The Role of Law in Global Value Chains: A Window into Law and Global Political Economy

The Role of Law in Global Value Chains: A Window into Law and Global Political Economy

NB: This is the introduction to a symposium on law and global value chains co-convened with the Institute for Global Law and Policy’s Law and Global Production Working Group.

Dan Danielsen and Jennifer Bair–

The ideas that form the basis for this Symposium have emerged through an ongoing discussion among critical legal scholars, sociologists, geographers and political economists that began in 2014 under the auspices of the Institute for Global Law and Policy (IGLP) at Harvard Law School. From diverse disciplinary locations and substantive research interests, we were all engaging with the concept of global value chains (GVCs)—that is, functionally integrated but geographically dispersed networks through which many goods and services are produced. While we agreed that studying GVCs was integral for understanding the nature of the global political economy, our collaboration, which we named the IGLP Law and Global Production Working Group, was inspired by our shared sense that the role of law in the organization, operation and effects of Global Value Chains (GVCs) was little understood and significantly undertheorized in the burgeoning social science and policy literatures on GVCs. Moreover, legal scholars had barely begun to consider the rich body of scholarship tracking GVCs in numerous industries and geographic contexts, nor had they appreciated the degree to which the study of GVCs was shedding empirical and theoretical light on the governance structures and distributional dynamics of the dominant form of doing business in the global economy. (According to UNCTAD’s 2013 World Investment Report, GVCs account for 80% of world trade, while a more recent OECD estimate puts the number at 70%.) Finally, we shared a deep skepticism of what seemed an emerging consensus among mainstream GVC scholars and policymakers that the most promising (and perhaps only) path to development today is via participating in, and ideally moving up the value chain by capturing additional rents through innovation-based upgrading. Our intuition was that diverse legal arrangements were enabling and sustaining the current asymmetrical distributions of resources, rents, and power in GVCs and that developing richer maps of these key legal drivers would make more legible the geographies of value and vulnerability in particular chain configurations, and perhaps suggest new strategies for resistance, solidarity and distributive intervention.

These shared ideas and intuitions led us to the core research question that remains at the heart of our work, even as we explore different aspects of it in diverse sectors and contexts: how does law shape the structure and organization of production and distribution globally, and how do structures of production and distribution in turn reconfigure what law is and how it works in this dynamic process? Our preliminary thoughts and methods for exploring this question were first articulated in a piece entitled “The Role of Law in Global Value Chains: A Research Manifesto” (the “Manifesto”), which was published in the London Review of International Law. In our introductory essay to this Symposium, we share some of the insights from the Manifesto and our ongoing work in order to frame the interventions to follow.

GVCs and Why they Matter

While many scholars argue that capitalism has long been global, the contemporary world economy has undergone a significant transformation over the past half century in the way goods and services are conceived, produced, and delivered. At the heart of this transformation is the global value chain. For much of the twentieth century, global industries were organized around vertically-integrated transnational corporations that orchestrated supply, production and distribution (especially, but not only, of manufactures) via ownership of subsidiaries that served mostly geographically proximate markets. In contrast, under GVC capitalism the production process is organizationally fragmented and geographically dispersed, with transactions between different links in the chain coordinated primarily via contract rather than ownership.

From the perspective of transaction cost economics, the rise of GVCs might be interpreted as a shift from hierarchy to network. Yet one of the key insights to emerge from careful study of industries as diverse as electronics, horticulture, animation, and apparel is that this is a false dichotomy: economic actors can use GVCs to exert control without ownership. In fact, one significant effect of the rise of GVCs is an increasing concentration of power over the coordination, or governance, of supply chains by large retailers and other client firms that, via their ability to determine product standards and set commercial terms and conditions for suppliers, shape the distribution of rents across the chain.

Thinking about this dynamic entirely in terms of “buyer power” fails to account for the ways in which the governance of GVCs by lead firms has diminished the regulatory and policy autonomy of developing states, and the bargaining power of supplier firms and their workers. When GVCs are the primary infrastructure of global industries, access to the market means integration into the chain. The power to act as de facto gatekeepers to the market gives large buyers extraordinary advantages over both firms and states competing for their favor. Consequently, the business practices of supplier firms and the regulatory policies of their states will be attentive to, if not substantially determined by, the demands of buyer firms across the supply chains with which they deal.

The legal techniques and business practices through which buyer firms exercise their governance power in GVCs are myriad, and include supply contracts, corporate codes of conduct, policies regarding subcontracting by suppliers or intermediaries, punitive commercial measures that punish non-compliant firms, multi-sourcing practices that leverage competitive pressure, strategic use of anti-trust concerns to limit calls for transparency into chain operations by suppliers and workers, limitations on supplier sourcing of production inputs, and many others. In addition, buyer firms shape the policy autonomy and bargaining power of developing states, firms and workers using techniques such as complex ownership and licensing structures to maintain proprietary control over innovation, intellectual property, and brand assets; inventory control and production management systems that minimize technology transfer to suppliers; and complex corporate structuring to distribute business functions and the recognition of revenues and profits geographically for the purpose of minimizing global tax liability. Because of these techniques, local firms and national development policymakers find it more difficult both to influence the terms on which they access supply chain structures and to maximize the returns they receive from participating in them.

 

GVCs and Law

In the Manifesto we sought to articulate a conceptual framework and a research agenda for examining the centrality of law and legal orders in the structure, governance and distributional effects of GVCs. Our Working Group saw three central weaknesses in conventional GVC scholarship:

  1. that law is often treated as exogenous to the economic forces assumed to be driving the organization of GVCs rather than an integral enabling infrastructure and driver for the structure and dynamics of GVCs and global markets;
  2. against an often unstated backdrop assumption that global commerce is mutually beneficial exchange in largely free markets, the function of law is often assumed to be the provision of market-facilitating institutions (such as property, contact, the corporation) and rules to correct informational asymmetries and other serious market failures rather than a terrain of struggle over the recognition and distribution of value and power in the chains; and,
  3. that the distribution of rents along the chains is often seen as a reflection and recognition of productivity gains or “value-added” rather than a product of background legal entitlements that enable and reinforce power asymmetries and distributional inequities.

To redress these deficiencies, the Manifesto called for a research program focused on three interrelated areas. First, we proposed attention to the legal geography of GVCs. The objective here is not only to identify the multiple legal regimes and jurisdictions that are relevant for contemporary production systems. We also seek to study GVCs as discrete sites at which multiple legal forms—domestic and international, hard and soft, public and private, formal and informal—overlap, intersect and provisionally determine the geography of each GVC and the distribution of responsibility, authority, and surplus within it.

Second, we argued for the need to center the relationship between, on the one hand, law and legal entitlements, and, on the other, the generation, distribution and appropriation of rents. This line of inquiry may help unpack the key concept of value (and its concomitant construct, value-added), which though central to GVC analysis, has for the most part escaped sustained scrutiny.

Third, we argued for the need to move beyond economic notions of GVC governance driven by market demands for ever-increasing productive efficiency to examine how law facilitates or even drives relations between firms, and/or between firms and other stakeholders, including workers and consumers.  In this area of inquiry, we seek to understand the diverse combinations of legal tools and practices through which GVCs are coordinated and managed with a view to exploring how current distributions of power and surplus might be changed through alterations in the legal arrangements that enable them.

In this Symposium (and a forthcoming edited volume), we hope to demonstrate a range of theoretical and methodological approaches to the study of law and GVCs. Our sense is that analyzing the legal conditions enabling GVCs is necessary to understand the constitutive role of law in the making of contemporary capitalism, and thus the promise and limits of legal techniques, tools, and regimes to intervene in its uneven and frequently unjust developmental and human welfare outcomes. Ultimately, then, our aim is to map GVCs as a way of apprehending and challenging the topographies of power constituting the global political economy. Armed with such maps, law and GVC scholars might contribute to myriad efforts, some already underway, by workers and activist to explore GVCs as provisional institutional structures for interest-based solidarity, social movement building, redistributive governance and democratic accountability outside the traditional liberal framework of geographically-bounded national polities. More broadly, insights and methods from law and GVC studies may prove useful and generative for LPE scholars seeking to link local and global patterns of distributional injustice or to identify the legal drivers of injustice in a particular locale.

Dan Danielsen is Professor of Law and Faculty Director of the Program on the Corporation, Law and Global Society at Northeastern University.

Jennifer Bair is Associate Chair of the Department of Sociology at the University of Virginia.