Gillian Hadfield on Private Law and Private Regulation

One of the issues of central concern to libertarians is whether to have a state.  Some libertarians are anarcho-captialist libertarians, who reject the state, while others are minimal state libertarians, who favor a limited state.

While the anarcho libertarians have thought a fair bit about how a stateless world would work, there has been relatively limited thinking, among both libertarians and nonlibertarians, about specific institutions that might replace government regulation within a world that includes a state.  In my view, two significant examples are arbitration and where businesses supply some of the rules (such as the rules that a mall might impose on its visitors).

But what of other institutions that substitute for the state, and in particular for law?  In a new book, Rules for a Flat World: Why Humans Invented Law and How to Reinvent It for a Complex Global Economy, Gillian Hadfield discusses these matters.  I haven’t read the book yet, but I did listen to this Econtalk podcast with Russ Roberts and Hadfield, which I strongly recommend.

Hadfield is concerned with using markets to develop law and alternative legal institutions.  Her concern is that the production of law is too tightly controlled by lawyers and that insufficient innovation is occurring in this area.

Hadfield writes:

Restrictions on legal markets in the UK and Australia have already been loosened, inspiring new business models for law to emerge. This has allowed for the diversification of legal service providers ranging from supermarkets to banks and insurance companies. LegalZoom, a US company, has also been licensed in the UK to contract lawyers to provide services through its advice website.

Yet, too few people are thinking about how to evolve our legal and regulatory systems themselves—and too many are steeped in existing legal approaches. More diverse and responsive solutions to legal challenges are possible with a more bottom-up, market-based approach that can attract the research and investment needed for new ideas to manage the complexities we face.

She gives an example in her Econtalk interview:

And, what I’m saying is, we already know we need the private sector much more heavily engaged in the problem-solving of figuring out better regulatory regimes. How can we bring that within a public-law framework that says: Okay, you can figure out how to regulate; but here are the publicly determined, accountable criteria that that regulation has to achieve. So, very simplistically, in the case of the self-driving car, there’s a tolerable level of accidents on the road, and congestion levels; and you’ve got to hit those publicly-determined outcome criteria; but we’re not going to tell anybody how they achieve those outcomes. We’re going to let private regulators who develop systems that then private companies have to purchase into—we’re going to let those private regulators figure out better ways to achieve those, those objectives.

Roberts adds:

What you have in mind is sort of a middleman of regulation, that would, as you say, attract investment, charge for its services, and be competitive. It’s not like a private version of the EPA. It’s one of many monitoring or regulating bodies that would be distinct from the corporate world but also not governmental, that the governmental process would oversee.

This type of government regulated private agencies – which sound like competing private regulators that are subject to government performance standards – won’t be attractive to many libertarians.  But they are another model and in many ways a step in the right direction (irrespective of how far in that direction one wants to go).