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Trend of the Day: Polycentric Law

photo of Michel Bauwens

Michel Bauwens
9th January 2013


“Just as we want ‘many centers’ of social entrepreneurship, we need ‘many centers’ of legal activity. These centers won’t build themselves. To erode monopoly power with start-ups in business we need upstarts in law, channeling their ingenuity to building our polycentric system.”

The Radical Social Enterpreneurship blog introduces the concept of polycentric law:

“Polycentric law is a structure of overlapping or competing legal systems. Instead of having a single, monopoly provider of law and legal services, different systems are used to resolve disputes alongside one another.

‘Polycentricity’ (a term first introduced by philosopher and scientist Michael Polanyi) is simpler than it may sound. It means simply ‘many’ (poly) ‘centers’, in this case, centers of law.”

“How can a person use a different legal system from the same location, while their neighbors use something else? When do we stand in the ‘law’ aisle or on the ‘law dealership’ lot and choose the best law for our business or community?

First, many transactions we make need not be ‘tied’ to the location where we live. For example, businesses which trade overseas often will specify in their contracts which legal system they will use in the event of a disagreement. Both parties agree, for example, to have their disputes resolved in a US or British court, or even by a private arbitrator who they both respect and believe is fair.

This can occur even if neither party lives in the country or near the arbitrator that they’re using. International politics is ‘polycentric’ (though almost certainly still too monopolistic), and businesses are choosing legal systems from different national sets.

However, many laws are not just about trade and it is much more difficult to see how criminal or other laws can be ‘contracted’ like in our example.

This leads us to the importance of ‘switching costs’. Since we all live in some kind of community, with some kind of neighbors, somewhere, then a polycentric system is best achieved by allowing for a wide variety of different areas with different legal systems. The benefits of polycentricity require that we maintain a system of competition and choice – otherwise it begins to no longer resemble a system of ‘many centers’.

This means that we need to maintain ‘low switching costs’ for polycentric law to operate well. Walking from one car to another in the lot is a low cost way of finding good alternatives. We need to approximate this process as well as we can at the legal system level.

Consider a simple example. Cities like New York and Boston have different rules and compete with one another for residents. In the case of these cities, the rules are not especially distinct and U.S. federal law constrains the variety of laws and innovation between these two cities.

Since the difference between these legal systems is small, few people are willing to make the move from Boston to New York or vice-versa to find a better system. The costs of switching simply aren’t worth the little reward.”

Thus, this is also a call for Radical Enterpreneurs to actively fight against monopoly law:

“At the level of law-creation itself, many monopoly legal systems are structured to favor existing businesses and political elites. For instance, an established firm may lobby to have their particular mode of production written into law. This makes sure that upstarts – likely to innovate the process or pursue a rival model – are unable to get off the ground.

Monopoly law becomes a weapon for monopoly firms.

Stagnant, monopoly law has another serious effect: corruption. Corruption grows as the poor are unable to easily use the legal system, and as the rules become structured to benefit elites. People who cannot afford to go to court are more willing to pay bribes to avoid charges. The system rewards unscrupulous enforcers, who can take money to ‘look the other way.’

As legal rules grow more complicated and specific, people begin to accidentally break the law in their day-to-day lives. For instance, minute regulations for the display of trading licenses – that it must not be covered by a winter jacket, for example – lead to conflict between the world’s poor and law enforcement.

Fines for breaking these rules, which sometimes seem arbitrary and not protecting anyone, lead to resentment, violence, and extortion. Those targeted are often those who have the least ability to seek a redress of grievances in court.

Just as we want ‘many centers’ of social entrepreneurship, we need ‘many centers’ of legal activity. These centers won’t build themselves. To erode monopoly power with start-ups in business we need upstarts in law, channeling their ingenuity to building our polycentric system. In the process RSEs working for legal innovation can help fight corruption, empower the world’s poor, and spur economic progress.”

An example is Judge Me, a small claims court for the internet, proposed by a start-up in Chile, the founder of which is interviewed here.

Michel Bauwens notes:

Please note that my personal belief is that we should strongly oppose such privatisation of law. Law should be a civic or public matter, not a private one and certainly not done ‘for profit’.

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