Tear Down This Wall

At this twenty year anniversary of the fall of the Berlin Wall, let us reaffirm its key principle: we accept adult choice of law, at least if bundled with choice of nation.  North Korea still keeps locals from leaving, and until very recently the U.S. reserved the right to tax ex-citizens for up to ten years. But for the rest of the world, if someone picks up and leaves a nation and then solemnly swears allegiance to a new nation, we don’t see much need for regulatory oversight to determine if this new contract is “valid”.

I bring this up because teaching law & econ has reminded me of just how ossified and inefficient is our standard legal system, and Bryan Caplan recently guest lectured in my class on the vast potential of private law to improve efficiency.  The idea is to let people contract around standard law, privately choosing new legal rules and processes.  Local agreements between nations is what protects us now when we navigate the anarchy between nations, and the greater efficiency of private legal regimes of credit card firms, insurance companies, and social networks like Facebook greatly improve our lives. The idea is to extend such approaches to a wider range of legal issues.

The greatest barrier to wider use of private law today is the reluctance of government courts to enforce contracts specifying private law.  For example, a few years back a woman signed an employment contract with Halliburton saying disputes would be settled by a certain arbitration agency. When she claimed she was then raped in Iraq, we saw outrage:

Sen. Al Franken’s “anti-rape” amendment to the Senate defense appropriations bill … passed Oct. 6 by a 68 to 30 vote, was intended to prevent the Pentagon from contracting with companies that require employees to resolve disputes over sexual assault and discrimination through arbitration rather than through the courts.

A key argument against this arbitration is this:

Private arbitrators sided in Halliburton’s favor in 80 percent of cases.

Now in general it is good that courts do not automatically, literally, or strictly enforce all clauses of all contracts. We do not give equal attention to all clauses of all contracts, and do not explicitly say how to handle all possible unusual circumstances. But unfortunately this reasonable inclination to adjust typical contract enforcement toward what we probably would have meant to say gives ossified government law an excuse to block its displacement by better private law.

It seems to me that the main problem is trying to invoke private law via small clauses on page 20 of 30+ page contracts – most folks feel reasonably justified in not always literally enforcing such terms.  What private law needs instead is a clear deliberate solemnity like that of a new citizen moving to and then swearing allegiance to a new nation, an expensive signal showing they understand there are large consequences.

Imagine North Korea sent out agents to forcibly return escapees, arguing that escapee agreements to join other nations were void because escapees didn’t understand the full consequences of their actions. The world would loudly denounce such weak and transparently self-serving excuses. We want the act of agreeing to a private law to have such obvious and clear deliberateness, making government courts who overturn such agreements also seem self-serving.

Therefore I suggest: let individuals in a nation pay a large cost to with great solemnity declare their membership in a private law, a legal system covering disputes between its members and negotiating rules for disputes with members of other private laws.  If government courts refuse to enforce such agreements, then one could more reasonably ask a wider world of opinion to condemn such overreaching repression. Here one would have a stronger and clearer case pitting freedom against totalitarian control.

Note that I’m not (yet) proposing to eliminate government law; it may have a role in anti-trust for private laws, for example.  I’m just proposing to tear down the wall that prevents us moving to and between private laws.