I spent about 8 years as a practicing litigator, and one puzzle I keep coming back to is the fact that most modern litigation is really about judgment enforcement and not about establishing the truth of events. Most of the legal training, education, and scholarship apparatus is built around teaching lawyers how to establish facts given existing law, but in the 21st century, establishing facts that prove someone did something bad is trivial. The problem if anything is that savvy defendants understand this and use the discovery process to flood the system with so much information that decision become impossible.
But once someone is found liable, we underrate the extent to which our judgment enforcement system relies on trust that people will pay up once that happens. If a bad actor doesn't want to participate in that system, it's very easy to move assets and use the various available system(s) of limited liability and asset shielding to make the judgment creditor (and their lawyer) spend the next five years trying to squeeze out a single dollar. And when parties do agree to pay up (through settlement), the agreement is implicitly discounted on the understanding that the defendant will fully use this system to their advantage if the plaintiff refuses the deal.
«If a bad actor doesn't want to participate in that system, it's very easy to move assets and use the various available system(s) of limited liability and asset shielding to make the judgment creditor (and their lawyer) spend the next five years trying to squeeze out a single dollar.»
That the legal system is very slow, very expensive and outcomes can be ineffective seems to me a very clear policy to protect incumbents. The Purpose Of The System Is What It Does
On a similar topic 1834 Alexis de Tocqueville wrote in the classic "Democracy in America":
“Consequently, in the United States the law favors those classes that elsewhere are most interested in evading it. [...] In America there is no law against fraudulent bankruptcies, not because they are few, but because they are many. The dread of being prosecuted as a bankrupt is greater in the minds of the majority than the fear of being ruined by the bankruptcy of others; and a sort of guilty tolerance is extended by the public conscience to an offense which everyone condemns in his individual capacity.”
I remember being gobsmacked when reading "The New Industrial State" ~2010 when Galbraith described pretty much the same kind of ostracization as the reason the post WWII technocrats didn't just loot their firms by stripping them to the studs for a quick cash hit. By 2010, this was considered superlative capital efficiency.
Yes, during the run up to the Takeovers Directive, but I don't remember it being particularly convincing or conclusive. It's kind of par for the course when you are researching very thick social institutions I guess
I can't help but be reminded of the power of the Papal interdict in the middle ages and into the early modern period. A Papal interdict cit off people city states, and sometimes whole empires from interaction with the rest of Europe, until some point in the 17th century when there was an interdict against Venice that didn't work because enough of its trading partners had gone protestant for it to be able to muddle through.
I think the European Directive also had a degree of wanting to regularise and make available for public scrutiny and debate. There is a similar effect going on with payment processors and anything remotely linked with the adult industry / anything NSFW, which lacks anchor state actor but does have significant impact.
Yes of course, and there is something of a fuzzy dividing line between "A thick cooperative social institution capable of enforcing best practice" versus "no come off it mate, this is a cartel" and the European Commission tended to be more ideologically inclined to discover evidence of the latter rather than the former.
It was funny to read this piece on the Pantone color of the year and think that it's on a continuum with the "cold shoulder" you describe -- in that both reflect a private actor playing a key role in coordinating behavior.
This is great. The odd thing is that the British government is hung up thinking that it can't do this.
For instance it refuses to use its power to, for instance, boycott Fujitsu or the guilty suppliers in the Grenfell Tower scandal.
There's always an excuse but ultimately the government could pass primary legislation if it really wanted to do this.
Especially odd since this is something open to private companies the whole time - if a contractor really messes up, then they are unlikely to ever again get a contract from a big company - without any legal issues (whatever Musk thinks about suing advertisers).
I see the attraction, but I wonder how well a system like that would survive in a very litigious world? The US is not like everywhere else, but I immediately thought of the antitrust suit that X is trying to run against advertisers who stopped buying space there.
If you also look at things like the Altice attempt to use antitrust against its creditors (for agreeing not to enter into separate restructurings at each others’ expense), it feels like a harsh world for voluntary self-regulation. But perhaps we’ll be pleasantly surprised by the courts refusing to sanction these kinds of cases…
It has worked well in the US. Consider the primary dealer system, which had a 50-year run. It was a club, administered by the New York Fed, using nothing but club rules. If you behaved, the Fed would continue calling you a primary dealer. Severe misbehavior was rare, but had no legal sanction. Or consider the Clearing House, or DTC. All club rules.
This is one of the themes of the book from which this might be an off-cut; there are a number of ways in which we might need to change the legal system in order to facilitate the kind of governance changes we need
Shunning, the cold shoulder, the old boys network, the old school tie ... all forms of an older socially connected society, governed not so much by law as custom. Trump has run roughshod over customs and not a few laws. The question is not whether custom will hold (it won't), but rather, if custom will rebound like the furies and chase the violators off. Resilience of social opprobrium is the ultimate firewall of society. If it fails, no legal stricture will long deter.
This piece made me think about a distinction that often gets blurred in governance debates. The pre-2006 Takeover Panel looks much less like oversight and much more like a guardrail.
Oversight governance works through authority, monitoring and formal escalation. It checks what has already happened. It is slow, procedural and depends on statutory power.
The old Panel could not rely on any of that. It functioned because the cold shoulder created a guardrail that everyone believed everyone else would maintain. Behaviour was shaped by co-ordination rather than inspection. A single credible consequence, backed by a high-trust network, produced more discipline than any supervisory apparatus could have achieved.
That makes the Panel a useful model for areas where oversight has struggled, including online platforms and AI systems. It suggests that effective governance may come less from adding more supervisory layers and more from designing guardrails that reshape incentives so that harmful behaviour becomes unworkable in practice.
Your point about viral sanctions captures this perfectly. It is governance by expectation rather than enforcement. A system that is held in place because it is collectively trusted rather than institutionally policed.
Such an important point. I would go further than just saying that culture is a powerful sanction, and make the stronger point that without the right culture in business, regulation doesn't really stand a chance. As Confucius put it - "Guide them with government orders, regulate them with penalties, and the people will seek to evade the law and be without shame. Guide them with virtue, regulate them with ritual, and they will have a sense of shame and become upright".
The problem with this type of approach is that it won’t scale past a certain size. If you’re operating within that size - small enough and interlinked enough of a group of key players that it feels clubby - then yeah, more informal enforcement systems are better-suited. The essential challenge with large societies is that all these systems that work at small scale - and which we instinctively believe *should* work - break completely as you scale up, for I believe Dunbar-related reasons.
«Viral sanctions like this, in my view, aren’t used enough; they could be a very good way of extending enforcement into areas where it’s proved difficult in the past, like social media platforms and AI governance. The state has a really useful property that it’s a very big client that lots of people really want to do business with»
This to me looks like advocacy of using rather than transparent and equal-for-all sentences to fines or jail, blacklisting for people too important for that; with the added benefit that blacklisting can be applied also in cases where the behavior of the target was legitimate but undesired by the authorities. As we have seen on how diligently USA tech transnationals followed "suggestions" to blacklist "disinformation agents".
I spent about 8 years as a practicing litigator, and one puzzle I keep coming back to is the fact that most modern litigation is really about judgment enforcement and not about establishing the truth of events. Most of the legal training, education, and scholarship apparatus is built around teaching lawyers how to establish facts given existing law, but in the 21st century, establishing facts that prove someone did something bad is trivial. The problem if anything is that savvy defendants understand this and use the discovery process to flood the system with so much information that decision become impossible.
But once someone is found liable, we underrate the extent to which our judgment enforcement system relies on trust that people will pay up once that happens. If a bad actor doesn't want to participate in that system, it's very easy to move assets and use the various available system(s) of limited liability and asset shielding to make the judgment creditor (and their lawyer) spend the next five years trying to squeeze out a single dollar. And when parties do agree to pay up (through settlement), the agreement is implicitly discounted on the understanding that the defendant will fully use this system to their advantage if the plaintiff refuses the deal.
«If a bad actor doesn't want to participate in that system, it's very easy to move assets and use the various available system(s) of limited liability and asset shielding to make the judgment creditor (and their lawyer) spend the next five years trying to squeeze out a single dollar.»
That the legal system is very slow, very expensive and outcomes can be ineffective seems to me a very clear policy to protect incumbents. The Purpose Of The System Is What It Does
On a similar topic 1834 Alexis de Tocqueville wrote in the classic "Democracy in America":
“Consequently, in the United States the law favors those classes that elsewhere are most interested in evading it. [...] In America there is no law against fraudulent bankruptcies, not because they are few, but because they are many. The dread of being prosecuted as a bankrupt is greater in the minds of the majority than the fear of being ruined by the bankruptcy of others; and a sort of guilty tolerance is extended by the public conscience to an offense which everyone condemns in his individual capacity.”
I remember being gobsmacked when reading "The New Industrial State" ~2010 when Galbraith described pretty much the same kind of ostracization as the reason the post WWII technocrats didn't just loot their firms by stripping them to the studs for a quick cash hit. By 2010, this was considered superlative capital efficiency.
We are watching the tDrumpf version of "Cold Sholder" playing out in the US regulatory agencies.
was there any research done on why London managed to make viral sanctions work while other financial centres couldn't?
Yes, during the run up to the Takeovers Directive, but I don't remember it being particularly convincing or conclusive. It's kind of par for the course when you are researching very thick social institutions I guess
The feudal system
I can't help but be reminded of the power of the Papal interdict in the middle ages and into the early modern period. A Papal interdict cit off people city states, and sometimes whole empires from interaction with the rest of Europe, until some point in the 17th century when there was an interdict against Venice that didn't work because enough of its trading partners had gone protestant for it to be able to muddle through.
I think the European Directive also had a degree of wanting to regularise and make available for public scrutiny and debate. There is a similar effect going on with payment processors and anything remotely linked with the adult industry / anything NSFW, which lacks anchor state actor but does have significant impact.
Yes of course, and there is something of a fuzzy dividing line between "A thick cooperative social institution capable of enforcing best practice" versus "no come off it mate, this is a cartel" and the European Commission tended to be more ideologically inclined to discover evidence of the latter rather than the former.
It was funny to read this piece on the Pantone color of the year and think that it's on a continuum with the "cold shoulder" you describe -- in that both reflect a private actor playing a key role in coordinating behavior.
https://www.mondayeconomist.com/p/pantone
This is great. The odd thing is that the British government is hung up thinking that it can't do this.
For instance it refuses to use its power to, for instance, boycott Fujitsu or the guilty suppliers in the Grenfell Tower scandal.
There's always an excuse but ultimately the government could pass primary legislation if it really wanted to do this.
Especially odd since this is something open to private companies the whole time - if a contractor really messes up, then they are unlikely to ever again get a contract from a big company - without any legal issues (whatever Musk thinks about suing advertisers).
I see the attraction, but I wonder how well a system like that would survive in a very litigious world? The US is not like everywhere else, but I immediately thought of the antitrust suit that X is trying to run against advertisers who stopped buying space there.
Advertisers ask US judge to dismiss lawsuit by Musk’s X over ad spending - https://www.reuters.com/legal/litigation/advertisers-ask-us-judge-dismiss-lawsuit-by-musks-x-over-ad-spending-2025-05-15/
If you also look at things like the Altice attempt to use antitrust against its creditors (for agreeing not to enter into separate restructurings at each others’ expense), it feels like a harsh world for voluntary self-regulation. But perhaps we’ll be pleasantly surprised by the courts refusing to sanction these kinds of cases…
It has worked well in the US. Consider the primary dealer system, which had a 50-year run. It was a club, administered by the New York Fed, using nothing but club rules. If you behaved, the Fed would continue calling you a primary dealer. Severe misbehavior was rare, but had no legal sanction. Or consider the Clearing House, or DTC. All club rules.
This is one of the themes of the book from which this might be an off-cut; there are a number of ways in which we might need to change the legal system in order to facilitate the kind of governance changes we need
Shunning, the cold shoulder, the old boys network, the old school tie ... all forms of an older socially connected society, governed not so much by law as custom. Trump has run roughshod over customs and not a few laws. The question is not whether custom will hold (it won't), but rather, if custom will rebound like the furies and chase the violators off. Resilience of social opprobrium is the ultimate firewall of society. If it fails, no legal stricture will long deter.
This piece made me think about a distinction that often gets blurred in governance debates. The pre-2006 Takeover Panel looks much less like oversight and much more like a guardrail.
Oversight governance works through authority, monitoring and formal escalation. It checks what has already happened. It is slow, procedural and depends on statutory power.
The old Panel could not rely on any of that. It functioned because the cold shoulder created a guardrail that everyone believed everyone else would maintain. Behaviour was shaped by co-ordination rather than inspection. A single credible consequence, backed by a high-trust network, produced more discipline than any supervisory apparatus could have achieved.
That makes the Panel a useful model for areas where oversight has struggled, including online platforms and AI systems. It suggests that effective governance may come less from adding more supervisory layers and more from designing guardrails that reshape incentives so that harmful behaviour becomes unworkable in practice.
Your point about viral sanctions captures this perfectly. It is governance by expectation rather than enforcement. A system that is held in place because it is collectively trusted rather than institutionally policed.
Such an important point. I would go further than just saying that culture is a powerful sanction, and make the stronger point that without the right culture in business, regulation doesn't really stand a chance. As Confucius put it - "Guide them with government orders, regulate them with penalties, and the people will seek to evade the law and be without shame. Guide them with virtue, regulate them with ritual, and they will have a sense of shame and become upright".
The problem with this type of approach is that it won’t scale past a certain size. If you’re operating within that size - small enough and interlinked enough of a group of key players that it feels clubby - then yeah, more informal enforcement systems are better-suited. The essential challenge with large societies is that all these systems that work at small scale - and which we instinctively believe *should* work - break completely as you scale up, for I believe Dunbar-related reasons.
«Viral sanctions like this, in my view, aren’t used enough; they could be a very good way of extending enforcement into areas where it’s proved difficult in the past, like social media platforms and AI governance. The state has a really useful property that it’s a very big client that lots of people really want to do business with»
This to me looks like advocacy of using rather than transparent and equal-for-all sentences to fines or jail, blacklisting for people too important for that; with the added benefit that blacklisting can be applied also in cases where the behavior of the target was legitimate but undesired by the authorities. As we have seen on how diligently USA tech transnationals followed "suggestions" to blacklist "disinformation agents".
Resonates with levels of friction: https://thezvi.substack.com/p/levels-of-friction