Niall Ferguson on the Breakdown of the Rule of Law

Lady Justice: Blindfold, Scales
and Sword*

The other day I shared the values and principles that transformed Western Civilization from a network of regional peoples to a global force. These four forces that came together in Europe (and were exported to North America) were Democracy, Capitalism, the Rule of Law, and Civil Society. 

In my second reading it became apparent that the historian Niall Ferguson's aim here was to draw attention not only to what made Western Civilization strong but to the dangers facing us as these very qualities deteriorate. 

Here are some of my notes and quotes from a section in which historian Niall Ferguson discusses the breakdown of the Rule of Law, opening with this question:

"How effective is the rule of law in the West in general and specifically in the English speaking world today?"

The Rule of Law's Enemies

Ferguson sees four threats to the Rule of Law.

1. How far have our civil liberties been eroded by the National Security state? At the outbreak of WWI Britain enacted the Defense of the Realm Act. The post-9/11 protracted detention of terrorist suspects veiled a similar overreach. And then there's the issue of surveillance on citizens in the name of National Security.

2. The intrusion of European Law with its Civil Law character is a second threat. Specifically, the 1953 European Convention on Fundamental Rights and Freedoms. Ferguson calls it Napoleon's Revenge, a creeping Frenchification of the Common Law. 

3. The third threat is the growing complexity and sloppiness of Statute Law which has become a "mania for elaborate regulations." We need a legal "spring cleaning" of obsolete legislation and the addition of sunset dates for new laws. 

4. The mounting cost of the law. He's not referring to the $95 billion a year the U.S. spends on law making, law interpretation and law enforcement. Nor does he mean the spiraling cost of lobbyists seeking to protect themselves or hurt their competitors by skewing legislation in their favor.  Though companies and cities spend only 3.3 billion dollars on lobbying, the real cost is found in the consequences of their work. How much? According to the U.S. Small Business Association this amounts to 1.75 trillion dollars a year.  And this doesn't include the costs extracted via tort law. Bottom line: It costs way more money to set up a business in the U.S. than elsewhere in the world due to all the legal red tape and the cost of lawyers.

Ferguson points us to a book by Joseph Steiglitz and David Kennedy who cite three egregious failings of the rule of law in the U.S. today. 

First: New bankruptcy laws and predatory lending by banking firms have created a new class of partially indentured servants. There are people so in debt that they have to give as much as 25% of their earnings to the banks for the rest of their lives.

Second: Intellectual property law has become absurdly and excessively restrictive. 

Third: With regard to laws concerning toxic waste, litigation costs represent more than a quarter of the amount spent on cleanup. 

Bottom line is that the game is rigged. The unnecessary costs and inefficiency of our legal system are apparent to all, but what is being done about it? 

"Experts on economic competitiveness (interviewed by) Michael Porter of Harvard Business School (HBS) 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. It is startling how poorly the United States fares when judged by these criteria." 

When 600+ HBS alumni were queried by Porter as to whether or not to off-shore their operations, only 16% said they would choose the U.S. as a place to set up their business. Here are the Top Five reasons the other 84% would NOT. 

1. The effectiveness of the political system (lack of)

2. The complexity of the tax code

3. Regulation (Red Tape)

4. The efficiency of the legal framework (extremely inefficient)

5. Flexibility in hiring and firing (lack of)

By nearly every measure, our reputation "is shockingly bad," says Ferguson.

According to the Heritage Foundation's "Freedom Index" the U.S. ranks 21st in the world in terms of freedom from corruption, way behind Hong Kong and Singapore.

Ferguson goes on to list a dozen more ways that the U.S. has fallen behind when it comes to the Rule of Law, not just in the business realm but in both the personal and political spheres.

* * * 

My Two Cents

In many ways I believe people fail to observe what is happening today because they have a mental image of what it used to be. For example, it has been nearly 100 years since the Pittsburgh skyline was an abundance of steel factories belching black smoke. There has been immense progress in this realm of business pollution. They no longer need a fire department to put out fires on the Cuyahoga River that flow through Cleveland.

In the same way, many of us have a false image of our superiority as a nation compared to other countries when it comes to justice and freedom. Some make a case that there's never been a level playing field in this country, and that's certainly been true for many. Today, however, the cracks are increasingly visible, and an honest observer has to ask how or when--if ever--these things will be fixed. 

The Radical solution is to bulldoze the entirety into the sea. Saul Alinsky, in his Rules for Radicals, states that Machiavelli wrote his opus as a guide for the Haves to preserve power and what they have. Alinsky claims his book is a guide for the Have Nots. The path he outlines makes me cringe, but so does the path we're on. 

Is there a third way? Ultimately I find comfort in the notion that "this world is not my home." And yet....

*Photo courtesy ChvhLR10, Creative Commons.