follow a blog on a daily basis. The Blogbook, as our research blog, aims at disseminating the results of scholarly work to a broad audience under the open-access paradigm, in line with the Berlin Declaration on Open Access[1], launched by the Max Planck Society in 2003.

Introduction

Leonhard Dobusch, Philip Mader and Sigrid Quack

In a world in which economic, social and political developments in one place are increasingly affected by developments in others; in a world where opportunities and threats to people are no longer exclusively the responsibility – if they ever were – of governments of sovereign nation-states; where deregulation and liberalization at a global level often seem to undermine the capacity of local and national actors to govern the economy in ways beneficial to the broader public; in a world where nevertheless local and national actors and developments still matter to how globalization unfolds; in such a world as we now live in, there are more reasons than ever to reflect critically on the various ways in which actors from different backgrounds and locales engage in attempts at governance across borders.

Why is it that in a digital world where the Internet seems to connect people boundlessly, rules for “fair use” of content are still shaped by transnational jurisdictions? Why might a country’s decision to favour imports of products that have been harvested or produced under socially favourable conditions, governed by fair trade, labour or environmental certification, potentially conflict with the rules of the World Trade Organization? What are the strengths and pitfalls of attempts by civil, business and state actors to develop and implement rules that should govern economic exchange and production across borders? What happens when flows of money are channeled by international organizations and profit-oriented financial institutions into developing countries, to the poorest of the poor in slums, yet without any serious regulation of the conditions of lending and recapitalization?

About the contributions to this volume

These and similar questions, which all-too-evidently evade an analysis constrained by national borders and thematic boundaries, are addressed by the contributions to this volume. The volume represents a collection of articles published on the research blog ‘governance across borders’ which, following its launch in January 2009, has become a lively forum for contributions and discussions among a set of authors from diverse disciplinary backgrounds – from sociology and political science to business and law – working on issues of cross-border governance in a range of transnational fields, and engaging with a multiplicity of transversal themes. For all their diversity, the contributions to this volume nonetheless converge towards a common understanding of the ‘transnational sphere’ and transnational institution building respectively. As opposed to notions of ‘international’ or ‘global’, the transnational sphere is built neither upon nor beyond national institutional frameworks. Rather, the transnational transcends national borders while at the same time being entangled in historically contingent institutions and shaped by actors rooted in locally and nationally diverse contexts, and therefore – we believe – captures best the social and political reality of the spheres we study.

While the articles in this volume often address rather specific, up-to-date and topical political issues at the time of writing, they also share a common intellectual interest in gaining a better understanding of how rules and institutions evolve beyond and across borders. They deal with settings in which there is often no clear hierarchy of rule-setting powers and frequent uncertainty about what can be expected from other actors. They deal with settings where often it is not even clear who should be allowed to make rules, and what the basis of actors’ legitimacy is or should be. Hence, many articles deal in one way or the other with the question of how social and political struggles between actors with culturally and institutionally differently-shaped perceptions, aims and strategies influence the direction and outcomes of transnational institution building. This leads to questions such as: Do the powerful always get what they want in a global world? Alternatively, when fixed preferences or power relations do not sufficiently predict institutional outcomes: How can the study of processes of cross-border collective mobilization and organizing increase our explanatory leverage?

Another common thread that runs through the volume is a concern with how transnational rules are implemented on the ground, how they are monitored by civil and public actors, and whether there is any learning from local experiences going on, or not. As Peter Evans once stated in an influential article[2], there is a danger that belief in “one-model-for-all” will lead to “institutional monocropping”, particularly when the transfer of models from the Global North to the Global South is involved. Many of the contributions in this book touch upon the interactions between transnational rules and norms on the one hand, and local practices on the other hand, pointing to the fact that in the end it is the implementation on the ground that matters. Particular examples here are the differences between environmental certification schemes in theory and practice, and the divergence between the dreams and aspirations of microfinance, contrasted with the realities on the ground.

The chapters in this volume cover a wide range of transnational fields and transversal themes. Following Djelic and Sahlin-Andersson[3], transnational governance fields constitute spatial and relational topographies that evolve around issues considered as problematic and requiring some kind of regulation, yet they are also battlefields in the same way as Bourdieu’s social fields. And they are fields in which broader forces of a global nature – such as marketization, financialization and scientization – may be at work. In this volume, by assembling contributions dealing with a broad range of governance fields, including accounting, labour and development, environment, copyright and (micro)finance, we are able to illustrate how and why institutions and institution building within these fields differ substantially. Taken together, this diversity underscores the overall point that there is no one global, but rather a complex and overlapping multiplicity of transnational governance fields that shape the macropolitical and macroeconomic orders we live in, as well as our everyday lives.

Comparing the different fields covered in this volume, we found variation along several governance dimensions, which form transversal themes in this book:

First, fields differ in terms of their perceived complexity and need for expertise. While accounting and copyright, for example, are generally perceived as technically complex regulatory fields requiring specific expertise, labour and environmental government are typically seen as less technical and more open to civil participation. Yet these attributes are not static over time. As the contributions on transnational struggles over copyright in this volume show, the inclusion and mobilization of non-experts became more and more important over time, as new forms of private regulation such as Creative Commons licenses emerged in addition to extant international and national law.

Second, this is linked to the diversity of actor constellations across different transnational fields. Requiring less expertise than accounting or copyright, transnational fields such as forest certification and labour standards include broader sets of actors. In these fields – and to an increasing degree in the copyright field – the chapters point to the power of framing strategies of less well-resourced civil society actors in shaping the directions of transnational governance.

Third, the transnational fields investigated in this volume differ in their mix of governance forms. The most prominent theories tend to draw a sharp distinction between international law, national law, private standards and the absence of regulation. More often than not, however, regulation in transnational fields is complicated by overlaps of partly complementary and partly conflicting modes of governance. While this can be seen in all the fields covered in this book, two fields stand out as extreme opposites on a continuum, and therefore are given particular attention: copyright and microfinance.

On the one hand, in the field of copyright regulation, a long-standing and constantly extended nexus of international and national laws is complemented by conflicting efforts to enforce (e.g. Digital Rights Management standards) or offset (e.g. open copyright licenses such as Creative Commons) these legislative developments. Critical copyright lawyers, civil society actor coalitions, even newly founded pirate parties have entered the contest regarding how to regulate ownership of and access to content in the Internet. On the other hand, the field of microfinance is devoid of international hard regulation, showing only a few recent private efforts (without any teeth), also evidenced by the existing transnational standard-setting organizations acting more as think tanks and promotion agencies rather than working to create binding and reliable standards to ensure microfinance’s effectiveness. Rather, microfinance represents a global narrative, materializing in the form of local business models connected – and governed – largely via similarly global financial markets.

Looking at transnational fields in terms of complexity, actor constellations, and mixes of governance forms may suggest a notion of stability. This, however, is misleading. Not only is there a lot of variance between transnational fields, they also evolve internally over time. Such changes can open up transnational fields to more participation by the public: for example, copyright issues that were formerly considered highly technical have become the object of a broad civic and political mobilization. Socially negative dynamics, however, are also evident, particularly in situations of crisis, as exemplified by the Microfinance Crisis in Andhra Pradesh. It is with respect to these dynamics that the reader might possibly feel the greatest benefit from reading a sequence of blog articles in retrospect rather than individually: when looking at them as a series of snapshots of a process, or as highlighting moments of intense debate or crisis, the articles provide a sense of the dynamics inherent in transnational governance, of openness at historical points in time, and the sometimes unexpected direction of subsequent developments.

On editing a book based on a blog

Now, before inviting you to engage with the contributions sketched out so far, let us mention some peculiarities of this volume. As said above, we have grouped blog posts published between 2009 and 2012 thematically. In total, we selected 127 out of 214 posts published on the ‘governance across borders’ blog during this period. However, sadly we were not able to include hundreds of insightful comments that these posts received from our fellow blog readers. Some blog articles have generated discussion far exceeding the length and depth of the original article. There are limitations to the process of transforming a blog into an edited volume – and having to drop the interactivity of the blog format is clearly one of the most painful ones. However, to provide access to these comments in the most convenient way possible – and to invite readers of this volume to join the debate – each article still carries a link to the original blog post in its heading. It is there, too, that the reader will find the date of publication.

Although we deem a comparative perspective on the different governance fields presented in this volume particularly promising, we also see this book as an invitation to selective reading. Every article in this volume can stand on its own, and so can the chapters into which we have grouped the articles. Readers particularly interested in transnational copyright will find contributions dealing with issues ranging from international treaties, such as ACTA, and legal reforms in various countries, to the technical enforcement of copyright by technical means, private open-content licenses, copyright collectives, open access and pirate parties. Readers in search of information on the pros and cons of microfinance as a development instrument can draw on a rich collection of contributions dealing with a variety of aspects, ranging from microcredit myths to the use of microfinance for water infrastructure, the Andhra Pradesh crisis, and the microfinance community.

Finally, we would like to end this introduction by sharing some more background information on the blog “governance across borders”, upon which this volume is based. Over the nearly four years of blogging prior to publishing this edited volume, we have counted about 80,000 visitors. The average number of monthly visitors increased from less than 1,000 in the first year to between 3,000 and 4,000 currently. Including trackbacks (i.e. links from other blog posts), each blog post received 2.4 responses on average. The blog features posts by 16 different authors, five of whom have contributed more than five different articles. In 2010, “governance across borders” was the “Featured Blog” of the Society for the Advancement of Socio-Economics (SASE).

We started the research blog ‘governance across borders’ as a real experiment. Now, nearly four years later, we see benefits of maintaining a research blog that we could never have imagined when starting. One of the major benefits is that writing on a research blog on a continuous basis allows academics to explore what Michael Gibbons and Helga Nowotny[4] call the potential of transdisciplinarity: over the last nearly four years, we have received a tremendously rich set of comments and feedback from practitioners and civil society activists, from citizens experts and expert experts in the fields that we are blogging about. This, in turn, has invigorated our academic work. We have been developing ideas experimentally on the research blog, which ultimately made their way into our academic work but might never have done so without the research blog. Finally, the blog has also become a substantial informational resource base for ourselves as much as for others, carrying momentary thoughts, insights and analyses across time and space; making accessible what otherwise could have been only a private reflection on a certain issue; and keeping accessible what would otherwise have been forgotten. Now, we are curious to find out what the next experiment, a blogbook, will bring.

If you wish to share your experiences while reading this volume, please post your comments on http://www.governancexborders.com/blogbook/.

Transnational Studies and Governance

Sabrina Zajak, 2009/10/04

Governance across borders or transnational governance looks at rule making, standard setting and institution building across borders. Empirically, one can see a variety of patterns of regulatory governance emerging. But transnational regulations are only one aspect of a whole field of transnational phenomena. Social life has always crossed, connected or transformed borders and boundaries. Social processes were transborder even before the spread of the nation-state system, and states were also shaped transnationally. Hirst and Thompson[5], for example, analyze different historical forms of transnational markets existing long before the rise of the nation state.

Other transnational processes include transnational social movements, migration, communities and citizenship, but also religions or various cultural practices. In Europe, progress has been made specifically with regard to transnational phenomena within the European Union, in debates about European governance, a European public sphere or a collective identity (see also the newly established European Journal of Transnational Studies[6], for example).

As yet there is no real discipline of transnational studies, but merely a fragmented body of scholarship across sub-fields of sociology and other social science disciplines. To engage in dialogue with and learn from the insights of some of these studies, some general questions on transnationalism should be raised here, in a new series on transnational studies: What does an analysis of the global, national and local through transnational lenses imply for different approaches? What phenomena are identified as transnational, and how and why? How are those phenomena analyzed, how can flows or identities that cross certain spaces be captured? How do theories of transnational institution building connect to conventional theories? And finally, what do all these different perspectives, including governance research, have in common, and where are the biggest differences and what can they learn from each other? These are only some of the questions that I consider important to discuss in order to gain a better understanding of transboundary social processes.

Cosmopolitan Sociology or Why the Global Is Local

Sabrina Zajak, 2009/10/12

The major critique of empirical research in social sciences made by cosmopolitan sociology is its methodological nationalism. Methodological nationalism means that most studies define (explicitly or implicitly) the nation-state as the container of social processes. Thus, the nation-state unit is the key order for studying major social, economic and political processes. One of the major critics of such a perspective, Ulrich Beck, argues that it is wrongly based on the assumption that political, cultural and social borders are congruent. The nation-state perspective does not capture transnational links, structures or identities.

But how can transnational phenomena be analyzed empirically? One fundamental problem of research on transnationalism is that most data sets and strategies of social inquiry are bound to the nation-state. That makes inferences about transnational phenomena difficult or impossible. This methodological problem is fundamentally linked, therefore, to sociological concept formation, which is – from a cosmopolitan perspective - bound to the nation-state and thus unable to capture the multi-dimensional process of change. Or, as Beck and Sznaider put it:

The decisive point is that national organization as a structuring principle of societal and political action can no longer serve as the orienting reference point for the social scientific observer. (Beck and Sznaider 2006: 4)[7]

According to Beck, methodological cosmopolitanism is one attempt to overcome these limitations: while globalization discourse is concerned usually with the relations between or beyond states, cosmopolitanism focuses on changes to the inner quality of the social and political themselves. Beck attempted with this concept to turn the philosophical idea of cosmopolitanism into an empirical research agenda: the idea is not to look for general, universal patterns but for global variability, global interconnectedness, and global intercommunication.

The global can be researched locally within this framework – as the process of cosmopolitanization takes place “from within” – by looking at global social structures that cross different boundaries. These structures create simultaneously localized and transnational spheres of experience and expectation.

The key aim of methodological cosmopolitanism is to overcome, conceptually and empirically, the major dualities that dominate our way of thinking: the global and the local, the national and the international, us and them. Political dynamics and conflicts are part of globalized social worlds and an expression of transnationality inside nation-states, even if the people themselves may know that they have been affected by rules established elsewhere.

So far, the full implications of this for the actual analysis are not completely clear. The cosmopolitan methodological perspective is still in the making and many open questions remain: What does global interconnectivity mean? How can the transnational research unit be defined? How can these units be compared? Cosmopolitan researchers try to answer these questions by conceptualizing, for example, transnational regimes of politics, global risk regimes or transnational spaces and cultures of memory. These are the first attempts to turn something that still sounds very challenging into practice:

It [methodological cosmopolitanism] can and must observe and investigate the boundary-transcending and boundary-effacing multi-perspectivalism of social and political agents through very different ‘lenses’. A single phenomenon, transnationality, for example, can, perhaps even must, be analyzed both locally and nationally and transnationally and trans-locally and globally. (Beck and Sznaider 2006: 18)

Studies on ‘Global’ Markets in History

Sigrid Quack, 2010/01/04

Many believe that global markets are a new phenomenon, but that is not the case. Not only had the late 19th century already reached a level of global trade and financial flows approaching that of today, there were long-distance trading circuits across jurisdictions and continents dating back as far as mediaeval times. In the 12th and 13th centuries, the Italian city states of Venice and Genoa maintained long-distance trading networks that extended as far as North Africa and Central Asia, providing the basis for ‘global’ markets for luxury goods, such as spices and silk. In the north, the Hanseatic League formed a federation of trading cities along the coastlines of the North and Baltic Seas, generating cross-border markets for bulk goods such as fish, salt, grain and wood.

These markets were transnational in the sense that they interconnected economic actors from multiple political jurisdictions (i.e. kingdoms and city states) across the world, forming a multilayered system of rules and regulations that governed their exchange relationships.

Economic historians have produced a rich literature on these markets, which is also instructive for economic sociologists studying the governance of contemporary ‘global’ markets. In a recently published article[8], I combine both approaches to analyze how key coordination problems were resolved within mediaeval long-distance trading systems.

Coordination problems in transnational markets

The new economic sociology draws our attention to the fact that markets are socially and politically constructed and that exchange relations rely on institutionalized and cultural rules. How could market actors otherwise engage in highly uncertain exchanges without knowing the likely value and quality of goods and the kind of rules that market participants can expect each other to follow with respect to competition and cooperation? Economic sociologist Jens Beckert identifies three key coordination problems[9]: a) how are goods valued and classified by the market actors, enabling them to trade?, b) how is competition between market participants regulated to create an even playing field or any organized playing field at all?, and c) how do institutions create a minimum of cooperation among market participants?

Such problems of uncertainty and coordination were especially pronounced in mediaeval long-distance trade: merchants had to invest in building and equipping ships for what were often month-long journeys; their goods could easily be lost through accidents and pirate attacks; distant trading partners might not fulfil their obligations, and conflicts over contracts might arise.

Economic historians on mediaeval transjurisdictional markets in Europe

In Civilization and Capitalism[10], French historian Fernand Braudel provides a detailed, comprehensive account of how the revitalization of trade between different cities and regions in Europe from the eleventh to the fourteenth centuries was accompanied by an expansion of exchange with other continents. Major trade routes extended from the Mediterranean through Persia to China, India and South East Asia, as well as into North Africa, and from the Baltic Sea into Northern Europe and Russia. Voyages such as those of the Venetian merchant Polo to Persia and China (1271-1295) were not, as anthropologist Eric Wolf explains in his book Europe and the People Without History[11], just isolated events; they actually reveal how Europe entered into more extensive relationships with other continents. These long-distance exchanges led to a European world economy, as Braudel calls it, and the first pan-European markets on which prices ‘were fluctuating in unison’ by the 12th century. The key actors involved in governing these markets were merchant guilds, city-states, feudal rulers and the populations of merchant cities, as well as producers and trading merchants in distant parts of the world.

Long-distance trade in late mediaeval times was based to a large extent on merchant communities, which were organized according to their places of origin, kinship and ethnicity. Such communities, like the Maghrebis, Venetians, Genoese or the merchants of the Hanseatic League, typically concentrated on trade in certain products on specific trading routes. Economic historian Avner Greif has analyzed the self-organization of these trading networks from the viewpoint of how networks generated incentives for self-interested cooperation among merchants. However, he also highlights the role of the public authorities and the law in generating a broader institutional framework that supported merchant communities[12]. According to Greif, inter-community trade between merchants of the same city of origin constituted a primary layer of long-distance exchange, while cross-border exchange between different communities was organized on central marketplaces in leading merchant cities such as Venice, Genoa or Lübeck.

The initial role of merchant guilds was that of self-organizing associations, while over time they became influential actors in the public administration of the Italian city states. The guilds were particularly important in

providing security for members trading abroad

establishing and evaluating norms regarding product quality and the value of goods

working out the terms of trade

extending the rules of their town of origin to foreign trade posts by means of extraterritorial, self-enforcing validation

limiting competition from traders from other places of origin.

The self-organization and governance of the guilds, however, was embedded in a wider public order, within which the public authorities and feudal rulers provided

military, political and diplomatic intervention on behalf of their trading guilds abroad

inter-city agreements and agreements with foreign rulers about the rights of their merchants abroad.

The involvement of the populations of merchant cities on transjurisdictional markets varied along with power and social structures. Economic historian Yadira González De Lara attributes the relative success of Venice over Genoa to the further developed public-order sanctioning of the Venetian city-state and the broader participation of Venetian citizens of different ranks (noble and non-noble) in financial investments in trading missions[13]. In turn, a wider section of the Venetian population was able to reap returns from the city’s long-distance trade. Nevertheless, one-third of the Venetian labour force consisted of unorganized workers and the so-called ‘proletariat of the sea’ hired as seamen to work on Venetian galleys during their trade journeys.

The roles of the population, thus, were those of

investors in future merchant travels (investments in ships, ventures, goods)

consumers of luxury goods

labourers organized in guilds providing the local infrastructure for long-distance trade

unorganized workers and seaman, e.g. working in the shipyards and on the ships during their journeys abroad.

Much less is known about the conditions of production under which the goods entering these trading networks were produced in Asia and the Far East or, as far as the Hansa was concerned, in the Baltic and Scandinavian countries; all these aspects require much further exploration.

Comparing the governance of mediaeval and contemporary ‘global’ markets

Clearly, there are many differences between contemporary and mediaeval ‘global’ markets:

Among them is, first of all, the rise of the nation-state as a powerful and resourceful actor in the 19

th

century and the creation of international organizations, such as the World Trade Organization and financial institutions, and supranational regimes, in particular the European Union, in the second half of the 20

th

century. All this has added a thick layer of national, international and supranational rules governing ‘global’ markets.

A second and related distinguishing feature of the contemporary period of globalization is the expansion of multinational enterprises which have ‘internalized’ a significant amount of international exchange as intra-firm trade at the same time as they have sourced many semi-manufactured goods from global production chains. As a result, contemporary ‘global’ markets are populated by resourceful and powerful organizations rather than associations, and ethnic or family networks of merchants.

Apart from such differences, however, the analysis also points to intriguing similarities. In particular, some of the institutional features of transjurisdictional mediaeval markets are highly topical for transnational markets in the post-nation-state period.

The role of communities in regulating transnational business relations seems to be a pervading phenomenon in history, though the nature of the communities, their relative influence and their functions have changed over time. Nowadays, new types of transnational communities of professions, practice and discourse are participating in the regulation of ‘global markets’.

The historical evidence shows that, just as communities and guilds were essential for the governance of long-distance markets, their informal and self-reinforcing rules interacted in various ways with public authorities and legal systems which, while originating from specific political jurisdictions, were influential beyond their domain. In contemporary transnational markets, a similar blurring of the nature of agents and governance processes can be observed: so-called ‘public’ international organizations like the UN increasingly engage in market activities by sub-contracting welfare services, while so-called ‘private’ business associations like the International Council for Toy Industries engage in the production of regulations for the public good such as product, safety and health standards.

Extraterritorial application of national law is another very familiar phenomenon of contemporary ‘global’ trade regulation that parallels mediaeval regulation. From this there follows a need to reflect on the usefulness of the dichotomous categories of ‘private’ and ‘public’ in any analysis of institutional arrangements in contemporary transnational markets.

All in all, historical comparisons of the governance of transnational markets reveal the various ways in which human societies and cultures have always been and continue to be interconnected across borders, disclosing their interdependencies. Such studies can also provide a better understanding of the mechanisms through which markets come into being, are maintained and may dwindle over time, thereby adding a historical dimension to the study of markets in economic sociology.

Transnational Studies and Culture in Motion

Peggy Levitt, 2010/07/25

Methodological nationalism is the tendency to accept the nation-state and its boundaries as a given in social analysis. Because many social science theories equate society with the boundaries of a particular nation-state, researchers often take rootedness and incorporation in the nation as the norm, and social identities and practices enacted across state boundaries as the exception. But while nation-states are still extremely important, social life does not obey national boundaries. Social and religious movements, criminal and professional networks, and governance regimes, to name just a few, regularly operate across borders.

In a 2004 article[14], Nina Glick Schiller and I proposed the notion of society based on the concept of the social field and drew a distinction between ways of being and ways of belonging. Social fields are multi-dimensional and encompass structured interactions of differing forms, depth, and breadth that are differentiated in social theory by terms like “organization,” “institution,” “networks,” and “social movement.” National social fields are those that remain within national boundaries, while transnational social fields connect actors, through direct and indirect relations, across borders. Neither domain automatically takes precedence; determining the relative importance of nationally restricted and transnational social fields is an empirical question.

The concept of social fields is a powerful tool for conceptualizing the social relations linking those who move and those who stay in one place. It takes us beyond the direct experience of movement into domains of interaction, where individuals who do not move have social ties with people who do. For example, because of these relationships, both non-migrants in a sending country or the children of immigrants in a receiving country can be influenced regularly by people, ideas, and material objects from far away. NGO staff who have never travelled or attended an international training workshop learn of ideas and practices from their co-workers who do. They gain the skills and know-how to participate in these social fields and they can access their social networks. Therefore, people with more direct social ties are not automatically more transnationally active than people with weaker connections. Nor can we assume that people with few direct cross-border ties are uninfluenced by the field’s dynamics.

In 2007, Sanjeev Khagram and I outlined a transnational optic for capturing social life across borders[15]. A transnational lens begins with a world that is boundaryless and borderless and then asks what kinds of borders arise in particular socio-historical contexts, and why, and then explores how these interact with unbounded spaces. It does not take the relevant space of inquiry as given, but asks instead what the geography is actually like, in which the subject of interest is embedded. It tries to avoid privileging the global or the local, or the sending and receiving, but to keep these sites and layers of social experience, and everything else in between, in conversation with one another. In other words, it sees the global, the national, the regional, and the local as potentially transnationally constituted. It stresses how each of these layers of social experiences are constructed through continuous, iterative interactions.

A transnational optic helps identify the different actors, ideas, and objects circulating within social fields, or what I call cultural carriers. It calls our attention to the real and imagined, past and present geographies through which cultural products travel and the pathways and networks that constitute them. It brings into sharper focus how other ideologies and interests circulating within these fields intersect with them and shape their trajectories. Finally, it produces a clearer picture of how and why assemblages are created—the impact and outcomes of these encounters. When cultural elements (be they ideas, objects, rituals, or organizing strategies) comes to ground, how and why do they cluster as they do? How do the cultural elements circulating at other levels of the social field influence the shape, strength, and durability of this convergence?

Mapping and categorizing transnational phenomena and dynamics requires new kinds of data and new methods for collecting them. Most existing data sets, historiographies, and ethnographies make transnational analyses difficult if not impossible because they are based on national-state units and are designed to make comparisons between countries. They do not capture flows, linkages, or identities that cross or supersede other spatial units or the phenomena and dynamics within them.

Transnational scholarship requires that data be collected on multiple units, scales and scopes of analysis. In an ideal world, this would mean actually following a particular cultural product and seeing how it lands against different meta-cultural backdrops. But when this is not possible, transnational dynamics can also be investigated by asking respondents to map the cross-border aspects of their identities, beliefs, and activities and the people they are connected to.

Current Debates on Transnational Governance Research

Sabrina Zajak, 2011/02/14

Over the last decades, new forms of regulation beyond borders have been proliferating, many of them involving private and civil but not necessarily state actors. Scholars are approaching the role of private and civil actors, including multinational companies, non-governmental organizations and social movements in transnational governance from a variety of theoretical and empirical angles. A shared language and common understanding has not yet fully emerged; all too often, scholars are not aware of research and discussions from adjoining disciplines. However, transnational governance is a field in which different disciplines like sociology, political science, law and economics can cooperate fruitfully.

Interdisciplinary workshops are always a good opportunity to discuss and exchange different and common perspectives on a specific empirical research field. The workshop “Transnational private regulation in the areas of environment, security, social and labour rights: theoretical approaches and empirical studies” organized by Nicole Helmerich, Olga Malets, and Sabrina Zajak at the Freie Universität Berlin in January 2011 brought together researchers from different disciplinary backgrounds including sociology, international relations, industrial relations, organizational studies and political science. The aim was to discuss global developments in the field of transnational private governance and their implications in different localities with a particular focus on three empirical fields: labour standards, environmental standards and security issues.

Among the many topics discussed at the workshop, three stood out particularly and therefore will be presented in this article.

A) Variety of theoretical approaches: combining different strands of research

How do different strands of research conceptualize the changing role of multinational companies as actors in the changing global governance landscape? What can they learn from other disciplines analyzing the role of the firm in societies, including economic managerial theories, economic and organizational sociology, political economy and industrial relations and vice versa? It became clear that despite the huge amount of literature on the political and regulatory role of multinational companies in the era of globalization, research fields still lack integration and combinations of different approaches are only starting to emerge. Interdisciplinary re-integration is further complicated by approaching transnational governance from different angles: while “top-down” perspectives start from “the global” and explore how global norms and rules become localized, “bottom-up” approaches put stronger emphasis on how local actors influence global developments. The challenge still remains to integrate both perspectives[16].

B) Global dynamics of contention

While some scholars perceive the emergence and development of transnational governance arrangements as a response to existing coordination problems, and hence emphasize functional explanations, it seems equally if not even more important to trace the (historic) developments, processes and discursive and contentious interactions which led to the evolution of these volatile transnational governance arrangements. Various actors including private and public ones shape the meaning and practice of governance concepts. For example, the United Nations contributed to the diffusion of the idea of multi-stakeholder initiatives in the private sector; conversely, business actors influenced how the concept of risks became framed in debates in the intergovernmental field of climate change. Furthermore, cycles of negotiation between business and labour unions at various levels shape what is considered the right way to govern and what should be governed at all in the field of labour standards. Overall, current research suggests that discursive and contentious interactions contribute more to the proliferation of certain forms of transnational governance than commonly perceived and hence should be given more attention in future research[17].

C) The politics of implementation

While there is a rich body of research on rule-setting at the global and transnational level, relatively little is known so far about the implementation of rules. Empirical evidence suggests that implementation problems are widespread. They seem to be the rule rather than the exception. Recently published case studies by Olga Malets on transnational forest regulation in Russia[18] and Tim Bartley on labour and sustainable forestry standards in Indonesia[19] show how domestic contexts in some countries interact with and restrict the impact of transnational regulation. The reasons for this are manifold: national regulation can undermine transnational regulatory efforts; coordination and networking across borders is often problematic and insufficient; there may be power (im-)balances between actors. We still do not know enough about the conditions which make governance beyond borders more or less effective. There is also a need to explore the levels (from the local to the global) at which struggles over implementation take place. So far, there is no agreement between researchers on how to define and measure “effectiveness”, and how to detect compliance or non-compliance in research sites often characterized by highly ambiguous and uncertain environments.

Moreover, transnational regulation may not only affect those it regulates but also other societal actors and local power relationships. Future analysis should take into account unintended or unforeseen consequences of transnational governance arrangements. Future research should give more consideration to the complexity of multi-level regulatory dynamics. There is a need for further empirical studies as well as theoretical conceptualizations that help to make these processes more understandable across issues, fields and countries.

Accounting across Borders: Fairness, Fair Value and Financial Markets

Sigrid Quack

Among the transnational governance fields covered in this book, accounting and finance stand out for several reasons: firstly, they were the arena in which the myth of efficient self-regulating markets was most prevalent in the years prior to the financial crisis. Secondly, and relatedly, governance across borders in these fields has often taken the form of private rule-setting, undertaken by professionals, managers and corporations. This does not mean that public actors have been totally absent; actually, international organizations, governments and regulatory agencies have played a key role in delegating governance to and accepting rule-setting by private actors, or have abstained from taking their own initiatives. Thirdly, accounting and finance are paradigmatic fields when it comes to the ways that experts and their use of highly specialized professional and technical knowledge can generate a dynamic of cross-border governance that makes it difficult for civil society actors and the general public to monitor what is going on and to shape the direction of institution building so that the concerns of consumers and citizens are taken into account sufficiently.

Some of these characteristics of transnational governance in accounting and finance were, as the following contributions indicate, seriously challenged by the financial crisis in 2007/8. The collapse of financial markets and the potentially pro-cyclical effects of accounting standards that exacerbated the crisis undermined the belief in self-regulating markets. What was previously accepted as market-defined ‘fair value’ became an issue of societal fairness and justice. International accounting standards, previously considered a rather technical matter, were seen increasingly as a political issue: not only was the societal importance of how economic performance, assets and the liabilities of companies are measured rediscovered; it also became clear how the data on financial markets required for more effective regulation depends on the definition of accounting standards. The following contributions show how the crisis opened a policy space in which sometimes surprising coalitions of actors emerged to demand regulatory reforms. However, there were also countervailing forces, reforms were of a gradual nature, and the outcome of these political and social struggles over financial market regulation is still open – not least because of the European sovereign debt crisis that followed the financial crisis.

This section collects articles which focus on critical debates over international accounting standards in the course of the financial and sovereign debt crises; on the connections between accounting standards and some of the determinants of the financial crisis, such as shadow banking and the trade in Over the Counter (OTC) derivatives; and the question why, despite the critiques raised after the crisis, there is still such strong insistence that developing countries, particularly on the African continent, should adopt international accounting standards even in the absence of well-functioning financial markets.

Fair Value Accounting in Retreat?

Sigrid Quack, 2009/03/25

The financial crisis is turning many things upside down. Nevertheless, it is amazing to see how the positions of key market actors with respect to financial reporting standards have changed since the crisis started. While investment banks, accounting firms, regulators and governments stood firmly together in unanimous and unfettered support of fair value accounting in the heyday of financial market capitalism, this front has been collapsing recently.

In April 2008, the Neue Züricher Zeitung[20] reported Claude Bébéar, president of the French Insurance Group Axa, as saying that mark-to-market rules, which require firms to value assets according to (hypothetical) market prices, had contributed to the financial crisis. Henri de Castries, CEO of the same group, was quoted as referring to a “conceptual mistake”, which had forced companies and banks to write down billions of assets. In September 2008, Newt Gingrich commented on Forbes.com[21] “Suspend Mark-to-Market Now!”, quoting Brian S. Webury, chief economist at First Trust Portfolios of Chicago:

It is true that the root of this crisis is bad mortgage loan, but probably 70% of the real crisis that we face today is caused by mark-to-market accounting in an illiquid market.

With the financial crisis lingering on, and politicians, regulators and banks still searching for solutions, debates on the pros and cons of mark-to-market accounting have perked up again during the last weeks.

On March 11, 2009, investor Warren Buffet admitted in a CNBC television interview[22] that mark-to-market had been “gasoline on the fire”, while maintaining remarkably equivocally that

the best way to handle that (the crisis) … is to have the mark-to-market figures but not have the regulator say we are going to force you to put up more capital based on these mark-to-market figures.

Others have been more straightforward in their demands to suspend mark-to-market. On March 17, 2009 Edward L. Yingling, on behalf of the  American Bankers Association, stated in his testimony[23] before the Committee on Financial Services of the United States House of Representatives that

For months, we have specifically asked FASB to address the problem of marking assets to markets that were dysfunctional. …We hope that FASB and SEC will take the significant action that is needed and not merely tinker with the current rules. (Yingling 2009: 8)

Subcommittee chairman, Republican Paul E. Kanjorski, according to CCH Financial Crisis News Center[24], warned that if regulators and standard setters “do not act now to improve the standards the Congress will have no other option but to act itself.”

From a European perspective, these are pretty strong words, given that the US was long seen as the bastion of fair value accounting rules, with the SEC and the national standard setter FASB spreading its mark-to-market gospel to Europe and other continents. So what does this mean for the future development of the International Financial Reporting Standards produced by the London-based International Accounting Standards Board, adopted by the European Union on January 1st, 2005?

Prior to the implementation of IFRS by the European Union, the IASB had undertaken so-called comparability and improvements projects which, according to its critics, moved the standards much closer to fair value accounting. Pro-cyclical and unintended consequences of mark-to-market accounting have been a long-standing concern in continental Europe and Asia, and some of them have been surveyed by Yuri Biondi and Tomo Suzuki in a special issue on the socio-economic impacts of IFRS on different stakeholders[25].

Ironically, then, one of the beneficial side effects of the crisis could be that it is alerting the international community of experts and politicians involved in financial market and accounting regulation to a long overdue need to reform accounting standards. As the High-Level Group on Financial Supervision in the EU, chaired by Jacques de Larosière, states in unequivocal terms in its report[26]: “accounting standards should not bias business models, promote pro-cyclical behaviour or discourage long-term investment”.

One should be careful, however, not to accept the current outcry by banks, regulators and politicians at face value. The same rhetoric can conceal very different interests, motivations and positions: insolvent banks lobbying the US congress for the suspension of mark-to-market reporting; US politicians aiming to discontinue or modify accounting standards in an instrumental way in order to write off toxic assets and return to normality once the crisis is over; regulators in charge of financial reporting standards, such as the US Financial Accounting Standards Board in the US and the International Accounting Standards Board in London, trying to get themselves out of the line of fire while still defending the merits of fair value in “normal times”; Angela Merkel and Peer Steinbrück following their US colleagues to free banks from fair value for the period of the crisis.

A short-sighted repeal of current standards for the purely instrumental purposes of writing off toxic assets, however, does not seem the right way to prepare the ground for the necessary far-reaching reforms. Interestingly enough, the Turner Review[27] of the UK Financial Services Authority published in 2009, does indeed seek to solve the financial crisis with more promising means.

Taking a critical stance on the public outcry to write off toxic assets by means of suspending fair value, therefore, does not mean sharing the conservative view of the leading accounting firms, which seem to be more concerned to avoid any liabilities for ambiguities in their interpretation of reporting rules than worrying about how to bring the crisis to an end. On the contrary, I would say that the real test for a far-reaching reform of financial reporting standards, aiming towards rules that support economically sustainable development, is still to come.

To work towards such a financial reporting system will, as suggested by the Larosière report, require opening up the standard-setting process of the FASB and IASB and including a variety of regulatory, supervisory and business communities. One might even go further and demand the inclusion of representatives of various stakeholder and civil society groups affected by accounting standards. This might not only prevent “group think” of the kind that we have seen enough of in the past, it could also improve crisis management and lead the way to a substantially revised set of financial reporting standards that are neutral, non-cyclical and sustainable.

Accounting at the G20 London Summit: Watering Down or Walking the Talk?

Sigrid Quack, 2009/04/04

It doesn’t happen very often that technical matters like accounting standards make it into the final declaration of a G20 summit, agreed by the heads of government of the world’s leading nations. Nevertheless, yesterday it happened. After deliberating in the City of London for two days about the appropriate means to cure the most severe worldwide financial crisis since 1929, the leaders of the G20 stated in their declaration[28] on strengthening the financial system:

We have agreed that the accounting standard setters should improve standards for the valuation of financial instruments based on their liquidity and investors’ holding horizons…. We also welcome the FSF recommendations on procyclicality that address accounting issues. We have agreed that accounting standard setters should take action by the end of 2009. (G20 2009: 5)

Why did something so mundane make it to the agenda of world politics? While it was certainly a merit of Nicolas Sarkozy’s populist threat to walk demonstratively out of the summit that made bloggers and newspaper writers such as Iain Martin wonder whether accounting standards could save the G20, the reasons for the G20 leaders dealing with “fair value” and “dynamic provision” are certainly more complex[29]. Some, like David Zaring, also wonder whether the G20 summit produced more than just rhetoric[30].

Certainly the declaration of the summit, like all declarations of this kind, includes a significant dose of political grandstanding, which different political leaders will use to satisfy their domestic electorates. Nevertheless, behind the usual rhetoric there is a level of detail that gives reason to believe that a substantial revision of the content and governance of banking and accounting standard setting might be conceivable in the near future.

To understand the current political attention to banking and accounting standards, one has to dig into the reasons for the current crises. As Martin Hellwig of the Max Planck Institute for Research on Collective Goods points out in his discussion paper[31] on the subprime-mortgage financial crisis, Basel capital adequacy and fair value accounting standards - together with a malfunctioning of the market for over-the-counter derivatives and other securitized financial products - were significant factors behind the spread of the sub-prime mortgage crisis from the US across the world financial system.

An accounting history of the crisis

The crisis had first-order and second-order causes. The first-order causes are located in macroeconomic developments such as huge imbalances in world trade, abundant liquidity and continuously low interest rates, as well as excessive maturity transformation in mortgage securitization in the US. The mortgage crisis rapidly translated into downward pressures on securities prices. The second-order causes, in turn, led to a self-enforcing downward spiral, which spread systemic risk from mortgages to other parts of the financial system and from the US across the globe.

One of these secondary causes was fair value accounting, which had been introduced to US banking as a reaction to the Savings and Loans crisis in the 1980s. At that time, fair value accounting was thought of as a remedy to cure the overestimation of banks’ assets accounted for at historical costs but devalued in a changing environment. In the current crisis, however, fair value had exactly the opposite effect. As banks incurred losses from mortgages, they had to write off their assets at rapidly declining market prices.

As the crisis unfolded there was often no market price any more, as markets simply stopped functioning. Accounting rules forced banks to write off their assets, and as they did so, capital adequacy standards required that they either take additional capital in, or retrench their overall lending. As more banks had to write off assets they entered a vicious cycle of failure that was reinforced by the fact that banks worldwide had been economizing on equity capital since the 1990s and therefore did not have sufficient capital buffers to soften the effects of the crisis.

Martin Hellwig concludes that it was not too little regulation or too little supervision that went wrong. Instead, he states that

the regulation we currently have may actually have exacerbated the crisis. (Hellwig 2008: 61)

Since the publication of Hellwig’s study, the need for reforms to prevent unintended and undesirable pro-cyclical effects of prudential banking regulation and fair value accounting standards has been broadly recognized in academic and public debates.

A plethora of studies and reports converging on the need for reform

A remarkable number of analytical reports and policy recommendations have been published which tackle the problems of and remedies for the financial crisis from various perspectives. It seems worthwhile to browse through them quickly to see what their conclusions are for future accounting and prudential regulation, without any claim to completeness.

In March 2008, when the secondary effects of the subprime mortgage crisis were still unfolding, the US President’s Working Group on Financial Markets stated in its Policy Statement on Financial Market Developments[32] that

Authorities should encourage FASB (the American accounting standard setter) to evaluate the role of accounting standards in the current market turmoil. (US President’s Working Group 2008: 6)

The Washington Action Plan[33], agreed by the G20 during their summit on November 15, 2008, suggested that global accounting standard-setting bodies should enhance guidance for the evaluation of securities on illiquid markets, advance their work to address weaknesses in accounting, and enhance the disclosure of complex financial instruments. In addition, financial standard setters were asked to strengthen capital requirements for banks’ credit and securitization activities.

A report[34] by the Group of Thirty, under the leadership of Paul A. Volcker, issued two months later, criticized the too-rigid application of fair value accounting rules and pointed to an underlying tension between the business purposes of financial institutions – particularly the intermediation of credit and liquidity risk – and the interest of investors and creditors in having the best current information on the immediate market value of assets and liabilities. While the report maintained that mark-to-market accounting is the preferred method for trading activities, it suggested that

Fair value accounting principles and standards should be re-evaluated with a view to developing more realistic guidelines for dealing with less-liquid instruments and distressed markets.

The High-Level Group on Financial Supervision in the EU, chaired by Jacques de Larosière, went much further in reviewing the weaknesses of a mark-to-market principle as applied to the financial system. The authors of this report[35] not only highlighted that

It is particularly important that banks can retain the possibility to keep assets, accounted for amortised cost at historical or original fair value (corrected, of course, for future impairments), over a long period in the banking book. …. Regarding the issue of pro-cyclicality, as a matter of principle, the accounting system should be neutral and not allowed to change business models – which it has been doing in the past by “incentivising” banks to act short term. (High-Level Group on Financial Supervision in the EU 2009: 20)