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Responsive Regulation and Developing Economies - J. Breithwaite

Materiale didattico per il corso di Theories of Regulation della prof.ssa Laura Ammannati. Trattasi dell'articolo di John Breithwaite dal titolo "Responsive Regulation and Developing Economies" riguardante i possibili benefici per i paesi in via di sviluppo derivanti dall'adozione di politiche di "Responsive Regulation". Vedi di più

Esame di Theories of Regulation docente Prof. L. Ammannati




outreach and empowerment The vitality of a a society with a complex division of labor the

. . .

social order comes from below, that is, from the most fundamental reason as to why social sys-

necessities of cooperation in everyday life’’ tems are not normatively closed is that people

(Selznick, 1992, p. 465). Responsiveness means occupy multiple roles in multiple systems. A

having respect for the integrity of practices and company director is also a mother, a local

the autonomy of groups; responsiveness to ‘‘the alderman, and a God-fearing woman. When

complex texture of social life’’ (Selznick, 1992, she leaves the board meeting before a crucial

p. 470). Tom Paine in the Rights of Man and vote to pick up her infant, her business behav-

James Madison share with Selznick the project ior enacts normative commitments from the so-

of conceiving empowered civic virtue as at least cial system of the family; when she votes on the

as important to democracy as constitutional board in a way calculated to prevent defeat at

checks and balances: ‘‘power should check the next Council election, she enacts in the busi-

power, not only in government but in society ness normative commitments to the political

as a whole’’ (Selznick, 1992, p. 535). So, for system; when she votes against a takeover of

example, business custom shapes responsive a casino because of her religious convictions,

business regulatory law and state regulators she enacts the normative commitments of her

check abuse of power in business self-regula- church. In extremis, wealthy business people

tory arrangements, and both should have their sometimes dismantle their empires to give away

power checked by the vigilant oversight of their wealth for a charitable foundation. So

NGOs and social movements. much of the small and large stuff of organiza-

Developing countries mostly have less over- tional life makes a sociological nonsense of

sight by NGOs and social movements to mobi- the notion that systems are normatively closed.

lize, less state regulatory capability and less Nor is it normatively desirable that they be nor-

settled, less powerful, business custom, at least matively closed, as Parker (2002) has argued.

in the larger business sector. Restorative and Rather, there is virtue in the justice of the peo-

responsive regulatory theory has evolved into ple and of their business organizations bub-

a deliberative, circular theory of democratic bling up into the justice of the law, and the

accountability, as opposed to a hierarchical justice of the law percolating down into the jus-

theory where the ultimate guardians of the tice of the people and their commerce.

guardians are part of the state (Braithwaite, That said, responsive and reflexive regulatory

2002; Braithwaite & Roche, 2000). This ideal theories are mostly on the same wavelength.

is for guardians of accountability to be orga- Teubner’s regulatory trilemma is a real one

nized in a circle where every guardian is holding (Teubner, 1986). A law that goes against the

everyone else in the circle accountable, where grain of business culture risks irrelevance; a

each organizational guardian holds itself inter- law that crushes normative systems that natu-

nally accountable in deliberative circles of con- rally emerge in business can destroy virtue; a

versation and where such circles are widened law that lets business norms take it over can de-

when accountability fails. Circles of widening stroy its own virtues. I am at one with Teubner

circles. Rules remain important under a restor- in seeing it as essential to regulate by working

ative and responsive model of democratic with the grain of naturally occurring systems

accountability, but less important than under in business (Braithwaite, 2005a, chap. 13). We

Dicey’s hierarchical accountability up to a sov- agree that it is through the ‘‘structural cou-

ereign parliament. Rules are just one of the pling’’ of reflexively related systems (or nodes

things that emerge from the circled circles of of networked governance as I would prefer)

deliberation. Another is the interpretation of that the horns of the regulatory trilemma can

rules—interpretation comes from circles of con- be escaped. Abuse of power is best checked

versation in which courts might be particularly by a complex plurality of many separated pow-

influential, but where the interpretations that ers—many semi-autonomous nodes of net-

matter mostly do not come down from a court worked governance (Braithwaite, 1997, pp.

or a canonical papal interpretation of God’s 311–313; Braithwaite, 2005b). All nodes of sep-

will. arated private, public, or hybrid governance

In this regard my conception of responsive- need enough autonomy so that they cannot be

ness differs from Teubner’s (1986) reflexiveness dominated by other nodes of governance.

and Niklas Luhmann’s autopoiesis (Teubner, Equally, each needs enough capacity to check

1988). I do not see law and business systems abuse of power by other nodes so that a multi-

as normatively closed and cognitively open. In plicity of separated powers can network to


check any node of power from dominating all join that we believe actually matter in building

the others. The required structural coupling democracy. Democracy is then not something

among a rich plurality of separated powers is we lobby for as a distant utopia when the tyrant

not only about checking abuse, it is also about is displaced by free elections, democracy is

enhancing the semi-autonomous power of something we start building as soon as we join

nodes of governance to be responsive to human the NGO, practice responsively as a lawyer,

needs (Teubner, 1986, pp. 316–318). establish business self-regulatory responses to

Nodes of governance must not only check demands from environmental groups, deliber-

one another’s abuses, they must also assist with ate about working conditions with our employ-

building one another’s capacity to responsively ees or employers, educate our children to be

serve human needs, to have integrity in Selz- democratic citizens, participate in a global con-

nick’s terms (Selznick, 1992). A regulatory versation on the internet, and so on.

node can do this, for example, through assisting

to build the learning capacity of a business

node to solve its environmental problems. The 3. RESPONSIVENESS

same idea is found in Habermas (1987) where AS AN EFFECTIVENESS IDEAL

on the one hand he notes the dangers of law

as a ‘‘medium’’ which colonizes the lifeworld, The basic idea of responsive regulation is that

and on the other hand notes the virtues of governments should be responsive to the con-

law as a ‘‘constitution’’ which enables the life- duct of those they seek to regulate in deciding

world to more effectively deliberate solutions whether a more or less interventionist response

to problems that are responsive to citizens. is needed (Ayres & Braithwaite, 1992). In par-

Circled circles of guardians can include audit ticular, law enforcers should be responsive to

offices, ombudsmen, appellate courts, public how effectively citizens or corporations are reg-

service commissions, self-regulatory organiza- ulating themselves before deciding whether to

tions, ministers, and NGOs. But again the escalate intervention. The most distinctive part

deliberative capacities of all such kinds of ac- of responsive regulation is the regulatory pyra-

tors tend to be less in developing economies. mid. It is an attempt to solve the puzzle of when

Responsiveness is enabled by a society with a to punish and when to persuade. At the base of

strong state, strong markets, and strong civil the pyramid is the most deliberative approach

society, where the strength of each institution we can craft for securing compliance with a just

enables the governance capabilities of the other law. Of course if it is a law of doubtful justice,

institutions (Braithwaite, 1998). Developing we can expect the dialogue to be mainly about

countries have weaker markets that hold back the justice of the law (and this is a good thing

the development of state capacity and a weaker from a democratic perspective). As we move

state that holds back the development of all up the pyramid, more and more demanding

other institutions (Evans, 1995), including the interventions in peoples’ lives are involved.

institutions of civil society that can compensate The idea of the pyramid is that our presump-

for the failures of states. tion should always be to start at the base of

From a responsiveness perspective, it follows the pyramid first. Then escalate to somewhat

that economies with developed, well-funded, punitive approaches only reluctantly and only

institutions of guardianship enjoy a richer when dialogue fails. Then escalate to even more

democracy than countries that cannot afford punitive approaches only when the more mod-

them. On the other hand, responsive regulatory est forms of punishment fail.

theory offers a more useful theory of ‘‘what is The crucial point is that it is a dynamic

to be done’’ in developing countries than statist model. It is not about specifying in advance

theories. If we believe that democracy is funda- which are the types of matters that should be

mentally an attribute of states, when we live in dealt with at the base of the pyramid, which

a tyrannous state or a state with limited effec- are the more serious ones that should be in

tive capacity to govern, we are disabled from the middle and which are the most egregious

building democracy—we are simply shot when ones for the peak of the pyramid. Even with

we try to, or we waste our breath demanding the most serious matters—flouting legal obliga-

state responses that it does not have the capac- tions to operate a nuclear power plant safely

ity to provide. But when our vision of democ- that risks thousands of lives—we stick with

racy is messy—of circles of deliberative the presumption that it is better to start with

circles, there are many kinds of circles we can dialogue at the base of the pyramid (see Rees,


1994). A presumption means that however seri- ing up through more and more punitive options

ous the lawbreaking, our normal response is to and they all fail to deter. Perhaps the most

try to have a dialogue first for dealing with it, to common reason in business regulation for suc-

only override this presumption if there are com- cessive failure of restorative justice and deter-

pelling reasons for doing do. As we move up rence is that non-compliance is neither about

the pyramid in response to a failure to elicit re- a lack of goodwill to comply nor about rational

form and repair, we often reach the point where calculation to cheat. It is about management

finally reform and repair are forthcoming. At not having the competence to comply. The

that point responsive regulation means that manager of the nuclear power plant simply

we put escalation up the pyramid into reverse does not have the engineering knowhow to take

and de-escalate down the pyramid. The pyra- on a level of responsibility this demanding. He

mid is firm yet forgiving in its demands for must be moved from the job. Indeed if the en-

compliance. Reform must be rewarded just as tire management system of a company is not

recalcitrant refusal to reform will ultimately up to the task, the company must lose its li-

be punished. cence to operate a nuclear power plant. So

Responsive regulation has been an influential when deterrence fails, the idea of the pyramid

policy idea because it comes up with a way of is that incapacitation is the next port of call

reconciling the clear empirical evidence that (see Figure 1).

sometimes punishment works and sometimes This design responds to the fact that restor-

it backfires, and likewise with persuasion ative justice, deterrence, and incapacitation

(Ayres & Braithwaite, 1992; Braithwaite, are all limited and flawed theories of compli-

1985). The pyramidal presumption of persua- ance. What the pyramid does is cover the weak-

sion gives the cheaper and more respectful op- nesses of one theory with the strengths of

tion a chance to work first. The more costly another. The ordering of strategies in the pyra-

punitive attempts at control are thus held in re- mid is not just about putting the less costly, less

serve for the cases where persuasion fails. When coercive, more respectful options lower down in

persuasion does fail, the most common reason order to save money. It is also that by only

is that a business actor is being a rational calcu- resorting to more dominating, less respectful

lator about the likely costs of law enforcement forms of social control when more dialogic

compared with the gains from breaking the law. forms have been tried first, coercive control

Escalation through progressively more deter- comes to be seen as more legitimate. When reg-

rent penalties will often take the rational calcu- ulation is seen as more legitimate, more proce-

lator up to the point where it will become durally fair, compliance with the law is more

rational to comply. Quite often, however, busi- likely (Tyler, 1990; Tyler & Blader, 2000; Tyler

ness regulators find that they try dialogue and & Dawes, 1993; Tyler & Huo, 2001). Astute

restorative justice and it fails; they try escalat- business regulators often set up this legitimacy


Incompetent or

Irrational Actor DETERRENCE


Virtuous Actor

Figure 1. Toward an integration of restorative, deterrent, and incapacitative justice.


explicitly. During a restorative justice dialogue with the fact that no government has the capac-

over an offence, the inspector will say there will ity to enforce all laws, it is useful for thinking

be no penalty this time, but that she hopes the about regulation in developing countries with

manager understands that if she returns and weak enforcement capabilities. Yes certain min-

finds the company has slipped back out of com- imum capacities must be acquired, but then the

pliance again, under the rules she will have no theory shows how such limited capacity might

choice but to shut down the production line. be focused and leveraged.

When the manager responds yes, this is under- Paternoster and Simpson’s research on inten-

stood, a future sanction will likely be viewed as tions to commit four types of corporate crime

fair. Under this theory, therefore, privileging by MBA students reveals the inefficiency of

restorative justice at the base of the pyramid going straight to a deterrence strategy (Pater-

builds legitimacy and therefore compliance. noster & Simpson, 1996). Paternoster and

There is also a rational choice account of why Simpson found that where the MBAs held per-

the pyramid works. System capacity overload sonal moral codes, these were more important

(Pontell, 1978) results in a pretence of consis- than rational calculations of sanction threats

tent law enforcement where in practice enforce- in predicting compliance (though the latter

ment is spread around thinly and weakly. were important too). It follows that for the

Unfortunately this problem will be at its worst majority of these future business leaders, ap-

where lawbreaking is worst. Hardened offend- peals to business ethics (as by confronting them

ers learn that the odds of serious punishment with the consequences for the victims of corpo-

are low for any particular infraction. Tools like rate crime) will work better than sanction

tax audits that are supposed to be about deter- threats. So it is best to try such ethical appeals

rence are frequently exercises that backfire by first and then escalate to deterrence for that

teaching hardened tax cheats just how much minority for whom deterrence works better

they are capable of getting away with (Kinsey, than ethical appeals.

1986, p. 416). The reluctance to escalate under Because states are at great risk of capture and

the responsive pyramid model means that corruption by business, even greater risk where

enforcement has the virtue of being highly regulatory bureaucrats are poor, Ayres and

selective in a principled way. Moreover the dis- Braithwaite argue for the central importance

play of the pyramid itself channels the rational of third parties, particularly NGOs, to be di-

actor down to the base of the pyramid. Non- rectly involved in regulatory enforcement over-

compliance comes to be seen (accurately) as a sight (Ayres & Braithwaite, 1992, chap. 3). But

slippery slope that will inexorably lead to a NGOs do more than just check capture of state

sticky end. In effect what the pyramid does is regulators; they also directly regulate business

solve the system capacity problem with punish- themselves, through naming and shaming,

ment by making punishment cheap. The pyra- restorative justice, consumer boycotts, strikes,

mid says unless you punish yourself for and litigation they run themselves. Responsive

lawbreaking through an agreed action plan regulation comes to conceive of NGOs as fun-

near the base of the pyramid, we will punish damentally important regulators in their own

you much more severely higher up the pyramid right, just as business are important as regula-

(and we stand ready to go as high as we have tors as well as regulatees (see also Gunningham

to). So it is cheaper for the rational company & Grabosky, 1998; Parker, 2002).

to punish themselves (as by agreeing to payouts Pyramid design is a creative, deliberative

to victims, community service, and paying for activity. Stakeholders can design pyramids of

new corporate compliance systems). Once the actual sanctions like a ‘‘warning letter’’ or ‘‘civil

pyramid accomplishes a world where most pun- penalty.’’ Or they can design a pyramid of reg-

ishment is self-punishment, there is no longer a ulatory strategies—for example, try regulation

crisis of the state’s capacity to deliver punish- by the price mechanism of the free market first,

ment where it is needed. One of the messages then try industry self-regulation, then a carbon

the pyramid gives is that ‘‘if you keep breaking tax regime, then a command and control re-

the law it is going to be cheap for us to hurt you gime that permits licence revocation for power

because you are going to help us hurt you’’ plants that fail to meet pollution reduction tar-

(Ayres & Braithwaite, 1992, chap. 2). gets. Regulators that think responsively tend to

This feature of the theory of responsive regu- design very different kinds of pyramids for dif-

lation is attractive for developing countries. ferent kinds of problems—for example, the

Precisely because responsive regulation deals Australian Taxation Office has a different kind


of pyramid for responding to transfer pricing most important regulators of corporate fraud

by multinational companies than it deploys and accounting standards in developing econo-

with the same companies when they ‘‘defer, mies were the major global accounting firms. In

delay, and deny’’ access to company records comparison, developing country corporations

(Braithwaite, 2005a, part II). and securities regulators mostly have very lim-

As with responsiveness as a democratic ideal, ited standard setting capability, let alone

so with responsiveness as an effectiveness ideal, enforcement capability. Professionals and other

the theory appears to be one where developing non-state gatekeepers did more of the regulat-

countries are less likely than wealthy states to ing of business in what are today developed

enjoy the conditions to make it work. Not only economies as we go back through their histories

are state regulatory bureaucrats more vulnera- to when they were developing economies. Even

ble to corruption because of their poverty, in the United States we only need to go back to

NGOs have fewer resources to do the oversight the 1920s for a pre-SEC world where accoun-

to guard against this than do NGOs in rich tants and private partnerships called stock ex-

countries. More fundamentally, weaker states changes did all the work that mattered in the

lack the organizational capacity to be respon- regulation of corporations, securities, and

1 Until

sive. They have fewer regulatory staff and less accounting standards (McCraw, 1984).

quite late in the 20th century, the city of Lon-

educated staff to come to grips with the more don flourished through a gentlemen’s club

reflexive approach of responsive regulation. model of regulation, where accounting stan-

Perhaps factory inspectors in weak states do dards that entered commerce through the

have the capacity for some of the more impor- accounting profession were internalized by ‘‘de-

tant kinds of command and control regulation cent chaps’’ who learnt the standards they had

like ensuring that hazardous machinery is to meet to avoid being ostracized to the mar-

guarded, but they are less likely to have the gins of the City’s circles of gentlemen (Clarke,

analytic resources to assess a ‘‘safety case’’— 1986; Moran, 2003). Arguably it was only in

an occupational health and safety self-regula- the 20th century that the Bank of England be-

tory plan. Developing country tax officials came a more important prudential regulator

might do quite well at taxing immobile assets than the Rothschilds, that JP Morgan ceased

like land, but may not have enough highly edu- being the most important prudential regulator

cated staff to implement responsive regulatory in the United States (Braithwaite & Drahos,

strategies that states like Australia can use 2000, chap. 8).

against international profit shifting to recover For many decades after the West’s industrial

a billion dollars in avoided tax for every million revolution began, we see very different ways in

dollars spent on the enforcement (Braithwaite, different metropoles that regulation is net-

2005a, chap. 6). worked by a plurality of private, professional,

Empirical studies of developing states show and state actors. Only slowly after the New

great variation in state capacity (see, e.g., Deal do we see the transformation of regula-

Evans, 1995; Kohli, 2004). While in general, tory thinking to the ideal of a state regulator

Evans does not find the problem of developing being ultimately in charge of a regulatory do-

economies as too much bureaucracy, but of not main. No sooner had this transformation been

enough, he discerns huge differences between consolidated when what some like to refer to as

predatory states like Mobutu’s Zaire where a post-regulatory state (Scott, 2004; Teubner,

bureaucratic competence is systematically de- 2 began to develop—a social order where


stroyed, developmental states such as Korea regulation pluralizes again as NGOs find new

where it is nourished, and in-between states capacities and competition policy drives profes-

such as India and Brazil where state capacity sions to innovate into new markets in regula-

in the early 1990s was uneven, but where tory evasion and new markets in private

bureaucratic learning and construction of state regulation of such evasion (‘‘markets in vice,

capacity did occur (Evans, 1995, pp. 12–70). markets in virtue’’) (Braithwaite, 2005a). Law

firms that specialize in product liability litiga-

tion become important new regulators of

4. NETWORKING AROUND business, NGO environmental regulators form

CAPACITY DEFICITS partnerships with retailers to regulate the certi-

fication of forest products or the certification of

Braithwaite and Drahos (2000) concluded coffee as organically grown (Courville, 2003).

from their interview-based research that the


(Bevir & Rhodes, 2003) and others, I have

Transparency International regulates corrup- become persuaded that we live in an era of net-

tion through publicizing where high levels of worked governance. An implication of this is

corruption prevail, as do ethical investment that developing countries might jump over their

funds and their analysts. New kinds of rating regulatory state era and move straight to the

agencies like Reputex rate corporate social regulatory society era of networked gover-

responsibility (Reputation Measurement, nance. Developing states might therefore cope

2003). Indeed the older rating agencies like with their capacity problem for making respon-

Moodys and Standards and Poors are becom- sive regulation work by escalating less in terms

ing increasingly important regulatory threats of state intervention and more in terms of esca-

to businesses with major environmental and lating state networking with non-state regula-

ethical risks to their operations that can peg tors. Figure 2 represents this idea which

back their credit rating. Finally, international comes from Drahos’s insight that networked

regulators such as the Basle committee, envi- governance could be of service to responsive

ronmental treaty secretariats, and the Interna- global regulation that works better for develop-

tional Telecommunications Union become ing countries (Drahos, 2004). At the base of the

increasingly important. Braithwaite and Dra- pyramid, the developing state relies upon busi-

hos (2000) conclude that in shipping regulation ness self-regulation. When self-regulation fails,

and some other domains, the era when state it networks two other non-state regulators.

regulators are more in charge than private reg- When that fails, it networks two more, and so

ulators, such as Lloyds of London, and global on.

ones such as the International Maritime Orga- In Figure 2 the developing state enrols more

nization, is remarkably short. Slaughter (2004) (Latour, 1986) and more NGOs, industry asso-

sees regulation as the area where transgovern- ciation co-regulators, professionals, other gate-

mental networks become pre-eminently impor- keepers, and international organizations to its

tant as fonts of governance. regulatory project. In addition to such non-

Like Slaughter (2004), Castells (2000a, state actors it might also enrol other states as

2000b, 2000c), Drahos (2004), Rhodes (1997)

Network Network

partner partner

Network Network

partner partner


Network partner


Network Network

Networked Regulation

partner partner


Networked Regulation

Network Network


partner partner


Network partner

partner Networked Regulation


Figure 2. A responsive regulatory pyramid for a developing economy to escalate the networking

of regulatory governance.




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Materiale didattico per il corso di Theories of Regulation della prof.ssa Laura Ammannati. Trattasi dell'articolo di John Breithwaite dal titolo "Responsive Regulation and Developing Economies" riguardante i possibili benefici per i paesi in via di sviluppo derivanti dall'adozione di politiche di "Responsive Regulation".

Corso di laurea: Corso di laurea magistrale in economics and political science
Università: Milano - Unimi
A.A.: 2011-2012

I contenuti di questa pagina costituiscono rielaborazioni personali del Publisher Atreyu di informazioni apprese con la frequenza delle lezioni di Theories of Regulation e studio autonomo di eventuali libri di riferimento in preparazione dell'esame finale o della tesi. Non devono intendersi come materiale ufficiale dell'università Milano - Unimi o del prof Ammannati Laura.

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