3 . The Landscape of Law

The Lure of Law

The fundamental question the Chinese government must face is lawlessness. China does not lack laws, but the rule of law … This issue of lawlessness may be the greatest challenge facing the new leaders who will be installed this autumn [of 2012 ] … Indeed, China’s political stability may depend on its ability to develop the rule of law in a system where it barely exists.1

These are the words of Chen Guangcheng, the blind lawyer who was allowed to leave China to study in the United States after successfully escaping from his Communist Party persecutors in April 2012 . Less well known in the West, but more influential in China, is the legal scholar He Weifang. In an essay entitled ‘China’s First Steps towards Constitutionalism’, published in 2003, He rather more tactfully observed: ‘The Western legal landscape does make an interesting and illuminating contrast to China’s legal situation, revealing many discrepancies and inconsistencies between the two … although China’s modern system was borrowed from the West … things often proceed in diff erent ways between China and the West.’2

The theme of this chapter is the landscape of law. I want to ask what, if anything, developing countries like China can learn from the West about the rule of law. And I want to cast some doubt on the widespread assumption that our Western legal systems are in such good health that all the Chinese need to do is replicate our best practice – whatever that may be.

The English Way of Law

What exactly do we mean by the rule of law? In his book of that name,3 the late Lord Chief Justice, Tom Bingham, specified seven criteria by which we should assess a legal system:

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 diff erences [such as mental incapacity] justify diff erentiation;

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.

Under heading 5, Bingham lists no fewer than fourteen different rights that the rule of law should be expected to protect: the right to life, protection from torture, protection from slavery and forced labour, the right to liberty and security, the right to a fair trial, protection from punishment without law, the right to respect for private/family life, freedom of thought/conscience/religion, freedom of expression, freedom of assembly/association, the right to marry, freedom from discrimination, protection of property and the right to education. (He might have gone further, since some countries today explicitly acknowledge rights to housing, healthcare, education and a clean environment. Why not a right to drinkable wine, too?)

In England, the rule of law in Bingham’s sense of the term is the product of historical evolution. In 1215 Magna Carta established the principle that all Englishmen were equal before the law and that the Crown could not raise taxation without the consent of the Great Council, later Parliament. It was in the medieval period, too, that the writ of habeas corpus (against unlawful detention) came into use, that around 500 towns acquired charters of effective selfgovernment and – after 1295 – that these boroughs were also represented in Parliament. From the time of Henry III until the time of James II there was a protracted tug of war between the monarch and Parliament, in which the Crown’s tendency to sell off the royal demesne to finance wars steadily weakened its position. The culmination came, as we saw in Chapter 1, with the Glorious Revolution, which asserted the sovereignty of the kinginParliament. Also in the seventeenth century, torture was done away with; though it was not until a century later, with Somerset’s Case in 1772, that slavery in England was definitively declared illegal. Throughout this period, the common law courts effectively resisted encroachments on their jurisdiction by institutions under royal control. Still, it was not until the 1701 Act of Settlement that the independence of the judiciary was assured with the advent of life appointments.

My undergraduate reading at Oxford persuaded me that the real point of English history was to establish, for the first time, three great principles. First, an Englishman’s home is his castle. In the case of Entick v. Carrington, Lord Camden ruled against the government for raiding the home of the radical journalist John Entick. ‘The great end for which men entered into society was to secure their property,’ declared Camden, quoting John Locke. ‘By the laws of England, every invasion of private property, be it ever so minute, is a trespass.’ Secondly, do what you like as long as you do no harm. ‘The privileges of thinking, saying, and doing what we please, and of growing as rich as we can, without any other restrictions, than that by all this we hurt not the public, not one another, are the glorious privileges of liberty’ : that was the formulation of ‘Cato’ (the nom de plume of John Trenchard and Thomas Gordon), writing in the early 1720s. Third, mind your own bloody business. ‘The taste for making others submit to a way of life which one thinks more useful for them than they do themselves’,.John Stuart Mill explained to the French liberal Alexis de.Tocqueville, ‘is not a common taste in England.’4 And these pillars of the English rule of law, as A. V. Dicey had pointed out in 1885, were the products of a slow, incremental process of judicial decisionmaking in the common law courts, based in large measure on precedents. There were no ‘grand declarations of principle’, just the interplay of judicial memory and statutory innovations by Parliament.

I now realize that this was a rather naive reading of English legal history. As the greatest living theorist of law in the Englishspeaking world, Ronald Dworkin, explained in Law’s Empire, there really are principles underpinning the common law, even when those principles are not codi-fied as they are in the US Constitution. ‘We insist’, writes Dworkin, ‘that the state act on a single, coherent set of principles even when its citizens are divided about what the right principles of justice and fairness really are … Judges … decide hard cases by trying to find, in some coherent set of principles about people’s rights and duties, the best constructive interpretation of the political structure and legal doctrine of their community.’5 Behind the operation of the law lie two things: the integrity of judges and ‘legislation … flowing from the community’s present commitment to a background scheme of political morality’.6 Questions concerning legality (or ‘principle’) are for judges to decide; questions of policy are matters for executive and legislature. In this legal world, the judge engages in an authentically Herculean struggle to arrive at a best fit between the rule that he eventually defines and applies in order to resolve the case before him and the general corpus of rules, legal policies and reasonable expectations. So even England’s constitutionfree common law is based (again in Dworkin’s words) ‘not only [on] the specific rules enacted in accordance with the community’s accepted practices but also [on] the principles that provide the best moral justification for those enacted rules … [including] the rules that follow from those justifying principles, even though those further rules were never enacted’.7

Like democracy, the rule of law in this sense may be good in its own right. But it may also be good because of its material consequences. Few truths are today more universally acknowledged than that the rule of law – particularly insofar as it restrains the ‘grabbing hand’ of the rapacious state – is conducive to economic growth. According to Douglass North, ‘the inability of societies to develop effective, lowcost enforcement of contracts is the most important source of both historical stagnation and contemporary underdevelopment …’8 Enforcement of contracts by a third party is necessary to overcome the reluctance of private sector agents to participate in nonsimultaneous economic transactions, especially over distances in both time and space. Contract enforcement can be provided by private sector agencies such as exchanges, credit companies and arbitrators. But usually, in North’s words, ‘thirdparty enforcement [means] … the development of the state as a coercive force able to monitor property rights and enforce contracts effectively.’9

The problem is getting the state not to abuse its power – hence the need to constrain it. As Stanford’s Avner Greif has argued, if public contractenforcing institutions reveal information about the location and amount of private wealth, the state (or its functionaries) may be tempted to steal some or all of it.10 Where states are not constrained by law, therefore, private contractenforcing institutions are safer, like the network operated by eleventhcentury Maghribi traders in the Mediterranean, which was based on their common Jewish religion and kinship ties, or the eighteenthcentury Scottish diaspora, which had an almost global reach, or the South Asian traders of East Africa. We see such networks operating in many parts of the world today: think of the Chinese business communities operating outside China. Their defect, as with medieval guilds, is their tendency to raise entry barriers and establish monopolies, discouraging competition and reducing economic efficiency. That is why private contract enforcement tends to yield to public as economies become more sophisticated. But that process is dependent on constraining the state to use its power of coercion in such a way as to respect private property rights. In economics, that is the essential function of the rule of law. It is the property rights more than the human rights that are fundamental.

Law and Economics – and History

Few contributions to the literature on law and economics have had a greater impact than the argument of Andrei Shleifer and his coauthors that the common law system that evolved in the Englishspeaking world was superior in performing the twin roles of contract enforcement and coercion constraint to all other systems. Neither the French civil law system, originating in the Roman legal tradition, nor the German and Scandinavian legal systems, were as good, to say nothing of nonWestern systems of law. What was it that made and makes common law economically better? In their seminal 1997 article, La Porta, LopezdeSilanes, Shleifer and Vishny argued that common law systems offer greater protection for investors and creditors. The result is that people with money are more willing to invest in, or lend to, other people’s businesses. And higher levels of financial intermediation tend to correlate to higher rates of growth.11

In a succession of empirical studies, these and other scholars sought to demonstrate that common law countries:

1 have stronger investor protections and provide companies with better access to equity finance than civil law countries, as manifested in larger stock markets, more numerous firms and more initial public offerings;12

2 have better protection of outside investors relative to ‘insiders’, whereas French civil law countries have poorer protection;13

3 make it easier for new firms to enter the market, as manifested in the number of procedures, number of days and costs of setting up a new business;14d

4 have more efficient (because less formalistic) courts, as measured by the time it takes to evict a nonpaying tenant and to collect a debt after a cheque has bounced;15

5 regulate their labour markets less and therefore have higher labourforce participation and lower unemployment rates than civil law countries;16

6 have more extensive mandatory disclosure requirements, which again encourages investors;17 and

7 have more efficient procedures in cases of insolvency, such as a hypothetical hotel bankruptcy.18

Summarizing their theory of the determining role of legal origins, the authors write:

Legal investor protection is a strong predictor of financial development … [as well as] government ownership of banks, the burden of entry regulations, regulation of labour markets, incidence of military conscription, and government ownership of the media … In all these spheres, civil law is associated with a heavier hand of government ownership and regulation than common law … [which are in turn] associated with adverse impacts on markets such as greater corruption, larger unofficial economy, and higher unemployment … Common law is associated with lower formalism of judicial procedures … and greater judicial independence … Common law stands for the strategy of social control that seeks to support private market outcomes, whereas civil law seeks to replace such outcomes with statedesired allocations … Civil law is ‘policy implementing’, while common law is ‘dispute resolving’.19

This brings us back to where we began, with the notion that there is greater ‘flexibility of judicial decisionmaking under common law’, because ‘common law courts [can] use broad standards rather than specific rules’.20

Like so many arguments in social science, this theory of legal origins implies a certain version of history. Why did French law end up being worse than English? Because the medieval French Crown was more assertive of its prerogatives than the English. Because France was less peaceable internally and more vulnerable externally than England. Because the French Revolution, which distrusted judges, sought to convert them into automata, implementing the law as defined and codified by the legislature. The result was an even less independent judiciary and courts precluded from reviewing administrative acts. The Gallic conception of freedom was more absolute in theory and less effectual in practice. In any case, as Alexis de Tocqueville shrewdly observed when comparing the United States and France in the 1830s and 1840s, the French preferred equality to liberty. This preference resulted in a strong central state and weak civil society. When the French exported their model to their colonies in Asia and Africa, the results were even worse.

The theory of legal origins also has important historical implications for nonWestern legal systems. We have already encountered Timur Karun’s argument about the retarding effects of Islamic law on Ottoman economic development. A similar case can be made for China. As He Weifang has argued, in the imperial era Chinese government made ‘no arrangement whatsoever for the separation of powers’, so ‘the country magistrate exercised comprehensive responsibilities [including all] three basic functions, namely the enacting of rules … the execution of rules … and the resolving of disputes.’ Confucianism and Taoism deprecated lawyers and deplored the adversarial mode. Yan Fu, the Chinese translator of Montesquieu, fully understood the difference between the Chinese and the Western spirit of the laws. ‘During my visit to Europe [in the late 1870s],’ he wrote, ‘I once attended court hearings and when I came back, I felt at a loss. On one occasion, I said to Mr..Guo Songtao [the Qing ambassador to Great Britain] that, of the many reasons that make England and other European nations rich and strong, the most important one is the guarantee there of having justice done. And my view was shared by Mr..Guo.’21

Yet attempts to import elements of the British legal system to China were a failure. Although the imperial Chinese state sought to provide all kinds of public goods, such as defence, famine relief, commercial infrastructure like canals and the distribution of agricultural knowledge, its highly centralized bureaucracy was quite skeletal in relation to the population. Property rights were relatively secure insofar as there was little variation over time in (by Western standards) low rates of taxation, but there was no commercial code of law and magistrates were steeped in literary and philosophical learning, not in law. They sought ‘compromises rather than legal rulings’, leaving contract enforcement to private networks. When the late Qing state belatedly entered the commercial sphere, it did so in a counterproductive way, overtaxing merchants and delegating power to monopolistic guilds without effectively constraining itself or its agents. The results were rampant corruption and economic contraction.22

Law and the Victorians

The legalorigins hypothesis is not without its critics. After all, it is hard not to overlook the fact that for much of the modern era France has had a successful economy, including a large financial sector, despite not being blessed with the common law.23 Similar things have been said about Germany and Brazil.24 Another line of argument is that common law systems compare less favourably with civil law systems when measures of social welfare – such as infant mortality or inequality – are the dependent variables.25 Yet for me the theory’s weakest point becomes apparent if we look at the state of the English common law as it was in the period when, by implication, it must have done the greatest good: the period of the Industrial Revolution, when the English and their Celtic neighbours radically altered the course of world economic history. Here is a contemporary description of an English court at that time:

some score of members of the … bar … are..fimistily engaged in one of the ten thousand stages of an endless cause, tripping one another up on slippery precedents, groping kneedeep in technicalities, running their goathair and horsehair warded heads against walls of words and making a pretence of equity with serious faces, as players might … the various solicitors in the cause, some two or three of whom have inherited it from their fathers, who made a fortune by it … are … ranged in a line, in a long matted well … between the registrar’s red table and the silk gowns, with bills, crossbills, answers, rejoinders, injunctions, affi davits, issues, references to masters, masters’ reports, mountains of costly nonsense, piled before them … This is the Court of Chancery … which so exhausts finances, patience, courage, hope, so overthrows the brain and breaks the heart, that there is not an honourable man among its practitioners who would not give – who does not often give – the warning, ‘Suff er any wrong that can be done you rather than come here!’26

It might be objected that Charles Dickens was not being entirely fair to the legal profession of his day in Bleak House. Yet Dickens had started his career writing court reports. He had seen his own father imprisoned for debt. His biographers confirm that he knew whereof he spoke.27 And historians of the nineteenthcentury English legal system largely confirm his account.

First, we must note the tiny size of the system. As late as 1854, the entire judiciary of England and Wales sitting in courts of general jurisdiction numbered just fifteen. These judges, distributed equally between three benches, sat individually to hear cases, either in London or at assize (sessions held in major provincial towns), for just two fourweek terms a year. These same men convened as panels of three or four to hear appeals and then sat in larger panels (usually numbering seven) to hear appeals from the panels of three or four. Only appeals from the panels of seven would be heard by another institution, which was the House of Lords. True, the activity of the lower county courts increased as economic life gathered pace. But that was not true of the higher courts.28

Second, until 1855 there were severe statutory restrictions on the ability of entrepreneurs to create limitedliability companies, a legacy of the time when the promoters of monopoly firms like the South Sea Company had successfully pulled up the ladder behind them to boost the value of their own shares. As late as the 1880s, there were still only sixty domestic companies listed on the London Stock Exchange. So much for the benefits of common law for financial development. Third, in the single most important sector of the Victorian Industrial Revolution, the railways, modern research has revealed that ‘English common law and common law lawyers had a profound and largely negative impact.’ Solicitors were notorious as speculative railwayshare promoters, judges were publicly accused of favouritism and the Parliamentary Bar ran a nice little racket, effectively selling statutory approval for new railway lines.29

What are we to make of this? Does history essentially refute the legalorigins thesis that the common law trumps all other systems? Not quite. For despite the evident shortcomings of the English legal system in the industrial age, there remains compelling evidence that it could and did adapt to the changes of the time, perhaps even in ways that facilitated the process as well as accommodating it. This point is best illustrated with reference to the 1854 Exchequer case (well known to law students on both sides of the Atlantic) of Hadley v. Baxendale. The dispute was between two Gloucester flourmillers, Joseph and Jonah Hadley, and Joseph Baxendale, the managing director of the Londonbased carriers Pickford & Co. The Hadleys had sued Pickfords for the full amount of their losses – including forgone profits – resulting from late delivery of a replacement handcrafted mill shaft. It is no coincidence that Pickfords are still around today and the Hadleys’ firm, City Flour Mills, is not. For although the local jury decided for the Hadleys, the appellate judges in London reversed their decision. According to the American judge and legal scholar Richard Posner, Hadley v. Baxendale enshrined the principle ‘that where a risk of loss is known to only one party to the contract, the other party is not liable for the loss if it occur’.30

It was later said of the original Assize judge, Sir Roger Crompton, that he ‘never recognized the notion that the common law adapts itself by a perpetual process of growth to the perpetual roll of the tide of circumstances as society advances’.31 That was certainly not the approach of the appeal judges, Barons Alderson, Parke and Martin, who – in the words of a modern commentator.–‘refashioned the substantive law of contract damages’. As Alderson reasoned, ‘the only circumstances … communicated by the plaintiffs to the defendants’ at the time the contract was made were that they were millers whose mill shaft was broken. There was no notice of the ‘special circumstances’ that the mill was stopped and profits would be lost as a result of delay in the delivery of the shaft. Moreover, it was ‘obvious [thus Alderson] that in the great multitude of cases of millers sending off broken shafts to third persons by a carrier under ordinary circumstances’, the mills would not be idle and profits lost during the period of shipment, since most millers would have spare shafts.32 Thus the loss of profits could not be taken into consideration in estimating damages.

To put it crudely, this was a ruling that favoured big over small business – but that is not really the important point. The point is that Baron Alderson’s reasoning illustrates very well how the common law evolves, a process elegantly described by Lord Goff in the 1999 case of Kleinwort Benson v. Lincoln City Council:

When a judge decides a case which comes before him, he does so on the basis of what he understands the law to be. This he discovers from the applicable statutes, if any, and from precedents drawn from reports of previous judicial decisions … In the course of deciding the case before him he may, on occasion, develop the common law in the perceived interests of justice, though as a general rule he does this ‘only interstitially’… This means not only that he must act within the confines of the doctrine of precedent, but that the change so made must be seen as a development, usually a very modest development, of existing principle and so can take its place as a congruent part of the common law as a whole. In this process, what [F. W.] Maitland has called the ‘seamless web’, and I myself … have called the ‘mosaic’, of the common law, is kept in a constant state of adaptation and repair, the doctrine of precedent, the ‘cement of legal principle’, providing the necessary stability.33

I believe this gives an invaluable insight into the authentically evolutionary character of the common law system.[2] It was this, rather than any specific functional diff erence in the treatment of investors or creditors, that gave the English system and its relatives around the world an advantage in terms of economic development.

The Rule of Law’s Enemies

That was then. What about now? How good in practice is the rule of law in the West – and in particular in the Englishspeaking world – today? There are four distinct threats to it that I would identify.

First, we must pose the familiar question about how far our civil liberties have been eroded by the national security state – a process that in fact dates back almost a hundred years to the outbreak of the First World War and the passage in the UK of the 1914 Defence of the Realm Act.

The debates after 11 September 2001, about the protracted detention of terrorist suspects were in no way new. Somehow it is always a choice between habeas corpus and hundreds of corpses.

A second threat is the very obvious one posed by the intrusion of European law – with its civil law character – into the English legal system, in particular the farreaching effects of the incorporation into English law of the 1953 European Convention on Fundamental Rights and Freedoms. This may be considered Napoleon’s revenge: a creeping ‘Frenchification’ of the common law.

A third threat is the growing complexity (and sloppiness) of statute law, a grave problem on both sides of the Atlantic as the mania for elaborate regulation spreads through the political class. I agree with the American legal critic Philip K. Howard that we need a ‘legal spring cleaning’ of obsolete legislation and routine inclusion of ‘sunset provisions’ (expiry dates) in new laws.34 We must also seek to persuade legislators that their role is not to write an ‘instruction manual’ for the economy that covers every eventuality, right down to the most incalculably small risk to our health and safety.35

A fourth threat – especially apparent in the United States – is the mounting cost of the law. By this I do not mean the $ 94.5 billion a year that the US federal government spends on law making, law interpretation and law enforcement.36 Nor do I mean the spiralling cost of lobbying by businesses seeking to protect themselves or hurt their competitors by skewing legislation in their favour. The $ 3.3 billion cost of paying nearly 13,000 lobbyists is in fact rather small in itself.37 It is the cost of the consequences of their work that is truly alarming: an estimated $ 1.75 trillion a year, according to a report commissioned by the US Small Business Administration, in additional business costs arising from compliance with regulations.38 On top of that are the $ 865 billion in costs arising from the US system of tort law, which gives litigants far greater opportunities than in England to seek damages for any ‘wrongful act, damage, or injury done wilfully, negligently, or in circumstances involving strict liability, but not involving breach of contract, for which a civil suit can be brought’. According to the Pacific Research Institute’s study Jackpot Justice, the tort system costs a sum ‘equivalent to an eight per cent tax on consumption [or] a thirteen per cent tax on wages’.39 The direct costs arising from a staggering 7,800 new cases a day were equivalent to more than 2.2 per cent of US GDP in 2003, double the equivalent figure for any other developed economy, with the exception of Italy.40 One may argue about such figures, and of course spokesmen for the legal interest reject them.41 But my own personal experience tells a similar story: merely setting up a new business in New England involved significantly more lawyers and much more in legal fees than doing so in England.

In a forthcoming book on the lessons for China of US legal experience, David Kennedy and Joseph Stiglitz cite three egregious defects of the rule of law in the United States today:

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.

SNAG-0009

Figure 3.1
Source: www.govindicators.org

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]

SNAG-0010

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.