State regulation and/or corporate self-regulation

by Sebastian Benthall

The dust from the recent debates about whether regulation or industrial self-regulation in the data/tech/AI industry appears to be settling. The smart money is on regulation and self-regulation being complementary for attaining the goal of an industry dominated by responsible actors. This trajectory leads to centralized corporate power that is lead from the top; it is a Hamiltonian not Jeffersonian solution, in Pasquale’s terms.

I am personally not inclined towards this solution. But I have been convinced to see it differently after a conversation today about environmentally sustainable supply chains in food manufacturing. Nestle, for example, has been internally changing its sourcing practices to more sustainable chocolate. It’s able to finance this change from its profits, and when it does change its internal policy, it operates on a scale that’s meaningful. It is able to make this transition in part because non-profits, NGO’s, and farmers cooperatives lay through groundwork for sustainable sourcing external to the company. This lowers the barriers to having Nestle switch over to new sources–they have already been subsidized through philanthropy and international aid investments.

Supply chain decisions, ‘make-or-buy’ decisions, are the heart of transaction cost economics (TCE) and critical to the constitution of institutions in general. What this story about sustainable sourcing tells us is that the configuration of private, public, and civil society institutions is complex, and that there are prospects for agency and change in the reconfiguration of those relationships. This is no different in the ‘tech sector’.

However, this theory of economic and political change is not popular; it does not have broad intellectual or media appeal. Why?

One reason may be because while it is a critical part of social structure, much of the supply chain is in the private sector, and hence is opaque. This is not a matter of transparency or interpretability of algorithms. This is about the fact that private institutions, by virtue of being ‘private’, do not have to report everything that they do and, probably, shouldn’t. But since so much of what is done by the massive private sector is of public import, there’s a danger of the privatization of public functions.

Another reason why this view of political change through the internal policy-making of enormous private corporations is unpopular is because it leaves decision-making up to a very small number of people–the elite managers of those corporations. The real disparity of power involved in private corporate governance means that the popular attitude towards that governance is, more often than not, irrelevant. Even less so that political elites, corporate elites are not accountable to a constituency. They are accountable, I suppose, to their shareholders, which have material interests disconnected from political will.

This disconnected shareholder will is one of the main reasons why I’m skeptical about the idea that large corporations and their internal policies are where we should place our hopes for moral leadership. But perhaps what I’m missing is the appropriate intellectual framework for how this will is shaped and what drives these kinds of corporate decisions. I still think TCE might provide insights that I’ve been missing. But I am on the lookout for other sources.

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