Re-thinking legal relationships

What legal systems need to consider is the possibility of the rule of law being shaped by way of the legal personality of the state conflicting with that of other actors, for instance, the growth of the corporate actor and its legal personality. In what is considered to be a classical analysis of corporate structures, Berle and Means discuss the threat of the legal identity of the state when confronted with the legal identity of the modern corporation:

The rise of the modern corporation has brought a concentration of economic power which can compete on equal terms with the modern state — economic power versus political power, each strong in its own field. The state seeks in some aspects to regulate the corporation, while the corporation, steadily becoming more powerful, makes every effort to avoid such regulation. Where its own interests are concerned, it even attempts to dominate the state. The future may see the economic organism, now typified by the corporation, not only on an equal plane with the state, but possibly even superseding it as the dominant form of social organization. The law of corporations, accordingly, might well be considered as a potential constitutional law for the new economic state, while business practice is increasingly assuming the aspect of economic statesmanship.[1]

Thus, we have a situation being created where there is a threat of constitutionalism of the economic sphere designed to protect corporations which have pursued favourable rules. Where this is the situation, a possible scenario is that the state in the social realm would now become more concerned with finding ways to secure the overall collective good of the public, instead of creating specific rights to protect specific groups based on a particular type of characterization. For example, the state would become more active in matters such as facilitating access to markets for citizens regardless of group distinctions, or ensuring environmental security and sustainability. To qualify a state’s agenda to pursue the provision of general public goods, there is the argument that there is a problem of social morality being translated into rules which create rights for specific groups because this would mean the creation of rights based on perceptions, or anticipation of social conflict. As Koskenniemi explains:

Social morality cannot, however, be translated exhaustively into rights language. Such language is based on an ideal of individual autonomy that perceives social conflict in terms of interpersonal relationship…abstract personhood and the conception of individual rights that goes with it cannot address the sense of injustice that arises, for example, from structural (economic/social) causation or from the sense of belonging to an oppressed minority. But also in many other contexts, posing the normative issue in terms of individual rights fails to grasp its social meaning. To take an example from Joseph Raz: I may own a painting by Van Gogh. Nonetheless, I may have a duty not to destroy it even if nobody has a correlative right. The value of art, in this case, cannot be expressed in rights language — just as little as, for instance, the value of a clean environment in a conflict concerning the carrying out of a contract for a large industrial project.[2]

By this notion, the suggestion is that in order for there to be an evolution as to how rights are understood, the legal process needs to be revisited in terms of legal categorizations and legal relations. There is arguably a type of legal fiction in the assumption of a vertical relationship between the state and all other actors, and in the assumption of a horizontal relationship amongst all other personalities categorized as non-state actors. The fiction is that citizens, corporations, Non-Governmental Organizations (NGOs) and all other non-state entities are assumed to exist in the same space with a common identity and with equality, and this assumption informs much of the theory and the practice of law.[3] A consequence of this arrangement is the creation of a conflict within the system itself as the idea emerges that there should be equality amongst all horizontally located actors specifically when it comes to establishing a relationship of trust in their vertical affiliation with the state. Actors on the horizontal plane, are in fact, not equal because of variations in their influence on economic and political power. It is instead proposed that a system is developed whereby less weight is placed on the vertical relationship, and more importance on the relationships between horizontal actors. This is not to say that legislatures and courts have not limited the scope and influence of horizontal actors in their ability to negatively affect each other because of power imbalances. However, re-visiting how legal relationships are defined between state and non-state actors, and amongst non-state actors at the horizontal level would allow insight into more secure ways of discovering and guaranteeing qualified rights.

In relation to re-visiting how legal relationships are defined, the recommendation of a decentralized governance system is next made. A theoretical model of local decentralized communities which may be established by virtue of characteristics such as common local knowledge or collective similarities will be also suggested.

State Decentralization

Where the objective is to re-define legal relationships and arrive at an outcome which fosters a dynamic legal system that allows positive treatment of soft law and informal institutions, the proposed means of materializing this objective is through dismantling the horizontal relationship between state and non-state actors and establishing a relationship brought about through decentralized governance. In defining ‘decentralization,’ according to the United Nations Development Programme (UNDP):

Decentralization, or decentralizing governance, refers to the restructuring or reorganization of authority so that there is a system of co-responsibility between institutions of governance at the central, regional and local levels according to the principle of subsidiarity, thus increasing the overall quality and effectiveness of the system of governance, while increasing the authority and capacities of sub-national levels.…Decentralization could also be expected to contribute to key elements of good governance, such as increasing people’s opportunities for participation in economic, social and political decisions; assisting in developing people’s capacities; and enhancing government responsiveness, transparency and accountability.[4]

Proponents of decentralization view the ‘centralized’ system as one where power is usually obtained at the ‘centre’ and controlled by the few in positions of authority, and therefore individuals, communities and organizations that are removed from the centre “do not have authorities, discretion, or exercise control over their own affairs.”[5] Instead, they are “either recipients of policies and programs from the centre, or merely instruments for carrying out the centre’s plans and directives.”[6] By this view, the centralized power is not capable of effectively observing and understanding diverse realities which are situated outside of its immediate confines, and as a consequence imposes rules and controls which are potentially counterproductive and demeaning.[7] Where this is the case, the Institute of Public Administration of Canada suggests that the “centre loses sight of what and who is to be served, becoming more interested in the means than the ends, because the means are more familiar.”[8]

Decentralization is not an absolute alternative to centralization but instead complementary roles of state and non-state actors should be analyzed in order to determine the most effective methods to accomplish desired objectives. There is the overall sentiment that the Westminster System has generally not displayed dynamism in allowing legal systems to guarantee the security of relevant rights to non-state actors in terms of protecting diversity. It is suggested that a legal system borne out of a decentralized governance structure could prove to be a valuable reform initiative. This type of system also has the potential of better ensuring that there is no dominant legal identity which would treat other identities as inferior. The importance of this is that the legal identity of the state can undermine other legal entities, despite those other legal entities being credible and relevant to certain segments of the population based on their historical and cultural histories and evolution.

A Theoretical Model of Local Decentralized Communities: Community to Community, and Community to State Interaction

Decentralized communities theoretically suggests that the community would be managing its own affairs, so that there is no need to resort to a vertical relationship with the state to be able to secure certain rights which it might be in competition with other communities in obtaining. Instead, each community would be compromised of local actors with an overarching localized legal and governance system. A community would include elements including but not limited to bodies such as financial institutions, healthcare providers, schools and religious, Gnostic or secular organizations. The composition of each community would be influenced according to the characteristics and circumstances that have brought its members together and decisions on community governance would be based on policies determined by collective consensus which are accessible to both individuals and localized institutions. In terms of the governance architecture, a representative body as an entity which represents the community would serve as a component of the governance process. This representative body would be selected by community consensus, and can also be changed by community consensus, so that the roles and agendas of representatives are fungible according to what the community determines to be the current situation, purpose and intended evolution of the community.

In this type of arrangement, the role of the state would be centralized only in the sense of a connector of different communities within the state. Representatives of the state would be determined by localized community representatives. Ideally, the state’s role would be limited to a channel of communication among decentralized communities, and overall would not be able to affect the governance of these communities. Individual citizens would be members of the state but would not actually have voting rights for the election of state representatives. Instead, citizens of each community would hold voting rights for the election of community representatives, or could possibly act as a community representative if certain conditions which are already determined, or may be determined, are satisfied.

It is suggested that localized communities in this model would internally have the freedom to choose rule of law and governance solutions which fit their specific needs based on collective community consensus. The way in which the state itself is structured would be as a facilitator of connections between various nationwide communities based on its acknowledgment and awareness of community consensus. So for instance, the state as a facilitator of transactions between autonomous communities would have the ability to promote trade and various other forms of interaction amongst communities by virtue of its record and awareness of localized community consensus. The state in this model would arguably be promoting innovation and value by efficiency in the transaction process, as well as enhancing the experience of all actors regardless of differences in beliefs, thereby improving the overall utility within the society. This would be the case as the state would actually be allowing the interoperability of various localized systems where possible, as well as advising on probabilities of mutual trust and reliability because it would be acting as a platform driving transactions according to its knowledge of how each community operates. The state would also have a choice to incentivize communities for participation in the overall ecosystem based on their policies, ambitions, or reputation.

What is suggested is that this type of relationship will actually redefine the social contract between the state and the citizens. On a commercial level, an example would be the state providing a platform for the execution of defined contracts between communities, or between the state itself and communities to carry out specific actions, with the intention being for the execution of these tasks to bring about collective benefit on a national and community level. A ‘reputation’ contract for instance would keep track of community metrics on certain behaviours or performance of tasks in their capacity as service providers. A ‘matching contract’ would then use the metrics of the ‘reputation contract’ to collect relevant bids for specific service level agreements for instance, and then an ‘aggregating contract’ would collate bid responses and then calculate what would be the most effective choice.

Decentralizing governance is not suggested as an ultimate solution, but instead as a way to make the legal system more inclusive, responsive and open to how decisions are made at a localized level. On this premise, it is suggested that the constitutional promotion of social justice should be more focused on the removal of barriers to participation in the economic system.

Re-thinking the constitutional promise of social justice

In considering the values contained within the preambles of Commonwealth Caribbean constitutions, Bulkan explains:

Caribbean constitutions solemnly affirm and espouse certain values, notably among these being freedom, democracy, social justice, human dignity and equality. These values have been enshrined in preambles, and breathe life into the substantive provisions. They have been repeatedly invoked and enforced by the courts.[9]

Bulkan references Lord Bingham who was “easily the judge to have succeeded Lord Diplock in terms of his command of Caribbean jurisprudence”[10] as affirming that Commonwealth Caribbean constitutions “were meant to usher in a new political order, one promoting values of social justice, inclusionary democracy and human dignity — all values that are incompatible with substantive inequality and the existence of irrational status distinctions.”[11] Bulkan further explains:

Fundamental rights, then — or at least those that promote the values of fairness, equality, political participation, human dignity and the rule of law — are emphatically a part of the identity of Caribbean constitutions, central to their values and the goal of perfection as envisaged in the Guyana model.[12]

In terms of Commonwealth Caribbean Constitutions, social justice considerations are therefore an important component in the pursuance of fundamental rights. To give an explicit example, the Constitution of Trinidad & Tobago states that its citizens are to:

respect the principles of social justice and therefore believe that the operation of the economic system should result in the material resources of the community being so distributed as to subserve the common good, that there should be adequate means of livelihood for all, that labour should not be exploited or forced by economic necessity to operate in inhumane conditions but that there should be opportunity for advancement on the basis of recognition of merit, ability and integrity…[13]

The recommendation however is that there needs to be a revised construction of, and framework for social justice that addresses matters such as the equality of human dignity and the oppression of certain groups within the society, but more along the lines of justice which allows for unhindered market participation. Social justice as a constitutional guarantee arguably does not take into account certain economic consequences when it comes to centralized redistributive state policies. The argument against the constitutional understanding of social justice is that it is incompatible with orthodox market economics and consequently counter-utilitarian as it assumes a distinction between production and distribution.[14] The economic theory is that income which is distributed to the factors of production such as wages for labour, interest on capital, or rent represents what is required in order for these factors to be at a point of optimal employment.[15] This means that there is “no ‘social pie’ which is available for distribution in accordance with some external criteria…”[16] Accordingly, Barry states that any attempt to redistribute based on social justice criteria “must inevitably distort the signalling process of a market economy and thus prevent an economic optimum being reached.”[17] According to Burke, proponents of social justice “tend to downplay the significance of the discipline of economics, and even to reject it altogether as immoral.”[18] However, “basic concepts of economic science, such as the law of supply and demand or the concept of marginal utility, are neither morally good nor bad but simply express the logic of human interaction…”[19]

It is suggested that protection from coercion as a feature of social justice would allow for the possibility of free competition, whereas economic protection “from the voluntary actions of the market is a contradictory protection as it has the effect of rendering the ‘protected’ person less economically productive and less capable of competing.”[20] Hence, the objectives of a just society could be achieved through principles of non-discrimination in terms of market participation, and constitutional protection should be focused on this outcome. As was previously discussed in the recommendation of a limited state, the state in a decentralized system acting as a facilitator of transactions would be acting unfavourably to itself if it seeks to limit the market participation of minority groups or discriminate against persons with non-traditional belief systems from market participation.

To illustrate this point, if an individual desires a particular good, he would be able to achieve utility if he is able to purchase that good. However, if that individual is unable to purchase the good because of a restriction on his ability to do so, utility in this particular instance would not be achieved, and it would be one less sale for the shop. If there exists no barriers to market participation, and therefore the individual is able to obtain the good, then both the individual benefits and the shop owner benefits. But, instead of this process being facilitated through a redistribution of wealth, it is suggested that the state, in the role of a facilitator of transactions would be able to benefit from a triadic system whereby it facilitates contracts between communities based on matches made that are informed by a record of metrics such as skill and reputation. In this system, the state would obtain certain incentives such as fees from facilitating transactions because it will be using its resources to make matches between communities in terms of what would be the most efficient transaction to enter into, and with whom. So the person wanting to go to the shop to purchase a particular good can be incentivized by the state to participate in the entire ecosystem because other than the individual’s desire to go to the shop, the state, by encouraging the individual to participate in the market will obtain benefit. By incentivizing all individuals within the state to participate in the exchange of their skills, goods and services for reward, it is suggested that what this encourages is a Hegelian transition of the individual from a state of consciousness to absolute consciousness. This would conceptually mean that consciousness which is informed by objects external to it and which exists at the level of the individual’s desires or will (such as the desire to make a certain purchase from the shop) are capable of being transitioned to absolute knowledge where the individual is now able to develop a cognitive attitude through an unrestricted dialectic process (in this instance, unrestricted and state incentivized market participation) from which he can discover how he can best use his skill to obtain a medium which can be used to make his purchase. In explaining further, Stern states that there exists the interpretation that:

what underpins the transition from consciousness to self-consciousness is not a shift from realism to idealism, but from theory to practice, where in theorizing we have a ‘detached’ view of the world, and so abstract from our position as subjects in the world, whereas in practical activity we act on the world and so put ourselves as subjects at the centre of things.[21]

By this measure, it is therefore recommended that constitutions ought to place greater emphasis on the objective of unrestricted access of all individuals to participation in economy and society with the state facilitating and encouraging exchange through providing incentives. The individual would be able to use incentives as a way to improve his skills and reputation within the entire ecosystem when it comes to the exchange of goods and services.

[1] Adolf Berle and Gardiner Means, The Modern Corporation and Private Property (Ardsley, NY: Transnational Publishers, 2005), 313.

[2] Martii Koskenniemi, The Effect of Rights on Political Culture, in The EU and Human Rights, Ed. by Philip Alston (Oxford: Oxford University Press, 1999), 102, 104.

[3] Uta Kohl and Naomi Salmon, Human Rights in the Market Place: The Exploitation of Rights Protection by Economic Actors (Hampshire: Ashgate Publishing), 242.

[4] United Nations Development Programme (Management Development and Governance Division), Decentralized Governance Programme: Strengthening Capacity for People — Centered Development (New York: UNDP, 1997), 4.

[5] Institute of Public Administration of Canada, Decentralization and Power-Sharing: Impact on Public Sector Management (Toronto: Institute of Public Administration of Canada, 1999), 418.

[6] Ibid.

[7] Ibid.

[8] Ibid.

[9] Arif Bulkan, ‘The Limits of Constitution (Re)-making in the Commonwealth Caribbean: Towards the ‘’Perfect Nation,”’ Canadian Journal of Human Rights 2:1 (2013), 82–115, 115.

[10] Ibid., 102.

[11] Ibid., 114.

[12] Ibid.

[13] Constitution of the Republic of Trinidad & Tobago, Chapter 1:01, Part (b) of the Preamble.

[14] Barry, Classical Liberalism and Libertarianism, 145.

[15] Ibid.

[16] Ibid.

[17] Ibid.

[18] Thomas Patrick Burke, The Concept of Justice: Is Social Justice Just? (New York: Continuum International Publishing, 2011), 23.

[19] Ibid.

[20] Ibid.

[21] Robert Stern, Hegel and the Phenomenology of Spirit (London: Routledge, 2002), 67.

The emergence of bitcoin and blockchain technology has pioneered the idea of decentralization as a challenge to our normative understanding and acceptance of how our social, political and economic systems function. This article will give a very basic consideration of blockchain technology and its possibility of ushering in a new normative characterized by decentralized communities whose relationships are governed by value-based exchanges instead of motivations which either advertently or inadvertently create situations of inequality. Ultimately, the desired effect of this “new society” is the cross-community achievement of maximum utility (or at least something very close to!) by both the individual and the collective. The article will also give a basic consideration of how communities would be able to handle tasks through peer to peer Smart Contracts, thereby serving to inhibit or totally remove the need for centralized authorities and intermediaries.

Bitcoin and Blockchain

Satoshi Nakamoto in the Bitcoin Whitepaper refers to the framework facilitating the use of bitcoin as:

an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party. Transactions that are computationally impractical to reverse would protect sellers from fraud, and routine escrow mechanisms could easily be implemented to protect buyers.

The issue to be solved however was one of “double spending” which essentially means that the currency spent over the network by Party A in remittance to party B had to be somehow confirmed to ensure that it cannot be spent by Party A again after the transaction is completed . So for example, if you buy a coffee for $5, the service provider at the coffee shop would receive the $5 fiat note from you and place it into the cash register, so that the $5 is now owned by the coffee shop, and you cannot use that exact $5 again for another purchase as your transaction is now completed. The solution to this problem proposed by Nakamoto was the establishment of the blockchain. To give a very simple example of how the blockchain functions, it basically operates as a public ledger where transactions are chronologically ordered and time stamped as they are confirmed. Groups of transactions, or “blocks” are added to the ledger and copies of the record are stored by nodes running on the bitcoin network.

This is arguably disruptive technology as its economic, political and legal system benefits (and implications) strongly suggest a capacity to reconfigure all aspects of society and the way in which society is governed and functions. To put things into real world perspective, essentially the blockchain can be used as an asset registry, inventory and exchange through the use of Smart Contracts. Blockchain application is far-reaching, and in the spheres of economics and finance for example it can incorporate transactions generated by hard assets such as physical property and intangible assets such as data and intellectual property.

Smart Contracts and Decentralization

According to Wattenhofer (2016: 87), “a smart contract is an agreement between two or more parties, encoded in such a way that the correct execution is guaranteed by the blockchain.” The blockchain serves as a mediator of conflict, should one party fail to honour an agreement. Smart contracts do not establish the terms of the contract, but instead see to it that all the conditions of the contract are met before it is executed. The classic analogy of how smart contracts are executed is in its comparison to the vending machine — you can input value into the machine via your fiat note or coin, and receive your drink or snack once your currency is accepted by the machine.

In highlighting the functionality of smart contracts, Swan (2015:14) explains how transactions governed by smart contracts work by giving the example of “smart property”:

The general concept of smart property is the notion of transacting all property in blockchain-based models. Property could be physical-world hard assets like a home, car, bicycle, or computer, or intangible assets such as stock shares, reservations, or copyrights (e.g., books, music, illustrations, and digital fine art)……Any asset can be registered in the blockchain, and thus its ownership can be controlled by whoever has the private key. The owner can then sell the asset by transferring the private key to another party. Smart property, then, is property whose ownership is controlled via the blockchain, using contracts subject to existing law. For example, a pre-established smart contract could automatically transfer the ownership of a vehicle title from the financing company to the individual owner when all the loan payments have been made (as automatically confirmed by other blockchain-based smart contracts). Similarly, mortgage interest rates could reset automatically per another blockchain-based smart contract checking a prespecified and contract-encoded website or data element for obtaining the interest rate on certain future days.

Property transactions being done over blockchain is a completely new concept, as we now have a situation where property rights are being defined through cryptography and enforced by code, so that a cryptographically activated asset is formed. Such an arrangement strongly suggests the possibility of a future with trustless asset management systems which are also decentralized.

From a community perspective, a shift to decentralization can be beneficial in many domains including the social, political and scientific, especially in situations where there is a need for the public interest to outweigh governmental power structures, for example regulations that are based on institutional lobby by special interests groups or other instances where hierarchical power structures are dominant.

According to the Icon Foundation in its Whitepaper:

A wide variety of communities are beginning to be formed around the world for various business purposes and relationships in the field of finance, public service, logistics, healthcare, IoT, energy, manufacture, e-commerce, and much more. With the development and spread of blockchain technology, the number of these communities is expected to accelerate. In such an environment, many tasks are
handled through Smart Contracts, and the role of centralized agencies and intermediaries is expected to either shrink or disappear. Smart Contracts not only revolutionizes the way members work within communities, but also affects the way communities work with other communities. In general, most communities begin with the goal of improving the work efficiency among the members, but in many cases, they evolve naturally in the direction of increasing interactions with the members of other communities. In this case, instead of handling external affairs through a separate centralized institution, Smart Contracts can reliably liaise the relationships.

It is important to consider that smart contracts not only challenge how traditional contract law is understood, but also impacts the notion of the normative understanding of the social contract within the society. Essentially, instead of the traditional understanding of a centralized social contract as one between the overarching centralized state and its constituents, the smart contract defines and determines the kind of social contract that is desired by contracting parties through law in the form of the smart contract code on the blockchain. The effect of this is for legal frameworks to be fluid, adaptable and more bespoke to specific situations. For example, contracting parties A and B can establish the smart contract by agreeing to a particular legal framework which would be incorporated into the code, while contracting parties B and C can use another legal framework, thereby resulting in a multiplicity of legal frameworks which are variable according to each unique scenario.

Conclusion

I would like to conclude by suggesting that blockchain technology enables a higher order of human relationships as determined by things such as the reconfiguration of central banking, financial markets, our understanding of property rights and of centralized State power. Ideally, it is a system which promotes efficiency at the expense of friction and bureaucracy. Importantly, because transactions on the blockchain require mutual consensus to operate, its model also promotes a higher social level of liberty, equality and fraternity. Decentralization at the socio-political level also suggests the establishment of autonomous communities based on mutual social values and defined by active community participation as opposed to community members being passive actors who are subject to State-based paternalism. Essentially, the blockchain promoted social contract as opposed to the State-promoted social contract will include systems which address decentralized collaboration and exchange of communication as well as conflict resolution through decentralized arbitration as built in within the smart contract. The utopia of this configuration is a decentralized society run by free market rules and characterized by justice and consensus dictated by the market as well as agreements fostered through blockchain based smart contracts.