On Systemic Risk and the Legal Future
If you’ve heard the term “systemic risk” it was most likely in connection with that little financial system hiccup we’re still recovering from. But the concept of systemic risk is not limited to financial systems–it applies to all complex systems. I have argued in a forthcoming article, for example, that complex legal systems experience systemic risk leading to episodes of widespread regulatory failure.
Dirk Helbing of the Swiss Federal Institute of Technology has published an article in Nature, Globally Networked Risks and How to Respond, that does the best job I’ve seen of explaining the concept of systemic risk and relating it to practical contexts. He defines systemic risk as
the risk of having not just statistically independent failures, but interdependent, so-called “cascading” failures in a network of N interconnected system components. That is, systemic risks result from connections between risks (“networked risks”). In such cases, a localized initial failure (“perturbation”) could have disastrous effects and cause, in principle, unbounded damage as N goes to infinity….Even higher risks are multiplied by networks of networks, that is, by the coupling of different kinds of systems. In fact, new vulnerabilities result from the increasing interdependencies between our energy, food and water systems, global supply chains, communication and financial systems, ecosystems and climate.
As Helbing notes, the World Economic Forum has described this global environment as a “hyper-connected” world exposed to massive systemic risks. Helbing’s paper does a wonderful job of working through through the drivers of systemic instability (such as tipping points, positive feedback, and complexity) and explaining how they affect various global systems (such as finance, communications, and social conflict). Along the way he makes some fascinating observations and poses some important questions. For example:
- He suggests that catastrophic damage scenarios are increasingly realistic. Is it possible, he asks, that “our worldwide anthropogenic system will get out of control sooner or later” and make possible the conditions for a “global time bomb”?
- He observes that “some of the worst disasters have happened because of a failure to imagine that they were possible,” yet our political and economic systems simply are not wired with the incentives needed to imagine and guard against these “black swan” events.
- He asks “if a country had all the computer power in the word and all the data, would this allow government to make the best decisions for everybody?” In a world brimming with systemic risk, the answer is no–the world is “too complex to be optimized top-down in real time.”
OK, so what’s this rather scary picture of our hyper-connected world got to do with Law 2050? Quite simply, we need to build systemic risk into our scenarios of the future. I argue in my paper that the legal system must (1) anticipate systemic failures in the systems it is designed to regulate, but also (2) anticipate systemic risk in the legal system as well. I offer some suggestions for how to do that, including greater use of “sensors” style regulation and a more concerted effort to evaluate law’s role in systemic failures. More broadly, Helbing suggests the development of a “Global Systems Science” discipline devoted to studying the interactions and interdependencies in the global techno-socio-economic-environmental system leading to systemic risk.
There is no way to root out systemic risk in a complex system–it comes with the territory–but we don’t have to be stupid about it. Helbing’s article goes a long way toward getting smart about it.
Law 2050 Looks at 2052
While on a post-free vacation the past week, I finished reading Jorgen Randers’ 2052: A Global Forecast for the Next Forty Years. (How could the author of a blog named Law 2050 resist reading a book titled 2052?) Randers is a Norwegian Business School professor specializing in climate strategy and scenario analysis, and was a coauthor of 1972’s The Limits to Growth, which, like 2052, was a report to the Club of Rome project. Unlike LTG, however, 2052 is not a scenario-building exercise (LTG developed 12 global scenarios through 2100). Rather, as Randers describes it, 2052 takes the LTG scenario Randers considers the most probable given the last 40 years of experience since LTG and plays it out in a global forecast for the next 40 years. The forecasting is based on computer modeling using extensive datasets organized around four major cause-and-effect themes: (1) population and consumption, (2) energy and CO2, (3) food and ecological footprint, and (4) a collection of economic, social, and demographic factors. After a macro-view of trends in these categories, all of which point to an “overshoot” in our use of resources, Randers then provides sub-global forecasts for the US, China, OECD (minus US), BRISE (BRIC minus China but plus some others), and rest of the world. Along the way 2052 sprinkles in dozens of micro forecasts by other experts on a variety of pertinent topics.
2052 is a marvelous book, well worth the long, dense read. There’s far more to it than I could possibly summarize here, but a few points seem pertinent to Law 2050‘s scope:
- Randers predicts a world in which climate change is a major driver leading to a global infusion of energy efficiency technology and renewable energy infrastructure. Whereas LTG foresaw scenarios of overshoot dealt with through managed decline, Randers believes that the climate problem has moved us past overshoot into an era of “collapse induced by nature.” We will need energy efficiency and renewable energy just to tread water. Message for Law 2050: Energy law is going to grow only more important and broader in scope over the next 40 years.
- The US and OECD will move into a period of stagnation as population levels off and we must pay for the self-indulgence of current and prior generations financed on unsustainable fiscal structures and deferred infrastructure investment. Hindering their ability to pull out of this dive will be the short-term focus of modern democratic politics and capitalism, which ultimately will prevent the US and many OECD nations form making necessary adjustments for the long-term. China, meanwhile, with its centralized governance system and economy will become the dominant global economic force, requiring most other nations to march to its trade policy tune. Message for Law 2050: Start thinking about what it means for the US economy to look much like it does now for a long time while China slowly but surely becomes the center of global trade and policy.
- There is going to be social unrest across many scales. Many poor people in the world will be much better off than they are today, but many will not and the rich nations will experience declining growth and income. In the US, one lightening rod will be growing tension between the baby-boomers and their children and grandchildren, with Randers predicting that as the young become politically dominant they will simply say no to the prospect of maintaining the levels of support the baby-boomers unilaterally awarded themselves by leaving the bill on the table for younger generations to pick up. Message for Law 2050: There’s going to be some messy legal wrangling over how to pay for all that dessert the baby-boomers want to eat, and whether they’ll get all they ordered.
- Randers acknowledges some “wild card” scenarios that could throw his forecast off track, including the continued pushing off of peak oil, another financial meltdown, nuclear war, and revolution in a major nation such as the US or China. Notably, however, radical technological change is not one of his wild cards, nor does it play much of a role in the forecast generally. Message for Law 2050: Forecasts are tricky–keep building multiple scenarios and don’t ever underestimate technology.
For all it covers, however, 2052 makes no mention of legal evolution in its forecast. Randers assumes (probably with good reason given the record so far) that the international community will not rally around climate with any meaningful international law response (listing that as one of wild cards instead), but does not consider how law contributes to or could redirect or respond to any of the other trends he predicts at regional and national scales. Nevertheless, and perhaps as a consequence, Law 2050 will make frequent references to 2052 in the future as a robust base for building and testing scenarios of our legal future.
Envisioning the Law of Expert Robots
Two Canadian philosophers, Jason Miller and Ian Kerr, have posted an article on The Prospect of Expert Robots in which they consider a philosophical question that will have thorny implications for law: What if an expert human and an expert robot disagree on a matter of importance? By expert robot they mean a Big Data-loaded computer juiced up with algorithms that scour the data to produce answers within a complex decision domain that are on average more accurate than the answers counterpart human experts provide. Watson, in other words, is an expert computer at the game of Jeopardy, because it beat the world’s two most expert humans quite handily. But Watson is a toddler compared to the kind of expert computers on our horizon. Google’s driverless car, for example, is operating in a far more complex decision domain than is Watson, and seems to be doing quite a good job of avoiding accidents and traffic violations.
So consider some scenarios in the not too distant future in which expert computers are common throughout a wide array of decision domains and generally outperform their human expert counterparts. In one scenario they have replaced most of the human experts, making decisions free of human oversight. We’ve taken our hands off the wheel, so to speak, and delegated decision making to the expert computers. The expert computers aren’t perfect, however, so they will make mistakes. There will be driverless car crashes. Who’s liable when that happens? Can expert computers be negligent, or act with intent?
The more complex question Miller & Kerr treat, however, is what happens when the expert computers are working alongside human experts to produce good decision results and the two disagree about a crucial decision. Do we go with the human or the computer? If we go with the human and it turns out the computer was right, and the cost of the human’s error is significant, where does liability fall? And the reverse scenario presents the same question.
Miller & Kerr set up these scenarios nicely and work through some of the more profound normative questions they pose, concluding that there will be strong arguments in favor of delegation to expert computers but that the human impulse to retain control might make it difficult for society to take full advantage of what expert computers can offer. Liability rules also can have tremendous impact on the development and use of technology, and the expert computer world will present that problem in high resolution. Miller & Kerr concede that “our current models for assessing responsibility are not easily applicable in the case of expert robots” and that we have “barely scratched the surface regarding potential liability models.” Nevertheless, they worry that lawyers might gum up the works, such as by advising the roboticists designing the expert computers to ensure that the computers can explain their operations in the event of lawsuits, just as human experts do, which could impede the zeal with which roboticists work to develop better experts.
Watson playing Jeopardy is unlikely to get into any legal tangles, but IBM is not stopping with a win at Jeopardy. The law of expert robots is not that far into our future.
Looking Back on Looking Forward In Energy and Environmental Law
In 1978, The Ohio State Law Journal published a symposium issue on a topic near and dear to Law 2050–the future of law. One contribution was The Future of the Law for Energy and the Environment (39 Ohio State Law Journal 752 (1978)), by the late Earl Finbar Murphy. The time frame between its publication and the present–35 years–is about the same as the time frame of Law 2050’s look into the future, so I thought it might be interesting to look back on Murphy’s look forward.
The article is well worth the time for anyone interested in current energy and environmental law and policy. Although I did not know Murphy personally, his credentials in natural resources and energy law were impressive, and this article certainly demonstrates the command he had of our energy and environmental law and policy world in the 1970s. The article is part history, part assessment of the status of energy policy at the time, and a smaller part of prediction. Murphy did not build scenarios of the future, but rather extrapolated from energy history to project a crisis in energy supply by the end of the 20th century. Having just come off the 1973 OPEC oil embargo, that’s understandable, and of course only a year after the article’s publication Murphy’s concern became the reality of the 1979 oil crisis. Much of the article, therefore, is a critique of the government’s dependence on incessant economic growth as the foundation of its social and economic policies, which in turn depended on essentially unlimited access to energy at the expense of the environment. Murphy lamented that the public’s concerns about population growth, pollution, and shortages of energy and capital had not translated into a more coherent set of government policies at the time, and he anticipated a protracted period of political reluctance to change course toward greater integration of renewable energy sources. Legal change plays a small role in the article–much smaller than politics–his central prediction being that the fragile fossil-fuel energy system would eventually crack beyond repair, and then law’s role in retooling the nation’s energy profile would be sweeping in scope.
Ultimately, Murphy was half right and half wrong. He was remarkably prescient in linking energy policy and environmental policy, a pairing we take for granted today but which was not so common in the 1970s. His projection of a shortage-phobic national energy policy also held true for about two decades. Yet, although he recognized the unrelenting investment we would make in finding new sources of fossil fuels, he, like many others, did not anticipate how successful we would be at it. Who was thinking of fracking in 1978?
But the glaring omission from Murphy’s prediction is climate change politics. Climate change is not mentioned at all in the article, which is not the least bit unusual for legal scholarship from the 1970s. Yet fear of climate change, not fear of oil shortages, has become the catalyst for a deep (and controversial) reexamination and fusing of our nation’s energy and environmental policies. One cannot fault Murphy for missing the big game changer–everyone missed it. The lesson for legal futurism, however, is that extrapolation-based projection of a single future is risky. Scenario building, in which multiple possible descriptive futures are constructed, some of which integrate what might seem like “far out” ideas, is a more robust way of testing normative legal futures. Still, I found great value in reading Murphy’s prediction for our present time and highly recommend the article as an exercise in looking back on looking forward.
A Challenge for Silicon Valley: Ace My 1L Property Law Exam
We know they can beat human champions at chess and Jeopardy, but can the algorithm gurus in Silicon Valley program a computer to beat my 1L law students on my Property Law exam. I doubt it.
This challenge goes to the heart of the “reinvent law” and “law+tech” movements. There’s no doubt that plenty of the work that lawyers traditionally have performed can be substantially taken over or made far more efficient by computers. E-discovery is the obvious example. And there are domains of law steeped in technical rules and linguistics amenable to algorithm programming. The bizarre world of estates and future interests, for example, could very well be reduced to a program that could crunch through problems on my exam, spitting out the correct descriptions of present possessory estates and future interests about as effectively as any lawyer trained in the field (I would buy that program, give it to my students, and drop that section from the course!). But that’s because it is a field consisting entirely of rules and linguistics, with precisely correct answers to each problem and little room for higher-level reasoning.
Where I think the computers would flunk my exam is on the written essay portion. Bear in mind I do not construct insane factual scenarios on my exams–the kind with aliens invading Earth. I use practical scenarios taken from current news or my practice experience and put the students in situations not unlike those practicing attorneys face. To be sure, domain knowledge is essential for success on these questions, and the doctrine behind it could be stuffed into a computer program. But then what? Some of my questions go something like: “How likely is X to prevail on the Y claim?” or “Is there any problem with what the government has done to Y?” Of course, there is an attack strategy I teach my students for such questions–an algorithm of sorts–which I suppose could also be stuffed into a computer. That is what some Silicon Valley legal shops are trying to do for certain fields, as Lex Machina is for patent litigation. The problem is that the fact scenarios on my exam, as in the real world, can be quite nuanced, or they can be incomplete, requiring a decision tree approach with multiple branchings. Well, maybe Silicon Valley can program that too. But then there are questions asking students to advise clients what to do to solve problems, requiring that they explore and compare a variety of options and devise a game plane. Also doable for computers? Maybe so, but I am getting more skeptical as we go along. The most difficult type of question for me to imagine a computer solving effectively is one requiring students to invent new rules for new kinds of property issues, such as how to treat wind as a property interest given the rise of wind power. These questions require consideration of the theory and policy of property law as well as analogical reasoning to identify rules that work well in similar situations, transport them into the new context, and test how well they fit. Try that, Watson.
I can’t reveal the contents of my exam–it’s not being administered until this Friday and some of my students read this blog. But if anyone in Silicon Valley is up to the challenge, I’ll gladly send it to you and grade the computer’s answers.
Building Scenarios of Legal Futures
Legal futurism relies on developing robust scenarios of the future to test possible legal developments and outcomes. A recent article in Futures, A Review of Scenario Planning, defines scenarios as “a set of hypothetical events set in the future constructed to clarify a possible chain of causal events as well as their decision points.” Three main principles go into good scenario planning:
- Identification of predetermined elements in the relevant business or policy environment that will drive and direct future outcomes
- Developing a macroscopic view that pushes people to explore the relevant environment over a wider area than they normally would
- A willingness to change mindsets in order to re-perceive reality
There are numerous techniques used in scenario planning, but generally they fall into two categories. Descriptive scenarios are extrapolative exercises designed to present a range of future likely alternative events. Normative scenarios are more goal directed and are designed to assist in implementing desired policy objectives. The primary focus of legal futurism is on building descriptive scenarios of the legal environment in order to test normative scenarios of legal responses. Developing legal futurism scenarios thus will involve a blend of non-legal and legal futures.
Climate change adaptation provides an obvious medium for this kind of scenario planning. Climate change presents a host of different impacts on public and private interests (the descriptive scenarios), and how public and private entities respond will depend in large part on their respective policy goal alternatives (the normative scenarios). For example, the interaction of sea level rise and storm intensity could play out over several different scenarios for a region, and possible policy responses include to “defend” the shoreline built environment with more infrastructure or to “retreat” from the increased threats by shifting land use development inland. Legal futurism combines these two interacting scenario sets to explore the likelihood of different legal developments, such as whether an aggressive retreat strategy might lead to public regulations triggering takings liability.
An excellent example of this kind of exercise is found in Dan Tarlock‘s recent article in the Vermont Law Review, Takings, Water Rights, and Climate Change. Tarlock combines descriptive scenarios of climate change with normative scenarios of policy responses to explore how takings law might apply to futures ranging from “sea-level rise inundates private property and the state asserts that the land is now subject to the public trust” to the state ordering “the diversion of water from entitlement holders to mitigate adverse climate-change impacts.” His analysis, which bears down how takings jurisprudence encourages moral hazard problems, reveals the usefulness of scenario building not only for anticipating and planning future legal developments, but also for gaining insight about existing legal doctrine. Thinking about how law might work in future scenarios, in other words, tells us something–perhaps a lot in some cases–about how it is working now.
The Irony of Axiom and Clearspire: If Most of Their Lawyers Are Top AmLaw 200 Firm Alums, AmLaw 200 Firms Must Be Doing Something Right
Anyone following news of the changes taking place in the legal services industry has heard of the much-touted new law firm models represented by Axiom in the UK and Clearspire in the US. Both claim to have reimagined how a top law firm is structured and operates, and they truly have done some innovative thinking. Plus they have slick websites. Hats off to them.
But here’s the irony of Axiom and Clearspire: they proudly pronounce that most of their lawyers were trained in the BigLaw world they say is broken. Clearspire says its attorneys are “drawn predominantly from the ranks of AmLaw 200.” Axiom says that of its over 1000 attorneys in the network, “most have worked at an AmLaw 50 or Magic Circle firm.” Sure, it’s the profit pyramid/billable hour business model they and countless others piling on say is “broken” in BigLaw, but apparently Axiom and Clearspire have no problem with the training young attorneys receive in those firms. Indeed, that’s what they are marketing–their clients get BigLaw trained lawyers at half the rate. Here’s the bottom line: Law firms like Axiom and Clearspire are telling Fortune 500 clients to shun BigLaw while at the same time telling Fortune 500 clients they are staffed by attorneys trained by BigLaw. Huh?
Axiom and Clearspire also seem to have absolutely no interest in hiring and training new post-graduate lawyers in ways that would produce the quality of seasoned lawyer Axiom and Clearspire are marketing to their clients. Everyone seems to agree BigLaw does a pretty good job of moving lawyers from young post-graduates to experienced senior attorneys ready to handle complex legal matters faced by Fortune 500 companies. But according to Axiom, Clearspire, and their champions, BigLaw is over and they are now the best bet in town.
Here’s the problem: If Axiom and Clearspire are the wave of the future and BigLaw is obsolete, who will train the lawyers the new “reimagined” law firms will staff as senior, seasoned counselors. Couple that with the utterly unimaginative proposal to reform legal education in the US by lopping off the third year, and you should see the disconnect. Law firms like Axiom and Clearspire (and their clients) apparently don’t want to carry the lawyer training burden, and law schools (even with three years and plenty of clinical and skills training) can’t possibly graduate fully-formed lawyers any more than medical schools can graduate experienced neurosurgeons after their four years.
This is the one piece of the puzzle the “Rethink Law” and legal education reform movements haven’t quite figured out if their vision of the future of the legal industry and legal education comes true: Who will train the newly licensed lawyers?
Computerized Judging? The Finns are Leading the Way…
A post on Legal Futurology discusses a recent judicial reform report issued in Finland that includes the following recommendation:
In some types of cases the preparation process could be more strongly computer-supported. For example, when the elements of certain crimes are met, the system could automatically offer relevant phrasings as motivations, which could ease up the burden of processing simple high-volume cases, such as drunk driving. This could reduce routine work while at the same time safeguarding the high quality of the decisions.
The overall thrust of this part of the report is that by computerizing the decision-making process, maybe they won’t need as many judges as they have today. Perhaps it is not just practicing lawyers who should get up to speed on the law+tech movement!
What Would a Law Firm Research and Development Department Do?
One day when I was a young environmental law associate at a law firm in Austin, Texas, my managing partner asked what I thought was going to be “hot” in five years. He asked me to write up a short presentation on whatever I dreamed up and we and a few other lawyers in the office would present our ideas to a gathering of real estate industry representatives at a luncheon (our treat). My prediction was that the Endangered Species Act, which was not even on the radar screen in that part of Texas and hadn’t accounted for more than a few billable hours for me at the time, was going to become a major regulatory hammer throughout Central Texas and that some of the compliance approaches being tried in California could be adapted to our area. It turns out I was right, and the ESA consumed the following eight years of my law practice and for twenty years after that has remained at the center of my academic work and occasional consulting.
Law firms hosting luncheons for business development is nothing new. What was different about the one my managing partner threw together was that none of the topics we presented that day was generating any billable hours at the time. Rather, we were telling those gathered in the room something like: We think this set of issues is going to become a problem for you in a few years, and we are working on the solutions now so that if those problems do in fact surface, we are ready to help you navigate them. We were, in other words, engaging in research and development.
BusinessDictionary.com defines R&D as “systematic activity combining both basic and applied research, and aimed at discovering solutions to problems or creating new goods and knowledge. R&D may result in ownership of intellectual property such as patents. In accounting for R&D costs, the development costs may be carried forward but the basic and applied research costs are often written-off as incurred.” What we did that day almost perfectly fits this description–we deployed lawyers in the firm to discover solutions to anticipated legal problems, we demonstrated ownership of that problem-solving knowledge, and we wrote off the costs of developing and marketing that knowledge. It paid off in the form of clients and revenue not only for me but for several other lawyers in the office. We got the work when the problems materialized because clients knew we had already thought about the solutions.
What was missing, however, was that nothing about that process was the result of a systematic activity. (more…)
Will the Endangered Species Act Make It to 2050?
This week a task force of federal, state, and tribal agencies released the National Fish, Wildlife, and Plants Climate Adaptation Strategy, a 5-10 year plan for initiating actions to assist species adapting to climate change. The Endangered Species Act (ESA) does not figure prominently in the plan. Why not?
A few years ago I published an article in the Boston University Law Review, Climate Change and the Endangered Species Act, in which I outlined a trajectory of three key forces of species endangerment flowing from climate change:
- Ecosystem disruption: some species will find it difficult to persist within their current ranges as climate change pulls apart the species assemblies and ecosystem properties to which they have adapted over eons. Many such species are stuck where they are–migration is not an option. Salmon and pikas are examples.
- Adaptive species migrations: some species, however, will find migration an escape from climate disruption. Bravo for them! But when they move into habitat occupied by the “stuck” species, they will add yet another stressor.
- Human adaptation: as humans respond to climate change with sea walls, relocation of coastal cities, water diversions, agricultural adaptations, pest and disease controls, and a host of other adaptation responses, we will put yet more pressure on species at the margin. Humans in need of adaptation may feel less warm and fuzzy about species standing in the way.
The main thrusts of the article were that (1) the ESA is not designed for greenhouse gas emission regulation, but that (2) the ESA, if innovatively deployed by the Fish & Wildlife Service and NOAA, could facilitate species’ climate adaptations. I am beginning to think I was too optimistic.The legal futurist in me doesn’t give the ESA’s species-specific, land use regulation approach more than 10-15 more years before it is overrun by climate change. No way it makes it to 2050. (more…)
Law 2050 