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How Finance Structures Global Value Chains


Tomaso Ferrando (@ferrandotom) is a Research Professor at the University of Antwerp.

NB: This post is part of a symposium on law and global value chains co-convened with the Institute for Global Law and Policy’s Law and Global Production Working Group.

The Law-in-Global-Value-Chains perspective adopted in the Research Manifesto and introduced the initial blog of this series is based on the recognition that law is endogenous to the production, circulation, accumulation and destruction of value. Whether we are talking about labor, nature, capital or any of the other ‘cheap things’ that are central to the construction of the global system of production, the Manifesto suggests that law has a lot to do with the way in which that ‘thing’ becomes cheap and value is extracted from it..

Yet, not enough attention has been dedicated – so far – to the role of law as the enabler of financial markets, financial instruments and financial actors as value extracting participants to global networks of production. However, financial practices that prioritize the remuneration of capital holders contribute to redefining forms and spaces of production, along with the geographies of value appropriation and the relationships between people, planet and value chains. In the contemporary economy of atomized production and outsourcing, finance is at the core of how global production is organized. The study of law in global value is woefully incomplete without an understanding of the way in which legal structures define the space of operation of financial actors and financial actors utilize law and legal structures to increase the extraction of rent.

There are many ways into the study of how law and finance structure the operation of global value chains. Perhaps uniquely powerful is a focus on something both essential and increasingly fragile: the global food system.

Feeding the Financial Sector

In recent years, researchers have uncovered how the speculation enabled by global trading in commodities, future derivatives has led to extremely high or extremely low prices for raw material. Both extremes can lead to disaster: shortages and riots on the one hand, and the abandonment of farmlands, poor environmental practices and violations of basic human rights on the other. In a sense, the role of law here is obvious. In constructing and regulating the financial markets and facilitating the private discipline of the Over-The-Counter (OTC) exchanges via contractual enforcement, law is central to the transformation of food into a financial commodity and the transformations of the food chain that derive from it. Yet this is just part of the picture.

As the food chain becomes more financialized, the imperatives of finance become more important to its governance. A decade ago, Burch and Lawrence pointed out that “a number of financial institutions and instruments that have the capacity to re-organise various stages of the agri-food supply chain, and to alter the terms and conditions under which other actors in the chain can operate.” In the intervening years, evidence has only grown that the global food chain has been transformed not only by speculation but also by the deeper and deeper penetration of control by financial actors—whether their claims take the form of debt or equity.

A clear example is offered by a 2011 video where BlackRock, the world’s largest asset manager, announced the BlackRock, DSP World Agricultural Fund, their first fund entirely dedicated to the agri-food sector. In the video, we follow two BlackRock managers as they tour companies that produce food, transform it, trade it, sell machinery to companies that produce, transform, and trade it, produce and commercialize fertilizers, engineer seeds, transform food into biofuel or animal feed, and sell it to the final consumer (BlackRock was a shareholder of the natural and organic Whole Food retailer before it was sold to Amazon), not to mention several other companies whose inputs and technological innovations are crucial in the establishment of large-scale plantations. BlackRock has an interest in all of these companies. The clear message of the video is that its investments extend to every part of the food chain.

The increasing financialization of the global food system determines that more money is spent lining the pockets of BlackRock and its investors (and their ilk in other firms), which means lower salaries for workers, less re-investments in production, and/or higher prices for consumers. Generally speaking, that means a transfer of wealth from the poor to the rich, although pension funds that should guarantee workers’ future are among the few beneficiaries. As revealed in a recent report conducted by TUC and the High Pay Center on the behaviors of FTSE100 companies in the last 5 years, listed retailers paid over £2bn to shareholders in 2018, despite none of them being Living Wage Foundation accredited, while listed Food & drinks companies paid almost £14bn – more than they made in net profit (£12.7bn). To put that into perspective, just a tenth of this shareholder pay-out is enough to raise the wages of 1.9 million agriculture workers around the world to a living wage, for example those who produce food at the origin of the food chains that they coordinate as lead firms.

Moreover, because financialization takes place largely through the actions of firms like BlackRock who increase their stakes in nearly every part of the system, a smaller and smaller group of financial hubs come to control larger and larger amounts of the process of food production and distribution. This concentration of control presents the possibility of sub-optimal allocation of resources, of collusion, and of abuse of power. So much so, that some authors are calling competition authorities to arms to deal with its implications.

Indeed, financialization of the global food system has become so pervasive that policymakers and institutional investors have begun to talk about the centralization of control as an opportunity for new forms of environmental and social governance.

ESG governance and the Financialization of Sustainability

Eleven years after governance-by-finance collapsed the world economy, finance is still perceived by governments and international organizations as a central pillar in the construction of value chains that are socially and environmentally sustainable (think of green bonds issued by the International Financial Corporation, sustainable bonds issued by HSBC and social impact bonds issued by Goldman Sachs, for example). Investors, it is claimed, are in the best position to use the information provided by companies and third parties to account for long-term financial impact of present or future non-financial events, like the decision of a court sanctioning a company for human rights violations, the legislative introduction of a moratorium on oil exploration, or the change in consumption patterns of the new generation of consumers that leads to the loss of market value of businesses considered incompatible with their ethical values or with what is fashionable.

With the support of a regulator that requires transparency (as in EU Directive 95/2014, requiring disclosure of non-financial matters such as certain environmental and labor practices), it is claimed that investors will be in the position to account for the present and future externalities produced by actors in the value chains and make informed sustainable decisions that sanction unsustainable models and will result in a victory for the people and the planet while rewarding virtuous capital. Regulations like the EU Transparency Directive situate themselves tools to reduce the transaction costs faced by such virtuous investors, giving them a leg up in competition against investors betting against sustainability. The endogenous nature of law in the definition of sustainable and unsustainable practices, and of the notion of sustainability itself, becomes completely irrelevant, and with it the redistributive implications of a system of “sustainable” rent-seeking.

More than that, the convergence between governments, financiers and civil society institutions in endorsing these approaches to sustainable transition and transformation of global value chains has three main consequences:

  1. The legitimation and reproduction of the idea that it is possible to draw a line between financial capitalism and their dynamics, on the one hand, and the way in which people and planet are organized in order to generate value, on the other hand;
  2. The acceptance of a vision of society that is divided between what is financially relevant and what is invisible and therefore insignificant (including violations of human rights that will never be prosecuted or condemned, oil that will be burned in the absence of a carbon tax and environmental degradation realized in geographies that impose limited liability);
  3. The over-simplification of complex instances in order to represent them in financially acceptable terms and quantitative data published on annual reports.


Today, in a context where domestic and international economies are increasingly intertwined with transnational value chains and defined by networks of production, financial motives, markets, actors and institutions are permeating Global Value Chains as an opportunity extract rent. Law (in its multiple forms, jurisdictions and levels) plays a crucial role as enabler, as provider of the tools, and as constructor of the institutional background. It is behind the contracts that establish derivatives, it oversees the payment of dividends and the acquisition of corporations, it introduces systems of mixed governance based on the use of financial accounting to improve Environmental and Social performances of global chains of production, it determines the possibilities for horizontal ownership of competing firms and provides the condition to extract value from trading in carbon credits, food commodities or futures. A focus on the role of law in the financialization of GVCs, especially when viewed through a feminist, post-colonial and class-critical lens, is crucial if we are to go beyond the first layer of analysis, to truly trace the role of law in the definition of processes, spaces and forms of value production, in the circulation and accumulation of value.