Unicorn among the Cedars: On the Possibility of Effective ‘Smart Regulation’ of the Globalized Shipping Industry

DOI10.1177/0964663906069546
Date01 December 2006
Published date01 December 2006
Subject MatterArticles
UNICORN AMONG THE
CEDARS: ON THE POSSIBILITY
OF EFFECTIVE ‘SMART
REGULATION’ OF THE
GLOBALIZED SHIPPING
INDUSTRY
MICHAEL BLOOR, RAMESH DATTA, YAKOV GILINSKIY AND
TOM HORLICK-JONES
University of Glasgow, UK, Tata Institute of Social Sciences, India, Russian Academy
of Sciences, Russia, Cardiff University, UK
ABSTRACT
This article considers the prospects for effective regulation of emerging globalized
industries by examining the effectiveness of the ‘smart regulation’ approach associ-
ated with the port state control enforcement regime for seafarers’ health and safety.
Smart regulation seeks to generate incentive structures that promote proactive
compliance by ship operators. Drawing on an international comparative study, which
included extensive observation of ship inspections in India, Russia and the UK, it is
suggested that the main reason why the hoped-for ‘market in virtue’ is only weakly
present turns on the perceived and actual inconsistencies in the implementation of the
regulatory regime. These contrasts exist cross-nationally, and are manifested in terms
of differences in the local character of enforcement practice, and in levels of trust in
national regulatory administrations. The strong overall regulatory framework, the
political will to avoid damaging maritime accidents, and the well-developed system
of port state control, all suggest that the shipping industry may be taken as a test case
for the possibility of effective smart governance of a globalized industry. The limited
gains achieved in this sector thus bode ill for effective future governance of other
emerging globalizing industries.
SOCIAL & LEGAL STUDIES Copyright © 2006 SAGE Publications
London, Thousand Oaks, CA and New Delhi, www.sagepublications.com
0964 6639, Vol. 15(4), 534–551
DOI: 10.1177/0964663906069546

BLOOR ET AL.: ‘SMART REGULATION’ OF THE SHIPPING INDUSTRY 535
KEY WORDS
enforcement; globalization; occupational health and safety; port state control;
regulation; seafarers; shipping
INTRODUCTION
TEXTSONglobalization almost invariably give considerable space to the
problems of governance of globalized industries (e.g. Dicken, 2001).
There have been a number of recent essay collections devoted wholly
to the topic of global governance (Held and McGrew, 2002; Bache and
Flinders, 2004; Held and Koenig-Archibugi, 2005; Wilkinson, 2005). Such
problems of governance also loom large in policy debates: capital flows occur
across national boundaries in avoidance of regulatory costs, but unregulated
markets may become ‘markets in vice’ as competitors seek price advantage
without regard to the health and welfare of the workforce, the pollution of
the environment, or the protection of the consumer. The study of the conduct
of international regulation has been undertaken from a range of perspectives,
including analyses of the shaping of international regulation from a sociol-
ogy of scientific knowledge perspective (e.g. Levidow et al., 1996), and
studies of attempts to influence the framing of international regulations
which draw on the sociology of new social movements (e.g. Ashwin, 2000).
Other relevant literatures are those on risk and trust (e.g. Walls et al., 2004),
and on the sociology of the health and safety in the workplace (e.g. Bellaby,
2000). However, it is the socio-legal studies literature which is most closely
associated with the investigation of issues of regulatory enforcement (Ayres
and Braithwaite, 1992; Hawkins, 1992; Hutter, 1997), including valuable
ethnographic studies of inspection work (e.g. Hawkins, 1984).
The socio-legal studies literature, mirroring policy debates, is divided on
how best to address the problems of global governance. On the one hand,
writers such as Braithwaite and his colleagues (e.g. Braithwaite and Drahos,
2000) have argued that the forces of economic globalization can be harnessed
for the purposes of ‘virtuous’ competition, in which competition on the basis
of quality can be accomplished by means of ‘smart’ regulation (Gunningham
et al., 1998). The term ‘smart regulation’ is used here as an umbrella term to
denote a multi-faceted and flexible system of governance that seeks through
incentives and other means to promote proactive compliance by regulatees.
It overlaps with American writings on ‘new governance’, where compliance
may occur through structures of ‘democratic experimentalism’ (Dorf and
Sabel, 1998), such as ‘penalty default’ regulations which force regulatees to
disclose information and engage in self-regulation (Sabel and Simon, 2004;
Karkkainen, forthcoming). On the other hand, in contrast to these optimistic
writings on smart regulation and the new governance, there is a more
pessimistic strain of analysis which emphasizes the situated character of regu-
latory dynamics. According to this perspective, regulatory performance is

536
SOCIAL & LEGAL STUDIES 15(4)
strongly shaped by particular local economic, cultural and political influences.
The resulting differences in local ‘regulatory character’ undermine the capacity
of international regulatory regimes to achieve invariate application of universal
standards (Nelken, 2002; Haines, 2003). Perhaps surprisingly, empirical
studies to date of the local enforcement of regulatory standards have been
largely single-country case studies rather than cross-national comparative
investigations, Braithwaite’s (2005) comparison of American and Australian
corporate tax compliance strategies being an important exception.
The shipping industry is a most suitable site for the cross-national study
of enforcement of international regulations. The industry is extensively regu-
lated, with ship standards the responsibility of the International Maritime
Organization (IMO), and health, welfare and labour standards the responsi-
bility of the International Labour Organization (ILO). Uniquely, there is
even an international minimum wage for seafarers. The responsibility for
enforcement of these standards has traditionally lain with national maritime
registries (‘flag state control’), but port states have become increasingly
important as enforcement agencies (‘port state control’; see Ozcayir, 2001).
As a strategically vital industry, arguably with a number of preconditions
for effective governance already in place, it could be argued that the global
shipping industry represents a ‘critical case’, or test case, for the successful
governance of a globalized industry. It follows that if effective governance
for the shipping industry cannot be achieved, then the chances of achieving
effective governance in many other globalized industries would appear
remote. This cross-national study of the day-to-day enforcement of inter-
national regulations on seafarers’ health, welfare and labour standards by
local port state control inspectors in India, Russia and the UK, may there-
fore be viewed as a test of whether effective governance of globalized indus-
tries is a practical possibility. In short, is the promise of ‘smart regulation’ on
a global scale just a chimera? A ‘unicorn among the cedars, to whom no magic
charm can lead us’ (Auden, 1974: 129)?
Arguably, among traditional industries, it is shipping which has been
changed more than any other by globalizing economic processes: there is
now effectively a single global labour market for the world’s 1 million sea-
farers, employed by international crewing companies on ships owned by
transnational corporations and operated by specialist international ship
management companies (ILO, 2001). The 1980s was the worst decade in
economic terms for the shipping industry (the cruise sector excepted) since
the 1930s, with falling world trade volumes coinciding with rising carrying
capacity to produce a ruinous collapse in freight rates and widespread bank-
ruptcies. Operators sought to cut labour costs by ‘flagging out’ to ‘flag of
convenience’ (FoC) ships registries such as Liberia and Panama and newer
entrants such as Belize and Cambodia, so that national labour agreements
could be circumvented and cheaper crews could be brought in (‘crew substi-
tution’) from developing nations such as the Philippines. While the shift to
FoC registries was largely driven by the search for cheaper labour costs, it
also brought other cost benefits, since the FoC states (even if they had ratified

BLOOR ET AL.: ‘SMART REGULATION’ OF THE SHIPPING INDUSTRY 537
IMO and ILO conventions) lacked the resources to enforce them effectively.
A succession of authorities as diverse as the Organization for Economic
Cooperation and Development (OECD, 2001), Lord Donaldson (1996) and
the International Commission on Shipping (ICONS, 2000) have pointed out
that many substandard operators in the industry are saving a significant
percentage of total operating costs through regulatory avoidance (OECD,
2001), that flag state control of the shipping industry is ‘a broken reed’
(Donaldson, 1996: 5), and that the ‘less responsible states have little inten-
tion of fulfilling their fundamental responsibilities’ because this would lessen
their market attractiveness to ‘less scrupulous owners’ (ICONS, 2000: 90).
Well-publicized maritime disasters and major marine pollution incidents
have led nation states to form regional alliances to enforce international stan-
dards directly as port states (without reliance on the flag states) and to
operate a common inspection methodology on foreign-flagged ships visiting
ports in the region in question. The first of these regional alliances was the
Paris Memorandum of Understanding on Port State Control (the Paris
MoU), an alliance of the major European...

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