From Legal Rules to Systemic Regulation: The Role of Feedback Loops and Holism in Modern Governance

Abstract

The text argues that a country’s real wealth lies less in natural and physical assets, and far more in intangible assets, above all institutions and social capital. According to World Bank estimates, only about a quarter of national wealth is “tangible”; the rest is human capital, institutional quality, and trust. Therefore, reforms should first target the rule of law and the functioning of public institutions, before implementing sectoral changes such as tax or health reform. A successful state must simultaneously be strong, law-governed, and accountable, and these three strands must be kept in balance through institutional “adaptability”. Institutions are presented as structured patterns of behaviour and belief that shape preferences, constrain action, and play a central role in justice. Many social failures stem not just from “wrong policies”, but from maladapted institutions unable to cope with today’s VUCA conditions (volatility, uncertainty, complexity, ambiguity). Although governance discourse has advanced (good governance, markets, international organisations), the underlying regulatory style has often remained static, producing a “hamster wheel” of ever-new but similarly designed rules. To break this cycle, the paper proposes viewing regulation itself as a system, using systems theory, cybernetics, and critical systems thinking (CST). Systems thinking focuses on interdependence, feedback loops, emergence, and homeostasis; cybernetics adds control, information, and self-regulation. Regulation should incorporate feedback, learning, and Ashby’s law of requisite variety–only complexity can manage complexity. Legal norms can be designed as adaptable mechanisms with built-in thresholds, feedback, and automatic adjustment, rather than static commands. The key research problem is how to integrate these systemic elements into inherently rigid legal frameworks without sacrificing certainty. The text sketches research questions and methods (dynamic modelling, adaptive management, scenario planning, participatory design) for making legal systems more responsive, data-driven, and resilient. Ultimately, the quality of the rule of law depends less on the values proclaimed in statutes, and more on the systemic design and operation of institutions that process information, learn from outcomes, and continuously adjust to a complex environment.