Business and Global Governance
Spring 2013
INTRODUCTION
This paper will analyse the case of automobile safety standards by applying the theories
of tipping points by Vormedal (2012) and neo-pluralism by Falkner (2010). The
automobile industry is especially interesting, as it has experienced a regulatory race to
the top and because business power had particular role in this development. To uncover
the structures of global automobile safety governance, this paper will revolve around
the research question: “How can the change in automobile safety regulation be explained
and what role did the automobile business have in this process?” The paper will first
present the two theories, then it will apply the theories to analyse and discuss the case
of automobile safety regulation, and thirdly, it will reflect on and assess the theories’
strength and weaknesses in relation to the case. The paper will lastly conclude on the
study and present a clear answer to the research question.
The paper will focus on the role of business and it will not analyse the role of
other actors, which could act as countervailing forces to limit business power. It will
furthermore not include other companies than the automobile companies, and it will
focus on the American and European automobile producers. Lastly, it will not discuss
the relationship between EC DG III and the UN WP29, and it will assume that both
institutions represent the European interests.
THEORY
The tipping point framework is developed by Irja Vormedal (2012). It describes the
process that leads to political and institutional change. It builds on the understanding
that strategies and preferences are driven by perceptions of risks and opportunities, and
it focuses on the interplay between states and markets (Vormedal 2012, p. 261). It is not
a coherent theory, as it does not describe any causal relations that are able to explain the
tipping points. However, it does provide some useful theoretical concepts and drivers
for business strategies and it provides some theoretical tools for examining important
phases of history, which leads to change in international regulation. The framework is
well suited to the automobile safety case as this is a case where business had to
reconsider their strategies due to anticipated regulatory risks and opportunities, and
where international safety regulation went through some major changes.
1
Business and Global Governance
Spring 2013
The tipping point framework is complemented by Falkner’s neo-pluralistic theory
(2010). Neo-pluralism perceives politics as a competition between different groups
where business has a privileged role. Business is more important than other groups as
for example NGOs because business provides investments, economic growth, innovation
and employment and thus creates the foundation of society’s wellbeing (Falkner 2010,
p. 101). However its power is limited by countervailing forces and business conflicts.
These conflicts can come from national, technological, regulatory differences and many
more. The result of these factors is that business unity is contingent and business
dynamics such as changing strategies affect the outcome of policy processes and makes
it very open-ended process. Falkner’s theory is overall a good analytical tool to uncover
the role of business in the process of increased automobile safety regulation and it thus
complements Vormedal in uncovering the role of business in the tipping point
framework.
THE AUTOMOBILE CASE
FIRST TIPPING POINT
In Europe in 1953 the Working Party 29 was created as a mean to achieve increased
competition in Europe (Braithwaite and Drahos1 2000, p. 438). The initial goal of the
institution was not to increase safety in automobiles but as the discourse changed so did
its goals. In 1966 Ralph Nader published a report called “Unsafe at any speed” (B&D
2000, p. 438). This report highlighted the serious problems with automobile safety and
the many deaths that could have been avoided if only regulators had established safety
regulations for automobiles. Nader’s report had widespread consequences, and the
report established the first tipping point in the development of automobile safety
regulations. It changed the discourse and a new regulatory pattern began to develop.
Before this tipping point, the automobile industry was against regulation.
Nevertheless, the business anticipated a regulatory change that could have costly
consequences for the industry. Negative consumer reactions were massive,
extraordinarily differences in national regulation could be costly as the economies of
1
Will be referred to as B&D in the rest of this paper
2
Business and Global Governance
Spring 2013
scale are big in the automobile industry, and some companies such as the Swedish car
manufacturer Volvo could gain a competitive advantage as Sweden already had high
safety regulation (B&D 2000, pp. 443-444). As the tipping point framework points out,
the regulatory risks and uncertainties made business react to the change in discourse.
BUSINESS POWER
As neo-pluralism predicts, the automobile industry had a privileged position in the
process of global regulation on safety issues and the industry leaders had a direct access
to regulators. American and European automobile producers took advantage of this
through NIITSA and EC DG III, and politicians embraced their interests and facilitated
the role of business. The automobile companies had a privileged position for many
reasons. Firstly, they had the expertise and knowledge that the institutions did not. The
International Organisation of Motor Vehicle Manufacturers even wrote complete texts
and drafts for European regulation (B&D 2000, p. 446). Secondly, the automobile
industry had structural economic power in terms of employment, GDP and trade.
Thirdly, the automobile industry was an important policy entrepreneur as it was able to
develop ideas and solutions to safety problems, and fourthly, especially in Europe, the
DG III did not have enough resources to create regulation on their own and they were
therefore dependent on company resources (B&D 2000, p. 451). Consequently, the
institutional capacity was low.
The automobile industry was well aware of their privileged position and because
they anticipated new regulatory risks and threats due to the first tipping point, they
wanted to exploit their power to shape international safety regulation as much as
possible. The industry therefore changed its strategy and began to lobby in favour of
international automobile safety standards.
BUSINESS CONFLICT AND NEW BUSINESS STRATEGIES
The automobile industry was not a united force and different companies supported
different kind of regulation. Consequently, the tipping point revealed a business conflict
between European and American businesses. The main source of this business conflict
was different regional regulatory traditions where Europe has a Rhenish regulatory
3
Business and Global Governance
Spring 2013
tradition and US an Anglo-Saxon tradition (Wigger & Nölke2 2007, pp. 490-495).
According to Wigger and Nölke (2007), the Rhenish model is embedded in the civil law
tradition where legislators design detailed regulatory frameworks and the judiciaries
have no need for interpretation. The European philosophy is that the market cannot be
self-regulatory because of market failures that harm society. The European tradition
thus calls for balanced interventionist strategy. At the same time the Anglo-Saxon model
is embedded in the common law tradition in the US. Regulation is abstract and allows for
interpretation by judiciaries. It allows for much private enforcement and state
intervention comes at the cost of market efficiency. Thus US and Europe differs in the
way the enforce regulation. Europe has ex ante authorisation and US has ex post
enforcement (W&N 2007, pp. 494-495).
Therefore the European automobile companies have adapted to a regulatory
framework that sets clear rules for business behaviour while the US companies are used
to a system that allows business to enforce the rules but with the possibility of ex post
enforcement by the state. So when the automobile industry changed is regulatory
strategy, there was a business conflict between European and American producers on
how to shape international regulation. In the long run all producers would be able to
adapt to new regulation but in the short-run some companies could have a competitive
advantage if they already knew how to navigate in the regulatory system. Nevertheless,
having two institutional arenas, NIITSA and EC DG III, for automobile safety regulation
moderated the business conflict.
THE SECOND TIPPING POINT
The tipping point that changed the pattern of international regulation was mainly due to
the new business strategies and the emergence of a new framework that allowed for
global harmonisation of safety regulation. The automobile producers executed their
strategies by heavily lobbying the institutions. In US, the automobile companies lobbied
at NIITSA and in Europe, they lobbied at EC DG III. The CEOs had direct access to
powerful national legislators because of the companies’ privileged positions and this
made it relatively easy for the companies to implement their regulatory strategies (B&D
2
Will be referred to as W&N in the rest of this paper
4
Business and Global Governance
Spring 2013
2000, p. 444). The automobile companies’ new business strategies had huge influence
on international regulation and the strategies were the main drivers for the second
tipping point.
The outcome of the second tipping point was two different types of legislation
developed by DG III and WP29, and NIITSA (B&D 2000, p. 439-442). NIITSA employed
self-certification and recalls if the cars did not comply with the safety standards. DG III
and WP29 employed type approval and mutual recognition. This means that in the US,
NIITSA decides on regulations and then allows the producers to self-reinforce the safety
standards and demands a recall if a car does not comply with the standards, while in
Europe, EC DG III and WP29 decide on regulation and approve models in accordance
with regulation. This type approval should then be recognised by the other member
countries and discrimination is not allowed. These two systems thus reflect the business
conflict between two different regulatory traditions.
Albeit, the business conflict created this divide, the automobile industry was in urgent
need of global harmonised safety rules. The economies of scale were huge and the
automobile supply chain was globally integrated, so the cost of local safety legislation
could be massive. As the neo-pluralistic theory argues, “business actors will seek to
minimize differences and tensions between them in their efforts to shape international
political outcomes” (Falkner 2010, p. 103). At the same time, institutions were
compromise seeking and there was an important US-ECE dialogue to facilitate
adjustments. The outcome of these processes was harmonisation in content but not in
enforcement, which meant that companies had to comply with the same safety
standards but with different modes of enforcements (B&D 2000, p. 440). The
harmonisation in content was materialised through the Best Available Technology
(BAT) philosophy and the move from specification standards to performance standards,
which both were adopted by the EC DG III and WP29, and NIITSA (B&D 2000, p. 440).
Consequently, a new international regulatory framework was established.
5
Business and Global Governance
Spring 2013
NEW INTERNATIONAL AUTOMOBILE SAFETY REGULATION
The new regulatory framework was founded upon performance standards and BAT
(B&D 2000, p. 440). Regulation in terms of performance standards meant that
regulators did not care about the technical details, only about the outcome. An example
could be safety standards for brakes. The requirement was that the breaks were able to
stop the car within a certain amount of meters and not how the brakes would technically
stop the car. The BAT demands that the best available technology set the standard.
Together, the performance standards and the BAT have created a regulatory system that
“mandates the level of performance achieved by the best technology that is economically
feasible” (B&D 2000, p. 440). EC DG III and WP29, and NIITSA changed their safety
standards so the standards fulfil this criterion, and the different minimum and
maximum values were changed to allow for an overlap, thus creating global automobile
safety standards (B&D 2000, p. 440).
This new global regulatory framework had a great effect on the business dynamics of the
automobile industry, as the BAT became a strategic trade game (B&D 2000, p. 448).
Companies lobby for their own safety innovations because if a company can set the
standard, it will have a competitive advantage over the other car producers who have to
follow the new standard. The new mode of safety regulation has therefore created a
business conflict where the source of the conflict is between technology leaders and
laggards. This new business conflict has created threats and opportunities for
automobile companies, and it might be that this conflict will lead to new changes in
safety regulation.
THEORY REFLECTIONS
Falkner’s neo-pluralistic theory and Vormedal’s tipping point model both have strengths
and weaknesses and these have implication for the theories’ applicability and ability to
explain the case of automobile safety standards. Consequently, there are some
limitations to the two theories. This section will first address the tipping point
framework, then neo-pluralism, and lastly it will shortly discuss the complementarity of
the two theories.
6
Business and Global Governance
Spring 2013
THE TIPPING POINT FRAMEWORK
The tipping point framework by Vormedal (2012) has many strengths and weaknesses.
It is a strong conceptual framework as it has developed a model to describe how the
interplay between business strategy formation and international governance can
generate a change in international automobile safety regulatory, and in this way “it adds
to our understanding of how business strategies are constructed and re-constructed” in
international governance (Vormedal 2011, p. 33). The framework points out the
important historical phases that create the tipping points, which lead to international
regulation. However in relation to this, the tipping point model does not consider the
possible negative feedback mechanisms that may hinder the process and the
development of new international regulation. The mechanisms may include other actors
such as the automobile industry organisation that favoured liberalisation, or as the case
showed, there can be internal business conflicts that functioned as negative feedback
mechanisms.
Furthermore, the framework lacks causal relations that explain the tipping points. Even
though it points out that tipping points may be driven by regulatory risks and
uncertainties, uneven playing fields, and new market opportunities, it does not analyse
these mechanisms thoroughly. Companies face regulatory risk and opportunities all the
time but how important or severe do they need to be for companies to change their
regulatory strategy. The tipping point framework is thus not able to predict future
tipping points in the automobile industry, as the causal factors are not examined.
In relation to the tipping points, the framework includes an important dimension
of constructivism. This allows the framework to analyse the automobile safety case
before changes in international regulation are implemented but where ideas about
changes are in play. In this way, the framework notices and acknowledges tendencies
that other frameworks might neglect. The tipping point framework furthermore relates
the change in discourses to the materialisation of tipping points through changing
business strategies. Yet, it does not consider how the tipping point and materialisation is
transferred into the political sphere of NIITSA, EC DG III and WP29 and how this caused
long-term changes in international regulation (Vormedal 2011, pp. 37-38).
7
Business and Global Governance
Spring 2013
So even though the tipping point framework is a dynamic framework that is able to
analyse the interplay between business strategies and international governance and
capture the important process of changing business strategies, it lacks negative feedback
mechanisms and clear causal variables that are able to explain when there will be a
tipping point and when there will not be, and it furthermore does not consider the
materialisation of tipping points in the political arena.
NEO-PLURALISM
Compared to the tipping point model, neo-pluralism is a broader concept, which is not
trying to describe any causal variables but rather the role of business in international
governance. Its main strength is that it reflects the reality of automobile safety
regulation. Falkner has rightly noticed that pluralism was out-dated and did not
describe the current world. Neo-pluralism recognises the privileged role of the
automobile companies and justifies it by stating that “the well-being of society of society
and the economy depends on investments, innovation, economic growth and
employment” (Ougaard 2013, p. 7). On the basis of this Falkner concludes that there is
no inherent conflict between business and society (Ougaard, 2013, p. 7), however, this
conclusion is flawed. The major implication is that according to this statement, what the
automobile companies find in their interest is also in the interest of society. Business
interest is common interest. However, this is defiantly not always true. Before the
change in discourse, the first tipping point, the automobile industry did not consider
increased safety regulation as in their interests even though it was the interest of
society, as fewer citizens would be killed on the roads. One need to remember that the
goal of business is profit maximisation and you could argue that the only reason for the
automobile business to change strategy was because they anticipated future costs if
regulation became too strict or favoured competitors. The assumption about common
interest also leaves out the role of political bargaining where governments may have
different interests than the industry, and as a consequence of this, my study did not
reveal the power struggles of the political bargaining process.
Falkner’s neo-pluralism entails some sub-concepts that helped analyse the role of
business. The concept of business conflict challenges previous literature that portrays
8
Business and Global Governance
Spring 2013
business as one united actor. The consequence will then be incomplete research, which
may produce the wrong conclusions. If the concept of business conflict is employed, it
will add new perspectives and highlight the struggle between businesses, which is of
high importance in relation to the outcome of international regulation. Yet, Falkner does
not address business conflicts more thoroughly and he thus overlooks some very
important mechanisms of conflicts. For a conflict to exists there need to be power. Thus
power must be at the centre of a business conflict analysis. This is highly important as it
will determine whether the conflict will be settle and what the outcome will be.
Consequently, Falkner’s neo-pluralism needs to address power struggles within
business to fully take advantage of the usefulness of business conflict as an analytical
concept. One could tackle this problem by adding Fuch’s three types of business power
(2007).
COMPLEMENTARITY OF THE TWO THEORIES
When the tipping point framework and neo-pluralism are combined, they make up for
some of their own weaknesses and this strengthen their applicability to the automobile
safety case. The tipping model does not explain why business played an important role
in developing international automobile safety regulation and why the second tipping
point created two different systems with different modes of regulation. Neo-pluralism
thus complements the tipping point framework by explaining these dynamics by the use
of business’ privileged role and a business conflict between Europe and US based on
different regional traditions in regulation. On the other hand, neo-pluralism is not able
to explain the creation and change in international regulation, and it does not discuss
the effects of anticipated regulatory pressure, as the tipping point framework’s dynamic
feature gives important insight to. Nevertheless, there are still many limitations of this
combination and it still cannot uncover the power relations and power games that exist
between business and other actors, especially government. Thus it is not able to explain
why business needed to change their strategies and how great the limitations to
business power were.
9
Business and Global Governance
Spring 2013
CONCLUSION
This paper has analysed the case of automobile safety by applying Vormedal’s (2012)
tipping point framework together with Falkner’s theoretical concept of neo-pluralism.
The change in automobile safety regulation can be explained as a dynamic process with
two tipping points. The first changed the automobile safety discourse and it came about
because of a report that criticised the automobile industry for not producing safe
enough cars. The automobile business anticipated regulatory risks and they changed
their business strategies in favour of legislation. Since the business had a privileged
position in society, they were able to influence regulation. However, a business conflict
between American and European companies lead to two different modes of legislation,
as American companies lobbied heavily at NIITSA and the European at EC DG III. The
companies were able to influence regulation because they had an important role in the
policy-making process as they had knowledge and expertise, strong structural economic
power, the role as a policy entrepreneurs and in Europe, the companies were able to
solve the problem of low institutional capacity. However, the divide in regulation
created an uneven playing field that did not satisfy the automobile industry. The
automobile companies used their power to create the second tipping point and found a
way to minimise the business conflict, and due to a good US-Europe dialogue, each
system of regulation was modified to allow for harmonisation in content but with two
different modes of enforcement.
Consequently, the combination of the two theories reveals important insights of
business power and the dynamic relation between business and global governance that
lead to a race to the top in international automobile safety regulation. However, the
combination of the two theories were not able to uncover the power struggles of the
process, and the study did not include an analysis of other possible powerful actors;
governments, consumer groups and so, and this needs to be investigated to completely
understand the development.
10
Business and Global Governance
Spring 2013
BIBLIOGRAPHY

BRAITHWAITE and DRAHOS (2000) “Road Transport”, Chapter 18 in Global
Business Regulation, Cambridge, Cambridge University Press 2000.

FALKNER, R. (2010) “A Neo-Pluralist Perspective on Business Power in Global
Environmental Governance”. In Ougaard & Leander (eds.): Business and Global
Governance. United Kingdom: Routledge

FUCHS, D. (2007) “Business as an Actor in Global Governance”, Chapter 3, pp. 4370 in Understanding Business Power in Global Governance, Boulder & London:
Lynne Rienner

OUGAARD, M. (2013) Lecture notes: “Neo-pluralism and climate politics” from
Business and Global Governance, Copenhagen Business School, Februar 5, 2013

VORMEDAL, I. (2012) "States and markets in global environmental governance",
European Journal of International Relations, 18 (2), 251-275

VORMEDAL, I. (2011) “States and Markets in Global Environmental Governance:
Dynamics and Change in the Regulation of Global Warming”, Series of
dissertations submitted to the Faculty of Social Sciences, University of Oslo, No. 293,
Norway: University of Oslo

WIGGER, A. AND NÖLKE, A. (2007) “Enhanced Roles of Private Actors in EU
Business Regulation and the Erosion of Rhenish Capitalism: the Case of Antitrust
Enforcement”, Journal of Common Market Studies, 45 (2), pp. 487-513
11