1 . Current ‘laws allowing financial firms to engage in predatory lending, combined with new bankruptcy laws, have created a new class of partially indentured servants – people who might have to give as much as 25 per cent of what they earn for the rest of their lives to the banks’.
2 . Intellectual property laws are excessively restrictive. For example, ‘the“owner”of the patent on the gene that indicates a strong likelihood of breast cancer [could] insist on a large payment for every test performed. The resulting..fifee puts the test out of the range of most without health insurance.’
3 . ‘Under current laws concerning toxic wastes..filitigation costs represent more than a quarter of the amount spent on cleanup.’42
For Stiglitz, these illustrate the inadequacy of a narrow approach to law that simply assigns property rights and leaves markets to do the rest. My view is that such examples need to be seen in the wider context of overcomplex or rigged legislation and rampant tort abuse.
Experts on economic competitiveness, like Michael Porter of Harvard Business School, define the term to include the ability of the government to pass effective laws; the protection of physical and intellectual property rights and lack of corruption; the efficiency of the legal framework, including modest costs and swift adjudication; the ease of setting up new businesses; and effective and predictable regulations.43 It is startling to find how poorly the United States now fares when judged by these criteria. In a 2011 survey, Porter and his colleagues asked HBS alumni about 607 instances of decisions on whether or not to off shore operations. The United States retained the business in just ninetysix cases (16 per cent) and lost it in all the rest. Asked why they favoured foreign locations, the respondents listed the areas where they saw the US falling further behind the rest of the world. The top ten reasons included:
1 the effectiveness of the political system;
2 the complexity of the tax code;
3 regulation;
4 the efficiency of the legal framework;
5 flexibility in hiring and firing.44
Evidence that the United States is suffering some kind of institutional loss of competitiveness can be found not only in Porter’s work but also in the World Economic Forum’s annual Global Competitiveness Index and, in particular, the Executive Opinion Survey on which it is partly based. The survey includes .fteen measures of the rule of law, ranging from the protection of private property rights to the policing of corruption and the control of organized crime. It is an astonishing yet scarcely acknowledged fact that on no fewer than fifteen out of fifteen counts, the United States now fares markedly worse than Hong Kong. Taiwan outranks the US in nine out of fifteen. Even mainland China does better in two dimensions. Indeed, the United States makes the global top twenty in only one area. On every other count, its reputation is shockingly bad.45 In the Heritage Foundation’s Freedom Index, too, the US ranks twenty- first in the world in terms of freedom from corruption, a considerable distance behind Hong Kong and Singapore.46
Admittedly, these studies are based in large measure on survey data. They are subjective. Yet similar conclusions may be reached from other research based on more objective criteria, like the International Finance Corporation’s data on the ease of doing business. In terms of the ease of paying taxes, for example, the United States ranks seventysecond in the world. In terms of dealing with construction permits, it ranks seventeenth; registering a property sixteenth; resolving insolvency fifteenth, and starting a business thirteenth.47 The World Justice Project’s Rule of Law 2011 index ranks the United States twenty-first out of sixty- first in terms of access to civil justice; twentieth for the effectiveness of criminal justice; nineteenth for fundamental rights; seventeenth for absence of corruption; sixteenth for the limiting of government powers; fifteenth for regulatory enforcement; thirteenth for order and security; and twelfth for the openness of government.48
Perhaps the most compelling evidence of all comes from the World Bank’s indicators on World Governance, which suggest that since 1996 the United States has suffered a decline in the quality of its governance in three different dimensions: government effectiveness, regulatory quality and control of corruption (see Figure 3.1).49 Compared with Germany and Hong Kong, the US is manifestly slipping behind. This is a remarkable phenomenon in itself. Even more remarkable is that it is happening almost unnoticed by Americans. One small consolation is that the United Kingdom does not appear to have suffered a comparable decline in institutional quality.
Figure 3.1
Source: [domain]
Legal Reform around the World
If the rule of law, broadly defined, is deteriorating in the United States, where is it getting better? I have already mentioned the marked improvement in institutional quality in Hong Kong. This is by no means a solitary case. All over the developing world, countries are seizing the opportunity to improve their chances of attracting foreign and domestic investment and raising the growth rate by reforming their legal and administrative systems. The World Bank now does a very good job of keeping tabs on the progress of such reforms. I recently delved into the Bank’s treasure trove, the World Development Indicators database, to see which countries in Africa are ranked highly in terms of:
1 the quality of public administration;
2 the business regulatory environment;
3 property rights and rulebased governance;
4 public sector management and institutions; and
5fitransparency, accountability and corruption in the public sector.
The countries that appear in the top twenty developing economies in four or more of these categories are Burkino Faso, Ghana, Malawi and Rwanda.
Another approach I have taken is to look at the IFC’s Doing Business reports since 2006 to see which developing countries have seen the biggest reduction in the number of days it takes to complete six procedures: starting a business, getting a construction permit, registering a property, paying taxes, importing goods and enforcing contracts.50 The African winners are, in order of achievement, Nigeria, the Gambia, Mauritius, Botswana and Burundi. Other emerging markets apparently on the right track are Croatia, Malaysia, Iran, Azerbaijan and Peru (see Figure 3.2).[1]
Figure 3.2
Source: International Finance Corporation, Ease of Doing Businessreports.
Development economists like Paul Collier see the establishment of the rule of law in a poor country as occurring in four distinct stages. The first and indispensable step is to reduce violence. The second is to protect property rights. The third is to impose institutional checks on government. The fourth is to prevent corruption in the public sector.51 Interestingly, this sounds very much like a potted version of the history of England from the end of the Civil War, through the Glorious Revolution to the nineteenth century Northcote – Trevelyan reforms of the civil service.
By contrast, the People’s Republic of China has achieved astonishing growth without good legal institutions and without much improvement in them. Followers of the new institutional economics have struggled to explain this seeming exception to their rule. Is it because the Communist Party somehow makes ‘credible commitments’ now that growth is the sole basis of its legitimacy? Is it because there are in fact ‘de facto property rights’? Is it because competition between the provinces has resulted in a kind of ‘marketpreserving federalism’? Or is it because contracts in China are relational, not legal: in other words, contract enforcement is informal, via guanxi (connections or influence), rather than formal, through the law?52 Whatever the explanation, many scholars – notably Daron Acemoglu and James Robinson – argue that if China does not now transition to the rule of law, there will be a low institutional ceiling limiting its future growth.53 This is also the view of many Chinese legal activists, including (as we have already seen) Chen Guangcheng. And they are right.
According to one study, the average rate for enforcing civil and economic judgments in China in the mid 1990s was 60 per cent at the basiclevel court, 50 per cent at the intermediatelevel court, and 40 per cent at the provincial higherlevel court, meaning that roughly half of Chinese court rulings at that time existed only on paper. The sort of contractual dispute that is most likely to involve signi. -cant amounts of unpaid debt – disputes involving banks and stateowned enterprises – had an average enforcement rate of just 12 per cent, even according to official estimates.54 The case of Bo Xilai’s anticorruption campaign in Chongqing illustrates how far China still is from the rule of law. As He Weifang has pointed out, the Chongqing judges essentially acted as an arm of Bo’s regime, accepting extorted confessions and omitting crossexamination. For years, He Weifang has campaigned for judicial independence, the accountability of the National People’s Congress, especially with regard to taxation, the freedom of the press and the conversion of the Communist Party into a ‘properly registered legal entity’, subject to the law – including the currently meaningless individual rights in Article 35 of the Constitution of the People’s Republic, which include freedom of association, of procession and demonstration, and of religious belief. He also favours the privatization of stateowned enterprises because, as he puts it, ‘private ownership is the foundation of the civil law’. Like Chen Guangcheng, he believes that the rule of law is the only way for China to escape from its historical oscillation between order and dong luan – turmoil.55
For those of us who live in the West, where lawyers often seem to have become their own vested interest, it is strange to encounter lawyers who aim at this kind of radical change. Today, however, Chinese lawyers – who numbered just 150,000 in 2007 – are a crucial force in China’s rapidly evolving public sphere. Surveys suggest that they are ‘strongly inclined towards political reform ... and are profoundly discontented with the political status quo’ – though this reflects not only the government interference they regularly have to endure but also the economic insecurity they suffer. Still, to read statements like the following, from a lawyer in Henan province, is to be reminded forcibly of a time when lawyers were in the vanguard of change in the Englishspeaking world (including in South Asian anticolonial movements): ‘The rule of law is premised on democracy; rights are premised on the rule of law; rights defence is premised on rights; and lawyers are premised on rights defence.’56
The fall of Bo Xilai in 2012 is one of a number of signs that elements within the Communist Party hear these arguments. In a speech in Shenzhen in June that year, Zhang Yansheng, secretary general of the academic committee for National Development and Reform, argued that ‘we should shift towards reform based on rules and law,’ adding: ‘If such reform does not take off, China will run into big trouble, big problems.’57 What we do not know is whether China’s next experiment with importing the essentially Western notion of the rule of law will be more successful than past attempts. With good reason, He Weifang warns against naive imitation of the English (or American) legal systems. ‘In Shakespeare’s A Midsummer Night’s Dream,’ he writes in an engaging aside, ‘a person was changed into a donkey, and the other person cried, “Bless thee! Thou art translated!” The introduction of a Western system to China is just like this.’ Common law translated into Chinese might well turn out to be like Bottom: a donkey, if not an ass.58
The Rule of Lawyers
Like the human hive of politics or the hunting grounds of the market economy, the legal landscape is an integral part of the institutional setting in which we live our lives. Like a true landscape, it is organic, the product of slowmoving historical processes – a kind of judicial geology. But it is also a landscape in the sense of ‘Capability’ Brown: it can be improved upon. And it can also be made hideous – even rendered a desert – by the rash imposition of utopian designs. Oriental gardens flourish in England and English gardens in the Orient. But there are limits to what transplantation can achieve.
Once-verdant landscapes can become desiccated through natural processes, too. Mancur Olson used to argue that, over time, all political systems are likely to succumb to sclerosis, mainly because of rentseeking activities by organized interest groups.59 Perhaps that is what we see at work in the United States today. Americans could once boast proudly that their system set the benchmark for the world; the United States was the rule of law. But now what we see is the rule of lawyers, which is something different. It is surely no coincidence that lawyers are so overrepresented in the US Congress. The share of senators who are lawyers is admittedly below its peak of 51 per cent in the early 1970s but it is still 37 per cent. Similarly, lawyers no longer account for 43 per cent of representatives in the House, as in the early 1960s, but at 24 per cent their share is still much larger than the equivalent figure for the House of Commons (14 per cent).60
Olson also argued that it can require an external shock – like a lost war – to sweep away the stifling residues of cronyism and corruption, and allow the rule of law in Bingham’s and Dworkin’s senses of the term to be reestablished. It must fervently be hoped that the United States can avoid such a painful form of therapy. But how is the system to be reformed if, as I have argued, there is so much that is rotten within it: in the legislature, in the regulatory agencies, in the legal system itself?
The answer, as I shall argue in the next and final chapter, is that reform – whether in the Englishspeaking world or the Chinesespeaking – must come from outside the realm of public institutions. It must come from the associations of civil society. It must come, in short, from us: the citizens.
[1] The appearance of Iran on the list is a reminder, of course, that such datasets must be used with caution.
[2] In our ongoing work on ‘The Spirit of the Common Law’, Charles Béar QC and I seek to explore in detail how precisely this evolution has worked, looking at the changing meaning of legal concepts over time rather than approaching the law in the functionalist, present- minded spirit of Shleifer et al.
d Those countries that make it harder for new entities to enter the market do not reap benefits in terms of product quality. They do exhibit sharply higher levels of corruption and larger black or grey economies.
4 . Civil and Uncivil Societies
Clearing the Beach
Nearly ten years ago I bought a house on the coast of South Wales. With its rugged, windswept Atlantic coastline, its rainsoaked golf courses, its remnants of industrial greatness and its green hills just visible through the drizzle, it reminded me a lot of where I grew up, in Ayrshire: only slightly warmer, nearer Heathrow airport and with a rugby team more likely to beat England.
I bought the house mainly to be beside the sea. But there was a catch. The lovely stretch of coastline in front of it was hideously strewn with rubbish. Thousands of plastic bottles littered the sands and rocks. Plastic bags fluttered in the wind, caught on the thorns of the wild Burnet roses. Beer and softdrink cans lay rusting in the dunes. Crisp packets floated in the waves like repulsive opaque jellyfish.
Where did it all come from? Some of it was clearly dropped by local youths, who seemed indifferent to the ruinous effect of their behaviour on the natural beauty of the land of their fathers. But much more seemed to come in from the sea. I began to read, with mounting horror, about the extent of off shore refuse dumping. It is a practice beyond the control of any government, regulator or law. Unlike a landfill site, the ocean is a free rubbish dump. Unlike the stuff earlier generations threw into it, plastic rubbish is neither biodegradable nor heavy enough to sink. Where it ends up is decided by the currents, tides and winds. Unfortunately for me, those of the Bristol Channel seemed intent on depositing a disproportionate share of all the trash in the North Atlantic in my backyard.
Dismayed, I asked the locals who was responsible for keeping the coastline clean. ‘The council is supposed to do it, down by here,’ one of them explained. ‘But they don’ t do nothing about it, do they?’ This was not so much Under Milk Wood as Under Milk Carton. Infuriated, and perhaps evincing the first symptoms of an obsessive – compulsive disorder, I took to carrying and filling black binliners whenever I went for a walk. But it was a task far beyond the capacity of one man.
And that was when it happened. I asked for volunteers. The proposition was simple: come and help make this place look as it should; lunch provided. The first beach clearup was a modest affair: no more than eight or nine people came, and not all of them stuck at the work, which involved backache and dirty fingers. The second was more of a success. The sun actually shone, as it sometimes – very occasionally – does.
It was when the local branch of the Lions Club got involved, however, that the breakthrough came. I had never heard of the Lions Club. I learned that it is originally an American association, not unlike the Rotary Club: both were founded by Chicago businessmen about a century ago, and both are secular networks whose members dedicate time to various good causes. The Lions brought a level of organization and motivation that far exceeded my earlier improvised efforts. As a result of their involvement, the shoreline was transformed. The plastic bottles were bagged and properly disposed of. The roses were freed from their ragged polythene wrappings. One measure of our success was a marked increase in the number of locals and visitors walking along the coastal path.
My Welsh experience taught me the power of the voluntary association as an institution. Together, spontaneously, without any public sector involvement, without any profit motive, without any legal obligation or power, we had turned a depressing dumping ground back into a beauty spot. And every time I wander down for a swim, I ask myself: how many other problems could be solved in this simple and yet satisfying way?
In the previous chapters, I have tried to prise open some tightly shut black boxes: the one labelled ‘democracy’, the one labelled ‘capitalism’ and the one labelled ‘the rule of law’. In this final chapter, I want to unlock the black box labelled ‘civil society’. I want to ask how far it is possible for a truly free nation to flourish in the absence of the kind of vibrant civil society we used to take for granted. I want to suggest that the opposite of civil society is uncivil society, where even the problem of antisocial behaviour becomes a problem for the state. And I want to cast doubt on the idea that the new social networks of the internet are in any sense a substitute for real networks of the sort that helped me clear my local beach.
The Rise and Fall of Social Capital
