How Finance Structures Global Value Chains

How Finance Structures Global Value Chains

NB: This post is part of 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.

Tomaso Ferrando–

The Law-in-Global-Value-Chains perspective adopted in the Research Manifesto and introduced the initial blog of this series is based on the recognition that law is endogenous to the production, circulation, accumulation and destruction of value. Whether we are talking about labor, nature, capital or any of the other ‘cheap things’ that are central to the construction of the global system of production, the Manifesto suggests that law has a lot to do with the way in which that ‘thing’ becomes cheap and value is extracted from it..

Yet, not enough attention has been dedicated – so far – to the role of law as the enabler of financial markets, financial instruments and financial actors as value extracting participants to global networks of production. However, financial practices that prioritize the remuneration of capital holders contribute to redefining forms and spaces of production, along with the geographies of value appropriation and the relationships between people, planet and value chains. In the contemporary economy of atomized production and outsourcing, finance is at the core of how global production is organized. The study of law in global value is woefully incomplete without an understanding of the way in which legal structures define the space of operation of financial actors and financial actors utilize law and legal structures to increase the extraction of rent.

There are many ways into the study of how law and finance structure the operation of global value chains. Perhaps uniquely powerful is a focus on something both essential and increasingly fragile: the global food system.

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On Law and Value

On Law and Value

NB: This post is part of 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.

Amy Cohen–

We are witnessing a new moment in economic development: what Richard Baldwin calls the global value chain (GVC) revolution. As our symposium suggests, critical legal realist scholars are organizing in response. Some have argued that by mapping the relations between law and value chains we may find strategies for resistance, solidarity, and distributive interventions. Others have ventured that “law cannot but function” to serve the interests of a global capitalist elite. This post does not aim to resolve this generative realist tension. Rather it shifts focus to propose that under GVC capitalism, status quo maintenance and resistance also happen through discourses of value—an observation that may offer insights into how actors themselves view the salience of law in specific local struggles.

To comprehend what I mean by “value,” think business school not neoclassical economics. Business strategists distinguish “supply chains” from “value chains.” In supply chains, firms compete on price and pursue low-cost imitations. Managing a supply chain is thus all about “taking out cost and making process efficient.” In value chains, by contrast, firms are supposed to transform undifferentiated commodities into distinctive products through creativity and innovation: “Value chain management is about how to create value; how to coordinate the continuous innovations of creative contributors and how to make that process efficient for the consumer and the contributor.” For firms to compete on value they therefore need consumers who desire products for reasons other than a low price, and they also need the means to capture this consumer surplus such as brand reputation and proprietary process technology.

In our lead post, Bair and Danielsen argue that mainstream GVC scholars mistakenly describe law as simply promoting efficient exchange and value additions as themselves determining the distribution of rents. But I wonder if law’s role in enabling capital accumulation is in fact today more easily demystified. As firms chase value, they purposefully create legal-institutional barriers to entry to capture value against competitors (such as IP). As our legal realist tools therefore perhaps become less revelatory, we may consider how actors directly invoke value to both defend and transgress a development common sense.

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Cracking the Code of Global Value Chains

Cracking the Code of Global Value Chains

NB: This post is part of 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.

Klaas Eller–

Global Value Chains (GVCs) form a backbone of our global economy that eludes easy characterization. In media or policy reports, corporate brochures or academic publications, the image of choice is generally logistics hubs or factory sites. Yet no single site can capture the inner dynamics of GVCs, which, by definition, emerge from the connection between seemingly unconnected places, norms, actors and social dynamics. The same is true for the common visualization of value chains in linear schematics or organizational charts. Despite their suggestive power, these do not offer a full picture. 

L’essentiel est invisible pour les yeux—especially for lawyers, GVCs offer little stable ground for departure and pose crucial problems of choosing the right lens. As highlighted in the ‘Research Manifesto on the Role of Law in GVCs’, current modes of production have come adrift of legal conceptualization, unmoored from the legal dichotomies and discourses that condition the mind of the modern lawyer. In dealing with a phenomenon that plays with the niches of modernity, legal scholarship constantly runs the risk of finding itself in the same loops, paradigms and path-dependencies that give the illusion of movement without forward progress.

To leave a mark, any inquiry into the role of law in GVCs therefore needs to start with the legal imaginary of global production. What exactly does law conceive of when dealing with GVCs? Are they chains of contracts that can be governed more or less efficiently or a drastic transformation of the legal face of world trade relations? It is this double nature of GVCs, as both an organizational arrangement between firms and as an evolutionary stage in the development of capitalism that is so challenging to account for, especially in law. From an angle of Law & Political Economy, GVCs form a paradigm case for a necessary and constant translation between micro- and macro-level analysis, between local and global, now and then, individual and systemic.

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Global Value Chains as a Legal Concept

Global Value Chains as a Legal Concept

NB: This post is part of 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.

Jaakko Salminen & Mikko Rajavuori–

In the first blog post of this symposium Dan Danielsen and Jennifer Bair argue that law can open up a window into understanding global political economy, in particular today’s global value chain capitalism. In this post, we complement their analysis and argue that global value chain (GVC) theory, in turn, opens up an avenue for understanding recent legal developments in private governance, public law and private law doctrine./

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The Role of the State in Disrupting the Distribution of Power within GVCs

The Role of the State in Disrupting the Distribution of Power within GVCs

NB: This post is part of 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.

Ioannis Kampourakis–

The research Manifesto on the role of law in global value chains highlights the centrality of legal regimes for the ‘creation, structure, geography, distributive effects and governance of Global Value Chains’. The recognition of law’s constitutive role in the chain means that law is not simply an institutional backdrop for the operations of the chain but rather endogenous to GVCs. Indeed, transnational corporations that coordinate GVCs are not mere ‘context-takers’ but rather play an important role in producing the rules that govern their own operations. This jurisgenerative capacity of private corporate actors weakens democratic control over the production process and creates the potential for dis-embedding the transnational economy from social values and relations. Yet, the law that is endogenous to GVCs is not impenetrable to attempts to introduce such values within it, as recent “corporate sustaintability laws” imposing transparency requirements have illustrated. The normative project of ‘politicizing’ the endogenous law of GVC capitalism by injecting public values within regimes of private governance has the capacity to limit corporate rationalities of profit-maximization and to generate progressive social reforms across the chain. However, such attempts can only incompletely realize the goal of subjecting GVCs to democratic accountability, while they might reinscribe a neo-colonial dynamic, in which it is up to consumers and investors in the Global North to police the practices of firms exploiting workers and extracting resources from the Global South. Insofar as national and international law remain powerful inscriptions of democratic legitimacy with the capacity to steer collective life beyond market rationalities, any normative undertakings that seek to disrupt the current distribution of power within and across GVCs must also be channeled through them.

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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.

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