Molecular Federalism and the Structures of Private Lawmaking

This article explores “molecular federalism.” Private lawmakers—ranging from familiar organizations like the American Law Institute and the New York Stock Exchange to less well known ones, like the International Chamber of Commerce and associations of banks—are here envisioned as part of a federalist scheme that operates at a “molecular” level rather than at the level of the state. The function and legitimacy of private lawmakers, and the strengths and weaknesses of private lawmaking, are assessed under the rubric of federalism. The article takes up both horizontal and vertical aspects of molecular federalism, considering the possibilities of competitive private lawmaking and the potential for (and limits of) governmental control. The article accounts for the extraterritoriality of private lawmaking and considers how private legislation may escape some of the vertical checks and balances associated with state-based federalism, not only through extraterritoriality, but also through some surprising shifts in the federalist hierarchy. The paper also explores how one legal regime can become dominant, while other contexts may suffer legal fragmentation. The paper attempts to place its analysis within the context of some prominent U.S. theorists of federalism, including Herbert Wechsler and Justice Brennan, and contemporary European theorists, such as Gunther Teubner. The conclusion is that molecular federalism, like its state-based counterpart, produces mixed results, and often in a way that accentuates both the strengths and the weaknesses of state-based federalism. The paper also suggests that a constitution for private lawmaking, or a similar system of meta-rules, may be necessary to allow private lawmaking to come closest to its potential.

In a far flung, free society, the federalist values are enduring. They call upon a people to achieve a unity sufficient to resist their common perils and advance their common welfare, without undue sacrifice of their diversities and the creative energies to which diversity gives rise.

This paper attempts to assess privately made law (or private lawmaking) as a kind of federalism, thus taking up a point floated briefly in an earlier article. A very questionable legitimacy is the main challenge for private lawmaking. Competition, or its governmental equivalent—federalism—may help legitimate what otherwise might appear to be an unseemly enterprise by which de facto laws are made outside the structures of democracy or any other government. Because private lawmaking happens without established structures and depends on ad hoc combinations of private actors, I refer to what occurs in the private realm as molecular federalism. James Madison envisioned the United States as a “compound republic,” and conceptualizing private lawmaking as molecular federalism follows his compound analogy. The metaphor of the molecule (as opposed to the atom) invokes the idea of a compound because private lawmaking can only occur as a cooperative effort of at least two actors, and usually many more. This figure thus recognizes that even privately made law is a social function.

Aside from serving as a template with which to assess the legitimacy of private lawmaking, federalism can also help uncover the dynamics of different kinds of private lawmaking. The complex of governmental and private relationships in a federalist system, which has received careful analysis for many decades, can show how different lawmaking entities—public and private—influence and react to each other. Further, as the scholarly treatments of federalism have shown, a federalist organization of government is hardly perfect. Bringing this learning about federalism to bear on private lawmaking can help reveal some of the strengths and weaknesses of allowing rule generation to reside in the private sphere.

Finally, the “compound” idea of the molecule and of federalism may be consonant with some of the German systems theorists’ emphasis on what they call “communications.” In fact, the notion of molecular federalism may be linked with the idea of “societal constitutionalism” suggested by David Sciulli and expounded by Gunther Teubner. This link is probably most apparent in Professor Teubner’s reformulation of Grotius’s dictum ubi societas ibi ius: “Lawmaking also takes place outside the classical sources of international law, in agreements between global players, in private market regulation by multi-national concerns, internal regulations of international organisations, inter-organisational negotiating systems, world-wide standardisation processes that come about partly in markets, partly in processes of negotiation among organisations.” This conception describes well at least the international aspects of private lawmaking and can be applied almost as easily to domestic private lawmaking too.

This paper does not aim at high theory; instead, it concentrates on the checks and balances, and the particular costs and benefits, associated with allocating power across a shifting hierarchy of public and private lawmakers. Still, this exercise can be seen as an early cut at some of the issues embedded in the “difficult empirical and normative question” that Professor Teubner poses: “How … political and autonomous social constitutionalisation” actually takes place. Because of strict space limitations, this paper considers the federalism of the United States and private lawmaking in the commercial or business sphere. Even within that scope, the paper is confined to a brief, essayistic treatment. It also omits some important international issues, including the kind of federalism or regulatory competition that arguably exists in Europe, as well as the complex analysis that would be required to put together the rules of private international law with the idea of molecular federalism.