King on Richman, “Stateless Commerce”

On Friday, February 23, the second spring speaker session for Sawyer Seminar on Corporation and International Law hosted Professor Barak Richman to discuss his new book, Stateless Commerce: The Diamond Network and the Persistence of Relational Exchange. Professor Richman is the Edgar P. and Elizabeth C. Bartlett Professor of Law and Professor of Business Administration at Duke University.

Professor Richman introduced the two chapters of focus for the discussion, Chapters 6 and 7, as the most speculative.   Richman began by explaining the theoretical contribution of the book, which is showcased in Chapters 3 and 4.  As Richman explained, the normal kind of credit sale is secured by courts.  However, in the diamond industry, the mechanisms of enforcement are premodern and rely upon social interrelation between families and communities that exert social pressure to ensure that sales are secured.  The relational exchange model, then, results in barriers to entry, limiting the industry to only those who can be trusted by the community.  Further, enforcement in the industry depends upon extralegal credibility.

The relevant question that the book set out to address was: why does the diamond industry look so unique, and maintain the premodern ethnic networks mechanism for organizing commerce? Richman’s work explains that alternative institutional mechanisms are rejected because there is an efficiency gained by using premodern mechanisms. However, as Richman began to publish parts of the book, he continued to discover more nuance to the themes of the book.  Noting that these premodern mechanisms are actually the hallmark of globalization, as they are occurring on 47th Street in New York, as well as in East Asian and other commercial centers. Additionally, the question emerged as to how states might interact with these mechanisms.  Richman explained, then, that Chapters 6 and 7, are an attempt to apply what he discovered from his research of the diamond industry to other issues – governance, international politics, international trade and even Jewish history.

During the speaker session, many of the questions centered on the impact of the diamond industry on human rights and what the role for states or other institutions could be to address the human rights challenges that result from a market that is stateless in nature.  Professor Richman explained that the book does not approach the normative question of whether the diamond industry is a good thing, or whether the unique nature of the mechanisms for enforcement are good things.  Instead, the book takes a positivist approach that describes the industry and how it functions in order to assess the comparative effectiveness of different institutions. Richman added that, for example, the normative questions of whether the gender discrimination in the industry is a good thing is difficult – noting that imposing the employment discrimination laws on the diamond industry might undermine the effectiveness of the relational exchange model.

Richman also explained that the perceived barriers to entry into the diamond industry have adapted to allow the entry of other ethnic merchants who similarly rely upon relational exchange. For example, Indian merchants have been able to enter into the industry in Antwerp because of the community constraint within the Indian community that pressure merchants to not cheat the system. This is a happy economic story, Richman explained, because it means that the cartels could not withstand the economic efficiency forces, which allowed a whole new community to enter the market. Professor Richman read from the end of his book a story of a Vietnamese family who owned three dry-cleaning businesses and relied upon the social network of other Vietnamese families to gain the initial capital to open their business. Thus, as the discussion highlighted, relational exchange models are the hallmark of globalization and are mechanisms for enforcement that are relevant not only as historical models but also as models that are functioning effectively in the present.

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