Über die Autorin bzw. den Autor

Tim Buthe is associate professor of political science and a senior fellow of the Rethinking Regulation Center at Duke University. Walter Mattli is professor of international political economy and a fellow of St. John's College, University of Oxford. His books include "The Politics of Global Regulation" (Princeton).

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"In a world where global standards increasingly determine access to world markets, understanding how those standards are set is of vital concern to citizens, governments, and firms. This deeply informed book asks the questions and presents the often counterintuitive facts about the relation between domestic interests and global rule making that will set the intellectual agenda and shape political discussion in this area for years to come."--Charles Sabel, Columbia Law School

"Tim Büthe and Walter Mattli say something new and important about the world economy. Better yet, they prove their case. As economic interdependence grows and with it the need for clear global rules, more and more of those rules are being developed by private regulatory groups. Büthe and Mattli not only document this shift, they show how inherently political the process is."--Charles Lipson, University of Chicago

"Büthe and Mattli's survey of hundreds of senior financial managers is a window into a world most of us have observed only anecdotally. This impressive book convincingly reveals that the global regulatory advantage goes to those actors who can get useful information into the right hands at the right time. Bravo on a compelling story about how private firms, industry organizations, and local regulators contribute to the global governance of finance and production."--Beth Simmons, Harvard University

"When you buy an electrical appliance or rely on corporate accounts, you are affected by transnational private regulation--a technical arena that is also highly political. InThe New Global Rulers, Tim Büthe and Walter Mattli brilliantly explain who wins, and who governs, in this significant but under-studied domain."--Robert O. Keohane, Princeton University

"Analytically powerful. Both the empirical material and the theoretical analysis are significant contributions, and I think they will be quite influential. The book's impact will be enhanced by its unusually clear writing and engaging discussions of history and examples. It is a very accessible volume, which should give it considerable crossover appeal beyond international-relations scholars."--Kenneth W. Abbott, Arizona State University

"The New Global Rulers covers a big topic--an important and growing one, with an ever-wider audience."--Peter A. Gourevitch, University of California, San Diego, and coauthor ofPolitical Power and Corporate Control

Aus dem Klappentext

"In a world where global standards increasingly determine access to world markets, understanding how those standards are set is of vital concern to citizens, governments, and firms. This deeply informed book asks the questions and presents the often counterintuitive facts about the relation between domestic interests and global rule making that will set the intellectual agenda and shape political discussion in this area for years to come."--Charles Sabel, Columbia Law School

"Tim Büthe and Walter Mattli say something new and important about the world economy. Better yet, they prove their case. As economic interdependence grows and with it the need for clear global rules, more and more of those rules are being developed by private regulatory groups. Büthe and Mattli not only document this shift, they show how inherently political the process is."--Charles Lipson, University of Chicago

"Büthe and Mattli's survey of hundreds of senior financial managers is a window into a world most of us have observed only anecdotally. This impressive book convincingly reveals that the global regulatory advantage goes to those actors who can get useful information into the right hands at the right time. Bravo on a compelling story about how private firms, industry organizations, and local regulators contribute to the global governance of finance and production."--Beth Simmons, Harvard University

"When you buy an electrical appliance or rely on corporate accounts, you are affected by transnational private regulation--a technical arena that is also highly political. InThe New Global Rulers, Tim Büthe and Walter Mattli brilliantly explain who wins, and who governs, in this significant but under-studied domain."--Robert O. Keohane, Princeton University

"Analytically powerful. Both the empirical material and the theoretical analysis are significant contributions, and I think they will be quite influential. The book's impact will be enhanced by its unusually clear writing and engaging discussions of history and examples. It is a very accessible volume, which should give it considerable crossover appeal beyond international-relations scholars."--Kenneth W. Abbott, Arizona State University

"The New Global Rulers covers a big topic--an important and growing one, with an ever-wider audience."--Peter A. Gourevitch, University of California, San Diego, and coauthor ofPolitical Power and Corporate Control

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The New Global Rulers

PRINCETON UNIVERSITY PRESS

Contents

List of Illustrations and Tables.......................................................................................................................ixList of Acronyms.......................................................................................................................................xiiiAcknowledgments........................................................................................................................................xvChapter One The Rise of Private Regulation in the World Economy.......................................................................................1Chapter Two Private Nonmarket Rule-Making in Context A Typology of Global Regulation.................................................................18Chapter Three Institutional Complementarity Theory....................................................................................................42Chapter Four Private Regulators in Global Financial Markets Institutional Structure and Complementarity in Accounting Regulation.....................60Chapter Five The Politics of Setting Standards for Financial Reporting................................................................................99Chapter Six Private Regulators in Global Product Markets Institutional Structure and Complementarity in Product Regulation...........................126Chapter Seven The Politics of Nuts and Bolts—and Nanotechnology ISO and IEC Standard-Setting for Global Product Markets........................162Chapter Eight Contributions to the Theoretical Debates in Political Science, Sociology, Law, and Economics............................................192Chapter Nine Conclusions and Implications for Global Governance.......................................................................................214Appendix 1 Financial Reporting Standards Survey Additional Survey Results............................................................................227Appendix 2 Product Standards Survey Additional Survey Results........................................................................................234Appendix 3 Survey Methods.............................................................................................................................238References.............................................................................................................................................249Index..................................................................................................................................................289

Chapter One

On 28 August 2008, the world financial community awoke to stunning headline news: the Securities and Exchange Commission (SEC), the powerful U.S. financial market regulator, had put forth a timetable for switching to International Financial Reporting Standards (IFRS), produced by the International Accounting Standards Board—a private-sector regulator based in London. SEC-regulated U.S. corporations were to be required to use IFRS, possibly as soon as 2014. Only a decade earlier, the suggestion that the United States might adopt IFRS "would have been laughable," as many experts expected U.S. standards to become the de facto global standards.

The SEC's decision to defer to an international private standard-setter is part of a broader and highly significant shift toward global private governance of product and financial markets. What is at stake? Financial reporting standards specify how to calculate assets, liabilities, profits, and losses—and which particular types of transactions and events to disclose—in a firm's financial statements to create accurate and easily comparable measures of its financial position. The importance of these standards, however, runs much deeper. Through the incentives they create, financial reporting standards shape research and development, executive compensation, and corporate governance; they affect all sectors of the economy and are central to the stability of a country's financial system. IFRS, however, differ in some important respects from U.S. Generally Accepted Accounting Principles (GAAP), the financial reporting standards so far required by the SEC. Having evolved in a very litigious business environment, U.S. GAAP are highly detailed and address a vast range of specific situations, protecting companies and auditors against lawsuits. IFRS, by contrast, have traditionally been principles-based. They lay out key objectives of sound reporting and offer general guidance instead of detailed rules.

The implications of a switch from U.S. GAAP to IFRS are therefore momentous: twenty-five thousand pages of complex U.S. accounting rules will become obsolete, replaced by some twenty-five hundred pages of IFRS. Accounting textbooks and business school curricula will have to be rewritten, and tens of thousands of accountants retrained. Companies will need to spend millions of dollars to overhaul their financial information systems; many will need to redesign lending agreements, executive compensation, profit sharing, and employee incentive programs. And investors as well as financial analysts will need to learn how to interpret the new figures on assets, liabilities, cash flow, and earnings. The implications run deeper still. As explained by Robert Herz, chairman of the organization producing U.S. GAAP—the Financial Accounting Standards Board (FASB): "Liv[ing] in a world of principles-based standards involves [far-reaching] changes—institutional changes, cultural changes, legal and regulatory changes." In sum, the proposed shift of rule-making authority from the domestic to the international level will affect numerous and diverse actors, and bring deep changes to the American financial market.

The United States is not the only country to switch to international standards, of course. As figure 1.1 shows, the number of jurisdictions where stock market regulators permit or even require the use of IFRS has exploded since 2001—despite the substantial costs of the switch for many countries' firms, investors, and regulators. In the member states of the European Union (EU) and about sixty other countries across all continents, the use of IFRS is already mandatory for companies with publicly traded financial securities (stocks and bonds). And the trend is continuing: government regulators of several additional countries, including Japan, Canada, Brazil and India, have committed themselves to requiring IFRS in the near future.

The global convergence of accounting standards is driven, in large part, by the international integration of financial markets and the increasingly multinational structure of corporations. These developments have not only led to economic growth and greater profits for many, but have also raised the costs of continued cross-national divergence of financial reporting standards for companies and investors. Indeed, cross-national differences in these rules are said to have exacerbated the global financial crisis of 2008–9—and the Asian Financial Crisis of 1997–98 before it. The belief that harmonization would bring substantial benefits has prompted firms and governments to push for a single common set of international financial reporting standards. Harmonization promises to increase the cross-national comparability of corporate information, improve the transparency of financial statements for shareholders, investors, and creditors, as well as achieve greater efficiency and stability in global capital markets.

Switching to IFRS, however, also brings costs, and these costs vary across countries. For countries with marginal capital markets and no proper accounting tradition, the costs are relatively minor. However, they can be considerable for countries or regions with large and sophisticated capital markets as well as long-standing domestic accounting traditions, such as the United States and many European countries. These costs will be larger the greater the difference between IFRS and long-established domestic rules and practices. Americans and Europeans therefore have particularly strong incentives to seek to influence the process of global rule-making in accounting. International standards that end up being identical or very similar to a country's domestic standards will minimize that country's costs of switching to "international" rules. And in highly competitive international markets, differential switching costs may jeopardize even the survival of disadvantaged firms. In sum, the international harmonization of financial standards promises substantial benefits but also will bring significant costs for some and hence distributional conflicts. Given the enormous stakes involved, the battle over global rules is likely to be intensely fought, especially between the United States and Europe.

The shift of financial rule-making to the IASB is part of a striking and much wider—yet little understood—trend that is the focus of this book: the delegation of regulatory authority from governments to a single international private-sector body that, for its area of expertise, is viewed by both public and private actors as the obvious forum for global regulation. In that particular issue area, such a private body is what we call the focal institution for global rule-making. This simultaneous privatization and internationalization of governance is driven, in part, by governments' lack of requisite technical expertise, financial resources, or flexibility to deal expeditiously with ever more complex and urgent regulatory tasks. Firms and other private actors also often push for private governance, which they see as leading to more cost-effective rules more efficiently than government regulation.

Besides the IASB, two such private regulators stand out: the International Organization for Standardization (ISO) and the International Electrotechnical Commission (IEC). These organizations, in which states and governments as such cannot be members, are best described as centrally coordinated global networks comprising hundreds of technical committees from all over the world and involving tens to thousands of experts representing industries and other groups in developing and regularly maintaining technical standards. ISO and IEC jointly account for about 85 percent of all international product standards.

Product standards are technical specifications of design and performance characteristics of manufactured goods. Cross-national differences in these standards matter little when product markets are predominantly domestic. The global integration of product markets, however, has greatly and lastingly increased international interdependence and thus created strong incentives to coordinate on common technical solutions. International standards offer such a solution. ISO and IEC product standards, in particular, play a critical role in facilitating international trade and boosting economic growth. Their numbers have been growing steadily over the last twenty-five years while the production of national standards has dwindled—as illustrated by the declining number of new German (DIN) standards shown in figure 1.2.

Little known until the mid-1980s, ISO and IEC have become prominent, in part because of the Agreement on Technical Barriers to Trade, negotiated during the Uruguay Round trade negotiations from 1987 to 1994. This agreement obliges all member states of the World Trade Organization (WTO) to use international standards as the technical basis of domestic laws and regulations unless international standards are "ineffective or inappropriate" for achieving the specified public policy objectives. Regulations that use international standards are rebuttably presumed to be consistent with the country's WTO obligations, whereas the use of a standard that differs from the pertinent international standard may be challenged through the WTO dispute settlement mechanism as an unnecessary nontariff barrier to trade and thus a violation of international trade law.

The commitment by governments to use international rather than domestic standards has enormous economic significance. Governments adopt hundreds of new or revised regulatory measures each year, in which product standards are embedded or referenced. And government regulations are just the tip of the iceberg, since consumer demand and concerns about legal liability create strong incentives for firms to comply with a wealth of product standards that are not legally mandated but define best practice.

The shift from domestic regulation to global private rule-making brings substantial gains, particularly to multinational and internationally competitive firms, for which it opens up commercial opportunities previously foreclosed by cross-national differences in standards and related measures. The share of U.S. exports affected by foreign product standards, for instance, had risen from 10 percent in 1970 to 5 percent in 199 , and by the time the WTO's TBT-Agreement came into force, cross-national differences in product standards were estimated to result in a loss of $20–$40 billion per year in U.S. exports alone. United States imports and consumers were also affected. For some manufacturing industries, U.S. nontariff barriers in the late 1980s created losses due to increased costs and reduced trade equivalent to a tariff of 49 percent. Even today, about one third of global trade in goods—valued at $15.8 trillion for 2008—is affected by standards that often differ across countries, and the boost in trade from a complete international harmonization of product standards would be equivalent to a reduction in tariffs by several percentage points. A shift to common international standards thus benefits internationally competitive firms by increasing their export opportunities. It also benefits consumers who, as a result of increased trade and competition, have access to a broader range of goods and services and can buy them more cheaply.

At the same time, the shift to global private-sector regulation also entails costs. To comply with international product standards, for example, firms may have to redesign their products, retool their production methods, or pay licensing fees to other firms whose proprietary technology may be needed to implement the international standard efficiently. These costs can be massive, to the point where some feel forced to discontinue production of certain goods or even go out of business.

In sum, while the convergence on a single set of international standards may bring overall gains for all countries, those gains may differ greatly across countries and especially across firms. Firms therefore have a strong incentive to seek to influence the process of international rule-making to minimize their switching costs. For those who succeed in pushing their domestic standards for adoption as international standards, switching costs will be minimal. The stakes thus are high in global private regulation, and severe conflicts of interest are likely, as noted in a remarkably frank statement by Gerald Ritterbusch, director of standards and regulations at the U.S. firm Caterpillar, during a Congressional hearing:

How do standards impact our ability to compete internationally? ... When we have domestic standards that are different from international standards, everybody loses. We lose domestically because we must build a product that is different from products we sell internationally. That raises ... [our production] costs, hurt[ing] American consumers ... [and] caus[ing for us] unfavourable opportunities in foreign markets. What is needed is that [our] domestic standards experts aggressively participate in international standards developments to get domestic standards accepted ... The first to [propose a standard for adoption at the international level] ... will most likely succeed. Thus it is necessary ... [to] get to the international arena ahead of standards experts from other countries.

A distinctive feature of global regulators such as ISO, IEC, and IASB is not only that they are private but also that they are what we call focal regulatory institutions—uncontested in their respective areas. Their prominent position in the regulation of global markets raises pressing empirical and analytical questions:

? Who exactly writes the rules in these private organizations?

? Who wins and who loses—and why—when standard-setting takes place in these private international organizations? What, in other words, is the nature of politics in private-sector rulemaking?

? What defines power in these organizations, and how does it operate?

? Do all of those who have a commercial, financial, or sociopolitical stake in the content of these rules have a voice in the process?

Specific, empirical answers to these questions are hard to come by, in large part because these global regulators are private. Financed mostly by voluntary contributions from private-sector stakeholders, they are not subject to public oversight, and the writing of specific rules is in the hands of groups of experts who are not required to keep records of their proceedings. It is therefore difficult to obtain systematic information about these regulatory processes. Yet, global private regulation has in recent years become vastly more important and is now a phenomenon of considerable social and economic consequence—it matters to understand it. This makes the lack of reliable information all the more problematic, since comprehensive data are a crucial prerequisite for both assessing and improving the performance and processes of global private regulators.

In this book, we provide not only a framework for the analysis of private regulation but also detailed empirical answers to the above questions. We are able to test competing theoretical propositions about global regulation thanks to eight years of collecting extensive information on private rule-making in central areas of the global economy. As part of this research, we have conducted two comprehensive multi-country, multi-industry business surveys—one about international financial reporting standards and IASB standardization, the other about international product standards and ISO/IEC standardization. The surveys covered a broad range of issues, including firms' use of standards, familiarity and satisfaction with various standards, cost of switching to international standards, methods of seeking influence in private rule-making, assessments of such methods, reasons for getting involved or staying out, and general trends. We supplement the analysis of the survey data with insights gained from a large number of interviews with senior and mid-level managers, current and former IASB and ISO/IEC staff, and government regulators. Together, these data allow us to provide the first systematic analysis of key private institutions for the regulation of global markets.

The Argument in Brief

International standardization is sometimes described as an apolitical, scientific process of developing or identifying the technically optimal solution to a regulatory or technical challenge. In this view, consensus and thus rule-making is easy because "scientific technological knowledge is everywhere the same." Much of the language used by private-sector regulators to describe their operations reinforces this view of standardization. The ISO, for example, characterizes its standards as "based on international consensus among the experts in the field ... [and reflecting] the state of the art" of science and technology. Similarly, the IASB notes that nationality and other political considerations play no part in the appointment and decisions of its expert rule-makers. They are chosen because they have "the best available combination of technical skills and background experience of relevant international business and market conditions in order to contribute to the development of high quality global accounting standards."

(Continues...)

Excerpted from The New Global Rulersby Tim Büthe Walter Mattli Copyright © 2011 by Tim Büthe and Walter Mattli. Excerpted by permission of PRINCETON UNIVERSITY PRESS. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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