Home » Legal Futurism » Embedding Law in the “Second Economy” — Implications for Legal Practice

Embedding Law in the “Second Economy” — Implications for Legal Practice

Brian Arthur is one of the leading economists studying complexity science and economies, particularly in the context of technological change. In a 2011 article in McKinsey Quarterly, The Second Economy, Arthur opens with the observation that “every so often–every 60 years or so–a body of technology comes along and over several decades, quietly, almost unnoticeably, transforms the economy: it brings new social classes to the fore and creates a different world for business.” He offers as an example the rise of railroads in the 1800s, which propelled the American economy from small potatoes just before the Civil War to the world’s largest 40 years later.

Arthur believes we are in the early stages of such a transformation, but it is not so easily seen as is a freight train. This emerging “second economy” lurks below the physical economy, acting as the new neural system. It it “vast, silent, connected, unseen, and autonomous.” It controls many corners of economic and social activity, from supply chain management to banking transactions to airport security checks. It is “remotely executing and global, always on,…self-configuring,…and increasingly self-organizing, self-architecting, and self-healing.”  It is, of course, the expansive network of computer servers set up to process billions of digital transactions and decisions on a 24/7 basis.

OK, we’re a long way from the Matrix, but Arthur’s article spurred tremendous interest in the implications for our economic future. The main concern Arthur raised is that, while a lot of good comes out of the work of the second economy, a lot of that work used to be done by humans. And with its virtually unlimited buildout potential, Arthur predicts there is more of that to come. The industries most likely affected, moreover, are not going to be the manufacturing sectors, where robots have already replaced humans; rather, the second economy strikes at the heart of service industries.

Law is a service industry. What are the implications of the second economy for lawyers?

Richard Susskind, a leading figure in the legal industry innovation world, suggests a trend toward “embedded legal knowledge,” by which he means programming our “systems and processes” to comply with the law. Susskind has some simple “systems and processes” in mind–an in-car breathalysing tester and a building temperature control system are his examples. These could reduce violations–a good thing–and also reduce the need for lawyers as a result, he points out. But the idea of embedded law, when paired with Arthur’s second economy, suggests a vast potential for embedding law into our “systems and processes.” The digital record of the second economy has made it easier for companies to track compliance, and also for authorities to find violations forensically. What if corporations (or government) simply required the second economy to be wired for compliance in the first place, unable to transact a violation and automatically reporting any attempted violations? If the physical economy can’t transact its work without the second economy, and the second economy is programmed not to allow violations of law, then the physical economy will comply with law.

The idea of programming the second economy to automate legal compliance is far from fanciful–it would rank as a no-brainer in Silicon Valley. It is a cost-effective move for companies and for governments. It likely will cost legal jobs, as well, but it will also create legal jobs. Hackers will hack the second economy (they already have), leading to criminal violations. Governments will go too far with requirements for the second economy, leading to privacy claims and other citizen complaints (already in play). The second economy will experience failures (it already has), leading to lawsuits over liability. Congress will write new laws regulating the second economy (it already has), leading to new agencies, new administrative law issues. And so on. Just as the Internet did, the second economy will “embed” some legal jobs and it will also create some legal jobs.

Whether the legal industry sees a net loss or gain in demand is hard to predict–what’s clear is change is in store for the legal industry as the second economy increasingly is wired to require compliance in the physical economy. It’s not a trend lawyers should ignore, and creative lawyers will turn it to their advantage.

Oh, and also, someone has to make sure the second economy is programmed with the right laws, all the time. Although, perhaps that could be automated as well…

1 Comment

  1. […] theme recalls a previous post of mine on “embedded law”–the idea that as more and more of our stuff and […]

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