By W.A. Wijewardena  –

Gurcharan Das to Sri Lankans: Unbind yourself

In the recently concluded Sri Lanka Economic Summit, India’s Gurcharan Das, the author of the book ‘India Unbound’ published in 2000 making a scathing criticism of the unknown dark side of India’s economic policy since its independence until India began to unbind itself in early 1990s, delivered a very strong message to Sri Lankans.

He said, Sri Lankahas got peace which was good. But without the Rule of Law and good governance, Sri Lanka cannot create the enabling environment for investors to invest and create wealth for Sri Lankans to become a nation of worth (available here)

He further said thatIndiamade a big mistake in its policy by nationalising banks in mid 1970s.Sri Lankatoo did a similar mistake, according to him, by nationalising its plantations. Both mistakes had frightened the investors away from the respective countries thereby paving way for the gloomiest economic record which either of the country has ever experienced in its post-independence history. He warned his audience that similar instances should not occur again ifSri Lankais interested in developing its investor base, a must for ascertaining a high economic growth continuously.

The Rule of Law issue is not novel in Sri Lanka

The message from this veteran management expert of theUSbased Proctor and Gamble fame is very clear. As this writer too has been repeatedly arguing in this series of articles, the Rule of Law is necessary to protect both private and public property rights and any expropriation of such properties by the state or by any group of people working for the state, either legally or illegally, is not good for a country’s economic well-being.

So, the observance of the Rule of Law is necessary. But then, who are its enemies?

Search for the enemies of the Rule of Law in Reith Lectures

Niall Ferguson, Lawrence A. Tisch Professor of History atHarvardUniversity, in delivering BBC’s Reith Lectures in late June and early July, has tried to answer this question. In his Reith lectures, made up of four lectures delivered in different locations in theUKandUSA,Fergusonhas in fact found not only one enemy, but four enemies that have done the greatest damage to modern societies.

But before coming toFerguson’s enemies, let us make ourselves clear of what is meant by the Rule of Law.

What is Rule of Law?

The English Justice and legal expert, the late Thomas Bingham, in a book he published in 2010 before his untimely death in the same year under the title ‘The Rule of Law’, has identified seven important aspects of the Rule of Law as follows:

1. The law must be accessible and so far as possible intelligible, clear and predictable.

2. Questions of legal right and liability should ordinarily be resolved by application of the law and not by the exercise of discretion.

3. The laws of the land should apply equally to all, save to the extent that objective differences [such as mental incapacity] justify differentiation.

4. Ministers and public officers at all levels must exercise the powers conferred on them in good faith, fairly, for the purpose for which the powers were conferred, without exceeding the limits of such powers.

5. The law must afford adequate protection of fundamental human rights.

6. Means must be provided for resolving, without prohibitive cost or inordinate delay, bona fide civil disputes which the parties themselves are unable to resolve; and

7. Adjudicative procedures provided by the state should be fair.

All these seven aspects call for the state to create the conditions that are needed for a society to observe the Rule of Law. If the state fails to do so, then, there is no observance of the Rule of Law as well. Hence, one might think that it is the state which is the enemy of the Rule of Law. The state is made up of people and the issue here is whether people can go against their own will.

The State can be the number one enemy

Of course, the state could be the biggest enemy of the Rule of Law, since the politicians who rule a country on behalf of the state and the public officers who manage a country on their behalf could violate all these essential aspects that constitute the Rule of Law. In democracies, when politicians assume power, they declare in public that they are simply the custodians of the wealth of the society and not owners. Similarly, public officers are simply servants and not masters of the society. What the society expects from both groups is to function as fair, impartial, just and equitable protectors of the rights of the members of society. If they do not do so, they dishonour the sacred oath they have taken at the time of assuming their respective duties.

Economists know this as the Principal – Agent Problem where the politicians and public officers as agents do not fulfil the wishes of the society, the Principal, and instead seek to maximise their own welfare at the cost of the society.

When politicians fail, what is the solution?

If the public officers do not observe the above mentioned seven aspects of the Rule of Law in their official dealings with member of the society, it is the duty of politicians to discipline them and protect the members of the society against such violations. But, if politicians do not observe them or give contrary orders to the public officers, then, what is the protection available to the members of a society? In such an event, can the people seek redress through the judicial establishment of a society? They can do so if the judiciary can function independently of the ruling politicians and the managing public servants. But if the judiciary is not independent, then, there is clearly a vacuum in the system.

Niall Ferguson: There are many enemies

Niall Ferguson has sought to identify the enemies of the Rule of Law in this vacuum created by the failure of the politicians, public servants and the judiciary to create the necessary ground conditions to ensure that the seven essential aspects of the Rule of Law will prevail in the society.

In his first lecture delivered at the London School of Economics under the title ‘The Human Hive’ (available here ), Niall Ferguson has emphasised on the importance of human institutions on the outcome of modern history more than the natural forces like weather, geography or even the incidence of disease.

Number One enemy: Weak institutions

What economists mean by institutions is much more than mere legal entities that one finds in any society. To economists, institutions are combinations of human beings upholding a given set of ethics, moral principles, ideals, beliefs, values or actions. For instance, waiting in a line to pay for goods purchased in a supermarket in the UK until one’s turn comes is a well-established British institution. Its counterpart institution inSri Lankais jumping the queue before the other person reaches the paying counter ignoring those who wait in the line for the same purpose. Similarly, the road ethics inAustraliarequires a motorist to drive along his lane without cutting into the lanes on either side of his driving lane and not to sound the horn unless it is an unavoidable emergency; this is a well established institution inAustraliaand all other western countries. InSri Lanka, its counterpart institution is completely the opposite as every driver on the road has experienced.

These two examples demonstrate the operation of property rights at a very simple level. In Sri Lanka, robbing the property rights of others even at a simple level super market paying line or the use of the road is a well established and institutionalised norm whereas it is not so in many other countries. Not at least at this simple level.

Thus, according to economists, institutions can be contributory to prosperity or inimical to prosperity. Similarly, according to Niall Ferguson, institutional structure in a country can promote the Rule of Law or destroy the Rule of Law. If people keep themselves silent when there are instances of violating the Rule of Law, it is a weak institutional set up in the society.

Accordingly, as diagnosed by Niall Ferguson, weak institutions are the first enemy of the Rule of Law.

Number Two Enemy: Bad laws and those who pass bad laws

In the second lecture, delivered under the title ‘The Darwinian Economy’ in New York, Niall Ferguson has drawn attention to the modern civilisations’ obsessive quest for preventing the occurrence of what Charles Darwin suggested as ‘natural selection’ of nature by substituting ‘intelligent design’ of human beings (available here). Taking the current financial crisis as an example, he says that the root of the crisis is found not in the relaxation of banking regulations as some critics have alleged, but in the enactment of complex, difficult to comprehend and impossible to implement bad laws. According to him, the financial systems in many developed countries have become fragile by seeking to retain weak and bad financial institutions in business through governmental support because, the weak political institutions in governments have acceded to the pressure of the lobbying groups which have been doing so in their own self-interest. When bad laws have been enacted, the fragile financial systems have become more fragile.

Developing countries have not been better in this respect. Their legislatures, guided by self-serving ruling politicians and rent-seeking bureaucrats, have enacted much more bad laws which have in fact violated property rights or restricted the exercise of human freedoms in assembly, organisation, political expression or practising religions of their choice. The result: The creation of a society which is slavish in nature and apathetic in outlook. Such a society is not the place for innovation and creativity, the two most important contributors to sustainable growth in any country.

Thus, the second enemy of the Rule of Law is bad laws and by that token, the bad legislators who pass those bad laws.

Number Three Enemy: The silent legal fraternity

In the third lecture delivered at Gresham College in London under the title ‘The Landscape of the Law’, Niall Ferguson has examined the contribution of the legal fraternity to the violation of the Rule of Law in societies (available here). TakingChina as an example, Niall Ferguson has remarked thatChina has too many laws. But its problem is wide-spread lawlessness meaning that societies could enact laws, but if those laws are violated by a large section of the society with total impunity, the laws invariably lose their meaning, purpose and effect. This is a problem arising from the non-enforcement of laws by law enforcement agencies (police and state attorneys), judiciary and those involved in the judiciary, namely, judges and lawyers. From an economic growth-point of view, the result is the inability to enforce contracts properly and when a society fails to do so, it cannot protect the property rights as well. When property rights are violated, there is no economic prosperity since people do not have incentive to develop the property owned by them. It creates a state where robbers are free to rob and its corollary is the activation of Gresham’s Law which says that robbers, when allowed to rob freely, drive out all the honest hard working people in the society. It is not an irony that the particular Reith Lecture was conducted at Gresham College which had been set up by a bequest of Sir Thomas Gresham whose writing to Queen Elizabeth the First had subsequently given birth to this celebrated law.

Hence, according to Niall Ferguson, the third enemy of the Rule of Law is the legal fraternity that keeps a mum when laws are violated by a powerful section in the society. To stress his point, Niall Ferguson has even nicknamed the Rule of Law as the ‘Rule of Lawyers’ meaning that laws are implemented according to the discretion of the law enforcement authorities financed by societies through tax payments and not according to the requirement of fairness and justice.

Number Four Enemy: The civil society which has become uncivil

The fourth lecture titled ‘Civil and Uncivil Societies’ has been delivered in Edinburgh. In this lecture, Niall Ferguson has made a scathing attack on the failure of civil societies to rise when the Rule of Law is not observed in their respective societies (available here). What he means by civil societies is the organisation of people into voluntary associations that aspire to create a better society. It is their duty to intervene to correct society’s failures when the governments or government agencies fail. Such civil societies can be formal associations or informal gatherings for a public cause. But if they sleep and remain silent when there are instances of the violation of Rule of Law or if they do not actively participate in the society’s work, Niall Ferguson calls them ‘uncivil societies’. The formation of a large number of such uncivil societies in a society is an open ticket for those who intend to violate the Rule of Law. This reminds the present writer a famous motto in political science: “My refusal to take part in politics has resulted in my being ruled by people who are inferior to me”. This can be modified to suit the present case: “My refusal to actively participate in civil society work has resulted in my rights being violated by those who intend to violate the same”.

Thus, the fourth enemy of the Rule of Law, according to Niall Ferguson, is the uncivil society.

The Rule of Law is a must

For continued economic prosperity, the observance of the Rule of Law is a must today. It protects the property rights, gives incentives for people to develop their property, develop human intellect, creativity and innovativeness and above all, reinstate the feeling in everyone that they are responsible members of the society.

This was also the message delivered by MIT’s Daron Acemoglu and Harvard’s James Robinson in their latest book published in 2012 under the title ‘Why Nations Fail: The Origins of Power, Prosperity and Poverty’. According to them, it is the quality of the man-made political and economic institutions that are behind the prosperity or poverty of world’s nations.

So, the enemies of the Rule of Law are nobody, but we ourselves.

(Writer is a former Deputy Governor – Central Bank of Sri Lanka and teaches Development Economics at the University of Sri Jayewardenepura. This article first appeared in Daily FT  – W.A. Wijewardena can be reached at waw1949@gmail.com )