Where to find A ‘Demos’ for Controlling Global Risk Regulators?

Frans van Waarden

Utrecht University

Paper, prepared for the ECPR Joint Sessions in Granada 2005, Session on ‘Transnational PrivateGovernance in the Global Political Economy’, organized by Jean-Christophe Graz and AndreasNölke

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Abstract

The argument of the paper, summarized in 12 theses:

1- The state is and has always been in the ‘business’ of reducing risks and uncertainties for itscitizens; in general, and in particular in the market place. It has done so by providing public goodsin the form of regulation

2- This is also its major legitimation: output or performance legitimation

3- At times it may appear that any regulatory competition between states may go in the directionof a ‘race-to-the-bottom’ of diminishing regulatory standards; the long-term historical trend hashowever been in the direction of more rather than less regulation, and higher rather than lowerstandards. Usually, crises, scandals, and frauds have driven this trend. They induced politicallegitimation crises, forcing states to increase their intervention in society and the economy. Thisis enhanced by two other developments in democratic societies: a revolution of rising expectationsby ever more assertive citizens, which hold - both as voters and litigants in court - their statesresponsible for providing solutions to ever more risks and uncertainties; and advances in scienceand diffusion of information, which have made citizens aware of risks they were formerly unawareof (e.g. the long-term consequences of asbestos or suspected carcinogens).

4- While the expectations of citizens regarding risk and uncertainty reduction have steadily risen,the capacity of the state to do so is increasingly being threatened, as more and more sources of riskand uncertainty are coming from abroad, from beyond the territory of the nation-state, with theincrease in global interdependencies due to the rise in international trade, the mobility of goods,services, and people, and of ideas and information, in turn due to innovation in technologies oftransportation, telecommunication, and conservation. The mobility of information in turn enhancescitizens expectations: they become almost instantaneous aware of new potential threats to theirwell-being from even the other side of the world (recent example: SARS in China), as well as ofthe reactions and demands from citizens to their states elsewhere.

5- The traditional response of nation-states to such threats from abroad - in itself nothing newunder the sun - has been to try to keep them out: by erecting, maintaining, and enforcing borders -the very essence of a territorial state; and by controlling if not blocking the ‘import’ or intrusionof ‘foreign’ goods, people, soldiers, criminals, diseases, ideas, and information considered‘harmful’ to the security of their citizens (and/or not infrequently: the security of the politicalpower holders). This strategy of building ‘fortresses’ becomes increasingly difficult in aglobalizing world. Citizens demand goods available elsewhere, illegal immigration is rampant,states punish each other for protectionism, terrorists are invisible and difficult to track down, andpolities that have tried to keep seditious ideas out (the DDR, currently China, moslim-fundamentalist ideas in the west) have failed dramatically in an age in which the world isinterconnected by dense networks of TV and radio broadcasting, (mobile) telephony, satellites,the internet, and many means of very frequent and massive air, sea, and road transport.

6- This creates incentives for states to try to extend their control beyond their own territory, byexporting their standards, imposing them on others, entering in the inter-national negotiations onthe harmonization of regulatory standards to increasingly higher levels, or other forms ofregulatory cooperation. As in the past, this ‘race-to-the-top’ is found at any particular point in time

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first and foremost on issues where citizens feel their security acutely threatened by crises orscandals, such as, currently, the insecurities of investment (accountancy scandals), of food andhealth (animal and human epidemics), and of life (terrorism, ‘weapons of mass destruction’). Butas crises and scandals follow each other in quick succession and emerge in quite a diversity ofpolicy areas, regulatory ‘races-to-the-top’ are spreading.

7- However, beyond their borders states do not have official jurisdiction. Therefore they need toseek recourse to negotiations with other states, the use of international public organizations, and,last but not least, to cooperate with private international organizations. These can be firms,associations, and other non-governmental associations. Thus international food regulation andstandard setting is done through organizations such as the FLO, ISEAL, international tradeassociations in food, or large international supermarket chains. They are better capable both to setinternational standards, and to organize the monitoring and enforcement of them. This embodiesan interesting paradox: while at the national level historically the trend went from privateeconomic self-regulation to public regulation (in order to compensate for the deficiencies ofprivate regulation), we now perceive at the international level an opposite trend: from public backto private regulation, because of deficiencies (notably territorial constraints) of public regulation.

8- Many of these regulatory measures to reduce risk and uncertainties have become highlytechnical, and require the involvement of often highly specialized experts: natural scientists,engineers, biologists, veterinarians, medical personnel, ICT-experts, economists, financial experts,immigration, competition and food law lawyers, accountants, military specialists, secretservicemen, airplane security specialists, etc. Given the incentive of states to control sources ofrisk and uncertainty beyond their borders, such experts frequently meet experts of other nations,in the processes of negotiation, attempted imposition, cooperation, and the development ofcommon standards. They tend to form technically specialized policy or epistemic communities.

9- This increasing technocratization facilitates international regulatory cooperation, internationalexchange, mutual learning, and the diffusion of regulatory solutions. People trained in a similardiscipline share common perceptions of the world, of the problems at hand, and of the possibleif not best solutions (which may however not always turn out to be the most effective). They meetfrequently at conferences, read the same specialized journals, and work in or are frequent guestsof specialized international organizations that have been created to facilitate such regulatorycooperation or de facto do so.

10- The development of these international epistemic and regulatory communities represents athird wave of democratization, but a different one than the one Majone (2002) distinguishes,following Dahl (1989). The first wave was that of 2000 years ago: the introduction of directdemocracy in the Athenian city state, in which the demos, the people (or at least a part of it),directly participated in the formulation, but also implementation of public decisions. The secondwave was the introduction of indirect or representative democracy, the indirect participation ofthe demos in policy making, namely through democratically elected representatives. This madeit possible to extend the democratic idea to larger social groups (usually territorially defined).Majone sees the formation of inter-national organizations like the EU as a third stage ofdemocratization. I wonder if it is not much more the introduction of these international expertpolicymaking communities. While the second stage entailed citizens electing representatives whoformulate and administer policies, the third one is a form of second level indirect representativedemocracy: citizens elect representatives who (should) control and supervise ‘technicians’ - oftenplaced at great arm’s length - who formulate and administer policies.

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11- The development of such international policy making and implementing epistemiccommunities poses serious threats to constitutionalism and democracy. Who controls the politicalpower of these international expert networks and their organizations? Don’t we need a‘constitutionalization’ of such expert communities? Of course they provide first and foremost‘checks and balances’ for each other. There is peer review, more or less public exchange ofarguments, within many disciplines there are rival theoretical and paradigmatic schools. They mayvie for domination, but as long as no one succeeds in acquiring a dominating position there issome form of mutual control. This seems to work well in science (though paradigmatic revolutionsare difficult as we know since Kuhn), but should not the formulation and implementation of riskand uncertainty regulation be more publicly accountable? Does not the danger of monopolizationrequire some regulation itself? Do we perhaps need ‘competition authorities’ for these epistemiccommunities? Should there be some form of ‘affirmative action’ for disadvantaged schools andapproaches? Or guarantees for ‘market entry’ for new approaches? Who is to decide which risksand uncertainties require regulation, and which degrees of risk are acceptable?

12- Finally, the question can be posed: what is the demos of this new constitutional democracy?Majone (2002) bases the legitimation for regulatory intervention - that is, the ideal regulatoryjurisdiction - on a territorially circumscribed demos, which derives its identity from a certainhomogeneity. I.e. he links legitimacy - democracy - demos - territory - homogeneity; and from thatconcludes that only nation-states have this homogeneity and therefore can be legitimate bases ofregulation. The European Union is not, because he considers Europeans not a ‘homogeneous’people. Though there are arguments against the supposed homogeneity of national peoples as wellas the heterogeneity of Europeans, that is not the point here. Instead, I want to criticize a territoriallegitimation base by contrasting it with a functional one. I argue in this paper that most regulations by public as well as private actors have a functionalfoundation: they are public goods that reduce risk and uncertainty for the citizens that have formedthese public and private governance institutions. From this functional criterion one could derivea functional criterion for delineating the demos: those affected by certain threats; or, in otherwords, sharing a common fate. In principle this would be nothing new. Most national peoples haveactually developed out of a historically experienced common fate. In operational terms this could mean some form of functional democracy: elected governmentsof functional (task specific) international state institutions, or elected representatives governingprivate functionally specific international NGOs, rather than, or in addition to, territorial (national)ones. This would reduce the length of the ever longer principal-agent chains, and could makecontrols on international expert communities more transparent. I use a case taken from history asmodel for such a future: the almost thousand year old Dutch hydraulic boards(waterschappen).They are state institutions, with democratically elected governing boards, theright to taxation and other statutory rights in their specific task environment, all in the interest ofprotecting its citizens from the risks and uncertainties of a shared fate: wet feet.

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1. The ‘Business’ of the State: Risk and Uncertainty Reduction

The state has always been in the ‘business’ of reducing risks and uncertainties to the life of itscitizens. Much of the public goods that it provides do just that. This holds of course first andforemost for the original and still primary - Hobbesian - task of the state: the protection of itscitizens against threats to their life, liberty and property, be they from domestic or ‘foreign’ origin.In the old days, Hadrian’s, the Chinese, and medieval city walls created visible borders around -and thereby defined - the ‘group’ to be protected; and watch towers, castles and soldiers aided inkeeping threats, varying from wandering dogs to foreign enemies, out. Nowadays institutions suchas the coast guard, the customs, airport security checks, and satellites do in principle the same.Other public goods regulate the ‘grid’ (following the group-grid model of Douglas and Wildavsky19...), the relations within the demarcated ‘group’. They protect against internal threats: the policeagainst brigands, thieves and murderers; infirmaries and hospitals against infectious diseases; andenvironmental inspectors against unsafe water or unpleasant odors.

Other institutions have been developed to protect citizens from unexpected and‘uncivilized’ action by the protectors themselves. The rule of law, constitutionalism, the judiciary,courts of accounts, and other institutions ‘check and balance’ state power and reduce the risks anduncertainties of possible arbitrary action of rule makers and rule enforcers.

Civil society has of course also produced its own instruments for reducing the risks anduncertainties of life, first and foremost the division of labor, trade, and other forms of economicaction. These help in providing the essential securities of shelter, food, and reproduction.However, division of labor and markets are no spontaneous social orders. Unregulated marketspose such great uncertainties - information asymmetries allow for fraud and deception and henceproduce distrust - that transactions are not likely to take place in the absence of risk anduncertainty reducing institutions.

Again, civil society has produced its own transaction facilitating institutions: detectivesthat check the reputation of transaction partners; commercial rating agencies that rate theirfinancial reliability; accountants that check their bookkeeping in the interest of clients andinvestors; marketing and advertising that pretends to help ameliorate information asymmetries;lawyers that draw up and monitor contracts; gangs, strong-armed bandits and the mafia that aidin enforcing contracts; insurance companies that insure calculable risks; standardization bodiesthat provide technical standards and thus increase interconnectivity and market transparency;educational institutions that certify labor and in particular specialized skills such as those fordoctors, lawyers, or accountants; clans and communities that develop informal norms and customssanctioning opportunistic behavior; trade unions that reduce the insecurities of workers in thelabor market; guilds or trade associations that regulate the quality and reputation of products andtheir producers, keep bunglers, moonlighters, quacks, cowboys or ‘cockroaches’ from the market,or that provide even guarantee funds and bodies for commercial arbitration, etc., etc.

However, here too, the state has a task in reducing risk and uncertainties, as many of theseprivate solutions to the risks and uncertainties of the market were sooner or later found out to haveproblems of their own, and/or turned out to be new sources of risk and uncertainty themselves.Detectives and other reputation rating agencies threaten the privacy of economic actors; the mafiaand other gangs became themselves threats to the life, liberty and property, not infrequently of thevery transaction partners that had engaged them at first; lawyers cannot do much without a legalframework; advertising agencies and lawyers don’t particularly have an image of neutrality andobjectivity and that limits the public trust in the information they provide; even accountants andnotary publics (e.g. in Quebec where the profession was liberalized) suffer at times from avariation of Gresham’s law, namely that ‘bad service providers threaten to drive the good ones

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from the market’, or at least blemish their reputation; insurers can go broke, and this threat limitsthe trust of consumers to insure risks with them; customs and norms of clans and communities canbe very strict market-entry barriers that limit competition from prospective outsiders; associationssuffer from the threat of free riders and may find it difficult to enforce self-regulation in theabsence of external support or the control over monopoly goods; competition between educationalinstitutions for students can produce diploma-inflation; and a proliferation of competing privatetechnical and administrative standards can become self-defeating as they may obfuscate marketsrather than make them more transparent.

Such deficiencies and problems have led the state to intervene and to provide supports forsuch private risk and uncertainty reducing institutions. It does so first of all by its generalinstitutions of ‘law and order’ that protect property rights, allow for their transfer, and punishfraud and deception. Without these, markets would not be very dynamic, or it would have to bethe ‘liveliness’ of a rough-and-tumble melee among the prospective transaction partners.Furthermore, the state provides the basic legal infrastructure (property rights, contract law, judicialconflict resolution) within which markets, commercial risk reducers, communities and associationscan function. It increases the public trust in commercial risk and uncertainty reducers such asaccountants, lawyers, insurance companies, by holding these themselves to standards, obligingthem to insure themselves, and by creating appeal procedures for aggrieved clients; it helps self-regulating associations solve collective action problems by recognizing them, giving themprivileged access, statutory powers such as compulsory membership or the authority to applydisciplinary law (e.g. the bar association), or by backing their private regulations with public law,such as when it extends labor contracts and cartels. And, where the market and commercialorganizations produce a proliferation of standards which again threaten to make marketsintransparent, it does set uniform and authoritative standards: for weights and measures, pricingunits, vocational training or university degrees. To this end states have over time produced a greatmany specialized organizations that aid in risk and uncertainty reduction on markets: the landregister, offices for the registration of patents and other intellectual property rights, central banks,weights and measures offices, food, drugs, and veterinary inspections, schools and universities,standardization and certification bodies, and regulators for specific markets such as air, rail androad transportation, health care, insurance and financial services, legal services,telecommunications, energy and water.

Still, even regulated markets involve risks and uncertainties, namely those provided by theups and downs of the economy: loss of income and job security, unemployment, sickness. As timeprogressed, states have also been increasingly held responsible for such risks by its voters; and inresponse engaged in macro-economic management (successively following different policytheories: Keynesian demand management, monetarism, supply-side economics). In addition itcreated public social ‘security’ schemes that insured the risks of unemployment, sickness,disability, and old-age and that could avoid problems of adverse selection better than privateinsurance schemes.

All these state produced ‘public goods’ have in common that they attempt to reduce riskand uncertainties and thus increase the public ‘trust’ in public space (streets, cities), private space(planes, trains, taxis, factories, offices, houses), goods and services, and labor (in particular ofthose that provide risky tasks such as doctors, midwifes, butchers or lawyers).

2. Output Legitimation

These activities provide largely the legitimation of the state, and the justification oftaxation to pay for these public goods. The legitimation of state is, and has always been, output-

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or performance legitimation: can and does it ‘deliver the goods’? Does it do so effectively andefficiently? Any perceived failures, any perceived increases in risk and uncertainty, doimmediately pose threats to the legitimacy of the state, in casu that of the ruling or governingparties. Unemployment, inflation, sand in the wheels of the economy, rising crime, contagiousdiseases among people (aids, SARS) or animals (BSE, varkenspest, kippenpest), waiting lists forhealth care, corruption, fraud, arbitrary or biased government can and have been ever so oftencauses of small revolutions in politics: the incumbent parties ousted, the rise of extreme right-wingor populist parties (recently Le Pen in France, Vlaams blok in Belgium, Haider’s FPOe in Austria,the Lijst Pim Fortuyn in the Netherlands).

The nature and degree of threats to the legitimacy of the state are of course dependent onthe risk-aversion of a society, and these do differ between countries and cultures. Obviously,societies that are more risk-aversive, such as many continental European countries, have producedmore risk and uncertainty reducing institutions over time. The Netherlands is a case in point. Itdid not only produce - even invent - major private economic risk and uncertainty reducinginstitutions such as the limited liability company, the stock exchange, or the insurance company;it has also become a highly regulated society and created a well-developed system of publicwelfare programs.

3. Regulatory Competition? Crises and Scandals fueling More and Stricter Regulation

In the last decade policy theories have emerged that blamed ‘overregulation’ for the failure of thestate to reduce risks and uncertainties due to e.g. unemployment, inflation, rising crime, orinsufficient health care services. States compete with each other for economic activity, and toomuch regulation supposedly drives out such activity, and hence employment and income, is thefamiliar ‘regulatory competition’ argument. Proponents of this theory favor deregulation, and ifdifferent countries try to underbid one another with laxer regulation, they together produce a ‘race-to-the-bottom’.

The neo-classical ‘law and economics’ theory underlying such policiesis however one-sided and hence flawed. It stresses the costs of regulation and overlooks its function and benefitsfor the economy. The economic theory of regulation (Stigler 1971, Posner 1972) sees behindregulation merely rent seeking lobbying of particularistic interest groups, at the detriment of thepublic interest and/or consumer sovereignty, the ultimate criterion for efficiency for mainstreameconomists. It overlooks that regulation may not serve only private interests, but that it also - oftenin doing so - may serve public interests. And also that regulation may involve costs; but that theabsence of specific forms of regulation may be even more costly. After all, many instances ofmarket regulation serve to reduce risks and uncertainties for transaction partners, increase theirtrust, and hence make transactions not only less costly, but also - therefore - more likely. Manymarket regulations may indeed have come about at the instigation of economic interestassociations, and some state regulations have been merely statutory codifications of such earlierforms of self-regulation (see for the history of Dutch economic regulation Van Waarden 1985),but that does not mean that these regulations merely serve narrow particularistic self-interests. The‘race-to-the-bottom’ regulatory competition theory assumes that regulations are costly and hencethat deregulation will reduce the costs of doing business in an economy, and make it morecompetitive. The opposite may be true: many forms of deregulation will increase risk anduncertainties, transaction costs, reduce trust, and make economies less rather than morecompetitive.

Nevertheless, even if wrong, such theories are part of reality. Following the Thomastheorem in sociology (‘if men perceive things as real, they are real in their consequences’) one can

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state: if policymakers perceive these private interest theories of regulation as real, and if theyemphasize the costs rather than the benefits of regulation - irrespective of whether these theoriesare actually right - they will behave as if they were true: and engage in regulatory competition, andderegulate ... until ... until when?

Do they? As many writers have remarked (see for an overview Radaelli 2002), there is notso much empirical evidence for a deregulatory ‘race-to-the-bottom’ actually taking place. Forgood reason. Life is stronger than de official teachings. The historical trend has been one in theother direction: of ever more regulation, in the interest of risk and uncertainty reduction. Thistrend may at times have produce its critics, who want to deregulate again a bit. But they are oftenstopped short and silenced by sudden new crises, scandals, and frauds happening. These bringagain the point home to policymakers that less regulated markets may produce uncertainties,reduce trust, and slow down economic transactions, and subsequently make them more wary toderegulate markets.

An interesting case is provided by the recent accountancy scandals. Not too long agoseveral governments, among them the Dutch, took steps to ‘deregulate’ the accountancyprofession. One of the measures contemplated was the abolishment of the ‘fences’ between thedifferent professions of lawyering, consultancy, and accountancy. In the past these separationswere drawn up because it was considered that these different professions and activities were andhad to be guided by different motives: consultants were there to advice a business firm, lawyersto defend their interests; but accountants to control and audit their activities in the interests of theinvestors and the general public. These incentives were considered to be contradictory. However,under pressure from large ‘commercial service’ providing firms, like Ernst and Young, ArthurAndersen, and others, who integrated these different activities, governments were about to teardown these fences. Until ... the bookkeeping scandals of Enron and Worldcom hit the headlinesof the world-press. It turned out that the scandals were in large part traceable to accountantsperforming at the same time consultancy services. The very same corporate actor whose task itwould have been to expose these bookkeeping practices in the interests of shareholders, was alsothe one which had invented and suggested these practices. In no time was the proposal to do awaywith the fences from the political agenda; and even professed liberal governments like the Bushand Kok administrations fell over each other in tightening accountancy rules. What happened wasthe opposite of a ‘race-to-the-bottom’. Regulatory competition produced a scramble to solve thecredibility and trust problem, by raising rather than lowering standards of corporate governance,auditing and accountancy.

To this is now added a second scandal, that again affects the credibility and legitimacy ofcorporate governance: a literal ‘race-to-the-top’ of CEOs remunerations and bonuses (indeed bysupposedly continuous explicit mutual international comparison to an imaginary world-average,which itself gets raised ever more by these actions), and that at a time when stockholders havesuffered huge losses due to mismanagement causing crumbling stock prices, a time also whenworkers are asked to moderate wage demands because of the difficult economic times. The forcedintroduction of American SEC financial reporting standards by European publicly tradedcompanies made this visible (as these require that individual salaries of CEOs are listed), but thisin turn produces social and political pressures for further regulation.

These cases are certainly not the first examples of crises and scandals driving regulation.The history of social and economic regulation is full of them. The worldwide agricultural crisisof the 1870s saw the first agricultural market intervening regulations; the first modern-day socialregulations in Europe were a reaction to the revolutionary threats at the end of the First WorldWar; the economic crisis of the 1930s lead to an extensive elaboration of agricultural, economicand social regulation in Europe and to the New Deal in the US.; while the post WWII era saw thefull-fledged development of welfare state programs in an attempt to avoid a return of the risks and

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uncertainties of the 1903s. More recently, the 1963 softenon (thalodamide) scandal set the stagefor the world-wide regulation of the admission of pharmaceuticals to the market; a dozen seniorcitizens dying from eating peeled shrimp in the Netherlands led to an overhaul of consumerprotection regulation; while the various animal epidemics (BSE, foot and mouth disease, pig andchicken pests) of the 1990s/2000s led to a tightening of veterinary inspections, animal fodderstandards and more in general food regulation. In between more minor and local scandals in theNetherlands (glass in babyfood, veterans disease due to luke-warm water spraying) have led totightening regulations, and currently a whole series of highly publicized frauds in this country(construction cartels, universities fraudulous competing for students, doctors and hospitals sendingfake bills to insurance companies, etc.) are likely to have a similar result. The list is endless. Everytime again new crises, scandals, and frauds sparked new forms or state regulation. These were bythe way often codifications or ‘nationalizations’ of earlier less effective attempts by marketregulations by private actors, such as commercial services, communities, or associations. Indeed,governments may regularly compete in increasing the attractiveness of their markets. But crises,scandals, and frauds make them do so not by deregulation, but on the contrary, by introducing,maintaining and stabilizing transaction facilitating institutions.

One other force has driven regulation as well: a revolution of rising expectations by evermore assertive citizens - both as voters and litigants in court - in democratic societies. They holdstates responsible for providing solutions to ever more risks and uncertainties: Workers wantcompensation for head aches because of the weather; horticulturalists for broken greenhouse glassbecause of the same weather, and the literal ordinary ‘man in the street’ has sued local governmentfor a loose lying tile in that street. Indeed, symptomatic for these rising expectations is what thegovernment gets sued for in court. And in order to reduce such risks in court regulations gettightened.

Even when the government tries to reduce its influence in society and the economy, as withthe privatization of formerly public services (railroads, telecom) or the apparent deregulation ofhighly regulated markets (air and road transport) it seems to end up in the long run with morerather than less regulation, due in part to the expectations of citizens/consumers: they still wantthe trains to ride on time and blame the government if they don’t. Steven Vogel (1996) has shownfor several privatized and deregulated sectors that ‘freer markets’ mean ‘more rules’ (paraphrasingthe title of his book). Newly created markets require the creation of market ordering regulators(OPTA, Oftel, Media Council, ,etc.) that give out very detailed licenses and contracts in tender,or provide detailed binding regulations, in order to ensure both a high level of services andcompetition.

4. Globalization: External Sources of Risk and Uncertainty

Curiously enough, modern states are threatening to get caught in a squeeze between on the onehand rising expectations of citizens regarding risk and uncertainty reduction, and on the other handdecreasing capacities to do so. With globalization, more and more sources of risk and uncertaintyare beyond the direct control of the nation-state. Many emanate from outside its territory.

Globalization means first of all an increase in international division of labor andinternational trade, thus an increase in global interdependencies. This is most visible in theproducts we consume. They come from everywhere: apples from Australia, beef from Argentina,cortisone from China, cars from Ireland, cod from Iceland, cellphones from Finland. It has beenestimated that an average good has traveled 5000 miles before it reaches its final consumer. Moreand more goods are composite ones. A simple cellphone may have tens of parts, made of hundredsof different materials, and incorporating also hundreds of different patents. These come from many

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countries. The patents incorporated are held by ever so many different companies, located in everso many countries. Not only products of assembly industries contain parts from literallyeverywhere. Also goods from process industries may have gone through processes in verydifferent countries. The road from oil in Arabia to a plastic garbage can in Iceland can have beena long one; Manure from Chili may have been transformed into US corn, that into Belgian cowsand milk, that into Dutch cheese, a leftover, whey powder, turned into French calfs and bonemeal,that into British beef, ad infinitum. It is difficult to follow ingredients in these ever longer foodchains. If US corn had been a GMO product, it that still visible once it was mixed in Belgium?And does it still affect the next chain in the process?

Not only goods are increasingly mobile due to modern technologies of transportation,telecommunication, and conservation; so are waste products, services, people, capital, ideas, andinformation. This mobility can entail a great diversity of risks and uncertainties for nation states.

Contaminated food or unsafe chemicals or pharmaceuticals may spread quickly, and maybe difficult to trace. Where food is moved in living form, as plants or animals, it may spread pestsand infectious diseases fast, in particular in the dense population concentrations typical of the bio-industry. This entails even risks of moving to - also frequently dense - populations of humans. Therecent international animal and human epidemics of BSE, pig and chicken pests, AIDS and SARSare cases in point.

Similarly, mobile people can spread diseases. (Illegal) migrants bring also risks ofunemployment, crime, and social unrest, at least that is what many citizens believe. Other personsspread risks of terrorism (September 11!), and, to use a term which has recently become en vogue,‘weapons of mass destruction’. The mobility of capital can undermine economies, lead tospeculations against currencies, or create great volatility in financial markets, and may bring majorcompanies to bankruptcy and mass lay-offs, with the attendant risks of loss of trust amonginvestors, consumers, and employees alike.

Technological developments are another external source of risk and uncertainty, difficultfor nation-states to control. Every day new chemical substances, with yet unknown properties andrisks, are being developed. So are new materials technologies, energy sources, new forms oftelecommunication, biotechnological innovations, the fear of Frankenstein food and Frankensteinmonsters, ‘weapons of mass destruction’ become easier to produce and to deliver, etc., etc. Thelist is endless.

Of course Burns and Machado (2003) are right when they criticize Beck and stress thatrisks and uncertainties to life are nothing new. Human history has been one of a continuousconfrontation with all kinds of risks and uncertainties. It is probably even right to say thatobjectively the risks and uncertainties were much higher in the past. Diseases, poisoning,epidemics, conflict, war, crime, etc. resulted in much shorter life expectancies than people havetoday. What seems to be however relatively new is:- People, at least in the industrialized nations, got used to ever higher levels of security (showingup in longer life expectancies)- With new science and technologies came not only new dangers, but also more knowledge aboutthe various threats and risks: the carcinogen character of certain substances, the danger of nucleararms; the long-term effects of exposure to carbon dust, asbestos, and smoking- This has enhanced a belief that it is possible to reduce risks and uncertainties. That they are notlike fates, that man can do no better than to accept, but that causes of risk and uncertainty can befought - ICT-technology makes that information spreads faster across the globe, including informationabout events elsewhere that could also threaten our security: a SARS epidemic in China, the AIDSepidemic in Africa, the chicken pest in the Netherlands, a flooding upstream in Germany andAustria, the Ozon hole, the nuclear threat of North Korea, etc. This seems to enhance a sense of

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insecurityAll these factors, caused by the mobility of information, enhance citizens’ expectations

towards the state: they expect politicians to act, to ward off any imminent threats, and to use allavailable scientific knowledge and other resources and powers of the state to do so. This is furtherreinforced by the diffusion of information through the mass media and the internet about thereactions and demands of citizens elsewhere. A veritable ‘race of rising expectations’ is the result.

5. Old and New Responses to ‘Foreign’ Risks and Uncertainties

The traditional response of nation-states to such threats from abroad - in itself nothing new underthe sun - has been to try to keep them out: by erecting, maintaining, and enforcing borders - thevery essence of a territorial state; and by controlling if not blocking the ‘import’ or intrusion of‘foreign’ goods, people, soldiers, criminals, diseases, ideas, and information considered ‘harmful’to the security of their citizens (and/or not infrequently: the security of the political powerholders). This strategy of building ‘fortresses’ becomes increasingly difficult in a globalizingworld. Citizens demand goods available elsewhere, illegal immigration is rampant, states punisheach other for protectionism, terrorists are invisible and difficult to track down, and polities thathave tried to keep seditious ideas out (the DDR, currently China) have failed dramatically in anage in which the world is interconnected by dense networks of TV and radio broadcasting,(mobile) telephony, satellites, the internet, and many means of very frequent and massive air, sea,and road transport.

This creates incentives for states to try to extend their control beyond their own territory,by exporting their standards, imposing them on others, entering in the inter-national negotiationson the harmonization of regulatory standards to increasingly higher levels, or other forms ofregulatory cooperation. As in the past, this ‘race-to-the-top’ is found at any particular point in timefirst and foremost on issues where citizens feel their security acutely threatened by crises orscandals, such as, currently, the insecurities of investment (accountancy scandals), of food andhealth (animal and human epidemics), and of life (terrorism, ‘weapons of mass destruction’). Butas crises and scandals follow each other in quick succession and emerge in quite a diversity ofpolicy areas, regulatory ‘races-to-the-top’ are spreading.

6. Shifts in Governance I: Centralization of Regulations

These continuing demands on the state to reduce new risks and uncertainties produce ‘shifts ingovernance’ (see for an overview Van Kersbergen and Van Waarden 2001), shifts in power tothose levels and actors that can most effectively (and sometimes: most efficiently) satisfy therising demands of citizens.

First of all, there is pressure for centralization, a shift to regulation above the level of thenation-state. What to regulate where? What central and what decentral? What by internationalorganizations, by the EU, and what to leave to the subsidiarity of national, regional or localgovernment. Let it be clear that the argument here is that this is no academic question, no questionof what can or ought to legitimately be centralized or what should be left to local government. Itis an issue of functional necessity, which may sooner or later arise. If it is an issue of legitimacy,it is one of functional or performance legitimacy: where is regulatory centralization needed inorder for states to satisfy the demands of their citizens for risk and uncertainty reduction? Wherewill sooner or later pressures build up to

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What to centralize? Obviously, the pressures to do so have arisen first and foremost asregards the production, handling and quality of mobile goods, services, and people, the ones thatcountry A receives from country B, where countries are interdependent; and than particularlythose that potentially may affect the security and health of citizens: foodstuffs, drugs, all theiringredients, such as plants and animals, animal fodder, veterinary medicine, fertilizer, etc. Itconcerns both the nature of their qualities, but also the manner of production. Here is where thegreatest controversies between nations have arisen: over genetically modified organisms, orhormones in beef that are used in production but no longer identifiable in the finally traded good(Princen 2002). The list is however longer: the licenses and qualifications of doctors,veterinarians, or butchers that move between countries, hence standards for university degrees,hygiene and safety of hospital equipment, immigration and travel of potential terrorists (= inprinciple everybody), airplane security, privacy issues and exchange of information, the safety ofinvestments elsewhere and information about those (accountancy standards), etc. Then there areissues where uniform standards are needed for efficiency, as in network industries that areinterconnected across national borders: telecom, but also electricity distribution, air, sea, rail androad transportation, information exchange (ICT, academia, the press). Additional pressures forcentralization have come from demands for fair trade and equal access of economic actors of theown nationality to economic opportunities abroad, as these affect the risks of economic prosperityand unemployment in the home country.

These demands for uniform standards will be traded off by demands for respect oflocal/national customs and values, such as traditions of food culture (cheese from unpasteurizedmilk in France, bangers in Britain, deadly fish in Japan) or political priorities as regards privacyand the exchange of information about people. But when the risks become acute (people dying inlarger numbers from pasturized cheese, major terrorist attacks like 9-11) such concerns for culturaldiversity or respect of privacy are quickly overridden, as has become visible in the aftermath of9-11.

It may seem less likely that also standards for im- or less mobile products, services,activities, or people will experience pressures for harmonization. Building codes, Housingstandards, and traffic safety rules differ for the time being, sometimes substantially. Europeancountries have quite different requirements as regards energy saving isolation of housing, firehazard protection. Open roofs with wooden beams, as we see often in older Italian houses, areconsidered to great a fire hazard in Austria or Germany, as are doors made from softwood.Standards for electric wiring in housing and for plugs differ. Three-way plugs, forbidden inGermany and the Netherlands, are still widely used and sold in Italy and the US. Still, here toopressures for central harmonization may and do get felt. Buildings may not be mobile, but buildingmaterials are. So are plans and designs. Past explosions of factories processing dangerousmaterials (Flixborough in Britain, Enschede in the Netherlands, Seveso in Italy, where dioxincame free) have led to pressure for harmonization of factory security. Symbolizing the importanceof crises and scandals: the EU-directive that attempts to regulate the safety of factories has beencalled the Seveso (I and II) directive (Versluis 2003).

How do countries try to influence regulatory standards elsewhere? Economically orpolitically powerful nations can and do impose their standards on other nations, through traderelations (the ‘California effect’, Vogel 1995), or by political, diplomatic, and if need be evenmilitary pressures, as we have seen in the ‘battle against terrorism’. Recent new cases of theCalifornia effect have appeared: the US Securities and Exchange Commission exporting itsstandards for financial reporting and bookkeeping to other countries as a condition for being listedin the American stock exchange; airplane security standards as condition for landing rights in theUS; personnel security checks and other requirements for visa allowing entry into the country, etc.

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More frequently used however are less asymmetric forms: inter-national regulatorycooperation and negotiation, harmonization initiatives by supra-national organizations that havealready been created by the nation-states in the past. Here one should not only think of the obviousEuropean Commission or the WTO, but also less generally known supra-national (and sometimespartly private) bodies, such as the International Telecommunication Union (for telecom networkstandardization), the World Health Organization (for hygiene and quarantaine standards in fightingthe spread of infectious diseases), or the Codex Alimentarius (a joint venture of the WHO andFAO), in which over 160 countries negotiate over global food safety standards. A great varietyof mechanisms of harmonization and convergence of regulatory standards have in the meantimebeen identified in the literature. Apart from formal negotiated harmonization, soft harmonization,generalized exchange involving subtle pressure, the open method of coordination, mutual learningand imitation, etc. It is not the intention of this paper to discuss these various methods at length.That is sufficiently done elsewhere.

7. The Importance of Enforcement and Compliance

What this literature however often overlooks is that mere export, harmonization, or convergenceof regulations on paper does not suffice. The proof of the pudding is in the eating. What countsis whether and how these ‘rules-in-the-books’ are translated in ‘rules-in-action’, whether and howthe subjects of regulation actually comply with them, change their behavior. Without thisregulations remain mere black letters. Therefore it is important not only to focus on the phases ofagenda-setting, preparation, formulation of, and negotiation and decision making over regulatoryproposals; but also the phases thereafter: implementation, administration, enforcement,sanctioning, handling of appeals. In the end, actual enforcement and compliance are the Achillesheel of any regulation.

This holds also for any rules or standards one country wants to ‘impose’ on others, or forany inter-nationally agreed regulations. They have to be applied and enforced on the street levels,shop floors, harbors, airfields in other countries, if not ‘the world’, by local food and laborinspectors, the immigration officers or the controllers, auditors and accountants elsewhere.Standards still measurable on products or people can be checked on the borders, but this is muchmore difficult if not impossible for process standards or product-standards that can no longer beidentified in the product or person: whether a tomato is genetically modified, or a doctor is reallya doctor. In such cases countries have to trust the street level bureaucrats in other countries, andthe value of the certificates and licenses that they have given off: the Thai inspector who controlsthe hygiene of shrimp peeling, the Guatamaltecan one who certifies that the bananas are notgenetically modified. The principal-agent chain for the implementation of national regulations isalready often quite long; but even longer is the one for inter-national standards.

Mutual trust between countries in their enforcement practices and value of certificates iscomplicated because the discretionary authority of street level bureaucrats and their enforcementstyles tend to differ significantly between countries. American enforcement officers are knownto have rather limited discretion, and have to apply regulations in an indiscriminating way, makingthe full force of the law fall equally on all subjects of the regulations, without much concern forindividual circumstances. This practice is often experienced by citizens and firms as ‘regulatoryunreasonableness’, but serves the maintenance of universalistic values: all citizens/firms are equalfor the law (Bardach and Kagan 1982). British, Dutch or Italian rule enforcers have much morediscretionary authority, and are able to take account of individual circumstances in ruleapplication. They can overlook transgressions, give (temporary) exemptions, bargain with thesubjects of regulation, be flexible in sanctioning, and tend to see themselves more as advisors and

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educators, than as policemen. In the Netherlands flexibility is frequently official policy. A studyof the National Accounts Office of 60,000 applications for exemptions to a variety of specificrules showed that in only two percent of these cases exemptions were refused. Rule enforcers, inthe end the committee of public prosecutors, can declare an official policy of ‘gedogen’(toleration): A practice prohibited by the letter of the law can in practice be tolerated(cartelization, prostitution, keeping up to 6 marihuana plants for oneself). By declaring this officialpractice they provide legal certainty for the subjects of the law, and avoid the dangers ofcorruption or nepotism. In Italy rule enforcers seem also to have frequently relatively largediscretionary powers, but in the absence of official ‘flexibility rules’ the dangers of nepotism aremuch greater, particularly in a society where obligations to family and personal networks areconsidered so important. That is, the price of flexibility is uncertainty and possible inequality.Dutch studies however also showed that rule enforcement became more strict and discretionarypowers of inspectors were curtailed shortly after disasters or crises politicized policy areas (inmeat inspection: Oosterwijk 1999, in explosive materials and factories Versluis 2003), pointingagain to the importance of crises and scandals for the cycles in regulation. Elsewhere I havewritten more extensively about such differences in regulatory enforcement styles betweencountries, their roots, and their pros and cons (Van Waarden 1999a, 199b, Bakker and VanWaarden 1999).

Given these differences in discretionary authority of street level bureaucrats in differentcountries and the differences in regulatory styles, countries, agencies, (and even private firms suchas supermarket chains) that maintain stricter enforcement procedures are hesitant to trust othersthat are known for having less strict ones. Instead, they will try to control foreign controllers intheir control of the observation of the standards considered important. By sending their owncontrollers and inspectors for double checks; or by having international organizations with astrong reputation sending double checking inspectors over. The US, with its legalistic andadversarial regulatory style (Kagan 1994, 1995), is in particular distrustful of street levelbureaucrats in other nations, especially when it concerns major risks as terrorism. It is inclined tobuild its own system of information providers and people monitors (satellites, technicallyadvanced monitoring stations, information officers at embassies, an extensive secret service of itsown). Of course, Iraqi inspectors that certify that their country has no more weapons of massdestruction are particularly distrusted. Hence UNO-inspectors have been sent over to control theseclaims; and even these the US has not trusted. Yet external controllers of local controllers willalways have the disadvantage that they are not familiar enough with local circumstances, customs,people, reputations, networks. Sooner or later they will have to cooperate with local informantsor collaborators, who also know the customs to follow when one wants to collect informationunobtrusively.

8. Shifts in Governance II: From National Public to International Private Regulation andEnforcement

Many national governments have long and good experiences involving national or sub-national private interest associations, ngos, foundations and even business firms in standardsetting, and the implementation and enforcement of these standards. Now that they hit upon thelimits of their legal jurisdictions with ever more threats to domestic risk and uncertainties comingfrom abroad, there is an increasing inclination to again engage private organizations in regulationand enforcement. Or, where international private self-regulation is already ‘spontaneously cominginto existence, to tolerate, recognize, or even support and sanction it. Private organizations do notin the first place rely on a legal system to regulate their relevant world, and are hence less bound

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by territorial jurisdictions as nation-states are. They can easier and more legitimately extend theiractivities abroad. And they already often have become involved in informal or formal networkswith organizations in other countries, sometimes under the umbrella of international private peakorganizations. Thus they have become interesting partners for nation-states that want to extendtheir regulatory influence beyond their borders.

This often starts first from already existing good public-private partnerships at the nationallevel. National governments have multifaceted relations with domestic trade unions, tradeassociations, standardization bodies, trade mark institutes, scientific and research organizations,other ngos, and even business firms. Their international contacts and activities can then graduallybecome integrated and instrumentalized in domestic regulations. They can assist in developing,setting and extending standards, and they may aid in enforcing them through their internationalrelations or foreign supply chains. Some examples may elucidate this.

One case is the developing international chain of standards and controls for animal feed.Animal feed is a major factor at the beginning of the food supply chain, and problems with itsquality (dioxin, ground up bones from possible BSE animals) have been sources of recentagricultural and food scandals and crises (BSE, chicken pest). ‘Safe feed = safe food’, as a sloganin the industry goes. Thus national governments have quite a stake in this issue, but much animalfeed comes from far away, is being shipped back and forth, and gets mixed in all kinds ofcombinations of fodder, in which the origin gets ever more difficult to trace.

In the Netherlands, animal feed is subject to regulation and inspection by the DutchMinistry of agriculture and a statutory trade association PDV (a trade association officiallyrecognized and sanctioned by the government, and devolved with statutory powers: compulsorymembership for the relevant industry, powers to tax and regulate the industry). All of course underthe umbrella of European agricultural and food regulation. The PDV recognizes certification,inspection and monitoring bodies that in turn certify production, trade and transport firmsthroughout the production chain from raw materials to transport and livestock breeding. Theymonitoring bodies employ private control and auditing organizations to carry out qualityinspections throughout the chain. To this end it employs GMP (Good Manufacturing Practices)and HACCP (Hazard Analysis and Criticla Control Points) standards and an Early Warning andResponse System, which is linked to the EU Rapid Alert System for Food and Feed (RASFF).These standards have been developed in international public-private cooperation, in which boththe Codex Alimentarius, the European Commission, the European Feed Manufacturers FederationFEFAC and its daughter associations in the other European member states cooperate. The FEFAChas also affiliated members from non-EU states, and has an observer status at the CodexAlimentarius. That is, the sector is enmeshed in an international network of safety standards andboth public and private certification and control organizations (Brkulic 2001, Den Hartog 2003,Freeriks 2004).

Animal feed safety standards concern product quality, which can in principle be controlledat the border, though the products often enter countries in the form of mixtures of which the origincan be difficult to trace. Hence international cooperation in controlling the whole production chainis advisable, if only to avert surprises. More difficult is process quality control. How can animalfriends be sure that imported eggs really come from free ranging chickens? And how canenlightened coffee drinkers that do not want to exploit poor farmers in coffee growing countriesbe sure that the growers of their coffee really get a fair share of the price? To ensure this one hasto create controls all along the production and trade chain, that is, in far away countries. Therefore,national associations (like the Dutch Max Havelaar) have formed the Fairtrade LabellingOrganizations International FLO, which sets standards for fair social and economic development,that concern both production and process methods, management systems, and supply chainrelationships. It engages in certification and employs a network of national organizations and

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independent auditors and inspectors that monitor compliance by producers, traders, and retailers.The FLO is in turn a member of the International Social and Environmental Accreditation andLabeling (ISEAL) Alliance, to which also organizations such as the Forest Stewardship Council,the International Federation of Organic Agriculture Movements, the Rainforest Alliance, andSocial Accountability International belong. The ISEAL has a Code of Good Practice for SettingSocial and Environmental Standards, which is a both a benchmark for and a control on the controlby organizations such as the FLO. It in turn draws on semi-public standards such as the ISO/IECGuide 59 Code of Good Practice for Standardization, the WTO Sanitary and PhytosanitaryMeasures (SPS), and the WTO Technical Barriers to Trade (TBT) Agreements Annex 3 Code ofGood Practice for the preparation, adoption and application of standards. ISEAL does not only setstandards for standards, but it also aids members in capacity building to meet the standards.Though these are mostly private initiatives, they get passive and/or active support of somenational governments and of international organizations such as the FAO.

A third channel of private international organizations that can and do aid in public controlare multinational corporations and in particular large supermarket chains. They have to abide byfood safety and quality standards in the consuming countries and they also carefully cherish theirreputations among consumers, leading them to adopt even standards that are not statutory. Thuse.g. the supermarket chain Sainsbury decided voluntarily to ban GMO-products from its shelves.In this way they impose national standards onto foreign suppliers, and they often do have theorganizational capacity for careful monitoring and control along the supply chain (Havinga 2003).

Such private and semi-private international organizations help solve governabilityproblems for national governments; but their involvement and responsibilities add to or create new problems of legitimacy and democratic accountability.

9. Shifts in Governance III: Increasing Influence of Expert Epistemic Policy Communities

The pressures for inter-national regulatory cooperation lead to shifts in governance andhence in the distribution of political power and influence. It is known from organization studiesthat those parts of an organization (including the state) that are best able to ward of urgent threatsfrom the environment gain in importance and hence in power within the organization. The obviousexamples from history abound as well. Invasions by foreign armies increase the domestic powerof the own army a thousandfold.

This holds also for the many risks and uncertainties that give rise to pressures for inter-national regulatory cooperation. Many of these risks are highly technical issues. Scientific andtechnical knowledge is required to make sensible estimates of the risks involved in feedinganimals bonemeal, the safest distance between herds of cattle to prevent the spread of infectiousanimal diseases, or the effectiveness of an emergency management plan. That gives experts andspecialists positions of power in political decision making. Think of the potential influence of theexpert weapon inspectors in Iraq. However, one should not only think of natural scientists,engineers, technicians, biologists, veterinarians, medical personnel, ICT-experts, but alsoeconomists, financial experts, immigration, competition and food law lawyers, accountants,military specialists, secret servicemen, airplane security specialists, etc.

Given the incentive of states to control sources of risk and uncertainty beyond theirborders, such experts will meet with experts of other nations, and public functionaries cooperatewith private ones. They will do so first of all in the processes of negotiation, attemptedimposition, cooperation, and the development of common standards. However, given theimportance of implementation and enforcement for the actual value of the agreed standards, sooneror later experts of one country will seek contact and collaboration with street level controllers in

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other countries, often in their field also experts. US military and secret service agents seek thecollaboration of local agents in Kurdistan and Baghdad; WHO-authorities in Europe will contactdoctors in Hong Kong and Beijing who deal with SARS; and a British university confronted withan application of a Dutch student may contact the Dutch Nuffic to ascertain the value of a specificdiploma or contact a Dutch professor who has given off a letter of recommendation for thisstudent.

Thus the expert-networks that develop are not only and so much ‘horizontal’ ones amongformulators of regulations (and their advisors), but ‘horizontal-vertical’ or rather, ‘diagonal’ onesbetween standard setters in one country, and implementers and enforcers in other ones: e.g. foodregulators in country A, and veterinary inspectors in country B; or anti-terrorism law makers incountry Y, and secret servicemen in country Z. Globalization will make these internationalprincipal-agent chains increasingly longer; but ICT-technology may facilitate effective controlswithin these longer chains.

These experts tend to form technically specialized policy or epistemic communities. Theyinclude not only experts employed by the state or by international organizations such as the WHO,the World Bank, the WTO, ITU, ISO, FAO, or the Codex Alimentarius; but also many privatelyemployed experts: consultants hired by public or semi-public agencies, the often very largemultinational organizations involved in the production and distribution of risk sensitive products(huge slaughtering houses, drug manufacturing companies, large supermarket chains) or people(aircraft manufacturers, airline companies), which have often larger scientific and informationresources that public agencies. The economic and financial experts employed by authoritativefinancial rating agencies such as Moody’s and Standard and Poor’s can make or break not onlythe trust in publicly traded corporations (and their stock market value), but also in nationalgovernments and the price they have to pay for loans on the financial markets.

Often these communities evolve around central international agencies: medical expertsaround the WHO, pharmaceutical specialists around the European regulatory agency for drugsEMEA, patent specialists around the European Patent Office and between the national patentoffices, food safety regulators around the Codex Alimentarius, and experts on competition law inthe network between competition authorities and on competition law specialized law offices.

Not infrequently, new inter-national standards have to be implemented, administered, andenforced in countries that have no regulatory experience in such specific issues, and that lack asyet the organizational infrastructure for enforcement. Introduction of such standards requires thenfirst of all the construction of such an organizational infrastructure. Such ‘laggards’ may and docome to borrow expertise by the regulatory ‘leaders’, and as these have in interest in the laggardscatching up, they are often too willing to assist. For the enforcement of the EU-Seveso II directive,a country like Spain did not have a real organizational infrastructure in place, if, only in a fewmore industrialized parts of the country. It borrowed expertise from countries with moreexperience with regulating dangerous manufacturing plants - in this case the Netherlands - andeven involved a private consultancy firm from that country, in order to draw up standard safetymanagement schemes. Such involvement of privately employed regulatory enforcers is notuncommon. Public food or fodder quality inspectors work closely together with quality inspectorsof silage manufacturers or purchasers and testers of large supermarket chains.

Thus extensive networks of regulators and enforcers develop, that are often highly specificfor certain risks, products, or policy areas. The Seveso II directive, of which we made a detailedstudy in Utrecht (Versluis 2003) has led to the formation of such a specialized network: Thosecharged with the enforcement meet regularly, either on an individual basis, or at joint meetingsand conferences, where they exchange experiences and information. The participants arespecialized inspectors. Given the risk-sensitivity and complexity of the subject of the Directive,inspection is intense: in the Netherlands and Spain there is on average one inspector for every 14

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firms to be controlled, in Britain one inspector for every 10 firms (Versluis 2003: 57). This allowsfor specialization.

This is still a relatively weakly developed international expert network, as it concerns anissue where different countries have less of an interest in what happens in anthe other country.Citizens in country A do not immediately suffer from an explosion of a factory in country B,except in the case of an explosion of a nuclear power plant, but then safety of the latter is regulatedin other directives. Much more intense and much more developed is the cooperation in inter-national regulatory expert communities around an issue that is of concern to other countries, suchas that which has developed around quality control of animal feed.

10. A Third Phase in the Development of Democracy

The development of these international epistemic and regulatory communities represents a thirdphase in the development of democratization, but a different one than the one Majone (2002)distinguishes, following Dahl (1989). The first wave was that of 2000 years ago: the introductionof direct democracy in the Athenian city state, in which the demos, the people (or at least a partof it), directly participated in the formulation, but also implementation of public decisions, the‘policey’. The second wave was the introduction of indirect or representative democracy, theindirect participation of the demos in policy making, namely through democratically electedrepresentatives. This made it possible to extend the democratic idea to larger social groups(usually territorially defined). Majone sees the formation of international organizations like theEU as a third stage of democratization. I wonder if it is not much more the introduction of theseinternational expert policymaking and standard setting and monitoring communities. While thesecond stage entailed citizens electing representatives who formulate and administer policies, thethird one is a form of second level indirect representative democracy: citizens elect representativeswho control and supervise ‘technicians’ who formulate and administer policies, even beyond theirborders.

11. The Constitutionalization of International Expert Communities

This third phase of democracy has also surfaced at the level of the nation-state with the growthin size of the public administration and the increasingly technical nature of policy formulation andimplementation. At this level of the nation-state, political supervision and oversight of technicalagencies enforcing regulations (and in the enforcement further operationalizing them, i.e. they arealso de facto regulators) is already difficult. The principle of ‘ministerial responsibility’ for actionsof civil servants is becoming increasingly a fiction. How can the political head of a ministry reallycontrol all the specialized agencies and civil servants for which he is officially responsible andaccountable? Even greater is the problem of political control of so-called independent regulatoryagencies, that some public administrations tend to create and that have a relative autonomousstatus outside the ministerial hierarchy. If this is already a serious principal-agent problem at thelevel of the nation-state, how much more a problem is this not at the international level, as regardsthe implementation and enforcement of inter- or supranational regulations? Here the distancebetween the political leaders that represent the people and the officials that administer, implementand enforce their decisions is even greater.

There are of course those who do not consider this a problem, and who believe that the (long-term) public interests are best cared for by experts who only follow their expert opinions andinsights and the norms and values that they derive from their discipline and profession, and are

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free from political lobbying, bickering, compromise finding, etc. Economists have convincedpolicy makers that monetary policy is best entrusted in the hands of an autonomous central bankand networks of such banks, including international ones, where economists rule. And earlier on,lawyers have convinced policy makers to create an autonomous judiciary with a monopoly on theadministration of justice (and in some countries a supreme judicial authority that can even overruledecisions from democratically elected and legitimated bodies). Whatever the merits of thesearguments, these institutions are of course innately undemocratic. Furthermore, they somehowalso lie beyond the constitutional principle that wherever power is exercised, there should be somecheck on or balance of such power. Who controls the governors of many a central bank? And thejudiciary? In many countries even the criticism of judicial decisions and of the principle of judicialreview of government decisions is considered anathema, as recent cases of attempts at politicalintervention in the judiciary show, e.g. in Austria(Joerg Haider), the Netherlands (on acquitingsuspected terrorists) or the US (Schiavo case). Judges can overrule governments, but governmentsare apparently not allowed to criticize the judiciary. That is indicative of an imbalance.

If international expert communities, involved both in the formulation and implementationand enforcement of inter-national regulations, are exercising de facto more and more power, thenthe question becomes urgent to whom these communities are accountable, what the checks andbalances on their power are. History teaches that whenever and wherever such checks are absent,sooner or later those in positions of power will abuse their prerogatives and privileges. Withoutsuch checks and balances public trust in such officials will wane. What is needed isconstitutionalization of international networks of technocrats. We need checks on the powers ofsecret servicemen, food inspectors, immigration officers, diploma certifiers, risk assessors,accountants, in short, expert bureaucrats, acting in international networks, including NGOs, wherethe control of national politicians is severely limited. I can do no more than offer some suggestionsfor such checks and balances.

A- Can the old and well-tried idea of the Trias Politica be a source of inspiration?- Judicial review of decisions of international and supranational institutions, placed at the nucleiof expert networks, e.g. by an international court for administrative law, following the exampleof the just created international criminal court? That is, possibilities of appeal of decisions of theWTO or the World Bank, or of foreign/international controllers of local controllers?- a balance of powers between networks and their institutions representing different disciplines,or policy areas? I.e. a functional division of powers (following the already existing functionalbalance (or more frequently de facto imbalance) of powers between different ministries at the levelof the nation-state)

B- To what extent can the market model be a source of inspiration?- Peer review and competitive markets of enforcement ideas. Of course experts provide first andforemost ‘checks and balances’ for each other. There is peer review, more or less public exchangeof arguments, within many disciplines there are rival theoretical and paradigmatic schools. Theymay vie for domination, but as long as no one succeeds in acquiring a dominating position thereis some form of mutual control. This seems to work well in science (though paradigmaticrevolutions are difficult as we know since Kuhn), but should not the formulation andimplementation of risk and uncertainty regulation be more publicly accountable?- A competition authority for expert networks. Does not the danger of monopolization of certainschools of law, economics, food safety, etc. require some regulation itself? Do we perhaps need‘competition authorities’ for these epistemic communities? Should there be some form of‘affirmative action’ for disadvantaged schools and approaches? Or guarantees for ‘market entry’for new approaches?

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C- Associational Self-regulation- At the national level, professions regulate themselves in associations with statutory powers(compulsory membership, disciplinary law). Can we envision something like that at theinternational level? For example an international disciplinary tribunal for accountants, or foodinspectors, or NGOs?

D- Publicity, the Reputation Mechanism, the Press- At the national level, major checks on abuse of political power come from a critical press, frompublicity affecting reputations, and actors caring for their reputations. Could this also be used fornetworks of powerful experts? This would of course require interests of the press, and that requiresinterest of its readership. Such interest is likely to come from crises and scandals. A BSE or SARScrisis should be good enough to point the attention of the press to the wheelings and dealings ofthe relevant expert community. It does already occasionally. But what is missing is knowledge andinsights of the press in the existence of, power, and functioning of such international expertnetworks. Would a specialized journalist school and a specialized international association ofjournalists be a solution? Which university would want the scoop of being the first to offer sucha program?

12. Constitutional democracy ... for which ‘Demos’?

Majone (2002) bases the legitimation for regulatory intervention - that is, the ideal regulatoryjurisdiction - on a territorially circumscribed demos, which derives its identity from a certainhomogeneity. He writes: ‘...the primacy of the territorial state has the same origin as the idea ofdemocracy. Cleisthenes, ... the founder of Athenian democracy ... brought the territorial principleto triumph over the kinship principle of social organization ... Democratic theory presupposes aterritorially based demos, but there is no European demos’, because of its historical, cultural,social, economic and institutional diversity. ‘The democratic process presupposes the existenceof a fairly homogeneous polity’, especially for the conclusion of redistributive policies. With thisMajone follows the logic of the German Federal Constitutional Court, when it argued, in itsdecision over the Treaty of Maastricht, for the supremacy of the German constitution (and henceof itself as this constitution’s guardian) over the European treaties (as the de facto Europeanconstitution): The German one had its basis in a real Volk, the European treaties not, because aEuropean Volk was not considered to exist. Both argue in effect that regulations should ideally betaken by the nation-state, as these aggregate relatively homogeneous peoples. Very similararguments, however, have in the past been used to resist the formation of currently existing nation-states, such as Germany or Italy, out of their constituent units. The ‘people’ of Prussia, Hanover,Saxony, and Bavaria were not considered to have enough in common to justify the union of theseterritories into the German nation-state. Nothing new under the sun here.

One could criticize this link between legitimacy - democracy - demos - territory -homogeneity on various grounds. First of all, the homogeneity of nation-states is more myth thanreality:

a- For one, the criteria by which homogeneity should be measured are not clear at all in thewritings of those who maintain the existence of national, but absence of European, homogeneity.

b- Many nation-states that are well-established and legitimate democracies are or were not sohomogeneous as Majone implies. This holds first of all for the consociational democracies inEurope, such as the Netherlands, Belgium, Austria, and Switzerland. These were or are strongly

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divided along language, religious, and/or class cleavages. Notwithstanding this sometimes extremeheterogeneity they have developed redistributive policies, and often much more so thansupposedly more homogeneous nation-states. The Netherlands, Belgium, and Austria are amongthe most developed welfare states around. And not by accident: their heterogeneity inducedcomplicated forms of generalized exchange and necessitated extensive proportional distributionof state resources, which all contributed to the development of generous welfare state programs.

c- Many of the non-consociational nation-states are or were less homogeneous than is oftenthought. Britain has been strongly divided along class lines, which have also found expression inthe way English is spoken; France is the result of a centuries long top-down forced centralization,forcing away differences between such ethnic and language communities as the Langue d’oc andLangue d’oeil, Celtic, and German; or between Bretons, Basques, Corsicans, and Alsatians); Italyis still considered made up of ‘three Italies’ (with the North having a strong political movementfor secession), its citizens seem to derive still stronger identities from their city or region(Florence, Bologna, Milan, Rome) than from their nation, and - typically - there is not one Italiancuisines but many regional ones; the US is and always has been an immigrant society, and hasconsequently harbored splits among religious (e.g. a Mormon state), language (increasingimportance of Spanish in southern states), and class (the old Mason-Dixon line between slave andnon-slave states; predominantly industrial and agricultural states) lines

d- Now most West-European countries are becoming increasingly ‘multi-cultural’. They harborimmigrant minorities which quickly grow in size, in part coming from former colonies (Algeriansand black Africans in France; Surinamese, Antillians and Moluccans in the Netherlands;Commonwealth immigrants in Britain; immigrants from former KuK states in Austria, etc.) in partfrom Mediterranean countries. France and Germany have now each more than 5 million muslims.In a city like Amsterdam more than fifty percent of all school children are either foreign born orof foreign born parents.

e- The territorial boundaries of some European demos have not always been so clear, notably ofGermany and Austria. Not only did especially their eastern borders shift significantly in the courseof history, those living in these territories spoke different languages (German speaking personslived intermixed with Polish, Chech, Hungarian, Croatian or Slovenian ones). As a result Germanystill sticks to a variation of the kinship principle (German blood) rather than a territorial one, forthe determination of ‘German nationality’.

f- The supposedly ‘homogeneous’ European nation-states were split along class or religiouscleavages, which found expression in political ideologies, movements and parties (socialism,communism, christian democracy, liberalism) that not only divided these countries, but - as theywere found in many European states - created shared ‘European’ identities for these differentstrata of these societies

Secondly, not only do Majone and others underplay the diversity within nation-states, they alsounderrate the presence of shared identities in Europe:

- these countries do have a shared history, notably of horrendously destructive wars andrevolutions. The last and most violent war formed also the major incentive for the creation of theEuropean Community, namely to create interdependencies with the intent to avoid a repetition ofthe second world war)

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- they also share cultural values (Christianity, the Enlightenment, respect for human rights, etc.)

- and these values have produced similar institutions: the catholic church, the idea of the nation-state, the rule of law, constitutionalism, democracy, free enterprise. Even though nation-states mayhave developed these in a diversity of concrete forms, in variations of civil and constitutional law,voting rules, or forms of parliamentarism, they are rooted in similar basic principles.

- though they have different languages, many have commonalities as they are part of a fewlanguage communities (Latin, Germanic, Slavic)

13. A Functional, as opposed to a Territorial Defined Demos?

Although these are already arguments against a logic basing regulatory jurisdictions interritorially defined and supposedly homogeneous demos, that is not the main point that I amtrying to make here. Instead, I want to criticize a territorial legitimation base by contrasting it witha functional one.

I have argued in this paper that most regulations by public actors, like states, have afunctional foundation: they are public goods that reduce risk and uncertainty for the citizens thathave formed these public actors. From this functional criterion one could also derive a functionalcriterion for delineating the demos: those affected by certain threats; or, in other words, sharinga common fate.

That is also what has usually happened in history. The present demos of existing nation-states were originally no demos at all. Any unity that may exist now is the result of a shared fate,one that gave rise to the formation of nation-states. The shared fate was usually a common enemy.The Swiss state began forming with the ‘Ruetlischwuer’ in 1291 among the three ‘forest’ cantonsaround Lake Lucerne that saw their freedom threatened by the Habsburg Rudolf I, then HolyRoman Emperor. Almost three centuries later seven protestant Dutch provinces united in theTreaty of Utrecht (1579) and revolted against the catholic authoritarian Spanish Habsburgs. Andagain about two centuries later thirteen, then quite heterogeneous, American colonies of Britainsigned a Declaration of Independence (1776) against the centralizing Tudor monarchs. A short warwith France eventually finished German unification in 1871, and Italian Rissorgimento wascompleted amongst others in wars with the Papal States and France. Paraphrasing Tilly (1975),‘war made the states, and the states made war’. These states then forced the peoples within theirborders - with different degrees of success - to become one people, a demos for the laterdemocratic governments. That is, there is nothing ‘natural’, mythological, or metaphysical aboutEuropean peoples. What created territorially defined peoples was ambition by certain monarchs,war, bad or good luck on the battlefields, and, because of all that, shared fates.

With the new transport and communication technologies and the resultant mobility of‘citizens’, territory may become less and less the criterion for identity and interests. Territory maybecome replaced by function. We may live more and more in different ‘states’ at the same timefor different functions.

The Dutch have done so already for some time. They have a long history with functionallydefined and differentiated ‘state’ institutions that reduced risk and uncertainties for groups ofpeople with a shared fate. As elsewhere, the oldest shared threats were territorial: threat fromenemies beyond the local (feudal autarchic) community: roaming bands, vagrants, highwaymen,other neighboring (feudal) communities. However, the inhabitants of the marshes and peat bogsat the mouths of the Rhine, Meuse, and Scheldt had to withstand another specific threat: the water.Both the sea and the rivers were sources of frequent floodings. This threat to the security of the

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peat boggers laid at the basis of some of the - if not the - oldest ‘state’ (and democratic for thatmatter) institutions in that territory, the waterschappen (hydraulic boards) that starting formingin the 11th century. They organized the construction and maintenance of an ideal-typical publicgood: dykes, waterways, sluices, and later mills, that kept the feet of the inhabitants of a regiondry by keeping water out, letting water that was already in out at low tide or later pumping (whenthe technology for that was developed) it up and out, and still later even draining parts of the deltaand making them into polders.

Originally, it was a form of direct democracy in the sense of Dahl: all the inhabitants ofthe territory (or at least those owning real estate there) decided on common policies and wereapplied them directly themselves: they were responsible for the construction and maintenance ofa certain piece of the dyke, or of certain dams, sluices or other waterworks. The collectivityorganized a system of strict control and enforcement, and sloppy members - who risked the livesof others - were severely punished. In later times this system developed into one of indirectdemocracy that still exists. Those owning real estate in the territories of the Netherlands (most ofwhich lie below sea level now) vote for division makers on the boards of functionally-specificpublic institutions (with a constitutional status similar to that of a rather autonomous municipality)and pay taxes to these, out of which experts are being hired to do the technical work of keepingthe feet dry.

Other forms of functional governance and democracy developed in the middle ages: theguilds that regulated economic life. Originally, this economic life was still tied to territory: theguild had jurisdiction in a literally clearly demarcated territory, the walled city. In the 20th centuryguilds got successors without such a strong tie to territory: statutory trade associations (STAs) thatorganized economic actors from across the country, whose shared fate was no longer so much thatthey lived in a common (possibly threatened) territory, but that they were involved in a similareconomic activity, diffused in space. The still existing STAs have - similar to the corporatistChambers in Germany, Switzerland and Austria - state-like powers: membership is compulsory,the government is democratically elected, and they have powers to tax and to regulate.

Globalization will and does reinforce this trend. The shared fates that we have are less andless territorial, and more and more functional: worldwide shared risks and uncertainties ofterrorism, food poisening, contagious diseases like SARS, the Ozon hole and global warming,worldwide economic slumps with unemployment and/or loss of investments, etc. (Like theinternational working class suffered already earlier on the risks of industrialization and capitalistexploitation.) Consequently, we live increasingly under regulatory regimes of functionallyspecialized international agencies, who perform state-like tasks: they help reduce such risks anduncertainties. At the European level, functionally specific institutions or forms of inter-statecooperation (involving different EU Member States) have arisen: the European Commission, theEuropean Monetary Union, the Schengen Treaty (cf. Schmitter on condominio, consortio, etc.).At the global level institutions like the WTO, WHO, World Criminal Court, World Bank, IMF,UNDO, ISO, ITU, etc. have been formed, all for functionally specific tasks. And also the privategovernance institutions such as in food safety or fair trade are functionally specialized. Anydemocratic control of such organizations goes so far via the nation-states. But what about directdemocratic representation by functionally defined demos, i.e. those in whose interests suchorganizations try to reduce risks and uncertainties? It is perhaps not easy to perceive exactly alongwhich lines and with what institutions (electoral systems, eligibility for passive and active votingrights, etc). such a functionally defined demos - as against the usual territorially defined - shouldform checks and balances on the power of functionally defined expert communities. But it is anidea worthy of further development.

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