Power and Institutions

Introducing Demos’ new research area.

It is accepted across the political spectrum that the interests of citizens and of internationally mobile firms and investors do not always coincide, and that as a result governments have to negotiate on behalf of citizens. However, because they are mobile, multinationals often have the upper hand in these negotiations: they can threaten to withdraw from a country if its government restricts or taxes its activities beyond a certain point or fails to provide adequate incentives. 

As a result governments often face a dilemma: taking a tough line can lead to job losses,  lower economic growth and lower living standards. On the other hand, not taking a tough line can lead to low corporation taxes when public services are struggling; inadequate  environmental regulations; weak oversight of company use of data; unfair labour market regulation; and a failure to restrict advertising of potentially harmful products.

Governments can soften this dilemma and strengthen their negotiating position by making it more difficult or costly for multinational corporations to withdraw in this way. One proven approach to doing so is to act in concert with other governments, whether through institutions, such as the OECD and the EU, or directly – if many countries adopt similar regulations, then corporations’ incentive and ability to move out of their way is reduced. Yet despite its successes, international cooperation of this type is still beset by difficult and failure. And, post-Brexit, there is a danger that the framework emerging from the negotiations will not adequately replace existing arrangements. 

On the other hand Brexit does create an opportunity to reconsider how the UK and other countries should best work together during negotiations with multinationals. We at Demos are thinking about how progressive governments across Europe can best grab this opportunity – but we don’t want to do it alone! We’re looking to build partners who are working in this area – so if you would be interested in talking with us about this project, please do get in touch! You can contact us at [email protected] or @ellenejudson.

The research so far:

Our initial research suggests that the failures of effective international cooperation in forming common fronts against corporations have multiple causes. Sometimes, there are conflicts of interests which are insurmountable – not every negotiation will be a win-win scenario. Increasing tax harmonisation will undermine the competitive advantage that lower tax jurisdictions have. Limiting vehicle emissions may increase costs for car manufacturers and lead them to cut people’ jobs. In such situations, negotiations have been more successful where steps have been taken to compensate those who will lose out – but these cases are too few and far between.

In other cases, democratic deficits means that particular interests are able to override citizens’ interests, and prevent effective collaboration – for instance, when there are close relationships between multinational executives or advisors and politicians.

Institutional norms and structures of course play a role in the outcome of negotiations. The need for consensus means bold proposals can be easily watered down by a few opposing actors; a lack of enforcement mechanisms hampers agreed changes being implemented; and the adherence of policymakers to implicit assumptions about what can or should be done which limit the scope of new agreements. 

The complexity of resolving these issues also stands in the way of progress – it may lead to ineffective action, allow knowledgeable industry insiders more control of the process, or simply mean it is not a priority issue. 

And if making serious progress on an issue is not a priority for the high-level politicians and for powerful parties, there is little pressure to drive change, and so meaningful action is delayed. 

But this is only scratching the surface. Over the next few months, we will be expanding our research to explore in more depth the institutional norms, relationships, dispositions, and structures which pose barriers to effective collaboration. This project is intended to assist in the development of a progressive stance on the post-Brexit negotiations – both in the UK and in the EU, and ultimately to strengthen the countries’ positions in their on-going negotiations with multinationals.