Posts tagged with: rule of law

When we think of rule of law failure, countries like Zimbabwe and Somalia come to mind. But as Acton Research Director Samuel Gregg points out in his latest piece over at Public Discourse, rule of law can also be subtly eroded in wealthy countries. The negative consequences for risk-taking, entrepreneurship, and long term investment, he says, can be far-reaching.

Risk is an inherent part of the workings of market economies. But Gregg notes that’s not the same thing as uncertainty:

Measurable risks are . . . no deterrent to the making of economic choices. If we take them seriously, they help us to calibrate our economic choices to be consistent with our responsibilities, resources, and opportunities. The same measurements also allow us to distinguish between prudent risk takers and the reckless, and reward them appropriately. Uncertainty, by contrast, involves those risks that cannot be quantified. It can occur either because of the sheer complexity of a given situation or because the subject matter cannot be reasonably measured. As long as a situation of uncertainty persists, it will deter many people from even considering whether to take economic risks.

Uncertainty in America, according to Gregg, is being magnified by the sheer complexity of laws such as the United States Internal Revenue Code:

A tax code of this size and complexity which is subject to so many sources of potentially conflicting official and semi-official explanations is bound to embody significant contradictions, and offers considerable scope for arbitrary decision-making. Uncertainty is the result. It’s also valid to claim that the same tax code may well be impossible for large numbers of honest law-abiding citizens to understand and comply with—not to mention difficult for conscientious civil servants to administer justly. As a result, many people may unintentionally violate the law or simply choose to forgo making any number of potentially wealth-creating opportunities for fear of violating the law.

Another example is the thousands upon thousands of pages of legislation being passed by Congress every year. As Gregg writes:

Then there are the rule-of-law problems associated with the sheer volume of law that directly shapes American economic life. The 2010 healthcare reform legislation, for instance, amounted to 2,700 pages. Not far behind it in length was the 2010 financial overhaul act: a mere 2,300 pages. More than a few legislators have confessed to never having read either piece of legislation in its entirety. Nor should we assume any great familiarity on their part with the thousands of pages of legislation which these acts superseded, integrated, or reinterpreted. The possibility that many laws governing healthcare and financial services have subsequently been rendered unclear, inconsistent, and impossible to comprehend is high.

These erosions of rule of law, Gregg says, result in large incentives not to take risks and not to make long-term investments. It also encourages entrepreneurs to look elsewhere for a more friendly, stable and comprehensible legal environment.

Read the piece in its entirety at Public Discourse.

Blog author: jballor
Tuesday, July 20, 2010
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Wired magazine had a lengthy feature in 2004 on a new brand of transit design, specifically the kind that eschews signage and barriers, preferring instead more subtle signals.

In “Roads Gone Wild,” Tom McNichol profiles Hans Monderman (now deceased), “a traffic engineer who hates traffic signs.”

Monderman’s point of departure is that human interaction (e.g. gestures, eye contact) are preferable to explicit signage or signals that indirectly excuse us from conscious concern about our fellow travelers. “The trouble with traffic engineers is that when there’s a problem with a road, they always try to add something,” Monderman says. “To my mind, it’s much better to remove things.”

Monderman's Drachten Intersection

Drachten's busiest intersection after Hans Monderman.


Monderman’s design philosophy is to embrace chaos, and it’s effective because it allows for a kind of spontaneous ordering to occur. As McNichol writes, “The approach is radically counterintuitive: Build roads that seem dangerous, and they’ll be safer.” It is counterintuitive, but it is in accord with what we know about human nature.

Human beings, when faced with danger, instinctively and naturally slow down and assess the threats with heightened sense and attention. Indeed, self-preservation is a constitutive element in the natural law.

There is still an element of planning in Monderman’s designs, but what is remarkable about them is that they embrace what we know about human beings in toto and not for the purposes of some engineered abstraction (such as homo automobilus or some such).

The kind of planning that allows for free and spontaneous interaction and creates space in which this can happen within the larger framework of the rule of law, in markets as well as traffic intersections, end up being the best because they account for the complexities of human nature. The kind of planning that relies on rigid rules and regulatory edifices, whether on Wall Street or surface streets, tend to incentivize the objectification of human interaction, in which we treat each other as simple means, obstacles, impediments, or resources to be plundered.

Recognition of the other as having dignity, as well as the corresponding power to do us good or ill and their own responsibility to act accordingly, is constitutive of a superior design approach.

This kind of approach works, as I’ve said, because we instinctively recognize the worth of other human beings. The same reason that a bus filled with people must wait for a single person to cross an intersection is the same reason that the rule of law must limit majority rule, or absolute democracy. The rights of the individual must be respected, even when the majority must otherwise wait or acquiesce. A bus full of people on their way to a destination must often first wait for a single individual to go on their way.

In political economy, as Lord Acton writes, “The true natural check on absolute democracy is the federal system, which limits the central government by the powers reserved, and the state governments by the powers they have ceded.” And in traffic economy, the true natural check on absolute democracy might well be the spontaneous order arising out of a seemingly chaotic intersection.

From the Greek daily Kathimerini:

Witnesses said that protestors marching past the building ignored the bank employees’ cries for help and that a handful even shouted anti-capitalist slogans. [ ... ] It took a statement from President Karolos Papoulias to best sum up Greece’s dire situation and the frustration that many people are feeling with the political system. “Our country has reached the edge of the abyss,” he said. “It is everybody’s responsibility that we do not take the step toward the drop. Responsibility is proved in action, not in words. History will judge us all.”

From columnist Alexis Papachelas, in the same paper:

Now we have an intelligentsia that is hooked on patron-client exchanges and mediocrity, and a political establishment whose biggest concern is keeping its piece of the pie safe. On the flipside of the same coin we have a culture of protest in which anything goes and which tries to justify every “accident,” like yesterday’s murder of three working people by a hooligan who flipped them the finger when he saw them choking on the smoke of his firebomb. Now that we have succeeded in running the country into the ground, it is time to either rise to the occasion or kneel to the developments. The deal with the IMF and the EU will bring a lot of pain to a lot of people who are not to blame for the situation. We can’t throw money at the problem because we have none.

George Will on the welfare state:

The chief beneficiaries of the welfare state ethos are the organized interests on whose behalf most government interference with the economy is undertaken. These interests receive the lion’s share of the subsidies which, drawn from general tax revenues or imposed by government-enforced restriction of competition, are our major means for redistributing wealth. As a result, the net effect of government manipulation of the economy is negative for the poor. That is, one clear result of the expansive activism of our expanded government is a lower living stand for the poor.

Jean-Bertrand Aristide, the ex-president of Haiti who has lived lavishly in exile as a guest of the South African government for the past six years, recently announced he was ready to go back and help Haiti rebuild from its catastrophic earthquake. Allowing the former despot Aristide — a long time proponent of liberation theology — back into the country would be the worst thing we could do to Haiti right now. The American government must resist any move by Aristide to return.

In 2004, I wrote a piece for the Wall Street Journal in which I reminded readers of Aristide’s violent past:

In sermons later published in his book “In the Parish of the Poor,” [Aristide] called for forming “battalions” to perform “acts of deliverance” and for overthrowing the regime by “any means necessary” and pined for a Haitian version of the Sandinista Revolution. He did not hide his sincere devotion to Christian communism, which preferred its humanitarianism soaked in blood.

Ultimately, this former priest’s flawed understanding of the human person and economic realities added great suffering and injustice to a Haitian people who have endured so much: (more…)

The Bible Answer Man is in the middle of an extended, two day interview of Jay Richards, about Jay’s new book, Money, Greed and God: Why Capitalism is the Solution and Not the Problem. It’s the most in-depth discussion of the book I’ve encountered on the internet, and Hank Hanegraaff’s introduction alone makes it worth a listen. Yesterday’s interview is here. Today’s interview will stream here.

In today’s Detroit News, Acton Research Director Samuel Gregg talks about the sort of “moral, legal and political environment” that must exist if entrepreneurs are to flourish. He applies these precepts to the very serious economic problems in Michigan, where Acton is located:

… in the midst of this enthusiasm about entrepreneurship, we risk forgetting that entrepreneurship’s capacity to create wealth is heavily determined by the environments in which we live. In many business schools, it’s possible to study entrepreneurship without any reference being made to the role played by factors such as rule of law, property rights and low taxes in stimulating wealth-creating entrepreneurship.

Entrepreneurs gravitate to places where conditions for starting a business are optimal and the infrastructure — financial, legal, and technical — supports new businesses. Here, Michigan has a double-barreled problem: the out-migration of Michigan job seekers — much of it compelled by the steep decline of the auto sector in recent years — and the college graduate “brain drain” from state universities. How many of these people saying goodbye to Michigan are taking their entrepreneurial dreams, and maybe the next Big Thing in the economy, with them?

Read “Entrepreneurs Require More Room to Survive.” An extended version of this essay is slated to run in tomorrow’s Acton News & Commentary. Sign up online for this free email newsletter here.

“Power permits people to do enormous good,” Lord Acton once said, “and absolute power enables them to do even more.”

This wisdom from the nineteenth-century’s champion of state prerogative applies as well today. Politicians are crippled by the lack of the one thing they need to yank our hobbled economy out of the mire of recession: adequate power. It is our duty to grant it to them.

Yes, from time to time this commentary space has been critical of government meddling in economic affairs, surmising, for example, that trying to cure poverty by funneling more money through Washington would do less to assist the poor than to pad the salaries of middle-class bureaucrats. We have emphasized the effectiveness of private and faith-based charity, of its capacity at once to use resources efficiently and to respect the individual’s dignity. We have argued that persons, morally formed, acting freely, and operating within the context of a rule of law, will generate a bountiful and equitable economic environment without counterproductive interference by the state. We have posited that our current difficulties derive from a combination of moral turpitude and government bumbling.

We were mistaken. (more…)

Blog author: jcouretas
Friday, March 28, 2008
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Russian emigre philosopher Georgy Fedotov (1888-1951) proposed two basic principles for all of the freedoms by which modern democracy lives. First, and most valuable, there are the freedoms of “conviction” — in speech, in print, and in organized social activity. These freedoms, Fedotov asserted, developed out of the freedom of faith. The other principle of freedom “defends the individual from the arbitrary will of the state (which is independent of questions of conscience and thought) — freedom from arbitrary arrest and punishment, from insult, plundering and coercion on the part of the organs of power … ”

In an ideal world, all of these freedoms would be present. But Fedotov also cautioned that “freedom is the late, refined flower of culture.”

For the flower to bloom, the roots need to be watered. A free society, from the ground up, requires a respect for the rule of law, a judiciary and police force that aren’t easily bought, a political culture that knows how to rid itself of corruption, and a vigorous free press to keep the pols and bureaucrats honest. I would also add a liberal measure of economic freedom and property rights that secure wealth from the “arbitrary” plunder of the government.

All of which gets us back to Russia. In an interview this week in the Financial Times, President-elect Dmitry Medvedev pledged to root out the “legal nihilism” that plagues his country. Excerpt:

[Medvedev's] starting point is his legal background – he is, he says, “perhaps too much of a lawyer”. Meticulous and precise, he sees almost every issue through the prism of legal thinking. But behind the occasionally laboured language lies a deeper goal. Mr Medvedev says he wants to do what no Russian leader has done before: embed the rule of law in Russian society.

“It is a monumental task,” he agrees, switching momentarily to English. “Russia is a country where people don’t like to observe the law. It is, as they say, a country of legal nihilism.”

The pledge to overcome “legal nihilism” became a central part of Mr Medvedev’s low-key election campaign. It seems a restatement of Mr Putin’s own promise eight years ago to establish a “dictatorship of laws”, although critics say Mr Putin delivered too much of the former and not enough of the latter. Even today, Russians quote the 19th-century satirist Mikhail Saltykov-Shchedrin’s aphorism that “the severity of Russian laws is alleviated by the lack of obligation to fulfill them”. The result is a society plagued by endemic corruption, arbitrary use of the law by the state against individuals or companies – and by companies against each other – and a judiciary that has never known genuine independence.

To paraphrase, all democracy is local. One of the strengths of the American democratic tradition is its intensely local nature. Most Americans’ experience with democracy happens when they vote for a judge, attend a school board meeting, or run afoul of the local traffic cop. If democracy doesn’t work at this level, it doesn’t work at all. As Medvedev pointed out to his interviewers: “When a citizen gives a bribe to the traffic police, it probably does not enter his head that he is committing a crime … People should think about this.”

But bribing a cop is a moral issue, just as much as it is, if not exactly a political crime, then a seemingly simple act of convenience. Morality cannot be legislated, but it can be taught and for this we need the Church and the family and those other neighborhood groups, charities, and small businesses, that act as civic training grounds and make up a healthy community. Edmund Burke called these “the little platoons” of society. (more…)

The price of freedom is $21.3 million, at least in a manner of speaking. The only domestically-held copy of the Magna Carta, first penned in 1215 (this copy dates from 1297), was sold tonight in a Sotheby’s auction for that princely sum to David Rubenstein of The Carlyle Group, a private equity firm.

Sotheby’s vice chairman David Redden called the old but durable parchment “the most important document in the world, the birth certificate of freedom,” notable especially for its recognition of the rule of law and the transcendence of the moral order.

The document had been held by the Perot Foundation (created by H. Ross Perot) and was auctioned in order to raise funds to support the foundation’s charitable initiatives. The Perot Foundation had granted access to the copy to the National Archives, where it was on public display through September 20th of this year.

On the PowerBlog we previously noted the 790th anniversary of the Magna Carta, which was featured as the first in a series of essays in the history of liberty over the last millennium, “In the Meadow That Is Called Runnymede.”

Last month the World Bank published a report titled, “Where is the Wealth of Nations?” (HT: From the Heartland). The report

describes estimates of wealth and its components for nearly 120 countries. The book has four sections. The first part introduces the wealth estimates and highlights the level and composition of wealth across countries. The second part analyzes changes in wealth and their implications for economic policy. The third part deepens the analysis by considering the importance of human and institutional capital, and by linking wealth to production. The fourth part reviews existing applications of resource and environmental accounting in developed and developing countries.

Also out recently is an index of the most globalized nations by Foreign Policy (HT: International Civic Engagement). The top ten, based on 2005 data, which claims to “measure countries on their economic, personal, technological, and political integration”:

  1. Singapore (252,607)
  2. Hong Kong (NR)
  3. Netherlands (421,389)
  4. Switzerland (648,241)
  5. Ireland (330,490)
  6. Denmark (575,138)
  7. United States (512,612)
  8. Canada (324,979)
  9. Jordan (31,546)
  10. Estonia (66,769)

In parenthesis after the name of the country in the top ten, I’ve placed the total wealth estimate for the year 2000 from the World Bank report (appendix 2 PDF).

Look at Estonia, for example. Even though its total wealth score is much smaller relative to other nations on the globalization list, the majority of its wealth score (41,802) in the World Bank report is garnered from “intangible capital,” which refers to, as the From the Heartland blogger put it, “the value of the nation’s economic and political institutions,” such as the rule of law. And now compare Estonia with the Republic of Congo, which has almost the same ratings in terms of tangible capital as Estonia, but whose -12,158 intangible capital rating keeps its total wealth score disturbingly low (3,516).

Clearly it isn’t the case that countries that only have rich natural resources have something to offer the international marketplace. Strong and responsible economic and political institutions can foster intellectual creativity, technological innovation, and social capital that more than makes up for deficits in natural resources.