Monday, August 31, 2020

New Paper Posted: "The Algorithmic Law of Business and Human Rights: Constructing a Private Transnational Law of Ratings, Social Credit, and Accountability Measures"

Fernand Leger, The Card layer 1923

I am delighted to post a draft of a new paper, "The Algorithmic Law of Business and Human Rights: Constructing a Private Transnational Law of Ratings, Social Credit, and Accountability Measures." We wanted to consider data driven governance at it is emerging as an important element in the operationalization of international human rights  norms applied to economic activity.  We were particularly intrigued by the way that civil society actors, usually suspicious of data driven analytics to advance the great project of  the legalization of business and human rights (now including issues of sustainability and climate change), appeared to be embracing data driven governance.  We wondered whether this embrace was of a method of hardening international standards and advancing the objectives of national (usually disclosure based) law, or whether it augured changes in the way in which civil society (and enterprises) appeared ready to embrace in the forms of law making and the practices of governance.  The questions appeared particularly interesting in an area of substantial advance in both the legal and the algorithmic projects--that centering on the challenged of forced labor and modern slavery.  And thus the concepts around which the paper was constructed fell into place.

One of ist most interesting aspects involved our engagement with the issue of the relationship between the rise of Western data driven governance (what we are calling algorithmic law) and the equally interesting evolution of Chinese Social Credit systems. Our preliminary conclusion in that respect:
Marxist Leninist Social Credit systems emerge from a centralized system that is evolved under the leadership of a vanguard party with a quite specific core legitimating objective: the establishment of a communist society in China. That, in turn, requires the shedding of the imperfections of Western and liberal democratic principles and morals for the principles that under the leadership of the Communist Party will advance the core goal. Such a system necessarily may have substantial functional resonance with Western algorithmic law, but it operates on the basis of substantially different normative baselines. They might “speak” to each other on a technical level, but are essentially irreconcilable at the level of norms and (political) values.

The Abstract and introduction follow below.  The paper may be accessed (and dowloaded) through the Social Science Research Network (HERE) (or contact us). My co-author (and research assistant) Matthew McQuilla and I would welcome any engagement and further conversation around the themes  developed.  This is really the beginning of what will likely be a quite interesting journey. 

Larry Catá Backer [1]
Matthew B. McQuilla[2]

Abstract: This paper examines the rise of algorithmic systems—that is systems of data driven governance (and social credit type) systems in the context of business and human rights and its ramifications (especially its challenges) for law.  Section 1 sketched the context within which it is possible to frame concepts of algorithmic law.  Algorithmic law is centered at the nexus point of a number of critical trends.  Section 2 explored the premise that ratings based governance systems  can be created in a lucid and coherent way.  Section 3 then examined the way that these  theoretical possibilities begin to emerge in the West. Section 4 then briefly considered ramifications for liberal democratic orders and the constitution of law. Among the more relevant are those tied to issues of privacy, of the integrity of data, and on transparency. The context centers on the examination of the landscape of such algorithmic private legal systems as it has developed to date by considering the extent to which a rating or algorithmic system has been emerging around recent national efforts to combat human trafficking through so-called Modern Slavery and Supply Chain Due Diligence legal regime and international norms.

Type of paper: Conceptual
Main Contribution to Literature:  (1) AI, democracy, development, and the rule of law; (2) Algorithmic decision systems.
Key Methodological Considerations: comparison based research drawing inferences from a review of current practice in light of conceptual framework developed. 

1. Introduction; The Temptations of Algorithmic Law

Since before the start of this century, those committed to the development of legal regimes for the regulation of the human rights effects of economic conduct, especially economic conduct across borders, have been frustrated in those efforts in a number of ways (e.g., Ruggie 2013; Weissbrodt 2014). The resulting policy and regulatory misalignments have created one of the great challenges for any global human rights (and now sustainability) project focused on the management of economic activity (Aguirre 2004). The core of that challenge involves the need to preserve the leading role of states in a global context.  That notion of states at the apex of political authority and legitimacy has been built into the deepest structures of the UN system and has served as the core principle on which the legalization of economic regimes grounded in the core principles of free movements of goods, capital, and enterprises, have been built. with a limited but robust movement of labor.  The ramifications of this frustration and its contradiction might be divided into nine broad categories if only for the sake of analytical clarity.

First, the normative principles on which economic behavior is conceived, and now reified in the corporate (or enterprise) form, itself have served to limit the way in which the human rights effects of economic activity are embedded and valued within the process of production. The principles that responsible business conduct, or corporate social responsibility, is an externality—that is that it lies outside of the way in which the core of business activity is operated, and its costs measured—remains a challenge for those who would seek to develop mechanisms for internalizing the costs of such conduct. The notion of business activity as limited to the production of profit for shareholders in strict compliance with law (Friedman 1970) remains strong even as the nature of the process of production and the role of business enterprises  in social and economic collectives changes  (Robé 2012) and with it the turn to the fundamental ordering principles of stakeholder governance and a broader understanding of compliance (e.g., Interligi 2010; Munilla and Miles 2005).  

Businesses play a vital role in the economy by creating jobs,  fostering innovation and providing essential goods and services. Businesses make and sell consumer products; manufacture equipment and vehicles; support the national defense; grow and produce food; provide health care; generate and deliver energy; and offer financial, communications and other services that underpin economic growth (Business Roundtable 2019).

The stakeholder model is itself  now more at the center of discussion, even if the primary purpose of the enterprise is to deliver value to its investors, increasingly that value must be understood within the context in which the enterprise operates, and taking into account its effects on those touched by the processes of production.

Second, even if one can overcome or transform core corporate principles (Global Compact Network Germany and Twentyfifty Ltd 2014), traditional legal systems are constrained by the limits of territory (Zerk 2010). Jennifer Zerk noted that states tend to resist measures that constrain their ability to manage their own macro-economic policies through law or otherwise;  that convergence can tend to expose the inequality between  developed and developing states in their ability to contribute to the construction of norms and methods; that multilateral extraterritorial application can be enhanced and its legitimacy enhanced through robust processes of engagement;  and that a tort based (compensatory) model holds promise (Ibid., pp. 201-203).  At the same time she noted, and quite correctly, that states prefer extraterritorial application of their own norms along control chains (in the context of the activities of sovereign wealth funds see, e.g., Backer 2013), and for multilateral cooperation to manage cross border risk (Zerk 2010, 204). Academics have considered the extent to which extraterritoriality is inevitable under international law in the business and human rights context (McCorquodale and Simmons 2007; but see Van Schaack 2014). They have developed principles to manage its application in this context (Maastricht Principles on Extraterritorial Obligations of States ; discussed in Salomon 2012). They have explored the extent to which extraterritoriality—especially when practiced by powerful developed states with the “right” normative baseline, can or ought to serve as the “magic potion” to enhance corporate accountability (Bernaz 2013). Extraterritoriality is viewed as a means of avoiding the impunity that arises from the governance gaps that are the inevitable consequence of global production chains overlying state based territorially constrained authority (Deva 2004).

Third, consequential governance gaps has produced strong soft law measures (Backer 2008).  While there was some effort, after the Supreme Court decision in Kiobel (2013 , discussed in De Schutter, et al. 2012; Salomon 2012) to shift the focus of converting the United States as the principal site for the litigation of human rights claims against enterprises (Fairhurst and Thomas 2015), some attention was also shifting to the strengthening of soft law international regimes.  These, some felt, might then be hardened by requiring that they be incorporated into the private law internal governance regimes of large multinational enterprises (Ruggie 2008, ¶¶ 51-81).  

Fourth, states have been reluctant to fill the governance gaps required to align global production and global legal measures through the construction of harder multilateral legal measures. The history of movements toward the internationalization, in law, of corporate governance, has been one marked by substantial failures.   The near generation long progress from the creation of codes of conducts for multinational enterprises (Chance 1978), to   abandonment of the effort to adopt a United Nations Code of Conduct on Transnational Corporations through the 1980s (discussed in Sauvant 2015), and  to the rejection of the Norms on the Responsibilities of Transnational Corporations and other Business Enterprises (Backer 2006; Weissbrodt and Kruger 2003 ) provides its history.

Fifth, contemporary efforts to develop traditional legal frameworks through international law making have now run up against emerging fracture in the approaches to law (Amstutz 2008). The fracture is not merely between public and private, state, international, and transnational legal “spheres”(Backer 2012a); this to some extent represents a new expression of an older form of allocating political and regulatory authority (Grossi 2004, pp. 23-54). But more importantly, it is one in which Western, Marxist Leninist and developing state conceptions of law and its objectives no longer align (Backer 2017). 

Sixth, the ideology of traditional law, which centers the state, the process based enactment of law and public enforcement though an administrative and judicial apparatus is becoming increasingly detached from discretion based regulation of public administrative organs. These range from the management of behavior through compliance letters that seek to manage the exercise of administrative discretion on compliance measures (the US Justice Department letters on the exercise of discretion in prosecution (discussed in Backer 2019), to the development of measures against which to assess compliance with administrative objectives (most controversially use of “dear administrator “ letters by officials of the Obama Administration Department of Education on university approaches to allegations of sexual assault on university campuses (Brown 2017). States, like enterprises, are increasingly relying on data driven accountability structures to enforce standards.  However, in the process the actual interpretation and gap filling functions, that is the movement from legal objective to the actual standards against which conduct is judged, has shifted from the text of law to the analytics of data.  

 Seventh,  states have increasingly sought to use markets as a means of extending compliance based regulatory governance. I in the human rights field these include the adoption of disclosure regimes (generally Backer 2008a). Most recently, disclosure and disclosure regimes have focused on specific human rights related violations—from human trafficking (Modern Slavery Act (UK)  2015, Part 6 ¶ 54 (Transparency in Supply Chain);  Modern Slavery Act 2018 (Aus)), to violations in the mining sector (). This approach has been criticized  by those who view markets with suspicion as a regulatory vehicle (e.g. Garcia 1999). Yet in its modern form it seeks to use the market as a disciplinary mechanics operationalized by data driven judgments grounded in reporting; more importantly it has been viewed as a first step in the mandatory imposition of human rights obligations on enterprises by states in a more comprehensive way (Redmond 2018). These have sometimes been subject to state constitutional limitations, especially where enterprises are compelled to engage in commercial speech (National Association of Manufacturers 2015; discussed generally Taylor 2017).[3] Despite the controversy, the adoption of disclosure based approaches has opened the door to administration of conduct, not through command (which is now transformed into objective or risk avoidance parameters), but as a function of judgment mad possible by data analytics assessed against governing norms.

Eighth, the development of transnational private law based managerial structures for enterprise self-regulation based on compliance and risk prevention, mitigation and remediation strategies, has become an increasingly important element of corporate internal regulatory culture, and one that aligns with the disclosure based legal obligations imposed by states (American Law Institute 2019).[4] These build on two principal developments.  The first is the increasing detachment of  law from governance, and government from the state (Backer 2012). The second is grounded in the increasing devolution of regulatory power to administrative agencies, on the one hand, and to private actors, on the others.  But this is a devolution of a regulatory character, one in which law or norms mandate objectives and principles, but in which  the administrative agency or (increasingly the private entity) has responsibility for developing regulatory systems within their production chains for which they are now accountable to state or international organs (Backer 2008a).   Over the last decade, these, in turn, are based on the recognition of measurable factors from which compliance assessments can be made (Backer 2018).  

Ninth, in Marxist Leninist regimes, law itself has been challenged as the principal means of ordering behavior in favor of data driven assessments of conduct producing systems of rewards and punishments based on data analysis tied to measurable social objectives. The leading example, the Chinese Social Credit system, is based on a series of guiding opinions developed and managed through the Chinese State Council especially since 2014 (China State Council 2014), with the objective of building a comprehensive state-based system of law (understood as the guidance of behavior grounded in social, moral, and political principles and correction of unacceptable behavior deviations  (Backer 2018). These social credit systems now extend to enterprises within China and may be projected outward through China’s Belt and Road Initiative (Huang 2016; Chatzky and McBride 2020) partner states (Mardell 2019; Brattberg and Soula 2018). The result has been a movement toward ratings based private systems of compliance and accountability in the West, and toward the imposition of public ratings based social credit compliance systems in China.

Taken together, these suggest the possibility of a potentially radical transformation of governance.  That transformation is made necessary by the constraints now built into the construction of the international order, by the limitations of law to reach and govern certain activities, by the substantial normative constraints represented by corporate law principles, by the movement toward compliance based culture, and by the possibilities technology now offers for real time reward-punishment systems built on data-driven systems  through which machines can apply analytics based algorithms that produce ratings on which immediate punishments and rewards may be applied. The consequences are potentially significance in several respects.  It shifts the character if law and lawmaking to one that is meant to create and develop accountability structures around public agencies and private actors responsible for building and operating ratings producing systems.  It would follow then if lawmaking is reduced to compliance structures and normative principles/objectives, a quasi-constitutional (certainly constituting) role, then the actual task of making rules and applying them will either fall to administrative agencies or private actors.  In either case, those public or private officials will  exercise effective regulatory power of unspecified dimension articulated through the decisions made with respect to data, analytics and ratings. Law, then, assumes a substantially distinct character.  Traditional law shifts, a least in this context, from the source of rules to the means through which algorithmic law structures are constituted and its jurisdiction and objectives defined (a para-constitutional role). Algorithmic law is what follows from the constitution of data driven implementation, accountability, or compliance systems. It expresses  law through the judgment derived from the analysis of data that is itself driven by the valuation inherent in the judgment expressed through law.  Law provides the objective and the normative principle, it is macro-law; algorithmic law translates that into  the minutiae of everyday actions—it serves as micro-law. But id it micro law with a language of its own.
This paper builds on these insights to consider the use of algorithmic systems—that is systems of data driven governance (and social credit type) systems in the context of business and human rights and its ramifications (especially its challenges) for law.  The first part of the paper examines the characteristics of such algorithmic (private) law in the West and its public law variant in China. It considers both the conceptual basis and the construction of such systems.  To that end it builds a model algorithmic governance system based on the construction of privatized data driven governance regimes  of human trafficking between national law and international norms.  The object is to explore the conceptual logic of such systems and its plausibility both within and beyond the conceptual logic of traditional law based systems.

The second part of the paper then examines the landscape of such algorithmic private legal systems as it has developed to date.  This examination will be undertaken in two parts.  First an examination of common elements will be developed and then compared to the ideal type proposed in Part 1.  Second,  the distinctions between these models developing Marxist Leninist public model is considered. The object is to get a better sense  about the common characteristics of emerging algorithmic systems. An additional object is to consider a theorization of this model of law making, building on my prior work.

Part three then explores the ramifications for the baseline premises against which the legitimacy of traditional legal models are measured. Among the more relevant are those tied to issues of privacy, of the integrity of data, and on transparency. More fundamental issues touch on the role of law in governance systems that are data driven and compliance oriented. One of the more interesting contradictions of the rise of algorithmic law is that societal stakeholders most committed to a critique of the use of the model on the basis of its threat to conventional protection of law (privacy, human rights, rule of law, democratic engagement and the like) are also likely to use algorithmic law to seek to harden human rights enhancing  compliance systems based on data driven analytics with the characteristics.  

[1] W. Richard and Mary Eshelman Faculty Scholar & Professor of Law and International Affairs, Pennsylvania State University
239 Lewis Katz Building, University Park, PA 16802 (1.814.863.3640 (direct),
[2] School of International Affairs, Pennsylvania State University (MIA expected 2021).
[3] “The  increased  reliance  on  social  disclosure  to  address  matters  of global  importance,  including  but  not  limited  to  climate  change,  human trafficking,  and  the  use  of  genetically  modified  organisms,  is  causing  a corresponding pushback from industry groups and others opposed to the increased  burdens  imposed  by  disclosure  requirements.” (Taylor 2017, p. 428).
[4] “Corporations, meanwhile, are increasingly adopting their own codes of conduct covering matters as diverse as environmental sustainability, labor rights, human rights, and standards of respect, honest and fair dealing with customers.  These company-level norms are often enforced through processes that mirror the formal compliance function. Entities are being called on to encourage ethical and compliant behavior by third parties through systems such as programs of supply chain management,“ conflict minerals” disclosures, suspicious activities reports and similar activities (ALI 2019, Forward p. xv).

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