End 2012: regulatory proliferation and fatigue

A look back over this blog in 2012 would reveal a number of recurring themes, for example:

• What is the role of the private sector in helping provide public goods in Africa -- what implications does an expanded role for (or set of expectations on) business have for policymaking? What strategic risks arise where firms take on a greater burden for example in social investment?
• How can we improve business-government relations and communications, including to define better the distinct responsibilities of each in relation to building more peaceful, prosperous, participatory societies? What risks arise where business takes more of a lead on socio-political issues?

Inequality gap as a private sector issue, too

Yet if I could choose one macro-theme touched on in many posts, it is the challenge the private sector faces -- at least in the continent I cover -- from growing social inequality and diverging social indicators (in other regions, I would add here what I think is a trend of greater nationalist and protectionist sentiment, including among supposedly more open-minded younger people). Poverty-reduction and social policy are clearly the responsibility of governments; yet firms and financiers have an interest in building more inclusive, educated, employed, empowered societies -- if not to maximise market size and depth then at least to mitigate the risk of social disharmony creating serious future disruptions to commerce.

Regulatory proliferation

Instead of these issues (more in 2013), I'll return to the theme of regulatory proliferation -- what does it mean for influencing responsible business conduct -- while trying not to see as growing regulatory and compliance fatigue what is only my own end-of-year need for rest!

It is December -- a year since I started blogging on this site.

For many, blogging means daily inputs responding to issues and events. Instead I've conceived of this site as a weekly or fortnightly missive on trends at the intersection of business and society.

One reason I've had for eschewing daily posts is a consciousness of just how saturated most people I know are with information and analysis. This internet-accelerated quantity does not necessarily lead to better quality insights or decisions. Concentration and constant stimulation do not go well together.

Might this proliferation problem not also be the case when regulating business conduct?

At a recent conference (see previous post) one obstacle raised to better governance of natural resources was the proliferation of voluntary and other initiatives to regulate contract and revenue transparency, conflict-free minerals, and so on. Corporate actors can become focussed on narrow compliance or reporting issues rather than thinking clearly and strategically about how to 'do well while doing good'. The US Dodd-Frank financial regulations are frequently cited as far too complex and lengthy, and likely mainly to keep lawyers well billed.

This is not the place for reciting the academic literature from regulatory theorists; and if I do not here give enough caveats about 'of course business wants less regulation' it is only to avoid saturating prose. Also, as an ex-lawyer myself I hardly disown the need for 'hard law' rules. Simple directives alone cannot govern all complex market transactions; and one cannot rely on self-regulation alone. So of course there is a place for codes of rules -- for example, to control to whom a gunshop business may sell military-style weaponry. Also, it is strongly arguable that regulation of business and investor responsibility is only just getting going, so why retreat from norm-building now? Moreover, I'm sure to blog in 2013 about how public policy should be comfortable with or indeed encourage multiple sources of regulatory influence in an incorrigibly plural world -- all the better to promote business practices more aligned to the sort of society we want for our children.

Yet despite all this, it is not obvious to me that 'more' is 'better' when it comes to changing behaviours.

A former China correspondent recently told me how in his view the phenomenal and rapid process of modernisation in that country came not from reams of codes and stipulations and directives. In his view it came in large part from a gesture -- the expression of a simple but powerful idea, a permissive or steering indication -- by the remarkable Deng Xiaoping. This described a destination, leaving it to others to map the particular steps.

So I end my last 2012 post wondering whether the most powerful ordering force for reconciling business and social values and needs might not be highly specific codes and regulations -- although no doubt enforceable rules and some detailed guidance will always be needed. Instead, the most influential driver of responsible business conduct might be what Marti Koskeniemmi called the 'regulatory idea' of (in his case) international law.

Customers, citizens, insurers, investigators -- all these will, if trends continue, recognise and reward (or regulate) where a business is trying to mitigate social harms and multiply social goods. It will take rules to tidy-up and trigger-on parts of this trend, but the transformative potential and power of greater business-society alignment lies in the idea, not the individual sub-clause; in the destination, not the detailed sub-section.

Proliferation of rules and schemes is valuable if it assists in stimulating socially-responsible business and delineating public and private sector responsibilities -- not if it obscures the relatively simple notion: do no harm.

Jo

Inclusive growth in Africa: the 'good-times gap'

Is there a name for the high expectations accompanying new major resource finds in sub-Saharan Africa? I will call it the 'good-times gap': the distance between what locals might hope to see, and the potential for a significantly less transformational outcome.

Last week I attended the 'Galvanising Growth' conference at Oxford's Blavatnik School of Government. Of the many issues that emerged, one stood out -- at least in the session on governance of natural resources.

One can approach that issue from many angles -- revenue transparency and management, conflict prevention, sustainability and environmental issues, or (which was the conference's intended overall theme) in terms of capitalising on natural resource wealth to deliver economic growth.

I think we all should have revised the topic explicitly to 'galvanising inclusive growth' and spent more time developing the points made by various speakers -- from Nigeria's finance minister to a senior Rio Tinto executive -- on the imperatives of local job-creation and appropriate sharing (as between investors, governments and communities) of both the revenues and responsibilities related to major resources projects.

On the Paul Collier-mediated resources panel, in my view one issue came through strongest: the problem of explaining, to those populations who should stand to benefit from newly-tapped resource wealth, the many caveats potentially involved in its realisation. The challenge is really one of education, of 'public relations' in its literal or deeper sense. Especially where youth unemployment is high, the disappointment from unmet high expectations can translate into political instability, or 'vuvuzela politics', resource nationalism and populist politics. Sometimes 'populism' is merely a call for fair terms or distribution, but it can have significant impact on investment. Poor information compounds it.

It is a problem shared by governments and firms exposed to the consequences. Often even the officials involved in negotiating deals may not fully appreciate the long timeframes and the potential for changed global conditions to substantially affect local projects, or other variables. Misapprehension is likely to be higher on the street. Listed firms are obliged to report finds or deals to the market. Increasingly, this information (often expressed in terms of billions of dollars of reserves or projected capital investment) is available in the host community. Yet its wider context may not be appreciated. Locals who receive news of a $1.2 billion dollar project may believe that this sum represents what will be transferred to government.

Many colleagues working in corporate external affairs, corporate responsibility etc., spend a lot of their energy on social impact / social investment reporting where the audience is the market, the potential regulator, the Western media or NGO world, all in the home country. Yet from a risk perspective, the main audience that suggests itself is perhaps in the host country where projects are actually situated. Major mining and hydrocarbons projects that have triggered many media headlines -- and boosted GDP growth projections -- seldom directly create as many jobs, at least for the less-skilled. Helping to stimulate local economic opportunities while addressing job-creation expectations will remain pressing challenges for extractive sector firms and their host governments.

If 'uncertainty' is an indicator for risk calculations, the uncertainty of host populations about what developing their resource entails is a relevant issue on which risk-mitigation and 'external relations' might focus. It is tricky: how do firms stimulate a national conversation about new revenue wealth and its management -- and in the process, say, manage overall popular expectations -- without either trespassing into government's zone or triggering its disapproval, or other unexpected consequences? How do firms align themselves with government education programmes, if any, on the new resource?

One other stand-out theme from the expert panels was this: the immense difficulty, whatever the design of one's policy, of implementing public policy generally. The humility that shared experience suggests we should harbour on implementation is not unrelated to the 'good-times gap': if policymakers should be more realistic about what is really do-able, one can see why there's a need to dilute the expectations of recipient / host communities about major resources projects.

As we know, and may come in future to see more starkly, greater awareness + unmet expectations = a source of instability risk for investors and governments. Yet from the perspective of a transparency activist -- of which there were a few at the conference -- these high hopes might also help fuel local demand for greater accountability on the part of state officials for the proceeds of natural resource extraction.

Jo

Various previous posts (for example, here) have dealt with dilemmas where the private sector attempts overtly to enter public policy debates in Africa.

Many previous posts deal with the related issue of firms 'educating' counterparts in government about their constraints or contingencies -- and problems with thinking of it like that.

Last week's post, including the Blavatnik conference link, is here.

Regulation, values and strategic competition

Public intellectuals should be making a stronger case that anti-corruption laws and other 'values-based' regulation are not disadvantages for Western firms in strategic competition for access to African natural resources.

This week I'm attending the 2nd 'Challenges of Government' conference at Oxford's Blavatnik School.

There Paul Collier will be moderating the session 'Managing Natural Resources for Growth' against the background that resources booms have often driven "inequality, conflict, and stunted political development".

This reminds me that earlier this month Collier wrote an op-ed in The Gaurdian arguing, among other things, that US, EU and other anti-corruption regulations give rival (he meant Chinese) firms competitive advantages in the race to secure mineral, energy and land resources -- but that these rules were a vital part in a strategic conflict of values, as follows:

"The west's economic battle with China will be lost: power will inevitably shift. The battle of values can be won, and if it is won the shift in economic power will be less consequential."

In my next (post-conference) post, I hope to revisit these issues in light of discussion at the Blavatnik event. For now, a few things -- because I think Collier's thought-provoking piece (albeit on a well-trodden 'contest of values' literature) missed an opportunity to be more persuasive. The piece does not make the case for how, in the long term, doing the right thing (in regulating offshore business behaviour) can also be the smart thing (provide long-term strategic advantages to Western firms). I intend to ask Collier whether it is not possible to make an argument addressing firms' strategic self-interest and not just our sense of right. That might help build corporate support for such practices, seen for example as part of longer-term protection of commercial interests from various risks.

The late Karen Ballentine led the best research on the malign problem structure of the lack of a 'level playing field' and collective action problems relating to regulating for more responsible business. Collier ought to have used his op-ed to explain why 'winning' the battle of values would be a significant economic victory, not just (an important) moral one. That is the case he needs to draw out to convince policymakers and regulatees of the strategic importance of such laws.

Moreover -- and a topic for another post -- Collier's argument does not factor in how Chinese firms involved in higher-profile African resources deals might over time face (and are already to some degree facing) a degree of greater regulatory attention from Beijing over their behaviour in Africa. Collier's argument is, in effect, that the West has a moral duty towards African countries to regulate for responsible business conduct. Yet perhaps Collier should write less on what the West can do to 'win' versus China in Africa, and more on what can be done by policymakers to help promote inclusive, transparent and socially-responsible management of African resources, whichever foreign nation seeks to exploit them.

Jo

A previous post reflected on the risk that regulation intended to improve listed companies' social performance might have undesirable consequences -- here.

Collier's piece is here.