The Rise of Private Authority and the Decline of Embedded Liberalism Across the OECD, 1982-2008

Abstract

Does corporate authority complement or substitute for public regulation and institutionalized social solidarity? While there has been considerable interest in the use of private regulation in developing countries and weak governance zones, private regulation in developed countries has been understudied. A small but growing literature addresses the institutional determinants of private governance and corporate self-regulation in these countries. This literature has debated whether the self-regulation of firms functions as a complement or a substitute for the welfare state, trade unions, market correcting regulation and other institutions of what Ruggie called ‘embedded liberalism.’This paper examines the relationship between private and public regulation in thirty capitalist democracies from the early 1980s until the late 2000s. It uses business-led Corporate Responsibility organizations to measure the state of private regulation at the country level. Their establishment dates and membership levels serve as proxies for the timing and quantity of private regulation. Independent variables include wage bargaining centralization, labor market regulation and employment protection, and industry regulation. The results suggest that corporate self-regulation is associated with declining regulatory density – deregulation – for a variety of different variables. This confirms qualitative historical evidence that the emergence of business activity promoting self-regulation was deeply bound together with the rise of neo-liberal economic policies since the 1980s. During this period of deregulation and privatization, business leaders put out a distinct call for business to taken on new social responsibilities. The notion of responsible business and of business self-regulation played an important role in legitimating the institutional transformation of OECD economies toward neo-liberalism, as the institutions of the post-war compromise were breaking down. A recurring theme propagated by business leaders is the unmistakable idea of corporate responsibility as being a domain of voluntary activity, which must be free of state regulation. The paper suggests that in OECD countries, private authority may be as much the source of our contemporary problems as part of their solution.