Legal Infrastructure: The Real Building Blocks of America’s Economy

Without bringing our systems for making rules and regulations into the 21st century, we can’t expect to effectively respond to the increasing complexity, speed, and digital nature of the global economy.

When President Trump deployed five heavyweight Cabinet secretaries to defend his $1.5 trillion infrastructure plan before Congress last March, there was a telling omission in the line-up: the absence of Attorney General Jeff Sessions.

Regardless of Sessions’s future in office, his exclusion from the all-star cast signaled that the Trump administration—like most policy thinkers—has a blind spot for the most fundamental economic infrastructure of all: our legal infrastructure.

Excluding the Department of Justice in the infrastructure push could ultimately undermine the federal government’s ability to deliver on promises to fix the country’s transportation and communication infrastructure and pave the way for a much-touted rejuvenation of the economy. Because without bringing our systems for making rules and regulations into the 21st century, we can’t expect to effectively respond to the increasing complexity, speed, and digital nature of the global economy. And as a result, we will not be agile enough to make progress on any of our other goals as a nation, including greater inclusion and economic growth.

During the 2016 presidential contest, both Donald Trump and Hillary Clinton pledged to spend billions on improvements to physical infrastructure – our roads, ports, bridges and buildings – yet both failed to mention the very rules and systems that make such infrastructure and subsequent trade possible.

And since coming to office, Trump has touted his efforts to block or roll back rules and regulations, indicating that the president, like many Republicans, sees less law as the solution to the growing complexity of today’s economic and social environment.

However, at the same time, industry – particularly start-ups – tasked with securing America’s fortunes has been left grasping for better legal products and services to facilitate business in a rapidly changing economy. Whether we’re talking about the gig economy, artificial intelligence and autonomous systems, control over the use of the massive data now collected by social media and other platforms, or trans-border operations, our current legal infrastructure has long been inadequate for supporting companies in such a volatile climate.

So, just as we need better physical infrastructure to support a greater economy, we first need better – not less – legal infrastructure, a legal platform that is more responsive, accessible and effective at dealing with today’s issues.

Try this thought experiment. Imagine you are one of our modern-day superheroes. Instead of a cape or retractable steel claws, you possess X-ray vision, into the future of the web-based global economy. You are an entrepreneur. You have a fantastic idea for a new web-based business. The future is golden. Now what do you need to make that happen?

You need some partners. You need some programmers. You need some money. You need space, computer equipment, and a high-speed internet connection. You need some more money.

You need some law.

Law? Isn’t that the last thing you need? Isn’t law likely to be the bane not the boon of your new venture? Isn’t law what all those CEOs in global businesses are complaining about?

No, you will want law. You will be looking for law. You will be frustrated by the inadequacies of the law you have available to you. You just may not realize that what you are looking for is law. More precisely you will be looking for good legal infrastructure – the term I use to describe all the legal resources that will make a difference to your venture.

There will be laws – you probably think first of these in fact – that get in your way and just cost you money. Those laws that allow you to fire your employees when you need to downsize will penalize you if you fire them because they’re the wrong gender or ethnicity or just too old. They will put limits on how you manage the profit-sharing plans you put in place to attract the best and the brightest to your shop. The trademark laws that protect your commercial identity will also stop you from oh-so-innocently borrowing from others.

Legal infrastructure includes not only the legal rules you can find in law books but also the quality – and cost – of the legal advice, planning, and solutions you can access. It includes not only the formal processes in regulatory agencies and courts but also the intangibles that affect outcomes: how lawyers and judges behave with one another, what and how they charge, what they believe is the right strategy or decision in a case, the advice they will, in practice, give.

Because you don’t really care about what it says in the law books. You care about how, in fact, all those aspects of the legal environment will impact your business. Great rules on paper that say investors may not interfere with management, for example, mean diddly-squat if you never find out about the rules because there are no lawyers you can afford to ask.

Legal infrastructure is a somewhat ponderous phrase for this amorphous collection of legal materials, organizations, norms, beliefs, and practices, but there are good reasons for using the term. One reason is that it helps to remind people that we are not just talking about formal legal rules and procedures – the language in statutes and court decisions that garner so much political attention. The function of the legal infrastructure we’re talking about is to provide a reliable framework for interaction – which mere words on paper can’t be without a lot of other features being in place.

In our increasingly connected world, more and more of the resources we use to build our businesses, our organizations, and our relationships come from infrastructure. Although we sometimes have to pay to use infrastructure – highway tolls or internet connection fees, for example – infrastructure is characterized by its widespread availability to all. It is a shared platform. Because it is a shared platform, it generally contains lots of things we wish worked differently.

But infrastructure is available to us as a preexisting platform precisely because it is not built to our personal specifications. Parts of it are designed – like the system of root name servers on the internet – but many parts are the product of what all kinds of users created when they plugged stuff in. This means important characteristics of infrastructure are fundamentally emergent.

It is for all these reasons that I call the long list of legal stuff you rely on to launch your new venture legal infrastructure. Like the roadways, the airports, and the internet: it’s all around you, you’re plugging in all the time, you barely notice you’re using it, but if it went away, you would find that the shared platform on which you were building your business had collapsed.

Most people find the idea of ubiquitous law as a good thing hard to swallow. But it is critical, if we are to rethink how we do law in our new digital global economy, for us to get past any simplistic idea that the problems we face with law are ones that would be solved by just having less of it.

Think about it. What’s the alternative to ubiquitous law? It is not the absence of rules about how those millions of interactions you will have in running a new business will be managed. No, the alternative to law is just a different set of rules. No stable society based on interdependence gets away without a web of ubiquitous rules that govern what each of us can do, how, and when.

Even today, with our massive and professionalized police forces, still a great deal of our legal order comes from people complying with the law not just because they fear the siren’s wail. In a well-established legal order, many people go along with the rules because everyone else is expecting them to and there are social and economic sanctions for those breaking the rules.

And the reason those social and economic sanctions exist is because all the ordinary people needed to help keep legal infrastructure stable and effective – by both resisting the temptations of transgression themselves and sanctioning those who don’t – see a reason to do their part.

The legal infrastructure they support is the legal infrastructure that makes them better off than the alternative. That’s a lesson that’s getting lost as we confront how to adjust our rulemaking systems to the modern world.

This article was adapted from Rules for a Flat World: Why Humans Invented Law and How to Reinvent It for a Complex Global Economy (OUP) by Gillian K. Hadfield, and originally published by Daily Journal on April 4, 2018

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