Stateless Commerce: The Diamond Network and the Persistence of Relational Exchange

by Barak D. Richman

In Stateless Commerce, Barak Richman uses the colorful case study of the diamond industry to explore how ethnic trading networks operate and why they persist in the twenty-first century. How, for example, does the 47th Street diamond district in midtown Manhattan―surrounded by skyscrapers and sophisticated financial institutions―continue to thrive as an ethnic marketplace that operates like a traditional bazaar? Conventional models of economic and technological progress suggest that such primitive commercial networks would be displaced by new trading paradigms, yet in the heart of New York City the old world persists. Richman’s explanation is deceptively simple. Far from being an anachronism, 47th Street’s ethnic enclave is an adaptive response to the unique pressures of the diamond industry.

Ethnic trading networks survive because they better fulfill many functions usually performed by state institutions. While the modern world rests heavily on lawyers, courts, and state coercion, ethnic merchants regularly sell goods and services by relying solely on familiarity, trust, and community enforcement―what economists call “relational exchange.” These commercial networks insulate themselves from the outside world because the outside world cannot provide those assurances.

Extending the framework of transactional cost and organizational economics, Stateless Commerce draws on rare insider interviews to explain why personal exchange succeeds, even as most global trade succumbs to the forces of modernization, and what it reveals about the limitations of the modern state in governing the economy.

Genres: Nonfiction, Economics

240 pages, Hardcover

Published June 19, 2017

Reviews

[Jason Allison · Rating 5 out of 5]

Research.

[Jerrod · Rating 4 out of 5]

This is a nice dive into institutional analysis and the dynamics of personal (rather than impersonal) exchange and how that personal exchange can be extended. It challenges flippant interpretations that take an example of stateless exchange and then propose anarchy (e.g. Leeson's Anarchy Unbound). It is more nuanced and highlights how odd it is to have industries in which the state is seemingly absent from contract enforcement existing in a world in which the vast apparatus of state government seems ubiquitous in contemporary life. While this is a nice treatment, if the reader is not familiar with a little economic theory, he/she may get lost in Richman's explanations. His exposition of club theory as it relates to unproductive sacrifices (and how ethnic communities achieve the high level of cooperation that we observe) could have been clearer and more concise, and given that I am not familiar with social theory, his references to the debate between Williamson and Granovetter were lost on me (until I did further reading). By showing how cooperation can break down (even in "high trust" communities) through changes in how goods are exchanged, Richman solidifies my preference for discarding trust as a concept that can be pinned down and defined in a meaningful sense. Researchers in the area should realize trust is not something that can be separated from institutions/structures that impact an individual's calculation of costs and benefits.

Update: Here is a podcast with a presentation and Q&A with the Richman: https://soundcloud.com/hayekprogrampo...