Privatizing Commercial Law: Lessons from the Middle and the Digital Ages
66 Pages Posted: 19 Apr 2000
Date Written: March 2000
For the most part, the legal regime governing the emergence of the 21st C. commercial revolution is the product of the 19th C. Most importantly, our legal regime remains wedded to the role of public institutions, operating on bureaucratic rather than market principles, in developing the rules governing commercial relationships. While public law may be essential in the protection of the democratic values that shape the legal rights of individuals, the role of law in the commercial world is, or should be, principally about achieving efficient and productive commercial activity. In this paper I develop the rationale and principles for privatizing commercial law--meaning the private creation and enforcement of the substantive and procedural rules governing the commercial relations between economic entities--by exploring important examples of private legal regimes from the past and (futuristic) present. These examples are, principally, the merchant guilds and merchant courts of medieval Europe, the stock exchanges (particularly prior to SEC oversight), the private law developed by trade associations beginning in the late 19th century and, perhaps most intriguingly, the private regimes now emerging at an unprecedented pace on the Internet. Building on the analysis in a previous paper (The Price of Law: How the Market for Lawyers Distorts the Justice System), which documented the market failures traceable in large part to the monopoly provision of legal rules by the state as an insulated service provider, this paper examines how private legal regimes improve on public regimes in providing the legal structure necessary for efficient commercial relationships. The analysis sets out guidelines for exploring the central question of the appropriate role of the public regime in structuring private law-making institutions. Private regimes, it is argued, expose the process of law-making in commercial activity to competition and a far more efficient response to the complexities of modern commercial relationships and a rapidly changing environment. The guidelines drawn from both the middle and the digital ages are ones that take on immediate salience in light of the urgency of responding creatively to the revolution that is taking place in the commercial world and bringing commercial law into the 21st century.
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