Just Published: "Next Generation Law: Data-Driven Governance and Accountability Based Regulatory Systems in the West, and Social Credit Regimes in China," Law &: Southern California Interdisciplinary Law Journal 28(1):123-172 (2018)

I am delighted to announce the publication of  "Next Generation Law: Data-Driven Governance and Accountability Based Regulatory Systems in the West, and Social Credit Regimes in China," Law &: Southern California Interdisciplinary Law Journal 28(1): 123-172 (2018).

In the contemporary world, compliance systems and policing are quickly replacing law and the traditional methods of enforcement (either organic or positive law) as the framework through which collectives (the state, the corporation, and religion, to name the most well-known actors) govern. It shifts the function of law from methods of command and obedience to systems of compliance and incentive. Most of the elements of social credit have already been developed in the West. But the unification of the various elements,and their seamless operation would be a great innovation. For Chinese theory, that innovation would complement the move toward transformation in politics, economics, and social organization announced in the CPC 19th Congress in the course of the Report delivered by Xi Jinping. As a system still very much in development social credit and ratings systems encounters a number of technical challenges.(Ibid., pp. 171).

The Abstract and Introduction follow below. The pre-publication draft can be accessed here.  PPTs of a recent presentation of the article HERE. Looking forward to further conversation. 

Next Generation Law: Data-Driven Governance and Accountability-Based Regulatory Systems in the West, and Social Credit Regimes in China

Larry Catá Backer*

Abstract

Data-driven governance systems are transforming the regulatory landscape of both states and other governance institutions. Grounded in principles of accountability and embedded in incentive-based systems for reducing risk and managing behaviors through mechanisms of choice and markets, these governance systems may well reshape the way states and other governance organs are constituted and operate. This short essay has two objectives. The first is to examine the challenges that social credit, ratings or assessment systems pose for effective implementation. Social credit itself refers generally to a new mode of data-driven governance through which data analytics are used to create and operate algorithms that provide a basis for rewards and punishments for targeted behaviors. More specifically, social credit references the specific project of the Chinese state to create a comprehensive legal and regulatory mechanism grounded in data-driven metrics that they have named “social credit.” To that end, Section II considers first the difficulties of separating the role of social credit as a set of techniques and as a means of advancing ideological principles and objectives in the context of Chinese efforts. The second is to consider the resonances of China’s social credit initiatives in the West. Section III then examines some of the ways in which Western efforts at social credit institutions have sought to meet similar challenges. The section first explores the context of social credit systems in the West and its operationalization, principally in the private sphere and through the use of market mechanisms for behavior management. It then examines the way that social credit might be used in the West as a technique of governance and as a means of embedding international standards in domestic behavior. The essay concludes by suggesting that social credit represents the expression of new forms of governance that are possible only through the correct utilization of big data management. The shift in regulatory forms also point to significant shifts in the relationship between law, the state and government. Accountability regimes grounded in behavior standards enforced through data-driven analytics may well change the focus of public law from constitution and rule of law to analytics and algorithm.

I. Introduction

About a decade ago, when the attention of influential thinking about governance was occupied elsewhere,[1] one might have noted a curious development in the nature of the forms of governance and its objectives within Western liberal democracies in the form of surveillance.[2]

Surveillance has morphed from an incident of governance to the basis of governance itself. It is both government (apparatus) and governmentality (its self-conception and complicity, the prisoner becomes his own keeper). In this sense, surveillance has become the new regulatory mechanism. And law is becoming its servant. And the state, either as the traditionally conceived apex of political order, or as the repository of large aggregations of power within an international state system, now serves as a (but not the) nexus point for the regulatory power of technique. It is in this sense that we can speak of the “death” of the “state” or the “rise” of a transnational political system, or the “death” of the public/private divide or even the construction of non-public autopoietic systems.[3]



Surveillance was especially potent in the context of the governance of enterprises,[4] and in the way that the state used its prosecutorial authority to coerce the adoption of systems of monitoring and reporting to avoid criminal prosecution.[5] These developments, one might think, had the potential to change significantly the relationship of the state to law, and of the character and role of law in the governing of states.[6] Yet an initial consideration might have dismissed this trend as irrelevant to the development of the productive force of law and its system. The phenomenon was not law; it had been the object of an abstract and remote elite political philosophy since the 1970s.[7] It appeared most valuable to the extent which one could pronounce this area “eccentric” rather than for any value where it counted—for tangible value for academics concerned about the collective intellectual movements in their field. Indeed, “it is debated whether this increase in scholarly attention for governance (purely) mirrors a rise in governance as a social phenomenon or (merely) indicates it is a fashionable research topic.”[8] There were exceptions, certainly, but they were generally connected to the rise of the Internet and Internet culture.[9]

Still, changes appeared to signal a new era of management that would fuse the authority of public and private institutions in new and uncharted ways. The trend was especially evident in the governance of behavior traditionally beyond the reach of states—transnational economic activity.[10] There was a sense that the appropriate approach to the management of behavior (by states or private institutions) was increasingly centered on the ability of decision makers to deploy data within algorithms to develop finely tuned systems of reward and punishment, which would manage appropriate behavior, hold individuals accountable, and contribute to social development.[11] Due diligence and the construction and operation of monitoring systems to provide accountability through standards developed by law (or markets)[12] appeared to produce that blending of public and private—political and economic systems—that might overcome the difficulty of extending law and rule of law beyond the state.[13] An intuition emerged, especially among scholars, that “corporate human rights impunity needs to be addressed at a variety of jurisdictional levels—national, regional, transnational and international—by a variety of actors—states, international organizations, corporations and NGOs.”[14] This fit comfortably into emerging notions of plural law, or transnational law and governance.[15] These transitions might also require, as its basis, the data generating habits of compliance and the data driven analytics of accountability.

Indeed, and slowly at first, the governance techniques of business and the state, especially in the management of economic behaviors, suggested an increasingly important space for systems of discretionary decision-making built on data-algorithm-consequence models as long as these were deployed to further the command of law and the public policies of which law was an expression.[16] It was management that counted, perhaps more than law, and institutions that served principle through the management of market driven behaviors, not political institutions. Within this context, it appeared increasingly clear that rule of law was moving toward data-driven systems implemented through the development of compliance practices of individuals and enterprises and overseen by administrators exercising constrained decision-making authority for the public good.[17] Regulatory governance appeared to push institutions not toward law-based government but to accountability-based governance.[18] Accountability refocused government from the state, and law, to regulation and the metrics required to bring those subjects to standards to account. “Decentered approaches to regulation emphasize complexity, fragmentation, interdependencies, and government failures, and suggests the limits of the distinctions between the public and the private and between the global and the national.”[19] And it also expanded an already quite substantial breadth for regulating—there was nothing beyond the power of accountability, and thus of management, through regulation if useful.[20] Accountability-based, data-driven governance appeared to solve the perennial problem of enforcement, and of the internalization of the command of law and regulation. Surveillance could serve not merely as tools but as “creators of social worlds . . . as forms of social engineering that legislate norms for acceptable and unacceptable behaviors and actions.”[21]

None of these emerging practices, however, appeared to disturb the traditional and conventional idea of the supremacy of law, or of its coherence and integrity. Neither did it appear to intrude overmuch in the construction of public rule systems, even as spaces for data-driven governance seeped into the regulatory state apparatus. But, suddenly, all of that appeared to be undermined. The trigger was an action by China—which appears to have ascended to the position of principal driving force in global political theory and action—when the Chinese State Council published its 2014 Notice Concerning Issuance of the Planning Outline for the Construction of a Social Credit System (2014-2020).[22] It proposed using the technologies of big data and big data management along with the possibilities of artificial intelligence and machine learning to develop comprehensive data-driven structures for management around algorithms that can produce real time reward-punishment structures for social-legal-economic and other behaviors. This project, a development of ratings and rewards systems, means to unify and integrate systems of monitoring, transparency, and compliance within the traditional law-administrative regulation construct of state systems, and appears to be one of the most innovative and interesting efforts of this decade. In the process, of course, social credit, or data-driven governance and accounting-punishment-reward systems, can significantly upend the now centuries-old rule of law by effectively making its structures irrelevant.

Social credit can be understood in two senses. First, social credit itself references the specific project of the Chinese state to create a comprehensive legal and regulatory mechanism that they have named “social credit.”[23] Second, it refers generally to a new mode of governance that recombines law and governance and the public and private spheres in new and hybrid ways that will likely transform the structures and principles on which legal, governance, and societal regulatory systems are now understood and through which they acquire their legitimacy. In both senses, the structures of social credit are similar. In each case, the system seeks to rate, score, or assess the object of regulation through a process that requires the acquisition of specific and relevant data, which is then interpreted through the application of an algorithm to produce an assessment, score, or measure which can be used to evaluate compliance with underlying objectives. Those scores then serve to guide the application of legal or administrative decisions—they can trigger rewards or suggest punishment.[24]

The triangular relationship between governmentalization (of both public and private institutional actors with managerial power), the mass of the population (which is its object and now its foundation), and “statistics” (that both define and serve to manage the mass of the population), is the essence of the problem of transparency in the twenty-first century.[25] At its limit, the enterprise of social credit suggests both the emergence of a new field of law as well as the negation of the privileging of law within economic and political structures. On the one hand, one might be tempted to see in the social credit enterprise a notion of the dissolution of the constitution of law within itself—that is, that the structures of legality, and its constitution, will have consumed itself. What will emerge from that self-consumption will be the methods and systems that it had once generated and which had been deployed in the service of the constitutional project—that the success of the constitutional notion will ultimately consume it so that where once there was constitution there will only be mechanics; where once there was principle, there will only be data; and where once there were norms, there will only be “statistics.”[26] This is bound up in the more fundamental idea of the end of law and the irrelevance of lawyers except as technicians of a new system that lawyers no longer control. On the other hand, the success of social credit may require, and indeed may be dependent on, the simultaneous development of a law for the digital and data age. That is, in the digital age, society (however constituted) is even more in need of law’s nomos and narrative to manage the use of the operation of data systems, and to protect the integrity of the generation of data itself, similar to the way that law is currently used to manage and protect the integrity of markets.[27] That nomos and narrative may vary depending on the societal and political context, but it must nevertheless develop alongside the re-constitution of the principles, customs, and manners of governance. To understand social credit, one must understand the evolving structures of the relationships, in law and politics, between states, its masses, and the institutions through which it operates.[28] In that respect, data-driven governance systems are transforming the regulatory landscape of both states and other governance institutions. Grounded in principles of accountability and embedded in incentive-based systems for reducing risk and managing behaviors through mechanisms of choice and markets, these governance systems may well reshape the way states and other governance organs are constituted and operate.

This context shapes the two principal objectives of this essay. The first is to examine the challenges that Chinese social credit ratings or assessment systems pose for effective implementation. The second is to consider the resonances and challenges of what might be considered Western variants on the Chinese social credit experiment. To these ends, Section II considers first the difficulties of separating the role of social credit as a set of techniques and as a means of advancing ideological principles and objectives. In this section, Chinese social credit is examined as an aspect of big data management with substantial governance and normative effects.[29] In that context, a number of issues are identified, such as social credit as a project of informatics, as systems of control and management, and as a governance mechanism. The section seeks to examine the proposition that to understand the shaping of law today (and soft law as well) one must understand social credit. The implications for the structure of government and for the exercise of social and political leadership might be profound. Section III then examines some of the ways in which Western efforts at social credit institutions have sought to meet similar challenges. The section first explores the context of social credit systems and their operationalizations in the West, principally in the private sphere and through the use of market mechanisms for behavior management.[30] It then examines the way that social credit might be used in the West as a technique of governance and as a means of embedding international standards in domestic behavior.

The essay concludes by suggesting that social credit represents the expression of new forms of governance that are possible only through the correct utilization of big data management. The extent to which state authorities in China are willing to utilize big data management will shape the form, scope, and direction of the governance possibilities inherent in social credit initiatives at the local, provincial, and national levels. But it is not just China; the quite visible move toward social credit in the West, albeit in a fragmented and functionally differentiated way among public and private institutions, also points to significant shifts in the relationship between law, the state, and government. Accountability regimes grounded in behavior standards enforced through data-driven analytics may well change the focus of public law from constitution and rule of law to analytics and algorithm.[31] In both China and the West, it is likely that a new language will be required to frame these emerging structures of control.

NOTES:

* W. Richard and Mary Eshelman Faculty Scholar and Professor of Law and International Affairs, Pennsylvania State University; Board Member, Foundation for Law and International Affairs; Coalition for Peace & Ethics. The ideas in this essay were first presented at the conference: The Chinese Social Credit System 2017, held at Shanghai Jiaotong University on September 23, 2017. It draws on and expands the essay produced for that event and published as Cedu Pinggu he Jiangli: Zhongguo he Xifang jianli Shehui Xinyong Tixi de Tiaozhan? (测度、评估和奖励：中国和西方建立社会信用体系的挑战？). (测度、评估和奖励：中国和西方建立社会信用体系的挑战)[Cutting-edge measures, assessments, and rewards: The challenge of establishing a social credit system in China and the West?] on (互联网金融法律评论, “微信公众平台。前沿栏目·第三季第21篇, 总第182篇）[Internet Financial Law Review Wechat Public Account Vol. 21, 182]. My thanks to Flora Sapio (University of Naples), Sun Ping and Tong Zhiwei (East China University of Political Science and Law), and Duoqi Xu, Shanghai Jiao Tong University KoGuan School of Law; Director, Shanghai Jiao Tong University Research Center for Internet Law Innovation, for their very helpful comments on earlier versions of this draft and for their support and engagement in this project. Special thanks to Gao Shan (Penn State SJD 2017) for his superlative research assistance.


[1] See Giulio Napolitano, The Two Ways of Global Governance After the Financial Crisis: Multilateralism Versus Cooperation Among Governments, 9 Int’ j. Const. L. 310, 310–339 (2011); see also Anthony Reyes, The Financial Crisis Five Years Later: Response, Reform, and Progress in Charts, U.S. Dept of Treas. Blog (Sept. 11, 2013), https://www.treasury.gov/connect/blog/Pages/The-Financial-Crisis-Five-Years-Later.aspx.


[2] See generally Surveillance and Security: Technological Politics & Power in Everyday Life (Torin Monahan ed., 2006).


[3] Larry Catá Backer, Global Panopticism:States, Corporations, and the Governance Effects of Monitoring Regimes, 15 Ind. J. Global Legal Stud. 101, 101­–­­­48 (2008). ­


[4] Stone v. Ritter, 911 A.2d 362 (Del. 2006). The surveillance apparatus of reforms to the federal secures laws in the face of the scandals of the early 2000s were even more profound. See, e.g., Larry Catá Backer, Surveillance and Control: Privatizing and Nationalizing Corporate Monitoring After Sarbanes-Oxley, 2004 Mich. St. L. REv. 327 (2004); Lawrence A. Cunningham, The Appeal and Limits of Internal Controls to Fight Fraud. Terrorism and Other Ills, 291. Corp. L. 267 (2004). But see Donald C. Langevoort, Internal Controls After Sarbanes-Oxley: Revisiting Corporate Law’s ‘Duty of Care as Responsibility for Systems,’ 31 J. Corp. L. 949 (2006) .


[5] See generally George J. Terwilliger, III & Matthew S. Miner, U.S. Chamber Inst. for Legal Reform, Legal Limbo: Seeking Clarity in How and When the Department of Justice Declines to Prosecute (2012), https://www.instituteforlegalreform.com/uploads/sites/1/DeclinationsBooklet.pdf.


[6] The relationship between the state and law, and on the character of law has already undergone profound change in the shadow of globalization. The writing is both rich and deep. See, e.g., Michael Byers, Custom, Power and the Power of Rules 3–52 (1999); Richard Falk, Predatory Globalization 9–80 (1999); Stephen D. Krasner, Sovereignty 152–219 (1999); Kenichi Ohmae, The End of the Nation-State: The Rise of Regional Economies 79–141 (1996); Adam Watson, The Evolution of International Society 265–319 (1992).


[7] Michel Foucault, “Society Must Be Defended”: Lectures at the Collège De France, 1975-1976 (Mauro Bertani and Alessandro Fontana, eds. David Macey trans., Picador 2003) (1997).


[8] Peter Mascini & Judith van Erp, Regulatory Governance: Experimenting with New Roles and Instruments, 35 Recht Der Werkelijkheid 3, 3–11 (2014).


[9] See Lawrence Lessig, Code Version 2.0 (2006); Langdon Winner, Autonomous Technology 323 (1977) (“New technologies are institutional structures within an evolving constitution that gives shape to a new polity, the technolopolis in which we do increasingly live.”).


[10] See generally John G. Ruggie, Just Business: Multinational Corporations and Human Rights (2013).


[11] See generally Robert J. Shiller, Macro Markets: Creating Institutions for Managing Society’s Largest Economic Risk (1993).


[12] See, e.g., Liangrong Zu, Corporate Social Responsibility, Corporate Restructuring and Firm’s Performance: Empirical Evidence from Chinese Enterprises 47 (2009).


[13] See John Ruggie, U.N. Human Rights Council, Protect, Respect, and Remedy: A Framework for Business and Human Rights, U.N. Doc. A/HRC/8/5 (Apr. 7, 2008); see also Kanishka Jayasuriya, Globalization, Law, and the Transformation of Sovereignty: The Emergence of Global Regulatory Governance, 6 Ind. J. Global Legal Stud. 425 (1998).


[14] Penelope Simons & Audrey Macklin, The Governance Gap: Extractive Industries, Human Rights, and the Home State Advantage 271 (2014).


[15] See, e.g., Gralf-Peter Calliess & Peer Zumbansen, Rough Consensus and Running Code: A Theory of Transnational Private Law (2010) (on transnational lawmaking and legal pluralism); see also, Paul S. Berman, Global Legal Pluralism: A Jurisprudence of Law Beyond Borders (2012).


[16] See, e.g., Simons and Mackin, supra note 14 at 178–271. (an especially potent idea in the management of human rights impacts of enterprises); see also Surya Deva, Regulating Corporate Human Rights Violations: Humanizing Business (2013).


[17] See Larry Catá Backer, Unpacking Accountability in Business and Human Rights: The Multinational Enterprise, the State, and the International Community, in Accountability And International Business Organizations: Providing Justice For Corporate Violations of Human Rights, Labor, and Environmental Standards (Liesbeth Enneking, et al. eds., forthcoming 2019).


[18] Colin Scott, Regulation in the Age of Governance: The Rise of the Post-Regulatory State, in The Politics of Regulation: Institutions and Regulatory Reforms for the Age of Governance 145 (Jacint Jordana & David Levi-Faur eds., 2004).


[19] David Levi-Faur, Regulation and Regulatory Governance, in Handbook on the Politics of Regulation 6 (2011).


[20] “Id. at 9, 16 (“[T]he expanding part of governance is regulation, that is, rulemaking, monitoring, and enforcement.”).


[21] Torin Monahan, Technological Politics and Power in Everyday Life, in Surveillance and Security 1, 12 (Torin Monahan ed., 2006).


[22] This outline established a detailed and comprehensive roadmap for the implementation of China’s social credit project. See Planning Outline for the Construction of a Social Credit System (2014-2020) (promulgated by the People’s Republic of China State Council, June 14, 2014, rev’d Apr. 25, 2015), GF No. (2014)21 (China) [hereinafter Planning Outline], https://chinacopyrightandmedia.wordpress.com/2014/06/14/planning-outline-for-the-construction-of-a-social-credit-system-2014-2020/. For an update on the progress of the implementation and social comments, see Zhang Yong (张勇), Shehi Xinyong Tixi Jianshe Xiayibu Zhuyao Zai Sige Fangmian Zhuoli (社会信用体系建设下一步主要在四个方面着力) [Four Areas of the Development of Social Credit], Xinhua News, http://www.xinhuanet.com/politics/2018lh/2018-03/06/c_129823589.htm.


[23] Planning Outline supra note 22.


[24] Larry Catá Backer, Social Credit in the West: Non-State Rating Systems for CSR Compliance, Law at the End of the Day (Sept. 17, 2017), https://lcbackerblog.blogspot.com/2017/09/social-credit-in-west-non-state-rating.html.


[25] Larry Catá Backer, Transparency and Business in International Law, in Transparency in International Law 477–501 (Anne Peters & Andrea Bianchi eds., 2013).


[26] See Bal Sokhi-Bulley, Governing (Through) Rights: Statistics as Technologies of Governmentality, 20 Social & Legal Stud. 139, 139–155 (2011 ); see also Alain Desrosieres, The Economics of Convention and Statistics: The Paradox of Origins, 36 Hist. Soc. Res. 64, 64–81 (2011).


[27] See, e.g., Manuel B. Aalbers, Regulated Deregulation, in Handbook of Neoliberalism (Simon Springer, Kean Birch & Julie MacLeavy, eds., 2016) (on the use of law and regulation to protect the integrity of markets without interfering in their operations).


[28] In the Chinese context, for example, that is itself the object of the development of law and legal technologies described in the 19th Chinese Communist Party Congress. See, e.g., Xi Jinping Report to 19th CPC Nat’l. Cong. CPCNEWS (Dec. 28, 2017), http://cpc.people.com.cn/n1/2017/1028/c64094-29613660.html.


[29] See Gloria Davies, Chinese Social Media, “Publicness” and One-Party Rule, in Routledge Handbook of New Media in Asia (Larissa Hjorth & Olivia Khoo eds., 2015) (on Chinese big data management policy).


[30] There has been some writing on the privatization of data collection in the West. See Günter K. Stahl & Ingmar Björkman, Handbook of Research in International Human Resource Management 476 (2006). However, much of the discussion has been on ways to closely constrain the government in its collection and use of data. See, e.g., Skylar Brooks & Domenico Lombardi, Private Creditor Power and the Politics of Sovereign Debt Governance, in Too Little, Too Late: The Quest to Resolve Sovereign Debt Crises 60 (Martin Guzman, José Antonio Ocampo & Joseph E. Stiglitz, eds., 2016); see also Zhongguo Tuijin Shehui Xinyong Xitong Wuyueqi Shixinzhe Xianda Huoche Feiji (中国推进社会信用系统 5月起失信者限搭火车飞机) [China Restrict Train and Airline Service to Bad Rating Person] RFA (March. 17, 2018), https://www.rfa.org/mandarin/Xinwen/8-03172018171914.html.


[31] Debra Logan, What Is Information Governance? And Why Is It So Hard?, Gartner Blog Network (Jan. 11, 2010), http://blogs.gartner.com/debra_logan/2010/01/11/what-is-information-governance-and-why-is-it-so-hard/.