Rules for a Flat World

We are at an inflection point in the evolution of legal systems, facing the need to reinvent how we do law.

Thomas Friedman’s The World is Flat: The Globalized World in the Twenty-First Century (2005) described a new ‘flatter’ world of global competition among large, complex, supply chains, a world characterized by collapsing hierarchies among industrial and emerging market countries, individual entrepreneurs, companies, and other players in these markets. (NB Friedman’s flat world doesn’t displace the local – Pankaj Ghemawat, for example, argues that 90% of the world’s phone calls, Web traffic, and investments are local.)

Gillian Hadfield’s new book, Rules for a Flat World : Why Humans Invented Law and How to Reinvent It for a Complex Global Economy,
 Oxford University Press, 2016 proceeds from the premise that Friedman’s assessment has proved to be accurate, and that a legal regime to meet the needs of this new world is overdue. The legal solutions that took root in the Commercial Revolution, anchored the Industrial Revolution, and provided the seedbed for the Digital Revolution, like all our earlier complexity-managing solutions, have reached the limits of the increased complexity they facilitate and nurture. …  like any good operating system, legal systems that are insulated from competition eventually grow stagnant and unresponsive, full of bugs and unnecessary protocols. The challenge for the 21st century is how to rejuvenate the process of choosing legal rules  to meet the demands of a newly globalized and web-enabled world. Hadfield cites a study presented at the World Economic Forum at which KPMG reported that of fourteen hundred CEOs at the world’s largest companies, 70 percent saw increasing complexity as one of their biggest challenges…. (and) the number one source of complexity identified by executives worldwide (was) law. (an article here about applying the theory of complex adaptive systems to law and an article here about measuring complexity in the law)

Law, Hadfield reminds readers, is not just something written on top of a complex world that makes it even harder to navigate. Law is not just another complication, another drag on the economy that we want to strip away. In fact, law is one of our critical institutions for the management of complexity. It undergirds what makes the evolution of value-creating complexity—expanding markets, innovative products, processes and organizations, new ways of doing more with less— possible…. But, she says, the problem is not that we have too much law. The problem is that the way we have gone about producing law for the last few hundred years— exclusively through state-controlled political institutions such as legislatures, state-run courts, and lawyer-controlled legal professions—is starting to max out on its ability to manage the burgeoning economic and social complexity to which it has played midwife. We are at an inflection point in the evolution of legal systems, facing the need to reinvent how we do law.

Of crucial importance here is the nature of the knowledge economy, that unlike ordinary resources, information is nonrival in consumption and, because it is cumulative, yields increasing returns. Here, she says, is where we find the deep relationship between specialization, exchange, and complexity on the one hand and the evolution of systems of legal rules on the other. She refers to HLA Hart’s conception of primary and secondary rules, noting that secondary rules provide a systematic means of changing the content of our rules, the possibility of policy, of deliberately deploying our causal reasoning to design and adapt the form of our cooperative life. Hadfield observes that the developing world needs innovative legal infrastructure even more than the affluent West, and it is wrong to assume that all it takes is the paraphernalia of modern law, ie legislation, courts, judges, police, lawyers.

While I don’t agree with Hadfield that these new  cheaper, more efficient  and more diverse legal systems must develop principally through markets for legal processes and systems, I do believe that innovation of better legal infrastructure is a challenge that ought to taken on by a broad and diverse group of people and organizations. Because these solutions will require new technology, new business models, and new forms of organization, Hadfield writes that engineers, managers, social entrepreneurs, activists, development economists, and others need to gain basic legal IQ. I actually think this has been going on for a long time now, and in my view a big part of the problem is that lawyers and the legal profession have, in many ways, been cowardly and inward looking and have abdicated their important leadership role in the process of the development of law and legal systems.

Hadfield writes that, ‘There’s really only one word for the state of our knowledge about legal infrastructure: abysmal.’ She laments ‘the terrible lack of data about even the most basic facts about how our legal systems work: how much they cost, how effective they are, who has access for what purposes. Governments, she says, need to be spending much more on data collection about the legal environment and releasing much more data about the operation of legal institutions to the research community. I agree we need this information, but I believe the responsibility is ours to insist that it be available and put to good use.

Hadfield points out the lack of research on the fundamental questions of how most effectively to provide legal infrastructure for diverse contexts and functions. Certainly in Australia legal research has suffered from funding pressure, and a lack of understanding – and imagination and courage – about of what excellent legal scholarship in the 21st century can look like (legal academics should be advocating much more actively in this space in my view). At the same time that law schools have become heavily oriented to professional education, legal research has largely failed to tap into the larger questions and make the connections that it must in order to develop optimal legal systems for the complexity and change of the information age.

Hadfield concludes that investment is needed for:

  • technology that supports legal processes
  • new types of regulatory systems, including those provided by third-party private regulators and
  • legislation and funding research that focuses on the moral implications of new technologies and the creation of a legal environment that supports the integration of complex novel technologies into a well-ordered society.

She concludes the book with a call to philanthropists and social impact investors to

‘Build into your goals for reducing poverty, developing sustainable energy, advancing education for women and girls, or eradicating disease the budget and attention that legal infrastructure demands. There are no sustainable solutions to these critical challenges without the legal platform on which they can be built. Disrupting our taken-for-granted approaches to delivering the legal tools a robust and fair economy needs may be the most important contribution to innovation that anyone can make. The long history of failed top-down efforts to accomplish change in communities that struggle, both in advanced countries and around the globe, tells us this important fact: finding solutions to the challenges generated by the evolving complexity of economies requires problem-solving that taps into what those closest to the problem know and that is guided by incentives to deliver value on the ground. Legal infrastructure is the critical platform on which that kind of problem-solving happens. Without sufficient legal innovation to build that platform, we can’t hope to leap, as we must, into a better future.’

Hadfield’s website includes a Policy Brief based on the ideas in the book. Her blog posts may also be of interest, this one, for example, on ‘three steps law schools can take ‘to fix things’ 😉