Jan. 2015
Dear Cornell IL/IR Participants,
Thank you in advance for taking a look at these initial thoughts toward an article. The partial
draft, tentatively titled “Law in Hiding: Market Principles in the Global Legal Order,” is my
effort to think through some questions I received when presenting my recently published book on
the development of the norm of sovereign debt continuity (the expectation that states will repay
debt, even after a major regime change, or suffer reputational consequences). These questions
included: How does research on market principles such as debt continuity interact with the
literature on norms and how ‘norms matter’? To what degree can/should such norms be
understood as law and studied/interrogated by lawyers? Is it the case that some norms matter
more than law, i.e. may be more effective at shaping the actions of states and other actors (and
counter to most legal writing on the hierarchy of norms, custom, soft law, hard law)? Is it the
case that some norms might not want to be formalized as law (counter to general expectations of
a progression toward hardening norms into soft/hard law), even if these norms already act as a
law of sorts?
In this paper, I take a closer look at the general category of market principles, and argue that they
can serve as a kind of ‘law in hiding,’ supporting or holding back developments in more
conventionally recognized law in important but unrecognized ways. Contrary to assumptions
that norms or beliefs are less effective at shaping outcomes than other rule forms such as hard or
soft law, I suggest that these market principles play a powerful part in global governance, and
may actually gain in potency because they escape the additional scrutiny associated with the
label ‘law.’ This is, in effect, an effort to engage with questions of line-drawing on laws/norms
and to consider how certain research questions in IPE have (or have not) translated into that
discussion. Unlike the book, it is written primarily for a law audience, but especially given that
it draws significantly from political science scholarship, your feedback will be invaluable in
developing the arguments. The work remains at a formative stage—the draft is only a partial one
at this point—I very much welcome comments on substance, structure, anything you found
particularly interesting and/or problematic, and also recommendations for additional literatures
and issue areas that might be relevant.
Many thanks again,
Odette Lienau
ol53@cornell.edu
607-255-1449
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LAW IN HIDING:
MARKET PRINCIPLES IN THE GLOBAL LEGAL ORDER
Odette Lienau
Associate Professor of Law
Cornell University
ol53@cornell.edu
PARTIAL DRAFT
Dec. 2014
Please do not cite or circulate without permission.
PRELIMINARY OUTLINE
I.
II.
Introduction
Market Principles in the Law
A. Why ‘Law’?
B. Sovereign Debt Continuity and Capital Mobility
C. At Work in Conventional Law
III. Mistaken Hierarchies and Missing Puzzles
A. Rational Choice and Options in Law
B. Aspirational Hard Law in Constructivism
C. The Virtues of Non-Legality
IV. The Politics of Expanding ‘Law’
A. Internal Legitimacy
B. Consistency Across the Legal Order
V. Conclusion: Ramifications for Empirical Research
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LAW IN HIDING:
MARKET PRINCIPLES IN THE GLOBAL LEGAL ORDER
Odette Lienau
I.
INTRODUCTION
Every once in a while, the development and acceptance of new legal doctrine seems to
stall. In the sovereign debt arena, for example, the last decade has witnessed a range of scholars
and activists consider the possibility of resuscitating a doctrine of odious debt. Such a doctrine,
at least as classically formulated, would excuse a newly empowered sovereign regime from
paying its predecessor’s debts if they were not either consented to by the underlying population
or undertaken for its benefit. This debt cancellation would accord with governance ideas focused
on popular rule and benefit that have emerged in international relations since the end of the Cold
War, and support for resuscitating the doctrine has been expressed by parties from a variety of
political perspectives.
There is certainly a broad range of reasons that such a doctrine might not have emerged
historically and might not take hold today, most obvious among these being the opposition of
powerful states or creditors. But one key obstacle seems to be a perception that the alternative
and currently dominant norm of debt continuity—the expectation that states will repay debts
even after a major regime change or suffer reputational consequences—works as a market
principle of sorts, which remains fundamentally unchangeable even in the face of good political,
legal, or moral reasons to support alternative approaches.1 As the Financial Times asserted in
the context of discussions about cancelling Saddam Hussein’s debt, “The principle [under
challenge] is sovereign continuity—the idea that governments should honor debts contracted by
predecessors. Without this, there would be no lending to governments.”2 The perception that the
continuity norm is largely inevitable appears to be shared by sovereign governments as well,
1
As I note later in this piece, in other writing I suggest that the norm of debt continuity is in fact less theoretically
and historically stable than it first appears, and argue that it has been shaped by larger shifts in market structures and
broader norms of sovereignty over the last century. Odette Lienau, Rethinking Sovereign Debt: Politics, Reputation,
and Legitimacy in Modern Finance (Harvard University Press, 2014).
2
“Iraq’s Debt,” Financial Times, June 16, 2003
2
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including by those who consider their inherited debt morally or legally problematic and who
might prefer a different rule.3 Thus, even if new international doctrines were successfully
formalized to justify such debt cancellation—and even if these legal doctrines did find powerful
sponsors—they might nonetheless fail to affect practice if key actors continue to believe that
successful market functioning requires ongoing adherence to the opposing principle of debt
continuity.
In this paper, I take a closer look at the general category of market principles in order to
assess the role they play in global governance and the role they should play in international legal
theory. I define market principles as collective beliefs about how markets work, which are taken
to be objective descriptions even when they are politically shaped and historically contingent.
The contention that a failure to repay sovereign debt will result in exile from capital markets—
and the related belief that sovereign debt continuity is essential to viable international capital
markets—is one example, but many others can be found in the economics and financial pages of
our newspapers as well as in economic textbooks. I argue that such beliefs can serve as a kind of
‘law in hiding,’ supporting or holding back developments in more conventionally recognized law
in important but unrecognized ways. Contrary to assumptions that ‘mere’ norms or beliefs are
less effective at shaping legal outcomes than other rule forms such as hard or soft law, these
market principles play a powerful part in global governance, and may actually gain in potency
because they escape the additional scrutiny associated with the label ‘law.’ The role of such
norms has so far been largely ignored—or perhaps mischaracterized and underappreciated—and
this lack of examination itself has important consequences for both the practice and the study of
international law.
I begin this article by looking more closely at the dynamic interaction of market
principles with law in practice. In Part II, I discuss more fully what I mean by market principles,
highlighting the powerful if unremarked upon impact they may have on global governance. I
contend that they do a range of legal work in the global order, including by generating the
substantive content for law, blocking new doctrinal developments, and shaping reputational
compliance mechanisms. I also use two brief examples—debt continuity and capital controls—
to emphasize further how market principles can work, and also to demonstrate how these
ostensibly objective causal beliefs may in fact be deeply contingent, themselves depending on
3
See, for example, the acknowledgment that transitional regimes may be concerned about reputation in capital
markets in the UNCTAD study on the doctrine of odious debt. Robert Howse, 2008.
3
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broader legal ideologies and governance structures. Thus what is assumed to be an objective
element external to (and unmovable by) law may in fact be significantly shaped by legally
determined ideational or material frameworks.
In Part III, I suggest that this dynamic contradicts two basic assumptions in much
international law, which may help to explain why international legal scholarship has so far not
addressed the potentially important place of market principles in the global legal order. First,
much scholarship explicitly or implicitly assumes a hierarchy in the importance or effectiveness
of legal forms—a continuum (in ascending order of importance) of norms, custom, soft law, and
then hard law. And, second, we tend to assume that advocates of any particular rule will want to
move up this hierarchy in order to solidify the effectiveness of their preferred rule. Both rational
choice and constructivist scholars, who focus in different ways on how actors choose and
construct law, tend to work within and reinforce these expectations of a hierarchy. Given this
orientation to deliberately chosen legal forms, it makes sense that market principles—which
might be characterized as a species of knowledge, belief, or norm—have received less
consideration. Nonetheless, these assumptions ignore the real impact that such market principles
can have, and also ignore how these types of beliefs might actually benefit from the lower level
of scrutiny directed toward norms at the bottom of the traditional law hierarchy. In other words,
any assumption that market principles work only at the margins of the global legal system can
paradoxically grant these norms even more power, allowing them to act very effectively while
escaping the scrutiny that we associate with law. This all goes to suggest that the differential
emphasis that scholars, activists, and practicing attorneys tend to place on norms/soft law/hard
law may be wrong-headed, giving a pass to some of the strongest, if least obtrusive, rules at work
in the international arena.
In Part IV, I consider the potential effect of more deliberately incorporating such market
principles into our understanding of the legal order. I argue that taking these norms out of hiding
and recognizing their importance in legal functioning would encourage at least two types of
productive analysis. First, it would result in more careful normative examination of the
particular market principle in question. Legal scholars have highlighted that efforts to determine
what the rules are—to identify, codify, and institutionalize rules—tend to trigger a mechanism
for assessment and change.4 In the language of H.L.A. Hart, institutionalized legal practices
4
See, among others, Andrei Marmor, Social Conventions: From Language to Law, 50-51.
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have secondary rules—rules that clarify how those primary rules that guide conduct can be
enacted and modified. This in turn raises a range of thorny questions—if a given market
principle is already generating rules in the global legal order, who are its lawmakers? What does
it even mean to ask about lawmakers in this context, and how do we raise corresponding
questions about accountability?
In addition, my argument triggers a second type of analysis—namely, analysis about
whether the rules generated by market principles cohere with other standards in the global legal
system. International law scholarship has focused on the degree to which there is fragmentation
and preemption in global rules, and on how to resolve conflicts when they arise. If the rule
embedded in a particular market principle—say, the rule of sovereign debt continuity—conflicts
with emerging international rules such as peremptory norms of human rights, is this a problem?
We have reached a point where we can now imagine prosecuting the leaders of a fallen regime
for crimes against a state’s population while simultaneously expecting that same population to
acknowledge and repay the fallen regime’s debts. If debt continuity is an objective market fact,
then this outcome is an unfortunate but inevitable fact of life—and ultimately left out of core
debates at the center of international law. However, if debt continuity is a contingent legal rule
and understood to be part of global law, then this is a problem of deep inconsistency that
deserves the attention of practicing lawyers and legal scholars.
Although I ground the arguments of this paper in international legal theory and in
examples with transnational ramifications, nothing connects my claims exclusively to the global
level. Scholars in international law and international relations have thought very explicitly about
the multiple possible forms and effects of law in recent years, pressed on by questions—arguably
less urgent in the domestic arena—about what counts as ‘law’ and whether it really can exist in
the absence of a more-or-less unified sovereign enforcement power. This rich literature thus
very clearly intersects with and informs the questions and contentions of this paper. But beliefs
about how markets work—indeed beliefs about the purportedly inevitable causal mechanisms of
the social world more generally—can shape expectations and practice across all levels of legal
interaction. My arguments, therefore, may be understood, at least tentatively, to extend beyond
the international market arena alone.
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II. MARKET PRINCIPLES IN THE LAW
Although contemporary international law scholarship has become capacious in its scope,
certain elements still tend to be understood as exogenous to legal analysis. Among these
elements are what I call market principles—collective beliefs about how markets work as an
objective matter. These are not self-consciously politically or morally directed beliefs about
appropriate market action (i.e. it is wrong to sell humans into slavery; or markets should be
designed to alleviate poverty). Such more explicitly normative norms certainly play a crucial
role in shaping international law, and have also played an important role in international legal
theory. Rather, market principles as I define them here are those underlying understandings
about market functioning that people take to be grounded not in political or moral principle but
rather in ostensibly objectively determined facts about the world—for example, that inflation
results from weak/soft central bankers (or, alternatively, from rising costs associated with union
demands), or that the imposition of capital controls will lead to slower growth relative to an
accepted baseline. Indeed, the very effectiveness of these beliefs may draw in part from the fact
that they are not understood as based on politics, morality, or law. Instead, these causal ideas
are—like principles of the natural sciences—implicitly understood to be external to and
unchangeable by law and legal mechanisms. The closer interrogation of these ‘matters of fact’
are left to other disciplines and, although these facts may become part of the external background
for international economic law, they are not taken to be of the law itself.
This section argues that market principles are very much part of the legal order and
suggests that they should be studied as such. To begin with, I suggest that, even if they are not
conventionally characterized as ‘legal,’ these causal beliefs effectively generate standards of
conduct that meet many of the characteristics that we associate with legal rules, all while
escaping the label of law itself. I then briefly discuss the examples of sovereign debt continuity
and capital controls to illustrate this argument further. In particular, although market principles
can appear relatively stable and objective at any given moment, in fact there are good reasons to
ask whether they (like other legal forms) are in fact politically conditioned and changeable over
time.5 Finally, I look at the ways in which market principles can not only generate law-like rules
5
[Possibly expand and add to discussion later: To the extent that closer consideration does indicate that a given
market principle might be changeable, it makes sense to ask about the degree to which historical changes link back
6
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themselves but also be incorporated into other more readily apparent legal work. For example,
these causal beliefs can generate the substantive content for law, shaping the important
compliance mechanism of reputation, and undermining new doctrinal or regulatory
developments.
A.
Why ‘Law’?
So why is it that these market principles should be considered part of the legal order—
and even considered ‘law’ in a way? To begin with, market principles can themselves
effectively generate unwritten rules, which may meet many of the criteria that we associate with
the rule of law. While I have thus far used the terms ‘belief’ ‘rule’ and ‘law’ fairly loosely, they
deserve greater specification. I have already clarified that the beliefs that interest me here are
causal beliefs—beliefs about how markets work as an objective matter. In my view, such a
belief can form the core of a rule, with a ‘rule’ understood (quite uncontroversially) as a standard
that guides conduct. This conversion or translation happens quietly and naturally, and is not
generally identified to be explicit rule-formation. For example, I opened this article with the
collectively held belief (or market principle) that sovereign states that fail to repay sovereign
debt, even despite political or moral arguments that favor cancellation, will harm their reputation
in capital markets. This belief generates a concomitant rule or standard that effectively guides
the action of states and serves as a basis for judgment and evaluation: “Repay sovereign debt!”
And, as a bonus, this rule even includes a built-in sanction: “Repay sovereign debt, or your
reputation will suffer!”
All this is well and good, but in what way can the rules or standards generated by market
principles be understood as law, and as doing legal work? This is a bit more difficult, not least
because of the considerable controversy surrounding the nature of law itself. That said, I think
there is enough general consensus about the basic contours of a legal rule to make some
headway, at least for the purposes of this paper. Among the best-known characterizations of law
is Lon Fuller’s understanding of the rule of law as involving eight core principles. Legal
standards, in Fuller’s view, should be general (in that they are generally applicable rules as
opposed to one-time directives), promulgated (publicly known), clear, prospective, consistent
to law. Market principles may be embedded in the legal order in two ways—as both a constitutive factor in certain
elements of the law, and as partially dependent on legally shaped ideational or material frameworks.]
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(i.e. not in conflict with other legal standards), satisfiable, stable, and applied.6 This basic
understanding is echoed with various permutations across the schools of jurisprudence, and is
admittedly an ideal.7 Any legal standard will almost certainly violate one or more of these
elements—without giving up the label of law—for example, by being interpretively ambiguous,
not in complete concert with other legal rules, occasionally changed, and less than perfectly
followed or enforced.
Accepting this basic characterization for the purposes of this paper, it is plausible to make
the argument that at least some market principles have law-like characteristics. Or, in other
words, they may coordinate and constitute social interaction and guide actor conduct in ways that
satisfy many of the characteristics of the rule of law. To return to sovereign debt continuity, the
rule “Repay sovereign debt” is, I would argue, recognized as: general, certainly well-known,
clear, prospective, satisfiable, seemingly stable over time, and applied (at least in the sense that a
reputational cost is understood to result from its violation). This rule also seems to be consistent
with other legal standards, at least with the basic rules of contract understood to dominate the
global economy. Because it is not (yet) generally accepted that market principles have legal
import, of course, there is less clarity about exactly which legal system a market principle should
be made consistent with. (But more on this later.)
So perhaps, as a narrow definitional matter, there are grounds for suggesting that market
principles may have law-like characteristics. But why is this not a bizarre thing to assert? If this
is the analytical mechanism for translating a causal belief (via its embedded conduct-guiding
standard) into a rule of law, then virtually any causal belief or any understanding about how the
world works can be a law. This brings to mind the poster/T-shirt/bumper sticker popular in some
circles: “Gravity. It’s Not Just a Good Idea. It’s the Law!”8 This statement is amusing in part
because of the claim that gravity is an idea that can be subjectively accepted or rejected (rather
than a mere fact), and also because of the absurd suggestion that our compliance with the rule of
6
Fuller, Morality of Law, and elsewhere.
For variations on the definition of legal characteristics, see Hart, Raz, Dworkin, and more recently Shapiro,
Murphy, etc. In the international law arena, Brunnee and Toope very explicitly ground their approach on Fuller’s
characteristics of law. Fuller more controversially insisted that the rule of law, characterized in this way, displays an
internal morality by allowing its followers to guide their lives in accordance with obeying the law. The link between
morality and law is (I believe) not central to my argument here, though an important question. For this paper at
least, I am more immediately interested in the question of whether and how market principles can be understood as
part of the legal order, rather than whether a legal order or a law has an inner connection to morality.
8
There are many variations on this theme—see also “Obey Gravity. It’s the Law!”—but the original phrase is
claimed by Gerry Mooney, 1977. http://www.thegravityposter.com/historyof_01.html
7
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gravity would be enhanced if this rule were to be understood (or enacted) as law. So perhaps the
assertion that a causal belief about how markets work can be understood as law is similarly
incongruous.9
This is a very fair concern, and it raises the question of which rules are amenable to this
type of analysis. As Scott Shapiro notes of the gravity joke, “The joke works not only because it
is crazy to admonish people to obey the laws of physics, but equally because it isn’t crazy to
insist that they heed the laws of political institutions.”10 So one underlying question, perhaps, is
whether a market principle is more like a rule of physics or a rule of political institutions. If a
market principle is indeed more like a rule of political institutions—general, well-known, clear,
prospective, satisfiable, applied, and stable for a time, but ultimately socio-politically constructed
and historically contingent—then perhaps it does make sense to undertake this analysis. This
would more comfortably allow for understanding a given market principle, along with its
associated rules and practices, as part of the legal order. And to the extent that the principle were
not acknowledged to be part of the legal order, thus escaping the scrutiny to which legal rules are
usually subjected, it might be fair to characterize (as I do) this market principle as a ‘law in
hiding.’
B.
Sovereign Debt Continuity and Capital Mobility
So to what degree can we think of market principles as more like a rule of political
institutions than a rule of gravity? Even though causal beliefs about market functioning are
frequently accepted as objective factual descriptions, it makes sense to ask more carefully about
the extent to which these descriptions (and their implicit claims to objectivity and ahistoricity)
are valid in every case. A closer look at the examples of sovereign debt continuity and capital
mobility illustrate these contentions a little bit more carefully. Both have been politically
constructed over time such that they can be understood as ultimately (though not easily)
changeable and normatively relevant elements of the international legal order.
9
After all, the principle of gravity could be understood as a causal belief, and then converted into a conduct-guiding
rule that satisfies many of Fuller’s standards in the way I described above, i.e. “If you jump off the cliff, you will fall
and die” becomes “Don’t fall off the cliff, or you will fall and die”—but this hardly a legal rule!
10
Scott Shapiro, Legality, p. 201.
9
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Sovereign Debt Continuity
A key assumption or collectively held belief in the sovereign debt arena seems to be that
sovereign states that fail to repay their debt will harm their reputation in capital markets, even if
there are political or moral arguments that favor cancellation. This belief sets the background
rule according to which sovereign borrowers are evaluated and against which creditors and
others form their reputational judgments. This rule is not promulgated or enforced in any clear
legal format, though of course enforcement of particular sovereign debt contracts does interact
with this larger assumption. Instead, it gains significant power from its popular identity as a
market principle, with effects that can be identified and measured but that ultimately cannot be
changed.
This is hardly to say that a consistent repayment rule has not been criticized or
challenged. Activists and legal scholars have argued that there should be exceptions to this rule,
especially in certain transitional political situations—for example, in post-apartheid South Africa
or post-Saddam Hussein Iraq. They have proposed (or rather, resuscitated) an alternative legal
standard—the doctrine of odious debt—that would allow debt to be cancelled if it either did not
benefit the underlying population or was not entered into with the population’s consent.
However, development of this doctrine has not moved very far, at least in part due to the sense
that it violates the already-existing standard mandating uniform repayment of sovereign debt.
Interestingly, this belief in the virtual inevitability of this repayment rule—and also to some
degree in the necessity of this rule for ongoing cooperation in sovereign lending—seems to be
shared across creditors, borrowers, and other major international actors. Even those successor
states that might wish for a different rule—and might be in a strong moral position to press for
the alternative standard—tend to accede to the market narrative. As Robert Howse has noted in
a study for the United Nations Conference on Trade and Development (UNCTAD),
“one of the major policy concerns that has deterred some transitional regimes
from repudiating ‘odious debt’ from the previous regime is that of reputation in
the capital markets; a transitional regime may be concerned that creditors will not
in the future provide access to funds, because they are unable to distinguish the
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exceptional political decision to repudiate debt due to is odiousness form the
general creditworthiness of the regime.”11
In short, the market principle itself—the belief that non-payment will result in capital market
sanctions across all cases—seems to be doing a significant portion of the work.
So should we not just stop here? If the repayment rule is a causal belief because it
accurately and fully reflects an objective fact about the world, then there is perhaps no point in
going forward with this example. This market principle would only be a rule or law in the way
that gravity (or another physical law) is a rule or law. Trying to understand this kind of standard
or belief as part of a legal order—and then subjecting it to the scrutiny accorded to laws
generated by political institutions—would be meaningless and futile.
But what if, in fact, this market principle is closer to the type of rule generated by a
political institution, or perhaps to the type of rule that arises from social convention? Then an
assessment of the rule as part of a broader legal order is sensical and, as I will discuss in greater
detail later in this paper, potentially powerful. I have argued in other writing that this is in fact
the case—that the market principle narrative supporting the repayment norm is overly simplistic
and in some respects entirely wrong.12 The framing and understanding of sovereign debt
repayment and reputation as a market principle works in part by propagating the following three
problematic assumptions. First, the dominant approach implies that although creditors may
assess a specific borrower’s political characteristics through the lens of sovereign risk, judgments
about a borrower’s repayment decisions are not shaped by politics per se. Rather, they are
simply the best objective assessment of a given set of material facts, and are therefore
unchallengeable on the basis of political or moral principle. Second, the mechanism of sovereign
reputation itself is assumed to be similarly free from subjective and historically variable political
judgments, and therefore similarly immune from challenge. And third, all rational creditors are
expected to respond in basically the same way to particular debt events, suggesting that efforts to
understand or reshape their identities and interests would be futile.
But in fact none of these assumptions seem to hold up to closer examination, which
means that the strict debt repayment norm is more politically and historically variable than it first
appears. To begin with, any discussion of sovereign debt is rendered intelligible only by quietly
Robert Howse, “The Concept of Odious Debt in Public International Law,” UNCTAD Discussion Paper No. 185
(July 2007), 20.
12
O. Lienau, Rethinking Sovereign Debt (2014).
11
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incorporating one of the most highly politicized (and thus deeply contested) terms in
international law and international relations: sovereignty. Depending on the theory of
sovereignty implicitly or explicitly adopted, the practices of sovereign debt and reputation could
be expected to diverge significantly.13 Furthermore, creditor uniformity cannot simply be
assumed, and in fact different creditors may interpret—and historically have interpreted—the
same politicized debt repudiation in opposing ways. The post-World War I cases of the Soviet
Union and Costa Rica have been held out to suggest the futility of challenging the timeless rules
of capital markets. But in fact these cases demonstrate quite the opposite, showing how creditors
can reasonably make reputational judgments in favor of post-repudiation lending, at least under
conditions of market competition and ideological flexibility. The Soviet case in particular has
been misinterpreted in the economics literature; a look at the historical correspondence between
banks and governments, rather than only at bond float data, demonstrates that private interest did
exist in lending to the new Soviet regime, at least among new American banks eager to compete
with established European financiers.14
The absence of similar cases later in the century was hardly embedded in apolitical
market certainties or ahistorical creditor preferences. Rather, the departure from the more open
post-World War I moment resulted from changing political structures and sovereignty norms, as
well as from shifts in creditor interactions. The post-World War II reconstruction of the financial
system was led by public creditors such as the new World Bank, which promoted sovereign debt
practices that comported with their own financial and operational needs, including a strict
insistence on debt repayment. When private creditors returned to sovereign lending in the early
1970s, they arrived through a framework of syndicated lending and multinational branching that
undermined the space for heterodox creditor approaches and further consolidated a narrow
repayment rule. Sovereign states themselves, increasingly wary of external scrutiny of their
internal political and economic choices, hardly forced an open discussion of political principles
in the debt arena. This background affected the subsequent loan restructurings of the late 1970s
and 1980s. In particular, the systemic risk posed by the private banks’ interconnected loans—and
the banks’ interaction with public actors such as the IMF and the US Treasury—resulted in a
joint approach to sovereign borrowers that limited the space for alternative approaches to debt.
Thus, despite being grounded in very particular historical moments, these shifts granted the rule
13
14
See the discussion in id., chapter 2.
Id., chapter 3.
12
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of debt repayment an air of inevitability into the 1990s, and meant that even clearly revolutionary
governments in Nicaragua, Iran, the Philippines, and South Africa ultimately acknowledged the
debts of their predecessors.
This is not at all to say that the story is over. If indeed a strict repayment rule has been
shaped over the last century by political actors, broader ideological shifts, and changing public
and private creditor structures—and if there are moments demonstrating how finance can
function even in its absence—then it is hardly necessary for workable international capital
markets. Alternative approaches, incorporating ideas of illegitimate debt and allowing for
limited cancellation, emerged historically and could function more fully in the future. Indeed,
the post-Cold War era has witnessed the international move toward a discourse of governance,
democracy, and human rights, which has made its way into the language (if not fully the
practice) of even major economic organizations and private creditor groups. Although
expectations of uniform repayment still dominate, new modes of creditor interaction and sources
of international capital have further enabled flexibility in certain cases, and debt discussions in
Iraq, Ecuador, and even Europe have brought arguments about illegitimate debt more to light.
How does all this relate back to the discussion of market principles and the law?
Although the rule of debt continuity may appear to be a neutral and objective fact at first glance,
in fact it is politically constructed and historically variable. This makes it more like a rule of
political institutions than a rule of physics (though of course the mechanism for rule change is
less straightforward than for a conventional political rule), and makes it sensical to discuss debt
continuity as part of a global legal order. This possibility in turn opens the rule up to questions
of consistency and accountability, which are central to the traditions of legal analysis and
normative critique.
Capital Mobility
[To come.]
C.
At Work in Conventional Law
I have suggested thus far that one way market principles are embedded in the global legal
order is by generating implicit and unwritten rules, which may meet many of the criteria that we
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associate with the rule of law. I have also highlighted the ways in which such rules, while
escaping the label of law itself, may be politically conditioned and changeable in ways akin to
more general political rules. But that is not the sum total of how market principles work in
global governance. In addition, they can be incorporated into other more conventionally
understood legal work—by producing the substantive content for law and shaping the important
compliance mechanism of reputation, among others. They can have surprisingly certain effects
within particular issue areas, and their violation can have real consequences for the actors
involved, contrary to the common characterization of the power (or lack of power) of norms and
beliefs. As such, they can play a dispositive role in determining legal outcomes without,
paradoxically, being identified as a key component of law itself.
Rationalist scholars have highlighted that states and other actors creating law can select
from multiple mechanisms in promoting their interests, including soft law mechanisms that may
generate less controversy due to their relative flexibility, imprecision, and/or nonbindingness. 15
Key examples of such mechanisms include guidelines, suggestions of best practice, and codes of
conduct, which help to coordinate the activity of state regulators and of market participants in a
way that ideally constitutes an improvement for all. But where do many of these guidelines
come from? Certainly, they may be proposed by one actor or another calculating to promote
their own interest and/or their own vision of the public good. But often these actors’ proposals
instantiate a set of beliefs about how markets work as an objective matter, and seek to ensure that
markets function efficiently and smoothly, and in a way that would serve the actors themselves
and (as a positive externality) others in the broader global system as well.
As one example, the Group of 20 finance ministers and central bank governors regularly
issue pronouncements that implicate or adopt particular beliefs about economic functioning;
these declarations sometimes explicitly seek to identify the (ideally) objective determinants of
particular economic outcomes around which further policy might be formulated. The G-20’s
September 2013 Leaders’ Declaration, for example, noted that a work plan has been endorsed to
help “assess factors affecting the availability and accessibility of long-term financing for
investment and committed to identify and start to implement a set of collective and country-
15
Abbott & Snidal; Guzman & Meyer; etc. For a discussion of compliance with soft law in the international
financial context in particular, see Chris Brummer, Soft Law and the Global Financial System: Rule-Making in the
21st Century (Cambridge, 2012), esp. 124-138.
14
DRAFT – Please do not cite or circulate.
specific measures that tangibly improve our domestic investment environments [sic].”16 While
the ultimate policy recommendations, which become the focal point for international
coordination, will be more readily identifiable as global law, much of the work of that ‘law’ is
actually be done by the beliefs about how investment markets work, as determined and
formulated by the study group called for in the declaration. The post-2008 crisis Financial
Stability Board among many others exhibits a similar dynamic, also issuing reports about the
determinants of market success or failure along with related recommendations and standards
designed to strengthen global finance.17
While the work done by market principles can thus be quite hidden away in guidelines
and similar soft law mechanisms, this dynamic is not exclusively a soft law phenomenon. ‘Hard
law’ institutions have elements of this openness to interpretation, which again invite market
principles in to play essential but frequently unremarked-upon roles. The International Monetary
Fund, the classic hard law organization in international finance, mandates in Article IV of its
Articles of Agreement, most recently amended in 1978, that member states “collaborate with the
Fund and other members to assure orderly exchange arrangements and to promote a stable
system of exchange rates.”18 But this language still leaves much to interpretation—what
constitutes a sufficiently “orderly exchange arrangement” or adequately “stable system of
exchange rates” to meet the Article IV requirement? And, perhaps more importantly, what
institutional or policy changes at the domestic level might correspond to meeting these goals? In
a similar vein, the IMF’s official factsheet on surveillance notes that “the IMF highlights
possible risks to stability and advises on needed policy adjustments.” Again, what is included in
“risks to stability” and “needed policy adjustments”? Particularly as the IMF shifts away from
its surveillance and information-sharing functions and into conditional lending, the policy
changes that are required of states—in light of beliefs about how markets work—gain
considerably more force, particularly when matched with the risk of reputational fallout in the
capital markets or other arenas. Thus understandings of market functioning and of what changes
would improve market operations end up shaping the actual content of this international financial
law—or, to put it a different way, these understandings effectively become a sort of legal content
themselves. In short, these collective beliefs about relevant facts and appropriate action end up
G-20 (Russia), G-20 Leaders’ Declaration (September 2013), 3-4. Available at: http://www.g20.org/documents/
Any number of options on FSB website. Possibly look at ISDA and AR’s work on use of collateral as a
supplementary example.
16
17
15
DRAFT – Please do not cite or circulate.
doing real legal work in ways that tend to be missed both by the broader public and also by much
legal theory.
In addition to this background coordination function, market principles can also play an
important role in the reputational enforcement of international law. Reputation, understood as
beliefs about a state’s likely future actions based on its past actions, is frequently presented as
one reason states choose to comply with international agreements even when it might be in their
interest to violate its provisions.19 While it is possible for reputational effects to be entirely
internal, i.e. relevant only among the parties to the actual agreement in question, a state’s actions
may also affect its reputation in the eyes of a broader range of actors, possibly up to the
international community writ large.20 Indeed, one of the key enforcement mechanisms for a
range of legal agreements, particularly those in global finance, is understood to involve the
reaction (or expected reaction) of capital markets to a given state action, based on market actors’
beliefs (or expected beliefs) of the appropriateness of that action under the circumstances.21 The
sovereign debt continuity example highlights the centrality of this element.
Of course, the more specific interrelations of reputational effect, background market
principles, and identifiable financial regulations can be hard to tease out. Chris Brummer
suggests that “international financial law can help shape the perceptions of investors, lenders,
and other relevant market participants as to the value of any particular kind of conduct,”22 which
might in turn impact reputational consequences. But to what degree are these new regulations
always shaping market participants’ own understandings of economic cause and effect? Or, in
other words, do these rules really result in investors buying into a previously unaccepted set of
18
IMF Articles of Agreement, Article IV, Section 1. In recognition of the significant work being done by Article IV
as a whole, the IMF Legal department prepared an overview of just this article in 2006. See International Monetary
Fund, Article IV of the Fund’s Articles of Agreement: An Overview of the Legal Framework (June 28, 2006).
Available at: http://www.imf.org/external/np/pp/eng/2006/062806.pdf
19
This reputational element is intensively studied in political science. [credible commitments literature, Simmons
and others, general reputation, Tomz, etc.]. Guzman identifies reputation as one of his “Three Rs” of compliance
with international law (in addition to reciprocity and retaliation) in How International Law Works. For an excellent
discussion and critique of Guzman’s fairly broad-brush understanding of reputation, see Rachel Brewster (2010).
For a consideration of how reputational judgments in the sovereign arena are necessary grounded in particular
concepts of sovereignty, see Lienau, Rethinking Sovereign Debt.
20
Guzman speaks of a general reputation for compliance with international law, which he suggests transfers across
administrations and issue areas. Id. Brewster disaggregates the state both temporally and across issue area, arguing
that reputational effects are more fine-grained than Guzman asserts. Id.
21
Brummer, focusing primarily on the reputation of regulators among their peers, similarly notes that “international
financial regulation, though formally a species of ‘soft law,’ is bolstered by various disciplining mechanisms that
render it, under certain circumstances, more coercive than traditional theories of international law predict.”
Brummer, Soft Law, 116.
22
Chris Brummer, Soft Law, 146.
16
DRAFT – Please do not cite or circulate.
ideas (for example, that heightened bank capital requirements will stabilize a domestic financial
system and thus justify a lower cost of capital for firms in that jurisdiction)? The alternative is
also possible and at least equally likely—namely, that the crucial work is being done by a largely
prior set of market beliefs. Jonathan Kirshner has pointed out that a unique feature of monetary
politics—and perhaps by extension a range of financial issues—is its distinctive relationship to
ideas, given that money has no inherent content or value. Thus, its distinguishing attributes
include “the unique link between ideas and ‘market sentiment’… and the overwhelming
influence of that sentiment on the ability to produce macroeconomic policy.” He suggests that
the policy most likely to be successful or credible is that “which ‘the market’ thinks is right.
Policies that are not credible cannot be sustained because of the responses of market actors to
such politics.”23 Although Kirshner here refers most directly to domestic policy choices and
policy autonomy, there is good reason to expect that this market sentiment dynamic would
extend to the viability of transgovernmental rule-making as well.
Thus market sentiments may give rise to a set of reputational judgments about state
actions that remain prior to—and in fact may affect the selection and success of—the laterarriving officialized rule. Indeed, Brummer notes that “soft financial institutions may…
articulate norms that have not previously been systematized. What are, in fact, preferred
practices have not been explicitly identified as such but are simply matters of habit or widely
followed practice that are implicit and taken for granted. Once regulators identify and express
best practices… those practices become explicit and prescriptive.”24 Thus market principles can
play an essential role in quietly shaping best practices and expectations, which may eventually be
codified (and strengthened) through more conventional legal forms.
In short, aside from my earlier suggestion that market principles may have lawgenerating import in their own right, these causal beliefs can have additional legal functionality.
From an institutional design perspective, market principles can be understood to shape what we
consider to be plausible focal points for rule-making. And to the extent that credibility or
reputation play a role in enforcing particular legal rules and the policy choices that they enact,
market principles—including beliefs about how particular economic actions will impact market
position or market functioning—may delimit the workable parameters of law. Conversely, if a
Jonathan Kirshner, “The Inescapable Politics of Money,” in Monetary Orders: Ambiguous Economics, Ubiquitous
Politics, ed. Jonathan Kirshner (Cornell, 2003), 13.
24
Id., 146.
23
17
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preferred law violates underlying market principles, and if it is unable to help shift key beliefs
over time, it is unlikely to be successful and so may fall by the wayside, even if it is instantiated
in an officially adopted legal rule. So there is good reason to consider the possibility that the
crucial enforcement mechanism of reputation in some international law derives force not so
much from carefully formalized rules (though certainly those are still helpful and clarifying), but
instead from unchosen and even unacknowledged background beliefs about ostensibly objective
market facts. In brief, certain beliefs and principles—grounded in assessments about market
functioning and resulting in expectations about appropriate action—are very likely to affect both
the initial selection behavior of rule-makers and the subsequent compliance decisions of those
actors subject to the resulting rules. Indeed, it may well be the case that the work or effect
attributed to more recognizable legal rules is actually being done by these hidden market
principles.25
[Section conclusion to come.]
III. MISTAKEN HIERARCHIES AND MISSING PUZZLES
If, as I contend, market principles do play an important role in the global legal order—
either directly or by working in the background of other legal forms—why has international law
tended to overlook their impact and their potential place in our legal-analytical and normative
frameworks? The last several decades have seen an explosion in legal scholarship that can be
characterized as expanding the boundaries of traditional law or legality, and much of this
scholarship explicitly embraces interdisciplinarity. The absence of a ‘market principle’ question
in international law is even more puzzling given that disciplines cognate to the field—for
example, sociology and certain variants of political science—readily embrace the socially and
politically constructed nature of market ideas and market functioning.
Certainly an essential part of the answer is in the likely difficulty of identifying market
principles themselves, particularly as they are often framed and understood as relatively
immutable and descriptive factual observations. But I suggest that some of this oversight might
[Perhaps more here or elsewhere engaging a bit with the literature on ‘compliance with’ vs. ‘effect of’ law? If law
in some areas is not doing the hard work but rather is channeling or making visible the work done by market
principles, is this very much effect at all?]
25
18
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result from the tendency of much international law scholarship to explicitly or implicitly assume
a hierarchy in the importance or effectiveness of legal forms. In particular, there seems to be
acceptance of the idea that there is a legal continuum involving beliefs/norms, custom, soft law,
and then hard law—listed here in ascending order of presumed importance. And a corollary
assumption is that advocates of any particular rule will aim to move up this hierarchy to render
their preferred legal standard more powerful.
Interestingly, both rational choice and constructivist scholars in international law tend to
assume and reinforce this hierarchy in their writing. This might result in part from the tendency
across much contemporary international legal theory to focus on law and its workings as a
deliberately chosen endeavor—a set of rules chosen as law or at least in a law-like fashion. This
orientation is reasonable, especially given that law in its archetypal domestic incarnation arises
from the explicit act of legislation, involving a broadly legitimated public process or at the very
least resulting in a publicly disseminated outcome. So this scholarship has similarly focused on
how states, the classic subjects and promulgators of international law, choose law in various
ways.26 The centrality of choice is true of theoretical approaches that posit states as rational
actors working to secure their own interests internationally, but is also true to an important
degree even for frameworks that explicitly seek to de-center states and to demonstrate how
broader normative principles and beliefs may be promoted through international law. Given this
orientation to deliberately chosen legal forms, it makes sense that market principles—as a
species of ‘mere’ belief, knowledge, or norm—have received less consideration.
As such, this approach almost naturally overlooks the real impact that market principles
can have, and also misses the way in which these types of beliefs might actually benefit from the
lower level of scrutiny found at the bottom end of the traditional law hierarchy. In other words,
the assumption that beliefs such as market principles work only relatively weakly, and just at the
outer edges of the global legal system, can paradoxically render them even more powerful,
allowing them to act while escaping the questions about accountability and coherence that we
associate with law. And the impact of such an assumed hierarchy is not purely theoretical. I
discussed earlier the negative ramification for legal questioning and normative analysis that
results from failing to identify such market principles as part of law. In addition, the mistaken
26
While international law scholars and practitioners for much of the twentieth century relatively unselfconsciously
embarked on the formulation and interpretation of doctrine, the last decade and a half has witnessed the rise of a
more careful investigation into the place and effect of international law in international politics.
19
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assumption that market principles (if they are acknowledged at all) will have only a minimal
effect on legal functioning can shape how global actors—including states and norm
entrepreneurs among others—direct their scarce resources. It also may impact how scholars
build and pursue their research agendas, deepening the tendency to focus on more traditional
hard and soft law and deflecting attention from how market principles work and develop.
A.
Rational Choice and Options in Law
The worlds of international law and international relations diverged to an important
degree following the Second World War. International lawyers working to construct new global
rules and institutions tended toward a positivism that promoted formally binding legal
obligations for states, assuming that such rigidity would provide the best chance of building
order out of the recent chaos. Dominant thinkers in the field of international relations discounted
the importance of such legal mechanisms, considering them an outgrowth of (and epiphenomenal
to) the fundamentally unchanging state goals of preserving security and maximizing power.27
These scholars working in the postwar realist tradition contended that the idealist vision of a lawbased world order would fail to deliver the desired peace, and might even destabilize global
relations due to its naive assumptions about the possible depth of interstate cooperation.
Central to the reconciliation of international law and international relations has been the
rise of rational choice approaches focused on the ways in which international institutions may
serve state ends. This rationalist institutionalist framework, based on game theoretic
understandings drawn from neoclassical economics, tends to accept the realist assumptions of a
unitary state acting in its own predetermined interests but contends that such interests may
coincide with those of other states and thus pave the way for cooperation.28 Interstate interaction
in this model is not necessarily zero-sum, with a clear winner and loser, but rather can enhance
the welfare of all actors if coordination and defection problems are overcome. Once an
institution or set of rules has been established, it shapes state behavior and further incentivizes
cooperation by altering the costs and rewards of given choices. However, the institutions and
27
See, for a classic statement along these lines, Hans Morgenthau. Downs, Rocke, and Barsoom make a similar
argument (1996). Jack Goldsmith and Eric Posner offer an update on elements of this realist take, suggesting that
customary international law is simply a series of behavioral regularities accompanied by ‘law-talk’ to signal future
intentions to continue the behavior.
28
Robert Keohane, After Hegemony (Princeton University Press, 1984).
20
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rules themselves are established to serve states’ long-run interests, and they are adhered to so
long as those interests appear to be promoted.
Scholars applying this approach to international law have highlighted how states may
select among a range of institutional forms in response to different foreign policy goals, and have
tended to move away from the assumption that the most stringent obligations are necessarily
optimal. Drawing primarily from the rational choice tradition, a special issue of the flagship
international relations journal International Organization in 2000 understood “legalization” in
terms of the characteristics of rule precision, obligation, and delegation to a third-party decision
maker.29 In the same issue, Kenneth Abbott and Duncan Snidal noted that, while states may opt
into hard law legalization, they might also “choose softer forms of legalized governance when
those forms offer superior institutional solutions.”30 They define “softness” as a weakening
along one of the three dimensions of legalization, and argue that soft law, while sometimes a step
along the route to full legalization, can also be “preferable on its own terms… [and] provides
certain benefits not available under hard legalization.”31 Andrew Guzman also emphasizes the
significant choice available in the range of agreement types, including “the decision to adopt a
treaty rather than soft law, the provision or omission of dispute resolution and monitoring, and
the inclusion or omission of reservations, escape clauses, and exit clauses.”32 Further
highlighting the deliberately strategic dimension of selecting across legal forms, Greg Schaffer
and Mark Pollack note that hard and soft law are not necessarily complements but may also act
as antagonists—that is, actors can use these forms to obfuscate and to undermine arrangements
with which they disagree.33 And Edward Swaine and others have taken rational choice beyond
29
Kenneth Abbott, Robert Keohane, Andrew Moravcsik, Ann Marie Slaughter, and Duncan Snidal, The Concept of
Legalization, International Organization 54, no. 3, 401- (2000).
30
Abbott & Snidal, 421.
31
The key benefits of soft law, they continue, include being easier to achieve, more effective in dealing with
uncertainty, and more likely to effectuate compromise. Kenneth Abbott and Duncan Snidal, Hard and Soft Law in
International Governance, International Organization 54, no. 3, 421-456, 422 (2000).
32
Andrew Guzman, How International Law Works: A Rational Choice Theory (Oxford, 2008), 131. For more on
the reasons that states might select soft law, see Andrew T. Guzman and Timothy L. Meyer, International Soft Law,
Journal of Legal Analysis vol. 2, no. 1, 171 et seq. (Spring 2010). For an early cautionary note against
oversimplifying the category of ‘soft law,’ see Christine Chinkin, The Challenge of Soft Law: Development and
Change in International Law, International and Comparative Law Quarterly, vol. 38, 850 et seq. (1989).
33
For Schaffer and Pollack, the key question on the interaction of hard and soft law is “one of specifying the
conditions under which actors are likely to employ hard and soft law as alternatives, complements, or
antagonists.”Gregory C. Schaffer and Mark Pollack, Hard vs. Soft Law: Alternatives, Complements, and
Antagonists in International Governance, 94 Minn. L. Rev 706, 709 (2010). Kal Raustiala criticizes the hard/soft
law terminology but emphasizes the trade-offs states must make in decisions about legality (i.e., binding versus non-
21
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formalized agreements, arguing that even customary international law may serve an instrumental
purpose for states.34 This literature has thus undermined the legal positivist assumption that only
binding ‘real law’ agreements do useful and meaningful work, demonstrating instead how
different forms may serve multiple purposes. In this way, these insights have been important for
the development of the ideas in this paper.
Importantly, however—and here is a key point of difference—this scholarship tends to
assume a continuum in legal form and commitment capacity. Guzman offers perhaps one of the
clearest statements of this assumption in presenting his comprehensive theory of international
law from a rational choice perspective. As part of this, he notes that the difference between
formal treaties, soft law, customary international law, and international norms “is a matter of
degree rather than kind. Formal treaties lie at one end of a spectrum of commitment, with mere
norms at the other end and customary international law and soft law in between.”35 He argues
that this categorization corresponds to the likely effect that these forms will have on behavior,
asserting that it is “possible to identify a hierarchy of international law rules, with treaties the
most likely to affect behavior, norms the least, and soft law and customary international law in
between.”36 Speaking specifically of norms, at the bottom of this hierarchy, Guzman describes
them as “very much like [customary international law]—they lack explicit consent, are
unwritten, and are often vague. In addition, they lack the ‘bindingness’ of custom. As such, the
consequences of failing to honor them, while often real, are less than is the case for custom.”37
B.
Aspirational Hard Law in Constructivism
Perhaps surprisingly, even the school most attuned to the centrality of collective beliefs
and shared understandings—scholarship influenced by constructivist approaches in international
relations—has overlooked (or at least has under-characterized) the multiple ways in which these
beliefs can play a part in legal functioning in the market arena. In particular, much of this work,
binding agreements), substantive deviation from the status quo, and structures for monitoring and punishing. Kal
Raustiala, Form and Substance in International Agreements, Am. J. Int’l L, vol. 99, 581-582 (2005).
34
Edward Swaine, Rational Custom, 52 Duke L. J. 559, 565 (2002). Swaine emphasizes that custom fits into
rational choice perspectives once we recognize both the broad range and the interdependence of strategic games
implied by this approach. See also Guzman, etc.
35
Guzman, How International Law Works, 9
36
Guzman, HILW, 214. See also Figure 6.1 on 214.
37
Guzman, How International Law Works, 214
22
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even while rejecting key premises of a rationalist framework, has similarly emphasized the
deliberate or chosen element of norm propagation in international law. It has also tended to
accept the assumptions of a progression or hierarchy from mere shared understandings to more
concrete forms of law—tending to assume that beliefs (to anthropomorphize for a moment)
aspire to higher levels of formality and publicity. But in fact, and perhaps paradoxically, there is
reason to think that the legal work done by market principles, in terms of pre-selecting plausible
policies and encouraging compliance through reputational mechanisms, may be more successful
if the norm or standard itself never becomes interpreted as ‘legal.’
In the last fifteen years, thinking and writing in international relations and international
law has been significantly affected by theoretical approaches that explicitly emphasize the
importance of shared beliefs. Speaking very generally, this constructivist turn in international
relations theory highlights the importance of collective ideas and social norms in shaping
outcomes in global affairs. It asserts that state interests and preferences cannot simply be
assumed, and underscores the centrality of knowledge and of norms, including those developed
through international organizations and legal institutions, in constructing state interests and even
constituting state identities.38 States and other actors in this view are not motivated only by an
instrumental logic of consequences, as in the rationalist approach, but also by a “logic of
appropriateness,” which considers what would be appropriate or legitimate behavior for an actor
of a given position or identity in a given social context.39 As such, law and legal rules are not
merely an outcome or dependent variable—an end product chosen by states to facilitate
coordination or cooperation in service of their predetermined goals—but rather can be
understood as part of a dynamic in which states, other actors, and the larger institutional and
social structures in which they are embedded are mutually constituted over time. And part of the
distinctive nature of legalized norms in this view involves the important (if sometimes
amorphous) element of legal legitimacy, supported in part by the interaction between law and
collective social practice.40
38
Wendt; Ruggie; Finnemore; and so on.
James G. March & Johan P. Olsen, “The Institutional Dynamics of International Political Orders,” IO vol. 52
(1998). Also Ted Hopf, etc.
40
Martha Finnemore and Stephen J. Toope, “Alternatives to ‘Legalization’: Richer Views of Law and Politics,”
International Organization, vol. 55, no. 3 (Summer 2001), 744. Also Brunnee and Toope on interactional approach.
Perhaps also discuss/mention other views of legitimacy? Franck, etc. – though this is not central.
39
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To an important degree, discussions of international law drawing from constructivist
theoretical frameworks reject the instrumentalist state choice element of rationalist
institutionalism. But this hardly suggests either that agency and deliberate action disappear from
the account, or that the role of less deliberately chosen principles in legal work is promoted to the
center of attention. In characterizing purposeful state action, constructivist scholars have
suggested that states may enter into international legal instruments of various sorts not to
promote unwavering interests in maximizing security, power, or wealth, but rather in support of
historically contingent political or moral principles (or historically contingent understandings of
security and economic interest) they deem to be legitimate and valuable. In surveying the
literature for an edited volume building on the insights of constructivist scholarship and quite
explicitly designed to be “read as a counterpoint to the ‘rationalist’ approach elaborated in the
Legalization and World Politics special issue of the journal International Organization,”
Christian Reus-Smit notes that actors create institutions, including international legal institutions,
“not only as functional solutions to co-operation problems, but also as expressions of prevailing
conceptions of legitimate agency and action that serve, in turn, as structuring frameworks for the
communicative politics of legitimation.”41 In characterizing norm-based thinking on treaties,
Oona Hathaway notes that “governments create and comply with treaties not only because they
expect a reward for doing so, but also because of their commitment (or the commitment of
transnational actors that influence them) to the norms or ideas embodied in the treaties.”42 While
the state remains a key actor (as well as a key subject) in processes of social construction and
identity formation, non-state actors including international institutions, domestic and
transnational interest groups and nongovernmental organizations, and even individuals also play
an important role in this element of choice and agency.43 As one key example, Martha
Finnemore and Kathryn Sikkink have highlighted the role of “norm entrepreneurs,” who very
deliberately promote particular visions of appropriate conduct and work to eliminate alternatives
in order to further their values and beliefs.44 Thus this scholarship on shared beliefs in
international legal processes, while emphasizing the ways in which norms can actively constitute
41
Christian Reus-Smit, ed., (Intro), The Politics of International Law (Cambridge), 11.
Oona Hathaway, “An Integrated Theory of International Law,” 47.
43
A key constructivist departure from rationalist institutionalist approaches involves the decentering of a unitary
state as the supreme decision-maker. Note - This departure from the assumption of a rational unitary state is shared
in some ways with Liberal theories of international relations. Moravcsik, “Taking Preferences Seriously” IO.
44
Martha Finnemore and Kathryn Sikkink, “International Norm Dynamics and Political Change,” IO (1998).
42
24
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law and actors, has paid somewhat less attention to the background role played by more quiet
assumptions about how markets work.
Constructivist work in international law, like rationalist institutionalism, has also tended
to assume a continuum of effectiveness or success that corresponds to the ‘hardness’ or at least
the ‘legal-ness’ of the law in question. Suggesting the greater desirability of more concrete legal
forms, Finnemore notes that, “Particularly for new or emergent normative claims where few
‘hard’ law obligations exist, activists seek to generate this kind of felt obligation as a means of
promoting ‘harder’ legal obligations in the future.”45 Writing of the intermediate or steppingstone character of soft law, David Trubek notes that such instruments can help to develop and
deepen “non-binding standards that can eventually harden into binding rules once uncertainties
are reduced and a higher degree of consensus ensues.”46 And a consideration of practice
confirms this dynamic across multiple issue areas. For example, legally binding environmental
treaties such as the Montreal Protocol on Substances Depleting the Ozone Layer, now involving
third party review of implementation, progressed from more aspirational language developed by
key non-state and state supporters.47 And perhaps the greatest success understood along these
lines is the adoption of the Landmines Convention in 1997, only five years after the launch of the
campaign to ban landmines by six NGOs in 1992.48
Jutta Brunnee and Stephen Toope, also working from a constructivist perspective, offer
an important caveat here that resonates with some of my arguments, cautioning “against undue
faith in formal law-making.”49 They draw from Lon Fuller’s theory of the rule of law,
mentioned above, to develop an interactional account of international legal obligation that
emphasizes the centrality of ongoing and shared practices of legality in creating and maintaining
law.50 They thus disrupt the assumption of a clear hierarchy among legal forms, allowing for the
possibility that less formal codes may better embody law than traditional hard law in some
circumstances, in particular by more effectively generating a sense of legal obligation (“the
45
Martha Finnemore, New Directions, New Collaborations for International Law and International Relations, in
Biersteker et al, eds., Bridging Theory and Practice (Routledge, 2007), 271.
46
David Trubek et al., “‘Soft Law,’ ‘Hard Law’ and EU Integration,” in Law and New Governance in the EU and
the US (Grainne de Burca & Joanne Scott, eds., 2006), 89.
47
David Victor, 1998; Brunnee & Toope.
48
Richard Price, “Emerging Customary Norms and Anti-Personnel Landmines,” in Christian Reus-Smit, The
Politics of International Law.
49
Jutta Brunnee & Stephen J. Toope, Legitimacy and Legality in International Law: An Interactional Account
(Cambridge, 2010), 75.
50
They list the criteria of legality as: generality, promulgation, non-retroactivity, clarity, non-contradiction, not
asking the impossible, constancy, and congruence between rules and official action. Brunnee & Toope, 2010, 6.
25
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value-added of law”).51 They note that “it is not enough to cast socially shared understandings in
legal form… [W]ithout sufficiently dense interactions and participation of its members, positive
law will remain, or become, dead letter.”52 Still, this important modification, as a result of its
focus on explaining (and justifying) legal obligation in international law, replaces one hierarchy
with another in suggesting that beliefs and norms will be more legally effective and more deeply
accepted if they are found to meet criteria of legality. It thus leaves aside the possibility that
certain background beliefs may act as or may shape law in important ways—and thus be highly
relevant to international lawyers—while not actively aspiring to meet the criteria of legality
themselves.
C.
The Virtues of Non-Legality
All that said, constructivist insights in general certainly resonate with my understanding
of the potential roles of market principles in international law. In particular, the focus on how
shared understandings may shape and pre-determine meaning and the intersection with
scholarship on epistemic communities has informed my thinking. Constructivist work in the
political science sub-field of international political economy, which questions the possibility of a
purely materialist theory of market functioning, emphasizes that “international norms define the
boundaries of choice and thereby affect how societies, policymakers, and market participants
discern the meaning of various policy stances.”53 These shared ideas become most powerful
when they become taken for granted, and actors accept them as the only realistic response to a
given issue rather than one among several plausible policy choices.54 And research on epistemic
communities, which has looked at knowledge-based networks often organized around the
technical areas of science or economics, has demonstrated the impact of shared understandings
developed by members of communities that gain authority in part due to perceptions of both their
expertise and their impartiality.55
51
Brunnee & Toope 2010, 77.
Brunnee & Toope 2010, 69-70.
53
Rawi Abdelal, Mark Blyth, Craig Parsons, eds., Introduction, Constructing the International Economy, 9.
54
See, e.g., Abdelal et al., 10-11. Constructivist theory outside of political economy also emphasizes the power
attaching to a norm when it achieves this ‘taken for granted’ character. i.e. Brunnee & Toope, Finnemore & Sikkink.
55
Haas, Epistemic Communities, etc.
52
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In fact, taking these insights seriously gives rise to a set of arguments that are presently
underemphasized in constructivist international legal theory, which as I note above tends to focus
on deliberately chosen norms and cycles of norm entrepreneurship and social construction.
Although the broad adoption of particular beliefs about market functioning may well take
significant entrepreneurship, it is of a different sort than that relevant for an issue like the
landmine ban. As suggested above, the implicit claim in many instances of norm
entrepreneurship is that the proffered norm is morally or politically superior to the status quo,
and better accords with the underlying values or identities of the target in question (i.e. the value
of protecting innocent life, or the identity of being a state or individual committed to human
rights). It explicitly connects to underlying social understandings and tends to be openly
normative in the sense of requiring subjective judgments about the moral or political value of
proposed norms and their coherence with rules—including legal rules—to which the individual
or collective in question subscribes or aspires. The norm entrepreneurship involved in promoting
market principles, however, might well imply a very different route. Here, the goal—and the
source of legitimacy in many epistemic communities—is to act in an expert, objective, and
impartial fashion, and perhaps equally importantly to exude expertise, objectivity, and
impartiality. The deliberations and subsequent decisions would likely be presented, as much as
possible, as grounded in objective fact rather than subjective determinations of value congruence
and appropriate action. Indeed, there is perhaps unlikely to be an admission that any ‘logic of
appropriateness’ is relevant at all, and the adoption of one market principle over another will
more likely be presented as the inevitable result of a careful and impartial analysis of objective
facts.
What does this analysis (admittedly an oversimplification of an ideal type) suggest for the
potential place of market principles in international law? I would argue that it again throws into
doubt the accuracy of a clear hierarchy of effectiveness organized in terms of ‘hardness’ or
perceived legality, at least for market principles. In other words, there may be good reason for
market principles to remain, so to speak, in hiding. Achieving the status of taken-forgrantedness, with the air of unchangeability it confers, is perhaps the ultimate goal for all norms
or shared beliefs (and their respective entrepreneurs). For an openly normative norm, this might
be best achieved through an incorporation of that collective belief and the values it embodies into
the identity of the actor concerned, who would then consider any violation of that norm a loss of
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identity (be it personal or collective). The successful legalization of that norm, which could help
to construct such identities and add a layer of legal obligation as extra enforcement, should be a
positive.
For a collective belief such as a market principle, which purports to narrate how markets
function as an objective matter (and derives expectations of appropriate action from this initial
objective analysis), the relationship with a legal or political institution might be more
problematic. Although legalization might encourage adherence and an additional sense of
obligation,56 there is also the risk that it could diminish the perception of the principle as neutral
and objective. To achieve ultimate taken-for-grantedness, the consequences of violating the
market principle in question should, perhaps, not be seen to emanate from something so banal
and mortal as an identifiable political institution or legal body promulgating chosen (and
therefore challengeable) policies. Rather, the consequences of violating the expectations
implicated by a market principle should ideally be seen to result from unchanging and objective
economic laws. To the extent that a market principle can be maintained without any explicit
legal groundwork, then, it may ultimately and paradoxically command greater adherence and be
viewed as more legitimate than other deliberately legalized norms. Again, this dynamic of
escaping (or failing to seek) legal characterization does not at all diminish the fact that these
market principles may do legal work, in terms of generating implicit but well-understood rules or
by pre-selecting focal points for other legalized forms and undergirding reputational enforcement
mechanisms. Indeed, remaining in the shadows of law may even make this legal work more
effective.
[Section conclusion to come.]
IV. THE INTERNATIONAL POLITICS OF EXPANDING ‘LAW’
[Discussion of the potential effect of more deliberately incorporating market principles into
understandings of the global legal order: (1) First, this should result in more careful legalnormative examinations of the market principles in question, including inquiries into how these
rules are ‘enacted,’ how they might be modified, who constitutes a lawmaker in this scenario,
56
[Marmor’s second element triggered by legal institutionalization.]
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and what it might even mean to ask questions about accountability. (2) Second, this should also
encourage analysis about whether the rules generated by market principles cohere or conflict
with other standards in the global legal system – and whether they too might, for example, raise
questions about legal fragmentation and preemption. Such questions of accountability and
consistency are much more likely to be addressed in a serious way if we understand market
principles as an important if often overlooked element within the global legal order. As an
illustration of this dynamic, the relatively recent studies of the ‘law’ established by nontraditional rule-making bodies such as international organizations or informal standard-setting
institutions have resulted in much greater scrutiny of these actors (through, for example, the
framework of Global Administrative Law or International Public Authority) . Although market
principles are not deliberately chosen as rules in the same way, they nonetheless effectively
function very similarly and deserve similar attention from lawyers.]
V. CONCLUSION: RAMIFICATIONS FOR EMPIRICAL RESEARCH
[This article suggests that market principles do a range of important but under-scrutinized work
in international law and highlights several cases that demonstrate this contention. However, to a
significant degree this argument can be understood as a hypothesis. Further work needs to be
done to delineate more clearly where this dynamic exists, and to understand the conditions under
which particular market principles may be more or less powerful in the legal order. Moreover,
research can be done to assess when market principles actually become more explicitly
incorporated into visible law, and what effect this incorporation has both on adherence and on
attracting normative attention and critique. As part of this, I suggest that such research should
not be left to social scientists alone, particularly given that the interaction between market
principles and the law may be mutually constitutive. Although causal beliefs about market
functioning can shape the legal order, broader legal ideologies and governance structures can in
turn impact how market principles emerge and develop.]
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