To truly protect citizens, lawmakers need to restructure regulatory oversight of big tech

If members of the European Parliament thought they could bring Mark Zuckerberg to heel with his recent appearance, they underestimated the enormous gulf between 21st century companies and their last-century regulators.

Zuckerberg himself reiterated that regulation is necessary, provided it is the “right regulation.”

But anyone who thinks that our existing regulatory tools can reign in our digital behemoths is engaging in magical thinking. Getting to the “right regulation” will require us to think very differently.

The challenge goes far beyond Facebook and other social media: The use and abuse of data is going to be the defining feature of just about every company on the planet as we enter the age of machine learning and autonomous systems.

So far, Europe has taken a much more aggressive regulatory approach than anything the U.S. was contemplating before or since Zuckerberg’s testimony.

The European Parliament’s Global Data Protection Regulation (GDPR) is now in force, which extends data privacy rights to all European citizens regardless of whether their data is processed by companies within the EU or beyond.

But I’m not holding my breath that the GDPR will get us very far on the massive regulatory challenge we face. It is just more of the same when it comes to regulation in the modern economy: a lot of ambiguous costly to interpret words and procedures on paper that are outmatched by rapidly evolving digital global technologies.

Crucially, the GDPR still relies heavily on the outmoded technology of user choice and consent, the main result of which has seen almost everyone in Europe (and beyond) inundated with emails asking them to reconfirm permission to keep their data. But this is an illusion of choice, just as it is when we are ostensibly given the option to decide whether to agree to terms set by large corporations in standardized take-it-or-leave-it click-to-agree documents.

There’s also the problem of actually tracking whether companies are complying. It is likely that the regulation of online activity requires yet more technology, such as blockchain and AI-powered monitoring systems, to track data usage and implement smart contract terms.

As the EU has already discovered with the right to be forgotten, however, governments lack the technological resources needed to enforce these rights. Search engines are required to serve as their own judge and jury in the first instance; Google at last count was doing 500 a day.

The fundamental challenge we face, here and throughout the modern economy, is not “what should the rules for Facebook be?” but rather, “how can we can innovate new ways to regulate effectively in the global digital age?”

The answer is that we need to find ways to harness the same ingenuity and drive that built Facebook to build the regulatory systems of the digital age. One way to do this is with what I call “super-regulation,” which involves developing a market for licensed private regulators that serve two masters: achieving regulatory targets set by governments but also facing the market incentive to compete for business by innovating more cost-effective ways to do that.

Imagine, for example, if instead of drafting a detailed 261-page law like the EU did, a government instead settled on the principles of data protection, based on core values, such as privacy and user control.

Private entities, profit and nonprofit, could apply to a government oversight agency for a license to provide data regulatory services to companies like Facebook, showing that their regulatory approach is effective in achieving these legislative principles.

These private regulators might use technology, big-data analysis and machine learning to do that. They might also figure out how to communicate simple options to people, in the same way that the developers of our smartphone figured that out. They might develop effective schemes to audit and test whether their systems are working — on pain of losing their license to regulate.

There could be many such regulators among which both consumers and Facebook could choose; some could even specialize in offering packages of data management attributes that would appeal to certain demographics — from the people who want to be invisible online, to those who want their every move documented on social media.

The key here is competition: for-profit and nonprofit private regulators compete to attract money and brains to solve the problem of how to regulate complex systems like data creation and processing.

Zuckerberg thinks there’s some kind of “right regulation” possible for the digital world. I believe him; I just don’t think governments alone can invent it. Ideally, some next-generation college kid would be staying up late trying to invent it in his or her dorm room.

The challenge we face is not how to get governments to write better laws; it’s how to get them to create the right conditions for the continued innovation necessary for new and effective regulatory systems.

Originally published by TechCrunch on May 29, 2018.

Making law without lawyers: How the 49ers paved the way

It was the tragedy that so many had anticipated for so long: a self-driving Uber car killed a pedestrian in March, and as a result, the cutting-edge technology behind it was benched. Uber has since opted not to renew its permit for testing its self-driving vehicles in California.

Uber anticipates that the suspension of its self-driving initiative will be temporary—but how soon autonomous vehicles will be back on the roads will depend on how quickly we solve an even more fundamental problem: how will we build the legal and regulatory framework needed to convince the public that self-driving cars and trucks are reasonably safe?

Can our departments of motor vehicles and ordinary traffic laws keep up with the speed and complexity of the technology? Can we get the balance right between holding owner, manufacturer, software developer, traffic systems designer, passenger, pedestrian responsible?

These are the types of new legal challenges we are facing in today’s global, digitized economy, and the clumsy nature of current regulation is a clear sign that our legal system has not kept up with the pace of technological progress. It will never be the case that autonomous vehicles injure no-one. But if one accident pulls them off the road, where do we go next?

Resolving these questions is too important and too complex to be left to lawyers alone, who are often trapped by the perspectives of a closed profession and conventional solutions: new legislation, new rules, new arguments in complex litigation.

To address dilemmas such as the regulation of self-driving cars, artificial intelligence and other novel technology, we are likely to need wholly new approaches to regulation, such as third-party systems that are capable of identifying and even intervening when things are at risk of going wrong. These are regulatory systems that lawyers can’t be expected to invent on their own; they are as or more likely to come from technologists, economists, sociologists, engineers and entrepreneurs.

Reaching these new solutions is going to require that we abandon our presumptions about how regulation works, just as we are abandoning our presumptions about how cars work.  We must first go back and understand what, in essence, is law and what we as a society require from it.

People other than lawyers have in fact been figuring out new ways to solve new legal challenges for millennia. And one prime example occurred right here in California, 170 years ago, when on a rainy afternoon in late January 1848, a soaking wet James Wilson Marshall walked into John Sutter’s office at Sutter’s Fort near present-day Sacramento.

Marshall urged Sutter to lock the office door and took from his pocket a sodden rag in which were wrapped a few nuggets of yellow metal. Marshall had discovered gold in the streambed while constructing the sawmill.

This was not the first discovery of gold in California; Mexicans had discovered gold just north of Los Angeles several years earlier. But the Mexican discoverers had managed to keep it a secret.

Marshall’s secret was out when a storekeeper and church leader at Sutter’s Fort, Samuel Brannan ran down the streets of San Francisco in May 1848 waving a bottle of gold dust in the air and yelling, “Gold! Gold! Gold from the American River!”

Marshall’s discovery came at a time when California was without any formal legal system or institutions: no police, no legislature, no courts, no legal profession. The miners were on their own in working out who was entitled to extract gold from the rocks and rivers of California.

The miners had little difficulty in doing so. When few prospectors were in the area, most diggers were undisturbed in their efforts to extract gold from a hole they were working. But the infamous Gold Rush brought hordes of so-called 49ers to the state – causing the non-native population to jump from around 15,000 in 1848 to over 300,000 by 1854 – and the rush soon put pressure on simple norms.

Disputes erupted and miners began holding meetings at their camps to choose some rules. There was no formal way of deciding who would call a meeting or who was entitled to participate. If you were at the camp when a meeting happened, you got a vote; if you weren’t, you didn’t.

At these meetings, the miners decided how big a claim could be and how many a miner could possess, how a claim had to be marked, and whether and how long a miner could leave a claim unworked before losing his rights.

In what was a key feature that made these rules “law”, the miners’ rules also set out a way of deciding how disputes about the rules would be handled. The miners at Jackass Gulch, for example, specified in their code that “as soon as there is sufficiency of water for working a claim, five days absence from said claim, except in cases of sickness, accident or reasonable excuse, shall forfeit the property.”

But they didn’t leave it at that: they also declared that any disputes would be decided by a jury of five persons. In some camps a jury would be selected on the spot by the disputants, perhaps by flipping a coin to decide who would choose a juryman first from among the assembled miners.

There was no sheriff to enforce the rules; no militia to put out claim jumpers. But the rules worked remarkably well: the miners followed them, even though they changed from camp to camp and could be changed one day to the next.

The rules weren’t necessarily what everyone thought was fair, but they were the rules that everyone knew everyone else was playing by. So why did people comply? Because if they broke the rules, enough of the other miners in the camp would object and find some way to show the scofflaw that the rules were to be followed.

Engaging in the enterprise of law means more than simply labelling a particular set of rules “the law”, of course. But the miners’ labels reveal something important. They reveal that the miners understood that their rules had this special status.

The law’s special status comes from the fact that when we have governance by legal rules, the rules are in charge. What counts as “lawful” is determined by the impersonal dictates of an inanimate object, a set of rules, and not by the judgment or caprice of any particular person.

In setting up a system of rules and calling it law, people are communicating with each other that they are creating a system of rules that they intend none of them to personally control.

Since this will inevitably involve human beings making judgments about what rules are and what they mean, they need a set of rules to control those human decisions: rules for making and using rules. This is how everyone can tell whether a decision is a decision according to the law, and not just some person’s opinion. Once the miners had conducted their first meeting and adopted a first set of rules to govern claims, for example, the rules could only be changed by another meeting.

The deliberate structure of law includes a way of ending the argument, and everyone recognizes that this is the way arguments about law are ended in a particular legal system.

What is essential to the idea of law, then, is not “legislature” or “court” but rather the fact that we all know that everyone else knows that this is what we recognize as law.

That’s what we can change about how we do law. It’s unlikely we would ever want to do away with legislatures and state-run courts. We probably won’t even want to do away with lawyers. In fact, people with special expertise in the enterprise of making and using rules to govern conduct are even more valuable in the new economy.

But we might decide that legislatures, state-operated courts, and conventionally trained and licensed lawyers are not the only way that the enterprise of law can be conducted.

Some law could be made by private firms – competitive profit-making companies and non-profit organizations – and “legal” services provided by a while host of people in addition to conventionally licensed lawyers.

I think we could see in law the kind of transformation we have seen in most of the rest of the economy. Modern legal systems, like the modern mining industry, have moved on from the simple tools used in the nineteenth century. But there is a simple question to be dug out from beneath modern legal complexity: what rules work best to get what we want from economic activity?

When the world changes as dramatically as it has over the past three decades, not only the rules need to change: the way we invent rules has to change.

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 was originally published by LA Daily Journal on April 19, 2018.

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

On a ‘flat’ world, we need lawyers to level the playing fields

Cheap communications and transportation have given us the global supply chain or a more level economic playing field, captured by Thomas Friedman in his 2005 best-seller, The World is Flat. The most glaring hole in Friedman’s flat-world story, however, is the absence of any mention of legal infrastructure.

Flattening production processes with global supply chains requires more than technology and container ships. It requires a resolution of that basic problem of how to coordinate and support collaboration and exchange. It requires a way of resolving the externalities and conflicts that upheaval in economic life creates.

It requires a means of responding to the very unevenness—the nonflatness—that has persisted, even been exacerbated, in the wake of the ways in which the global platform has rearranged work and resources.

These are the types of problems that culture solved in simple human societies, and that the many rule-making groups of medieval Europe—the guilds, town councils, churches, princes and lords—helped to solve as economies grew more differentiated and complex.

They are the problems that the emergence of the nation-state and centralized, democratically controlled legal systems responded to as the bounds of the Commercial Revolution of the Middle Ages gave way to the industrial revolutions of the 18th and 19th centuries.

Those earlier solutions are no longer working well. More than half of the world’s population lives in poor places that are still waiting for the arrival of last century’s legal solutions, in informal economies that operate outside any formal legal framework.

Legal infrastructure has a critical role for levelling playing fields and flattening production processes. Rules don’t just happen, they have to be made. And our technology of making them has to keep up with the complexity of what the rules are trying to regulate.

FASTER PACE

In the decade since Friedman’s book first appeared, the pace at which the world is being flattened has only accelerated.

Back in 2005, for example, Facebook was still an online directory for college students. YouTube had not yet launched. Twitter was a year away. Netflix streaming and the iPhone were two years out, the App Store three.

Global online freelance platforms like oDesk (rebranded UpWork) and Mechanical Turk were just gearing up. Amazon Web Services (the first significant cloud-computing platform) wouldn’t be around for a year; Google and Microsoft’s entries into cloud-based IT infrastructure and browser-based services for businesses wouldn’t show up until 2008 and 2009, respectively. Bitcoin was four years away. The U.S. Securities and Exchange Commission had only just introduced new rules for competition between stock exchanges that would fuel the race among high-frequency traders to shave transaction times down to microseconds; the general public wouldn’t notice until the first stories started appearing in the New York Times and the Wall Street Journal in 2009.

The global platform was getting ready to do much more than just reduce communication costs and expand labor markets to enable the global supply chains and opportunities for horizontal collaboration:

    1. • Mass digitization—the conversion of everything from phone calls, stock trades, movies and documents to identities, social networks, geographic locations and genetic information into flat sequences of zeros and ones that can race along fiber optic cables and over wireless networks—has made it possible to convert a vast array of our economic interactions from ones embedded in physical objects and fixed locations to disembodied ones that exist both nowhere and everywhere at the same time.
    1. • Powerful computers that can analyze the information contained in those globally available ones and zeros in vastly greater quantity and at vastly greater speeds than the human brain have dramatically reduced the time it takes to develop a new product or spread an idea or complete a transaction.
    1. • Virtual reality devices allow us to immerse ourselves in places thousands of miles away, and robots allow us to do things there.
    1. • The 3D printer allows even physical objects—machine parts, clothing, food, human tissue—to exist only in digital form in the cloud until a user hits “print.”
    1. • The internet of things connects our homes, workplaces, devices, bodies to the world, beyond our awareness. Cars talk to weather and traffic sensors, regulators, and each other—and they don’t need humans in the driver’s seat. Your printer can order the ink it needs all by itself.

The impact on the economic demand for law of all of these changes is enormous. With yet another massive leap in the complexity of the economy, our legal infrastructure has yet to catch up.

CENTRAL ROLE

Legal infrastructure still plays a central role in scaffolding the complex, information-rich relationships in our most innovative companies. I learned this in the research I conducted with Iva Bozovic, a former PhD student of mine and now an assistant professor at the University of Southern California.

We wanted to know if contracting was still “dead” in the way Stewart Macaulay had suggested it was in the 1960s. How were companies managing their most innovative-critical relationships, the strategic alliances and codevelopment arrangements they needed to compete aggressively in a fast-paced global environment?

What we heard from some of the leaders in Silicon Valley was: We use a lot of law. But not for the purposes of litigating and threatening big damages. We use a lot of lawyers and contracts to design our strategic alliances because it is critical that we have as much structure as we can put down to steer the informal development of our relationships in constantly churning waters.

These strategic alliances are still very much relational contracts largely enforced by the risk of losing a valuable relationship or doing damage to reputation, and trust and personal relationships play an important role.

But they also depend significantly on law, lawyers and legal advice to help define what actions will sink the relationship or reputation and what will keep everyone confident they are still on the same team.

In the flat world, infused with the complexities of contracting over information, off-the-shelf contracts and standardized legal reasoning and approaches don’t cut it. What’s needed are creative ways to manage enormously challenging and dynamic strategic relationships. Lots of our most innovative companies are struggling to find this kind of legal infrastructure.

Companies that excel at being proactive in anticipating the direction of legal change and in implementing effective responses earn a competitive advantage.

Finding, or helping to shape, a legal environment that does a better job of meeting the fundamental economic demands of business—helping to manage complex contractual relationships, for example, or reduce labor disputes, or protect against fraud and corruption—helps a company to secure those economic benefits.

There are at least as many gains to be had from expert management of global legal logistics as those to be found in global shipping, global information systems or global strategic alliances.

That too is part of the economic demand for legal infrastructure, and it is something that businesses need more and more of in a complex, globally connected economy.

This article is adapted from Rules for a Flat World: Why Humans Invented Law and How to Reinvent It for a Complex Global Economy and originally appeared on ABA Journal on March 6, 2018

Saudi Arabia’s techutopia Neom will have to reinvent the rules to succeed

Some Silicon Valley tech entrepreneurs dream of the sea as a place to build the startup countries of the future – beyond the boundaries of existing governments and what they see as innovation-stifling rules and regulations.

In the Middle East, burdened by systems of governance that are far less future-friendly, and under threats from extremists that would drag them even further into the past, they dream of the desert: wide open empty spaces where the future can be constructed anew.

At least, that’s the vision Saudi Arabia has invoked with its recently announced plans for $500 billion techutopia mega-city Neom.

A promotional video invites the viewer to imagine 100 per cent solar energy, fully autonomous transportation, hydroponic farms, artificial intelligence, and advanced manufacturing.

And on top of all this, “no set ways of thinking. No restrictions.” No rules for how women dress or where they can work. Open to all races and religions. A “new civilization.”

It’s a vastly different prospect from the picture painted by Amnesty International of repression, human rights abuses, and torture amid the rising human toll of the power struggle playing out between Saudi Arabia and Iran in Yemen. “No restrictions” from a country that is only granting women the freedom to drive in 2018?

There’s good reason to be skeptical. But also, reason to hope. Saudi Arabia’s Vision 2030 may reflect recognition of a couple of critical facts.

First, without a vibrant and diverse economy, it’s hard for any society to deliver on human ambitions of dignity, equality, and fairness for all. Poor societies are more likely to have poor human rights records.

And second, laws and legal practices that repress experimentation and novelty throughout society cannot cultivate a future that depends on innovation and adaptation. Economically vibrant and stable societies are grown in the loamy soil of diversity, ingenuity, and openness.

Saudi Arabia’s legal environment is currently built for an economy that no longer exists, and a social world that most of the rest of planet has left behind. The dream of Neom should be for a bridge to the legal world that can sustain a better life for all Saudis, and a case study of how a reinvented legal infrastructure – propelled by new technology – can be the lynchpin for a more prosperous and just society.

This is not a uniquely Saudi Arabian problem. All countries, rich and poor, are today facing the challenge of a deep mismatch between their legal infrastructure and the pace of change brought about by globalization, digitization, and the technologies of the future. We are all feeling the constraint of the boundaries of nation-states and their increasingly unwieldly legal systems.

That’s why there’s hope for Neom, if its planners can carry through on the vision of a city free to build its own rules and regulatory systems and if the city itself acts like a startup: competing for customers by offering people from all over the world a better set of rules to live by.

Saudi Arabia could be taking this cue from its neighbor, Dubai, where the Dubai International Financial Centre (DIFC), is competing for users in just this way.

Established in 2004, the DIFC is a special economic and legal zone. It not only offers tax and custom duty exemptions for registered businesses; it also operates its own regulatory system, civil and commercial laws, and courts, conducted in English, drawing on English common law and judges experienced in that system.

If you live, work, or visit within the two blocks on which the DIFC stands in downtown Dubai, or if you opt into its system by contract, you are subject to DIFC laws. Only criminal law remains the exclusive province of Dubai laws.

It is a good example of how giving legal and court systems a fresh start can help foster the agility, transparency, and efficiency needed to inspire economic and financial growth. The emirate now ranks 10th in the world among international financial hubs and such legal innovation will also be a key opportunity for Neom.

With a license to innovate how law gets done, freed from traditional models and rules, new ideas for better ways of operating in the 21st century can emerge. In Dubai, for example, experts are designing the Courts of the Future to address the new challenges of e-commerce, artificial intelligence, robotics and hyperloop on a global scale. The ambition is to offer a digital jurisdiction available to anyone, enforced where necessary on distributed systems like blockchain.

Other innovations arising from an unfettered process of legal design include plans to code rules into a blockchain system and to develop “XAI” judges: artificial intelligence that can resolve legal claims and explain its decisions.

These creative initiatives are part of a long overdue response to outdated legal systems and their frustrations and costs. Some 70 per cent of global executives cite the growing complexity of regulation as their biggest challenge in the modern economy.

But just as important is what an innovative legal system can do for those who have little access to law and courts—the condition in which more than four billion people around the planet live. The DIFC offers an electronically-sophisticated small claims court that hears claims of up to $150,000 (more if the parties agree) and resolves 90 per cent of disputes within four weeks, either by mediation or a written published decision. That’s an important institution, particularly for employees who sue employers to enforce employment rights.  In contrast, small claims courts in California limit individual claims to $10,000 and overburdened judges decide sometimes as many as 50 claims a day, spending mere minutes on each.

It’s important not to overstate the successes. Dubai also struggles with the dark side of human society, particularly in relation to protections for migrant workers. But it is progress and there is evidence that innovation within an independent legal zone can generate spillover benefits for the rest of the country: Dubai’s national courts have followed the DIFC’s lead in introducing women judges and a small claims court and they leapt in global rankings for the efficiency of contract enforcement from 25th in 2016 to 12th in 2017.

There is also no guarantee that “free” economic and legal zones will live up to their promises, and that’s an important caution for these experiments. Economist Paul Romer was one of the first to champion the idea of charter cities as a way to boost development by creating new rules on a blank slate. The concept was enthusiastically taken up by the government of Honduras several years ago but Romer dropped out of the project after his idea of a transparent and independent city became corrupted by political and business interests and it became evident that the city might not adhere to the cardinal rule of ensuring citizens’ free mobility in, and out, of the zone.

It’s an important lesson: powerful elites face an uphill battle in truly committing to an independent legal system that responds to the needs of its users. The goal of attracting corporations to the zone cannot be bought with the rights of citizens to healthy, safe, and fair places to live.

But if Neom proves its competitive mettle and attracts residents by keeping its promises of better rules to live and work by, that could just play a role in moving the whole country further along in terms of gender parity, open justice, and efficient commercial law.

Saudi Arabia’s ambitious vision is for Neom to create the kind of place that people would choose, not be forced, to live. In a world where we all need to figure out how to reinvent the rules, we should be hoping the experiment succeeds.

Originally published by TechCrunch on December 24, 2017

World needs 21st century regulation to police gig economy

When he suspended Uber’s licence to operate in the capital, London mayor Sadiq Khan said that like everyone else, the $70bn company had to “play by the rules”.

But far from being like everyone else, Uber is part of a new digital species that is upending work and regulation across the globe. In any case, the rules to which Mr Khan alluded are far from perfect. Often impractical, unresponsive and varying between and within countries, they are ill-suited for international digital businesses and start-ups.

Existing regulations that protect employees, consumers and others have not adapted to 21st-century business. So it is little wonder that we are seeing regulatory conflicts like Uber’s employment rights dispute.

Adaptation — and meeting future needs — will require a wholesale rethinking of how we make the rules of the game which could even help avoid scandals like the unreported hack that affected 57m Uber passengers and drivers.

The challenges Uber presents are replicated throughout the global economy. Goods, services, money and workers are increasingly moving seamlessly across borders, flattening the world in ways none of us could have imagined a decade ago.

These changes are putting enormous pressure on our conventional approaches to producing regulation. Rules enacted by local and national governments are unable to keep up with new transboundary businesses. Uber faces multiple regulatory regimes around the globe, none written with phone-based apps and the gig economy in mind.

Attempting to regulate global digital entities with 20th-century methods risks hampering the benefits these platforms can generate. The gig economy brings flexibility and improved efficiency to multiple markets. But it also hinders the ability of regulated markets to produce a better life for everyone, including improved conditions and wages for workers.

One way to reinvent the rules is what I call super-regulation. This approach confines the regulatory role of government to the licensing and supervision of private frontline regulators, and harnesses market incentives to spur the development of better regulation. It focuses political bodies on setting the regulatory objectives that their constituents care about. These objectives might be specified in metrics, such as accident rates, or principles such as the fair treatment of drivers.

Then, rather than individual governments each drafting rules and procedures to achieve these outcomes, that task is given to the market. Private regulators, for-profit or not, build regulatory systems and secure government approval by demonstrating that the entities they regulate achieve the determined goals.

Super-regulation would not need consensus or agreement between governments to function across borders as countries would remain free to set their own regulatory objectives, which are more than likely to be similar in their goals.

Governments in turn would assume the role of regulating the regulators: reviewing their procedures and auditing the results they achieve, granting and revoking licences to regulate. Under such a regime, companies would be required to choose an approved private regulator from a competitive market, subject to the constraint that these regulators could not offer a scheme that violated the rules governing them.

And while this may appear counterintuitive as a solution to the regulatory burdens of today by implying another level of complicated regulation, the goal is to streamline the process.

By administering regulation through dedicated and more agile private sector organisations and businesses, we would give companies some choice over which scheme they came under. That would also create an incentive for private providers of regulation to compete to figure out how to deliver frameworks that achieve common goals with lower costs and less risk for regulated entities.

The UK government has already implemented a kind of super-regulation model in England and Wales with its reformed approach to regulating the markets for legal professional services. The 2007 Legal Services Act set out the required regulatory objectives under broad-based principles such as protecting the interests of consumers, and then created the Legal Services Board to approve regulators that can show their regulations achieve those objectives.

Today, nine regulators have been approved to regulate licensed legal activities.

Could a similar system work for a completely different business like ride-hailing. where operators face a range of regulatory regimes?

If governments within a country or a region each settled just on regulatory objectives for ride-hailing services, private regulators could devise the best ways to fulfil them. They might invest in machine-learning technology to better determine what affects the risk of accidents to improve safety, or they might deliver apps to a driver’s phone to directly monitor speed or other driving behaviour. This might also lead to the development of sophisticated data monitoring techniques to identify security failures or fraud.

A private regulator competing to sell its services to multiple ride-hailing businesses while maintaining its licence to operate from the government would have an incentive to invest in those innovations.

Uber, like most global companies, would also rather choose just one or a few regulatory regimes with which to comply. Today’s government-drafted rules and regulations vary tremendously across jurisdictions and are the number one source of complexity global businesses face. If regulators could build systems that appeal to multiple governments, they could create a new international market in regulation that might one day simplify life for business.

Originally published by the Financial Times on November 23, 2017

Law schools are letting down their students and society—here are three steps they can take to fix things

Originally published by Quartz on September 20, 2017

Another fall, another crop of students arriving in law schools, buying the same casebooks, ready to be taught the same way how to reach the same conclusions for the same exams.

Law schools in the US today have become depressingly single-purpose: training members of a closed profession and failing to equip them to tackle the full breadth of problems facing economies and societies that are undergoing extensive transformations.

Law schools are letting down their students. They’re requiring anyone who wants to do any type of legal work, even the pro-forma and routine, to enroll in three years of graduate school and take on an average debt of $140,000, all the while facing dwindling job prospects.

This is bad news for students. But it is even worse news for the rest of us. Today’s law schools are graduating hordes of would-be lawyers who are not prepared to respond to, or innovate new solutions for, the pressing legal and regulatory needs of citizens and businesses alike.

The result is an insulated and out-of-touch conveyor-belt profession that has become too complex, too expensive, and too disconnected from the realities people and businesses face. Law is increasingly not getting the job done, let alone addressing the long-term crisis in access to justice and modern challenges such as automation, artificial intelligence, cybersecurity, climate change, and safety and fairness in global supply chains.

Today’s law schools are increasingly chasing their own tails, with the holy grail still being a coveted job in a big law firm that serves large corporations. Meanwhile, roughly 90% of Americans dealing with legal matters do so without legal help. And as I have found in my research, even big businesses are unhappy with what is available to them. In a 2011 survey, 70% of global executives reported that law and regulation were the greatest causes of complexity in their businesses.

Conventional legal education, modeled on a system invented at Harvard in 1870, teaches students how to “think like a lawyer”, and how to spot potential legal issues. Practical training happens on the job. During the heyday of the industrial nation-state economy, this worked pretty well.

But while the American Bar Association (ABA) rightly pushed to raise the quality and uniformity of legal education at the beginning of the 20th century, it has entered the 21st with an effective monopoly on law school accreditation and professional regulation. This has put a stranglehold on the ability of law to adapt to a vastly transformed world.

What we need now is greater diversity, new methods, and better engagement with the real world. To get the broad and deep innovation in law that we need, we have to fix legal education.

Step one is to shift from the top-down approach that the ABA now takes in overseeing how people are admitted, taught, and tested in law schools to an approach that emphasizes testing what people can actually do before they enter practice.

The profession should focus on its remit of ensuring legal services providers are useful, competent and honest, and leave it up to universities, colleges, and other training organizations to find the best way to produce people who meet those standards.

A shift like this can open up multiple paths to practice—and is a route already being pursued in the United Kingdom. People who want a career in law can choose from nine different professional paths, three of which lead to a license to provide full legal services and none of which requires a law degree. In fact, people can qualify to practice some types of law without even going to university.

By reducing the influence of the ABA in determining what a “law school” is and how to qualify a legal professional, access to legal education would become more democratic. This in turn would attract a cohort diverse enough to come up with the new ideas we need in law.

Step two is to shift from an emphasis on book knowledge to practical wisdom in establishing the requirements for licensure.

At the highest levels, law is a learned profession—and it should remain intellectually demanding and informed by philosophy, economics, history, political science, and more. But that is not the appropriate benchmark against which to establish the minimum thresholds needed to ensure widespread consumer and commercial confidence.

Law would do well to follow the model in medicine: test law students early in their educational careers to make sure they have acquired basic legal knowledge. Then focus ultimate qualification on candidates’ ability to actually listen to solve real legal problems encountered by real clients.

Step three is to move away from the idea that one-size fits all when it comes to legal training and competence.

As the UK has found, law degrees and licensing are not necessary to achieve adequate competence and consumer protection for all forms of legal help.

Research shows that licensed providers of basic services provide just as good if not higher quality. A recent secret shopper study found that wills drafted by licensed solicitors were just as likely (25%) to have errors in them as those drafted by specialist will-writing companies that are not required to hold a license.

The reform of legal education could bring benefits in the form of economic growth, access to justice, and ongoing legal innovation to meet the challenges of the 21st century, as well as reducing the burden of debt on the next generation of legal professionals. And this may even turn around the declining number of students choosing to go into law.

Legal education matters. Not just for law students, but for all of us.

The playbook for companies stepping into world of politics

Originally published on The Hill on September 13, 2017

Apple CEO Tim Cook is not alone in believing that, given the growing dysfunction in government, it is up to companies and other areas of society to “step up” to the 21st century challenges of employment, diversity, climate change and education. Tesla CEO Elon Musk and a consortium of the biggest technology companies are pouring millions of dollars into research to anticipate how to manage powerful artificial intelligence and autonomous systems. Facebook executives Mark Zuckerberg and Sheryl Sandberg are also using their platforms and profile to speak out about immigration policy.

It is easy to dismiss this as a bad idea. Public policy and regulation are supposed to come out of a legitimate and accountable political process, representative of diverse interests. We are suspicious of businesses writing rules that enrich their shareholders at the expense of workers, consumers and other citizens. And it’s possible to read a recent study to say that technology executives are hostile towards regulation.

But the reality is more complicated than the corporations versus government storyline would have it. The failures of government are not just the product of too much money in politics and polarization. They are also the fairly predictable result of the vaulting complexity of our rapidly transforming global, digital world. That’s probably why otherwise liberal technology executives are so negative about regulation: the problem is not regulation per se but rather the dysfunctional nature of what they see from their catbird seat in the new economy. Global executives identify law and regulation as the biggest source of complexity they face.

The fact is we have no choice but to open up a larger role for the private sector in devising new rules of the game, not only for businesses but for a wide array of nongovernmental groups as well. We need more diversity and innovation than governments alone can provide to meet the challenges of regulating in the global digital age. The trick is to figure out how to align private regulatory efforts as much as possible with the interests of citizens as a whole.

One example of this is what I call super-regulation. Our conventional approaches to regulation and policymaking rely on people who are responding to political and bureaucratic incentives and working with public resources to keep up with an exploding array of technologies and challenges. The response of those systems is inevitably top-down, protracted and out of touch. Moreover, those rule-producing entities are tied to territory in a digitally and globally connected world where money, contracts and ideas can zip across 10 borders before breakfast.

Super-regulation refocuses our political processes on the results our communities want, rather than the details of how those results are achieved. Developing alternative ways of achieving those results is left to private regulators: for-profit and not-for-profit organizations that step up to design and implement regulatory schemes. The targets of regulation — the companies that have to comply with regulatory rules — are required to choose which of these private regulatory schemes to submit to, and pay for, that service. The catch is that companies can only choose a private regulator that continues to satisfy the government that it achieves the results the political process has set.

Under super-regulation, governments regulate the regulators: auditing their performance, surveying consumers and citizens, and tracking metrics that show whether a regulated industry is meeting targets. This may sound like just another layer of government regulation, but done correctly, it can reduce the role of government by getting them out of writing and enforcing detailed rules and more narrowly focused on determining the appropriate goals for regulation.

Private regulation is already taking place globally on a massive, but somewhat hidden, scale. Thousands of global corporations like Nike and Ikea now include codes of conduct in their contracts with suppliers in the developing world to prohibit the use of child labor, improve workplace conditions, and ensure environmental compliance. Hundreds of thousands of corporations routinely participate in private standard-setting organizations to coordinate efforts that go well beyond the historical goals of achieving technical interoperability. They create standards to address the financial crisis, protect the environment, impose ethical constraints on artificial intelligence, and tackle corruption, that lead, and sometimes preempt, government-set standards.

Even where governments make the rules, their implementation is often delegated to the very companies being regulated because of limitations in technology, confidentiality and resources. The European Court of Justice, for example, announced in 2014 that European Union citizens had a right to be forgotten on the internet but it gave Google the job of adjudicating claims — 500 a day at last count — in the first instance. Google may not be happy about that, but it was likely preferable to allowing government regulators to roam their servers to enforce the law themselves.

What’s missing from the emerging regimes of private regulation is political accountability. Moreover, the markets in which private regulators are operating are rarely competitive. The Financial Industry Regulatory Authority, for example, is the only game in town for regulation of broker-dealers, and they behave accordingly, like a monopolist, with little incentive to innovate better regulation. But competition is precisely what we need to recruit the money, brains and incentives of profit and nonprofit organizations to come up with better ways of achieving the goals we hold out for our economies and civil society. This would be another task for a super-regulator: ensuring competition.

Truly global competitive markets for regulatory regimes also could bring another big benefit. Today, countries are often pressured by industry to adopt a single global regulatory standard to streamline compliance. But imagine a world in which five or 10 private regulators are competing to provide regulatory services, for example, in workplace safety. Individual countries could approve all or some subset of this group. Companies could choose a private regulator that is approved in all the jurisdictions in which they want to operate without that necessarily being the same regulator chosen by every other company in their industry.

Super-regulation is no panacea. It will not work for all types of regulation. And it will require serious research, design and experimentation to figure out how to do it well. But the need for corporations to play a substantial role in making and enforcing rules that affect us all in a complex, global and fast-moving world is not going to go away. Now is the time to start figuring out how private participation in regulation can be made more transparent and responsive to political oversight.

To control AI, we need to understand more about humans

Originally published by TechCrunch on September 13, 2017

From Frankenstein to I, Robot, we have for centuries been intrigued with and terrified of creating beings that might develop autonomy and free will.

And now that we stand on the cusp of the age of ever-more-powerful artificial intelligence, the urgency of developing ways to ensure our creations always do what we want them to do is growing.

For some in AI, like Mark Zuckerberg, AI is just getting better all the time and if problems come up, technology will solve them. But for others, like Elon Musk, the time to start figuring out how to regulate powerful machine-learning-based systems is now.

On this point, I’m with Musk. Not because I think the doomsday scenario that Hollywood loves to scare us with is around the corner but because Zuckerberg’s confidence that we can solve any future problems is contingent on Musk’s insistence that we need to “learn as much as possible” now.

And among the things we urgently need to learn more about is not just how artificial intelligence works, but how humans work.

Humans are the most elaborately cooperative species on the planet. We outflank every other animal in cognition and communication – tools that have enabled a division of labor and shared living in which we have to depend on others to do their part. That’s what our market economies and systems of government are all about.

But sophisticated cognition and language—which AIs are already starting to use—are not the only features that make humans so wildly successful at cooperation.

Humans are also the only species to have developed “group normativity” – an elaborate system of rules and norms that designate what is collectively acceptable and not acceptable for other people to do, kept in check by group efforts to punish those who break the rules.

Many of these rules can be enforced by officials with prisons and courts but the simplest and most common punishments are enacted in groups:  criticism and exclusion—refusing to play, in the park, market, or workplace, with those who violate norms.

When it comes to the risks of AIs exercising free will, then, what we are really worried about is whether or not they will continue to play by and help enforce our rules.

So far the AI community and the donors funding AI safety research – investors like Musk and several foundations – have mostly turned to ethicists and philosophers to help think through the challenge of building AI that plays nice.  Thinkers like Nick Bostrom have raised important questions about the values AI, and AI researchers, should care about.

But our complex normative social orders are less about ethical choices than they are about the coordination of billions of people making millions of choices on a daily basis about how to behave.

How that coordination is accomplished is something we don’t really understand. Culture is a set of rules, but what makes it change – sometimes slowly, sometimes quickly – is something we have yet to fully understand. Law is another set of rules that we can change simply in theory but less so in reality.

As the newcomers to our group, therefore, AIs are a cause for suspicion: what do they know and understand, what motivates them, how much respect will they have for us, and how willing will they be to find constructive solutions to conflicts? AIs will only be able to integrate into our elaborate normative systems if they are built to read, and participate in, that system.

In a future with more pervasive AI, people will be interacting with machines on a regular basis—sometimes without even knowing it. What will happen to our willingness to drive or follow traffic laws when some of the cars are autonomous and speaking to each other but not us? Will we trust a robot to care for our children in school or our aging parents in a nursing home?

Social psychologists and roboticists are thinking about these questions, but we need more research of this type, and more that focuses on the features of a system, not just the design of an individual machine or process. This will require expertise from people who think about the design of normative systems.

Are we prepared for AIs that start building their own normative systems—their own rules about what is acceptable and unacceptable for a machine to do—in order to coordinate their own interactions? I expect this will happen: like humans, AI agents will need to have a basis for predicting what other machines will do.

We have already seen AIs that surprise their developers by creating their own language to improve their performance on cooperative tasks. But Facebook’s ability to shut down cooperating AIs that developed a language that humans were unable to follow is not necessarily an option that will always exist.

As AI researcher Stuart Russell emphasizes, smarter machines will figure out that they cannot do what humans have tasked them to do if they are dead—and hence we must start thinking now about how to design systems that ensure they continue to value human input and oversight.

To build smart machines that follow the rules that multiple, conflicting, and sometimes inchoate human groups help to shape, we will need to understand a lot more about what makes each of us willing to do that, every day.

Disasters like Harvey and Irma show how lawyers’ stodgy rules kick Americans when they’re down

Originally published by the LA Times on September 17 2017

My house burned down in the Oakland firestorm of 1991, along with almost 3,000 others. I and my husband at the time lost everything we owned that wasn’t in our car, but we considered ourselves fortunate: Our 17-month-old son and his paternal grandparents survived. They were driven to safety by a neighbor minutes before our house burst into flames. Twenty-five people died in the firestorm, two at the foot of our driveway.

We would feel the effects of the fire for months. We had to find a temporary place to live with a toddler when thousands of others were looking and rents were skyrocketing. We had to decipher insurance policies, file and contest claims. We had to figure out whether to rebuild, and when. And we had to do all this while juggling work and disrupted child care, continuing to pay bills even though the stuff we were paying off was now a pile of ashes. Still, we were lucky. As law professors, we had financial and legal resources to meet these challenges.

Most people hit by Harvey and Irma don’t have these means. And in many cases, they are navigating overwhelming loss under far more complicated circumstances — with no income, no healthcare, child support obligations to meet, even vulnerable immigration statuses. In their efforts to stay afloat in this very different kind of flood, the vast majority of Harvey’s and Irma’s victims will have almost no access to legal help.

Aware of the legal crisis Harvey has left in its wake, lawyers in Texas have joined the ranks of first responders. Legal aid services have set up booths in shelters to provide information and advice. Attorneys across the country will also be able to help. Under ordinary circumstances, they wouldn’t be allowed to: Like every other state, Texas has a rule that only in-state lawyers can provide legal services to Texans. But after Harvey, the Texas Supreme Court issued an emergency order to temporarily allow out-of-state lawyers to provide pro bono assistance to hurricane survivors.

This is a welcome dispensation, but it also raises a question: Why limit this benefit to the aftermath of Harvey? Large-scale catastrophes may hit hundreds of thousands at once, but just as many are hit by personal disasters requiring legal help every day.

At any given time, as many as two-thirds of all American households are facing at least one problem that requires legal assistance — eviction, the need to pay or collect child support, a health insurance problem. On average more than 85% of these households get no legal help, according to surveys conducted in several states.

The reason is straightforward: Legal services are expensive. The average rate of noncorporate lawyers in this country is between $200 and $250 an hour. That’s a nonstarter for most Americans, many of whom can’t cover $400 in unexpected expenses. Very few people with legal problems will get government-funded legal aid or help on a pro bono basis. Only 1% of all lawyers in the U.S. work for legal aid providers, and the average lawyer devotes less than 3% of her hours to pro bono work.

Legal services are expensive partly because lawyers are highly trained professionals. But there is another, less obvious factor: Rules like the one in Texas prevent the legal market from bringing down costs.

Lawyers create these rules through bar associations and get them adopted by state supreme courts. The rule against out-of-state lawyers, which has been put in place by courts in every state, introduces a barrier to entry and helps to limit economies of scale.

It’s not the only example. For instance, there are rules that lawyers cannot be employed by, or enter into investment or contracting arrangements with, companies or organizations that are not owned by lawyers. Attorneys claim this is necessary to ensure that lawyers serve the interests of their clients rather than the profit motives of investors. But it means lawyers can’t partner with entities that have business expertise or the capacity to invest in technology and consumer research — things that might bring costs down. It also means that anyone looking to develop a new legal technology — a phone app that helps people file for benefits or interpret legal documents, say — cannot accept investment from venture capital firms.

These rules introduce significant inefficiencies into the market that serve no one, not even the lawyers. By my calculations using census data, many lawyers who charge $200 or more an hour only net $35 to $40 an hour. A recent study on the billing data of lawyers at small law firms found that, for an eight-hour day, they collected payment for about an hour and a half of work.

Lawyers defend their rules as ethical requirements, but they’re not. There are other ways to maintain legal ethics that would not radically limit the market. Fine out-of-state lawyers who give advice without adequate knowledge of local rules, for example, and make them hold malpractice insurance. This is how it’s done in the United Kingdom.

If American lawyers really want to help people who are hurting, they should start by fixing their own rules.