Private Legal Enforcement in Global Commerce

7 June 2007 at 7:37 am Peter G. Klein 2 comments

| Peter Klein |

A new paper by Margaret Blair, Cynthia Williams, and Li-Wen Lin, “Assurance Services as a Substitute for Law in Global Commerce,” describes the market for “assurance services” as private means of enforcing commercial arrangements.

In this article we examine the rapid emergence and expansion of a private-sector compliance and enforcement infrastructure that we believe may increasingly be providing a substitute for public and legal regulatory infrastructure in global commerce, especially in developing countries where rule of law is weak and court systems are absent or inadequate. This infrastructure is provided by a proliferation of performance codes and standards, and a rapidly-growing global army of privately-trained and authorized inspectors and certifiers that we call the “third-party assurance industry.” The growth in the third party assurance business has been phenomenal in the last decade. The business first developed to facilitate making and carrying out private contracts, but in recent years, assurance services are being deployed for purposes that are more appropriately seen as regulatory in nature. Third-party assurance may thus be providing a new institutional structure through which private commercial exchange is being harnessed and regulated for essentially public purposes.

See also Alex Tabarrok on private assurance contracts, which function similarly to enforce contributions to public goods and club goods.

Entry filed under: - Klein -, Classical Liberalism, Institutions.

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2 Comments Add your own

1. Richard O. Hammer | 11 June 2007 at 12:04 pm

This paper illuminates a good process, as it shows how private parties can create and enforce standards governing their trade without help from state-based law. But the authors repeatedly suggest an erroneous viewpoint in the way they use the word “law”: they suggest that law comes from the state, that the absence of state intervention is synonymous with lawlessness. They have the wrong idea of where law comes from. They seem completely ignorant of the facts that: 1) law originates among private parties in pre-state societies and 2) law gradually becomes a function of state only as the state subsumes the functions of law.

I did not see reference to Bruce Benson, The Enterprise of Law: Justice Without the State, 1990, so I suspect these writers are ignorant of that work which is both deeper and more encompassing.

But, to give some credit, toward the end of the paper the authors do modify their usage of “law”. By writing of “public law” (which I would prefer they call “state law”) they seem to acknowledge that there might be a different kind of law.

For readers who have already absorbed Benson and who share my predilection for voluntary institutions, I offer my paper “Gateway to an Altered Landscape: Law in a Free Nation” .
2. jonfernquest | 14 June 2007 at 4:58 am

Thanks this was very useful. I used it in to supplement articles on ISO 26000 and migrant labour rights in export processing zones.