Garrett on Richman, “Stateless Commerce”

The latest installment of the Sawyer Seminar on Corporations and International Law brought Professor Barak Richman, an economist and a professor of law at Duke University, who discussed his recent book, Stateless Commerce: the Diamond Network and the Persistence of Relational Exchange. Specifically, the conversation heavily weighed on chapters 6 and 7, focusing on interactions between these private, ethnic trading networks and state regulation. Richman began the discussion by grounding these speculative chapters within the context of previous chapters, seeking to explain how contracts are enforced in the diamond industry.

These contracts resemble a pre-legal and pre-modern economic model, as the contracts are not enforceable in courts but rather through familial and community networks. This particular industry thrives on the impermeable credibility of contract promises and reputational or social pressures. This system and its self-enforcing mechanisms increase economic efficiency and solve the credibility problem inherent in contracts.

Chapters 6 and 7 of Richman’s book focus on the relationship between the state and these stateless trading networks that characterize the diamond industry. While within the industry, private mechanisms enforce contracts, enact punishments, and bring redress (rather than state-sponsored tools), the state is not totally absent (as in the case of theft – the state will try to punish theft to the degree it possibly can). This use of state adjudication measures as simply a last resort – and as one of the least effective enforcement mechanisms – further underscores how stateless commerce embodies pre-modern governance.

Moving from this delineation between state mechanisms and private mechanisms, Richman responded to the legal debate between a formal enforcement system within international law versus an informal system. While better at sharing inside market information, the downside to these informal systems is their exclusionary nature – the structure of credibility and enforcement often prevents outsiders from entering the network. While countries with ineffective state enforcement can benefit from these stateless networks despite their negative effect on prices with the ability to secure contracts and property rights. Richman elaborated on this by delving into anti-trust law, which does and should recognize the anti-competitive nature of cartels while also accepting the pro-competitive joint ventures that can create a reliable market.

While these networks are often economically efficient, normative questions about human rights challenges remain. Richman addressed stateless commerce from an economist’s vantage point, and recognized that tax evasion, money laundering and terrorist financing can be a few among other human rights challenges facing stateless governance (and the diamond industry in particular). Whose responsibility is it to address these human rights concerns? Can states address challenges belonging to structures acting, for the most part, outside of their institutions or authority? Could these pre-modern networks address these human rights issues in a way global governance, or public formal procedures cannot?

Richman countered the question by discussing the Kimberly process, an example of private international governance created to address conflict diamonds and other rights abuses in the diamond industry globally. However, while a relevant example of how private entities arise to address problem in the stateless world, the Kimberly process does not effectively address the concern. Rather, the private standards the process imposes simply act to reassure consumers. Is this better than nothing or what a government would do, especially when these networks act in countries with weak governance mechanisms?

Private arrangements and stateless commerce both present benefits and drawbacks, as any market and regulatory authority do. While seemingly a much more efficient market and economic model for the diamond industry, these stateless networks do present unanswered questions about the protection of affected communities and redress for their violated human rights. Professor Richman led a fascinating discussion analyzing these distinctive markets, and in so doing, highlighting the merits and consequences of international legal governance as well as domestic state regulation and enforcement mechanisms.

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