December 18, 2018

Fireflies and Algorithms

We’ve been looking at workfare — the legislated link between jobs and the social safety net. An article published last week — “Fireflies And Algorithms — The Coming Explosion Of Companies[1] brought the specter of workfare to the legal profession.

Reading it, my life flashed before my eyes, beginning with one particular memory: me, a newly-hired associate, resplendent in my three-piece gray pinstripe suit, joining the 4:30 queue at the Secretary of State’s office, clutching hot-off-the-word-processor Articles of Incorporation and a firm check for the filing fee, fretting whether I’d get my copy time-stamped by closing time. We always had to file today, for reasons I don’t remember.

Entity choice and creation spanned transactional practice: corporate, securities, mergers and acquisitions, franchising, tax, intellectual property, real property, commercial leasing… The practice enjoyed its glory days when LLCs were invented, and when a raft of new entity hybrids followed… well, that was an embarrassment of riches.

It was a big deal to set up a new entity and get it just right — make sure the correct ABC acquired the correct XYZ, draw the whole thing up in x’s and o’s, and finance it with somebody else’s money. To do all that required strategic alliances with brokers, planners, agents, promoters, accountants, investment bankers, financiers… Important people initiated the process, and there was a sense of substantiality and permanence about it, with overtones of mahogany and leather, brandy and cigars. These were entities that would create and engage whole communities of real people doing real jobs to deliver real goods and services to real consumers. Dissolving an entity was an equally big deal, requiring somber evaluation and critical reluctance, not to mention more time-stamped paperwork.

“Fireflies and Algorithms” sweeps it all away — whoosh! just like that!— and describes its replacement: an inhuman world of here-and-gone entities created and dissolved without the intent of all those important people or all that help from all those people in the law and allied businesses. (How many jobs are we talking about, I wonder — tens, maybe hundreds of thousands?) The new entities will do to choice of entity practice what automated trading did to the stock market, as described in this UCLA Law Review article:

Modern finance is becoming an industry in which the main players are no longer entirely human. Instead, the key players are now cyborgs: part machine, part human. Modern finance is transforming into what this Article calls cyborg finance.

In that “cyborg finance” world,

[The “enhanced velocity” of automated, algorithmic trading] has shortened the timeline of finance from days to hours, to minutes, to seconds, to nanoseconds. The accelerated velocity means not only faster trade executions but also faster investment turnovers. “At the end of World War II, the average holding period for a stock was four years. By 2000, it was eight months. By 2008, it was two months. And by 2011 it was twenty-two seconds.

“Fireflies and Algorithms” says the business entity world is in for the same dynamic, and therefore we can expect:

[W]hat we’re calling ‘firefly companies’ — the blink-and-you-miss-it scenario brought about by ultra-short-life companies, combined with registers that remove records once a company has been dissolved, meaning that effectively they are invisible.

Firefly companies are formed by algorithms, not by human initiative. Each is created for a single transaction — one contract, one sale, one span of ownership. They’re peer-reviewed, digitally secure, self-executing, self-policing, and trans-jurisdictional — all for free or minimal cost. And all of that is memorialized not in SOS or SEC filings but in blockchain.

“So what does all this mean?” the article asks:

How do we make sense of a world where companies — which are, remember, artificial legal constructs created out of thin air to have legal personality — can come into existence for brief periods of time, like fireflies in the night, perform or collaborate on an act, and then disappear? Where there are perhaps not 300 million companies, but 1 billion, or 10 billion?

Think about it. And then — if it hasn’t happened yet — watch your life flash before your eyes.

Or if not your life, at least your job. Consider, for example, a widely-cited 2013 study that predicted 57% of U.S. jobs could be lost to automation. Even if that prediction is only half true, that’s still a lot of jobs. And consider a recent LawGeex contest, in which artificial intelligence absolutely smoked an elite group of transactional lawyers:

In a landmark study, 20 top US corporate lawyers with decades of experience in corporate law and contract review were pitted against an AI. Their task was to spot issues in five Non-Disclosure Agreements (NDAs), which are a contractual basis for most business deals.

The study, carried out with leading legal academics and experts, saw the LawGeex AI achieve an average 94% accuracy rate, higher than the lawyers who achieved an average rate of 85%. It took the lawyers an average of 92 minutes to complete the NDA issue spotting, compared to 26 seconds for the LawGeex AI. The longest time taken by a lawyer to complete the test was 156 minutes, and the shortest time was 51 minutes.

These developments significantly expand the pool of people potentially needing help through bad times. Currently, that means workfare. But how can you have workfare if technology is wiping out jobs?

More on that next time.


[1] The article was published by OpenCorporates, which according to its website is “the world’s largest open database of the corporate world and winner of the Open Data Business Award.”

 

Kevin Rhodes studies and writes about economics in an effort to understand the world his kids are growing up in, which is also the world he’s growing old in. You might enjoy his latest LinkedIn Pulse article “The Fame Monster: Rockstars And Rockstar Entrepreneurs.”

The Legal Times They Are A-Changin’ (Part One)

Rhodes_1

The following is taken from the Preface to a just-published collection of my blog posts from the past year.

Killing Them Softly

Rhodes_2Law, Enlightenment, and Other States of Mind (now available in a revised second edition) collected several years of my blog posts for the Legal Connection. It ended with a series called Killing Them Softly, featuring the work of University of Denver Law professor Debra S. Austin. (See Killing Them Softly: Neuroscience Reveals How Brain Cells Die From Law School Stress And How Neural Self-Hacking Can Optimize Cognitive Performance. See also her follow up article on lawyer substance abuse, Drink Like a Lawyer.)

Research studies and media stories about lawyer depression, anxiety, substance abuse, and suicide are legion, but Prof. Austin’s Killing Them Softly sounded a new kind of alarm through its application of neuroscience to the chronic stresses of law school and legal practice and its depiction of how law students and lawyers suffer cognitive brain damage that impairs them from doing precisely what their studies and practices require.

How’s that working for you, if you’re a client? Or an educator? Or a spouse? Or any number of other people with vested interests in law student and lawyer health and performance?

The more I blogged about Killing Them Softly, the more I wondered:

If we know we’re hurting ourselves, then why don’t we stop it?

We Are The Borg

Rhodes_3I’d blogged before about the legal world’s confounding indifference to its own welfare. This time, I broached the topic in a short series called Saving Ourselves From Ourselves, using Star Trek’s bad guys The Borg to lighten the inquiry. I mean, it was the end of the year (2014) and holiday time, after all. My attempt at levity didn’t help. Not really. The topic was too disturbing and the Borg “you will be assimilated” metaphor too appropriate. The law profession’s entrenched willingness to tolerate and continue unhealthy and performance-impairing practices wasn’t going away that easily.

Meanwhile, I’d noticed that an emerging subset of the legal profession seemed to be having a more upbeat experience. These were the new legal entrepreneurs, who seemed to have cornered the market on inspired action and were busy creating a bold new future for law practice. And yet, from what I could tell, the mainstream of lawyers remained unaware of the seismic shift in the legal profession happening right under their feet. They simply didn’t have ears to hear or eyes to see; they didn’t and apparently couldn’t feel the tremors. Once again I wondered: Why not?

The Future of Law

I had written about trends in law practice before as well, but armed with new research, I launched a new series at the start of the new year (2015) on The Future of Law. And then, for some reason I couldn’t articulate then and still can’t, I decided to play like a futurist and predict where the future of law was going. The predictions flowed easily once I focused on the larger trends driving the entrepreneurial initiatives, such as globalization, commoditization, democratization, and big data. Those trends were mostly finding expression in new legal practice models and technologies, and in hindsight my predictions in that arena frankly weren’t all that remarkable, although they certainly seemed so to me when I wrote them.

No surprise, then, that one week I would predict something, only to discover within short order an example of it. No, I hadn’t developed a new gift of clairvoyance, I was only tapping into what was already happening. In fact, I was fast being left behind: not only were the legal entrepreneurs busy creating a new future for law practice, but both legal and popular media were equally busy covering it. I had just come late to the party.

I helped myself liberally to the news as I wrote my blog, but then a more stunning realization about the future of law began to dawn in my awareness. This realization came to me in a series of waves, each amplifying the others:

The new practice models and technologies wouldn’t only change how law is practiced, they would invariably re-create lawyers themselves — who they are, and what they do.

As a result, a new kind of lawyer would engage in a new kind of law practice, alongside a new kind of legal expert who wouldn’t even qualify to be called a lawyer in today’s regulatory environment.

Alongside both of them, consumers (no longer “clients”) would themselves also practice law in a wave of legal DIY aided by artificial intelligence algorithms engineered by cyber geeks and served up online.

The combined impetus of all these developments would create a new kind of law— new in both substantive content and in how it is created, shaped, communicated, and applied.

In particular, this new kind of law would be created and disseminated, and would grow and change, by processes other than the historical reliance on legislation and appellate precedent and lawyer-to-client communication.

Finally, the advent of a new kind of law would transform the law’s role as a foundational institution in the larger cultural context in which it lives and moves and has its being.

Seismic change, indeed.

Continued next time.

Rhodes_4This second collection of Kevin’s blog posts focuses on the future and culture of law, including insights on technology, innovation, neuro-culture, and entrepreneurship. Extensively researched, visionary, and written in a crisp, conversational style by a man on a mission to bring wellbeing to the people who learn, teach, and practice the law.