The financialization of international law

We investigate how the international investment regime turned into an investment vehicle. Through the process called third-party funding, financiers back international legal claims by firms against countries and in turn seek a share of any potential award. More generally, we add to debates on how international regimes evolve and at times generate unanticipated consequences. Building off work on the sociology of fields, we argue that institutional change can occur when individuals from different fields interact. Each field has its own local practices and beliefs about how governance institutions like international regimes function. When professionals from one field analyze problems in another, they use the tools from their native field. If potential solutions provide material and status benefits for the dominant actors in the targeted regime, cross-field coalitions can form and change the targeted regime’s practice. As hedge funds in the finance field and lawyers in the international law field sought to reinvent themselves after the 2008 financial crisis, they teamed up to make Investor State Dispute Settlement a speculator’s game. Theoretically, we embed theories of regime change within larger social relations, highlighting the importance of informal interactions among regime operators for the use and function of governance institutions. We underscore the role of field interdependence as actors engage in contestation across social and political domains. Empirically, we demonstrate the way in which financialization has had far-reaching consequences that extend well beyond traditional economic sectors, reconfiguring the practice of international law.