Monday, April 2, 2012

Contract and Law; Kinship and Custom

For most of the past history of the Anglosphere, trust in business relationships has been the mainstay of success.

Contract and law have been the means by which business has flourished. Through good business contract law, the anglosphere (mainly the USA, England, Canada, Australia and New Zealand) have maintained stable business environments with steady growth .

But this is changing slowly and subtlely. As the latest financial crisis, beginning in 2008, has eaten away at trust built up over centuries.

Enron and MF Global epitomise the slide into a state of uncivilised behaviour in the financial community. You see, trust in the 'hand-shake' of contract law is the foundation for navigating through business. Contract law gives us the ability to trust the word of the counter-party to whatever transaction takes place. If we cannot trust the word of the counter-party, then business suffers mightily.

The other side of the equation to contract and law is kinship and custom. This has been the mainstay of how the East does business. Now this is all a bit broad in definition and influence, but generally, Asian culture is big on familial relationships and custom. Generally, in a business deal, these aspects override contract and law. Not to say that these cultures break the law, but the importance of kinship and custom can take precidence.

Contracts are likely to become secondary if family relationships or custom get in involved.

The Anglosphere appears to be moving towards a type of kinship and custom, but in a negative way. It's called cronyism. Big money interests appear to be able to override contract law when the saving of our 'social fabric' calls for it. This has also been called 'too big to fail'.

Companies like MF Global has so far been allowed to break rules and contracts and some have pointed to cronyism as the perpetrator of this. This behaviour immediately affects the markets those particular entities were involved in. Market participants begin to lose confidence in those markets and shift their capital investment elsewhere. This can currently be seen in the commodiites exchanges worldwide.

If contract and law is allowed to further deteriorate in the West, and not allowed to increase in other cultures, then we may be doomed to a system stacked full of laws and regulations covering all sorts of eventualities and a lessening of our ability to do business confidently.

In this environment, not even our money system will be trustworthy. It may be moving rapidly to this conclusion now.

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