Networked liabilities: Transnational authority in a world of transnational business
| Author | Loriana Crasnic,Nikhil Kalyanpur,Abraham Newman |
| DOI | 10.1177/1354066116679245 |
| Date | 01 December 2017 |
| Published date | 01 December 2017 |
| Subject Matter | Original Articles |
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https://doi.org/10.1177/1354066116679245
European Journal of
International Relations
2017, Vol. 23(4) 906 –929
© The Author(s) 2016
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DOI: 10.1177/1354066116679245
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Networked liabilities:
Transnational authority in a
world of transnational business
Loriana Crasnic
Georgetown University, USA
Nikhil Kalyanpur
Georgetown University, USA
Abraham Newman
Georgetown University, USA
Abstract
The proliferation of production networks and cross-border contracting is frequently
cited as empowering globally active corporations to skirt, and shape, national
regulations. While scholars often focus on the political gains from these new forms
of business organization, we shift the conversation to the potential political costs of
global firm reorganization. The spread of corporate subsidiaries and global supply-chain
networks leave firms vulnerable to a host of jurisdictional claims, and by targeting a
domestically rooted affiliate, states can bring the global practices of the multinational
corporation in line with their interests. In other words, states can take advantage of the
transnationalization of the firm to transnationalize their authority beyond traditional
jurisdictional boundaries. We label this process “networked liabilities.” Specifically,
the combination of a firm’s sunk costs and the country’s jurisdictional substitutability
determines the ability of governments to exert demands on multinational corporations.
A key contribution of the article is to better specify the relationship between mobility
and authority and to illustrate that networked liabilities can further empower a variety
of states beyond traditional economic powers like the US or the European Union. We
further highlight when firms may curtail the authority of great powers. The growing
reach of the regulatory state domestically, coupled with the transnationalization of
Corresponding author:
Abraham Newman, Intercultural Center (ICC) 681, Georgetown University, 37th and O Streets, N.W.,
Washington, DC, 20057, USA.
Email: aln24@georgetown.edu
679245EJT0010.1177/1354066116679245European Journal of International RelationsCrasnic et al.
research-article2016
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the firm, creates an increasing number of tools for certain governments to engage in
economic statecraft beyond their borders. Our findings, then, contribute to debates on
business–government relations in a globalized world, the changing nature of political
risk, and the deterritorialization of state authority.
Keywords
Business–government, extraterritoriality, political risk, regulatory state, supply chains,
transnational authority
Introduction
The transnationalization of business is a defining feature of globalization (Pauly and
Reich, 1997; Sell, 2003; Vernon, 1971). Firms leverage economic openness to set up
complex networks of affiliates and subsidiaries that span political jurisdictions. These
multinational corporations (MNCs) build the backbone of global supply chains, often
bringing with them both profits and cultural derision (Bartley, 2007; Dallas, 2015).1
Considerable research on the political consequences of globalization has focused on
the ability of such companies to leverage this new-found mobility (Ahlquist, 2006;
Culpepper and Reinke, 2014; Mosley, 2000; Rudra, 2002). For some, globalization
opens up opportunities for firms to use the threat of exit to discipline public officials into
adopting business-friendly policies. Proponents of this view often raise the specter of the
regulatory race to the bottom, in which states must lower business regulations and taxes
so as to prevent capital flight (Andrews, 1994). Others, by contrast, downplay this threat
by highlighting the synergies between certain state institutions/policies and firm interests
(Garrett, 1998). Regardless of where exactly authors cash out on this balance, most frame
the debate as one of firm mobility, in which states must play defensively to minimize the
potential threat of exit.
In this article, we shift the focus from the possible political advantages that firms gain
from globalizing their operations to their potential costs. As firms create trails of affili-
ates and subsidiaries, they land in multiple political jurisdictions, generating sizable legal
uncertainties. In some cases, this reorganization of the firm provides state actors with
new levers to shape firm behavior that the state lacked in a pre-globalization era. In other
words, the state can use the transnationalization of the firm to transnationalize its juris-
diction, reaching out from its borders through cross-national production systems to regu-
late the behavior of business based in other jurisdictions. We label this process networked
liabilities. The extension of public authority through global corporate structures has
important consequences for the behavior of specific powerful firms, which, in turn, can
shape the stability of domestic regulatory bargains and, in some cases, have knock-on
consequences for global governance more generally.
Clearly, not all jurisdictions have the ability to leverage networked liabilities and even
those that do are not uniformly positioned to do so. The main goal of this article, then, is
to identify the key boundary conditions for such a process. Bridging work on political
risk and extraterritoriality, we argue that firm exposure to these networked liabilities is a
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