BRAITHWAITE - Responsive Regulation and Developing Economies

World Development Vol. 34, No. 5, pp. 884–898, 2006� 2006 Published by Elsevier Ltd.

0305-750X/$ - see front matterwww.elsevier.com/locate/worlddevdoi:10.1016/j.worlddev.2005.04.021

Responsive Regulation and Developing Economies

JOHN BRAITHWAITE *

The Australian National University, Australia

Summary. — Developing states with limited regulatory capacity might benefit from a responsiveapproach to regulation. Responsive regulation is a democratic ideal, incorporating notions of delib-erative democracy and restorative justice. Responsive regulation conducted by regulatory networksof governmental and non-governmental actors allows for networking around capacity deficits.NGOs play a vital role in this kind of regulation. By utilizing NGOs and local social pressure,developing countries might develop a ‘‘regulatory society’’ model, bypassing the regulatory state.Where capacity remains limited, private bounty hunting (such as fees for successful private prose-cutions) may become an appealing tool for achieving certain regulatory objectives.
� 2006 Published by Elsevier Ltd.
Key words — global, responsive regulation, multinational corporations, democratic theory, NGOs,networked governance

* I owe an unusually heavy debt in this work to four

co-authors of mine. Ian Ayres, Peter Drahos, Brent

Fisse, and Christine Parker have stimulated all the foun-

dations on which this essay is built. My thanks also to

Cecily Stewart and Sascha Walkley for research assis-

tance with a creative edge and to Hilary Charlesworth,

David Graham, David Levi-Faur, Christine Parker,

Rod Rhodes, Declan Roche, and Ngaire Woods for

invaluable comments on an earlier draft. Final revisionaccepted: April 20, 2005.

1. INTRODUCTION

Responsive regulation is an approach de-signed in developed economies (Ayres & Brai-thwaite, 1992). Most of the critiques of it arealso framed within the context of developedeconomies (Black, 1997; Gunningham &Grabosky, 1998; Haines, 1997; but see Haines,2003). This essay addresses the limitations ofresponsive regulation as a strategy in develop-ing economies and poses some solutions tothose limitations. First it is argued that devel-oping countries mostly have less regulatorycapacity than developed ones. Yet herein alsolies some of the potential of responsive regula-tion for developing countries as a strategy thatmobilizes cheaper forms of social control thanstate command and control. Nevertheless,responsive regulation does require a big stickat the peak of an enforcement pyramid andbig sticks are expensive, as well as demandingupon state capacities in other ways.

Two new strategies of networked governanceare then developed for networking around thesecapacity deficits. One is based on pyramidalescalation of network branching. The secondis legislating for qui tam actions (bounty huntingby whistle blowers). When public enforcementfails to take charge, the qui tam alternative isprivate markets in bounty hunting where awhistle blower (usually someone at a senior

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level inside a lawbreaking organization whoknows what is going on) prosecutes and claims25% of a regulatory penalty. Before consideringresponsiveness as an ideal for developing coun-tries, the opening section of the paper considersresponsiveness as a democratic ideal.

2. RESPONSIVENESSAS A DEMOCRATIC IDEAL

For Selznick (1992, p. 336), the challenge ofresponsiveness is ‘‘to maintain institutionalintegrity while taking into account new pro-blems, new forces in the environment, newdemands, and expectations.’’ This meansresponsiveness becomes a democratic ideal—responding to peoples’ problems, environ-ments, demands: ‘‘responsiveness begins with

RESPONSIVE REGULATION AND DEVELOPING ECONOMIES 885

outreach and empowerment . . . The vitality of asocial order comes from below, that is, from thenecessities of cooperation in everyday life’’(Selznick, 1992, p. 465). Responsiveness meanshaving respect for the integrity of practices andthe autonomy of groups; responsiveness to ‘‘thecomplex texture of social life’’ (Selznick, 1992,p. 470). Tom Paine in the Rights of Man andJames Madison share with Selznick the projectof conceiving empowered civic virtue as at leastas important to democracy as constitutionalchecks and balances: ‘‘power should checkpower, not only in government but in societyas a whole’’ (Selznick, 1992, p. 535). So, forexample, business custom shapes responsivebusiness regulatory law and state regulatorscheck abuse of power in business self-regula-tory arrangements, and both should have theirpower checked by the vigilant oversight ofNGOs and social movements.

Developing countries mostly have less over-sight by NGOs and social movements to mobi-lize, less state regulatory capability and lesssettled, less powerful, business custom, at leastin the larger business sector. Restorative andresponsive regulatory theory has evolved intoa deliberative, circular theory of democraticaccountability, as opposed to a hierarchicaltheory where the ultimate guardians of theguardians are part of the state (Braithwaite,2002; Braithwaite & Roche, 2000). This idealis for guardians of accountability to be orga-nized in a circle where every guardian is holdingeveryone else in the circle accountable, whereeach organizational guardian holds itself inter-nally accountable in deliberative circles of con-versation and where such circles are widenedwhen accountability fails. Circles of wideningcircles. Rules remain important under a restor-ative and responsive model of democraticaccountability, but less important than underDicey’s hierarchical accountability up to a sov-ereign parliament. Rules are just one of thethings that emerge from the circled circles ofdeliberation. Another is the interpretation ofrules—interpretation comes from circles of con-versation in which courts might be particularlyinfluential, but where the interpretations thatmatter mostly do not come down from a courtor a canonical papal interpretation of God’swill.

In this regard my conception of responsive-ness differs from Teubner’s (1986) reflexivenessand Niklas Luhmann’s autopoiesis (Teubner,1988). I do not see law and business systemsas normatively closed and cognitively open. In

a society with a complex division of labor themost fundamental reason as to why social sys-tems are not normatively closed is that peopleoccupy multiple roles in multiple systems. Acompany director is also a mother, a localalderman, and a God-fearing woman. Whenshe leaves the board meeting before a crucialvote to pick up her infant, her business behav-ior enacts normative commitments from the so-cial system of the family; when she votes on theboard in a way calculated to prevent defeat atthe next Council election, she enacts in the busi-ness normative commitments to the politicalsystem; when she votes against a takeover ofa casino because of her religious convictions,she enacts the normative commitments of herchurch. In extremis, wealthy business peoplesometimes dismantle their empires to give awaytheir wealth for a charitable foundation. Somuch of the small and large stuff of organiza-tional life makes a sociological nonsense ofthe notion that systems are normatively closed.Nor is it normatively desirable that they be nor-matively closed, as Parker (2002) has argued.Rather, there is virtue in the justice of the peo-ple and of their business organizations bub-bling up into the justice of the law, and thejustice of the law percolating down into the jus-tice of the people and their commerce.

That said, responsive and reflexive regulatorytheories are mostly on the same wavelength.Teubner’s regulatory trilemma is a real one(Teubner, 1986). A law that goes against thegrain of business culture risks irrelevance; alaw that crushes normative systems that natu-rally emerge in business can destroy virtue; alaw that lets business norms take it over can de-stroy its own virtues. I am at one with Teubnerin seeing it as essential to regulate by workingwith the grain of naturally occurring systemsin business (Braithwaite, 2005a, chap. 13). Weagree that it is through the ‘‘structural cou-pling’’ of reflexively related systems (or nodesof networked governance as I would prefer)that the horns of the regulatory trilemma canbe escaped. Abuse of power is best checkedby a complex plurality of many separated pow-ers—many semi-autonomous nodes of net-worked governance (Braithwaite, 1997, pp.311–313; Braithwaite, 2005b). All nodes of sep-arated private, public, or hybrid governanceneed enough autonomy so that they cannot bedominated by other nodes of governance.Equally, each needs enough capacity to checkabuse of power by other nodes so that a multi-plicity of separated powers can network to

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check any node of power from dominating allthe others. The required structural couplingamong a rich plurality of separated powers isnot only about checking abuse, it is also aboutenhancing the semi-autonomous power ofnodes of governance to be responsive to humanneeds (Teubner, 1986, pp. 316–318).

Nodes of governance must not only checkone another’s abuses, they must also assist withbuilding one another’s capacity to responsivelyserve human needs, to have integrity in Selz-nick’s terms (Selznick, 1992). A regulatorynode can do this, for example, through assistingto build the learning capacity of a businessnode to solve its environmental problems. Thesame idea is found in Habermas (1987) whereon the one hand he notes the dangers of lawas a ‘‘medium’’ which colonizes the lifeworld,and on the other hand notes the virtues oflaw as a ‘‘constitution’’ which enables the life-world to more effectively deliberate solutionsto problems that are responsive to citizens.

Circled circles of guardians can include auditoffices, ombudsmen, appellate courts, publicservice commissions, self-regulatory organiza-tions, ministers, and NGOs. But again thedeliberative capacities of all such kinds of ac-tors tend to be less in developing economies.Responsiveness is enabled by a society with astrong state, strong markets, and strong civilsociety, where the strength of each institutionenables the governance capabilities of the otherinstitutions (Braithwaite, 1998). Developingcountries have weaker markets that hold backthe development of state capacity and a weakerstate that holds back the development of allother institutions (Evans, 1995), including theinstitutions of civil society that can compensatefor the failures of states.

From a responsiveness perspective, it followsthat economies with developed, well-funded,institutions of guardianship enjoy a richerdemocracy than countries that cannot affordthem. On the other hand, responsive regulatorytheory offers a more useful theory of ‘‘what isto be done’’ in developing countries than statisttheories. If we believe that democracy is funda-mentally an attribute of states, when we live ina tyrannous state or a state with limited effec-tive capacity to govern, we are disabled frombuilding democracy—we are simply shot whenwe try to, or we waste our breath demandingstate responses that it does not have the capac-ity to provide. But when our vision of democ-racy is messy—of circles of deliberativecircles, there are many kinds of circles we can

join that we believe actually matter in buildingdemocracy. Democracy is then not somethingwe lobby for as a distant utopia when the tyrantis displaced by free elections, democracy issomething we start building as soon as we jointhe NGO, practice responsively as a lawyer,establish business self-regulatory responses todemands from environmental groups, deliber-ate about working conditions with our employ-ees or employers, educate our children to bedemocratic citizens, participate in a global con-versation on the internet, and so on.

3. RESPONSIVENESSAS AN EFFECTIVENESS IDEAL

The basic idea of responsive regulation is thatgovernments should be responsive to the con-duct of those they seek to regulate in decidingwhether a more or less interventionist responseis needed (Ayres & Braithwaite, 1992). In par-ticular, law enforcers should be responsive tohow effectively citizens or corporations are reg-ulating themselves before deciding whether toescalate intervention. The most distinctive partof responsive regulation is the regulatory pyra-mid. It is an attempt to solve the puzzle of whento punish and when to persuade. At the base ofthe pyramid is the most deliberative approachwe can craft for securing compliance with a justlaw. Of course if it is a law of doubtful justice,we can expect the dialogue to be mainly aboutthe justice of the law (and this is a good thingfrom a democratic perspective). As we moveup the pyramid, more and more demandinginterventions in peoples’ lives are involved.The idea of the pyramid is that our presump-tion should always be to start at the base ofthe pyramid first. Then escalate to somewhatpunitive approaches only reluctantly and onlywhen dialogue fails. Then escalate to even morepunitive approaches only when the more mod-est forms of punishment fail.

The crucial point is that it is a dynamicmodel. It is not about specifying in advancewhich are the types of matters that should bedealt with at the base of the pyramid, whichare the more serious ones that should be inthe middle and which are the most egregiousones for the peak of the pyramid. Even withthe most serious matters—flouting legal obliga-tions to operate a nuclear power plant safelythat risks thousands of lives—we stick withthe presumption that it is better to start withdialogue at the base of the pyramid (see Rees,


1994). A presumption means that however seri-ous the lawbreaking, our normal response is totry to have a dialogue first for dealing with it, toonly override this presumption if there are com-pelling reasons for doing do. As we move upthe pyramid in response to a failure to elicit re-form and repair, we often reach the point wherefinally reform and repair are forthcoming. Atthat point responsive regulation means thatwe put escalation up the pyramid into reverseand de-escalate down the pyramid. The pyra-mid is firm yet forgiving in its demands forcompliance. Reform must be rewarded just asrecalcitrant refusal to reform will ultimatelybe punished.

Responsive regulation has been an influentialpolicy idea because it comes up with a way ofreconciling the clear empirical evidence thatsometimes punishment works and sometimesit backfires, and likewise with persuasion(Ayres & Braithwaite, 1992; Braithwaite,1985). The pyramidal presumption of persua-sion gives the cheaper and more respectful op-tion a chance to work first. The more costlypunitive attempts at control are thus held in re-serve for the cases where persuasion fails. Whenpersuasion does fail, the most common reasonis that a business actor is being a rational calcu-lator about the likely costs of law enforcementcompared with the gains from breaking the law.Escalation through progressively more deter-rent penalties will often take the rational calcu-lator up to the point where it will becomerational to comply. Quite often, however, busi-ness regulators find that they try dialogue andrestorative justice and it fails; they try escalat-

RESTORA

DETE

Incompetent orIrrational Actor

ASSUMPTION

Rational Actor

Virtuous Actor

Figure 1. Toward an integration of restora

ing up through more and more punitive optionsand they all fail to deter. Perhaps the mostcommon reason in business regulation for suc-cessive failure of restorative justice and deter-rence is that non-compliance is neither abouta lack of goodwill to comply nor about rationalcalculation to cheat. It is about managementnot having the competence to comply. Themanager of the nuclear power plant simplydoes not have the engineering knowhow to takeon a level of responsibility this demanding. Hemust be moved from the job. Indeed if the en-tire management system of a company is notup to the task, the company must lose its li-cence to operate a nuclear power plant. Sowhen deterrence fails, the idea of the pyramidis that incapacitation is the next port of call(see Figure 1).

This design responds to the fact that restor-ative justice, deterrence, and incapacitationare all limited and flawed theories of compli-ance. What the pyramid does is cover the weak-nesses of one theory with the strengths ofanother. The ordering of strategies in the pyra-mid is not just about putting the less costly, lesscoercive, more respectful options lower down inorder to save money. It is also that by onlyresorting to more dominating, less respectfulforms of social control when more dialogicforms have been tried first, coercive controlcomes to be seen as more legitimate. When reg-ulation is seen as more legitimate, more proce-durally fair, compliance with the law is morelikely (Tyler, 1990; Tyler & Blader, 2000; Tyler& Dawes, 1993; Tyler & Huo, 2001). Astutebusiness regulators often set up this legitimacy

INCAPACITATION

TIVE JUSTICE

RRENCE

tive, deterrent, and incapacitative justice.


explicitly. During a restorative justice dialogueover an offence, the inspector will say there willbe no penalty this time, but that she hopes themanager understands that if she returns andfinds the company has slipped back out of com-pliance again, under the rules she will have nochoice but to shut down the production line.When the manager responds yes, this is under-stood, a future sanction will likely be viewed asfair. Under this theory, therefore, privilegingrestorative justice at the base of the pyramidbuilds legitimacy and therefore compliance.

There is also a rational choice account of whythe pyramid works. System capacity overload(Pontell, 1978) results in a pretence of consis-tent law enforcement where in practice enforce-ment is spread around thinly and weakly.Unfortunately this problem will be at its worstwhere lawbreaking is worst. Hardened offend-ers learn that the odds of serious punishmentare low for any particular infraction. Tools liketax audits that are supposed to be about deter-rence are frequently exercises that backfire byteaching hardened tax cheats just how muchthey are capable of getting away with (Kinsey,1986, p. 416). The reluctance to escalate underthe responsive pyramid model means thatenforcement has the virtue of being highlyselective in a principled way. Moreover the dis-play of the pyramid itself channels the rationalactor down to the base of the pyramid. Non-compliance comes to be seen (accurately) as aslippery slope that will inexorably lead to asticky end. In effect what the pyramid does issolve the system capacity problem with punish-ment by making punishment cheap. The pyra-mid says unless you punish yourself forlawbreaking through an agreed action plannear the base of the pyramid, we will punishyou much more severely higher up the pyramid(and we stand ready to go as high as we haveto). So it is cheaper for the rational companyto punish themselves (as by agreeing to payoutsto victims, community service, and paying fornew corporate compliance systems). Once thepyramid accomplishes a world where most pun-ishment is self-punishment, there is no longer acrisis of the state’s capacity to deliver punish-ment where it is needed. One of the messagesthe pyramid gives is that ‘‘if you keep breakingthe law it is going to be cheap for us to hurt youbecause you are going to help us hurt you’’(Ayres & Braithwaite, 1992, chap. 2).

This feature of the theory of responsive regu-lation is attractive for developing countries.Precisely because responsive regulation deals

with the fact that no government has the capac-ity to enforce all laws, it is useful for thinkingabout regulation in developing countries withweak enforcement capabilities. Yes certain min-imum capacities must be acquired, but then thetheory shows how such limited capacity mightbe focused and leveraged.

Paternoster and Simpson’s research on inten-tions to commit four types of corporate crimeby MBA students reveals the inefficiency ofgoing straight to a deterrence strategy (Pater-noster & Simpson, 1996). Paternoster andSimpson found that where the MBAs held per-sonal moral codes, these were more importantthan rational calculations of sanction threatsin predicting compliance (though the latterwere important too). It follows that for themajority of these future business leaders, ap-peals to business ethics (as by confronting themwith the consequences for the victims of corpo-rate crime) will work better than sanctionthreats. So it is best to try such ethical appealsfirst and then escalate to deterrence for thatminority for whom deterrence works betterthan ethical appeals.

Because states are at great risk of capture andcorruption by business, even greater risk whereregulatory bureaucrats are poor, Ayres andBraithwaite argue for the central importanceof third parties, particularly NGOs, to be di-rectly involved in regulatory enforcement over-sight (Ayres & Braithwaite, 1992, chap. 3). ButNGOs do more than just check capture of stateregulators; they also directly regulate businessthemselves, through naming and shaming,restorative justice, consumer boycotts, strikes,and litigation they run themselves. Responsiveregulation comes to conceive of NGOs as fun-damentally important regulators in their ownright, just as business are important as regula-tors as well as regulatees (see also Gunningham& Grabosky, 1998; Parker, 2002).

Pyramid design is a creative, deliberativeactivity. Stakeholders can design pyramids ofactual sanctions like a ‘‘warning letter’’ or ‘‘civilpenalty.’’ Or they can design a pyramid of reg-ulatory strategies—for example, try regulationby the price mechanism of the free market first,then try industry self-regulation, then a carbontax regime, then a command and control re-gime that permits licence revocation for powerplants that fail to meet pollution reduction tar-gets. Regulators that think responsively tend todesign very different kinds of pyramids for dif-ferent kinds of problems—for example, theAustralian Taxation Office has a different kind


of pyramid for responding to transfer pricingby multinational companies than it deployswith the same companies when they ‘‘defer,delay, and deny’’ access to company records(Braithwaite, 2005a, part II).

As with responsiveness as a democratic ideal,so with responsiveness as an effectiveness ideal,the theory appears to be one where developingcountries are less likely than wealthy states toenjoy the conditions to make it work. Not onlyare state regulatory bureaucrats more vulnera-ble to corruption because of their poverty,NGOs have fewer resources to do the oversightto guard against this than do NGOs in richcountries. More fundamentally, weaker stateslack the organizational capacity to be respon-sive. They have fewer regulatory staff and lesseducated staff to come to grips with the morereflexive approach of responsive regulation.Perhaps factory inspectors in weak states dohave the capacity for some of the more impor-tant kinds of command and control regulationlike ensuring that hazardous machinery isguarded, but they are less likely to have theanalytic resources to assess a ‘‘safety case’’—an occupational health and safety self-regula-tory plan. Developing country tax officialsmight do quite well at taxing immobile assetslike land, but may not have enough highly edu-cated staff to implement responsive regulatorystrategies that states like Australia can useagainst international profit shifting to recovera billion dollars in avoided tax for every milliondollars spent on the enforcement (Braithwaite,2005a, chap. 6).

Empirical studies of developing states showgreat variation in state capacity (see, e.g.,Evans, 1995; Kohli, 2004). While in general,Evans does not find the problem of developingeconomies as too much bureaucracy, but of notenough, he discerns huge differences betweenpredatory states like Mobutu’s Zaire wherebureaucratic competence is systematically de-stroyed, developmental states such as Koreawhere it is nourished, and in-between statessuch as India and Brazil where state capacityin the early 1990s was uneven, but wherebureaucratic learning and construction of statecapacity did occur (Evans, 1995, pp. 12–70).

4. NETWORKING AROUNDCAPACITY DEFICITS

Braithwaite and Drahos (2000) concludedfrom their interview-based research that the

most important regulators of corporate fraudand accounting standards in developing econo-mies were the major global accounting firms. Incomparison, developing country corporationsand securities regulators mostly have very lim-ited standard setting capability, let aloneenforcement capability. Professionals and othernon-state gatekeepers did more of the regulat-ing of business in what are today developedeconomies as we go back through their historiesto when they were developing economies. Evenin the United States we only need to go back tothe 1920s for a pre-SEC world where accoun-tants and private partnerships called stock ex-changes did all the work that mattered in theregulation of corporations, securities, andaccounting standards (McCraw, 1984). 1 Untilquite late in the 20th century, the city of Lon-don flourished through a gentlemen’s clubmodel of regulation, where accounting stan-dards that entered commerce through theaccounting profession were internalized by ‘‘de-cent chaps’’ who learnt the standards they hadto meet to avoid being ostracized to the mar-gins of the City’s circles of gentlemen (Clarke,1986; Moran, 2003). Arguably it was only inthe 20th century that the Bank of England be-came a more important prudential regulatorthan the Rothschilds, that JP Morgan ceasedbeing the most important prudential regulatorin the United States (Braithwaite & Drahos,2000, chap. 8).

For many decades after the West’s industrialrevolution began, we see very different ways indifferent metropoles that regulation is net-worked by a plurality of private, professional,and state actors. Only slowly after the NewDeal do we see the transformation of regula-tory thinking to the ideal of a state regulatorbeing ultimately in charge of a regulatory do-main. No sooner had this transformation beenconsolidated when what some like to refer to asa post-regulatory state (Scott, 2004; Teubner,1986) 2 began to develop—a social order whereregulation pluralizes again as NGOs find newcapacities and competition policy drives profes-sions to innovate into new markets in regula-tory evasion and new markets in privateregulation of such evasion (‘‘markets in vice,markets in virtue’’) (Braithwaite, 2005a). Lawfirms that specialize in product liability litiga-tion become important new regulators ofbusiness, NGO environmental regulators formpartnerships with retailers to regulate the certi-fication of forest products or the certification ofcoffee as organically grown (Courville, 2003).


Transparency International regulates corrup-tion through publicizing where high levels ofcorruption prevail, as do ethical investmentfunds and their analysts. New kinds of ratingagencies like Reputex rate corporate socialresponsibility (Reputation Measurement,2003). Indeed the older rating agencies likeMoodys and Standards and Poors are becom-ing increasingly important regulatory threatsto businesses with major environmental andethical risks to their operations that can pegback their credit rating. Finally, internationalregulators such as the Basle committee, envi-ronmental treaty secretariats, and the Interna-tional Telecommunications Union becomeincreasingly important. Braithwaite and Dra-hos (2000) conclude that in shipping regulationand some other domains, the era when stateregulators are more in charge than private reg-ulators, such as Lloyds of London, and globalones such as the International Maritime Orga-nization, is remarkably short. Slaughter (2004)sees regulation as the area where transgovern-mental networks become pre-eminently impor-tant as fonts of governance.

Like Slaughter (2004), Castells (2000a,2000b, 2000c), Drahos (2004), Rhodes (1997)

Self-Reg

Networked R

Networked Rplu

Networked Plus-

Networkpartner

Networkpartner

Networkpartner

Networkpartner

Networkpartner

Networkpartner

Figure 2. A responsive regulatory pyramid for a

of regulatory

(Bevir & Rhodes, 2003) and others, I havebecome persuaded that we live in an era of net-worked governance. An implication of this isthat developing countries might jump over theirregulatory state era and move straight to theregulatory society era of networked gover-nance. Developing states might therefore copewith their capacity problem for making respon-sive regulation work by escalating less in termsof state intervention and more in terms of esca-lating state networking with non-state regula-tors. Figure 2 represents this idea whichcomes from Drahos’s insight that networkedgovernance could be of service to responsiveglobal regulation that works better for develop-ing countries (Drahos, 2004). At the base of thepyramid, the developing state relies upon busi-ness self-regulation. When self-regulation fails,it networks two other non-state regulators.When that fails, it networks two more, and soon.

In Figure 2 the developing state enrols more(Latour, 1986) and more NGOs, industry asso-ciation co-regulators, professionals, other gate-keepers, and international organizations to itsregulatory project. In addition to such non-state actors it might also enrol other states as

ulation

egulation

egulations

Regulation plus

Networkpartner

Networkpartner

Networkpartner

Networkpartner

Networkpartner

Networkpartner

developing economy to escalate the networking

governance.


regulators within its own boundaries. Forexample, an Indonesian state with weak capac-ity to control people smuggling businesses thatmove desperate people from states such asAfghanistan on boats that stop in Indonesia(often in transit to Australia), enrols the regula-tory and intelligence capabilities of officers ofthe Australian state based in Indonesia. Insome domains of regulatory enforcement, suchas that against pirating of intellectual propertyrights, developing states rely less on state regu-lators than on foreign enforcers with an interestin the enforcement. In many developing coun-try capitals, the most powerful regulatoryagency in town has a red and white striped flagout in the front. This kind of regulation is notenacted by a monolithic foreign state, but byfunctionaries of specific agencies which are partof the same transgovernmental network as thedomestic state regulator. Slaughter (2004) ex-plains that contemporary state power is disag-gregated into the hands of distinct regulatorsand then re-aggregated into transgovernmentalnetworks. The police attache in a foreign em-bassy may have more allegiance to some ofthe domestic police she works with than toher own country’s Ambassador. She may sharemore secrets with her police network than shewould ever share with her ostensible boss, theAmbassador. In extremis, she might even dothings like conspire within a transnationalpolicing and security network in assassinationplots aimed at major transnational criminalsin circumstances where the Ambassador wouldview this as abhorrent and unauthorized.

While Slaughter goes too far in conceivingthe networks that matter in regulatory spaceas fundamentally transgovernmental, as op-posed to networks of private and public regula-tors, her empirical assertion that it is regulatorsfrom different states who put most of the gruntinto such networks is worthy of testing in fu-ture research. Moreover her complementarynormative claim deserves to be taken seriouslyand rigorously examined in future normativeresearch. This is the claim that only states, orperhaps only democratic states, are likely tohave a claim to the legitimacy to organizetransnational networks in a way that will be ac-cepted as public regarding.

Nevertheless, I expect Slaughter would con-cede that there are some developing countrieswhere the most effective regulator of corporateabuses of human rights is an NGO. This isespecially likely in one of ‘‘Evan’s’’ ‘‘predatorystates’’ that mostly has little interest in securing

human rights. One reason as to why the domes-tic NGO can be the more potent human rightsregulator than the domestic state is that, unlikeits state, this NGO is interested in networkingwith an international NGO that has peopleon the ground like Human Rights Watch, withUN Human Rights agencies, with the womanin the US Embassy with a watching brief onhuman rights, investigative journalists, and soon. Figure 3 represents the responsive regula-tory strategizing such an NGO might do to en-force human rights norms.

Note that in Figure 3 the NGO as regulatorcan be conceived as either a regulator of busi-ness human rights abuses, or as a regulator ofstates—either for their failure to regulate cor-porate human rights abuses or for the state’sown abuses. There is of course still a capacityproblem in the fact that Figure 3 imaginesdeveloping country NGOs as initiators ofresponsive regulation when we know thatNGOs are thinner on the ground than theyare in developed economies and more poorlyresourced. On the other hand, the evidence isthat while NGOs are growing fast in both thedeveloped and developing world, the growthrate is fastest in the developing world (Com-mission on Global Governance, 1995, p. 33).Secondly, the growth of international NGOpresence on the ground in developing countrieshas been considerable in recent decades. Hence,where there is no local human rights NGO, orwhere all its key players have been murdered,Human Rights Watch might step in to networkthe naming and shaming, networking withinvestigative journalists, and to nurture the cre-ation of new domestic human rights NGOs.Either way, it is the networking of responsiveescalation that is advanced as a path aroundthe developing economy’s capacity problemfor enforcing standards.

Obviously, existing networks of governancein many developing countries are more orientedto crushing human rights than to enhancingthem. Extant networks of global governanceare more oriented to advancing the interestsof the G7 and the European Union than thoseof developing countries. Even within developedeconomies, networked NGO power or the net-worked governance capabilities of state regula-tors is often miniscule compared to networkedcorporate power. But the question of interesthere is how a developing country’s regulators,or NGOs with the interests of poor at heart,might act in such a world of networked gover-nance where extant networking favors the rich

Human Rights Self-Regulation

Naming & shaming of humanrights abuses by domestic NGO

Networked naming &shaming

Networked naming &

shaming plus

Human RightsWatch

USEmbassy

AmnestyInternational

HumanRightsWatch

USEmbassy

EU Embassy

UN Human Rights

agencies

InvestigativeJournalist

Figure 3. Regulatory pyramid for a developing country human rights NGO seeking to escalate networked

regulation for human rights.


and the abusers of human rights. The answerproffered is to network. It is that weaker actorscan become stronger by networking with otherweaker actors. Beyond that, Braithwaite andDrahos (2000) show that the interests of thestrong are not monolithic, that the weak canoften enrol the power of one strong actoragainst another. The human rights or environ-mental NGO can enrol the clout of the Euro-pean Union against the behavior of theUnited States or its corporations in developingeconomies, or the United States can be enrolledagainst the European Union (see, e.g., Brai-thwaite & Drahos, 2000, pp. 264–267). In aworld of networked power, however much orlittle power you have, the prescription forpotency is not to sit around waiting for yourown power to grow (by acquiring more wealthor more guns, for example). Rather the pre-scription is to actively network with those withpower that you do not yourself control.

Clearly responsively escalating networkedregulation is something states can do by enroll-ing NGOs, and NGOs can do by enrolling stateagencies of different kinds. Business actors, likeaccounting firms regulating corporate account-

ing standards, can also responsively escalatenetworked regulation by enrolling state agen-cies and NGOs. Networked governance isabout the observation that all of these kindsof actors do interact in networks and do enrolone another, sometimes in conflicting projects,sometimes in synergy. Figure 4 shows a net-work of governance actors of these differentkinds, where only two of the actors—X andY—have a sufficiently nodal set of ties tomount a pyramid of escalating networked regu-lation. The other actors in the network do nothave enough links to enrol the networked esca-lation required for responsive regulation.

Where X and Y have a shared regulatoryobjective—say improving the integrity ofaccounting standards or anti-corruption mea-sures in a developing country—the synergiesbetween their regulatory pyramids create thepotential for considerable regulatory potency.This potency is based on a redundancy wherethe weaknesses of a state regulator may becompensated by the strengths of NGO or busi-ness regulators. The concomitant danger is thatthe very sharing of the regulatory objective bythe only actors with the capability to escalate

network partners (actors)

networked relationship

partner enrolled into network

partner enrolled into networkedescalation

X Y

Nodal actor X escalating networked regulation Nodal actor Y escalating networked regulation

X REGULATES Y REGULATES

X NETWORKS Y NETWORKS

X ESCALATES NETWORKING Y ESCALATES

NETWORKING

Figure 4. A network of governance in which just two nodal actors have a capacity to escalate networked regulation.


networked regulation means that their conver-gent power may be unchecked. 3 If the consen-sual synergies among different pro-regulationconstituencies are excessively hand in glove,overregulation is a risk.

In developing economies the greater risk isthe reverse: big business networked with rulingfamilies dominate an anti-regulation consensuslubricated by bribery and extortion. The civicrepublican ideal (Braithwaite, 1997, 1998;Pettit, 1997) is that pro-regulation and anti-reg-ulation actors can both mobilize effective net-worked escalation as a check on dominationby any one form of networked power. Whenfundamental labor rights are being crushed,the local trade union can escalate up to net-worked support from a state ministry of labor,the International Confederation of Free TradeUnions, the labor attache at the US Embassy,the Campaign for Labor Rights, the CleanClothes Campaign, or Oxfam International.When a firm is at risk of being driven out ofbusiness by unsustainable demands from atrade union with formidable ability to enrolpolitical elites and industrial muscle, the firm

can network escalated resistance from pro-busi-ness agencies of the state, industry associations,and the like. The republican ideal is that suchcontestation should occur to prevent domina-tion; the responsive ideal is that it happensresponsively. The combined ideal is that pyra-midal escalation to contest domination drivescontestation down to the deliberative base ofthe pyramid, so that regulation is conver-sational (Black, 1997) rather than based ondeterrence or incapacitation (see Figure 1).The capacity of the labor union to escalate tostrikes, networked naming and shaming, net-worked state enforcement, drives the companydown to restorative justice at the base of thepyramid. The capacity of the company to esca-late to litigation or political pressure to halt theunion’s tactics drives the union down to negoti-ated problem solving at the base of the pyra-mid. Credible capacity of both sides toescalate in ways that threaten win–lose out-comes gives both the incentive to deliberate col-laboratively in search of a win–win solution. Ofcourse extant realities of power in any societyare unprincipled, fraught with countless


dominations of the weak by the strong. Theperspective here does no more than supply aperspective on a direction to struggle and away to struggle, however weak one’s constitu-ency, for more principled checking of any andall abuses of power.

The intersection of the theories of networkedgovernance, responsive regulation, and republi-can separations of powers is a fruitful topic formore detailed research, especially for develop-ing economies: ‘‘The more richly plural the sep-arations into semi-autonomous powers, themore the dependence of each power on manyother guardians of power will secure their inde-pendence from domination by one power’’(Braithwaite, 1997, p. 312). Contrary to Monte-squieu’s clear conception of a separation ofpublic powers between executive, judiciary,and legislature (Montesquieu, 1989), there isvirtue in many unclear separations of publicand private powers. This republican virtue isespecially present where each separated powercan enrol others through networks of gover-nance. Regulators have powers separated be-tween the public and the private, within thepublic, and within the private sphere, whereseparations are many and transcend private–public divides (Braithwaite, 1997). Nodes ofgovernance need to be sufficiently networkedto be able to check the power of one node fromdominating other nodes of governance.

In developed economies there is what someregulatory scholars call a dual economy(Haines, 1997) where very different regulatorystrategies may be required with large businessthan with small and marginal businesses. Indeveloping economies we need to take this fur-ther down to a third village-level informal econ-omy that is typically untaxed and almostentirely unregulated by the state. Village repu-tation networks often regulate this economymore effectively than the regulation of nationalcompanies and multinationals that congregatein the large cities. Village elders may have per-suasive means of sitting down local traders insome sort of traditional restorative justice pro-cess when, for example, they cheat on weightsand measures. This was also true of the 18thcentury informal ‘‘police’’ of European townsand parishes that we see discussed in the writ-ings of the likes of Adam Smith (1978). Atthe level of national companies in developingeconomies we hypothesize that national NGOscan sometimes network with state regulators toimprove the responsiveness of regulation. Andit is at the level of regulating Northern multina-

tionals that it is hypothesized that internationalNGOs, disaggregated fractions of Northernstates and auditors from the multinational’sown corporate headquarters must be enrolledto the (much more difficult) regulatory chal-lenge of exploitation by global corporations.

5. BOUNTY HUNTING AROUNDCAPACITY DEFICITS

In 2002 ranking US Republican on the Sen-ate Finance Committee, Charles Grassley,called for public disclosure of corporate tax re-turns (Stratton, 2002, p. 220). The call wasmotivated by the vast difference between thenumbers in Enron and WorldCom’s tax returnsand their financial statements to the stock ex-change. The argument was that if investorshad access to the tax return data, analystsmight have detected the fraudulent books be-fore the company went down. Canellos andKleinbard have argued that this would notwork: what would be more useful for both taxauditors and investors would be to have accessto a public book–tax reconciliation schedulewhich would ‘‘provide a useful platform forhighlighting transactions which are likely toinvolve manipulation for tax and accountingconcepts’’ (Cannelos & Kleinbard, 2002, p. 2).Sims (2002) suggested that making corporatereturns available in a useful form on a websitewould enable a system of rewards for privateauditors (bounty hunters) who brought newtax shelters to light. To motivate private audi-tors to pick over corporate tax returns in searchof shelters, Sims suggests a bounty of say 20cents in every dollar recovered by the taxauthority payable by the taxpayer to the privateauditor on top of any other tax penalty. ‘‘Themost effective way of channelling sufficient re-sources into prevention is to make it as profit-able to police corporate shelters as it hasobviously become to purvey them’’ (Sims,2002, p. 736). 4

The idea is an old one that can be applied toall domains of regulation (Crumplar, 1975).During the 14th and 15th centuries when theEnglish state was weak in its enforcement capa-bility, qui tam suits were relied upon heavily. 5

An offender against laws subject to qui tamcould be compelled to pay half the penalty in-curred to an informer. Abuses of private pros-ecutions became so rife that qui tam fell intodisrepute and disuse. Five centuries later inthe United States, Senator Grassley sponsored


1986 revisions to the False Claims Act that putqui tam on a more principled footing (Depart-ment of Justice, 2003; Grassley, 1998). Sincethen, over US$12 billion, $2.1 billion in 2003,has been recovered in qui tam actions concern-ing false claims to the US government, mostlyfor defrauding federal health programs orthe defence budget (Department of Justice,2003; http://www.falseclaimsactatpaceandrose.com). This historically recent American quitam has proved less rife with abuse than itsEnglish precursor because the whistle bloweragainst say a defence contractor who is fraudu-lently extracting payments from the Pentagonmust first give the Department of Justice achance to take over the action. If Justice wins,the whistle blower gets 15–25% of any settle-ment or judgment attributable to the fraudidentified by the whistle blower. Justice decidesto take on most of the meritorious False ClaimsAct actions because if the case is meritoriousand Justice declines to take it over, the whistleblower’s legal team can still take a private ac-tion and win 30% of the penalty, leaving therevenue poorer and the Justice Departmentembarrassed by an error of judgment. On theother hand, legal counsel for a whistle blowerwith an unmeritorious case will counsel cautiononce the Department of Justice declines to takeover the prosecution. Most whistle blowerswho launch qui tam actions are middle manag-ers or senior management from the corporationcomplained against. Hence, just as Slaughter’stransgovernmental networks disaggregatedstates, qui tam disaggregates corporations,turning one part of a corporation (the whistleblower cum bounty hunter) against lawbreak-ing parts of the same organization.

Qui tam in effect networks whistle blowerswith law firms, state regulators, and prosecu-tors, extending the intelligence, evidence-gath-ering, and litigation capabilities of the state inbig, difficult cases. The reason why qui tamwas invented in 14th century England was tocompensate for weakness in state regulatorycapacity. The 1863 False Claims Act was firstintroduced by a Lincoln administration in theUnited States that had little federal prosecuto-rial capacity to go after fraudulent over-billingof the Union Army. Across the globe today itstill might be true that where state capacity isweakest the case for reliance on qui tam isstrongest. Obversely, where state regulatorycapacity is strong, private prosecution to fillgaps left gaping by failed public enforcementis less critical. In this sense, qui tam in the Uni-

ted States should be a least likely case of quitam adding value (Eckstein, 1975). The factthat it clearly has added value there in the con-text of False Claims Act enforcement (Depart-ment of Justice, 2003; Grassley, 1998) shouldgive hope that qui tam might prove valuablein weak states where opportunities for bountyhunting are more plentiful.

On the other hand, if the court system andjustice bureaucracy themselves in a developingcountry are so inefficient or corrupt that theycannot cope with surges of qui tam actions,then these greater opportunities may simplynot be practically available to be seized. Evenin such circumstances, a strategy that can relyon private resources to do much of the justicebureaucracy’s work for it has more prospectsthan reliance on a wholly public process. Thenew Grassley proposals on making corporatetax returns more effectively public on the inter-net so that a private tax auditing industry mightemerge need not depend on courts. It couldwork by practitioners in this new private mar-ket in tax virtue, taking the finding of their pri-vate analysis to the public tax authority. If thetax authority administratively assesses an extra$10 million dollars in tax that the corporationvoluntarily pays or settles (which is what nor-mally happens) then the private tax auditormight win her $2 million qui tam payout with-out going near a courthouse. Note also howthe private auditor can help make responsiveregulation work by being a check on corrupttax officers, prosecutors, and other officials(see Ayres & Braithwaite, 1992, chap. 3). Whenthe corrupt official reaches a cosy settlementwith the corporation that fails to collect thetax owed, the private auditor has an interestin exposing this to his administrative and polit-ical masters who have an interest in higher taxcollections, and to the courts if necessary, inorder to collect the full bounty owed to theprivate auditor.

Enforcement of labor standards is anotherarea where qui tam has been advocated (Brai-thwaite, 2004). Private prosecutions by tradeunions for underpayment of wages, where theunion could collect 30% of the penalty imposedon the company, would mostly work by threat-ening the private prosecution in order to triggersettlement negotiations, while rarely in practicehaving to rely on an overburdened court system.

Networking with lawyers who specialize inqui tam actions against multinational compa-nies would be networking with lawyers who insome cases could mount actions in foreign

http://www.falseclaimsactatpaceandrose.com

http://www.falseclaimsactatpaceandrose.com


courts against multinationals—thereby obviat-ing the need to rely on courts in the poor coun-try. While it is unimaginable that False Claimsstatutes to compensate developing states couldbe enforced in Western courts, in tort cases likethe Bhopal chemical pollution disaster in Indiaand the litigation against BHP 6 by Papua NewGuinea villagers over the destroying of theirlivelihoods by the pollution of the Fly River,globally networked law firms have had majorimpacts on multinationals.

6. CONCLUSION

We have argued that developing economiesare more lacking in all the capacities necessaryto make responsive regulation work well thanare wealthy societies. In attempting to lay afoundation for policy ideas to compensate forthis, the essay overgeneralizes these deficits.Some larger developing societies such as Indiahave strong democratic states with substantial,sophisticated bureaucracies and courts. Many‘‘failed states’’ such as Afghanistan are strongsocieties with formidable regulatory capacitiesin civil society through institutions such as jirga(Wardak, 2004).

Whatever the level of these deficits, in an eraof networked governance, weaker actors canenrol stronger ones to their projects if theyare clever. Slaughter’s work suggests that theglobe is strewn with disaggregated bits ofstrong states that might be enrolled by weakones (and by weak NGOs) (Slaughter, 2004).The developing country civil aviation regulatorcan enrol the US Federal Aviation Administra-tion to stand up to an airline that flouts safetystandards in the developing country; the devel-oping country health regulator can enrol theFood and Drug Administration to audit theunsafe clinical trials on a new drug being con-ducted on its people. Developing countryNGOs may be weak, but are becoming strongerboth in their own right and in their capacity toenrol Northern NGOs and international regu-

latory organizations into projects to compen-sate for the weak regulatory capacities ofdeveloping states. Responsive escalation up aregulatory pyramid can hence be accomplishednot only by escalating state intervention, butalso as Drahos (2004) suggested, by escalatingthe networking of new tentacles of domesticand transnational governance. The core ideaof responsive regulation as a strategy actuallyhas special salience for resource-poor states.This is the idea that no regulator has the re-sources to consistently enforce the law acrossthe board and therefore limited enforcement re-sources need to be focused at the peak of anenforcement pyramid. Networking escalationis an interesting elaboration of how to makethe most of limited regulatory capacity.

Finally, we have seen that mobilizing publicvirtue to regulate private vice is not the onlypath around capacity deficits. Private marketsin virtue can also be mobilized to regulate vice,indeed to flip markets in vice to markets invirtue (Braithwaite, 2005a). One example isenabling bounty hunting by privatized taxauditors through making crucial informationon corporate tax returns public on the internet.Another is the kind of qui tam actions under theFalse Claims Act that have significantly cleanedup the US defence contracting industry since1986. Where state capacity is weakest, bothqui tam and responsive escalation via network-ing with progressively more private and publicenforcers should pay the highest dividends.Moreover, networking regulatory partnershipsalso structurally reduces the benefits of captureand corruption in those developing economiesthat are endemically prone to corruption.Responsive regulation is a worrying strategyin corrupt societies because it puts more discre-tion in the hands of regulatory bureaucrats whocan use that discretion to increase the returns tocorruption. Both the strategies of networkingaround state incapacity and mobilizing privatemarkets for enforcing virtue have the attractivefeature of exposing and preventing regulatorycorruption.

NOTES

1. On the history of the legal profession as a regulatorypartner of the US state, see Halliday (1987).

2. Obviously I am uncomfortable about the concept ofthe post-regulatory state because I think that for most of

human history a large part of the regulation that mattersmost has not been undertaken by states.

3. Rhodes made the following insightful comment ona earlier draft of this paper: ‘‘I worry policy networks


are a form of political oligopoly. They privilegesome interests and specifically exclude others. More-over, they colonize specific policy arenas. So there isno competition/regulation within either a network oran arena, only between networks, and that is restric-ted because their interests are often too confined toone arena and do not span them.’’ I am indebtedto Rhodes for stimulating the reflections in this para-graph.

4. On the effectiveness of private bounties for detectingcorporate wrongdoing generally, see Fisse and Brai-thwaite (1983, pp. 251–254, 283).

5. The Latin ‘‘qui tam pro domino rege, quam pro seipso in hac parte sequitur’’ translates as ‘‘who as well forthe king as for himself sues in this matter.’’

6. Now BHP Billiton.

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