Lukasiewicz on Richman, Stateless Commerce

On February 23, 2018, co-organizers of the Duke University Sawyer Seminar on Corporations and International Law, professors Rachel Brewster and Philip Stern, welcomed Prof. Barak Richman for their second spring public seminar event.  Speaking as a Duke Law professor and Fuqua School of Business economist, Richman introduced some of the most interesting conclusions and theories from his recently published book, Stateless Commerce: The Diamond Network and the Persistence of Relational Exchange.

Combining economics, history, and social science, Stateless Commerce details how contracts and credit agreements are enforced in the diamond industry.  Richman explained that since diamonds are expensive, highly portable, globally valuable, and difficult to appraise, states’ mechanisms for contract enforcement are substantially less effective than they are for other industries.  The diamond industry is actually centered around assumption of risk, much like the credit market, and buyers secure payment from the aggregate of other sales, much like an insurance market.

Stateless commerce describes economic activity where the state plays a back seat in enforcing transactions.  Since it is difficult for modern legal structures to enforce international diamond sales, especially with regards to policing couriers, extra-legal ways of encouraging honesty become essential sources for the credibility of transactions.

Discussing what he calls the most speculative portion of his book, Richman used this observation as a lens.  It is for this reason that he explains the success of Jewish communities in the diamond market.  Connections within these communities enable members to gain a substantial competitive advantage by wielding social power.  A courier, for instance, is substantially less likely to disappear with someone else’s diamonds if he intends to marry someone within the owner’s community.  Similarly, both buyers and sellers are more likely to work towards efficient and fair dispute resolution, especially for international transactions, if both parties will face community ire and distrust for forcing an unfair victory.

Small towns doubtless employ similar elements of social cohesion and behavioral enforcement.  However, basing community on location makes it easier to avoid consequences than when underpinning it with faith.  More importantly, a small town is not much of a diamond market.  Jewish people, on the other hand, remain part of the community wherever they go, and can therefore carry those benefits into an international industry.  Further, in preserving language and culture across distance, Jewish businessmen face lower international transaction costs when working with one another than with someone outside the community.

Richman also applies this perspective to the relatively recent emergence of Palanpuri Jains in the diamond market.  Though extremely different from Jewish communities in most aspects of culture and faith, Palanpuri Jains are also able to use community reputation and shared language and culture to increase credibility and lower international transaction costs.

After a thorough introduction, Richman accepted questions from moderators, students, and community members, many of which focused on how international commerce might change.  He explained that as globalization increases and the corporate model continues to develop, the diamond market has grown less stateless.  However, other industries are exhibiting greater degrees of statelessness, from divorce courts, to small business loans in immigrant communities.

Other questions focused on the implications of the Kimberley Process, which tracks diamonds to certify that they did not originate from conflict areas.  Although the world’s largest diamond company, De Beers cooperated with and encouraged the process, expecting that the costs of doing so outweighed the potentially existential threat of public revulsion towards conflict diamonds.  The discussion ended on a positive note, with the hope that new innovations in international law, information technology, and currency might bring options and new opportunities for encouraging social responsibility among international industries.

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