Networked liabilities: Transnational authority in a world of transnational business

Abstract

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