Networked liabilities: Transnational authority in a world of transnational business

Abstract

The proliferation of production networks and cross-border contracting is frequently cited as empowering globally active corporations to skirt, and shape, national regulations. While scholars often focus on the political gains from these new forms of business organization, we shift the conversation to the potential political costs of global firm reorganization. The spread of corporate subsidiaries and global supply-chain networks leave firms vulnerable to a host of jurisdictional claims, and by targeting a domestically rooted affiliate, states can bring the global practices of the multinational corporation in line with their interests. In other words, states can take advantage of the transnationalization of the firm to transnationalize their authority beyond traditional jurisdictional boundaries. We label this process “networked liabilities.” Specifically, the combination of a firm’s sunk costs and the country’s jurisdictional substitutability determines the ability of governments to exert demands on multinational corporations. A key contribution of the article is to better specify the relationship between mobility and authority and to illustrate that networked liabilities can further empower a variety of states beyond traditional economic powers like the US or the European Union. We further highlight when firms may curtail the authority of great powers. The growing reach of the regulatory state domestically, coupled with the transnationalization of the firm, creates an increasing number of tools for certain governments to engage in economic statecraft beyond their borders. Our findings, then, contribute to debates on business–government relations in a globalized world, the changing nature of political risk, and the deterritorialization of state authority.

Mobilizing Market Power: Jurisdictional Expansion as Economic Statecraft

“…The importance of such staying power is highlighted in research on the politics of foreign direct investment (FDI) and has recently been extended to show how immobile assets can be used as ransom to alter a firm's global, not just domestic, practices. See Crasnic, Kalyanpur, and Newman 2017. 46.…”

Domestic courts, transnational law, and international order

“…The practice of domestic law—dispute resolution, rule generation, and the bounding of state authority—redistributes international political opportunities and structures the key norms and principles that guide international order. Moreover, it points to a broader conception of global political authority in which transnational dynamics shape both the domestic and international (Crasnic et al, 2017; Halliday and Shaffer, 2015; McNamara, 2018; Sazak and Kadercan, 2020).…”

Varieties of state capital: What does foreign state-led investment do in a globalized world?

“…It permits 'small' states to extend their geopolitical reach (Braunstein, 2018), creates opportunities for technology transfer for larger powers (Hannas & Tatlow, 2020), enables some states to benefit from financial globalization (Clark et al, 2013), or offers possibilities for other states to increase their relative political power in the international system (Lenihan, 2014). The rise of states as global owners and investors hence amplified their abilities to wield (political) power in the global economy beyond, but also including, regulatory issues of global governance (see Crasnic et al, 2017). We extend the patient capital perspective to incorporate this polymorphism of transnational state capital (Table 1).…”