Doing Business in Authoritarian States: Tackling Dilemmas While Preserving Integrity

There is a wide range of measures that business companies may implement to comply with international human rights norms when doing business in authoritarian states. The prevailing international consensus is that business companies must respect such norms in their operations and ensure they are respected throughout their supply chains. Simply ignoring the norms is not an option.

At the one end of the spectre, companies may cancel contracts, sell out assets, and leave based on forecasts that it will prove impossible to comply with human rights norms given the parameters of the authoritarian playing field. As part of that process, they can officially state their reasons for leaving, such as company principles to refrain from doing business with actors that abuse employees and/or support government repression and to refrain from being part of highly corrupt business practices.

At the other end of the spectre is a range of measures that can be implemented while maintaining business relationships. The companies can publicly criticise human rights violations and defend the rights of the employees of their business partners. They can provide support to improve safety and other vital conditions for employees, including the right to organise and not to be laid off because of exercising civil and political rights. Supporting democratic forces, including civil society actors, independent media, and human rights defenders, outside their strict business sphere are also measures that companies can initiate. They can engage in public deliberation and contribute to self-regulation and public goods provision, as expected by political corporate social responsibility (CSR).³

Initiating such measures in authoritarian contexts, however, are never straightforward. First, they come with risks of negative regime reactions. In the end, a company making efforts to respect human rights in its sphere of influence risks being blacklisted by the regime and even told to leave. Such reactions may depend on how important the regime perceives the company to be in terms of market share, technology, and role in the national economy.

Secondly, even those who may be benefitting from a foreign company’s measures to support human rights may be convinced that it is better if it leaves. Doing so will send a strong message to the regime of criticism and protest appalling human rights violations and disrespect for democratic values. In the eyes of an oppressed opposition, struggling civil society organisations harassed journalists and persecuted civilians, such a message from respected foreign companies may be precisely what is needed to weaken the regime and pave the way for democratic transition in the future.

Finally, internally, within governing structures and among staff, enacting measures that may be seen as controversial and “too activist” may create complex controversies about the proper delimitations of the company’s role. After all, a company’s presence or business relationships cannot be primarily motivated by supporting human rights and democracy. If so, the company would seize being a business actor and become something else. So how to define the balance?

The report does not aspire to give authoritative answers to such questions. Instead, it aims to describe dilemmas inherent in conducting business operations in what could be called ‘authoritarian playing fields’ and discuss the arguments for the chosen direction.

There are no simple answers in such situations, only more or less well-founded strategies to navigate difficult waters.

Entering the fields

Authoritarianism may be defined as a “principle of blind submission to authority, as opposed to individual freedom of thought and action”.⁴ In government, authoritarianism denotes any political system or governance that concentrates power in the hands of a leader or a small elite not under constitutional constraints or responsible to the people. Authoritarian leaders often exercise power arbitrarily and without regard to national or international law. They usually cannot be replaced by citizens choosing freely among competing candidates in free and fair elections. The freedom to create opposition political parties or alternative political movements to compete for power is limited or non-existent.

Such rule stands in fundamental contrast to full-fledged democracy but also differs from totalitarianism since authoritarian governments usually have no highly developed ideology, tolerate some pluralism in media, civil society, and the political sphere, and lack the power to mobilise the entire population in pursuit of national goals. They exercise power within relatively predictable limits, often motivated by a strong will to remain in power and to ensure that their supporters remain loyal.

In general, authoritarian rule suppresses human rights, particularly civil and political rights. Persons or groups exercising freedom of expression, organisation, assembly, or belief outside government control are often perceived as threats to their power by the regimes. Therefore, they often experience that their rights are curtailed and that politically motivated criminal or administrative cases are used in efforts to pacify them. Minority groups, including ethnic and religious groups, LGBTI+ people, and often women, may experience that their rights are restricted and that the regime targets them as scapegoats. Control and surveillance of the population go hand in hand with media censorship and state control over resources.⁵

Participation of opposition candidates and parties in the political competition is obstructed by various measures, such as discrediting them in media and social media campaigns, filing politically motivated cases against them, or by threats, harassment, and physical attacks.⁶

Authoritarian regimes may also restrict, control, and abuse for political purposes the operations of business actors in ways not seen in democratic states. Corruption is often widespread and systemic, while the regime exercises control over the market to ensure that only the political elite benefits from business.⁷ Venezuela’s nationalised oil industry and Kremlin’s control over Russia’s oil and gas resources illustrate how authoritarian regimes take over and use the country’s most valuable economic sectors to sustain power and channel benefits to regime supporters.⁸

Workers in state-owned companies are often pressured to vote for the incumbent.⁹ Participation in independent trade unions may be restricted and/or trade unions may be pressured to abide by regime orders. In sum, these measures amount to violations of the political and civil rights of the workers, particularly if they are accompanied by threats of losing their job if they are not abiding by orders.

There may be several other complicating features of authoritarian playing fields. Since authoritarian regimes do not abide by laws or enact laws or decrees that may change the rules of the game overnight, the risk for business actors if they fall out with the regime is considerable. They cannot rely on independent judges to correct wrongdoing against their interests.

The arbitrariness and/or reliance on personal contacts to succeed may also explain why authoritarianism foster limited economic growth compared with democracies. According to the World Bank’s Ease of Doing Business Rankings, democracies, and free and partly free countries that respect the rule of law, perform much better than authoritarian states. The top 10 countries are all in this category, while those at the bottom are either authoritarian, dictatorships, or suffering from armed conflicts or political unrest.¹⁰

China and some other authoritarian states achieved high economic growth over protracted periods. However, the risk of political unrest, political crackdowns, security crises, and persecution tends to make life hard for businesses and “place employees, supply chains, and investments at risk. Foreign companies that remain involved in such environments risk suffering from reputational and legal challenges.”¹¹

Western fashion brands buying cotton from factories using forced labour in Xinjiang, China, may testify about reputational and legal risks associated with their business practices. They are “under pressure to renounce cotton harvested in a Chinese region marked by gruesome repression [of the Muslim Uyghur population]”. If they do, however, they face a backlash from nationalist Chinese consumers.¹² If they decide to stay, they will be subject to campaigns for consumer boycotts in the West.¹³

While in some situations, the assessment may be fairly easy – business operations and relationships in an authoritarian state are found to achieve nothing in terms of supporting human rights and a better future for those affected – in other situations, it is not. Boycott and leaving may seem correct, judged from a principled human rights perspective focusing more on sending strong messages than deeming actions based on consequential and utilitarian perspectives. An important question is whether we should look beyond the symbolic perspectives and start weighing consequences for involved persons or communities when making decisions. This report points to the need to merge different perspectives to guide actions.

One thing is sure, however. When entering authoritarian playing fields – i.a., building factories and assembly lines, buying products, or taking over ownership of local companies – foreign companies that wants to uphold moral principles and international human rights norms must be well prepared. Dilemmas will sooner or later arise.

One of the most fundamental questions company executives and boards must address today echoes the 1982 hit by British punk band The Clash: “Should I stay or should I go now? If I stay, there will be trouble, if I leave, there will be double”.

As soon as that question has been answered, many other complex issues must be sorted out.