Sunday, August 27, 2006

Business Law and Complexity

Business lawReadings in Complexity
By J.B. Ruhl
Post 2
August 27, 2006

For my second review of “law and complex systems” literature I have reached back into the earlier stages of work in the field to discuss Tom Gue’s 1998 series in the Tennessee Law Review on business law and complex adaptive systems (CAS). See Thomas Earl Geu, Chaos, Complexity, and Coevolution: The Web of Law, Management Theory, and Law Related Services at the Millennium, Part I, 65 Tenn. L. Rev. 925 (1998), and Part II, 66 Tenn. L. Rev. 137 (1998).

Geu’s central thesis is that “business-management theory, including economics, coevolves with the law of business associations, and that both, in turn, coevolve with the business of law.” Thus he is firmly of the view that “law in the United States is a CAS.” As one would expect, therefore, the series provides an extensive background on complexity theory as it stood in the late 1990s. But what I found most useful at the time, which was still relatively early in my foray into CAS and law theory, was how thoroughly Geu explored the drivers of complexity in play at the time for business and business law.

Geu divided the drivers into macro and micro. The macro drivers, as he saw it, were “(1) the ‘end’ of communism as a viable political regime, and the related ‘victory’ of liberal democracy; (2) the shift from a form of capitalism that emphasizes land, labor, capital, and entrepreneurial skill, to one that emphasizes knowledge as enhanced and applied through the use of technology; (3) the changing demographics of population growth, mobility, and aging; (4) the mergence of a global economy; and (5) the evolution of a multipolar world in which no nation-state may dominate and in which transnationalism, regionalism, and tribalism will become increasingly important.” Geu then identifies how these forces act at the micro level to bring about new business methods, such as “just-in-time,” the “virtual workforce,” and “knowledge workers.” He observes that “the nexus between these…forces for change and certain areas of law, such as a business association’s choice of legal entity, seems intuitive.” Most of Part II of the article then is devoted to applying CAS theory to this mix of forces.

When first introduced to Tom and his work, I had just finished laying out my theoretical framework for law-and-CAS analysis (see, in the essentials reading list, my articles from the Duke, Vanderbilt, and UC Davis law journals). In moving beyond the theoretical, Tom’s work emphasized for me the importance of identifying the drivers behind change and formulating models for fitting law into the system. Following his approach, I tried to do the same for environmental law in my article in the Houston Law Review, Thinking of Environmental Law as a Complex Adaptive System.

My approach to law-and-CAS analysis has developed since then into a six-step framework:
  1. Drivers: Identify the drivers of change in the system’s environment
  2. Models: Design models for how the drivers operate under given policy options
  3. Trade-Offs: Identify system conflicting constraints that may be triggered by policy choices
  4. Transitions: Develop scenarios for how the trade-offs affect system components over time
  5. Institutions: Identify which institutions are best equipped to manage the trade-offs and transitions
  6. Instruments: Identify the most effective instruments for those institutions to employ
A final thought on Geu’s work: If Geu is right—if business, business management theory, and business law all coevolve as CASs—is the force of globalization likely to lead to convergence of business and business law, or to greater diversity?

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