At 11:30 AM 4/15/2001 -0700, Ray Dillinger wrote:
Nobody in conventional business is going to want to do a deal with someone when they can't create a legally enforceable contract.
This is a common refrain - especially among people who are pushing, for cultural or economic reasons, the adoption of a PKI system - but I think it suffers considerably from being overgeneralized. Specifically, it's common to overemphasize the importance of the government-based legal system as a dispute resolution system, or as a righter of wrongs, especially private civil contract-based litigation where force multipliers like attorneys' fees awards, punitive damages, or widespread public scorn or embarrassment. Even in a case where nothing goes wrong - e.g., both parties are subject to personal jurisdiction in the same place, they agree on the laws to be applied and the court which should apply them, and they have a clear pre-existing agreement covering their relationship - litigation is slow and expensive. On TV, it looks like a dramatic clash between two lone samurai attorneys fighting for the honor of their principals. In the real world, it looks more like WW I trench warfare, with expensive, slow, vicious, impersonal fighting over feet and yards of muddy, uninteresting terrain that's not good for much once the fighting stops. One of the problems people have when they learn defensive shooting is that they expect criminal assailants to just fall down and die if they're shot once, because that's how it works in the movies. In real life, actual criminals have often been shot before - frequently several times - and lived without serious consequences, partly because they received prompt, skilled medical care, and partly because the people who shot them didn't select an effective combination of ammunition and firearm. Because of their experience with gunshot wounds, criminals no longer necessarily have a great fear of being shot, nor are they likely to respond to it as a life-threatening event. Consequently, a person defending themselves against people like that will need to use force sufficient to render them physically and medically incapable of attack - injuries which might otherwise have resulted in moral or emotional incapacitation are likely to be inadequate to end an attack. Turns out the same thing happens with people and companies who use lawsuits instead of guns - they learn that it's not the end of the world if you get sued, and that suing someone (especially if they're an experienced defendant) isn't necessarily going to make them play nicely immediately. We talk about people making decisions based on the abstract notion of "the law" or "the courts" - but it's more useful to break that down further into decisions based upon "the carrot" and "the stick", or "greed" and "fear" .. the labels aren't important, so much as is thinking about those two flavors of human motivation. The "legally enforceable contract" notion is meant to invoke fear of a powerful and unavoidable stick - ideally striking fear (and good behavior) into the heart of a potential bad actor. As things turn out, sophisticated actors - be they businesspersons, criminals, diplomats, or whomever - come to understand that the law's force as a stick is not so powerful and unlimited as it's frequently portrayed. Does the failure of "the stick" doom us to lives of fear and hunger? No. Not at all - in fact, many of the people who enjoy themselves the most seem to be people who have learned to act on "carrot" motives, and to structure their negotiations and contracts with others so that they are operating not based upon fear, but upon mutual advancement and cooperation?
And "reputation capital" that would counteract that point to some extent depends on maintaining a consistent traceable pseudonym as someone who does something illegal, for decades, without getting linked to it.
No - it depends on maintaining a consistent identity, whose trades with its counterparties are considered by those counterparties to be both predictable and beneficial. As Tim May writes in a message which arrived while I was composing this one, there are plenty of examples of reputations as the basis for business deals now - and business deals which occur despite the lack of reputation systems. Cross-jurisdictional trade is one - really, it's just an example of the general class of disputes where the cost of resolving the dispute exceeds the value in dispute. There's a vast amount of commerce which goes on - certainly the majority in terms of number of transactions, likely the majority in terms of transaction dollar value, as well - where the cost to the participants to adjudicate a dispute regarding the transaction is greater than the value of the underlying goods, but is perceived as smaller than the cost to either party of ending their relationship. Easy examples of transactions without legal enforcement or reputation are street-level illegal transactions - e.g., purchases of drugs, sex, or forbidden information. At least initially, neither buyer nor seller knows if their counterparty is trustworthy - but these transactions take place, because both participants think that the value they get from the exchange is valuable .. in fact, more valuable than the risk that their counterparty is going to swindle them, or turn out to be an undercover cop. Even higher-level or repeat transactions, where participants have some level of experience with one another, present each with an opportunity to injure the other while denying the other access to traditional legal means of redressing that wrong. More examples about in the import-export arena - there are a number of private transaction patterns which have evolved to minimize risk and misunderstanding, but participants in international trade understand that there's some risk that they'll spend money to purchase unusable/unsalable product, or that they'll manufacture or reserve a specific quantity of goods for a buyer who may never appear .. and people doing business in those lines find that, most of the time, most people would rather conclude a deal well in hopes of gaining further business, either from that customer or via referrals. It is true that there is a vast amount of almost-demand on the parts of risk-averse people who don't want to act for fear of being wrong - but there are a lot of people who have figured out how to get things done without depending on "the stick" that is the law, and are doing so already. It is the latter group of people whose needs must be met for a transjurisdictional commerce system to be successful - the former group can come along when they're ready, or not at all. -- Greg Broiles gbroiles@well.com "Organized crime is the price we pay for organization." -- Raymond Chandler