Global value chains (GVCs) are a manifestation of the contemporary global political economy. Viewing them solely as economic constructs, however, obscures the role that law and the wider regulatory environment play in their development and facilitation. The issue of modern slavery within GVCs has been the subject of careful scrutiny from a variety of legal sub-disciplines, including labour, welfare, and immigration law. In this chapter, I examine the role of company law, and particularly the fiduciary duty of directors to act in the interests of the company, in creating conditions under which modern slavery flourishes in GVCs. I suggest that the ideology of shareholder primacy that helps shape board decision-making is flawed both normatively and as a matter of legal doctrine. The central argument advanced is that shareholders’ interests are typically treated as a proxy for a company's interests due to the ambiguity in defining what it means to act in the interests of the company as a legal construct. Yet this focus on prioritizing the interests of shareholders can motivate lead companies’ directors to make decisions that deliver investor returns at the expense of fundamental labour rights and human dignity. The chapter concludes by exploring the potential of incorporating principles of proportionality into board decision-making. It is suggested that this approach can enhance directors’ knowledge and awareness of balancing competing interests, thereby avoiding the most egregious abuses of corporate power in the pursuit of profit.

Introduction

Writing in 2016, the IGLP Law and Global Production Working Group (the IGLP Working Group) observed that residing ‘at the heart of the GVC phenomenon’, law serves as ‘the vehicle through which value is generated, captured, and distributed within and between organizational and jurisdictional domains, and diverse and geographically disparate business operations are coordinated and governed’ (IGLP, 2016: 61). Law and the wider regulatory environment, comprising a complex mix of national, transnational, hard law, and soft law norms, are concerned with GVCs in numerous ways that influence the organization of GVCs. Company law is typically considered to be implicated in GVCs insofar as it shapes the structuring of activities within a chain and the liability (or lack thereof) of investors.

This chapter clarifies the difference between changes in levels of cost versus growth of cost and focuses on the latter. This is because increases in spending may be good if we are getting something for that growth; it all depends whether it is going toward “waste” or if we are obtaining value for that spending in the form of health outcomes – a return on investment. Four targets of cost containment are outlined: administrative costs, competition, state-based spending targets, and value-based payment. It is acknowledged that administrative costs are high in the US in part because consumers have choice over plans, benefits, providers, and networks (as opposed to once centralized system); with this choice comes coordination, information, and standardization costs. Excessive market power due to consolidation may also lead to the extraction of high prices from consumers beyond what would be possible with improved market-level competition. The chapter concludes by addressing the recent flattening in medical spending growth and what might happen in the future.

What Trajectory for the Regulation of Transnational Corporate Responsibility?

The framework for transnational corporate responsibility along global value chains (GVCs) is in flux. While the legal mechanisms have generally become tighter in recent years, the development follows no uniform trajectory. With scattered, disparate, and overlapping initiatives and regulatory regimes currently coexisting, it seems an open political question which regulatory paradigm will prevail in the medium and longer term. This chapter zooms in on specific transitional moments in the regulatory evolution of corporate responsibility. The dominant narrative portrays this evolution as roughly two decades of linear progress from ‘voluntary’ (deemed ‘ineffective’) corporate social responsibility to ‘mandatory’ (and hence deemed more ‘effective’) instruments, with each stage reacting to deficits of the previous one by imposing tighter standards, leaving fewer gaps, and allowing stricter enforcement. While this sequential understanding of corporate responsibility with each stage implementing selective improvements indeed captures an important dynamic within corporate responsibility, it paints an incomplete picture. First, it stresses rupture over continuity and thereby distracts attention from shared and structural deficits of the regulation of corporate responsibility across its different ‘stages’. Second, it assumes regulatory discourses of corporate responsibility to be largely self-referential and isolated from broader regulatory developments in other fields. These two limitations have deflected the debate from exposing certain structural difficulties in regulating complex value chains, as well as the deeper political dynamics at play in framing regulatory ‘innovations’.

Against this background, this chapter examines the example of reporting regulation as deployed to address different dimensions of corporate responsibility, including modern slavery. Among the substantive goals on the agenda of corporate responsibility, curbing modern slavery is arguably the most intricate. Intrinsically linked to and sustained by the business model of offshore capitalism, modern slavery forms a ‘viable management practice for many enterprises’ (Crane, 2013: 49).

As many have warned, the expansionism or ‘exploitation creep’ (Chuang, 2014) that characterizes discourses around ‘modern slavery’ has only succeeded in clouding the issue, both legally and politically, rather than rendering it more visible (see also Miers, 2003; O’Connell-Davidson, 2015; Quirk, 2018). As Chuang (2014: 611) explains, this ‘exploitation creep’ has entailed the consideration of an ever-broadening range of practices as falling under the ‘modern slavery’ umbrella term. Chuang centres her attention on two related paradigmatic shifts that have allowed this to happen: the reframing of all forced labour as trafficking and the labelling of trafficking as, by definition, slavery (2014: 611). ‘Modern slavery’ has therefore become a catch-all and highly malleable term, which can include practices as disparate as selling sexual services online, generational bonded labour in India, low-level drug distribution in the UK, and forced marriage.

This ‘exploitation creep’ has produced two broad policy responses. On the one hand, we have seen the emergence of a hegemonic position referred to in the literature as ‘modern slavery abolitionism’ (Chuang, 2014; O’Connell-Davidson, 2015). This locates the source of these ostensibly exploitative labour practices in deviant/criminal entities (organized crime groups and/or rogue multinational corporations). Under the abolitionism paradigm, preventative policies have included the banning or restriction of migration for ‘vulnerable’ populations, often women from the Global South (Kempadoo and Doezema, 1998; Doezema, 2002; Kapur, 2005; Andrijasevic, 2007; Agustín, 2007); the ‘rescue, protection and rehabilitation’ of individual victims identified in contexts of destination; and the prosecution of perpetrators. Abolitionism invests in moral crusades along an axis of evil, presenting ‘modern slavery’ as an exceptional problem to be driven-out (Bunting and Quirk, 2014) and characterized by methodological individualism (LeBaron and Ayers, 2013: 874). Conceptualizing ‘modern slavery’ as the result of evil criminals or rogue companies, abolitionist policies thus invisibilize the very conditions in which such exploitative and unfree relations thrive. This unnuanced, ‘one-size-fits-all’ approach fails to consider historically determined systems and relations of power that underpin exploitative and unfree labour.

This concluding chapter summarizes the most pertinent insights from health economics that have been developed in the book. In addition, it includes a section on “debunking” in which economic theory and evidence contradict or heavily qualify views commonly held by experts in health management and policy. The pervasiveness of actionable inefficiency, the emphasis on medical spending rather than health benefits, the value of cost-sharing for nonpoor insureds, and the functioning and tax treatment of employment-based health insurance are all considered.

This book is a much-needed contribution to our understanding of labour exploitation in global value chains (GVCs). It brings together diverse voices that illuminate the invisible realities behind the products we use daily. This is a necessary step towards business grounded in dignity and justice. Only through informed study of lived experiences can we understand the full scope of the problem.

In my experience with children who have survived the worst forms of labour, I have witnessed first-hand the cost of unchecked greed. In the late 1980s, a few years after my colleagues and I began rescue work, we witnessed an alarming rise in the number of child labourers in South Asia's carpet industry, driven by growing demand for cheaper carpets in the West. I proposed a first-of-its-kind consumer campaign, which eventually led to the creation of Rugmark (now GoodWeave), a child-labour-free certification label, and helped reduce child labour in the regional carpet industry by 80 per cent.

This is the impact we can create when every person in the GVC – from board members to buyers – acts with compassion. Compassion is not a weak emotion; it is a powerful force, born from feeling others’ suffering as our own and taking mindful action to end that suffering.

Too often, I have seen the price children pay so the world can live in luxury. I have met mothers who sold everything to buy freedom, and fathers who broke chains with bare hands. Their stories are not peripheral; they are central to the hidden engine that powers global trade.

I have said time and again that businesses cannot sustain without human rights, and human rights cannot be protected without effective business leadership. Many governments have failed to safeguard the rights of the vulnerable, while the influence of businesses has grown. This places a moral responsibility on corporates to lead the way.

This chapter addresses the factors outside of medical care that are responsible for health outcomes: social and structural determinants of health (SDOH). It outlines economic stability, education, health access, neighborhood, built environment, and community context (including income inequality and racism) as some of the upstream drivers of the health-income gradient. These SDOH are framed in economic terms as a local public bad. Managers therefore must take SDOH into account if they are aiming to optimize health outcomes and costs for their population, especially if they are in a population-based or capitated payment system. The evidence about what actions to take is still developing, but some interventions are reviewed including Medicare’s direct contracting model, Medicaid’s section 1115 waivers, community health workers, meal delivery programs, and screening and referring to community organizations. Larger actions such as disparate impact monitoring and changing payment incentives and risk adjustment will need to be taken in the future.

Health insurance does not work well when individuals have more information about illness than the insurer. Two problems arise as a consequence of this information gap. Moral hazard, which arises when individuals know more about their current needs than the insurer, generates an overutilization of care services. Adverse selection, caused by insureds having more information about future risk than insurers, leads high-risk individuals to buy high coverage (at a high premium) and low-risk individuals to buy lower coverage than optimal. This chapter covers these market failures and presents some evidence and thoughts about policies that have been used to reduce their negative effect, such as cost-sharing for dealing with moral hazard, and mandates and cross-subsidies for buying high coverage. I end by arguing that dealing with selection should not be a top priority.

This chapter discusses insurance as a central player in the purchasing of health goods and services. It points out the flaws and quirks in the insurance market that lead to an absence of perfect competition and the potential for skewed bargaining power between providers and insurers. Managed care is then outlined as an attempt by insurance companies to curtail health spending through utilization controls and narrow networks. Additional tools such as paying for wellness programs, bundling payments for episodes of care, and cost-effectiveness measures are also discussed as possibilities to improve the efficiency of payouts by insurers. The chapter concludes by reminding us that insurance companies make more money the less they pay out and that making it more difficult for beneficiaries to access care will allow them to accomplish that.

This chapter covers the economic theory and evidence about the impact of provider consolidations (mergers and acquisitions) in healthcare services. As expected, hospital combinations within local markets (horizontal) are associated with higher unit prices but no measurable improvement in metrics of quality or outcomes. Prices increase by about 15%. Currently 30%–40% of the US population lives in big cities with competitive hospital markets. However, an equal fraction lives in smaller cities that could support more competitive hospitals; public policy to encourage competition there would be appropriate. The chapter investigates economic theories of vertical integration across markets; results here are less robust. An example of enhanced market power through bundling is provided, but a health system’s ability to do so is limited by lower administrative cost to employers of dealing with a single insurer that covers sellers in such markets.

This chapter deals with the economics of prescription drugs and of insurance coverage for them. Sellers of drugs have temporary market power because of patents. Drugs are supplied under a cost structure with high fixed costs of research, discovery, and approval followed by low marginal cost of producing additional units; this structure does not permit competitive markets to exist during the period of patient protection. Health systems buy drugs for inpatients in the usual way, but outpatient and pharmacy sold drugs are priced above marginal cost with prices often distorted by insurance coverage. The result can be high prices (though not necessarily increasing ones). A potential solution to the inefficiencies in this market is an agreement between insurers and drug sellers to buy a predetermined volume with the marginal price of additional units low or zero – the so called “Netflix” model. The intent of above-cost pricing for drugs is to encourage the supply of innovative products, but evidence on whether the current patient system in the US achieves an ideal outcome is lacking.

The typical American nonprofit hospital does not fit well with the economic theory of the firm. That theory, as explained by Ronald Coase, imagines that a firm is an organization in which a manager directs the allocation of capital and labor already contracted with the firm. In contrast, US hospital management historically did not employ physicians, supplies of a key input. Physicians were a parallel entity, the medical staff, who billed separately and could issue orders for deployment of other hospital inputs (such as nursing staff). More physicians are not salaried hospital employees, but they still bill separately and have independent control. This chapter outlines a model of the nonprofit hospital in which the objective is maximization of net income of the medical staff and argues that this theory explains much of hospital behavior. Care coordination, tax advantages for nonprofits, and community benefits are also discussed.

Despite international instruments on trafficking and forced labour that stipulate the importance of ensuring rightsholders can access effective remedy, instances of remediation for harms including forced, bonded, and child labour, as well as trafficking, have been rare. While remedy is also a common feature of strategies to address modern slavery adopted by nation states and multinational businesses, in practice workers who have been subject to severe forms of labour exploitation in global value chains (GVCs) continue to face significant obstacles to securing redress from those who have violated, or contributed to violation, of their rights.

Obstacles to remedy are multifarious and well-documented (OHCHR, 2016; ICAR et al., 2013). GVCs are complex, involving multiple actors and crossing multiple jurisdictions, rendering it challenging to assign accountability and secure appropriate remedial measures, and most legal systems have not adapted to the reality of service and production within GVCs. Even where powerful (‘lead’) companies in the value chain shape the terms of supply and working conditions and are in the same jurisdiction in which the harm arising from their actions or omissions has occurred, remedial action is often stymied by labour law systems that only allow claims against direct employers. Where claims of joint employment or accessorial liability are possible under labour law, such claims are infrequent because of the stringency of tests of control or contribution, and the costs of such litigation (Marshall et al., 2023). In rare cases where litigants are successful in their legal claims, they often struggle to secure enforcement of any court order. Where the lead company that is influencing working conditions in the value chain is in another jurisdiction to where the harm has occurred, the chances of such claims succeeding are even lower (Fudge and Mundlak, 2023). Key principles underpinning private international law – such as those pertaining to jurisdiction and choice of law – largely operate to the benefit of businesses rather than those affected by their activities.

This chapter investigates price discrimination among buyers and sellers of healthcare. It is very common for different buyers to pay different prices for the same medical service or drug. Economics does not predict that profit-maximizing sellers will increase the price to other buyers if one buyer reduces price (no cost-shifting), but it does hypothesize that buyers with less price-responsive demands can be charged more than those with more responsive demands by sellers with market power. Likewise, buyers with more buyer market power (e.g., larger insurers) often pay less than smaller insurers or individual uninsured consumers. This chapter explains why price discrimination may improve efficiency compared to simple monopoly by allowing a lower price to be charged to those with lower willingness to pay that is still above marginal cost. The role of pharmacy benefit managers (PBMs) in extracting discounts for drugs is described.

This chapter describes the concept of “value-based” healthcare as an attempt to prioritize value (or quality) over volume (or quantity). However, it points out that the problem with fee-for-service is not that it prioritizes volume per se but that it may prioritize volume of the wrong (low-value) things. This chapter also acknowledges that “value” is difficult to define and quantify – if we are going to pay on it, how do we determine which health services are valuable for which patients? It then outlines an economic model of supplier payment that would lead to maximizing net value and discusses supply curves more in depth. The chapter discusses several forms of value-based payment, including pay-for-performance, bundled episode-based payments, and capitated population-based payments, as well as value-based insurance design. It concludes that the optimal payment mechanism may be a hybrid payment between part capitated (fixed per-patient per-month) and part fee-for-service to carve out high-value services.

This chapter reviews the potential use of cost-effectiveness (CE) analysis in health and health insurance management. The goal is to assure the supply of all medical services with positive benefits greater than cost and none with benefits less than cost. This method is sometimes unpopular in the US because it limits use of care with positive benefits but very high costs; however, the great majority of treatments studied are cost-effective by the usual standards for the dollar value of health improvements. It is shown than cost-sharing can make a service cost-effective. The relevance of the incremental cost-effectiveness ratio (ICER) model for the use of CE analysis by insurers is questioned.