Law on Corporate Due Diligence to Prevent Human Rights Violations in Supply Chains. Annual Bulletin of the Advisory Board of the Foundation for Family Businesses 2022

A new state interventionism is on the rise worldwide, which is expressed in ever greater control and regulation of entrepreneurial activity. The German Supply Chain Sourcing Obligations Act, which has already been passed, and its planned European counterpart are examples of this. They illustrate how seemingly morally correct actions can lead to undesirable side effects, so that the desired positive effects in poor countries do not materialise. Responsible is primariliy the dirigiste approach of the law - it leads to costs which than can lead to a decoupling of supply chains. A central argument for the introduction of the Due Diligence Act is that not enough companies are ensuring respect for human rights along their supply chains (as measured by compliance with the requirements of the National Action Plan on Business and Human Rights (NAP) in 2020). However, the economics literature presented in this paper clearly shows that the inclusion of developing countries in international value chains has indeed contributed to improving the human rights situation on the ground and could continue to do so. This development is not only slowed down by a well-intentioned intervention in the form of the Due Diligence Act, but at worst (at least partially) reversed.