Abstract

Recent reports of egregious labor practices in China and Bangladesh have called public attention to the potential harms of foreign direct investment (FDI) in developing countries. The best, or at least most obvious, tool for reducing destructive overseas business practices would seem to be the extraterritorial application of white-collar criminal law. The "holy grail" of contemporary criminal law is deterrence, and the deterrence literature is largely shaped by the paradigm of law and economics. Prominent within that literature is Polinsky and Shavell's "enforcement authority," which seeks to maximize social utility through the efficient deterrence of crime.a Guided by the principles of law and economics, the enforcement authority wields four enforcement tools: enforcement expenditures, the level of the fine, the length of imprisonment, and the standard for imposing liability. By manipulating these variables, it can presumably achieve the optimal combination of minimizing crime while also minimizing public expense.

But this essay argues that, in international business law specifically, that enforcement authority will tend to fail. The traditional methods of criminal deterrence, when applied rigorously and in good faith, will ultimately create the very conditions in which extraterritorial white-collar crime proliferates. As the enforcement authority utilizes its tools to pursue the optimally low level of such crime, unique legal and economic conditions will too often produce an increase in overall rates of criminality. Deterrence's goal-namely, the reduction in crime-can only be achieved by utilizing tools and theories that are not part of the contemporary deterrence logic.

Section I briefly describes the law and economics approach to deterrence, and explains why scholars have not been particularly concerned with whether deterrence could lead to an increase, rather than a decrease, in crime. Section II then explains how international business, particularly foreign direct investment in developing countries, creates a set of conditions in which this possibility arises. It constructs a model, using bribery prohibitions as an example, which illustrates that beyond a given level of enforcement, heightened enforcement will produce a net increase in crime in the host country. Section III explores the possibility that corporate social responsibility (CSR) may be able to pick up where law and economics leaves off. That is, though crime reduction ultimately proves beyond the reach of the law and economics enforcement authority, it may be within the reach of socially responsible corporations. But inducing these corporations to more than mere compliance requires a reexamination of the basic assumptions on the relationship between CSR and globalization.

Document Type

Article

Publication Date

2014

Download

Share

COinS