As the global environmental crisis steadily intensifies, several fields of international law have become more reflective about their role in its development. International Economic Law's (I.Econ.L.) evolving engagement with the sustainable development framework has been one response to this exigency.Footnote 1 Since the adoption of the Millennium Development Goals followed by the more recent Sustainable Development Goals, this sustainability paradigm, which is guided by the objective of meeting the needs of the current generation without compromising the ability of future generations to meet their own needs,Footnote 2 has arguably gone mainstream not only in international development but also in international law. Yet, sustainable development's overarching approach of balancing its three economic, social, and environmental pillars has generated significant concern about their interactions and compatibility. Notably, with the rate at which the global social and environmental elements are worsening, outpacing efforts to attenuate these harms of the global economy, sustainable development is argued to be an oxymoron. In this article, I question how I.Econ.L actors’ (practitioners, scholars, organizations) perception of the interaction between the economic, social, and environmental should be different. I argue that to truly meet the aims of sustainable development, the paradigm through which actors in I.Econ.L. should perceive this interaction, is one of degrowth.
Degrowth has developed into a burgeoning area of thought in the last decade that draws from economics,Footnote 3 ecology,Footnote 4 sociology,Footnote 5 anthropology,Footnote 6 and other fields.Footnote 7 It directs its critique at the singular focus of the world's states and institutions towards endless economic growth. Degrowth contends that this focus creates unsustainable material flows that destroy the earth's natural habitats while also grossly exacerbating material inequalities between people. Its fundamental thesis is that growth, as indicated by the metrics of a state's GDP or GNP, is intrinsically tied to the expenditure of natural materials and resource extraction and consumption (throughput), and therefore, if societies are to pursue environmentally safe lifestyles, these growth indicators must necessarily decrease.Footnote 8 Moreover, these same systems that have brought with them exceeding levels of environmental degradation, the growth-centric models of contemporary state policies and lifestyles, have also not precipitated in alleviating poverty; rather, inequality has increased as many of the world's states’ GDPs continue to grow.Footnote 9 Accordingly, in order to significantly affect the global environmental crisis and alleviate wealth inequality, both aims of sustainable development, we must reduce worldwide economic activity. While green technology is a necessary feature moving forward, it, and particularly the more general framework of green growth it often corresponds with, are inadequate to address the severity of the current environmental and social circumstances. In other words, a more radical reduction of economic production and consumption is necessary if these problems are to be significantly engaged by the international community. This necessarily brings degrowth within the purview of I.Econ.L.
My approach in comparing sustainable development and degrowth's implications on I.Econ.L. is to consider them as a domain of common assumptions.Footnote 10 These domain assumptions comprise of formulated assumptions, assumptions that exist as explicit postulations, and background assumptions, assumptions that are not explicitly formulated but reside embedded within the domain.Footnote 11 An example of a formulated assumption of sustainable development is that the framework takes into consideration the intergenerational equity of the use of resources.Footnote 12 An example of a background assumption of sustainable development is that it assumes a capitalist mode of production which is dependent on constant growth as the political economic context for its operation. I argue that sustainable development is untenable as a paradigm because its formulated and background assumptions are in contradiction with one another. In other words, sustainable development is impossible with economic growth that is environmentally and socially unsustainable. As long as sustainable development retains capitalist political economic background assumptions it will remain untenable. Degrowth differs in that it makes contracting economic expansion its explicit postulation, making it a more theoretically cohesive paradigm shift away from the current assumptions existing in contemporary I.Econ.L.
There is yet to be much engagement between international law and the degrowth movement despite its increasing emergence in the humanities.Footnote 13 One of this piece's main goals is to start the conversation about the objectives of degrowth and their ramification for I.Econ.L. Accordingly, it is out of the scope of this article to offer an exhaustive analysis of the implications of degrowth for all I.Econ.L: the treatment of I.Econ.L. is necessarily selective. It is hoped that the analysis will be further picked up upon by future scholarship which will add further weight to the necessity of different perspectives in I.Econ.L. Therefore, I focus instead on making the theoretical argument in Section I about degrowth representing a more coherent paradigm shift in I.Econ.L. than sustainable development because sustainable development maintains capitalism's growth imperative as a background assumption – something inimical to both environmental and social well-being. In Section II, I apply this analysis to two areas of I.Econ.L.: in international investment law (IIL) and international corporate governance, where a shift in approach to degrowth would better result in re-orienting these regimes away from environmental and social harm than the sustainable development paradigm because it does not have this capitalist growth imperative as its background assumption.
I. A Paradigm of Sustainable Development or a Paradigm of Degrowth?
If the current warnings of scientists and ecologists are to be taken seriously, the political, legal, economic, and social status quo is no longer tenable. As stated recently by an Intergovernmental Panel on Climate Change (IPCC) panellist, holding the earth's rise in temperature below 2°C is physically possible, but it would require unprecedented changes to our current global order.Footnote 14 With each passing year, it is impressed more adamantly upon the global community that what is needed is a shift or change in paradigm concerning how we treat and think about the relationship between the economic, social, and environmental. Coined by Thomas Kuhn,Footnote 15 paradigm shifts occur when there is such an overall break from previous thought and action within a scientific framework that the new and the old ways are no longer commensurable. He used as a metaphor the political revolutions of late 18th century France or early 20th century Russia to illustrate that certain occurrences in a system of thought are so severe that they alter everything in a given field henceforth. While Kuhn was speaking to the progress of science, this notion of a paradigm shift has been extrapolated to legal scholarship.Footnote 16 By invoking a paradigm shift, I argue that degrowth would entail a serious break from the systems of thought and action within the institution of I.Econ.L., systems that are largely founded in capitalist social relations. For the unprecedented changes necessary for staving off climate catastrophe and the potential extinction of our species, I.Econ.L.'s very geopolitical and economic basis needs reframing so that its current rationales are incommensurable with a future paradigm that is genuinely sustainable; a future that this article argues must be based upon degrowth.
The notion behind “paradigm shift” does not go without contestation. Physical and social scientists alike have found issues with the idea.Footnote 17 Primarily, these criticisms revolve around the notion that there is no true break within the evolution of a field of thought but, rather, there is a continuum with varying degrees of disruption in the evolution of thought and action. Relating to the topic at hand, degrowth and sustainable development most certainly are commensurate in many of their purported aims. Both concepts insist on the removal of the primacy of economic aims in each institution. For instance, the Dasgupta Review resoundingly insists on the embeddedness of the world economy within the biosphere as opposed to being external to it.Footnote 18 Both concepts also recognize that the different levels of economic development necessarily entail different approaches between countries in the Global North and the Global South. The UN Environment Programme's Making Peace with Nature acknowledges the need to realign economic structures to provide a more just and equitable global social system while also being one that accounts for the importance environmental factors play in these same systems.Footnote 19 However, the difference between sustainable development and degrowth is their identification of capitalist social relations in both the root of the issues of environmental degradation and global wealth inequality, and in the two's respective solutions.
By capitalist social relations, I am referring to the Marxist formulation in which each epoch of history is comprised of a unique form of social organization. Under capitalism, this consists of, inter alia, the division of labour between owner and producer, private property, and wage labour.Footnote 20 Pistor has demonstrated how law acts as “coding” in instilling these social relations in capitalist societies.Footnote 21 Her formulation is directly applicable to how I.Econ.L.'s different regimes code property and ownership relations across state, private, and corporate boundaries, providing a legal basis for a global capitalist political economy. However, at the heart of Marx's theory is that these social relationships are inherently unequal because, in capitalism, the private ownership over production means that the extra value that is created in production, beyond the cost of reproducing itself, goes to the owner.Footnote 22 Moreover, capitalism's intrinsic imperative to expand productionFootnote 23 creates a process which is ultimately untenable for the earth's resources because this process's reproduction requires the perpetual expansion of industrial activities that create more material throughput and harm the world's resources.Footnote 24 In line with this perspective, critical legal scholars have demonstrated how, in exporting Western international legal norms around the world, Western states have also exported the legal coding for a universal form of capitalism that both reproduces inequality at a global levelFootnote 25 while degrading our natural environment.Footnote 26
Of course, economic growth is not limited only to capitalism. There remains a debate within eco-socialism about the question of growth and its relation to political economic alternatives to capitalism, with some scholars arguing that the problem is not growth per se but people's relationship to production and how resources are distributed.Footnote 27 Political questions concerning the specific implications of socialism, both as real-existing socialism and untested future forms, are largely outside of the scope of this article. Nonetheless, Kallis maintains that the issue is growth and material throughput, regardless of its political economic form.Footnote 28 I agree that, ultimately, the issue is one of material throughput but, as Foster points out, it is the contemporary historical context of capitalism's endless imperative to grow and expand, creating this material throughput, that must end if sustainability is ever to be a real possibility.Footnote 29 Degrowth largely agrees with this perspective; however, with Kallis shifting the focus to how life processes can proceed outside of capitalist relations, stating, “[s]tandards of living can improve without growth by a change of desires and expectations, or a shift from valuing material goods to valuing relations”, an argument inherent in many socialist alternatives.Footnote 30 This article explores how more social, communitarian strategies are a major part of degrowth below.Footnote 31
Accordingly, I aim to demonstrate that sustainable development is based upon an incoherent set of formulated and background assumptions that make it inadequate as a paradigm for balancing human's social and economic needs with the environment. This is due to its reliance on the economic growth imperative which is driven by the global capitalist political economy.Footnote 32 In other words, sustainable development remains entrenched within the logic of capitalist social relations. Alternatively, degrowth's strength is its coherence within its domain assumptions: that sustainability is not compatible with an economic system that is intrinsically reliant on endless economic expansion. It locates capitalist social relations as the crux of the problem. A paradigm shift to degrowth would therefore mean a significant, incommensurate break with the growth-oriented domain assumptions of I.Econ.L. which sustainable development ultimately accommodates. I posit that this is only possible through a sustained, focused critique on how capitalism's endless need for growth fundamentally shapes the relationship between humans and the environment. It is only once humans remove capitalism's requirement for growth and expansion that we can reconcile the social and environmental. For sustainability to be obtainable, there will necessarily need to be a paradigm shift to degrowth in which the capitalist relations, which I.Econ.L. is currently based upon, no longer take precedence over the social and ecological needs in the relationship between humans and the environment. More immediately, this shift would inevitably entail a radical change with the role and structure of I.Econ.L. in our current system. In the following sections, I examine the arguments put forward by degrowth concerning how sustainable development remains embedded in capitalism's social relations and how degrowth would represent an alternative.
A. The Difference between Sustainable Development and Degrowth's Domain Assumptions
The following section illustrates how degrowth's domain assumptions place it as a more theoretically coherent paradigm shift away from the drivers that cause environmental and social harm than sustainable development, because degrowth's assumptions tackle the root cause of these harms: constant economic growth necessitated by the current world order. Sustainable development's postulation is to limit economic output to levels compatible with social and environmental needs. It is unable to fully accomplish this within I.Econ.L. because sustainable development and I.Econ.L. share the same background assumptions of an entrenched globalized capitalism that is fully dependent on economic growth. Alternatively, degrowth has, as its postulation, the explicit contraction of economic growth. Sustainable development and degrowth share many similarities, but they are not congruous frameworks. Where sustainable development works within the domain assumptions of I.Econ.L., degrowth represents a complete break with the internal rationales of I.Econ.L. as a legal system, explicitly giving precedence to norms that favour the social or environmental over the economic.
The breadth of legal academic literature expanding upon and extoling the virtues of sustainable developmentFootnote 33 has largely been one of exploring the potential synergies between the economy, ecology, and development.Footnote 34 Economist Herman Daly provides a compelling argument for a “Steady-State Economy” that looks beyond growth and aims to square the economy with social and environmental needs so that the throughput of the global economic system equals the environment's ability to reproduce itself.Footnote 35 Legal scholars have picked up on this more inclusive framework and have developed legal principles, such as socially responsible trade and investment,Footnote 36 or corporate social responsibility,Footnote 37 that align with the tenets of sustainable development and the convergence of social and environmental factors with the economic. Sustainable development strategies, like green stimulus packages, more efficient market policies, and green technological innovation are commonly asserted in today's policy circles,Footnote 38 and the concept has been included in many various forms of both soft and hard international law.Footnote 39 In I.Econ.L., despite the different regimes having their own normative systems and unique procedures, each could be said to have integrated aspects of sustainable development into their framework in some fashion; from exception clauses found in recent international investment agreements to the self-regulatory efforts found in corporate social responsibility.Footnote 40
Degrowth's starting point is the incompatibility of the contemporary global order and the sustainability of earth's ecosystems. In nearly every area, whether it be pollution, crop yields, biodiversity, climate change, or countless other factors,Footnote 41 economic impact is felt. There is a firm consensus amongst the scientific and ecological community that economic activity, or the production and consumption of commodities and natural resources, is responsible for environmental degradation.Footnote 42 Environmental degradation is the cost of a global political economy based exclusively on the expansion of GDP, or growth.Footnote 43 The problem with measuring a state's well-being with GDP, degrowthers argue, is that it is a compound measurement.Footnote 44 Compound growth is not a linear curve. Instead, when economists assert that the global economy must maintain a certain annual growth rate of, say, 3 per cent, in order for capitalists to realize returns on their investments, this means that economic output will double every 23 years; by 2043 the earth will have double the resource extraction and the subsequent waste.Footnote 45 Our ecosystems are woefully incapable of maintaining this kind of economic demand. Scientists recommend a global net material footprint of between 25–50 billion tons of resources.Footnote 46 We are currently almost doubling that numberFootnote 47 and communities are already experiencing the consequences from this rate of economic activity in the form of record-breaking temperatures and extreme weather.Footnote 48
Furthermore, the environmental harm caused by a global focus on GDP is only one problem with the current global order identified by degrowth. The other is this global order's impact on issues of inequality. Degrowth is one of several post-developmental approaches that re-examines the human-nature relationship, and how this relationship also affects humans’ relations with each other. Degrowth, however, has largely developed from a Global North context, whereas movements such as Buen Vivir in Latin America or Ecological Swaraj in India emerged from circumstances where wealth inequality and environmental degradation are intrinsically connected due to these regions’ relationship to colonialism and imperialism.Footnote 49 Consequently, degrowth was criticized early on for ignoring its implications for Global South states.Footnote 50 However, it has recently expanded upon the consequences a North-dominated global economy has for global inequality, and how the brunt of environmental strain is felt by the states least guilty of climate harm. Not only have Northern neoliberal policies resulted in increased inequality, they have had a measurable negative impact on communities’ physical well-being.Footnote 51 A fixation on growth has led many states to implement policies of economic deregulation while simultaneously imposing measures of austerity in state and welfare spending.Footnote 52 Global South states are coerced into the growth imperative through debt and international loansFootnote 53 while, at the same time, 2.5 times the amount of aid they receive flows back to the Global North in the form of debt repayment.Footnote 54 Meanwhile, their material footprint is only a fraction of that of their Northern contemporaries,Footnote 55 thus the degrowth approach posits that the burden of any kind of climate transition cannot and should not be borne by Global South states.
Degrowth is distinct from sustainable development by its identification of capitalism itself as the engine behind the different environmental crises and wealth inequality.Footnote 56 Stuart, Gunderson and Petersen write, “[g]rowth is not only an ideology, it is an ideology built upon the structural imperative of capitalism”.Footnote 57 Sustainable development may account for social and environmental aspects of development,Footnote 58 but its ontological basis is one created by hegemonic Global North states rooted in liberal, capitalist economics.Footnote 59 While advocates of sustainable development recognize the necessity of extensive political, economic, and legal reform if sustainability is to be taken seriously,Footnote 60 they fail to identify the expansionist imperative in capitalist social relations. The structural imperative of capitalism is the expansion of profits being its bottom line.Footnote 61 The system cannot stop or stagnate without the accumulation of capital ceasing and the economy entering crisis.Footnote 62 This form of economy must, therefore, constantly seek out new areas or regions to commodify, compete in and expand.Footnote 63 As a corollary, the imperative to expand creates a one-dimensional fixation on profits and growth. If other social concerns such as wealth distribution or the environment do not meet the needs of this bottom line, they will be forfeit in the last instance.Footnote 64
B. Differing Strategies between Sustainable Development and Degrowth
A prominent example demonstrating the contradistinction between sustainable development and degrowth's starting assumptions is their outlooks on the concept of decoupling, or the ecological modernization theory, an oft corresponding theme to sustainable development literature.Footnote 65 In equating the needs of environmental and economic development into a single package,Footnote 66 sustainable development strategies such as decoupling advantage more powerful states by providing a way to formally ascribe to sustainable rhetoric, while weaker states must still navigate their desire to develop their economies while contending with transboundary environmental problems. Decoupling argues that as a state's economy develops it becomes more technologically proficient and services oriented, while less reliant on heavy industry.Footnote 67 As a state's economy develops it should “decouple” from its material footprint. It is most readily apparent in its propagation by international organizations like the World Bank and UN bodies.Footnote 68 Unfortunately, decoupling has been consistently debunked.Footnote 69 There are two primary issues with decoupling. First, it does not account for Jevon's Paradox:Footnote 70 economies paradoxically use more resources the more technologically proficient and productive they become.Footnote 71 Second, as one state's economy becomes more service oriented, their resource intensive industries merely shift geographic locations.Footnote 72 By embracing the framework of sustainable development, I.Econ.L. has been able to mask its structural precepts in supporting the liberalization of the global economy while keeping the façade of social and environmental concern. International organizations are still largely rooted in a market economy that expounds the merits of liberal trade policiesFootnote 73 while presuming the ability of a state's economic material throughput to decouple from its environmental impact as its economy develops.Footnote 74
Alternatively, degrowth offers several different proposals to fight environmental degradation and inequality that do not rely on the traditional capitalist means of market-oriented strategies or technological innovation. Generally, the degrowth movement insists on a planned economic contraction that reduces material throughput in production and consumption while refocusing energy into the public/social sphere, what Kallis and Hickel refer to as the commons,Footnote 75 largely through grassroot initiatives.Footnote 76 Kallis advocates for people to transform their lifestyles and prioritize less consumption while promoting more community-oriented initiatives like biking, community gardens, and food banks.Footnote 77 While degrowth currently relies too heavily on grassroots efforts for transformation, they do outline a number of general institutional proposals including: “a Green New Deal without growth; universal incomes and services; policies to reclaim the commons; reduction of working hours; and public finance that supports the first four”.Footnote 78 Hickel provides further, more specific, proposals in reducing material throughputs including: ending planned obsolescence (when manufactures produce goods not meant to last or are prohibitively expensive to repair), regulating marketing to reduce consumption, creating more sharing services, ending food waste, and reducing ecologically destructive industries.Footnote 79 Essentially, these proposals would require significant work reduction concomitant with extensive fiscal and monetary reform, particularly in the shape of tax reform,Footnote 80 in order to provide a basis for rehabilitating a more public-oriented lifestyle for the global community.
Additionally, degrowth is not a theory about reducing the quality of life for people around the world, particularly those in the Global South. Rather, the movement insists on the material abundance that already exists.Footnote 81 It argues that the current global economy already provides more than enough material resources to meet the world's material needs and reasonable levels of consumption. Kallis and Hickel both maintain that degrowth proposals would see the economic well-being in the Global South improve, especially as they are the ones that receive the worst of the consequences of climate change,Footnote 82 while major environmental offenders like the United States and European Union would carry most of the change necessary to bring the global material footprint down.Footnote 83
The positive prescriptions offered by degrowth are found in its re-localizing, or community-based approach to well-being. It represents a potential pluralization of the meaning of growth. In line with some of the South American “cosmovisions”, or buen vivir, values of sufficiency and simplicity – which champion more communitarian ethos that stress the “co-dependence of humans and nature”,Footnote 84 degrowth “[calls] us to shift value and desire away from productivist achievements and consumption-based identities toward visions of good life variously characterized by health, harmony, pleasure and vitality among humans and ecosystems”.Footnote 85 In this way, degrowth is a rejection of the developmentalist framework in which developing countries must strive to meet the same benchmarks of economic and technological advancement that both subject populations to further removal from pluralistic forms of community-based living, while increasing global levels of material throughput. Urban planning has been one area in which the alternatives offered by degrowth take on tangible proposals with ideas such as “cohousing, slow mobility, farmer's markets, self-sufficient housing, non-commercial sharing, and urban gardening”.Footnote 86 While these proposals do not address the larger, more geopolitical/economic questions raised in this article, they do indicate tangible alternatives to growth-centric models that also do not rely on an exploitative global economy that extracts surplus value and natural resources while leaving little in way of return. Degrowth shows that there is an alternative for developing and high-income states alike.
In summation, sustainable development has never been able to overcome the dilemma it was designed to solve; namely, the conundrum between satisfying the developmentalist drive for the Global South to match the economic levels of the Global North without exceeding global environmental limits.Footnote 87 Viñuales writes, “…it did not crack the environment-development equation. Rather, it drew a veil over it to enable consensus.”Footnote 88 Richardson points out that investors’ embrace of responsible investment is likely the result of their belief that in doing so they can become more prosperous without having to meaningfully grapple with the overarching economic structures that harm the environment.Footnote 89 His point can be extended to sustainable development as a whole. The framework of sustainable development is innately bound to subsume its social and ecological features under the economic.Footnote 90 “Economic logic will always win over ecological and social logics as long as free markets dominate.”Footnote 91 Nonetheless, it goes without saying that the global economy is not going to disappear immediately under degrowth. For example, with increasing climate crises, some form of trade between countries is going to be essential to account for things like regional crop failure or natural disasters.Footnote 92 However, how production, circulation, and consumption of consumer goods and income and services is orchestrated by the current global economic system must change if we are to keep within our world's natural limits while not exacerbating wealth inequalities. This is precisely why attention must be paid to the actual mechanics of I.Econ.L. and how degrowth would represent a paradigm shift in its domain assumptions.
II. Considering Degrowth's Implications for Certain Areas of I.Econ.L.
Critical legal scholars from Marxist, Third World Approaches to International Law and feminist traditions have long pointed to the role international law has played in perpetuating the negative impact of globalized capitalism. These authors have demonstrated how Global South states’ admittance as sovereign actors into the system of international law has been conditional upon their acceptance of its universalist prescriptions towards global governance,Footnote 93 despite these prescriptions mainly benefitting a transnational capitalist class largely located in the Global North.Footnote 94 Pahuja has shown how these universal prescriptions include notions of development that circumscribe states’ conceptions of development to the narrow confines of “economic” or capitalist development.Footnote 95 This project has attempted to demonstrate above how sustainable development in many ways has been a continuation of this universalizing mission of international law through its accommodation of capitalist social relations.
Consequently, it may seem counterintuitive to even consider degrowth's potential implications for I.Econ.L. as, intuitively, the most obvious implication might be an outright rejection of contemporary I.Econ.L. as it is an intrinsically capitalist institution. Nonetheless, however much the authors above, like Anghie, Chimni, and Pahuja, may be critical of international law, they still do not give up on its emancipatory potential. Similarly, it is my aim to demonstrate that, although I.Econ.L may not likely be on the vanguard of a global social and environmental transformation, it does not have to be incompatible with new social norms inspired by degrowth. Rather, if a concerted global shift towards a contraction in material throughput is to ever be practically obtainable, I argue that it would certainly have to involve a transformation, or at least a transition, of the international legal regimes that are currently ubiquitous with the global economy.Footnote 96 Degrowth is valuable, not because it would demand the abandonment of I.Econ.L. altogether, but because it can serve as a strategy to “re-order values and resources to support the development of diverse life-making processes operating with different logics”.Footnote 97 Knox puts forward the idea of “principled opportunism” in which he argues that, at the risk of “legitimating the structures of global capitalism”, there are still opportunities to pursue progressive features in the content of law.Footnote 98 He continues that “[i]nternational law, then, must never be pursued because it ‘is law’, but only insofar as its content can advance the aims of progressive constituencies”.Footnote 99 In this way, degrowth serves to locate the progressive potentialities in the various areas of I.Econ.L. while avoiding the capitalist-legitimating, or developmentalist, element in sustainable development – the background assumption of growth.
Recall that my argument is not that there should be a paradigm shift from sustainable development to degrowth. The two both share the aim of reconciling environmental and social exigencies with a global capitalist economy. Rather, I attempt to demonstrate how degrowth would provide a more coherent paradigm shift than sustainable development in overhauling I.Econ.L. because it refutes the economic growth imperative that exists in tension with environmental and social goals. Sustainable development does not contain the coherent set of formulated and background assumptions necessary to transform the global political economic relations between the economic, social, and environmental spheres, because it does not break with its presupposed capitalist political economy. In contrast, degrowth explicitly locates growth and capitalist expansion as the object of transformation. The following sections act as two examples of how the approach of degrowth would serve as an alternative to sustainable development because it denies the growth-oriented rationales necessitating the capitalist social relations within each regime. From the perspective of degrowth, international investment law would more substantially pursue international norms of investor responsibility, and corporate governance would prioritize a binding multilateral effort against multinational tax avoidance over the corporate self-regulation of corporate social responsibility.
A. International Investment Law and Investor Responsibility
IIL represents an exemplar case study for my argument because a paradigm shift to degrowth in the regime would not mean abandoning the efforts to instil principles of sustainable development within IIL's operation. Rather, the shift in paradigm would instead be about the underlying values and assumptions of IIL's actors concerning the regime and foreign direct investment's role in sustainable development and these assumptions’ corollary impact on social and environmental well-being in developing states. For example, where both would advocate for environmental and social obligations and investor responsibility to be set out in investor agreements,Footnote 100 sustainable development attempts to accommodate social and environmental concerns into IIL's operation, but maintains the protection of foreign investment as the regime's primary concern. Degrowth would instead refute investment's pre-eminence in investment agreements and emphasize states’ capacity to shape their own relationship to foreign investment and its precise role within their borders concerning environmental and social interests, for example, by including principles of investor responsibility in investment agreements through such instruments as counter-claims based on international obligations. Of course, such an example does not grapple with the intricacies found in IIL about the common disconnect between states and local communities’ social and environmental interests.Footnote 101 Nonetheless, it serves as a good example to illustrate how the values and assumptions found in IIL's discourse would be different from the perspective of degrowth.
IIL provides an international legal basis for the movement of foreign direct investment between states primarily through a body of international investment agreements and international investor-state arbitration.Footnote 102 Scholars have encouraged the regime's relationship to sustainable development as states and foreign investors increasingly became embroiled in environmental disputes since the regime's emergence in the 1990s.Footnote 103 There has gradually been more integration of the concept in IIL's treaty-making with states including sustainable development provisions in recent investment agreementsFootnote 104 as well as further provisions, for example, aimed at clarifying exceptions to expropriation, providing more space for environmental regulation.Footnote 105 Currently, the United Nations Commission on International Trade Law's Working Group III is exploring further methods by which the regime can be more compatible with both the Sustainable Development Goals and the Paris Agreement with proposals such as a multilateral advisory centre, changing arbitrator selection methods, or establishing an appellate body.Footnote 106
Since its inception, IIL has received criticism for its perceived imbalance between protecting the rights of the investors to their investments without offering similar protections to host states. Sornarajah has argued that this is due to the regime's neoliberal structuring in which “all foreign investment is [considered] uniformly beneficial” and, therefore, multinational corporations’ (MNCs) interests are “accentuated” over the social and/or environmental interests of host states.Footnote 107 Other scholars have argued that the disciplinary effect from these uneven protections afforded to investors in investment agreements, such as the fair and equitable treatment standard or provisions against indirect expropriation, have resulted in a regulatory chill on developing states’ efforts to regulate on behalf of their environmental and social concerns.Footnote 108 Indeed, over the last thirty years there have been numerous high profile cases where a state's regulatory actions have come into direct conflict with the protections enshrined in investment agreements with a number being decided in favour of the investor.Footnote 109 Consequently, the efforts regarding sustainable development listed above have been put forward by scholars and policy-makers alike in order to rebalance the regime in line with the environmental and social exigencies of host states.
Degrowth differs from sustainable development in how it approaches the alignment of foreign investment, environmental demands, and social factors because sustainable development still accepts economic growth as a necessity for human well-being. For example, the Sustainable Development Goals invoke growth, with Goal 8 calling for decent work and economic growth, and encourage foreign investment with Goal 17, urging further private participation through foreign investment to fund the initiatives.Footnote 110 Correspondingly, scholars continue to analyze how the concept of sustainable development can be read into emerging free trade agreements such as the Trans-Pacific Partnership Agreement or the EU-Singapore Free Trade Agreement in an effort to find a synergy between the regime and sustainable development.Footnote 111 By maintaining the link between sustainable development and foreign investment with IIL, policy-makers and scholars perpetuate the classic notion of the “Grand Bargain” in IIL – that developing states benefit from sacrificing a measure of their regulatory sovereignty to investment treaty protections in order to attract foreign investmentFootnote 112 – because they still accept that foreign investment is a prerequisite for development,Footnote 113 subsequently necessitating special protection. In contrast, degrowth emphasizes other, community-oriented, grassroots forms of economic organizing that refute the economic rationale behind this grand bargain. Therefore, for there to be more balance in the regime, norms largely absent in IIL, such as investor responsibility or obligations, would necessarily need to be given importance with clearly codified provisions in investment agreements and given precedence in international arbitration.Footnote 114 The difference between degrowth, with its refutation of the economic rationale and sustainable development, with its maintaining of a balance between the economic, social, and environmental factors, can be seen in some of the scholarship about counter-claims.
Assuming that arbitration is a desirable feature in IIL and one that states want to maintain,Footnote 115 there is no guarantee that tribunals will read either principles of sustainable development or degrowth into their decisions as even the newer provisions in the agreements listed above maintain vague wordingFootnote 116 and there is no binding precedent in arbitration.Footnote 117 Nonetheless, tribunals are gradually recognizing counter-claims based on human rights and environmental concerns in recent investor-state arbitration.Footnote 118 These developments are potentially beneficial to developing states because counter-claims could allow states the ability to challenge investor claims with the investors’ own environmental and social misconduct, like Argentina did in Urbaser v Argentina when it brought human rights-based counter-claims over Urbaser's failure to provide drinking water to local communities.Footnote 119 Similarly, in Aven v Costa Rica, Costa Rica brought counter-claims against the claimants for environmental damage that breached their environmental obligations according to international law.Footnote 120 However, such counter-claims have thus far not precipitated in the kind of rebalancing desired by proponents because, while tribunals like in Urbaser and Aven have recognized their jurisdiction over such matters, enforcing substantive international human rights or environmental obligations on investors from international legal instruments remains difficult.Footnote 121 In Urbaser, the counter-claims failed on merit because the tribunal reasoned that positive obligations of international human rights must fall on states and, in Aven, the tribunal disallowed the counter-claims based on procedural grounds concerning the substantiation of claims and their valuation.Footnote 122
How to implement such provisions in IIL like substantive investor obligations through facets like state counter-claims remains a point of contestation.Footnote 123 In line with the tribunal in Urbaser, Shao points out that it is more within domestic law's remit to hold foreign investors accountable to a state's regulations because “domestic laws are better placed to regulate in detail the conduct of private enterprises, to establish criteria of liability, and to prescribe remedies” whereas international law should only “oblige states to take necessary measures or to provide appropriate remedies under their domestic laws”.Footnote 124 While the role of domestic law is and will remain essential in holding foreign investors accountable to their host state's regulations, this reasoning does not rebut the benefits a provision elevating environmental and social concerns to the international plane might bring to rebalancing IIL. A state, particularly a developing state, should have the capacity to invoke international law to make environmental or human rights-based counter-claims against a foreign investor in the same way many investment agreements provide the foreign investor a way to elevate contractual breaches to treaty breaches with the umbrella clause.Footnote 125 An IIL oriented around degrowth would prioritize states’ ability to rebalance their investment agreements with provisions emphasizing investor obligations to international environmental and social norms.
Perhaps more importantly, the perspective of degrowth draws attention to how an argument like the former regarding counter-claims remains within a growth-oriented logic. For example, Shao and Krajewski both point out substantive international obligations’ potential discouragement of international investment entering developing states as a reason against codifying investor responsibility into international agreements.Footnote 126 While these authors’ arguments are not explicitly from the standpoint of sustainable development, their point is predicated on the same background assumption as sustainable development that comprises the grand bargain. This background assumption accepts the need of foreign investment in order for developing states to meet their growth targets, like Goal 8 of the Sustainable Development Goals. By arguing that developing states should not seek to codify investor responsibility into investment agreements, commentators are accepting that, for foreign investors to sink their capital into potentially risky investment environments, they will require more attractive investment circumstances that will not place too onerous responsibilities upon them. Consequently, counter-claims should not be enforced through provisions invoking international legal protections.
Degrowth refutes and offers an alternative to this growth-oriented rationale. Degrowth emphasizes developing states’ ability to reorient their economies around community-oriented, less materially demanding practices. Developing states that are not beholden to capitalist forms of production are much more likely to model their investment agreements according to their own requirements – which may amount to international obligations for investors. Moreover, if foreign investors rely on the expansion of capital like theorists of alternative political economy suggest,Footnote 127 developing states have more bargaining power than is the dominant understanding. Given foreign investors’ structural imperative to expand, if developing states make a concerted effort (reminiscent of the New International Economic Order, for instance) to not outcompete one another in a regulatory race to the bottom following capitalist economic rationale, foreign investors will meet conditions such as counter-claims invoking international legal protections if they desire to expand into these foreign markets.
Fundamentally, the perspective from degrowth insists on developing states’ ability to decide for themselves strategies towards foreign investment, or divestment, that work for them outside of the capitalist, growth-oriented framework. Indeed, there are examples of developing states already stepping outside of the dominant practice in IIL. For example, the Southern African Development Community's Model Bilateral Investment Treaty, published in 2012, included several uniquely worded provisions including a section on the rights and obligations of investors towards state parties concerning environmental, human rights, and other relevant issues.Footnote 128 Latin America has been a major site of contestation with the regime and has seen states both pull out of dispute forums like the International Centre for Settlement of Investment Disputes and assert indigenous peoples’ rights to collective property in the Inter-American human rights body.Footnote 129 These examples serve to illustrate that developing states can make the regime of international investment work for their sovereign interests. If that means that they write internationally binding human rights or environmental obligations into their investment treaties, they should be able to do so without the growth-oriented rationales persuading them otherwise. To revisit Knox, these opportunities in IIL present the potential for real progressive change that could amount to a significant paradigm shift in I.Econ.L. because the logic of growth would no longer be the guiding rationale in the international law concerning foreign investment.
B. Corporate Governance and the Shadow Economy
Similar to how the background assumption of economic growth insulates investors’ interests in IIL by keeping them out of reach of international legal obligations, this section demonstrates how corporate social responsibility exhibits a growth-oriented rationale which insulates MNCs by only holding themselves accountable for their environmental and social misconduct. Alternatively, where corporate social responsibility focuses on MNCs becoming more compliant with environmental and social directives through self-regulation, degrowth identifies MNCs as the central actors in the crises currently experienced globally and explicitly shifts its focus to redistributing wealth from these private interests to the public commons.Footnote 130 A shift towards degrowth in corporate governance would entail a shift away from the promotion of corporate social responsibility towards more substantially addressing MNC's role in the “shadow economy,”Footnote 131 the economy organized around a concerted domestic and international effort by MNCs to recoup tax losses and avoid international tax liabilities, commonly referred to as base erosion and profit shifting.
MNCs represent one of the central drivers of the global economy and as a corollary have a profound impact on both people's livelihoods and the material throughput affecting the environment.Footnote 132 However, the difficulty facing international corporate governance is a matter of jurisdiction and how MNCs can be regulated at an international level,Footnote 133 as the corporation has traditionally been able to evade international liability by its becoming “a private institution governable only by rules of commercial law”.Footnote 134 As international law is fundamentally configured to mediate the legal relations between states, there are very limited direct international legal obligations on MNCs.Footnote 135 Scholars and policy-makers recognize this difficulty, but there is no environmental transformation without addressing the enormous role multinationals play in shaping the relationship between the economy and environment.Footnote 136
Consequently, corporate social responsibility came to be promoted as a medium for consensus and self-regulation to make up for MNC's limited international legal liability.Footnote 137 Soft law instruments embodying the principle of corporate social responsibility emerged to fill the gap in governance between MNCs and their environmental and social impact.Footnote 138 Corporate social responsibility can be understood as a kind of corporate self-regulationFootnote 139 that is promoted through strategies such as compliance with national laws, controlling externalities (risks), charity, and green innovation.Footnote 140 Perhaps the most recognizable is the United Nations Global Compact, introduced in 2000.Footnote 141 The Global Compact is composed of companies and stakeholders who align with the Compact's ten principles incorporating practices of sustainable development, human rights, and anticorruption. Another prominent example, except it is organized around state membership, is the Organisation for Economic Co-operation and Development's (OECD) Guidelines for Multinational Enterprises. It has a similar mandate for its members as the Global Compact. It prescribes a set of standards for its members based upon other international instruments, such as the UN Declaration of Human Rights, and its first principle states to, “Contribute to economic, environmental and social progress with a view to achieving sustainable development.”Footnote 142
With its origin already couched in the existence of MNCs, international organizations easily linked and promoted corporate social responsibility as an effective way to nurture sustainable development practices in the business world.Footnote 143 However, its efficacy at balancing social and environmental interests with corporate interests remains contested.Footnote 144 Critics have pointed out that the self-regulatory measures of corporate responsibility mechanisms still subscribe to a business first model where, rather than considering the needs of different stakeholders, corporate social responsibility co-opts these stakeholders’ interests into the neoliberal orthodoxy of putting the interests of the corporation first.Footnote 145 MNCs are still dominantly viewed as the engines of a healthy, growing economy and as a corollary their interests represent the bottom line. From the perspective of degrowth, corporate social responsibility, with its close connection to sustainable development, maintains the background assumption of the capitalist growth imperative. This can be seen in the OECD Guidelines’ statement confirming their role to “encourage the positive contribution which multinational enterprises can make to economic, social and environmental progress, and minimise and resolve difficulties which may arise from their operations”.Footnote 146 This statement insulates MNCs from their environmental and social harm they produce by automatically placing them as the solution despite their role in causing the many problems. There are three areas, inter alia, where corporate social responsibility can be seen to fall short in reconciling MNCs’ economic interests with environmental and social interests.
First, as Sethi and Schepers point out, initiatives like the Global Compact have done much to produce reputational benefits for the MNCs involved, even when there is little substantive evidence of meaningful implementation of the principles.Footnote 147 In other words, corporate social responsibility provides MNCs with a positive public image that promotes them as vehicles for social and environmental stewardship, even though they consistently prove themselves otherwise. For example, British Petroleum and Shell both maintained active status on the UN Global Compact after British Petroleum's disaster in the Gulf of Mexico in 2010 and Shell's record of environmental degradation in Nigeria's Niger Delta.Footnote 148 In this example, these MNCs’ reputations were insulated against their environmental actions by them being able to continue to point to their nominal commitment to corporate social responsibility.
Secondly, corporate social responsibility promotes MNCs as vehicles for green innovation while, primarily, leaving reducing their environmental impact up to their discretion. For example, the Global Compact's ninth principle focuses on MNCs’ ability to “encourage the development and diffusion of environmentally friendly technologies”.Footnote 149 By all means, the development of green technologies and renewable energy is imperative to reduce environmental degradation and greenhouse gasses. However, by focusing primarily on innovation, this strategy ignores the issues discussed above like the Jevon's paradox and the fact that current technology is nowhere close to being capable of turning the environmental crisis around.Footnote 150 For just one recent example, the world's largest carbon capture plant opened in 2021 in Iceland. Carbon capture is considered a crucial feature in the ongoing fight against climate change. However, this plant's operation will only remove three seconds worth of a year's global carbon output.Footnote 151 Green innovation will be a necessity in the future fight against environmental degradation, but it must coincide with action towards reducing overall material throughput.
Finally, one of the most apparent areas that corporate social responsibility has fallen short is in base erosion and profit shifting. The kind of self-regulation engendered by corporate social responsibility initiatives like the Global Compact does not account for many of the legal methods by which multinationals can avoid their home country tax systems by moving their operations to tax havens.Footnote 152 These methods are not technically illegal but exist rather in the gaps and mismatch between states’ tax systems. In order to avoid double taxation, states have agreed to over 3,000 bilateral tax treaties between one another, allowing for transparency and collaboration between state parties.Footnote 153 However, the intensely complex nature of corporate subsidiaries corresponding to increasing globalization has made it possible for MNCs to step outside of treaty jurisdictions and domicile in third countries that provide drastically lower tax rates than either home or host country.Footnote 154 Through profit-shifting practices such as transfer mispricing, strategic IP locations, debt shifting through intracompany loans, tax treaty shopping, and strategic corporate inversionsFootnote 155 MNCs have effectively been able to achieve double non-taxation. The persistence of these practices is regularly evinced by the various data leaks over the years such as the Luxleaks, Paradise, and most recently the Pandora Papers.Footnote 156 One study estimates that tax havens are responsible for keeping 500–600 billion of corporate tax dollars (US) out of the reach of domestic tax jurisdictions.Footnote 157 These practices are problematic because they take what could be state funding for green infrastructure or other public endeavours and shift domestic tax burdens on other sections of society such as income earners.
With these shortcomings of corporate social responsibility in mind, degrowth's re-orientation of corporate governance would necessarily entail the promotion of a binding international tax agreement that requires tax accountability at both a domestic and international level. None of degrowth's lofty aims, such as a Green New Deal without growth, reduction in working hours, or a revolution in urban planning come without a complete overhaul of the global jobs and tax sectors. Thousands, if not millions, of people would require public programs like retraining, a universal basic income, or job guarantees.Footnote 158 Accordingly, degrowth insists that commons or community-oriented programs can only exist concomitant to restructuring global tax governance on MNCs.Footnote 159 It therefore supports a more concerted effort by states to recuperate the lost tax revenue through several ideas, including a binding multilateral convention that taxes multinational's global profits,Footnote 160 stronger transparency mechanisms, and domestic regulations that make it illegal for domiciled corporations to have business operations in non-cooperative jurisdictions.Footnote 161
A comprehensive multilateral tax convention would bring the benefit of further networking between states, assist states in tax administration, engender co-operation in taxing MNCs with multiple domiciles, and weaken treaty shopping opportunities.Footnote 162 The OECD has spearheaded efforts in these areas with its Base Erosion and Profit Shifting project. This project has put forward a country-by-country reporting mechanism amongst its members to increase intercountry tax transparency and a multilateral agreement called the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS.Footnote 163 This instrument includes a number of modifications aimed at decreasing base erosion and profit shifting that apply to its signatories’ already existing bilateral tax treaties.Footnote 164 However, concerns remain about these initiatives’ inclusiveness regarding developing states since OECD states presided over their creation which could result in them unevenly representing powerful states’ interests.Footnote 165 In order for a multilateral tax treaty to be effective, there must be a broad consensus across the international community that its benefits will be evenly distributed. Therefore, to make such efforts inclusive of developing states, the convention and reporting mechanisms need to be based on agreed upon principles of fairness within domestic tax systems alongside an emphasis on the involvement of least developed states in any future decision-making.Footnote 166
Fundamentally, degrowth would differ from corporate social responsibility by refuting the latter's background assumption about the intrinsic benefit MNCs have on growth and, as a corollary, their role in achieving sustainable development. Rather than leaving MNCs’ relationship to social and environmental factors up to their discretion, degrowth would emphasize the importance in holding MNCs legally accountable to their respective tax liabilities through a concerted effort between domestic and international bodies in a binding international tax agreement. To again invoke Knox, such strategies would not be pursued because they are “the law”, but because they would advance the interests of progressive constituencies that do not equate the economic health of MNCs with environmental and social well-being.
III. Conclusion
Given the dire contemporary circumstances of both global climate change and wealth inequality, I.Econ.L. must continue to grapple with its role in attenuating or exacerbating these dynamics globally. I.Econ.L.'s current integration of the framework of sustainable development has been both a step in the right direction and a hindrance to progressively tackling these exigencies. On the one hand, it has introduced the importance of social and environmental factors to an area of international law that previously had the economy as its dominant paradigm. On the other hand, sustainable development has never been able to transcend its background assumption of a growth-oriented political economy. Sustainable development contains within its domain assumptions a contradiction between these two aspects that will never enable it to provide a paradigm shift from fundamental economism to genuine economic, social, and environmental sustainability. Degrowth, with its postulate concerning the active contraction of capitalist growth, enables a group of coherent domain assumptions to organize the economic, social, and environmental society. Degrowth would represent a paradigm shift for the thought, discourse, and activity taking place within I.Econ.L. This paradigm shift would be visible in an IIL that does not prioritize the protection of foreigner's capital over the specific social or environmental needs of a host state and a global corporate governance that prioritizes the reining in of a shadow economy that disables states from providing the resources for their commons. Taken together, degrowth would amount to a paradigm shift for international economic law.
Acknowledgements
The author would like to thank the organizers and participants of the University of Essex Workshop on Critical Perspectives on Global Law & the Environment; Judith Bueno de Mesquita, Sam Adelman, Birsha Ohdedar, Gabriela Junqueira, Flavio Marques, Ryan Gunderson, Paolo Vargiu and Vidya Kumar for draft comments; and the anonymous reviewers for their comments. All mistakes are my own.
Funding statement
None.
Competing interests
The author declares none.
Claiton FYOCK is a PhD candidate at the University of Leicester Law School, United Kingdom of Great Britain and Northern Ireland.
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