Engaging with the World: Corporate South Africa and the

Rise of non-OECD multinationals in Global Economic

Governance

Paper for presentation at BISA 2008, Exeter: Panel 4.8

IPE of Trade and Health in South Africa

Tuesday December 16th 14.00 – 15.30

Antoinette Valsamakis

University of Birmingham

Department of Political Science and International Studies

Email: Antoinette@spitfireuk.net

Please do not cite without the author’s permission

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Abstract The extant literature on business and politics tends to focus almost exclusively on Multinational Corporations (MNCs) from OECD countries. This is understandable when given that most trade flows and foreign direct investments occur between OECD countries. However, the changing face of global economic power with the rise of China, India and Brazil provides the impetus for scholars of global economic governance to rethink the narrow focus of the actors engaged in economic governance as restricted to those representing corporate entities and states within in the developed world alone. This paper will argue that research into global economic governance structures must begin to give account of the increasingly important role being played by MNCs from developing countries.

In building a case for doing this, the paper will focus on the shifting role of South African business in the

global political economy during the post-apartheid period (1994 and beyond). During the apartheid era South

African companies couldn’t expand internationally, but following the release of Nelson Mandela in 1990 with

the lifting of sanctions this began to change. As trade barriers fell and South African companies faced

increasing competition in their previously protected home markets they had to respond to the challenge by

seeking investment and market opportunities elsewhere. The first and most obvious point of growth was the

rest of Africa, where South African firms had greater confidence in dealing with other developing markets.

Slowly this has resulted in a shift towards some 40% of South African companies located outside of Africa

The paper will trace the evolution of the expansionary role played by South African business first domestically and then in the international political economy that has paralleled the reengagement process of South Africa with the world politically. The paper will track different sites of engagement for business in the global economic system and the interconnection of the political and economic reengagement that has led South Africa from global political Pariah to regional economic ‘Messiah’. This paper will engage with various explanatory theoretical approaches to theorising the role of private actors in global economic governance, including neo-Gramscian theories (Newell & Levy), regime theory (Haas, Young, Mitchell) and the contribution of scholars to the growing literature on global governance (Rosenau, Biermann, Falkner).

Key-words: business and politics; multilateralism; trade; developing countries; South Africa; social

constructivism; MNCs and TNCs.

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Introduction

The extant literature on business and politics tends to focus almost exclusively on

Multinational Corporations (MNCs) from OECD countries. This is understandable when

given that most trade flows and foreign direct investments occur between OECD

countries. However, the changing face of global economic power with the rise of China,

India and Brazil provides the impetus for scholars of global economic governance to

rethink the narrow focus of the actors engaged in economic governance as restricted to

those representing corporate entities and states within in the developed world alone. This

paper will argue that research into global economic governance structures such as the

WTO and regional and bi-lateral trade agreements must begin to give account of the

increasingly important role being played by MNCs from developing countries.

In building a case for doing this, the paper will focus on the shifting role of South African

business in the global political economy during the post-apartheid period (1994 and

beyond). During the apartheid era South African companies couldn’t expand

internationally, but following the release of Nelson Mandela in 1990 with the lifting of

sanctions this began to change. As trade barriers fell and South African companies faced

increasing competition in their previously protected home markets they had to respond to

the challenge by seeking investment and market opportunities elsewhere. The first and

most obvious point of growth was the rest of Africa, where South African firms had

greater confidence in dealing with other developing markets. Slowly this has resulted in a

shift towards some 40% of South African companies located outside of Africa e.g.

Dimension Data, a computer networking and security firm, which operates in 35

countries from Algeria to Vietnam.

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The paper will trace the evolution of the expansionary role played by South African

business first domestically and then in the international political economy that has

paralleled the reengagement process of South Africa with the world politically. The paper

will track different sites of engagement for business in the global economic system and

the interconnection of the political and economic reengagement that has led South Africa

from global political Pariah to regional economic ‘Messiah’.

The paper is structured in two parts. The first will engage with various theoretical

approaches to the role of private actors in global economic governance, including neo-

Gramscian theories (Newell & Levy), regime theory (Haas, Young, Mitchell) and the

contribution of scholars to the growing literature on global governance using neo-

pluralist approaches as well as social constructivism (Rosenau, Biermann, Falkner). The

section will end with a multi-dimensional approach that provides the framework for the

analysis of the empirical part of the paper.

The second part of the paper therefore, presents an analysis of South Africa’s MNCs and

engagement in global governance/international political processes against the three-

dimensional framework outlined in section 1.

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Part One: Conceptualising Business in International Relations (IR)

Firms as non-state actors in the international system

Traditionally, the role of business as a private actor in the international system has been

confined to exploring the types of representation and modes of engagement of firms as

actors in the international system. As such, business actors are identified as acting as one

of several pressure groups in a pluralist system (MacDonald and Woolcock 2007: 77)1.

This is evident in the literature on civil society, corporatism and collective action (see

Truman 1988, Olson 1965, Mahler 1992, Ball and Millard 1986). Business actors might

be represented at a corporate or firm level, through business interest groups such as

confederations, sector associations or coalitions or transnational market networks, such as

the World Economic Forum or international business organisations like the International

Chamber of Commerce or the World Business Council.

The aims and goals of these various entities differ according to the type of organisation.

Sector associations such as steel or agricultural business groups will focus narrowly on

representing the interests of a particular industry by engaging at relevant points to

influence directly or indirectly the international policy making process (MacDonald and

Woolcock 2007: 80). Sector coalitions may come together at a specific point in time for a

particular strategic purpose, for example the services industries in the 1990s which have

coalesced to promote specific issues on trade in services in the WTO or pharmaceutical

companies (in the USA) which co-ordinated their efforts around securing more stringent

1 Other pressure groups include transnational advocacy networks, NGOs, Labour groups, agricultural

representatives and civil society more broadly (Borowiak 2004).

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intellectual property rights in developing countries through the implementation of the

TRIPs agreement in the WTO2 (Sell 2003).

Modes of engagement also vary according to the goals of the specific entity in question.

The most common traditional method of influencing policy was through lobbying and

campaign finance at a domestic level. New forms of negotiations and opportunities

presented by the increasing integration of economies internationally have opened new

possibilities for action and policy intervention at the international level for non-state

private actors. These include as observers as well as delegates to international

negotiations (MacDonald and Woolcock 2007:82). Transnational actors increasingly

engage in public advocacy as well as direct advertising campaigns to construct a

particular image, for example the wide-spread ‘Going green’ campaign in which Shell

engaged to re-brand itself as a ‘green’ company. Other strategies include corporate social

responsibility initiatives both for environmental as well as social objectives, aimed both

at image building as well as rule-making initiatives. This extends as far as self-regulation

through agreed industry-wide codes of conduct , such as the Global Compact and the

Equator Principles (Wright and Rwabizambuga 2006: 89).

All of this indicates that the level of influence which business has as a non state actor in

the international system extends beyond the direct and structural market power of capital,

investments and jobs (Korten 1995). Private actors through their technical knowledge and

expertise are able to exert an enormous degree of soft power too, which is accomplished

through participation in negotiation processes directly as well as indirectly through the

2 For a full discussion of pharmaceutical industry involvement in the TRIPs see Sell 2003

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provision of technical analysis and data for trade diplomats and negotiators at multilateral

and bilateral talks (Cohen and Paul 1996). It is thus, obvious that business engages in

more than just the hard currency of structural power and the importance of soft power to

influence and direct the agenda as well as the outcomes of international economic

negotiations and governance. It also points to the importance of ideas and norms as

equally relevant in the analysis of the role of private authority in the international system.

In order to engage in useful analysis, what we require is some sort of analytical

framework or conceptualisation of the firm in IR. The section above leads on to the

necessary discussion of how we might understand which actors/agents engage in what

strategies/activities for what purpose or goal and importantly what are their sources of

power/influence? Useful analysis leads us to ask not simply what, but how and why?

Perhaps a sensible starting point is to turn to economics for a basic theoretical

understanding of the firm as an economic actor first. This may lead us to a better means

of theorising the firm as a political actor.

The Theory of the Firm (and a theory of the firm as political actor)

Classical economics provides a parsimonious and elegant description of the purpose of

the firm which is widely recognised in business studies as the ‘theory of the firm’.

Essentially the theory of the firm assumes that profit maximisation is the goal of firms

(Putterman 1996, Richardson 1972). In a supply and demand curve, the theory of the firm

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covers the supply side of the equation, with the theory of the consumer providing the

demand side of the equation. In classical economics equilibrium is achieved when supply

and demand are in balance. Both consumers and producers are deemed to be utility-

maximising agents (Kantarelis 2007). Of course, the very parsimonious nature of such an

elegant theory yields to critique that seeks to unpack the reasons underlying differences

in decision-making between seemingly similar consumers or producers. If profit

maximisation is the goal of firms how do we explain different strategies and performance

of companies in the market? It is clear that in pursuing the goal of profit maximisation

appointed managers or corporate owners will have different ideas and ways of going

about this. In economics the problem is identified as the ‘principal-agent problem’ where

decision-making must take place in a context of incomplete information or where the

principal hires an agent to operate on his/her behalf. Managers will make decisions based

on other motives of shorter or longer term (such as bonuses or keeping their job) (see

Sappington 1991: 45 and Stiglitz 1987: 966)3.

The firm cannot be viewed as monolithic, since individuals will have different aspirations

or even interpretations of what is the best course of action to achieve the optimal outcome

in any given situation4 (Simon 1972). This in turn could be determined by each

individual’s values, norms, ideas and cultural background. Here, then, is where the

contribution of a social constructivist approach could be most valuable in conceptualising

3 The ‘principal-agent’ approach was developed as part of a broader project within the management and

behavioural schools that sought to extend beyond neo-classical economics. Broadly speaking this was

based on the notion that limited knowledge or information gives rise to uncertainty and so agents must

operate within ‘bounded rationality’ and thus utility maximisation is replaced by an attempt to achieve

realistic goals (see Cyert and March 1963 as well as others of the Carnegie School including Simon 1972). 4 For his work on bounded rationality, Simon received the Nobel Prize in 1978.

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the role of the firm in international economic governance. This element will be extended

later in the paper. First the paper will turn to existing approaches within the

environmental governance literature that has gone further than many others in attempting

to conceptualise the firm in a meaningful way.

Still within the ambit of the theory of the firm, it would be remiss not to take cognisance

of the contribution of Levy and Newell (2004:55), who critique the idea of the political

role of the firm as simply a form of Corporate Political Strategy (CPS). Essentially CPS

builds on the neo-classical economics theory of the firm (profit maximisation)

maintaining that management and organisational theory offer us a perspective on

corporate political strategy tied to the concept of profit maximisation. The corporate

political strategy literature focuses on empirical studies seeking to characterise business

strategies along a continuum from reactive to proactive (Mahon 1983; Weidenbaum

1981). Baron (1997) and Schuler (1996) have presented corporate political strategy as not

simply a non-market activity but an integral part of the broader corporate strategic

interest, sometimes employing political strategies as an alternative to failing competitive

strategies.

One approach in corporate political strategy literature has been to regard political activity

by firms as collective action, with large companies bearing the costs of collective action

where several co-operating firms or industries face a perceived common threat or there

may be economies of scale to be gained by mutual co-operative action (Lehne 1993).

Leone (1986) and Oster (1982) also point to activities by firms to use political strategy as

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a tool to harm competitors or to restrict or limit entry of potential competitors to their

markets using regulatory mechanisms. This has been typically employed in areas of non-

tariff barriers within the multilateral trading system.5 The CPS literature has sought to

examine what factors result in greater political activity from firms, citing increased

political behaviour when the stakes are higher, firms have more leverage or where firms

have a more highly developed level of political competency (or access) (Boddewyn and

Brewer 1994). Essentially the literature has developed to argue that both financial and

political aims can be simultaneously pursued and achieved in a win-win scenario. For

example writing in the context of environmental management Fischer and Schot (1993)

posit that pursuing greener production models can yield an environmental benefit whilst

reducing production costs and so also achieving a financial objective at the same time.

However, reducing corporate political strategy to a ‘behavioural economics’ problem

fails address issues of importance to political economy and international governance,

such as power and the ‘embeddedness of regimes in broader structures’ (Levy and

Newell 2004: 55). Instead, Levy and Newell offer a neo-Gramscian multilevel analysis

that enables us to analyse the firm both as an agent as well as embedded within

international governance structures (thus including the context of broader power

relations)

5 An example of this is the Sanitary and Phytosanitary measures (SPS) applied by the EU often regarded as

a trade barrier by developing country firms seeking to gain access to European markets and included as an

agreement within the WTO (See http://www.wto.org/english/tratop_e/sps_e/sps_e.htm).

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A Neo-Gramscian Approach

Levy and Newell’s neo-Gramscian approach is grounded in an inter disciplinary

framework that seeks to bring together management, organisational and International

relations theories. “Gramsci’s conception of hegemony thus provides a basis for a more

critical approach to corporate political strategy that emphasises the interaction of material

and discursive practices, structures and stratagems in sustaining corporate dominance and

legitimacy… Corporations practice strategy to improve their market and technological

positioning, sustain social legitimacy, discipline labour and influence government policy”

(Levy and Newell 2004: 58). Thus the firm’s political activity cannot be seen as distinct

from the firm’s market activities, rather market (economic) and non-market (political)

strategies are intermingled and co-constructed, even to the extent of ‘markets as politics’

(Fligstein 1996).

In their approach Newell and Levy (2004) ask why firms will support or oppose

particular environmental regimes. In doing so they explore connections between

corporate strategies in the market and political sphere, including the process by which

corporate interests are formed. A neo-Gramscian framework is based on various actors

bargaining over the structures and processes of international governance. “Regime

structures and processes therefore reflect the power, resources, preferences and strategies

of the various actors in these contests” (Levy and Newell 2004: 61). They argue that

environmental regimes are constrained by existing macro structures of production

relations and ideological formations, which are the result of historical conflicts. The

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bargaining process is not a ‘pluralistic contest among equals’ since it is embedded in a

broader relations-of-power context. However, strategic dimensions of power mean that

civil society agents, though under-resourced compared with capital interests, can gain the

advantage in bargained outcomes.

Regime theory, they argue, has limited application in analysing environmental regimes.

As an international mechanism, regime theory is predicated as a means to resolve

conflicts, facilitate co-operation, and alleviate collective action problems between

interdependent actors (Young 1994: 3). The problem with regime theory is that it

assumes regimes function in a benign pluralistic context; furthermore it is a state-centric

approach that fails to take cognisance of the role of other non-state actors. In rejecting a

regime theory framework, Levy and Newell (1994: 48-49) argue that international

governance is a highly political process, conducted by multiple actors, including states,

NGOs, broader civil society and firms. The process is one of contestation and

compromise in which actors build alliances and frame public debates in order to achieve

strategic objectives.

A neo-Gramscian approach attempts to bridge the divide between the corporate political

strategy literature, which Levy and Newell argue neglects to account for the historical

structural power inherent in the international system, and Gramscian hegemony, which

tends to aggregate corporate interests in the abstract as capital, failing to address specific

firms as having differing strategies or interests at different times (2004:55). Their

position resonates with elements of a social constructivist approach, in as much as they

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do not regard actors’ interests as objective immutable givens or even of a primarily

economic nature; instead their framework is grounded in the idea that interests are

‘constructed in institutional contexts and subject to political contestation’. In

acknowledging the constructed nature of interests they share a common element with

social constructivism (to be discussed in greater detail further on in this paper). However,

despite the references to agents and discursive resources within the political process, a

neo-Gramscian approach is still biased towards material/structural power elements which

limit the extent to which it is possible to differentiate between firms on the basis of values,

norms and ideas. It is still an approach which favours the structural contextual over

agency and thus of less value in conceptualising the firm within international relations.

Neo-Pluralism

Much as the neo-Gramscian perspective criticised pluralism for assuming that the

international system constitutes a plural range of equally endowed actors, neo-pluralism

has its roots in the work of Charles Lindblom (1977), who advocated that business actors

have a ‘privileged position’ in liberal democracies (see also Heinz et al 1993). He

identified this oversight as a central weakness in the pluralist tradition. Since business is

central to market economies as a source of economic growth and a stimulus for

technological innovation (Jessop 1982; Milliband 1976), firms need to be ‘induced rather

than commanded’. As a result of this dominant position in the political realm

governments, according to the neo-pluralist tradition6, must defer and share authority

(Falkner 2008: 1).

6 For an overview of business power in contemporary politics in the neo-pluralist tradition see McFarland

2004)

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Falkner adopts a neo-pluralist approach in addressing the role of business actors in

climate change politics, using neo-pluralism to act as a corrective to statist and

structuralist perspectives (2008). He argues that statist approaches neglect the importance

of non-state actors and that structuralist approaches based in material power assumptions

Andrews 1994; Strange 1988) neglect the role of political agency and thus fail to give

account for variations in policy outcomes. The neo-pluralist approach is born out of 2 key

arguments. Firstly, corporate actors are privileged by virtue of their market power in the

form of capital and technological innovation and thus able to set parameters in the

domestic and international political context. However, since business actors do not act in

unison this gives rise to the second argument, which is that business conflict arises when

business actors don’t always get what they want. Falkner calls for a better understanding

of business power in terms of both their structural power as well as their political agency,

which will enable analysis to account for both the privileged position held by business as

well as the potential for conflict and a diversity of business interests within the political

sphere (2008: 4-5).

This is achieved through a neo-pluralist lens that takes into account the power of what

Falkner terms ‘countervailing forces’ (2008:4). Countervailing forces are to be identified

both within business as well as externally through the increasing dominance of new

transnational social actors operating through the mechanism of new communications

which have empowered under-resourced NGOs (Tarrow 2005). These forces, neo-

pluralists claim, limit corporate interest and undermine the dominance of business

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legitimacy and authority (Nowell 1996). In order to understand the sources and limits of

business power and influence we must ‘disaggregate the business sector and analyse its

constituent parts’ at firm level (Falkner 2008: 6). Skidmore (1995; 1996) identifies this

approach in IPE as the “business school model”.

The business conflict model arises from this grounding, firstly out of societal approaches

which have focused on the domestic origin of pressure groups that have influenced

foreign policy (see Frieden 1988 and Milner 1988 in this regard). This has been very

much a bottom-up approach seeking to explain foreign policy outcomes. Falkner argues

that it is possible to view things from the other perspective and examine the effect that

‘globalisation’ has had on business actors. Established power and influences are being

challenged by new social and political actors (Cerny 2003; Vernon 1998). In the context

of international environmental politics, he argues, business conflict has arisen because of

the ‘differential effects that international regulatory measures have on individual

companies or industries’ (2008: 7). Business organisation scholars have argued that

business actors will seek to minimise differences and tensions in their effort to shape

international political outcomes; it is particularly in the interests of large MNCs to reduce

price competition and stabilise the market environment (Fligstein 1990; Spar 2001).

Falkner identifies 3 forms of business conflict: i) between national and international

firms; ii) between technical leaders and laggards; iii) between companies operating along

the same supply chain (2008: 7-8). Using climate change politics as an example, Falkner

demonstrates how business conflict and competition are changing the nature of corporate

involvement in international political processes as well as creating opportunities for new

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alliances and networks between forms as well as in public private partnerships and

coalitions with NGOs and other civil society groupings (2008).

Whilst a neo-pluralist approach addresses the lacuna intrinsic to a neo-Gramscian

perspective, which neglects the role of agency in favour of structural power, neo-

pluralism does not account for the ideational or discursive power of non-state actors

sufficiently. This reduces firm-level analysis to bargains and coalitions rather than

allowing an analysis that explores beyond the countervailing forces that shape networks

and alliances to unpack the way in which interests are formed and then played out in the

international arena.

The obvious port of call in addressing this silence is to turn now to the possible

contributions that a social constructivist approach may be able to offer.

Social Constructivism

Social constructivism is not a coherent theoretical approach. In fact it is better identified

as a loosely configured variety of positions that share certain common goals, key

concepts and perspectives. Accordingly there is no one dominant strand or application of

social constructivist thinking. It may not even constitute a school of thought in its own

right, being that social constructivist thinking tends to be spread across a broad

continuum of positions that overlap ant the extended periphery with other approaches

from materialism on one end to idealism on the other (Hay 2002; Steans and Pettiford

2005; Baylis and Smith 2001). The key concepts of a social constructivist approach are

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based in the notion that the world is how actors perceive it. The world is intersubjective,

in that actors and the system interact with and are shaped by one another and are co-

constitutive of the international system. Finally, a key concept of social constructivist

thinking is grounded in the value of identity which includes concepts such as values,

norms and ideas, which are all important elements in shaping actors’ perceptions of the

world. Important themes in social constructivism include the idea that the international

system is transformative, intersubjective and discursive. Critical assumptions of this

approach focus on the importance of non-state actors rejecting realism and neo-realist

state-centric perspectives. The transformative nature of the international system is

indicative of the fact that the system is constantly in flux and changing. As a result, there

are ongoing opportunities for co-operation, thus rejecting critical theory positions based

on the assumption that power is ubiquitous and structural in nature. This is not to deny

the importance of structural and material power, but to create the intellectual space for

the inclusion of interests and ideas as motivators and reinforcing the notion that ideas,

values and norms matter.

In spite of the fact that social constructivism places much emphasis on the role of norms

in international relations and the fact that there is increasing interest in private authority

among IR scholars, little research is emerging on the role of norms in firm behaviour in

the international system (Kollman 2008: 397). Traditionally political science has

regarded business actors simply in terms of utility maximising entities. Even social

constructivists have sometimes failed to differentiate among firms in their blinkered

approach. This view has tended to define international advocacy nongovernmental

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organisations as driven by principle and moral actions versus firms which are

characterised as motivated by the pursuit of profit (Kollman 2008: 398; Sell 2004).

Kollman (2008) contends that the constructivist approach has hitherto failed to give

adequate account of the role of normative socialisation in understanding markets and

market actors in the international system.

A number of authors point to the neglect of applying principles of norms and actor

network socialisation to firms or business actors ((Kollman 2008; Sell 2004). The reason

for this neglect, they claim, has to do with a tendency among social constructivists to

differentiate between NGO’s and firms on the basis of their underlying motivation.

Scholars such as Keck and Sikkink ((1998) and Risse-Kappen (1995) define transnational

business actors in terms of their instrumental, material motivations. Sell and Prakash

(2004) argue that differentiating transnational advocacy networks on the basis of their so-

called underlying “good” values is too narrowly focused and unhelpful in explaining

outcomes or the importance of strategies employed in achieving said outcomes. The

tendency to differentiate between transnational networks - where firms are motivated by

material interests and NGO’s or advocacy networks by values - presents an artificial split

between ‘ideas’ and ‘interests’ (Goldstein and Keohane1993). It also entrenches the

polarisation between rationalist/materialist versus constructivist/normative in IPE

literature (Katzenstein, Keohane and Krasner 1999)7.

7 For a more in-depth discussion of the comparison of constructivist treatment of transnational market

actors versus transnational advocacy networks see Sell and Prakash (2004).

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The lacuna of social constructivist studies exploring transnational market actors or firms

is all the more remarkable given that much of the work of social constructivists cites

early literature that not only uses firms as objects of study by emphasises the social

aspect of market interactions (see DiMaggio 1983; March 1984; Thomas 1987). Kollman

(2008) argues that whilst works by diverse scholars including Sell and Prakash (2004),

Virginia Haufler (1999; 2001), Benjamin Cashore (2002) and Hevina Dashwood (2005;

2007) have contributed to scholarship on the role of norms in private regulation they stop

short of giving an account of the effect on firm norms of international socialisation

processes and specifically changing their perception of articulated material interests.

Whilst this paper is not specifically about norm socialisation, the insights offered by the

social constructivist approach offer valuable opportunities for conceptualising the firm in

IR beyond the constraints of the rationalist frameworks of neo-realism and neo-liberalism.

The neo-neo schools as well as rational choice models have done much to obscure other

social processes in international relations, by reducing the motivating forces of actors in

the international to an aggregation of individual action for interest maximisation. This

focus on material instruments of power and material wealth divert the focus of research

away from other avenues of enquiry such as the role of norms and ideas8. Furthermore,

rationalism has neglected the importance of the extent to which social structures

influence and inform actor choices, interests, preferences and perceptions of these

(Ruggie 1998a: 33). Human agents and societies do not spring forth with fully-fledged

8 There is not space in this paper to go into a deeper discussion of rationalist assumptions. For a

comprehensive discussion of materialism and idealism see Hay (2002: 194-215)Hay, Colin. 2002. Political

Analysis, A Critical Introduction. Edited by B. G. Peters, Pierre, J. and Stoker, G., Political Analysis.

Basingstoke and New York: Palgrave.

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and fixed identities or preferences. Rather, these are formed and shift over time as a result

of ongoing socialisation processes, resulting from the inter-subjective nature of the world.

Social constructivism offers a richer analysis of actor behaviour by taking into account

the socialisation elements of the context and environment in which actors are operating

(Ruggie 1998b). Theories of constructivism enable us to ask questions about why firms

act the way they do and how their behaviour both shapes and is shaped by the context in

which they operate and the other actors (firms, NGOs, transnational advocacy networks

and/or states) with which they interact.

It is precisely to this neglect that this paper will attempt to speak. Contributing to a

burgeoning literature on transnational market networks this paper will seek to provide

further empirical research into understanding the behaviour of TNCs (or multinational

corporations) and thus also add to the work on economic constructivism.

A major critique of social constructivist approaches is the difficulty of operationalising

research into aspects such as analysing the role of the ideational on international relations

and systems. Indeed, constructivists themselves are not coherent about the best

epistemological approach (Kollman 2008: 399). In part, the difficulty presented in

researching a constructivist agenda flows from the very rigour imposed by constructivists

themselves when evaluation evidence on firms and firm behaviour. There is no good

reason to expect greater rigour in challenging the integrity of information obtained from

firm representatives than any other actor being analysed. Yet this is precisely what some

social constructivists maintain perhaps in keeping with the bias that suggests that other

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transnational actors such as advocacy networks are driven by ‘purer’ motives. Never the

less, the caution to validate factual claims made by market actors and to research public

records as well as measure rhetoric, behaviour and policy over time are useful caveats in

researching difficult areas such as norms, beliefs, values and identity whatever the nature

of the actor (market, social or state) under analysis.

Earlier in this section reference was made to the acknowledgement of material/structural

power as being of continuing relevance to social enquiry. As a loosely associated

approach cognisance was also taken of the fact that social constructivism attempts to

open a middle-way between more polarised approaches in the study of international

relations. There is work that has been done on business power in global governance that

offers a framework which presents a possible way forward for including in a three-

dimensional approach 3 elements or facets of business power in the international system:

structural, instrumental and discursive. It is to this framework that the paper now turns.

A three-dimensional approach

Fuchs and Lederer (2007) set out a framework for assessing the role of business power in

global governance on the basis that there are several critical facets of power that need to

be understood in order to attain a systematic and theoretically grounded framework. Their

strategy is to combine different levels of analysis in a three-dimensional assessment

considering both actor-specific and structural dimensions, alongside material and

ideational sources of power.

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They commence their discussion with an overview of power as a core concept in political

science, which they maintain tends to emphasise the role of the state too narrowly,

leaving a conceptualisation of business power unformed. Rather, they argue, it is the

literature in political philosophy, comparative politics and sociology that open the door to

a more rigorous conceptualisation of business. Accordingly, we can identify three major

perspectives on power. The first is instrumental power which derives from

methodological individualism, emphasising the traditional power accorded to business

actors in the form of directly observable relationships of power most often expressed

through lobbying activity9. Secondly, structural power refers to power in a socio-

economic sense reflecting material and structural power for agenda and rule-setting.

Finally ideational power refers to the discursive element focusing on communication and

the importance of ideas in promoting particular interests or positions (Fuchs and Lederer

2007: 3-4).

Instrumentalist power is actor-centred, relational and tends to emphasise the importance

of direct influence (where A has the power to get B to do what A wishes) (Dahl, 1957;

Machiavelli). It draws on the insights of traditional IR theory in the form of classical

realism from Hobbes (1588-1679) to Morgenthau (1948). The objective of the state is

security and power is the means by which security is achieved. Waltz’s contribution to

neo-realism introduced the concept of relative power (Waltz 1979). As regards business

actors, instrumentalist power refers to the direct role of lobbying (at both national and

supra-national level) and campaign financing, focusing on the privileged position enjoyed

9 For various studies in the literature on this element of power see Milbrath 1963; Hall 1990; Berry 1997;

Lindblom 1977.

Page | 22

by business actors by virtue of their knowledge around complex issues and amidst

government concerns for economic growth as well as their resources which provide a

source of material power (Higgott et all 2000; Ledgerwood and Broadhurst 2000).

Structuralist approaches analyse the material structures behind behavioural options. This

focuses on corporate bargaining power in the form of being a tax revenue source and

provider of employment (Cox 1987; Frank 1978; Wallerstein 1979). These scholars

explore factors that pre-determine options, often referred to as the ‘second face of power’

in Bacharach and Baratz’s seminal work (1962). The ‘Two faces of Power’ article refers

to the power of actors to prevent or block issues form being negotiated as well as their

ability to limit the scope of issues that are. This extends to indirect decision-making in the

form of agenda-setting power as well as direct in the form of rule making power through

processes such as self regulation and public-private partnerships (Cutler 1999; Clapp

2001). The major difficulty of this approach is that it is difficult to measure or observe (or

perhaps even know about) that which has been left-off the agenda – it is analysis of the

silences (Fuchs 2005).

Discursive power is a function of norms, ideas and societal institutions (Fuchs 2007: 139)

Actors use their discursive power to shape norms and ideas and thus promote their

interests in the political arena. The approach is grounded in the discourse theories of

Garmsci and Foucauld, Habermas and critical theorists. Habermas and Gramsci

emphasised the power of and in discourse itself where a systems theory approach

identifies discourse as a ‘structural’ phenomenon (i.e. a normative social system).

Page | 23

Habermasian approaches refer to the struggle for understanding. Critical and Gramscian

perspectives underscore the role of agency in discourse. This is clearly reflected in Lukes’

“third face of power”, which refers to the power of agents to influence others’ perception

of their needs/interests; the power to shape their wants (Lukes 1974). Thus discursive

power doesn’t only pursue interests it creates them. This conception of ‘soft’ power is

tied to notions of legitimacy and authority; in order to be believed actors require

legitimacy either through elected officials or through output legitimacy (the ability to

obtain desired results) (Fuchs and Lederer 2007: 11). Cutler et al (1999) maintain that

non-state actors are increasingly competing with state actors as sources of authority,

which they achieve through a process of ‘naming, framing and campaigning’ (Levy and

Egan 2000; Newell 2002). As an example of this companies promote their image as good

corporate citizens using advertising to shape public perceptions and promote ideas such

as a commitment to free market economics.

By combining the three facets discussed above a three-dimensional approach offers a

complementary strategy for analysing business power that incorporates the material as

well as ideational elements whilst acknowledging structural power relations without

neglecting the importance of agency. This approach does not seek to confirm or deny the

rise of business power concurrent with a decline in state power; rather the

interdependence of state and business actors is emphasised leading to the idea of a

business orientated transformation of statehood (Bieling 2007). Business can engage with

a variety of forms of power in different situations and for different objectives. Business

actors, whilst privileged in the international system are also constrained by countervailing

Page | 24

forces and the strategic positioning of other non-state actors; discursive power may be

extensive but it is also fragile and the legitimacy upon which is predicated is highly

contested (Fuchs and Lederer 2007: 11). This framework exhorts an analysis that

considers the agenda and rule-setting power of business as well as the interdependence

between business structural and discursive power from lobbying through various

communications activities.

Part Two: South African business and global governance

The second part of this paper will explore the rising internationalisation of South African

business and a concomitant role in international governance institutions that demonstrate

engagement by non-OECD10

firms in global economic governance. The recent inclusion

of developing countries in a G20 summit (including South Africa) on the financial

markets and the world economy responding to the global economic crisis on November

15, 2008 in Washington DC indicates a growing recognition of the importance of larger

developing countries in global economic governance. Countries like China, India, Brazil

and South Africa are more frequently being included in summits once the exclusive

preserve of G8 economies. The changing face of global economic power with the rise of

China, India and Brazil provides the impetus for scholars of global economic governance

to rethink the narrow focus of the actors engaged in economic governance as restricted to

those representing corporate entities and states within in the developed world alone.

Research into global economic governance structures such as the WTO and regional and

bi-lateral trade agreements as well as a range of other governance processes must begin to

10

Or as some scholars have coined the phrase non-triad MNCs (NTMNCs) (Nolke and Taylor 2008)

Page | 25

give account of the increasingly important role being played by MNCs from developing

countries.

South Africa and the global economy

South Africa is a regionally dominant economy, not just in Southern Africa but also in

sub-Saharan Africa11

. South Africa produces 35 percent of the sub-region’s GDP in 2007

(IMF 2007). However, as a share of world income in 2001 South Africa only contributed

0.5%, compared with China at 12.3% , India at 5.4 % and Brazil at 2.7% (Nayyar 2008:

2). This comparison is useful because South Africa is regarded as one of the so-called

CIBS12

axis of developing countries that are cited as being potentially significant players

in the global economy going forward. As part of this grouping, there is potential for

South Africa to continue to ‘punch above its weight’ in the global economy.

The combination of South Africa’s natural mineral resources (in an economic climate

which until recently was driving demand for commodities as well as higher world prices

for these and with China’s rise then seemingly unlikely to abate for some time) a number

of large MNCs13

have expanded largely into Africa but also beyond the continent14

and

listing on overseas stock exchanges. The table below reflects the internationalisation of

South African business across a broad spectrum of industries from dominant mining

interests, through financial services, energy utilities, beverages and retail operations.

11

Sub-Saharan Africa refers to the geographic region of Africa which lies South of the Sahara. It includes

47 countries comprising East, West, Central and Southern Africa. The region is economically dominated by

South Africa and Nigeria with rising influence from Angola. The latter two countries are oil-producing

countries, South Africa is an oil importing country. 12

CIBS comprises China, India, Brazil and South Africa. 13

Other key MNCs emanating from South Africa include Dimension Data, Mintek, MTN, Nandos and

Standard Bank 14

Forty percent of South African companies’ foreign affiliates operate outside Africa.

Page | 26

Company INDUSTRY BRANDS LOCATIONS LISTINGS

Anglo American Mining DeBeers Diamonds

AngloGold Ashanti

Anglo Platinum

Anglo Base Metals

Mondi

60 Countries in Europe,

Africa, Asia, Australia,

South America, North

America

Nasdaq, London and

Johannesburg stock

exchanges

Nedbank Corporate, business

banking

Nedbank Corporate

Nedbank Capital

Nedbank retail

South Africa and

United Kingdom

Johanneburg Stock

Exchange

Sasol Energy Sasol Mining

Sasol gas

Sasol Synfuels

Operations in 30

countries in Africa,

Asia, Europe, North

and South America

NYSE and

Johannesburg Stock

Exchange

Shoprite Checkers Food Retail Shoprite

Checkers

Hungry Lion

House and Home

17 Countries in Africa Johannesburg Stock

Exchange

SABMiller One of world’s largest

Brewers

Miller Genuine Draft

Peroni Nastro Azzuro

Pilsner Urquell

60 Countries in Europe,

Africa, North America,

South America and

Asia

London and

Johannesburg stock

exchanges

Table 1. Selected South African MNCs

(Source: Lynch 2006)

The 2007 World Bank ranking of world economies by GDP, ranked South Africa 27th

out

of 180 countries. That said South Africa’s share of the world economy is a minuscule

0.5% (World Bank 2007). Which begs the question, why is South Africa able to ‘punch

above its weight’ so frequently in international processes? Some of the answer to that

question may be found in South Africa’s giant status within African economies, some

Page | 27

28% of GNP produced in the whole of Africa is produced by South Africa, a dominant

economic power-house in the sub-region of sub-Saharan Africa as well as the continent

as a whole. Another reason may lie in the extensive role that has been played by South

African business, first in shaping the domestic economic policy that emerged in post-

apartheid South Africa and the unexpected turn towards liberal market economics, and

secondly in a burgeoning capacity in various international governance processes.

Domestic economic policy influences

Various explanations have been proposed regarding why South Africa should embark on

a liberalisation path. Indeed, it is remarkable that it should, given that the new

government of South Africa following the 1994 elections was comprised of a coalition of

the ANC, the South African Communist Party (SACP) and the Congress of South African

Trade Unions (COSATU). One version holds that South Africa is a ‘victim’ of neoliberal

hegemony by which South Africa is part of a global neo-liberal convergence process

(Gramscian theories) See Bond (2004). The idea of ‘middlepowermanship’ posits that

South Africa has adopted a ‘middle-power’ role in the international system and as such

plays a strategy of ‘accommodation and challenge’, seeking to transform the imbalances

of the international system from within (Coxian) (see the work of Taylor (2001), Nel,

Taylor and Van der Westhuizen (2001) and Lee (2006).

Another explanation is that South African policy elites were hijacked by business

influence early on in the policy making stages of the ANC’s accession to power. This is

supported by the fact that at the time of its unbanning the ANC had no clearly defined

Page | 28

economic policies (Ward 1998: 38). This created an opportunity for South African

business elites and capital to launch a ‘charm offensive’ dedicated to correcting the

ANC’s perceived economic flaws, through think tanks, studies and direct representation.

One account recalls the role of the Finance Minister Derek Keys in influencing ANC

economic head Trevor Manuel and via him Nelson Mandela (Waldmeir 1997: 213). The

pro-business media also ran a series of devastating articles highlighting the pitfalls of a

mixed economy (Taylor 2001: 61). This resulted in a situation where ‘business came to

play a part in national affairs that is surely without parallel in the world’ (FM April 29th,

1994). As Taylor reports from an interview with Terreblanche “the leadership core of the

ANC were wined and dined from morning to night by the captain’s of industry” (Taylor

2001: 61) This explanation is not to refute the relevance of a middle-power approach or a

Gramscian take that emphasizes the hegemony of liberalisation as an ideology. In fact the

role of business interests in shaping and changing policy can be seen as part of either or

both of these processes.

At a domestic level it is clear that business exercised a large degree of structural power as

the economic back-bone of a country engaged in massive political and economic

transition. However, the critical role of business’ discursive power in shaping and

framing the newly elected ANC government’s early economic policy is also a vital

component of the story.

Page | 29

South African Business and Global Economic Governance

Cynthia Carroll (Chief Executive of Anglo American) at a speech to an audience at

Chatham House. London on 18 June 2008 stated that international companies are now

important global economic and political actors, with a significant role to play in

furthering trade liberalisation, alleviating poverty and influencing climate change policy.

“As a leading mining company across the globe, Anglo American seeks to play a leading

role in global affairs” (Carroll 2008). It is apparent from statements like these that South

African companies have every intention of engaging with global political and governance

processes and effecting policy outcomes. She also reiterated the dependence of

companies on good governments, to provide stable socio-political environments for

companies to operate in, which supports the earlier contention made that there is

interdependence between business and the state. Carroll further indicated that there was

an increasingly significant role being played by the strong regulatory oversight and

scrutiny of civil society, which was beneficial for business by promoting greater

transparency and accountability indicating that theoretical frameworks that account for

the role of business NGO coalitions and co-operation are relevant.

Some of the international initiatives that South African MNCs are engaging with include

Business for Social Responsibility (BSR), the International Council on Mining and

Metals (ICMM), the Global reporting Initiative (GRI) the Extractive Industries

Transparency Initiative (EITI), the UN Global Compact, Voluntary Principles on Security

and Human Rights (VPSHR), the World Business Council for Sustainable Development

Page | 30

(WBCSD) and as members of the International Chamber of Commerce (ICC) and the

World Economic Forum (WEF).

What this broad range of involvement indicates is that South African businesses are

engaging in wide-spread political processes at both domestic and international level. This

can be explained very effectively by the three-dimensional framework which

encompasses the structural, instrumental and discursive power of business.

Many of the above-listed initiatives would form part of the ‘naming, framing and

campaigning’ aspect of ‘soft power’ deriving from the discursive facet of business power.

Engaging in initiatives such as BSR, which aim to provide a ‘toolbox’ for industry best-

practice in socio-economic of community development initiatives, is an opportunity to

show-case both to other firms as well as civil society and the world at large the company

as a good corporate citizen. By promoting transparency through the BSR, GRI and EITI,

firms are also able to wrong-foot competitors not able or wiling to engage with such

processes. This has resonance with elements of the neo-pluralist business conflict model

as well as structuralist power of agenda-setting and issue selection. By promoting

elements that they are able to comply with, companies put pressure on competitors to

adhere to the same voluntary codes of conduct thus reducing the competitive costs of

adopting self regulation and standards whist enjoying early-mover advantages.

Furthermore, promoting voluntary standards and self-regulation through initiatives such

as VPSHR and UN Global Compact South African firms are engaging in direct rule-

making via private governance initiatives.

Page | 31

South African firms engage with international processes as MNCs and business entities in

their own rights but also through industry representative bodies such as the Chamber of

Mines, or the Business associations such as Business Unity South Africa (BUSA). In

addition, they are also participating in international business associations and coalitions

such as the ICC and WEF.

Conclusion

This paper commenced with a conceptualisation of the firm in international political

processes. The first part of this paper concluded that a multi-dimensional approach was

required in order to capture the full complexity of how and why business exercises power

and influence in international political processes. A three-dimensional framework

acknowledges that business actors, whilst privileged in the international system are also

constrained by countervailing forces and the strategic positioning of other non-state

actors. It enables an inclusion of discursive power in the analysis but agrees that this

fragile and the legitimacy upon which is predicated is highly contested (Fuchs and

Lederer 2007: 11). This framework exhorts an analysis that considers the agenda and

rule-setting power of business as well as the interdependence between business structural

and discursive power from lobbying through various communications activities.

Page | 32

In applying this framework to South African business in global economic governance it

became apparent that every facet of a multi-dimensional approach was relevant. The

framework functions at both an explanatory level as well as offering a conceptual tool to

analyse why South African business is increasingly likely to be engaging in international

political processes in the future.

Page | 33

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Tarrow 2005; Taylor 2008; Vernon 1998; Wallerstein 1979; Weidenbaum 1981;

Wright 2006; Young 1994)