This book considers the changing relationship between territory and political authority, thereby focusing attention on the sovereign state and the issue of its continuing vitality. In the introduction, Christopher Ansell notes that, along with other factors, the “internationalization of markets” and the “development of new technologies” may have accelerated a “retreat of the state.” As the world has shrunk – that is, as physical space imposes fewer constraints on trade, travel, and other forms of global communication – the classic techniques of rationalized state rule (public, authoritative, territorially based regulation of social exchange) have been undermined. In this chapter, I examine the construction of a system of private governance for international commerce. I conceive of governance generically, as the mechanisms through which the rule systems in place in any social setting are adapted to the needs of those who live under them (Stone Sweet 1999). In its heyday, the so-called Westphalian state constituted the center of gravity for regulating trade, including trade across borders. Governance was largely hierarchical, authoritative government, or the administration of agreements between governments. Today, traders increasingly govern themselves, and the institutions that traders and their lawyers have created are substantially insulated from, while being parasitic on, state authority.

The Westphalian state, at least in its ideal typical form, provides a model of political organization that resolves fundamental questions concerning the relationships among boundaries, territory, jurisdiction, citizenship, and nationhood. It does so by equating state sovereignty with the internal control and external autonomy of national governments.