1. Introduction
The global economy creates and reproduces many situations of inequality and precarity. Some involve maquila workers and freelancers, whose jobs have been subject to a process of servicification. These people live both in the Global South and the Global North, typically earn low salaries, have bad working conditions, and little if any stability. Unsurprisingly, they are all discontent with the global economy and increasingly support nationalist parties, especially, as the more traditional political forces only offer more of the same globalization, more free trade agreements (FTAs), more global value chains (GVCs). The resemblance with the 1930s raises alarms as the United Kingdom grapples with Brexit, nationalist parties win elections in Europe, and a trade war unfolds between the United States and China.
The law is implicated in the situation of maquila workers and freelancers. International and regional economic institutions promote policies that have been central for the expansion of FTAs and GVCs, but have limited regulatory tools to address the costs and risks of international trade and investment such as the sovereign debt crises of Argentina and Greece. Much attention is devoted to these institutions and their policies although their serious reform is not on the agenda – and would be fundamental to tackle the structural reasons of inequality and precarity.Footnote 2 Nationalists blame them and would like to see their influence reduced; reformists want to make adjustments to continue with more of the same globalization.Footnote 3 But there is more to the structural reasons for inequality and precarity. Looking at the way maquila workers or freelancers relate to their employers or agencies, we realize that international economic institutions are only partly responsible for the disproportionate bargaining power of those who command the global economy.
This article takes a look at this other perspective. It focuses on the role of law in shaping the bargaining power of states, capital, and labour. As Milanovic suggests, a war, a catastrophe or a political revolution could address inequality from the top.Footnote 4 I propose, rather, a transactional view, examining the patterns of the transactions that plug people into the global economy. Reshaping these transactions could facilitate some modest but meaningful changes in working and living conditions. This perspective shifts the focus from public to private orderings, looking at transnational contract networks.Footnote 5
For this I rely on transnational law literature and the idea of time-space compression, particularly the work of Hartmut Rosa on the acceleration of economic relations (Section 1). Identifying and acting over the transactions that connect maquila workers and freelancers to the global economy also requires sharpening our understanding of recent economic changes, such as the internationalization of production through GVCs. Labour unions in the United States identified this new form of business organization in the 1970s. However, the underlying trends behind GVCs have only been systematized more recently, amongst others, by Baldwin’s work on economic globalization and his idea of economic unbundlings (Section 2). Together, the notions of economic unbundlings and acceleration suggest that international co-ordination is fundamental for any meaningful change. But the current state of things may not be ready for setting up a new global economic order like in 1944–5. A possible strategy, and the one this article proposes, is to use the law to slow down the global economy and territorially re-embed the relations of maquila workers and freelancers into the countries where these people live (Section 3). The objective of this strategy is to improve the bargaining power of weak actors, address people’s disorientation, and facilitate transnational political mobilization.
2. Reshaping economic relations in the twenty-first century: The role of law, space and speed
Problems of distribution are ubiquitous, between and within countries, but for decades economists did not pay much attention to them as the economy grew unabated under turbo-capitalism.Footnote 6 This has recently changed. The 2008 economic crisis and the work of economists, notably Piketty and Milanovic, brought the problem of distribution back to the forefront of economic debates where it used to be, at least, since Marx’s work in the nineteenth century.Footnote 7 For Piketty, those who have capital will continue benefiting as inequality worsens. The reason is that the return of capital rises faster than economic growth. For Milanovic, the explanations behind inequality are not economically justifiable. The main competitive advantage of any person is the country and family where she or he is born. Changing this without a war, a catastrophe, or a revolution, both economists agree, is a political challenge.Footnote 8
There are several proposals to address these problems. Piketty has suggested a global tax on wealth while other voices favour a basic income, a minimum salary or labour retraining. As Singh Grewal warns, however, there is a problem with these proposals.Footnote 9 They neither address the structural reasons behind rising inequality nor people’s lack of an essential degree of autonomy. Inequality has translated into a state of precarity where ‘one’s life is always in some sense in the hands of the other’.Footnote 10 Unemployment benefits or retraining schemes would not resolve this problem. People would remain dependent on the state while trapped in a permanent process of catching up with the global economy and new technologies. The central issue, then, is what levers to pull not only to reduce inequality but also to recalibrate economic relations and address precarity. One possible strategy is to examine the bargaining power of people and corporations. To address precarity, we have to deal with unequal bargaining power.
The law can be relevant to recalibrate economic relations and bargaining power. ‘[I]nternational trade and investment rules … determine where raw materials will be produced, where goods will be manufactured … how foreign investors will be treated abroad’, but ‘more importantly, [they define] who will adapt to whom so as to render the policy goals of trade and investment rules most efficacious’.Footnote 11 Legal rules make these determinations not only by resolving disputes – this matters, of course – but also by defining the rules of the game.Footnote 12 The law shapes the distribution of benefits, costs and risks as well as the subjectivity of the actors involved in any economic exchange. People bargain in the shadow of the law. The law provides them with a ‘framework within which [they] determine … their rights and responsibilities’.Footnote 13
The law is also a mechanism to facilitate – or block – change. When political change and law are linked together, our attention is usually drawn to the concept and vocabulary of sovereignty. Today nationalist calls to recover economic sovereignty, either to tame or to promote economic globalization, rely on this concept and language.Footnote 14 Nationalism describes the nation as in a fight against foreign countries, immigrants and the outside world. This view, however, overlooks that we live in a tightly interconnected world.Footnote 15 The emergence of international property law reflects some of these robust connections.Footnote 16 The idea of taking back control of the economy without due regard to other countries and economies is then as dangerous as promoting any individual behaviour without due regard to other people. In a globalized world, changing the law in a meaningful way requires co-operation and taking into account the others.
Reshaping economic relations through law faces other significant obstacles. This article takes issue with two. One is the excessive attention that international economic lawyers pay to resolving disputes, particularly, disputes concerning states’ right to regulate. International institutions and academics recognize states’ right to protect the environment, public health and human rights. National, regional or even international regulation – in the form of reasonable and proportionate public measures – is accepted, but remains under the scrutiny of international trade and investment tribunals.Footnote 17 Their task is to strike an appropriate balance between private and public interests. Approaching the issue in this way, however, can be problematic because of what it overlooks. This is the more fundamental question of how states and other political actors could reshape the relations between states, capital and labour at a domestic and global level.Footnote 18
The other obstacle refers to our inadequate understanding of the role of the law in the global economy. As the global economy evolves, the function of the law changes too, and sometimes these changes can be significant. The purpose and operation of international economic institutions have varied since the post-war period and, particularly, since the creation of the WTO and the consolidation of the European single market in the 1990s. At the same time, and no less importantly, new forms of business organization – such as GVCs – have also brought about significant changes in the way business actors use law. Thanks to technology, the spatial and time barriers to contracting have been reduced, lowering transactions costs considerably. In many production chains, contracts now play a fundamental role, perhaps, even more fundamental than intra-firm organization. The bargaining and transactions that used to be national and intra-firm are now global and occur at a much higher speed.Footnote 19 As a result, states not only suffer from pressure from international and regional institutions to reshape economic relations, but also from the private ordering of multinational corporations (MNCs) and their transnational network of contracts.Footnote 20
Transnational law literature has highlighted the importance of private orderings and contract networks not only to understand but also to promote change in the global economy. The starting point is the identification of a transnational corporate elite that pursues the establishment of a ‘global business regulatory order’.Footnote 21 This elite proclaims ‘the superiority of the private ordering of global corporate relations’.Footnote 22 Importantly, Cutler observes, this order not only limits what states can do but also influences the way they behave. States have ‘to act more and more like a market player’.Footnote 23 But the function of transnational private law, as Wai argues, does not have to be the ‘simply facilitation of transactions, but also compensation for harms and social regulation of transnational conduct’.Footnote 24 The political significance of these private orderings requires us to rethink the role of law and the state to address, for instance, the tensions inherent to the internationalization of production. In this regard, Zumbansen encourages us to enrich and concretize the ‘description of the site[s] of conflict’.Footnote 25
The sites of conflict this article is interested in are the contracts that plug maquila workers and freelancers into the global economy. These contracts are the legal expression of what Harvey refers to as the ‘time-space compression’ of business activities.Footnote 26 They allow those in charge of GVCs to hire people from all over the world, on a one-off or short-term basis, for the just-in-timeFootnote 27 delivery of tailored goods and services. Harvey considers these contracts and the technology that makes these transactions possible part of the general process of global capitalist commodity production and accumulation. Importantly for lawyers, Harvey and Rosa note that we should pay increasing attention to time and not space. They claim we are submerged in a process of ‘annihilation of space through time’. Technology has significantly reduced space-related transactions costs while permitting the acceleration of these economic relations. This acceleration changes the political economy markedly.Footnote 28 Speed not only affects the bargaining power of weak actors. It also creates a sense of disorientation and alienation that makes political action and organization difficult. This situation creates what Rosa calls a ‘frenetic standstill,’ wherein ‘nothing remains the way it is while at the same time nothing essentially changes’.Footnote 29
Lawyers can contribute to understanding this standstill by focusing on things specific to law, such as the duration and terms of these contracts. These transactions are the basic unit of the global economy, connecting the different actors that make it possible.Footnote 30 This analysis would serve not only to understand but also to open up spaces to promote change. As Wai suggests, transnational private law can help us to reshape these transactions, buying time for maquila workers and freelancers. The goal is not merely to balance private and public interests but to redefine the rules that shape who wins, who loses and who adapts to whom. It is important, at the same time, to remain aware of the need for state and non-state co-ordination to make this possible – as opposed to the unilateral reactions that characterize Trump or Brexit. Legal thinking can help here too. The law cannot force countries or people to co-ordinate but can help to identify some systemic issues that can be realistically co-ordinated. Focusing on the speed of the global economy may be a starting point. The law can contribute to slowing down the global economy. The next section examines the structural economic changes that first led to the geographical clustering of production and later to its spatial diffusion, focusing not only on the bargaining dynamics between states, capital and labour but also on the increasing importance of speed in these relations.
3. Law and the global economy: State, capital and labour relations
The claim that individual states can change their relationship with the global economy is based on the premise that nations are (or should be) economically sovereign.Footnote 31 In the recent nationalist narratives, either from the right or the left, the language of national sovereignty is about change. It is about using the nation-state as the appropriate vehicle to ‘take back control’ or ‘make your country great again’. Something from the outside is holding the nation backwards and, by taping on national sovereignty, this situation can be changed for the benefit of every citizen.Footnote 32
Pragmatically, however, things are not that simple for states. The framework constituted by the global economy is the result of international and domestic co-ordination at the public and private level.Footnote 33 International institutions project the preferences of those who favour a globalist view of the economy, while domestic institutions and elites have embraced the preferences embarking in a reform process to adapt to this global economy. States have not become smaller or larger. They are different.Footnote 34 They have created the WTO and entered into trade and investment treaties, but have also implemented domestic reforms to adapt to these treaties, and utilized institutional and economic resources to strengthen a community of people and interests that favours this global economic order.Footnote 35
Unilaterally, in other words, states have limited means to change their relationship with the global economy. They can terminate and reform international economic treaties; they can also choose to ignore global experts. But nationalists overlook that the global economy is more than international institutions, rules and experts. It is also the result of intensive transnational public and private co-ordination, including those GVCs which account for much of the current economic output. MNCs organize production and consumption globally through transnational networks of contacts and private orderings. The shift towards corporate regulatory standards – i.e., self-regulation – illustrates state increasing difficulties to govern economic activity.Footnote 36
If significant international, domestic, public and private co-ordination was necessary to build the current order, there is no reason to assume that it can be reformed unilaterally or, at least, not in a satisfactory manner. Even if large countries could change their relationship with the global economy, this would be impossible for medium and small countries. Nationalist strategies of change, moreover, could lead the world to economic chaos and geopolitical tensions. The current trade war between the United States and China is the best example. The issue, then, is whether states and other political actors can ‘provide some sound method for coordinating’ the economic activities of domestic and global actors.Footnote 37 The law is central to facilitate this global co-ordination and like-minded efforts to address inequality and precarity. But the pressing question is how the law can contribute to this goal.
To answer it, it is necessary to examine the changing and dynamic relationship between states, capital and labour in the global economy. We need an analytic that can take us beyond the international, the domestic, the public and the private. A transnational view focused on global production processes and the transactions that make GVCs – as opposed to MNCs themselves – can be helpful in this regard.Footnote 38 Left-wing nationalists claim that economic sovereignty has slipped from the hands of governments and people in favour of MNCs.Footnote 39 Economists, notably Baldwin, argue however that the background rules of the global economy have changed too. Baldwin suggests that firms are not a good unit of analysis in the context of global production processes. ‘This means that international competition – which used to be primarily between firms and sectors in different nations – now occurs between individual workers performing similar tasks in different nations.’Footnote 40
In his book The Work of Nations, Robert Reich argues that we used to live under the impression that the fate of corporations and labour was inevitably bound together as citizens of a country. There was a strong – if not a complete – correspondence. When corporations did great, workers did great too. But Reich suggests this was no longer the case in the 1990s. The fate of corporations and labour had taken different paths in the United States and other Global North countries.Footnote 41 Recently, Baldwin has provided a powerful explanation for this trend in his book The Great Convergence. He claims that industrialization concentrated production in certain areas, such as Britain and the United States, favouring states and workers where it occurred.Footnote 42 The bargaining power of governments and labour increased as industrial capital clustered within the space and time of these countries. These countries developed economically and, eventually, developed the institutions that served to establish welfare states. The same institutions which were used to expand and promote industrial capitalism became a platform for labour demands.Footnote 43 But this started to change in the 1970s. Technology made possible the offshoring of production to other countries, freeing capital from the demands of governments and labour.Footnote 44
Baldwin captures this transformation and its implications using the notion of economic unbundlings. This notion denotes a process through which certain economic activities which were geographically clustered, such as consumption or production, are liberated from previous spatial constraints.Footnote 45 Baldwin claims that the world has been through two economic unbundlings. The first one liberated consumers and firms from the constraints imposed by domestic markets. For consumers, buying imported things was no longer a luxury. For firms, this ended ‘the necessity of making goods close to the point of consumption’.Footnote 46 It also allowed them to source their raw materials from overseas.Footnote 47 In this period, Baldwin explains, ‘markets expanded globally but industry clustered locally’.Footnote 48 The second, and current, unbundling changed this. This process liberated production from the constraints imposed by intra-firm organizations and domestic resources, particularly labour. The second unbundling involves the international separation of production, spatially unpacking ‘factories and offices themselves’.Footnote 49 Those in command of production constitute a ‘common nerve center based on a flow of common information’,Footnote 50 able to ‘coordinate complex activities at distance’.Footnote 51
The work of these and other authors remind us that state, capital and labour relations are dynamic. They change together with technological, political and social transformations and will continue to change in foreseeable and unforeseeable ways.Footnote 52 Without understanding these dynamics and their consequences for the law, we may find ourselves trying to recover something that does not exist anymore, i.e., a national economy of production and consumption, or discussing events through out-dated lenses, such as state-centric or firm-centric international law. The next subsections analyse how the first and the second unbundling have changed the relations between states, capital and labour.
3.1 The first unbundling: A few sovereign industrial states
The first economic unbundling consisted of two opposite moves: the concentration of industrial production in some countries of the Global North, and the parallel deindustrialization of the Global South. The concentration of industrial production in the Global North was possible thanks to technological and organizational innovations, the international trade boom and the reliance on raw materials and markets of the Global South. All of this was closely related to imperial ambitions and the economic thinking of the nineteenth century. These changes affected economic relations and their background rules; not only their content but also their structure.
The concentration of industrial production in some Global North countries was necessary for technical and organizational reasons. Industrial capitalists had to be close to factories to supervise labour and the quality of production.Footnote 53 Concentrating production also served to consolidate industrial hubs, economies of scale and promoting technological innovation.Footnote 54 Crucially, this shift in production enabled the emergence of a new political coalition. Merchants and industrialists organized to shape domestic and international institutions to their needs. They promoted policies to secure the provision of raw materials from overseas, expand international markets for their increasing production, and catch up with industrial England using protectionist policies.Footnote 55
These efforts were in line with the imperial ambitions of some Global North states. These states found in merchants and industrial capitalists a great source of economic and military strength. These actors consolidated their power by creating a British, German, French and US industry, while weakening other nations, such as India and China, through deindustrialization.Footnote 56 Whatever industry remained in Global South countries could not compete with cheaper and better industrial products.Footnote 57 Having a strong national industry increased domestic production and income, and served as a strategic advantage in case of war. As Beckert explains, ‘[c]otton industrialization was thus not only a project of capitalists, as we know, but equally a project of governments’.Footnote 58
The law contributed to this transformation. Technological changes raised production and increased international trade, but which way these trade flows would go would depend on a few things, including legal changes. The language of sovereignty and civilization was fundamental to consolidate the international division of labour and protect foreign enterprise and private property from domestic intervention. Being a sovereign, according to nineteenth-century international law, imposed the obligation to behave according to the standards of civilization and the international order.Footnote 59 Primarily, this required the creation and recognition of private property and contracts, including the property rights over natural resources and the contracts to buy and sell those resources (i.e., the commodification of natural resources).Footnote 60 It also demanded accepting corporate forms that could act beyond national boundaries with some independence from – but with the support of – their home states. These firms, such as the Dutch East India Company, also promoted a global view of commodity trading and markets.Footnote 61
Things were different when it came to industrial production, which remained geographically clustered into few states and developed according to domestic legal institutions. There, property and contracts had to adapt to the needs of the national industrial economy. In the work of Locke, the idea of private property is closely linked to individual labour and the use of natural resources. This view was useful to promote the commodification of natural resources but not industrial production. The industrial economy required a drastic separation between ownership and the actual use of the resources.Footnote 62 The increasing complexity of the industrial economy, moreover, led to the emergence of the modern corporation and vertical integration as an efficient way to resolve the increasing transactions costs related to industrial production.Footnote 63
When industrialization became a daily reality in the Global North, institutional economists realized that this mode of production had prompted new forms of private property and ownership. Veblen described this change through his notion of ‘absentee ownership’. He saw how the organization and actual use of the means of production became two discrete activities. The owner-managers control and decide how to use the resources. Workers carry out their orders at the pace of machines and markets.Footnote 64 However, because industrial production required tight co-ordination in the early twentieth century, owners and workers remained geographically close. They lived in the same cities and sometimes even in the same neighbourhoods.Footnote 65
Institutional economists and legal realists examined those changes through the relation between property and sovereignty.Footnote 66 Reacting against classical legal thought and an absolute conception of private property, these scholars highlighted that the property rights that serve to constitute the industrial economy are state creations. Also, they noted that ‘property is derived from sovereignty, but also creates sovereignty’,Footnote 67 for instance, of industrialists over workers.Footnote 68 If states had promoted and facilitated the creation and expansion of this mode of economic production, then states could also use the same authority to reshape these legal institutions, empowering labour vis-à-vis capital. This critique was not against the institution of private property in itself. Hale and Cohen acknowledged the need for some coercion to organize economic activities.Footnote 69 Instead, their goal was to call attention to the significant opportunities to reshape private property through the state and law.Footnote 70
In the following years, the labour movement relied on this premise to demand from the state – the same state that promoted industrial capitalism in the first place – the improvement of their bargaining position and share of the economic benefits. This strategy was successful because production was locally embedded, and firms depended on domestic labour to continue producing. After the transformation of most farmers into industrial workers, capitalists would lose the ability to increase the supply of labour unless states maintained high immigration flows. Politicians also required workers’ support to win elections after they gained the right to vote.Footnote 71 These developments created the belief that the fate of domestic corporations and workers were indissolubly linked together.
The situation was different in the Global South. The production and trade of natural resources in the non-industrial world, often made possible through foreign investment, brought about a different dynamic that institutional economists and legal realists only touched in passing.Footnote 72 A crucial distinction is that production and trade of natural resources were global activities. The concentration of industrial production in the Global North contrasted with the global organization of natural resource extraction and trade. Even when the exploitation of natural resources was in charge of domestic firms, foreign actors had a keen interest in seeing those resources flowing from the South to the North. Also, international law was closely involved in the exploitation and trade of natural resources, from general customary rules on the treatment of foreign property to bilateral treaties and the internationalization of concession contracts.Footnote 73 In the post-colonial period, Global South states attempted to reform international law and create a New International Economic Order. They relied on economic sovereignty arguments, although in practice they were in the business of international co-ordination, especially, in the United Nations.Footnote 74
3.2 The second unbundling: The end of the sovereign industrial state
The spatial diffusion of goods and service production means that the correlation between economic sovereignty and property – as identified by legal realists and institutional economists – has weakened considerably. This situation has been aggravated by a parallel change in the organization of production of which technology is responsible too. This second change refers to the speed and number of transactions involved in the production process. In the first unbundling, production of goods and services was either vertically integrated within the corporation or organized on a long-term basis. Activities were carried out in-house or through long-term legal relations as in supply contracts. The second unbundling, however, is characterized by flexible networks of contractsFootnote 75 and large numbers of one-off or short-term, just-in-time transactions. As Walmart notes:
Our purchase orders are based on our current inventory needs and are fulfilled by our suppliers within short time periods. We also enter into contracts for outsourced services; however, the obligations under these contracts are not significant and the contracts generally contain clauses allowing for cancellation without significant penalty.Footnote 76
The MNCs that command the current global economy are the transnational absent owners of the twenty-first century. These new absent owners command the rest of the GVCs from offices in places like San Francisco or London, while factories and service providers are dispersed around the world. This organization of production takes a multi-level contractual structure that marginally relies on corporate integration and even less on physical property. The new forms of ownership consist of networks of contracts, informal relations and intangible property.Footnote 77 MNCs develop or own the intellectual property and often control activities such as retail and marketing. They tightly link these upstream to downstream activities, where most economic value is created, outsourcing the rest of the production stages to the best global bidder. These transactions – and not static property rights or rigid corporate structures – set the pace and the terrain of the global economy.Footnote 78
Those who supply GVCs need to adjust to this global terrain and hectic pace. After securing a contract, providers and subcontractors cannot relax. There might not be another contract the next day, or the current one might be cancelled without significant compensation. In the maquila sector, those who command the GVCs control the design and sales of the product.Footnote 79 The primary function of the other actors involved in the GVCs is producing raw materials and manufacturing. These actors usually are in different countries and, in principle, have the freedom to work for different GVCs and negotiate the terms of each transaction. This flexibility, however, is not a blessing. Those who command the GVCs control the price, duration, and other key contractual terms. They can easily switch providers while their suppliers have limited time to make alternative plans.
A 2017 report by the International Labour Organization (ILO) on the relationship between purchasing practices and working conditions in GVCs illustrates this situation.Footnote 80 The report finds that suppliers have limited market power and work for few buyers only. Most contracts are short-term, there is a systemic lack of written agreements, and orders can be cancelled unexpectedly.Footnote 81 The ILO notes that only 57 per cent of the contracts have a notice period for termination – the rest can be terminated immediately. This uncertainty is worsened by the insufficient lead times to work on each order. Only 17 per cent of the firms have enough time to prepare orders.Footnote 82 ‘Clearly, lead times are getting shorter and suppliers must produce more rapidly, which they increasingly do by resorting to overtime, casual labour or even outsourcing of production in order to meet their deadlines.’Footnote 83
Two Oxfam reports conducted in 2004 and 2018 confirm these findings. They conclude that short-term contracts help buyers to keep competition high and prices low.Footnote 84 Technology, in addition, allows for ‘just-in-time production and delivery’.Footnote 85 This practice, Oxfam notes, transfers the risk of production to suppliers. They have to wait for orders and, afterwards, they have to work fast and be flexible.Footnote 86 As the ILO report, Oxfam finds that suppliers work for few buyers, who capture much of the gain generated by trade through contractual terms.Footnote 87 Interviews confirm the significant problems caused by the acceleration of these economic relations. Suppliers explain that buyers want ‘better labour conditions’ but offer ‘no long-term commitment’.Footnote 88 ‘Buying commitments often go no further than one season or two months.’Footnote 89 Also, contracts are verbal ‘and easily broken if a better deal can be found’.Footnote 90 All this, Oxfam concludes, affects prices, workers’ conditions, and collective organization and bargaining.
Things are not different when it comes to the servicification of labour. A representative case of servicification is the translation sector, which provides an essential service for the global economy. Those who command GVCs have few if any in-house translators but rather rely on translation agencies and/or freelance translators.Footnote 91 These freelancers can work for many GVCs. But this flexibility also comes at the cost of constant pressure on price and other conditions. Those who command GVCs rarely enter into long-term agreements but rather operate on a one-off or short-term contract basis. In the service sector, moreover, relations can be more spatially diffuse as those who provide the translation service – the freelance translators – can be anywhere. Translation agencies rely on project managers who deal directly with the freelancers who will deliver each project.
The University of Tampere produced a study of translation agencies and freelancers. This study shows that a principal-agent organization – as opposed to employer-employee relations – dominates this sector. There is a demand for flexibility and speed while most projects are one-off and rates are low. According to interviews, ‘[i]t is no wonder … that translators express feelings of frustration and indignation, or they feel like “loose parts in the process”’.Footnote 92 From the translators’ point of view, this arrangement only serves ‘to safeguard the commercial interests of the two intermediary principals’.Footnote 93 This dynamic creates ethical stress in the sense that freelancers need to decide between fast and pay their bills or good and earn little. One interviewee commented that ‘[i]f speed, flexibility and low price are the main criteria for translation quality, the question that comes to one’s mind is who benefits from such a definition’.Footnote 94 The report finds that not only translation agencies get most of the value, but also the precarious working conditions create a sense of lack of esteem and time to organize. Translators believe that this situation will not change unless ‘people start talking about these things’.Footnote 95 At the same time, they are concerned that agencies will hire somebody else on worse terms, perhaps, even students.
These economic relations – and the underlying transactions – are at the forefront of current debates about globalization, inequality and precarity. Economists debate about the benefits and costs of the diffusion of production. Some find this a positive development for the Global South. Baldwin, for instance, calls it the Great Convergence.Footnote 96 But these benefits are not straightforward because those who command most GVCs are still based in the Global North and the situation of maquila workers and freelancers is at least controversial.Footnote 97 For Global North states, on the other hand, this shift has created political instability leading to the rise of nationalism and unilateralism.Footnote 98
What has remained in the background of this debate, surprisingly, is the time dimension of the second unbundling. The spatial diffusion of production has been accompanied by the acceleration of the economic transactions that make GVCs possible. For Rosa, the key to this organization of production is speed and not space. These transnational networks of contracts move very quickly, depend on a large number of economic transactions, and are updated according to large flows of information. It is a just-in-time organization. Interestingly, this links to a basic argument of neoliberal economists when debating with the supporters of economic planning.Footnote 99 For neoliberals, states cannot plan or shape markets because understanding their operation is beyond individual and state capabilities. It is too much information.Footnote 100 Today, it is as if the speed and number of the transactions that make the global economy, in addition to the massive flows of information, had evolved to conform to this neoliberal premise.
The space and time dimensions of the global economy create significant challenges for states and their relationship with capital and labour. But these challenges should be neither overstated nor understated. States remain important actors to curb negative externalities and facilitate the global economy. States sign – or not – FTAs and regulate production as in tobacco packaging or phytosanitary measures. Technology, moreover, can help states to regulate better and faster. The global economy also depends on state authority to enforce rights and transactions. Arbitration relies on state authority to enforce commercial and investment awards. The global economy, in other words, still depends on states.Footnote 101
For those who are discontent with inequality and precarity, however, the question is slightly different. They want to know whether states can only preserve the regular functioning of the global economy or can also reshape economic transactions and address precarity. This question is more difficult. As discussed above, part of the problem is that states themselves have been restructured to fit the current global economy of transactions and networks of production.Footnote 102 As Foucault predicted, it seems we have moved to a world where economic sovereignty is less possible although states remain sovereign over the population – i.e., the less movable economic factor together with natural resources.Footnote 103 It is not a coincidence that international institutions and experts ask states to retrain their population and consider a basic income for those who will not find jobs. Those who favour this position believe that globalization cannot be reimagined; it can only be fixed.Footnote 104
The other dimension of this challenge is that the same forces that consolidated a few industrial nations – allowing welfare policies in those countries – have been operating in a reverse direction rapidly disembedding economies from the space and time of territorial states. It is not obvious that states can reshape the transactions that plug maquila workers or freelancers into the global economy simply because they have facilitated the formation of GVCs. States can terminate international economic treaties or leave regional blocs, but this may not be enough to reshape transnational networks of contracts. As opposed to international treaties, these networks cannot be undone with the stroke of a pen. They hinge on contracts and movable rights, which states either do not create or can be easily relocated. GVC-related transactions are situated further from state regulatory power in the cracks between domestic and international law. Maquiladoras and freelancers have to accept contractual terms – including the jurisdiction and applicable law – imposed by those who command the GVCs. It is not that different for some states. Many governments have to do the same in areas such as sovereign debt and foreign investment.Footnote 105 As Muir Watt claims, we seem to live in times of ‘Empire through Contract’.Footnote 106
A fundamental difference between the first and the second unbundling lies precisely in these background rules – i.e., the contracts – that tie together states, capital and labour in the global economy. As production has escaped domestic boundaries, and the speed and number of transactions has increased markedly, the relationship between sovereignty, property and labour has suffered a significant shift. The second unbundling changes the character of the alliance between states and capital. During the first unbundling, firms and states worked together to promote the national economy. States disciplined labour, secured raw materials from overseas, and opened new markets. This collaboration was mainly political. Firms and states were pursuing mutual interests.Footnote 107 Today these political bonds have weakened. Mutual interest and national loyalty are much less relevant. Instead, many MNCs negotiate with states as equals, and the outcomes of these negotiations are transactions – not political decisions – in the form of contracts, specific commitments, and representations.Footnote 108 The transactional form gives a significant advantage to corporations. Their relationship with states is removed from the world of politics and brought into the world of law, contracts, and alleged no effects on third parties. Moreover, these transactions can be enforced not only by national courts but also by international commercial and investment arbitral tribunals.
A similar shift occurs in the relations between labour, capital and states. Corporations relied on the state to increase the supply of and discipline labour. Later labour drew on state institutions to obtain better conditions and organize workers collectively.Footnote 109 An important achievement of the labour movement was to turn labour contracts into labour relations, but this achievement was facilitated by the spatial concentration of industrial activities. The diffusion of production is changing this. MNCs still have employees under labour relations but, increasingly, they rely on the self-employed and freelancers from all over the world. In the United Kingdom, for instance, one in seven workers are self-employed.Footnote 110 Like in the case of production, labour relations are also being servicified and transformed into a large number of transactions, often on a one-off or short-term basis. These new labour relations are contractual, binding people from different places and social contexts, and the working conditions are determined by those who control GVCs. These firms are now much less dependent on states to discipline labour.
4. Law, change and the global economy: Addressing inequality and precarity
The law can contribute to reshaping economic relations in the global economy. To promote change through law, it is necessary to understand how the law shapes these relations and the bargaining power and subjectivity of the relevant actors. This analysis, however, is not enough to promote change in and by itself. The law relates to many aspects of the global economy, but this does not mean that every strategy of change is feasible or will achieve its purpose. In other words, change is possible, but it is not straightforward. The events after the 1930s economic crisis and the Second World War show that the law can play a critical role in reshaping domestic and global economic relations. They also demonstrate that some strategies can be problematic, such as privileging the nation, and that international co-ordination is fundamental.
The law can facilitate change if we focus on issues that can have systemic effects and where international co-ordination seems possible. The analysis in the previous section suggests that the speed of the global economy can be one of these issues today. Instead of promoting more trade and investment facilitation, a reasonable strategy might be to add ‘more friction’ to the global economy.Footnote 111 Speed is probably related to many areas of international economic law. The previous sections focused on one of these areas: the contracts that make GVCs. These transactions play an essential role in the bargaining dynamics between states, capital and labour, and are implicated in the increasing levels of inequality and precarity. The next sections focus on the importance of international co-ordination and how law can be used to slow down and territorially re-embed these economic relations.
4.1 Change during the first unbundling: International co-ordination and embedded liberalism
The crisis of the inter-war period was related to industrial capitalism and, more specifically, to absentee ownership. Absentee owners enjoyed the economic benefits of industrial production while shifting much of the costs and risks to the rest of the population. The discontent was accelerated by the 1930s economic crisis. In The Affluent Society, Galbraith illustrates how this situation became socially and politically unsustainable, prompting states to reshape economic relations.Footnote 112 Many governments took measures to maintain full employment and improve labour conditions. States reorganized the economy without affecting the private allocation of resources – nationalizations, however, were not uncommon in many European countries. A central outcome of these measures was that – for a few decades – the fate of private and public enterprises and workers were tied together, at least, in the Global North.
As a response to the 1930s crisis, states took measures that were effective concerning national production, increasing employment rates, but turned out to be disruptive for international trade and consumption. While industrial production remained nationally concentrated in the Global North and could be reorganized domestically, trade and consumption had already been unbundled and globalized. In the 1930s, most countries focused on their domestic situation, shifting the costs and risks of increasing domestic employment abroad. States could increase tariffs as there was no international treaty prohibiting these measures. But these unco-ordinated processes of import substitution had significant consequences for the international economy. The tariffs wars of the 1930s substantially reduced international trade, contributing to the nationalist feelings leading to the Second World War.
Towards the end of the war, a consensus had developed about the close relationship between international trade and domestic economies.Footnote 113 Keynes did not support free trade but believed that his economic policies would only work if countries agreed to organize international trade around the domestic goals of full employment and welfare. This balance would also promote peace and avoid conflict.Footnote 114 The purpose of the Bretton Woods institutions was to co-ordinate those economic activities that were globalized and those that remained geographically bundled, adjusting international trade to domestic needs. The embedded-liberalism formula, as Ruggie explains, created an economy where ‘multilateralism would be predicated upon domestic interventionism’.Footnote 115
The details of the embedded-liberalism model exceed this article; it suffices to highlight here the importance of international co-ordination to design and implement this model. Already in the mid-twentieth century, reshaping economic relations required political interventions at the national and international level. It was not possible to change bargaining dynamics, particularly in a large country, without also reshaping the global economy. In this way, the welfare state was not only a national policy. It was also a global consensus.Footnote 116 Importantly, this consensus proved that technological innovation does not have unavoidable social consequences. The post-war period saw increasing equality between owners, managers and workers. Politics and law reshaped economic relations leading to a period of increasing equality.
For international economic law, international co-ordination became a fundamental objective. As Schwarzenberger explains, this field shifted the focus from private transactions to state relations and negotiations.Footnote 117 International treaties and organizations became a means to facilitate and strengthen co-ordination in the field of international trade. For instance, Schwarzenberger refers to the General Agreement on Trade and Tariffs (GATT) as ‘an inter-national economic organ not condemned merely to study, report and recommend, but authorised to act and decide’.Footnote 118
This co-ordination of international trade was based on a consensus that the first economic unbundling, i.e., international trade and consumption, could be mutually beneficial for countries and people. But the following decades proved that the process to realize these gains was more difficult than previously thought. International trade creates winners and losers – between and within countries – and the relocation of factors of production, particularly labour, takes time and can be ‘painful’.Footnote 119 The second economic unbundling would only make things more complicated.
4.2 Change during the second unbundling: How to deal with twenty-first century absentee owners?
Neoliberalism did not oppose the institutional and co-ordination mantra but favoured a shift away from the rule of diplomacy and politics to the rule of technocracy and law. Authors such as Hayek were convinced of the need for international co-ordination to constitute and protect the global economy. But they imagined a world where diplomacy and politics had a less relevant role in making international co-ordination happen. In fact, for neoliberals, the purpose of international state co-ordination was to limit national economic sovereignty – as a means to protect the global economy – while transforming states into vehicles to promote free trade and foreign investment.Footnote 120 The institutional reforms initiated in the 1970s, which culminated with the creation of the WTO, the signature of bilateral investment treaties and the liberalization of financial transactions, are some examples of these institutional legally-oriented changes. States and other sub-national entities residual responsibility would be to take care of other aspects of human life, such as retraining and welfare.Footnote 121 This vision suited the second unbundling, facilitating the emergence of private orderings and transnational networks of contracts.Footnote 122
In the 1960s and early 1970s, most states were still interested in building a national industry. A problem, in this regard, was that international economic institutions could not cope with the increasing demand for industrialization. The Global South asked for a New International Economic Order that would allow these states to become industrial nations too. One of their central concerns was how to deal with foreign investment and MNCs.Footnote 123 Interestingly, similar anxieties existed in the Global North, where European and Canadians were hesitant about the expansion of the United States corporate sector. Jobs were not their main problem. Foreign investors were replicating the same factories and offering similar jobs as those existing in the United States. They, rather, feared that these firms would respond to the interests and values of the United States.Footnote 124
This thinking corresponds to the first unbundling, where production was expected to be a domestic activity. The premise was that states and corporations should be part of the same national team.Footnote 125 Looking at these tensions, Bergsten predicted ‘coming investment wars’ in the 1970s.Footnote 126 The problem was not tariffs but the increasing regulation of MNCs and foreign investment. Nations were dealing more or less successfully with trade at the GATT, but foreign investment created problems on a different scale. The main preoccupation was the potential intervention of MNCs in national politics and economic policy, prompting a large number of expropriations in the Global South.Footnote 127 In the early 1970s, moreover, trade unions in the United States were already concerned about offshoring and how this process could weaken their bargaining power and collective action.Footnote 128
But these tensions did not lead to investment wars, as Bergsten had predicted. The globalization of production did not stop but accelerated. MNCs started to be perceived as wealth-maximizing agents independent from their home countries. They belonged to a ‘world economic and political community’.Footnote 129 Neoliberal policies contributed to this shift in perception. They diffused the tensions around foreign investment and economic development. For neoliberals, countries should focus on their comparative and competitive advantages. Instead of relying on MNCs to promote import substitution industrialization, as dependency economists advocated, international economic institutions recommended governments to catch up with the global economy of MNCs and join GVCs.Footnote 130 This policy advice would put MNCs at the centre of the global economy, shifting the paradigm from politics and planning to market technocracy and transactions. This strategy required not only facilitating market transactions but also keeping domestic political demands outside of international economic institutions.Footnote 131
Recently, this model has begun to show strong signs of decay. Growing discontent against inequality and precarity has increased pressure over international organizations, experts and states. As inequality within states has risen markedly, the new transnational absentee owners are viewed, as in the 1930s, as key responsible actors. People demand changes but mainstream politics and economics offer few if any new alternatives. Nationalist leaders and their economic sovereignty narrative have gained ground as a result, and some countries are unilaterally raising tariffs and putting pressure on MNCs to increase domestic jobs. The United States – the Trump administration more precisely – is the paradigmatic case.Footnote 132
But the lessons that follow from the embedded-liberalism model point in a different direction. Global economic change requires significant co-ordination. As we have moved from the first to the second economic unbundling, we should be thinking of more and not less international co-operation. Co-ordinating national measures affecting international trade through organizations like the WTO or FTAs, however, may not suffice to address inequality and precarity. We also need to address the transnational networks of contracts and private orderings. We need mechanisms capable of reshaping the transactions and flexible corporate structures that constitute global economic relations.
Part of the challenge is to enable states and international institutions to carry out at the global level certain functions that states perform domestically. States have institutional resources to address the global economy from above, through organizations such as the WTO or the EU, but limited means to address transnational contract networks. Domestically, this is different. States have the authority to govern property and contracts within a territory. This is a fundamental stick in the bundle of economic sovereignty. Historically, contracts were interpreted as a domain reserved to the parties because these transactions had no effects on third parties. This feature was a primary difference between property and contracts.Footnote 133 But this distinction – as any distinction – can also be misleading. During the twentieth century, most legal systems recognized the relational implications of some contracts. Legislation evolved to accept the public regulation of transactions with large-scale social implications, such as labour, consumer or concession contracts. This regulation is central to adjust the distribution of benefits, costs and risks within a society. More importantly, as Singer explains, these rules are central for ensuring an essential degree of autonomy or, in other words, to prevent precarity.Footnote 134
The problem is that international economic laws and regulations remain a stronghold of party autonomy for economic transactions. While the global economy is the result of a large number of transactions that affect people’s everyday life, such as those working in the maquila or translation sectors, these transactions are located within the autonomy of the parties and far from public regulation. As a result, a significant part of the global economy operates according to Herb Cohen’s precept that ‘you can negotiate anything’.Footnote 135 Regulating these transactions would require substantial international co-ordination; an alternative sometimes discarded as unrealistic. But the efforts could be more fruitful if we focus our attention on one or two key variables that could improve the bargaining power and political co-ordination of weak actors, contributing to reverse Rosa’s ‘frenetic standstill’.
To address precarity, a possible starting point is the speed of the transactions that constitute GVCs. The law can contribute to slowing down the global economy by requiring actors to enter into longer-term contracts in the realm of manufacturing and services. The key here is the duration and number of transactions. Those who control upstream and downstream activities rely on large numbers of one-off or short contracts that can be terminated rather quickly, sometimes, even immediately. These practices give them a decisive advantage when bargaining with suppliers and create problems for regulators, who find it difficult to monitor this large and fast number of transactions. Establishing a minimum duration requirement would increase the bargaining power of those who obtain the smallest share of the benefits and facilitate transnational political co-ordination through unions or other institutions. The reduction of the number of transactions would also facilitate public monitoring and regulation. Importantly, determining the necessary extent of these adjustments would require considering the features of each GVC and the different suppliers involved in the production of goods and services.Footnote 136
Attempts to reduce the speed of the global economy could be accompanied by measures to strengthen the spatial dimension of transnational networks of contracts. States could implement mandatory rules on applicable law and jurisdiction. They could require that these contractual elements correspond to the laws and courts of the weakest party in the contractual relationship. This would be the person whose life is ‘in the hands of the other’. Implementing these conflict of law rules would allow states to gain some regulatory authority over transactions that may seem globally efficient but reproduce precarity in the locality. Strengthening the territorial connection is vital because many of the negative externalities of these transactions manifest where people live. Weaker local communities are a problem because they support those affected by the internationalization of production.Footnote 137 This approach would not solve all the problems. Many states and local communities may still prefer to maintain low regulatory standards to attract foreign investment. But the changes proposed here may at least facilitate political mobilization and collective bargaining.
Increasing the duration and reducing the number of transactions, as well as introducing mandatory terms, would require some international law-making but nothing unseen in the past. This type of co-ordination can be achieved using tools familiar to private international and transnational lawyers. I am referring to conflict of law and public policy rules.Footnote 138 The minimum duration of certain transactions, for instance, could be made part of a new transnational public policy through international treaty-making or legal interpretation.Footnote 139 Also, adjusting the applicable law and jurisdiction of these transactions could be done through international treaty-making or domestic conflict of law rules. Protecting the weak party in a transaction is common in many legal systems, consumer protection is a relevant example, and a reasonable step to reduce precarity and ensure an essential degree of autonomy.
This level of co-ordination is difficult but not impossible. Negotiating an international treaty on some basic conflict of law or transnational public policy rules would be challenging but perhaps easier than a binding treaty on business and human rights, which is currently under consideration.Footnote 140 Moreover, this type of co-ordination already exists in other areas of the global economy. The global economy functions thanks to the co-ordination of central banks, stock exchanges, arbitration fora and other institutions that serve to enforce property and contracts. This asymmetric co-ordination is the yin and yang of global economic governance. High levels of co-ordination make it possible, as the globalist neoliberals proposed, but there are limited international efforts to address inequality and precarity. To deal with this imbalance, a possible strategy is to rely on the same means that were used to constitute the global economy. During the twentieth century, labour turned to the state. The challenges brought by the second economic unbundling, however, may require not only inter-state co-ordination but also the transnational political mobilization of maquila workers and freelancers. Probably, these two strategies are interdependent. Mobilizing those disoriented by the frenetic pace of GVCs may be difficult without inter-state action, but encouraging states to take measures similar to those proposed here (or with similar goals) may necessitate first some transnational political mobilization.
5. Conclusions
The law is implicated in the increasing levels of inequality and precarity in different ways. One that has attracted less attention so far is the contribution of the law to accelerate economic relations. This article has focused on the situation of maquila workers and freelancers who are plugged into the global economy through transnational networks of contracts and private orderings. These actors suffer the costs and risks of the global economy’s frenetic speed. They depend on one-off or short-term contracts that buyers can quickly terminate without consequences. In this article, I have suggested some modest but meaningful alternatives to slow down economic relations, balancing the bargaining power of states, capital and labour. These alternatives consist of mandatory contract terms or a new transnational public policy intended to increase the length and reduce the number of the transactions involved in GVCs. Mandatory conflict of law rules can also help to re-embed these transactions into the place impacted by the social effects of GVCs. Importantly, I have emphasized that implementing these alternatives requires more inter-state co-ordination and transnational political mobilization. The two are arguably interdependent. Overall, the proposals elaborated above aim to address situations of unequal bargaining power, but may also serve as catalysers for more significant changes. Slowing down the global economy may be a first step towards reversing the current ‘frenetic standstill’.
