 All things can be coded as capital with the right legal coding. Property rights, collateral law, trust, corporate law, contract law, and bankruptcy law. All of these institutions are coded in the laws of England, in the laws of a state in the United States, such as New York or Delaware, in Germany, in France, and many other jurisdictions, but they're national, they're domestic, they're not international. At the same time, we're observing that we have a global capitalist system. Financial assets are being transferred by click of a mouse to different jurisdictions in every nanosecond that you can think of. So the question is, how can that be? Either my argument is wrong, capital actually exists outside the law and doesn't need the structures that I have suggested, or maybe we have to think again how the global system really works. My answer to this puzzle, how can we have a global system that is actually created with private law institutions that are national law is that you could have, in theory, a global system that is sustained by only a single domestic legal system. As long as all other jurisdictions, all other states say, we will recognize this law and we will also make sure that it will be enforced in our countries. That's the system we have. And we have not one system that sustains global capitalism, but the two hegemons at the top of globalization are two legal systems. The laws of England and the laws of the United States are more specifically of New York for financial assets and of Delaware for corporations because in the United States these laws are state law, not federal law. So we have not a patchwork of multiple different jurisdictions where people would really shop around and get different legal systems from different parts of the world. In fact, typically if there is a choice, some systems are more attractive than others and the most attractive system for international trade, for international finance, for most financial assets that are being traded globally are the laws of England and the laws of New York or Delaware. That has a long tradition. England, as you know, has been a global sea power, but that's how you create the capacity to become a global center, not only for finance and commerce, but also for the law. It has to do with a lot of power, a lot of economic, political and legal power. So you create standards, you have courts that learn how to deal with complex commercial transactions and you attract more people to those jurisdictions because they might be escaping their own legal systems where these things have not been allowed yet or they're more rigid rules that they don't really like. So picking and choosing the law brings most people to some dominant jurisdictions. Another factor is that most lawyers are trained in their own home jurisdictions at home, in Germany, in France, in the United States. But the US and the UK have also been very successful in attracting young lawyers to come to their law schools and their countries and do a master of laws. Thousands of foreign students have been trained since the 1980s in English or in American law and they know how this works. They also know how to pick an American or English law if they can't do a transaction. So we have created a network of knowledge in two major legal systems and they become then the default legal systems to create capital for the globe. Let's step back a little bit and take a look at where these legal systems come from. I've used the term common law quite a bit and I've talked about civil law jurisdictions. Just take a map of the world during the period of imperialism and look where the colonial powers went. So the colonial empire of Britain is basically the common law world as we know it today. Of course, North America, both the United States and Canada, they received law from England not in a formal transplant way but because all the settlers that came over brought the law with them that they already knew and then the states that were created here like Virginia or Massachusetts, the New English state that would adopt new laws based on models that they had brought with them. It became common law. Now, the civil law jurisdictions are those who have some remnants of Roman law, we would typically say, and the two important civil law jurisdictions are France and Germany. They have major codifications. They don't work by case law so much, although they use it as well but they codified their entire legal system of private law. They're less malleable because they have stricter principles embodied in the law and they give basically parties and also the lawyers a little less flexibility than they would have in the common law. They're a little bit more top-down rather than bottom-up but it's not the case that everything that you would need to know for a transaction is actually written down in the code. The codes are open-ended. They were enacted for centuries to come. The French code Seville from 1804 is still in force so of course it had to be adapted to changes over time and the German code is from 1900, same thing. When you turn to Latin America, it's all French today. Of course it used to be Portuguese or Spanish but after these countries became independent in the early 19th century, they adopted French law because Spain had become French after the Napoleonic troops brought the French civil code. So again, political power goes hand in hand with legal power and you basically disseminated French law through the off-shots Spain and Portugal then to Latin America. Africa is basically a patchwork of different legal systems with different colonial powers that came. South Africa is a good case in point. There's still Dutch Roman law before codification in South Africa and then the Brits came common law. India, it's common law even though there's a lot of Muslim law Hindu law and other customary laws are still there. Japan was never colonized. So what is its legal system? Interestingly enough, it's German. It adopted German law in the late 19th century and then transposed German law to Taiwan which was a colony of Japan, Korea and also to China which is why when China opened up in the late 1970s it looked back to civil law, to German law before it became a bit more eclectic and picked and chose law from different jurisdictions as well so it's much more harder today to pitch the Chinese legal system precisely. So how has globalization really occurred? Very often people think there's a space out there outside states that is free where people can do transactions without being constrained by legal rules. In fact, we had to create a global system through law. One important thing was of course that we would lower entry barriers. We would say you cannot trade your goods but more importantly we also allow you to bring finance here and then convert the currency that you bring into domestic currencies for different purposes not only to invest in real property or real assets but also to speculate in financial assets and once you allow that you have a very different system where you can bring a lot of capital from the outside and invest it inside a different country. That requires legal techniques. At the same time we also have expanded the choice of law. It wasn't the case that everybody could just pick and choose the laws by which they wish to be governed in commerce and trade and finance. It was much more restricted. States have also done something else. They have actually standardized the law making it much easier for parties to go around and know that they have the same or similar legal rules elsewhere. So even if they don't pick only one legal system sometimes they can't. Regulations are still territorial bound so they can't just pick and choose different regulations but if we standardize them for them if we basically agree on the law's common denominator then they know what they can expect and they're much more likely to go to different jurisdictions. Standardizing the law, creating the conditions for commerce and trade is a precondition for creating global financial markets and global markets more generally. A very good example is also the financial system in Europe. So the European Union created something which they called a European passport. If you were regulated by one country in Europe for the financial stuff that you did you could do the financial activities and sell your financial assets throughout the European Union. That caused a real problem when the UK left the European Union under Brexit because the financial intermediaries in London lost their European passport. So that's why we actually have seen a migration from London which had become the major hub for financial and legal services in the European Union even to Paris or Amsterdam or Frankfurt to offer their services in Europe. But it just shows this example how important the legal coding is. How important something like a European passport is without which you couldn't have the scale and scope and depth of financial market. It's all embedded in the law. And last but not least, we also have international conventions for intellectual property rights, for example. The TRIPS agreement, the agreement on trade-related aspects of intellectual property was adopted as part of the World Trade Organization package. Kind of ironically because the World Trade Organization was about creating free markets, free of monopolies and something that we embodied into the freedom of trade was a monopoly for intellectual property holders and that was modeled very much after the interest of industry which organized effectively led by some major American firms that brought the European companies on board and lobbed hard for TRIPS which basically requires countries from around the world to adopt certain minimum standards for intellectual property rights and that allows companies who had already had registered in their own jurisdictions to extend these property rights to other jurisdictions and then claim what you can always claim under the Code of Capital Priority, Durability, Universality and for financial assets, perhaps, Convertibility. Finally, there's also soft law. So we have binding law made through processes of lawmaking, case law or legislation. We also have informal adaptation of formal law in the ways that I discussed. But we also have a lot of soft law. Sometimes model codes that are adopted, which are not binding, you get a couple of experts together and you say this is a model code for corporate governance. The OECD did this, for example. And not surprisingly, it sort of said shareholder primacy is really the thing that we wanted to endorse with this model code. You don't have to take it, but as a member of the OECD it might be nice if you follow our particular model code. Model codes are really influential, not because they're binding, but they set standards and other countries might then go by them. And you see this sometimes even stronger when you look at the World Bank or the IMF, for example. The World Bank used to have an index called the Ease of Doing Business Index, which they created in the early 2000s. And they measured formal law and they measured how long it would take, for example, to establish a business in a certain country or whether they had certain protections to protect creditors or shareholders, et cetera. Standardized as for countries around the globe and then created an index. So every year in the fall, you would get a publication which told you which country was on top of things and if they were on top, they were lauded by this and the bank would also say how much this has helped these countries to develop and grow. There's been some manipulation about the index and a lot of critique and finally, last fall, it was closed down, but it has had enormous influence. Many countries changed their laws to comply with the index to go up in the ranking so that they would have better access to, for finance, for grants and loans that they would get from the bank but also from others. And so soft law can have a lot of power if the soft law is stipulated by powerful organizations such as the World Bank. So we have the World Bank creating these indicators. What are the models that they use? That's what we have to ask. And the models again are typically the hegemon models identified earlier, the laws of the United States and the laws of the UK. So when you think back and you think about our globe, it's not a free space. It's not a space free of law, but it's a space of layers of the law. So you can think about customs and practices that you do in your everyday life which can happen in small little communities in a locality but could also be transnational practices. So you can have customs and practices that are not bounded by territory, not bounded by the state, as long as they don't openly conflict with the state, they can flourish and develop. Then we have private law, which in principle is off the state but can be made portable. Portable because we can pick and choose from different systems or we standardize the law according to some systems, some become hegemonic. It's off a state, but it can be used in other states as well. Then we have domestic law that is actually territorial bounded, which is our constitution, regulations, criminal law. Basically all of them are not extraterritorial but only applicable in the jurisdictions of a particular state. And last but not least, we have international law, could be hard or soft law that governs the relationships between states and also sometimes between states and private parties. So this is not a law-free space. It's a deeply lawyer networked space. Where does this leave us in thinking about law and the use of law for other purposes? After all, many countries wish to be democracies or have declared to be democracies and the idea of democracies are that people get together, create certain institutions and govern themselves through law. That's basically how we can scale not only economic relations but also political relations. Getting together and writing a constitution or somebody writes a constitution that is ratified by the people in one way or another. That's the binding document. It's the foundation of a polity. And then based on that constitution, we are setting up legislatures and courts and regulators and executives to define the relationship between them. We govern ourselves through law. That's one part of the legal system and the other part of the legal system, the private law institutions I've been discussing, gives private parties the opportunity to opt out of private law constraints. So yes, I'm still a citizen of this country. I'm subject to criminal law. I'm subject to binding regulations but I could also do my transaction actually in the Cayman Islands and then I won't have to pay taxes. I'm subject to legal violations to London and can make money there. I can still recoup the profits from these operations and be still based here. You can do this because we can code. What I'm trying to say is we have a tension here, fundamental tension between our aspirations as democracies to govern ourselves through law and a legal system, a global legal system that has been created over centuries but accelerated over the last couple of decades that allows some to create their own legal system, legal rules by which they are governed, which are outside our democratic controls and they will fight like hell. To keep them outside our democratic controls, they will typically say the market knows better. It's efficient, government is the problem, not the solution, which essentially says there shouldn't be democratic control over what we're doing. We want to be empowered by the law. We want to use the resource of the law to protect our interests but we don't want to be constrained by that law. That's something we have to get under control because it erodes our ability to govern ourselves. If the most powerful actors know how to get out of the law, legislatures can't really do so much even if they want to do something for the public at large or for social welfare or for redistribution, some of the gains that we have seen and people basically feel powerless because they vote for different parties and bring them into government and none of these parties can really effectively change their lives again because they have outsourced so much of the lawmaking private sector. I regard this as a fundamental problem. Let me give you a final example to illustrate this. Bilateral Investment Treaties. It's a wonderful example to show how states enable powerful private actors to claim property rights, priority, core modules of the Code of Capital for themselves and use them against the interest and the laws, even the constitution of another state. The Bilateral Investment Treaties state I, state B. They're basically saying if an investor from state B comes to state A and for some reason his investments are infringed, whatever that exactly means. So we can say our investments have been affected negatively, but whatever state A has done, we don't trust the courts of state A because it will probably be biased in favor of state A. And so we go outside. We take arbiters. Arbiters are typically private attorneys, other people with some expertise in investment law. So now we have a panel of three arbiters sitting somewhere, some country, could be in the province, could be somewhere else, and they're looking at the dispute between the two parties. What do they use to solve the dispute? They use the Bilateral Investment Treaty, which two states have signed. But the Bilateral Investment Treaty basically says you have to protect the investments of foreign investors in your jurisdiction and if the investments have been infringed, then there might be reasons for expropriation like damages or they can also get damages for unfair and inequitable treatment. What does it mean? Well, it has to be interpreted. Who interprets this? The arbiters. What is the source? The treaty. Nothing else. They're explicitly not tasked to look into the constitution or domestic rules because this is treaty law that governs them. So now you have a powerful international legal device that creates rights for foreign investors without obligations. And that is enforceable outside a state against that state and can cost millions of dollars. Now the justification is because you have to protect foreign investors against expropriation, otherwise they will not come to your shore, which is why so many countries have signed up to them. We have over 3,000 Bilateral Investment Treaties that states have entered into with one another. The factor we haven't seen all that much expropriation in the past and most of the cases these days are not about outright expropriation but about what we would call regulatory takings. A state adopts a new regulation. For example the Netherlands said we want to phase out coal. What happens next? A German company that has invested in coal in the Netherlands will bring the Netherlands to an arbitration under the Energy Charter Treaty which is a multilateral treaty but with similar mechanisms. And say you can't do this to us because we have expected to be forever in the Netherlands and make a lot of money on coal. We have used international law over the last 30 years in the form of Bilateral Investment Treaties to reinforce the notion that private rights have primacy against the interests of the public at large and that again erodes democracy because we might adopt laws for climate change or other laws to protect labour or whatever and then investors can come in and say this will cost you hundreds of millions of dollars and just the threat of that lawsuit might prevent countries from adopting these kinds of rules. So the Code of Capital in another word is a challenge. It's intention with principles of democracies. We have to rethink how to bring the two together.