From Private Governance to State Regulation of Ethical Markets?

In the past twenty years, many activists have turned from the state to the market as the locus of change.  Rather than push for government regulation of production, market-orient social movement organizations, along with alternative producers and ethical consumers, have created new market niches, with higher social and ecological standards for producers. In general, these new markets are privately governed, often via voluntary, third party certification systems.  However, market success has attracted profit-driven firms into niches founded by socially-motivated producers, complicating private governance.  This paper asks: when to market-oriented social movement actors turn toward the political process? Under what conditions do ethical market producers and consumers push for state regulation? I look at three US cases (organic food, grassfed beef, and local food), and suggest that market-oriented social movements lobby for government regulation when they feel threatened by for-profit firms with dilution of meaning and standards. However, government regulation wrests control of ethical markets from socially motivated actors, and risks defining down standards in ethical markets –  omitting or softening the environmental, social, and moral criteria previously espoused by ethical producers in these niches. 

In recent years, as cross-border supply chains and increasing trade have limited states’ abilities to regulate how the goods sold within their borders are produced, activists have turned from governments to markets for solutions. While some activists focus attention on powerful market actors, others sidestep existing markets and aim instead to build new modes of exchange. By defining new product categories—thus lowering barriers for new producers and communicating a clear value proposition to consumers—social movements and their organizations have played a crucial part in creating new markets (Carroll & Swaminathan, 2000; Rao, Morrill, & Zald, 2000; Schneiberg, 2002; Weber, Heinze, & DeSoucey, 2008).

These market-oriented social movements infuse new markets with moral values (Weber et al., 2008; see also Fourcade-Gourinchas & Healy, 2007; Rao & Giorgi, 2006; Rao, Monin, & Dorand, 2003; Zelizer, 1983); they aim to re-embed economies into communities and conduct exchange within clear social norms. 

Market-oriented social movements, focused on the market rather than the state, as the locus of social change. These private governance schemes (or ‘non-state market driven’ certification systems; see Cashore: 2002) were built to “address the negative consequences of neoliberal globalization, which, it is asserted, frees multinational firms from inconvenient national regulation while discouraging countries seeking foreign investment and trade from enacting and/or enforcing social or environmental standards” (Auld et al 2010:1; also McDermott, Noah and Cashore 2006).  New ethical markets relied on private governance, often via membership, inspection, and certification systems. The creation and invigoration of product and process standards, many certified by third-party inspectors, serves to lower transaction costs (see Abbot and Snidal, 2008). In ethical markets, certification bodies take the burden of researching purchases off distributors and consumers.

Though several ‘ethical’ standard certifications have demonstrated marked success in raising awareness of social and environmental issues, and some have created large new markets for ‘ethical’ products, problems remain. First, even strong international institutions and motivated global corporations have found monitoring production in complex global supply chains to be challenging (Bartley, 2010; Locke and Romis, 2010). Second, co-option of standard development by corporate interests has been common in cases of private regulation to the detriment of vulnerable producers (se  Fuchs and Kalfagianni, 2010). Finally, though these schemes increase diversity offerings on the supermarket shelves, critics charge they have had “minimal” impact on the environmental characteristics of global food production, at the same time they “also foster the weakening of the organic movement’s second-order principles, such as sourcing from local networks and privileging small suppliers.  The latter are especially vulnerable . . . .” (Hatanaka et al: 2005:6). Clearly, as Peter Taylor wrote, ‘ethical’ product advocates face a delicate balancing act of being “in the market, but not of it” (2005). 

Three Cases: Organics, Grassfed Beef, and Local Foods

This paper traces the evolution of three social movements that spawned ethical markets in the United States: organic food, grassfed beef, and local foods. 

For example, I trace how organic producers shifted from a self-certification model to demands for government regulation of the organic market in response to encroaching competition from less stringent and counterfeit “organic” competition (Greene, 2008: 802).  Though the sale of fraudulent organics was likely minimal, organic pioneers and new producers committed to strictly organic farmer grew frustrated with the lack of agreed-on standards for ‘organic’. Members of the California Coalition of Organic Farmers (CCOF), for example, argued for the creation of standards for organic farmers in order to foster consumer education and foster trust in the market (Guthman, 2004).  In the mid 1980s, some members of the industry began to lobby Congress to regulate organics on the federal level (Fetter and Caswell, 1). Key members of the Organic Trade Association argued that federal standards were needed in order to safeguard the organic market’s premiums. The founder of Horizon Organic Dairy explained the push in defensive terms: “Many of us had seen the term ‘natural’ become diluted and meaningless, and we didn’t want to see that happen to ‘organic’” (quoted in Ingram and Ingram, 2005: 132). The history of the institutionalization of organic certification from a loose ethical label into a state-regulated standard suggests that large, for-profit firms – once guaranteed a seat at the table – are able to leverage their power to ‘capture’ regulatory processes and dominate standard-setting. 

The case of grassfed beef mirrors the experience of organic producers: core activists pushed for a regulated federal standard for meat labeled ‘grassfed’, only to find the government rule-making process coopted by large, profit-minded producers. The resulting rule proved so unsatisfactory to core activists that the American Grassfed Association established a more stringent, private certification program to compete with government labeling standards.  A third case, the younger ‘buy local’ movement, highlights a social market movement at a crossroads: some activists argue that standardization and government regulation is needed to protect and grow the nascent market, while other worry that institutionalization will invite cooptation.