Unstable Institutional Environment Research Articles

Building a green state? Environmental politics in Georgia

ABSTRACT Can green states exist in a non-Western context? Much research has been focused on environmental politics in advanced industrialized economies, and the associated institutions, policy, and resources available for environmental protection efforts. Outside this narrow context however, we know far less about the progress states have made in developing their national systems of environmental governance. This gap in our understanding is particularly evident when it comes to the post-Soviet context. Using a case study of Georgia, this analysis evaluates environmental governance capacity in a transition state drawing on a framework derived from the green state literature. Since the collapse of the Soviet Union in 1991, Georgia has faced considerable political and economic upheaval, and in the midst of it all, the country has embarked on an ambitious program of environmental reform. The findings suggest that while the basic internal foundations of a green state exist, including considerable policy and legislative development and solid environmental financing, key challenges remain. These are centered on an unstable institutional environment, and weak policy enforcement. However non-state actors such as NGOs and international organizations provide crucial support and are likely to remain essential in building and maintaining environmental capacity in the future.

The Dark Side of Samsung’s Value Chain: The Human Costs of Cobalt Mining “BLOOD, SWEAT AND COBALT”

Samsung has been implicitly linked to human rights abuses and wider social downgrading propagated within the Democratic Republic of Congo (DRC). Reports by different studies have shown artisanal cobalt mines (ASM) to exploit child labour and subject workers to perilous conditions. The IT multinational is dependent upon Congolese cobalt as a key element in lithiumion batteries used to produce their array of electronics. However, irresponsible cobalt sourcing practices undertaken by Tier 1 suppliers, Glencore and Huayou, have resulted in ASM operations being incorporated into Samsung’s global value chain, as Tier 2 suppliers. Analysis of the relationships underpinning Samsung’s cobalt value chain theoretical framework, highlights the presence of a relational governance structure, with captive elements among upstream Tier 1 and Tier 2 suppliers. Samsung is thereby reliant upon both Glencore and Huayou to transmit and enforce private codes of conduct down the value chain to expel human rights abuses. In conjunction, the DRC’s weak and unstable institutional environment has facilitated corruption and the improper enforcement of laws across the ASM industry. It is thereby imperative that Samsung takes ownership of the issues present within its value chain, as both Tier 1 suppliers and the Congolese government have failed to ensure responsible cobalt sourcing practices to date. This report recommends that Samsung adopt a holistic action plan, not only utilising their own resources and capabilities, but also those of critical stakeholders including Tier 1 suppliers, NGOs and the DRC and South Korean governments. Most prominently, this report suggests that supply chain transparency can be improved using certificates of origin and blockchain technology. Furthermore, it is recommended that poverty alleviation is targeted as a key measure through “Cobalt for Development”, an action plan designed to instigate both social and economic upgrading within ASM operations and the wider community. By employing a multi-scalar approach and addressing the issues inherent across multiple governance levels, Samsung can ensure a responsible source of cobalt be sustained.

Thinking outside the “water box” in the Detroit River Area of Concern

Despite sustained attention to water resource issues in the Great Lakes and around the world, many water problems remain unresolved because their sources or causes are external to the water sector. Water governance often is based on water-centric problem framings that do not take sufficient account of the role of external actors, institutions, and drivers. Recognition of this problem is growing, but identifying external connections and addressing the critical ones is challenging for water managers. Using a flexible diagnostic process, we explore external factors that are relevant in the context of the Detroit River Area of Concern (AOC) between Canada and the United States. We used a two-case multiple case study research design, triangulating data gathered from 28 key informant interviews, review of 58 documents, and personal observations. We find that the AOC program is intentionally narrowly-focused to achieve its objectives, and that a water-centric perspective may in fact be needed for delisting the Detroit River as an AOC. However, there are broader issues beyond those considered in the AOC process that affect the river, including climate change, invasive species, population and land use change, shifting public perceptions, and an unstable institutional environment. To address these external challenges, practitioners should consider engaging more proactively with the topic of “life after delisting”, and connecting more strongly with existing initiatives and networks in the area with the help of “boundary spanners.” Strengthening binational ties within the AOC, and clarifying the role of AOCs in the large governance environment are also important.

«GLOBAL CORRUPTION» – IS A PHENOMENON OF THE XXIst CENTURY

Corruption is a negative social phenomenon that is an integral part of any community life. Given the low level of welfare of the population and the weaknesses of democratic principles and procedures, corruption becomes, a survival tool for some part of society, for another, smaller one – a tool for making a profit. However, as practice shows, the phenomenon of corruption also occurs highly developed States with established democratic traditions. After all, corruption knows neither nationality, nor borders, nor other barriers to political reality. Like any phenomenon caused by human activity, corruption is not static and evolves in parallel with the human relations complication. Under the pressure of globalization «traditional» corruption is transforming and acquiring new features that allow it to be classified as «global corruption». Paradoxically, but in the modern world global corruption is a stabilizing mechanism of the contemporary model of the world order and a fuse against the destruction of non-viable forms of human coexistence. The article argues that States with unstable institutional environments, in particular Ukraine, becomes the «transit hub» of global corruption through financial-political groups’ mediation. After all, corruption is the cementing foundation of the functioning of modern financial-political groups. It is noted that such corporate groups are characterized by a combination of economic, political and administrative components in order to realize private and sectoral interests. It is emphasized that the financial-political groups’ formation due to the merger of political and business interests is inherent not only in unstable institutional environments, but also in the States with developed economic and political systems. Two algorithms of the development of the interconnection between financial-industrial groups and public authorities in an unstable institutional environment are proposed: 1) complete subordination of political and economic activities of financial-industrial groups to the will of the State – «occupation of business» (for example in the Russian Federation); 2) «seizure of power» by financial-industrial groups and their further transformation into financial-political groups (for example in Ukraine).

ДОБА МІДАСУ: НОВИЙ СВІТОВИЙ ПОРЯДОК

Corruption is an unchanging and “faithful” companion of the humanity accompanying it since ancient times. And like any product of mankind, it isn’t a static phenomenon and develops in parallel with the complication of human relations. With the globalization the corruption has transformed and acquired new features that make it possible to classify it likes “global corruption”. We assume that in today’s world, global corruption is a stabilizing mechanism of the modern model of world order and a safeguard against the destruction of non-viable forms of human coexistence. There are three main reasons for the inequality of income distribution in the world: 1) the existence of so-called “tax havens” – offshore zones that allow large-cap owners to avoid paying taxes; 2) inefficiency or unwillingness of national governments and the world community in regulating this issue; 3) the systematic business and politics interpenetration and the emergence of the newest phenomenon – the so-called “global corruption”. We argue that in such case post-Soviet States (including Ukraine and Russia) become a source and a “transit hub” for global corruption. Under the condition of systemic institutional instability existence, financial-industrial groups are losing exclusively economic features and getting new features, which allow them to be classified as financial-political groups. For such kind of corporate groups is typical the combination of economic, political, social and administrative components for the realization their private interests. We propose two development scenarios of corruption interconnection between financial-industrial groups and public authorities in States with unstable institutional environment: 1) complete subordination of political and economic activities of financial-industrial groups to the will of the State – “occupation of business” (for example in the Russian Federation); 2) “seizure of power” by financial-industrial groups and their further transformation into financial-political groups (for example in Ukraine). We are convinced that in such circumstances corruption can be used by some Sates as an effective tool for the political process’ influence of other countries.

EU funds, state capacity and the development of transnational industrial policies in Europe’s Eastern periphery

Many have claimed that in the dependent market economies of Central and Eastern Europe industrial policy has been reduced to incentives to foreign investors – a feature accentuated by their loss of policy space through integration into the European single market. In this paper, we offer an alternative view by arguing that the European Union (EU) has in fact made it possible for its members to recover a degree of policy space lost to economic and regulatory integration. The EU does this through transnational industrial policy, which is the combination of its competition and cohesion policies. The former limits cross-country competition for capital; the latter provides additional resources to support a more inclusive industrial policy benefiting small and medium enterprises (SMEs). However, effective utilization of transnational industrial policy depends on domestic state capacities. We demonstrate this by comparing the distribution of EU funds to automotive firms in Poland and Romania. In Poland, efforts to create institutions that promote SMEs have resulted in a more balanced distribution of EU resources, while in Romania a weak and unstable institutional environment led to their greater concentration, thereby reducing European funds to another source of rents for the most powerful firms.

Informal institutions and firm valuation

Research on the effects of the institutional environment on firm market valuation have concentrated on formal institutions and in particular legal frameworks. However, changes in formal institutions may have little to no effect on the deeply ingrained socio-economic processes which determine the way of conducting business in a country. In such a situation, informal institutions may play a much more important role for firms. Using property rights as an example, this paper models the impact of formal and informal institutional changes on the market growth potential of Polish firms. Our examination indicates that Poland's formal and informal institutions diverge significantly, with changes in informal institutions shaping market worth much more than binding formal frameworks. We conclude that firm valuation in an unstable institutional environment is due mostly to developments in informal property rights and other factors external to the firm, with comparatively little effect of firm-specific attributes.

КОРУПЦІЯ І ВЕЛИКИЙ БІЗНЕС: РЕАЛІЇ УКРАЇНИ

This paper examines the problem of large capital influence on public policy. The main sources of corruption in modern societies are considered: clientelism and rent-seeking. It was identified and analyzed the problem of clientelism in developed democracy and in States with unstable institutional environment, including Ukraine. Clientelism involves such relationships, which are based on a mutually beneficial services exchange between persons of different status and power, the client is usually provided with protection in exchange for his loyalty and political support. The stability of client-patrimonial connections is profitable for both socially unequal sides: for patron, for them these links are the mechanisms of their influence, and for the clientage - a form of protection. In turn, the economic rent is received by advocacy groups through a monopoly on scarce resources or through access to an administrative resource (the ability of the government, local authorities to create artificial shortages, licensing mechanisms, import tariffs regulation, tax rate regulation, open bidding with "special" conditions, etc.). The problem of the rentier formation and functioning, both in developed democracies and in States with unstable institutional environment, in particular in Ukraine, is analyzed. The first approach, under the "rentier", is understood by persons who live on the basis of rent, that is, income derived from capital, usually in the form of bank deposits, securities, revenues from real estate, land, business, copyright, etc. According to this definition, there is no clear distribution between the rentier and the entrepreneur. The second approach, understands not the sources of income of individuals, but the way of their lives. At that, this way of life absolutely contrasts with the way of life of an entrepreneur. The main threats to society in connection with the functioning of clients and rent-seeking groups in societies like the Ukrainian one are identified.

Between a Rock and a Hard Place

This case explores the complexity and dilemmas that faculty and academic administrators at Southwestern University (SU) encountered as they engaged in the development and establishment of a partnership with the local city’s school districts. The partnership—carried at SU’s College of Science but funded and based through a university-based agency—aimed to prepare math and science educators to better respond to the increasing pressure of improving student achievement in those subject areas. The complications and dilemmas that the math and science partnership encountered are traced and made visible as its establishment coincides with a period of institutional changes at SU. The changes involve the university’s redefinition of its mission and goals including an institutional shift from a focus on teaching to one on research. The shift brought into stark relief a long-standing tension between two cherished but unequally valued academic practices: disciplinary (or basic) scholarship versus transdisciplinary (educational or applied) scholarship. Thus, set against the backdrop of institutional change and the resulting unstable institutional environment, the College of Science faculty who were part of the math and science partnership were confronted with an irreducible task: to work to reconcile the traditions and expectations of their department’s disciplinary orientations that privileged disciplined based scholarship with the institutional commitment acquired through the partnership expecting a more transdisciplinary, applied educational scholarship. What follows describes how faculty and academic administrators navigated through this complex institutional tension and context, the dilemmas they confronted, and some of the outcomes that resulted.

Business strategies in unstable institutional environment: Case of BRIC countries

The visionary idea of BRIC 1 countries and their leading position in the development of global economy, conceived by the leading investment bank Goldman Sachs more than a decade ago, came under heavy skepticism. However, what many doubted came true. At the end of 2011 BRIC countries generated approximately 26% of global GDP, and their share in the growth of global GDP was more than 50%. The impressive growth of BRIC countries has been in large measure due to FDI inflow 2 . Intensive FDI inflow and economic development have not been followed by improved institutional efficiency. This article will show that inefficient institutions in BRIC countries have not been discouraging to MNCs3, who were predominantly led by the extent and the growth dynamics of the market. Modifications to business strategies applied in developed countries by MNCs, in order to manage unstable institutional environment in BRIC countries, will be analyzed. The conclusion is that the key modification is establishment of strong relationships with local stakeholders, in order for MNCs to gain necessary knowledge of the new business environment and create a sound basis for institutional efficiency improvement.

The Rise and Fall of Yukos: A Case Study of Success and Failure in an Unstable Institutional Environment

This article uses case research to explore the success and subsequent failure of the Russian oil company Yukos, using the dual lenses of the resource-based view and institutional theory. Yukos' failure resulted from a combination of factors linked to the internal capabilities of the organization, its external environment and the leadership of its Chief Executive Officer. The organization failed to develop the dynamic capabilities to sense and shape opportunities and threats in the changing institutional environment. It lacked political competences and failed to pursue non-market strategies. Ultimately, it failed to co-evolve with its institutional environment, resulting in poor organizational and environmental fit, and lack of legitimacy, due to the non-congruence of its organizational values with its organizational context. Yukos' transformation into the leading Russian oil company in terms of financial and market indicators blinded it to the fact that such criteria were no longer key for survival in a changing institutional environment. Hence, the implication for managers is that to focus purely on what currently represents financial and operational success may be an unwise strategy.

The EU in the Domestic: Interreg III and the Good Friday Institutions

The focus of this article is on the role of the European programme for cross-border co-operation - Interreg - in developing and promoting cross-border co-operation in the context of the new institutions established for the implementation of the 1998 Good Friday Agreement. The elaboration and negotiation of the third Interreg programme for the Irish border area took place in the context of a fluid and at times unstable institutional environment. The analysis proceeds in five stages: an overview of the analytical framework, examination of the preferences of the European Commission concerning Interreg III, analysis of the interaction between the establishment of the new institutions and the changing opportunity structures for those wishing to influence the content and implementation of Interreg III, examination of the manner in which the Interreg programme was elaborated, and analysis of the final stages of the negotiations of the programme and the negotiations on a role for the border regions.

The Russian Oil Sector: Finally Ready for Investors?

More than 10 years after Thane Gustafson characterised the condition of the Russian oil industry as ‘crisis amid plenty’, the situation has not changed for the better. Taking into account the huge resource potential, its performance is still far too weak. After a dramatic decline of oil output during the first five years of transition, production began to stagnate on a non‐optimal level of about 300 mn tonnes per year. The main reason for this development is the absence of upstream investment due to an unstable institutional environment. Therefore, it seems to be necessary to implement new legal and tax instruments, which provide incentives to make Russian oil projects more attractive for investors, mainly foreign oil companies.