The Irony of International Business Law: U.S. Progressivism, China’s New Laissez Faire, and Their Impact in the Developing World

Abstract

As the financial crisis draws U.S. business overseas and developing countries rise in influence, the regulation of international business has never figured so prominently in federal law. But the dominant paradigm through which academics and policymakers continue to view that law – the so-called “Washington Consensus” – proves deeply misleading. A more accurate account of the components, origins, and aims of U.S. international business law reveals two striking ironies. First, in discrete but critical ways, the U.S. no longer represents the comparatively laissez-faire approach to federal business regulation. Rather, owing to its origins in the Progressive Era, U.S. federal law directs corporations toward non-economic social goals, particularly combating corruption (e.g. the Foreign Corrupt Practices Act) and promoting human rights (e.g. the Alien Tort Statute or economic sanctions). By contrast, the alternative legal regime to which the U.S. is frequently compared – China – largely allows companies to pursue profits internationally without regard to their impact on corruption and human rights. Though it remains true that the U.S. regime and its principal alternative are distinguished by the extent to which the state restricts business conduct to achieve social goals, the roles are now reversed. Second, the rise of an alternative model now substantially thwarts the goals of U.S. progressive regulation. Empirical research in political science and economics demonstrates that because the U.S. regime increases the costs of doing business in emerging markets, U.S. companies tend to invest less. The resulting void in capital is filled by companies from countries – particularly China – that lack prohibitions on bribery and human rights violations. Ironically, enforcement of U.S. progressivism thus creates the very conditions in which corruption and human rights violations occur.