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Bus Soc Rev. 2019;124:325–343. | 325 wileyonlinelibrary.com/journal/basrDOI: 10.1111/basr.12178
ORIGINAL ARTICLE
Beyond market, firm, and state: Mapping the ethics
of global value chains
Abraham A. Singer 1 | Hamish van der Ven 2
© 2019 W. Michael Hoffman Center for Business Ethics at Bentley University. Published by Wiley Periodicals, Inc., 350 Main Street, Malden,
MA 02148, USA, and 9600 Garsington Road, Oxford OX4 2DQ, UK.
1Department of Management, Quinlan
School of Business, Loyola University
Chicago, Chicago, Illinois
2Department of Political Science and
School of Environment, McGill University,
Montreal, Canada
Correspondence
Abraham A. Singer, Department of
Management, Quinlan School of Business,
Loyola University Chicago, Chicago, IL
60660.
Email: [email protected]
Abstract
The growth of global value chains (GVCs) and the emer-
gence of novel forms of value chain governance pose two
questions for normative business ethics. First, how should
we conceptualize the relationships between members of a
GVC? Second, what ethical implications follow from these
relationships, both with respect to interactions between
GVC members and with respect to achieving broader trans-
national governance goals? We address these questions by
examining the emergence of transnational eco‐labeling as
an increasingly prominent form of GVC governance that is
redefining the relationship between nominally independent
firms. On the first question, we argue that GVCs occupy
a middle ground between intrafirm and interfirm transac-
tions, thereby posing a challenge to theoretical frameworks
that attempt to apply ethical standards based on transaction
types. On the second question, we argue that this unique
institutional status leads to a range of novel ethical con-
siderations and dilemmas for GVC members. Lead firms,
their suppliers, and third‐party standard‐setters all confront
new ethical quandaries when third‐party eco‐labeling is in-
troduced to a GVC. The nature of these quandaries means
that, while GVCs may be well‐positioned to serve as instru-
ments of transnational governance, they are frequently not
well‐oriented to do so. Our analysis marks an initial attempt
to map the ethical considerations that apply to members of 326 |
1 | INTRODUCTION
In this article, we argue that the nature of the modern globalized economy presents a challenge for
how we understand ethics and moral responsibility in economic activity. One of the interesting recent
developments in normative business ethics has been the increasing appeal to institutional kinds as a
means of understanding moral obligation (see Hsieh, 2017). On this view, understanding actors' moral
duties requires understanding the institutional context and position they find themselves within. Such
approaches often distinguish between what a manager owes her workers and what she owes her com-
petitors by noting that corporate hierarchies and competitive markets are different sorts of institutional
contexts, imposing distinct normative concerns on different actors. While there are disagreements
around the edges regarding what sorts of ethical obligations each distinction implies (Heath, 2014;
Jaworski, 2013; Singer, 2019), there is a growing agreement that these distinctions are important for
normative business ethics.
However, the past decades of economic globalization have witnessed the emergence and grow -
ing complexity of global value chains (GVCs) that are messier and more difficult to characterize
(Gereffi, 2014; Gereffi, Humphrey, & Sturgeon, 2005). GVCs encompass the full range of activities
that multiple firms in multiple countries undertake to bring a product or service from its conception
to its end use (Gereffi & Fernandez‐Stark, 2016). They are a product of the vertical disintegration of
multinational corporations whereby larger and wealthier firms focus on innovation, marketing, and
high value‐added segments of manufacturing, while contracting “non‐core” functions like volume
production to independent firms, often based in markets where labor is cheaper (Gereffi et al., 2005).
For example, a cotton t‐shirt may be designed in Canada, but use cotton from China, be spun into
yarn in Indonesia, assembled in Bangladesh, and sold by retail outlets in the United Kingdom (Rivoli,
2009). Because these activities occur between independent firms in disparate countries, but in a co-
ordinated manner, it is less clear how to make sense of them as institutions. Insofar as understanding
the ethical nature of such activity requires us to understand what kind of actors are situated in what
kind of institutions, this intractability poses a problem for understanding the ethical responsibilities
this class of activity entails. The ethical obligations of members of a GVC, both to each other and to human society more broadly,
are further complicated by the emergence and mainstream acceptance of third‐party actors into the
social and environmental governance of GVCs. Practices like transnational eco‐labeling, where an in-
dependent organization awards a certification or label based on the ability of GVC members to uphold
a unitary standard of environmental performance across firms and borders, further blur transactional
boundaries and ethical obligations within GVCs. In the preceding t‐shirt example, the introduction of an
eco‐label like the bluesign® standard for environmental friendly and safe textile production increases the
network density
1 of a GVC and introduces new ethical considerations to the t‐shirt vendor, its suppliers,
and third‐party eco‐labeling organizations (ELOs). In choosing to use an eco‐label, the t‐shirt vendor
a GVC, and in doing so, places the literature on normative
business ethics and transnational governance in a closer
conversation.
KEYWORDS
business ethics, corporate social responsibility, eco‐labeling, global value
chains, transaction costs, transnational governance
SINGER AND VAN DER VEN | 327
adopts some ethical accountability for the environmental practices of its GVC partners. Suppliers, in
turn, may feel ethically or materially compelled to uphold environmental standards far above what is
required under domestic law in their home country. However, third‐party ELOs must strike a balance
ensuring that their standards are stringent enough to compel behavioral change along a GVC, yet per -
missive enough that their eco‐label will be widely used. Through the introduction of third‐party eco‐
labeling, each GVC member becomes increasingly connected by the shared goal of ensuring that t‐shirt
production follows meaningful rules to reduce its environmental impact. The task we undertake in this article is therefore twofold. First, we ask how we should conceptual-
ize the relationship between members of a GVC. Are GVCs like larger, more dispersed firms, or are
they merely global “nexuses of contracts,” a large number of agents voluntarily transacting in an open
market? Or are they something distinct? Second, we ask what ethical implications follow from these
relationships, both with respect to interactions between GVC members and with respect to achieving
broader transnational governance goals, like avoiding environmental degradation. In response to the
first question, we argue that GVCs occupy a middle ground between “market” and “administered”
transactions. As we explain, GVCs normally fall into one of the three categories of what Williamson
(1979) and others refer to as unilateral, bilateral, and trilateral governance structures. To the second
question, we take what Rubenstein (2015) calls a “cartographical” approach and map out the various
ethical considerations and dilemmas that arise for GVC members when their relationships fall into one
of the aforementioned categories. Such a map shows that different types of GVC governance create
different ethical considerations and dilemmas, and that these concerns are faced by different actors
depending on the structure of the value chain. We make no claim to definitively settle questions of value chain ethics. Our aim is to show how
questions regarding the regulative integrity of third‐party standard setters, firms' responsibilities for
their supplier's actions, and power‐imbalances between firms are brought to the fore when the nature of
GVCs is better understood. To do this, we use the example of eco‐labeling as a way of illustrating the
questions and concerns that GVCs raise.
2 Taken together, these concerns suggest serious limitations
on the utility of GVCs as instruments of transnational governance, which we define as the processes
through which “non‐state actors adopt rules that seek to move behavior toward a shared, public goal
in at least two states” (Roger & Dauvergne, 2016). In short, while eco‐labeling offers the tantalizing
prospect of governing environmental problems across borders by leveraging the power and reach of
GVCs, the ethical quandaries that confront each individual party within a GVC may ultimately hinder
the potential of eco‐labeling to achieve broader environmental outcomes.
2 | ETHICAL STANDARDS AND TRANSACTIONAL TYPES
One of the most important developments in business ethics over the past \
decade has been the recogni-
tion that behavior and activity within firms are normatively distinct fr\
om those that happen between
or outside of firms (Smith, 2019). In this section, we explain the imp\
ortance of recognizing different
institutional forms and transaction types for doing normative theory, an\
d the way transaction costs
have been used to make sense of this institutional variety. In the next \
sections, we explore how GVCs
complicate this picture and how to make sense of them.
2.1 | The normative significance of distinguishing institutions
Following Shipman (1999), we refer to within‐firm activity as being\
composed largely of “adminis-
tered transactions” and between‐firm activity as “market transa\
ctions.” In a market transaction, two
SINGER AND VAN DER VEN 328 |
or more parties meet each other in a more or less uncoordinated manner, in order to engage in the co-
operation based on a mutually agreed upon price. In an administered tran\
saction, two or more parties
engage in the cooperation through the coordination, and often the compul\
sion, of some outside third‐
party. Activity within firms is the archetypical example of an administe\
red transaction, as cooperation
is being coordinated through the direction of a manager, in contrast to \
the market where activity is
coordinated by rising and falling prices (Coase, 1937), though activit\
y effected through state coercion
would also be an administered transaction.
The basic insight is that what one agent owes to another will differ, depending on whether they are
engaging in a market transaction or an administered transaction. There are various ways one might
view the implications of this insight. If one takes a more classical “applied ethics” approach, one must
understand the institutional context under discussion in order to know how best to apply Kant's cat-
egorical imperative (e.g., Lee, 2018), Aristotelian virtue ethics (e.g., Alzola, 2008), or the utilitarian
calculus. Determining whether the relationship is an administered transaction or a market transaction
is important for knowing how and where to apply one's preferred moral theory. Another way of approaching business ethics, however, which focuses on this distinction between
transactional types, eschews the “applied ethics” paradigm entirely. In this view, business ethics is not
about applying an external moral principle to a set of practices, but engaging in “immanent critique”
and applying the morality that is implicit in a set of arrangements to the practices one is interested
in (Heath, 2014). Business ethics, in such an approach, is constituted by understanding the specific
sorts of moral obligations and permissions that attach to commerce and critically assessing extant
business practices on that ground. This approach is based on the Rawlsian idea that schemes of social
cooperation entail implicit principles of how the benefits of cooperation ought to be distributed among
cooperators (Rawls, 1971, p. 3–4) and the sociological insight that we cooperate through functionally
differentiated domains of interaction, where particular forms of behavior are encouraged in order to
achieve particular ends (e.g., Luhmann, 1996). Business ethics, in this view, must be based on an un-
derstanding of these implicit norms and the behavioral logic of a given institution; the ethics of how
to act within one domain of interaction must be tailored to the goals of that institution and the sorts of
behavior encouraged therein. On a particularly influential version of this approach, business ethics ought to be based on the value
of efficiency, which is the relevant social value of the functionally differentiated sphere of commercial
activity, or the “implicit morality of the market” (McMahon, 1981). To what degree “efficiency” ought
to be supplemented by other values, like fairness or justice, has been a source of debate (Norman, 2011;
Singer, 2019). More important for our purposes, is the recognition that the “market” is, itself, charac-
terized by institutional variegation. Whereas markets are characterized by competition and adversarial
modes of interaction, within which economic activity is coordinated through rising and falling prices,
the firms that populate markets are characterized by the supersession of the market's pricing mechanism
in favor of hierarchically planned and organized cooperation (Coase, 1937). Thus, whether we approach
business ethics by applying the Kantian categorical imperative, or by considering what market effi-
ciency or fairness demands, we must recognize the distinction between cooperation coordinated through
markets and cooperation coordinated through corporate hierarchy. For a long time, the inability to observe this distinction led the academic study of business ethics
into an impasse, leading to ethical theories that were either impractically strong or entirely too lax
(Heath, 2006, 2007). Stakeholder theory (e.g., Donaldson & Preston, 1995), for example, in asking
managers to consider a fiduciary obligation to all their stakeholders took the norms that characterize
intrafirm cooperation and attempted to apply them to the entire universe of business decisions. While
not without its merits, such an approach does not take the adversarial nature of market competition
seriously enough, ignoring how such adversarialism differs from the administered transactions within
the corporation.
SINGER AND VAN DER VEN | 329
Some approaches to business ethics, moreover, have been far too lax and permissive, taking the
adversarialism, instrumentalism, and strategy that characterizes between‐firm market competition and
applying them to the cooperation that happens within firms (e.g., Alchian & Demsetz, 1972). Such
an approach to business ethics is unable to take seriously the nature of power or culture within a firm
(Anderson, 2017). Why would businesses have any sort of responsibility toward the parties cooper -
ating within the firm? After all, if the activity within a firm is just like that which happens between
firms, why should a boss treat an employee any different than she would treat a competitor? In contrast, the growing consensus is that business ethics should not be understood in monistic
terms. Rather, it must be marked by a plurality of ethical standards to fit the plurality of institutional
forms and roles found therein (Martin, 2013). One needs an “adversarial ethic” (Applebaum, 1999)
that explains and delimits the competitive interactions between market actors, informed by the ends
that adversarialism is meant to achieve. Such an adversarial ethics for market competition, not unlike a
norm of sportsmanship, would explain what counts as an ethical or unethical competitive strategy, and
would explain other duties that market competitors have, such as minimizing the negative externalities
of one's strategic actions. But in addition to adversarial ethics, one also needs an ethics of cooperation
that adjudicates what sort of obligations members of firms have vis‐à‐vis one another in the realm of
administered interactions; this would touch on questions variously associated with “organizational
justice” (Colquitt, 2001), questions about procedures and distribution that relate to issues like employ -
ment ethics, responsible and ethical accounting, fiduciary duties, corporate governance, and so on.
By recognizing an economy's various institutions, we get the conclusion that business ethics will be a
much more nuanced and a varied project, informed by both our understanding of the economic activity
in question and the moral theories we apply to them (Heath, 2014).
2.2 | GVCs, transaction costs, and institutional variety
What this means is that theoretically prior to the normative question of\
how a business actor ought
to act in a particular situation is the conceptual question of what sort\
of situation the business actor
finds themselves in the first place. This is why the normative question \
about the obligations that firms
have vis‐à‐vis their GVC partners raises an interesting puzzle. GVCs are, by definition, inclusive of
multiple firms, each with different cultures, hierarchies, decision make\
rs, and stakeholders to whom
they are responsible. However, they are also not exactly like market int\
eractions: firms within GVCs
generally do not compete or haggle with one another in the same way market participants do, and
they often submit to some common rules, norms, or operating procedures, \
whether these are informal
or standardized by coordinating bodies and governing institutions. Inter\
actions within a value chain,
simply put, are neither pure “administered transactions” nor pure \
“market transactions”; relationships
are not as cooperative as those found within a firm, nor are they as adv\
ersarial as those found in the
open market. To answer questions related to ethical obligations within v\
alue chains, then, we first
need to locate GVC between market and administered transactions.
To this end, it is worth noting that the concepts of “administered transaction” and “market trans-
action” find their grounding in a distinction drawn from transaction cost economics. According to
the school of economic thought, the manner in which a given transaction will occur is ultimately
determined by what method best reduces transaction costs (Williamson, 1985). When the chance for
opportunism is low, when transactions do not require asset‐specific investments, and when the cost
of price‐discovery or contract specification is low, one expects the transaction to occur through the
market and price‐coordination (or what Williamson refers to “market governance”). With transactions
with such properties, transacting parties are best protected by recourse to the market, using the exit
option, standard contract law, and so forth.
SINGER AND VAN DER VEN 330 |
However, when transactions place parties in a position to act opportunistically toward one another,
when they require large or costly asset‐specific investment, when specifying contractual terms will be
difficult and time‐consuming, and when we expect the transaction to be a recurrent one, one expects
the transaction to be brought “in‐house” and done through administered transaction (or “unified gov -
ernance,” owing to its bringing both parties within the fold of a common entity). The idea here is that
when transactions feature such characteristics, the market does not offer enough protection for each
of the parties to go through with the transaction, since each will be worried about being vulnerable in
the future. To facilitate the transaction, the market's price mechanism is superseded; hierarchy, rules,
and governance structures are introduced in order to mitigate potential opportunism and assure parties
that the transaction will be completed according to the agreed‐upon terms. The takeaway is that the choice among the various institutional possibilities for coordinating a
transaction will be determined in large by the comparative efficiency of each. Markets will tend to
have the relative advantage of allowing parties to transact with one another with minimal imposi-
tion by outside parties; firms can provide assurance and minimize the cost of specifying contractual
terms. Both contribute to an efficient economy but do so by positioning parties in different ways
relative to one another. This recognition of different institutional logics is crucial for understanding
the various moral considerations that attach to business actors. The problem, however, is that “market
governance” and “unified governance” are ideal types, and polar ones at that. On the picture painted
above, a capitalist economy would consist solely of firms with internally administered transaction and
markets which situate parties competitively. The reality is, of course, much messier. While this sort
of approach is helpful in clarifying a number of things about business ethics, the fact is that interfirm
activity is often much more collaborative, and intrafirm activity is much more competitive and adver -
sarial, than this depiction captures.
3 | BETWEEN THE FIRM AND THE MARKET
The market is much more structured than the adversarial picture paints: \
Professional associations
tie together firms who might otherwise be competitors; buyers and sellers form relationships that
allow them to interact with less contractual precision and opportunistic\
worry than might otherwise be
predicted; and increasingly, firms coordinate their efforts to achieve s\
hared social or environmental
objectives that are constituted by evolving and dynamic norms about the \
obligations of markets to
serve broader societal objectives (Bernstein & van der Ven, 2017). Bec\
ause of this, and less frequently
noted by business ethicists interested in such things, Williamson (1985) recognized that there will be
transactions in the middle range, exhibiting the possibility of opportun\
ism that would render a pure
market transaction too precarious, but at low enough levels such that es\
tablishing a hierarchical gov-
ernance structure would be too costly. By attending to these sorts of “middle range” interactions, we
can bring an institutionally sensitive approach to business ethics more \
in line with the reality of busi-
ness practice and use this more nuanced picture to make sense of the eth\
ics of GVCs.
Accordingly, transaction cost economics identifies two additional transaction categories: “trilateral
governance,” where a known procedure for third‐party‐arbitration is introduced to adjudicate the oc-
casional conflicts that may arise; and “bilateral governance,” which is closer to unified governance,
but where both parties retain autonomy, collectively bargaining with one another to establish binding
procedures for determining price corrections and other changes in the terms of the transaction. To this,
we might add (following studies of value chains [Albers, Gehring, & Heuermann, 2003]) the idea of
“unilateral governance,” where firms maintain their autonomy, but one lead firm (because of its size,
market share, power, etc.) is largely responsible for determining prices and procedures for interfirm
SINGER AND VAN DER VEN | 331
value chain management. Others have referred to this governance structure as “dictatorial collabo-
ration,” insofar as one firm has the capacity to force others to follow its edicts (Drake & Schlachter,
2008), while others characterize this more neutrally in terms of “centrality,” insofar as one organiza-
tion occupies a central and commanding position in the chain (Vurro, Russo, & Perrini, 2009).
These various modes of governance are depicted in Figure 1. Again, we hasten to note that these
are still ideal types and abstractions, as all models and categories of social phenomena are. Still, these
categories are helpful because they help us get away from thinking of commerce purely in terms of
market and firm. Many market transactions will be coordinated, governed, and adjudicated in various
ways, and many formal governance structures will not be fully unified, and will still maintain the
distinction and autonomy of the participant firms. These can all, however, be understood in terms of
their comparative ability to mitigate costs associated with both market transactions and bureaucratic
governance—their relative efficiency. This also helps us grasp the increasingly complex picture of GVCs. Some will be completely un-
organized and happen unplanned through the market (pure market transactions). Some will be loosely
organized, governed to the extent that they require appeals to, and submission to, third parties for
the resolution of conflict and standardization of practices (trilateral value chain governance). Some
require rules, procedures, and standards that are determined through the more or less collective deci-
sions of the value chain participants (bilateral value chain governance). Others will be governed by
a single lead firm, which determines the rules, procedures, and standards that will apply to the other
firms in the chain (unilateral value chain governance). And some will simply fall under the governance
structure of one firm (multi‐sector, multi‐jurisdictional, and supra‐national corporate governance). For the purposes of our argument, we bracket the question of whether one sort of GVC governance
structure is more ethical than the others. Just as we accept the existence of competitive markets and
firms for the purposes of determining what business ethics consists of (in this world with roughly this
institutional configuration) we also accept the existence of these various forms of GVCs. We are inter -
ested in the ways in which (a) the coinciding rise of GVCs and norms of environmentally responsible
business practices create new relationships that fall between the firm/market distinction and (b) how
FIGURE 1 Modes of inter and intrafirm governance
SINGER AND VAN DER VEN 332 |
these new relationships create new and different kinds of ethical questions. To illustrate some of these
questions, we now turn to the case of transnational eco‐labeling.
4 | THE RISE OF TRANSNATIONAL ECO‐LABELING
Transnational eco‐labels first appeared just over four decades ago in\
response to changing norms
about the environmental responsibilities of businesses. Eco‐labels of\
fer a straightforward solution
to societal demand for product‐level environmental information across\
a range of ethical concerns
related to value chains, from water and energy conservation to health and safety concerns (van der
Ven, 2019). The rise of eco‐labels is therefore enmeshed in the rise\
of GVCs. As consumers and
downstream sellers of goods grew more spatially distant from their suppl\
iers, they sought novel forms
of transnational governance to ensure consistent environmental standards\
across countries, firms, and
cultures. The approach has gained significant traction in recent years. At present, there are roughly
463 distinct eco‐labels operating in 199 countries and 25 industrial \
sectors (Ecolabel Index, 2019).
Far and away the most common contemporary form of eco‐labeling is third‐party labeling where
firms and their suppliers contract neutral, legally independent organizations to develop and enforce
environmental standards across a GVC. Third‐party eco‐labels mitigate the risk of corporate environ-
mentalism being perceived as inadequate and/or illegitimate by offering an ostensibly impartial set of
rules and an objective/independent system for verifying compliance with those rules (Abbott, Levi‐
Faur, & Snidal, 2017).
3 Often, though not always, these labeling schemes are endorsed by environ-
mental non‐governmental organization (ENGOs). For example, the World Wildlife Fund for Nature is
a sponsor and supporter of both the Forest Stewardship Council and the Marine Stewardship Council
certifications for forest products and seafood. Importantly, we need not assume that the development
of third‐party eco‐labeling had to do with a thicker ethical obligation to sustainability or environmen-
talism; what the historical record seems to show is that such practices grew out of learned experiences
and straightforward business decisions to minimize risk and maximize profits. Indeed, as a business strategy, eco‐labeling offers a number of benefits to a firm's bottom line.
First, it can help avert the risk of ENGO naming‐and‐shaming campaigns. Such campaigns can have
a discernible negative effect on both sales and stock prices, particularly for firms with recognizable
brand names (Bartley & Child, 2011). It took Nike many years to rehabilitate its brand after non‐
governmental organization (NGO) campaigns exposed child labor in its factories in the 1990s. The
same effects hold for instances of environmental malfeasance. Second, it offers industry leaders the
prospect of garnering “club goods” or exclusive benefits that provide an advantage over competing
firms (Potoski & Prakash, 2005, 2010). In competitive sectors, having an eco‐label can be an im-
portant source of market differentiation that helps attract the so‐called “green consumers.” However,
it is worth noting that the role of consumers in creating demand for eco‐labels is openly debated,
since consumer‐demand is significantly moderated by confusion over the proliferation of environ-
mental labels and standards in recent years (Prag, Lyon, & Russillo, 2016). Third, it can help firms
realize hitherto unexplored production efficiencies within their own value chains. For example, the
act of calculating a single product's carbon footprint along a GVC can reveal new opportunities to
reduce energy consumption and attendant carbon emissions (van der Ven, Bernstein, & Hoffmann,
2017). Fourth, it can help mitigate information asymmetries and improve lines of communication
with suppliers. When lead firms ask their suppliers to adhere to a third‐party environmental manage-
ment system (e.g., ISO 14001), they are simultaneously reducing their environmental footprints, while
controlling and verifying the production unit's adherence to standardized and centralized procedures
(Thauer, 2014). Of course, there are also barriers to the market uptake of eco‐labels. Most notably,
SINGER AND VAN DER VEN | 333
higher production costs, problems associated with GVC coordination or complexity, and inadequate
communication across the value chain (Seuring & Müller, 2008).
In recent years, eco‐labeling has gone mainstream with uptake from some of the biggest businesses
in the world (van der Ven, 2019). However, how the mainstreaming of third‐party eco‐labeling affects
one's categorization of GVCs remains unclear. As a start, we can safely assume that third‐party eco‐
labeling has increased the network density of GVCs by requiring new levels of information‐sharing
and coordination between GVC members in different firms and countries (Vurro et al., 2009). This
may be construed as a modest shift away from purely market‐based transactions and toward adminis-
tered transactions. Yet there remains ample room for variation on the spectrum between market and
administered transactions (Gereffi et al., 2005). Some GVCs are clear examples of trilateral value
chain governance: Firms that want to cooperate with one another on shared environmental standards
do so by submitting themselves to standards created by a third‐party ELO. Others more closely re-
semble bilateral governance insofar as GVC members negotiate in which eco‐labeling standards adopt
together. Still others hold characteristics of unilateral value chain governance, as in GVCs with strong
centrality or those dominated by a single “lead firm” (where one GVC member wields disproportion-
ate economic clout) (Vurro et al., 2009). In such situations, decisions to adopt a third‐party eco‐label
are made unilaterally without consulting other value chain members, thereby imposing an element of
hierarchy to nominally market‐based transactions (van der Ven, 2018). In short, the effect of third‐
party eco‐labeling on the relationships between GVC members varies according to the unique charac-
teristics of each value chain. Accordingly, so too do the types of ethical considerations that apply. This
makes deriving a unitary ethical standard for the interactions between GVC members problematic
since GVCs occupy a dynamic space between transaction types. Understanding the diversity of GVC governance structures also brings to light new questions about
the ethics of using GVCs as instruments of transnational governance (or means through which gov -
ernance is accomplished). At first glance, it may be tempting to view eco‐labeling and comparable
forms of transnational governance as an alternative to multilateral environmental agreements, which
have achieved only incremental progress on key environmental issues in recent years (Hale & Held,
2011). Yet, the decision to substitute firms into a role conventionally occupied by governments brings
its own set of ethical questions, many of which are specific to particular GVC governance structures.
5 | NOVEL ETHICAL CONSIDERATIONS FOR
GVC MEMBERS
As noted in the introduction, ethical analysis begins with the implicit \
morality to the institutionalized
forms of cooperation in which we find ourselves enmeshed. With all comme\
rcial activities, efficiency
will be a crucial value. However, as we also noted, governance instituti\
ons and conscious cooperation
also introduce questions about organizational justice and fairness. The institutional mix that character-
ize GVCs means that these various concerns will be at play in intertwini\
ng and sometimes conflicting
ways, a complexity that is only heightened when the transnational govern\
ance of GVCs is taken into
account. Mapping the full array of these ethical questions is a task too\
broad for any single article.
However, in the following sections, we begin this process. In this secti\
on, we highlight the most sali-
ent ethical quandaries that eco‐labeling poses to particular GVC memb\
ers under particular govern-
ance structures. In the next section, we consider how the diverse types \
of GVC governance affect the
ethics of using GVCs as instruments of transnational governance.
SINGER AND VAN DER VEN 334 |
5.1 | Third‐party ELOs and the ethics of neutrality
Third‐party (ELOs) have obligations to construct and enforce their \
standards in a neutral and impartial
manner. This may seem obvious, but consider that third‐party ELOs als\
o have economic incentives
to create and enforce standards in a way that attracts and retains clien\
ts because they derive revenue
from certification and logo licensing fees. For example, the marine stew\
ardship council (MSC) derived
roughly 70% of its total income in F2013/14 from royalties accrued throu\
gh logo licensing (MSC,
2014). Some might perceive this as a conflict of interest, since the MS\
C stands to financially benefit
from making its eco‐label more easily achievable and licensable. Others counter that there are proce-
dural safeguards in place to prevent this from happening (van der Ven, \
2015). In either case, there is
some degree of incentive to create easily achievable standards and overl\
ooking noncompliance issues
in order to profit from certification and labeling activities (Cashore,\
Auld, Bernstein, & McDermott,
2007; Mayer & Gereffi, 2010). These incentives are fueled by corporate demand for eco‐labels with
low exigencies that would allow firms to use them as a “legitimacy front” (Mueller, Santos, & Seuring,
2009). Moreover, ELOs exist to provide the requisite levels of assuranc\
e necessary to secure coopera-
tion among various actors and their claim to do so effectively comes fro\
m their presumed impartiality.
In this manner, third‐party ELOs have ethical obligations that resemble the regulatory ethics of
public administrations better than adversarial market ethics or cooperative intrafirm ethics. They
must take steps to institutionally ensure their impartiality and inoculate themselves from the pressure
of market competition and intrafirm loyalty. These institutional precautions also generate beyond‐
compliance norms, which demand a commitment to norms that are derived from their status as pro-
fessional regulators, particularly in handling conflicts of interest and avoiding using such offices for
private gain (Lewis & Gilman, 2005; Stark, 1997). Past research has shown that not all ELOs perform
these tasks equally well (van der Ven, 2015, 2019). The temptation to create superficial eco‐labeling
standards may be greater in GVCs characterized by unilateral governance (van der Ven, 2018). Under
such conditions, third‐party ELOs may be overly dependent on a single lead firm to adopt and use its
label and push eco‐labeling up and across its GVC. The tension between maintaining neutrality and
ensuring the usage and uptake of their eco‐labels may make upholding regulatory ethics particularly
challenging for third‐party ELOs here.
5.2 | Lead firms and the ethics of reputation
The existence of third‐party eco‐labels also places novel ethical \
expectations on lead firms in GVCs,
particularly under conditions resembling unilateral governance. Consumer\
s and advocacy groups are
all too aware of the leverage held by lead firms to advance their enviro\
nmental values. Often, activists
and NGOs seek ways to encourage lead firms to adopt particular third‐\
party eco‐labeling standards,
sometimes by lobbying the most recognizable brands or the ones best posi\
tioned to pressure their
GVC (Dauvergne & Lister, 2013; van der Ven, 2018). Do lead firms have \
a moral requirement to
respond to pressure and to try and enforce standards on their downstream\
suppliers? The fact that they
have the ability to do so—and, as we discussed below, the fact that t\
here might not be other actors ca-
pable of doing so—may suggest that they do (Hsieh, 2013). However, \
even if such actions were to be
purely supererogatory, there is a strong business case for lead firms to\
pursue such actions regardless.
Should a lead firm prove reluctant to adopt a particular eco‐label, activists and consumers can hold
them responsible for the environmental indiscretions of suppliers and impose material and reputa-
tional costs through boycotts, naming‐and‐shaming campaigns, or shareholder activism. Apple, Gap,
and Nestle are among the big brands that have been shamed into addressing supply chain issues in
recent years, often after their share prices have taken a beating (van der Ven, 2019). Accusations of
SINGER AND VAN DER VEN | 335
ethical misconduct nearly always fall on the lead firm irrespective of its legal relationship to suppliers.
Even when dealing with independent firms in purely market transactions, lead firms can be found
guilty by the association. This then places novel ethical expectations on lead firms to manage their
value chains or risk material and reputational consequences.
5.3 | Upstream suppliers and the ethics of nonlocal norms
Relatedly, upstream suppliers face novel ethical obligations under gover\
nance structures where they
have little input into decisions to adopt a third‐party eco‐label.\
In unilateral governance structures,
lead firms have the ability to punish suppliers who jeopardize their brand through poor environ-
mental practices. This creates an expectation for a minimum standard of environmental conduct that
transcends borders. Significantly, these obligations arise irrespective \
of whether suppliers operate
in a socio‐political context where there is strong social or political pressure for ethical environmen-
tal behavior. Rules, laws, and norms about corporate environmentalism ar\
e weak or nonexistent in
many countries, particularly those that export raw commodities or manufactured goods from unskilled
labors. Yet suppliers in such environments face consequences nonetheless\
should they commit en-
vironmental transgressions that stand to harm a lead firm's brand. For e\
xample, a small Indonesian
oil palm plantation may face very little pressure from government regula\
tors to rigorously track its
greenhouse gas emissions, yet it may feel obliged to do so if it means continuing t\
o sell palm oil to
its largest buyers.
In this way, the ethical obligations of lead firms in markets on the other side of the world can be
exported to their suppliers in ways that have not been appreciated. In Heath's market failures model
(2014), for instance, a business has the ethical responsibility to meet its contractual obligations, obey
the law, and to comply with the spirit of the laws and the underlying logic of the market (i.e., to avoid
profiting off of market failure and exploiting regulatory loopholes). However, the regulations that
some businesses face may come from beyond the nation‐state and may include the regulations taken
on by the virtue of one's business commitments. Thus, a careful examination of GVCs shows how an
upstream supplier takes on the ethics of the entity that sets the standards (be it a third‐party ELO, lead
firm, or the two working in tandem); it must not merely obey the spirit of the laws in the jurisdiction
it operates in, but must meet the standards set for the value chain generally. This is particularly true in
buyer‐driven value chains where levels of asset‐specificity are low, like agricultural products (Gereffi
& Korzeniewicz, 1994). The fragmented and competitive nature of the global production often means
that suppliers must do whatever is necessary to maintain relationships with lead firms and their inter -
mediaries. For suppliers in sectors with low levels of asset‐specificity, this means diligently following
whatever standards are imposed or risking replacement by competitors (Dauvergne & Lister, 2010).
6 | GVCS AND TRANSNATIONAL BUSINESS ETHICS:
PROSPECTS AND LIMITATIONS
Leveraging the reach and power of GVCs through practices like eco‐lab\
eling raises the tantalizing
prospect of deterritorializing business ethics. Prominent work in politi\
cal theory and transnational
governance encourages analysts to look beyond the state toward existing \
transnational networks, and
bring democracy and social justice to bear on these institutions that go\
vern the crisscrossing alle-
giances and porous borders of our post‐Westphalian world (Bohman, 20\
07; Held, McGrew, Goldblatt,
& Perraton, 1999). As we see in the case of eco‐labeling, GVCs hold \
the potential to be powerful
instruments of transnational governance. The hierarchy that exists within certain GVCs creates a
SINGER AND VAN DER VEN 336 |
powerful tool to establish and enforce rules and standards across border\
s in the service of public ends
like environmental protection. A decision by a lead firm to source exclu\
sively to a particular eco‐
labeling standard holds the potential to fundamentally transform global production systems around
certain staple commodities. Such transformations may already be underway\
in sugarcane, palm oil,
cocoa, and cotton. Yet, as we shall see, the usage of GVCs for transnati\
onal governance raises impor-
tant ethical quandaries.
6.1 | Business ethics in a post‐Westphalian world
The transnational nature of value chains raises something of a puzzle fo\
r the study of business ethics.
Put simply, the best models of business ethics are ill‐equipped to lo\
cate the norms and obligations of
value chains as creatures that are both supragovernmental and commercial\
. The market failures ap-
proach to business ethics (Heath, 2014), for instance, tacitly assumes\
a relatively enclosed national
framework: the ethics are derived from the norms implicit to the institu\
tional configuration of a par-
ticular society. There are many theoretical and critical strengths to th\
is approach. However, the preva-
lence of GVCs and the diversity of their governance structures show us t\
hat it is not at all clear that
there is a singular configuration of social institutions to find such im\
plicit overarching norms or more
localized ethical standards. In fact, what we have is a messier world wh\
ere business relationships and
activities extend across and between various social institutions, which \
are built around plural, diverg-
ing, and dynamic norms.
Other frameworks, which place the post‐Westphalian nature of our political world at their center,
do not fare much better. Scherer and Palazzo's (2011) model of “political corporate social responsi-
bility” (PCSR) attempts to do precisely this, claiming that corporations occupy the place of govern-
ments in many parts of the world and therefore ought to abide a deliberative democratic standard of
legitimacy. This perspective has been subject to criticism by many who think that the procedure of
deliberative democracy is ill‐suited for business ethics (e.g., Hussain & Moriarty, 2018; Sabadoz &
Singer, 2017). What transnational eco‐labeling in GVCs suggests, however, is that the problem is not
merely the standard of deliberation. The nature of the post‐Westphalian world that PCSR theorists
focus upon means that businesses will have an obligation toward, and interests in, businesses around
the world, which extend beyond the interests or needs of a particular community. Corporations may
occupy the space states used to hold, but that does not make them state‐analogs for our new trans-
national world. Rather, they are precisely part of the transnational network of institutions that has
displaced the Westphalian state. Instead of thinking of corporations and ELOs as acting within enclosed social institutions or being
the substitute for the failure or absence of such institutions, we think of them as components of what
Ruggie (2004) refers to as the broader “global public domain” that characterizes contemporary trans-
national governance. Businesses and third‐party ELOs are actors who play a role in the “governance”
of the environment alongside states, NGOs, and international organizations, for better or for worse.
GVCs are the mechanisms or instruments through which they govern. GVCs are particularly im-
portant instruments of transnational governance in the context of an increasingly fragmented global
governance architecture, where multiple overlapping institutions play a role in addressing environ-
mental challenges, often through conflicting approaches (Biermann, Pattberg, Asselt, & Zelli, 2009).
Transnational governance through GVCs offers the twin possibility of circumnavigating slow‐moving
international negotiations or serving as complimentary laboratories of experimentation that provide
governments with innovative approaches to the environmental policy (Hoffmann, 2011). At the same time, the case of transnational eco‐labeling highlights a number of ethical problems in-
herent in governing through GVCs. The question of whether transnational governance through GVCs
SINGER AND VAN DER VEN | 337
should be viewed as an appropriate response to, for instance, environmental degradation in a globally
interconnected economy warrants serious discussion.
6.2 | Are GVCs appropriate instruments of transnational governance?
One overarching concern is that value chain ethics may reify fundamental\
ly unsustainable modes of
production. Many GVCs exist, in part, because lead firms seek to outsour\
ce production to countries
where environmental regulations and labor standards are weak or nonexist\
ent. Producing goods or
extracting commodities in such environments is cheaper and helps firms m\
aximize profit, but it lacks
many of the environmental advantages of more localized production such a\
s having firsthand knowl-
edge of environmental externalities.
Eco‐labels take a step toward eliminating the most environmentally damaging forms of transborder
trade, but they are no substitute for sound domestic environmental regulations. There are any number
of reasons why an eco‐label may fall short of influencing firm behavior in a manner analogous to
government regulation. For one, the credibility of the procedures through which ELOs create and
manage their environmental standards varies widely (van der Ven, 2015, 2019). Whereas some eco‐
labels create robust rules based on scientific evidence and through consultation with a balanced range
of stakeholders, others are highly politicized, superficial, or represent narrow groups of interests.
Moreover, the existence of best practices for third‐party ELOs has come under scrutiny for importing
its own normative baggage into what constitutes a credible and impactful eco‐label (Bernstein & van
der Ven, 2017; Loconto & Fouilleux, 2014). Systems of representation and accountability in ELOs are frequently poor substitutes for their
counterparts in public systems of environmental governance. This can affect the level of stringency
in the eco‐labeling standard. Often, the behavioral change required for a firm to attain an eco‐label in
a foreign market may be well below the threshold set by baseline environmental regulations in many
industrialized democracies. Indeed, in some cases, the standard for winning an eco‐label is simply
compliance with the law. The recent turn in sustainable forest management standards toward legality
verification is an example of the comparatively low bar set by eco‐labels (Cashore & Stone, 2014). All of which is to say: Though value chains may be well‐positioned to create certain types of
global governance, it is not at all obvious that they are well‐oriented to do so. GVCs are often created
to exploit the lax enforcement of social and sustainability standards, but not to solve them. This does
not necessarily detract from the ethical obligations such networks may have. However, taking this
orientation seriously suggests that focusing our critical energies on such actors may be misguided or
overly idealistic.
6.3 | Are GVCs capable instruments of transnational governance?
Leaving aside whether transnational ELOs and their corporate partners ar\
e motivated to create mean-
ingful environmental change, it is not clear that they have the capacity to do so. There are acknowl-
edged problems with the enforcement of eco‐labeling standards across \
GVCs. Auditing of certified
firms is notoriously inconsistent. Past research has found that some auditors are far more likely to
overlook poor performance than others and the robustness of auditing sta\
ndards tends to vary by re-
gion (Auld & Renckens, 2017; Tysiachniouk & McDermott, 2016).
A second problem is the sheer complexity of many GVCs. A part of the attraction of transnational
governance through GVCs is that applying ethics as a governance mechanism within businesses might
be more efficient than constructing exogenous monitoring systems. However, while a lead firm may
purchase goods from a single supplier, that supplier may subcontract the production out to any number
SINGER AND VAN DER VEN 338 |
of smaller producers. Simply mapping a GVC is complicated, let alone getting its constituent mem-
bers to consistently follow a set of rules. As a response to this challenge, many third‐party ELOs have
established traceability mechanisms that track the movement of certified goods across each stage of
a value chain. However, such mechanisms are costly, imperfect, and not universally applicable to all
types of goods. Or, put simply, GVCs are often subjected to the same types of monitoring costs that
other governance systems have.
Lastly, and not unrelated to the preceding capacity challenge, is the fact that GVCs are not well‐
suited to reflect upon, or ameliorate, the bad effects that are potentially inherent to their industries.
For instance, while eco‐labeling may improve the sustainability of certain goods relative to others
in the same sector, it does not address broader questions of whether entire classes of products are
inherently unsustainable. Efforts to promote sustainable palm oil, for example, obscure the fact that
oil palm plantations are responsible for large‐scale deforestation in Southeast Asia and render the
soil unsuitable for the future agricultural use. Creating a sustainable variant of palm oil may provide
enough ethical coverage to allow the harmful production and consumption to continue (McMichael,
2012). Similar critiques have been leveled at campaigns for “ethical oil” from the Canadian tar sands
or organic cigarettes. In such cases, eco‐labels can justifiably be charged with masking broader issues
inherent with particular goods and not just the ways in which they are produced. Looking to GVCs
to discharge ethical duties of public regulatory bodies, is akin to ask the fox to treat its den like a
henhouse. In light of these limitations, one must ask whether value chain ethics can ever foment sustainable
production in the way that a more regionalized and vertically integrated mode of production could,
or in a manner analogous to statutory institutions. Viewed optimistically, eco‐labeling is a pragmatic
approach to transnational governance in an increasingly fragmented international system where the
regulatory reach of the state is no longer sufficient to address urgent transboundary environmental
problems. Viewed pessimistically, eco‐labeling is actively preventing a broader transformation toward
a less‐fragmented and more regionalized system of production. Eco‐labels do just enough to convince
environmentalists, consumers, and business executives that GVCs can be sustainable, all the while
allowing production costs to remain low and reducing the demand for manufacturing and resource
extraction in more regulated countries.
6.4 | Are GVCs fair instruments of transnational governance?
Legitimate ethical questions may also be raised about whether transnatio\
nal governance through
GVCs can achieve its stated goals in a fair and just manner. Transnation\
al eco‐labeling in particular
has been accused of subsuming the power of small businesses and supplier\
s in the Global South
(McDermott, Irland, & Pacheco, 2015). Conformance with third‐party \
eco‐labeling standards tends to
place a heavy administrative and financial burden on suppliers. They mus\
t keep records of their pro-
duction practices, conduct routine inspections, and pay for routine audits. In many cases, small sup-
pliers are ill‐equipped to afford these costs. A consequence is that \
large industrial production facilities
are often better positioned to comply with third‐party environmental \
standards than smaller producers
(Mutersbaugh, 2005). One can, therefore, envision a scenario in which \
small, well‐managed, and sus-
tainable operations are replaced by large industrial ones that demonstra\
te a better commitment to the
environment in the article, but not in practice. Similarly, one could ea\
sily envision producers switch-
ing to less‐regulated and more environmentally harmful goods to avoid\
incurring expenses associated
with third‐party environmental standards.
SINGER AND VAN DER VEN | 339
7 | CONCLUSION
GVCs pose a number of questions to normative business ethicists. If one \
accepts that an actor's ethi-
cal obligations are influenced by whether it is engaged in market or adm\
inistered transactions, then
GVCs pose a conceptual challenge because neither description is entirely\
accurate. On the one hand,
the members of a GVC are often legally independent entities engaged in a\
simple market‐based ex-
change of goods and services. On the other hand, value chains often exhi\
bit high levels of coordina-
tion, with participants abiding by common production standards and freel\
y sharing information with
one another. The institutional nature of GVCs is further complicated by \
the introduction of third‐party
ELOs that seek to apply a unitary set of rules to govern the environment\
al conduct of all value chain
members. So which ethical standard applies?
We find that GVCs are best characterized as occupying a middle ground between purely market
and administered transactions, alternately conceptualized as trilateral, bilateral, or unilateral gover -
nance. The specific category of value chain governance depends on the nature of the value chain in
question, and particularly, the role played by lead firms and the presence or absence of independent
organizations in performing key governance functions. Different forms of value chain governance
create a plurality of novel ethical obligations for different members of a value chain. Third‐party ELOs
are asked to perform a quasi‐governmental role by maintaining their impartiality despite material
incentives to do otherwise. This is particularly challenging under conditions of unilateral governance
where the very survival of the eco‐label may depend on the support of a single firm. Lead firms, by the
virtue of their position within GVCs, are pushed willingly or unwillingly into a leadership position by
adopting eco‐labels to fend off their critics and mitigate reputational risk from their suppliers. Finally,
suppliers are confronted with ethical obligations that extend well beyond abiding by local norms or
following domestic environmental regulations. At first glance, transnational governance through GVCs offers the prospects of a newer, more
trenchant form of business ethics, which is capable of transcending national borders, enforced by the
economic clout of lead firms, and prompted by core business concerns like protecting the share price.
However, as we have seen, the complexity, myopic interests, and varying structures of value chains
give rise to a number of novel ethical quandaries. Notably, the potential that value chain ethics could
entrench fundamentally unsustainable modes of global production, further reduce the power of devel-
oping‐world suppliers, and displace more impactful forms of state‐led environmental governance are
all reasons to question the ethics of relying solely on GVCs to accomplish public goals. The academic study of business ethics often finds itself navigating the twin dangers of cynicism
and naïveté: The tendency to be overly dismissive of ethical considerations, to the point that they no
longer deserve the name; or the tendency to foist ethical standards on businesses to such a degree that
they can never live up to them. Attending to GVCs as novel and distinct institutional configurations
is an important part of redeeming business ethics as a critical and realistic project; we cannot rightly
think that we are generating normative standards that are both capacious and appropriate if we do not
fully understand the variety of institutional configurations that exist in the world. However, as we have
seen, value chain ethics do not escape these twin tendencies: We can easily ask too little or too much
of these growingly influential and complex configurations, precisely because they are not perfectly
tractable in current theories of business ethics. To capture the ethical obligations of value chain actors,
business ethicists must attend to value chains neither as markets, firms, subjects of states, nor as re-
placements for states, but as networks of commercial actors that occupy the supragovernmental space
within a unique web of governance structures.
SINGER AND VAN DER VEN 340 |
While our analysis provides only an initial survey of the types of ethical considerations that apply
to GVC members and to the usage of GVCs for transnational governance, it nonetheless marks an
important first step in bridging the disparate literature on normative business ethics, transnational
governance, and GVC governance. For the former, our analysis sets forward a schematization of GVCs
that will be important for contemplating appropriate ethical standards under a range of configurations.
For the latter two literatures, we introduce important “should” questions—that is, should actors within
GVCs behave a certain way toward one another and should GVCs be used as instruments of transna-
tional governance—that have heretofore been overlooked.
ENDNOTES
1 Defined as “the degree of completeness of the ties between the actors in a network” (Vurro et al., 2009).
2 We want to emphasize this. The discussion of eco‐labels is not intended as evidence to confirm or infirm hypotheses or
propositions. It is better understood as illustrative and inductive, a way of checking our normative and conceptual notions
against the way real‐world practices actually work. For more on this see Carens (2004).
3 However, the impartiality of auditing systems for third‐party eco‐labels has recently come under scrutiny. See the special
issue by Abbott et al. (2017).
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How to cite this article: Singer AA, van der Ven H. Beyond market, firm, and state: Mapping
the ethics of global value chains. Bus Soc Rev. 2019;124:325–343. https ://doi.org/10.1111/
basr.12178
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