GaWC Practitioner Brief 1

London 1 New York 0

M.A. Doel and P.J. Taylor

Just as law was beginning to relish the brave new world of globalization that dawned in the 1990s, that world was convulsed by a spate of financial crises. What began as an ostensibly ‘local difficulty’ in Thailand during the summer of 1997, soon engulfed much of Southeast Asia in a catastrophic economic crisis with potentially devastating social and political consequences. As crises began to erupt in other emerging markets, most notably in Russia and Brazil, many began to wonder whether the global economy itself was coming off the rails. In the words of Euromoney, this was the year in which ‘the world started to melt.’

Of course, financial crises and the liquidation of economic actors and assets is nothing new for the world economy. To the contrary. It is the very life-blood of capitalism. The key thing is not to stop inflating growth bubbles. It is to get out of the way when they explode. Perhaps this explains why bankers seem to enjoy talking about who got ‘stung’ and who got ‘burnt.’ Reminiscent of a game of ‘financial chicken,’ everything revolves around exposure, risk, and return. Period. So, when the first world-wide crisis of globalization broke bankers were well-versed in the conduct of the game. But what of the latecomers to the scene of globalization? What happened to those who were still learning the rules of the game when the bubble burst? What of those who had only recently made a commitment to ‘go global’? We interviewed 88 lawyers and bankers in London, New York, and Singapore to find out. The differences between the two sectors was striking. As was the difference between the global outlook of London and New York.

The globalization of economic activity can be boiled down to just three processes. First, the functional integration of world-wide economic activity. Second, the liberalization and deregulation of markets to enable people to respond fluidly to the changing topography of risk and opportunity. And third, the concentration of command and control activities in a few strategic locations. These have come to be known as ‘world cities’ or ‘global cities.’ While this may sound oxymoronic, the name is meant to foreground the fact that such cities regulate the global economy. The two most important cities in this regard are London and New York. This is why the globalization of law, like the globalization of almost every other business and financial service, has emerged from these two cities.

Oddly, some commentators consider globalization to portend the ‘end of geography.’ They imagine that a seamless, world-wide space of flows will sweep away the raggedy mosaic of heterogeneous places and regions. In this coming world, nation-states appear passé and borders are simply the scars of history. However, not all borders are amenable to being swept away by the tide of globalization. Jurisdictions being a case in point. Meanwhile, the deterritorialization and hollowing out of the world economy is being accompanied by the imposition of new borders. Indeed, the global economy is being reterritorialized in terms of four major arenas of globalization: North America; Western Europe; Pacific Asia; and the so-called ‘emerging markets.’ Rather than a borderless world, globalization is bringing about a networked society that transcends places, cities, nations, and regions, bound together through office networks, transnational communities, and codes of conduct.

It is within this network that the globalization of law has come into its own. On the one hand, the East Asian financial crisis affected international lawyers in much the same way as it affected other providers of business and financial services. Whole swathes of work simply ceased to exist. Project-finance and capital-markets work was hardest hit. Nevertheless, and unlike many other sectors, international lawyers were able to take advantage of the boom in other kinds of work: litigation, restructuring, and acquisitions and mergers. One of the key findings of the interviews with international lawyers was how amazingly flexible and creative they have been in terms of adapting to the new conditions. One lawyer working for a London-based firm in Singapore told us that when one kind of work ‘almost dries up, you just shift. I follow the cycle.’ Meanwhile, bankers were more content to curtail activities, reduce exposure, and off-set loses against profits and assets drawn from other markets. As with other dare-devil activities, an important characteristic of the banking community is a very short-term memory. Our interviews with bankers in London, New York, and Singapore were repeatedly punctuated by the refrain that investors would be back once things had calmed down and the turmoil had been forgotten. Lawyers, however, emphasized their staying power: most were in East Asia for the duration.

Law was affected like any other globalizing sector, but it appears to have dug its heels in very successfully. Despite the difficulties of adjusting to the new circumstances of bust rather than boom, both large and medium-sized law firms reported that they had been able to turn the crisis to their advantage. Law firms were able to switch resources very quickly to new streams of income generation, such as mergers and acquisitions, and insolvency. Many banks, on the other hand, were too specialised to do this, and as foreign exchange and securities markets collapsed throughout East Asia, offices were closed, and staffing reduced accordingly.

But there is an even more important reason why law should continue to ‘go global.’ One of the key things about the fall-out from the crisis was the ‘revelation’ that contracts were often unenforceable in many jurisdictions. Consequently, many clients are no longer content to have their cross-border deals dealt with solely from London or New York using off-the-shelf documentation. They are increasingly requiring the firms that represent them to have lawyers on the ground in each of the jurisdictions that their deals embrace. And that is what the globalizing law firms are beginning to offer: local expertise packaged to international standards. Sometimes through the expansion of their network of overseas offices. Sometimes through joint ventures and partnerships. And it would appear that London-based firms are way ahead in this venture.

In this regard, many London-based firms had the advantage of a long-standing relationship with East Asia, whereas their New York counterparts typically entered the region either to provide very specialist services —such as capital-markets work—or to service a narrow range of predominantly American clients. Consequently, the New York firms often lacked flexibility. In contrast, London-based law firms tended to have better ands deeper local knowledge and more robust networks, both of which helped them to weather the crisis. In addition, American firms invariably place much less emphasis on globalization, partly because of their self-absorption with the enormous potential of the American economy and their fondness for an ‘eat what you kill’ organizational structure.

So, although the Asian financial crisis was very bad news for many business and financial service sectors, especially for some investment banks and hedge funds, it has been a great boost for the globalization of law. While the euphoric wave of globalization may have relatively marginalized lawyers and risk assessors, its crash has brought the importance of both to the fore.

But as one New York lawyer warned: a small group of American firms ‘has made the same calculation’ as London and are beginning to globalize aggressively. Whether or not we will see London and American-based firms clashing ‘head-to-head’ over global law, as some have speculated, or the emergence of ‘stateless firms,’ through a reciprocal process of ‘Anglicizing the US firms and Americanizing the English firms,’ remains to be seen. Either way, international lawyers would appear to have a bright future in the otherwise uncertain world of globalization. Of this we can be sure.

The research team:

Dr Richard Bostock (Research Associate)

Dr Jonathan Beaverstock (Senior Lecturer in Human Geography)

Dr Marcus Doel (Senior Lecturer in Human Geography)

Professor Peter Taylor (Professor of Human Geography)

For more on each of us see: <http://www.lboro.ac.uk/departments/gy/staff_list.html>

The Economic and Social Research Council funded the project upon which this article is based (award number: R000222693).

It was undertaken as part of the Globalization and World City Study Group and Network (GaWC) based at: The Department of Geography, Loughborough University, Loughborough, Leicestershire LE11 3TU.