Chapter One: Economic Globalization

V. Trade Before Law

That sounds topsy-turvy to modern minds; it is commonly thought, even by free-traders, that trade can only flourish where the rule of law has been established, as in 'Trade follows the flag'. The reality is almost exactly the reverse, as the colonial histories of European nation states demonstrate: the East India Company is just one of dozens of examples of private enterprise based on trade which were later subsumed by nation states as the basis of colonies.

It has been so throughout recorded history. The example of the Yanomamo quoted in the Introduction demonstrates how trade leads to political alliances rather than following from them; and the same can be observed in the development of merchant guilds in mediaeval Europe under the Hansa regime (see, again, the Introduction).

By the time of the colonial trading companies, which had their heyday in the 17th and 18th centuries, the State had become much more powerful, and easily took over their private activities when it chose to do so, mostly during the 19th century. The State as it developed between approximately 1600 and 1900 also took over the legal systems which the traders had developed, as it would later take over education and the provision of other social goods. However, as will be seen below, globalization has undermined the nation state and has given a new lease of life to independent (private) commercial law.