Niall Ferguson: The Landscape of the Law
Transcript
(Recorded at Gresham College, London and first broadcast on BBC Radio 4 and
the BBC World Service on Tuesday, 3 July 2012.)
Sue Lawley: Hello and welcome to the third in this year’s series of BBC Reith Lectures. Today we’re in Gresham College in the City of London – its oldest place of higher education. This hall dates back five centuries, hence the creaky floorboards, which you may well hear from time to time.
The college was founded by a bequest of one of the shrewdest financiers of the Elizabethan age, Sir Thomas Gresham. Sir Thomas wanted his money to be used to pay distinguished professors to give free lectures to the people of London – a tradition which continues to this day. Well, our distinguished professor today is Niall Ferguson. His subject - The Rule of Law and its Enemies.
In his first lecture he set out his main argument that the West’s relative decline since the 1970s, has been in part the result of a deterioration in the quality of our institutions. In lecture two, he discussed how excessively complex financial regulation is the disease of which it purports to be the cure.
Today, he turns his attention to the law. Has the rule of law – the foundation of our liberties for centuries – now degenerated into the rule of lawyers? With his third lecture, The Landscape of the Law, ladies and gentlemen please welcome the BBC Reith Lecturer 2012 - Niall Ferguson.
(Audience Applause)
Niall Ferguson:
“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. Indeed, China’s political stability may depend on its ability to develop the rule of law in a system where it barely exists.”
These are the words of Chen Guangcheng, the blind lawyer who was recently allowed to leave China to study in the United States after successfully escaping from his Communist Party persecutors. 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… [A]lthough China’s modern system was borrowed from the West … things often proceed in different ways between China and the West.
The theme of my third Reith Lecture 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.
What exactly do we mean by the rule of law? In his book of that name, 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 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.
My undergraduate study of history at Oxford taught me that the English rule of law was the product of a slow, incremental process of judicial decision-making in the courts, based in large measure on precedents.
I now realise that this was a rather naive view. As the greatest living theorist of law in the English-speaking world, Ronald Dworkin, explained in Law’s Empire, there really are principles of justice and fairness underpinning the common law, even when those principles are not codified as they are in the United States Constitution.
Behind the operation of the law lie two things: the integrity of judges and, to quote Dworkin: “legislation …flowing from the community’s present commitment to a background scheme of political morality.”
Now, to proceed from the ethical roots of law to its economic consequences may seem like rather a leap. But it’s not.
Few truths are today more universally acknowledged than that the rule of law – particularly in so far as it restrains the grabbing hand of the rapacious state – is good for economic growth, as well as just good.
According to Douglass North: “The inability of societies to develop effective, low-cost enforcement of contracts is the most important source of both historical stagnation and contemporary under-development.’
Enforcement of contracts by a third party is necessary to overcome the reluctance of private sector agents to participate in transactions over significant time or distance. The creditor fears the debtor will welch on the deal.
Contract enforcement can be provided by private sector agencies such as exchanges, credit companies and arbitrators.
But usually, in North’s words: ‘Third-party enforcement [means] … the development of the state as a coercive force able to monitor property rights and enforce contracts effectively.’
The problem is getting the state not to abuse its power – hence the need to constrain it. As Avner Greif has argued, if public contract-enforcing institutions reveal information about the location and amount of private wealth, the state, or its functionaries, may be tempted to steal it.
Where states are not constrained by law, therefore, private contract-enforcing institutions are safer, like the network operated by 11th Century Maghribi traders in the Mediterranean, which was based on their common Jewish religion and kinship ties. The defect of such institutions, 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’s the property rights - more than the human rights - that are fundamental.
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 non-Western systems of law.
What was it that made and makes common law economically better? In their seminal 1997 article, La Porta, Lopez-de-Silanes, 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.
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 – or emperor. The result was an even less independent judiciary and courts precluded from reviewing administrative acts. 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 non-Western legal systems. As He Weifang has argued, in the imperial era, Chinese government made: ‘no arrangement whatsoever for the separation of powers’ so that ‘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. Yet attempts to import elements of the British legal system to China were a failure. When the late Qing state belatedly entered the commercial sphere, it did so in a counter-productive way, over-taxing merchants and delegating power to monopolistic guilds without effectively constraining itself or its agents. The results were rampant corruption and economic contraction.
In recent years there has been something of a backlash against the legal origins hypothesis. Naomi Lamoreaux and others have pointed out that the French economy performed rather well, not least financially, despite not having the common law. Yet for me the theory’s weakest point becomes apparent if we just 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:
… [S]ome score of members of the … bar … are … mistily engaged in one of the ten thousand stages of an endless cause, tripping one another up on slippery precedents, groping knee-deep in technicalities, running their goat-hair and horsehair warded heads against walls of words and making a pretence of equity with serious faces, as players might…
[T]he 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, cross-bills, answers, rejoinders, injunctions, affidavits, 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, “Suffer any wrong that can be done you rather than come here!”’
(Audience Laughter)
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. And historians of the 19th Century 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.
Second, until 1855 there were severe statutory restrictions on the ability of entrepreneurs to create limited liability 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.
Third, in the single most important sector of the Victorian industrial revolution, the railways, recent research has revealed that ‘English common law and common law lawyers had a profound and largely negative impact’. Solicitors were notorious as speculative railway share promoters, judges were publicly accused of favouritism and the Parliamentary Bar ran a nice little racket, effectively selling statutory approval for new rail lines.
What are we to make of this? Does history essentially refute the legal origins 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 and Baxendale.
The dispute was between two Gloucester flour millers, Joseph and Jonah Hadley, and the London-based carriers Pickford & Co. The Hadleys had sued Pickfords for the full amount of their losses – including foregone profits – resulting from late delivery of a replacement hand-crafted mill shaft. It’s 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 appellant judges in London reversed their decision. According to the American judge and legal scholar Richard Posner, Hadley and 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’.
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’.
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.”
So the loss of profits couldn’t be taken into consideration in estimating damages. To put it really 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 and 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.
I believe this gives an invaluable insight into the authentically evolutionary character of the common law system. In this lecture, however, I want to address a different question: How good in practice is the rule of law in the West – and in particular in the Anglosphere – today? There are four threats 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 of the 1914 Defence of the Realm Act. Recent debates about the protracted detention of terrorist suspects are in no way new. Somehow it’s always a choice between habeas corpus and hundreds of corpses. (Audience Laughter)
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 far-reaching effects of the incorporation into our law of the 1953 European Convention on Fundamental Rights and Freedoms. This may be considered Napoleon’s revenge: a creeping French-ification of the common law.
A third threat is the increasing 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.
A fourth threat – especially apparent in the United States – is the increasing cost of the law: an estimated $1.7 trillion a year, according to the U.S. Small Business Administration Report, in additional costs arising from compliance with regulations. On top of that come the costs arising from the U.S. system of tort law, which the Pacific Research Institute puts at more than 2.2 per cent of U.S. GDP in 2003.
Well, one may argue about such figures. 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 old England. 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.
Evidence that the United States is suffering some kind of institutional loss of competitiveness can be found not only in Porter’s recent work but also in the World Economic Forum’s annual Global Competitiveness Index and, in particular, the Executive Opinion Survey on which it’s partly based. The survey includes 15 measures of the rule of law, ranging from the protection of private property rights to the policing of corruption and the control of organised crime.
It’s an astonishing yet scarcely acknowledged fact that on no fewer than 15 out of 15, the United States now fares markedly worse than Hong Kong. In the Heritage Foundation’s Freedom Index, too, the U.S. ranks 21st in the world in terms of freedom from corruption, a considerable distance behind Hong Kong and Singapore.
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 the control of corruption.
Compared with Germany or Hong Kong, the U.S. is manifestly slipping behind. One consolation is that the United Kingdom doesn’t appear to have suffered a comparable decline in institutional quality.
If the rule of law, broadly defined, is deteriorating in the United States, where is it getting better? 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 rule-based governance;
4. Public sector management and institutions; and
5. Transparency, 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’ve 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.
The African winners are, in order of achievement, Nigeria, the Gambia, Mauritius, Botswana and Burundi. Other emerging markets on the right track are Azerbaijan, Croatia, Iran, Malaysia and Peru. Yes, I did say Iran - but I would hold off on investing there this year. (Audience Laughter)
By contrast, The People’s Republic of China has achieved astonishing growth without good legal institutions and without much improvement in them. However, many scholars argue that if China does not now transition to the rule of law, there will be a low institutional ceiling, limiting its future growth.
The case of Bo Xilai’s anti-corruption campaign in Chongqing illustrates just 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 cross-examination. 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 rights in Article 35 of the PRC Constitution.
For those of us who live in the West, where lawyers often seem to have become their own vested interest, it’s strange to encounter lawyers who aim at this kind radical change. Today, however, Chinese lawyers – who numbered just 150,000 in 2007 – are a crucial force in China’s rapidly evolving public sphere.
Recent surveys suggest that they are ‘strongly inclined towards political reform… and are profoundly discontented with the political status quo’.
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 English-speaking world, too:
‘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.’
The fall of Bo Xilai this year is one of a number of signs that elements within the Communist Party hear these arguments.
In a recent speech in Shenzhen, Zhang Yansheng, secretary general of the academic committee for National Development and Reform, argued that – and I quote – ‘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.’
What we don’t know is whether or not 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 a rather 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.
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’s organic, the product of slow-moving 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. We may imagine Oriental gardens 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 rent-seeking activities by organised interest groups. 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’s surely no coincidence that more than a third of Senators are lawyers, and a quarter of members of the House of Representatives. But how is the system to be reformed if, as I’ve argued in these lectures, there’s 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 my final Reith lecture, is that reform – whether in the English speaking world or the Chinese speaking – 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.
Thank you very much. (Audience Applause)
SUE LAWLEY: Many thanks, many thanks indeed Niall Ferguson. So there you have it - a look across the landscape of law where the West is found wanting, and emerging nations such as China have fundamental lessons to learn. Let me turn to our invited audience here in Gresham College in the City of London. Ladies and gentleman, the floor is yours, though I can’t pretend that the professor will be putty in your hands - gentleman here.
JOHN COOPER: Thank you. My name is John Cooper, Queen’s Counsel. I’m also a Visiting Professor of Law at Cardiff University. But perhaps more pertinent to this question, I was also counsel who represented Occupy outside St. Paul’s in that recent litigation. You seem to argue in your eloquent lecture that it’s property rights, not human rights, that should be fundamental. In the Occupy case, it was the enforcement of property rights which trumped the rights of freedom of expression and freedom of assembly. Were the city’s rights more important than human rights?
NIALL FERGUSON: There are two points that I would make in response to that. The first was not to say that property rights were as a general principle more important than human rights, but from an economic point of view that they were more important. So that’s the distinction that I’d like to make at once.
The second point is that there’s a difference between the right of assembly and the right to protest and the right to squat illegally on private property. It wasn’t only the city that had a problem with the Occupy Movement. Harvard Yard found itself occupied for a period in the fall semester and this caused tremendous inconvenience to my students as well as to their professors.
I had no idea what they thought that they were achieving by pitching tents for a period of weeks in the increasingly chilly weather of New England since at no point was any articulate set of propositions made visible to me. So that is the distinction we must make. I would never stand in the way of people who wanted to walk through Harvard Yard one afternoon and express their dissatisfaction with the financial system - as I made clear in my second lecture, I have many dissatisfactions with the financial system too. But to pitch tents for a period of days, indeed weeks, and disrupt the life of ordinary people, that seems to me a very clear breach of the rule of law.
SUE LAWLEY: Question there.
LINDA YEUH: Linda Yeuh, Bloomberg’s Economics Editor, Economics Fellow at Oxford, and former practising lawyer. The Chinese paradox is as you’ve defined it, which is very strong growth and weak legal institutions. However, what has been under appreciated is the extent to which the Chinese have had institutions that don’t fit the formal definitions of what we think of in the West as rule of law or effective rule of law, and in fact it’s that aspect which has underpinned a great deal of its performance.
So, therefore, for you to argue that China has a great deal to learn from the West, the Chinese scholar might turn around and say do you fully appreciate the kinds of institutions which have arisen in China which are not common law derived. In fact they’re civil law derived because they derive from the major era of the Japanese, which was itself derived from the German system.
So in fact the Chinese picking and choosing of the law is very evidenced if you look at its statute. So, for instance, corporations have a supervisory board like the Germans do. So, perhaps my question is simply that - for you to argue there is a ceiling to Chinese development because of institutions. I would have to say you have to articulate perhaps a little bit more about what this Chinese paradox is and why they can’t continue down this road.
NIALL FERGUSON: There are two parts to this story and you mentioned one of them. One part is the legacy of the post-imperial, the nationalist era’s experiment with German-type institutions. There’s no doubt that they decided the English route wasn’t the one to go down and it would be better to copy some continental style institutions - rather as the Japanese had done. This did not work well. And it didn’t work well for a whole range of reasons, probably more to do with the fundamental instability of the politics of the nationalist era.
And that doesn’t mean - and I want to reiterate this - that there’s something fundamentally wrong with German or, for that matter, French legal systems. I hope you picked up my scepticism about the Schleifer argument about legal origins. I’m rather more agnostic than Andrea on this point and I think any real historian would be.
There’s a second set of institutions, though, that turn out to be more important as far as I can understand it in China today, and those are the informal contracts enforcing institutions in the private sector.
The thing that we associate with words like guanxi: the networks of kinship or of friendship which are often the reason that disputes don’t go to court or don’t get settled in court.
One of the interesting things that I read in my preparation for this lecture was the evidence that a huge number of processes that are initiated in the Chinese court system don’t actually ever get concluded or judgements never get enforced. And that tells us something.
It tells us that there is a private system of contracts enforcement going on. The question is can such a system which relies on a mix of imports and private contract enforcement be as successful as the idealised common law system of Bingham and Dworkin, and I think the answer is no.
The networks that run China are, we would say, corrupt - and economists might say inefficient. And this will ultimately prove to be a major handicap as the economy becomes more complex and particularly as the financial system becomes more sophisticated.
SUE LAWLEY: Come back on that.
LINDA YEUH: Just very quickly if I might. There is a very strong strand of argument the Chinese are substituting legal reform for effective political reform. And my own take on this in one sentence is that eventually the rule of law will hit the rule of the party and I think that’s going to be the point when China has to decide what its future ultimately is.
SUE LAWLEY: I see a former Reith Lecturer nodding hard on the front row. Tony Giddens there, Reith Lecturer 1999 I think I’m right in saying, aren’t I?
TONY GIDDENS: Also former Director of The London School of Economics. I wonder if one shouldn’t make more of a distinction between, as it were, first phase economic development and second phase economic development than you seem to do because the conditions which underlay the first origins of the Industrial Revolution anywhere in the world are arguably different from those once you’ve got a model to follow, and that might limit the application of common law and might suggest you’re using a rather British sort of centric view of the world because the state, for example, played a very important part in economic development and Japan, Germany, now in China on the basis that you’ve got something to copy, which you didn’t have originally in the UK.
And I just wonder also if, you know, you’re a bit too harsh on the state and government really. I mean we all know that, as you say, rapacious states need to be controlled, but the state is also the basis of legitimacy, it’s the basis of a monetary system, it’s the basis of many of the things that we assume as social and legal order, and if you’re going to control rapacious lawyers in the US, no matter how difficult it might be, surely it’s only government that can really do that?
NIALL FERGUSON: I don’t think that you can avoid the Anglo-centric nature of the Industrial Revolution. It just happened here first and that’s inescapable. Moreover, when one asks the question how did the state led models fare in the 20th Century, the answer is disastrously because in each of the cases that you mentioned - Germany, Japan, you might have added Russia - the power of the state to steer or accelerate industrialisation ended up being catastrophically abused, and as a result not only were property rights violated, all conceivable rights ended up being violated in Germany, in the Soviet Union and to some extent also Japan.
So, I think the lesson that I infer from it is that there was something preferable about the way in which things unfolded in the English and North American context. One ought not to be Anglo-centric in the sense of looking only at these parts of the British Isles we call England because the really important thing is the way in which the English common law was exported globally by the British Empire.
TONY GIDDENS: I do have to say I disagree fairly fundamentally with that and what I was saying was that the situation you sketched in was correct for the first origins of the Industrial Revolution anywhere, but after that you have a very different ball-game and I think continental law is much more interesting and much more positive than you seem to do.
I think if you look at Germany today, it’s clearly a leading economy in the world anywhere. Of course, it had to go through massive dislocations, but this was true of many parts of the world.
NIALL FERGUSON: Can I just say one mustn’t overlook the extent to which the original model, the 19th Century Victorian model that I sketched in both its Dickensian and let’s say its more positive light.
This model didn’t simply become obsolete because German manufacturing industry outstripped British. This model continued to be the framework within which the most successful economy in the world, the United States economy, flourished.
The US kicked these economies’ butts - to use American English - where it really mattered, which was in sustained productivity growth, rapid industrialisation, and constant technological innovation without the sacrifice of individual freedom.
DR DAMBISA MOYO: Yes, I’m Dr Dambisa Moyo. I’m an author and economist. I find your comment that China - I’m paraphrasing - should learn something about the rule of law from Britain or the West rather disturbing.
I should say that my fundamental belief is that the rule of law as a policy tool is actually largely irrelevant and in fact the rule of law is an artifact - or an outgrowth - of economic growth and, thus, the primary goal of policymaking, particularly in the international landscape, should be to ensure that these emerging economies can establish on a sustained basis economic growth and meaningfully put a dent in poverty.
NIALL FERGUSON: Dr Moyo, as a Zambian you of course must be aware of some of the less appealing aspects of the Chinese economic model since they are visibly to be… to be appreciated in your native country today. And that of course has become something of a hot-button issue in Zambian politics. The substantial presence of Chinese companies, mostly state-owned, in the Zambian economy was probably one of the decisive issues in the last Zambian election.
The African experience seems to me to be quite at variance with what you’ve just said, with all due respect. As African countries improve their institutions in the direction of improving property rights and political rights, so their economies do better. When African countries are run like China with a one party state, they do disastrously badly.
That’s surely the lesson of the post-colonial experience. And when you pick out. as I sought to do in the lecture, the countries that really measurably have improved their institutional framework, it correlates pretty closely with the best performers in Sub-Saharan Africa. Botswana’s the case that Paul Collier has written about and I think it’s worth reflecting on why Botswana is one of the most prosperous counties in Sub-Saharan Africa.
It’s not because they copied the Chinese model. It’s because actually, unlike most post-British colonies, they preserved a non-corrupt system of administration under the rule of law.
SUE LAWLEY: You mentioned then the African countries and other developing countries during the course of your lecture that had scored well in the polls - being good where you could set up business and so on.
I don’t know whether you were surprised or sceptical. I mean Nigeria, Azerbaijan are notoriously corrupt.
NIALL FERGUSON: What’s important about these measures that the World Bank produces is that you’re measuring improvement. What I didn’t tell you, of course, is that they were starting …
SUE LAWLEY: (over) Where the base is.
NIALL FERGUSON: (over) … in Nigeria (Audience Laughter) from an almost staggeringly low base. But the direction is important and those countries - Rwanda is, I think, a better example - those countries where there is improvement and you’re getting out of the foothills and up to something more like a mountain in terms of legal quality, I think there you actually do see consequences. But I specifically singled out the countries that empirically score well in those exercises.
SUE LAWLEY: (over) Okay.
NIALL FERGUSON: … because we need to ask the question: is this right? And I don’t want to make it seem as if I’ve got all the answers here to African economic development. I’m telling you what best practice in development economics currently is.
GEOFFREY ROBERTSON: Geoffrey Robertson. I’m a lawyer. I want to take you on this mantra that stopped the rule of law being the rule of lawyers. We do that, particularly in America, through the jury system but when it comes to judging governments, when it comes to deciding questions of power, we have no alternative but judges who are jumped-up lawyers, and it is the independence of the judiciary that is the most crucial aspect of the rule of law. It is the reason why London, not America or Paris, is the centre of arbitration, and so forth. It’s idle to talk about China ever undergoing a rule of law because it’s a country that cannot allow the independence of the judiciary. And you talk of Hong Kong - I’ve argued a case in Hong Kong for the Vietnamese refugees. They were succeeded in the Supreme Court. The Communist Party of China exercised its veto and reversed the decision.
NIALL FERGUSON: I think this is one of the key points that He Weifang and other Chinese legal reformers is that, as you say, the independence of the judiciary is the key; and the fact that in Chongquing essentially the judges were lackeys of Bo Xilai is probably the single most important thing that has emerged.
Initially when Bo Xilai was riding high, he could portray himself as the scourge of the corrupt officials and it was as an anti-corruption populous that he was really making his mark. But on closer inspection he was in fact running an extortion racket in which he would look at any successful Chongquing business operation and say ‘we’re going to do you for corruption’ and then they would take the chap away, interrogate him, the confession would be produced and the judges would say ‘you’re quite right’ end of story, no cross-examination. So I completely agree with what you’re saying.
You also made a really important point that needs to be emphasised and that is that enduring success of London as a centre for international litigation. Why is it that they want to come to London rather than, let us say, Shanghai? It’s a no-brainer: because the system here delivers a far higher quality of justice.
WILLIAM AYLIFFE: William Ayliffe. I’m the Gresham Professor of Physic. I’m really intrigued as to how you might reconcile the rule of law and the rule of property with the accumulation of capital by these economies, which completely ignored the property rights of the people they were involved with and, furthermore, even their human rights.
NIALL FERGUSON: Which economies are you talking about?
WILLIAM AYLIFFE: Well, I was thinking of the expansion of America into Native American territories. I was thinking of the British Empire in Africa - even into our lifetime - which ignored property laws and human rights.
NIALL FERGUSON: (over) Well I …
WILLIAM AYLIFFE: … as we’re finding out to this day.
NIALL FERGUSON: I highly encourage you to read my book Empire (Audience Laughter) in which I address precisely these issues. John Locke, of course, was the political philosopher who most articulately defined what property rights signified in his ideal commonwealth and it was Locke who argued that freedom, liberty, was essentially bound up with property rights. The self same Locke was of course the man who drew up a constitution for the slave state of Carolina, a constitution which explicitly defined the ways in which slaves would be treated.
At the heart of the expansion of England was a huge hypocrisy, which in some ways Locke personified - that the property rights were peculiar to white men. It was only gradually that that kind of idea was questioned. An obvious way in which that happened was the recognition that slavery was not legal in English common law. The famous Mansfield judgement in the late 18th Century fundamentally shattered the legitimacy of slavery as a legal institution, and within a very short space of time the anti-slavery campaign developed unstoppable force. So I think one has to recognise, in again taking an historical approach to these questions, the dynamic character of the discussion on human rights or, for that matter, property rights.
What people said and thought in the 1700s became very different by the early 1900s. The question really is - and this is the central point I’m trying to make - how does an evolutionary system differentiate itself from one in which absolute principles are enunciated and imposed from up on top? And the great benefit of an evolutionary system is it can evolve in the kind of direction that you implicitly favour.
SUE LAWLEY: Over here.
AILEEN McCOLGAN: Aileen McColgan. I’m Professor of Human Rights Law at King’s College London. You say essentially that the common law does it better than imported structures of rights, but isn’t the problem with the common law that its focus on property, in particular, serves to protect the interests of the wealthy?
And if you look at an area such as discrimination law, the common law was terrible. It did not deal with race discrimination. It was helpless in the face of sex discrimination…
NIALL FERGUSON: (Over)… But can that argument be upheld in the American case, where exactly these same issues had to be dealt with and exactly these same issues were resolved? I think one of the points that’s being missed here is that as attitudes changed on these questions - and they changed around the world at different times and in different ways - so law, legal systems had to adapt, and the implication that somehow the common law couldn’t, I’m not sure is compelling - at least if one looks at the US.
AILEEN McCOLGAN: (Over) Well, it couldn’t and in the US it was constitutional rights and then the Civil Rights Act which was legislation. It wasn’t common law.
NIALL FERGUSON: Yeah but I’m not saying you do… with all due respect, I’m not saying you don’t need legislation. The whole point about the common law is the interplay between what judges interpret as precedent and what the statutes new and old say.
SUE LAWLEY: And a last question here.
MICHAEL BRINDLE: Michael Brindle. I’m a lawyer. You talk about Ronald Dworkin’s views about law and morality, which I’ve always thought were beautifully expressed but rather confusing. I’d like your view on that, particularly in the context of the current debate about tax avoidance.
Our Prime Minister goes out and castigates one private individual for having acted immorally, perhaps in the hope that it might become illegal merely by being shouted very loudly. Has this got anything to do with law and has it got anything to do with the rule of law?
NIALL FERGUSON: I am the first to concede that much of Dworkin’s prose is opaque to me, but that’s a limitation of my intellect. I have never been terribly philosophically inclined. As I said, I’m an empirical thinker. I think there is a really important point that you’ve raised here, which is that if he’s right and that our common law system is in some sense derived from implicit principles, then it’s quite easy, isn’t it, to vary those principles if you make a loud enough noise. And this of course empowers an institution about which too little has perhaps been said in the course of these lectures - the press.
So there’s nothing more odious to me than the sight of the British media in one of their period fits of faux morality. I’ve mentioned hypocrisy once tonight in the context of British imperialism. Let me mention it again in the context of the British press - this kind of thing in which we stipulate that, while the law has in fact been obeyed, never-the-less some moral code has been violated, is perhaps Dworkin inspired. I could take it from him, but from The Daily Mail? That I think really crosses a threshold which I can’t bear.
SUE LAWLEY: (over) What about from the Prime Minister? Is it for the Prime Minister to stand in moral judgement on the taxpayer?
NIALL FERGUSON: One of my rules is never publicly to criticise the Prime Minister (Audience Laughter) It’s a very, very difficult job that he has to do and I’m sure, just as occasionally he leaves a child in a pub (Audience Laughter) now and again he says things which I’m sure on reflection he will realise were not entirely judicious.
SUE LAWLEY: And there we must stop. (Audience Laughter) Next week, for the last lecture in the series, we’ll be in Edinburgh where Niall Ferguson will be offering some solutions to the systems of politics, finance and the law, which he’s been holding up to the light.
And, as he’s indicated, he’s going to be arguing that the answers lie in our own hands. Until then, Niall Ferguson, BBC Reith Lecturer 2012, thank you very much. And from Gresham College in the City of London, goodbye.
Sue Lawley: Hello and welcome to the third in this year’s series of BBC Reith Lectures. Today we’re in Gresham College in the City of London – its oldest place of higher education. This hall dates back five centuries, hence the creaky floorboards, which you may well hear from time to time.
The college was founded by a bequest of one of the shrewdest financiers of the Elizabethan age, Sir Thomas Gresham. Sir Thomas wanted his money to be used to pay distinguished professors to give free lectures to the people of London – a tradition which continues to this day. Well, our distinguished professor today is Niall Ferguson. His subject - The Rule of Law and its Enemies.
In his first lecture he set out his main argument that the West’s relative decline since the 1970s, has been in part the result of a deterioration in the quality of our institutions. In lecture two, he discussed how excessively complex financial regulation is the disease of which it purports to be the cure.
Today, he turns his attention to the law. Has the rule of law – the foundation of our liberties for centuries – now degenerated into the rule of lawyers? With his third lecture, The Landscape of the Law, ladies and gentlemen please welcome the BBC Reith Lecturer 2012 - Niall Ferguson.
(Audience Applause)
Niall Ferguson:
“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. Indeed, China’s political stability may depend on its ability to develop the rule of law in a system where it barely exists.”
These are the words of Chen Guangcheng, the blind lawyer who was recently allowed to leave China to study in the United States after successfully escaping from his Communist Party persecutors. 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… [A]lthough China’s modern system was borrowed from the West … things often proceed in different ways between China and the West.
The theme of my third Reith Lecture 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.
What exactly do we mean by the rule of law? In his book of that name, 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 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.
My undergraduate study of history at Oxford taught me that the English rule of law was the product of a slow, incremental process of judicial decision-making in the courts, based in large measure on precedents.
I now realise that this was a rather naive view. As the greatest living theorist of law in the English-speaking world, Ronald Dworkin, explained in Law’s Empire, there really are principles of justice and fairness underpinning the common law, even when those principles are not codified as they are in the United States Constitution.
Behind the operation of the law lie two things: the integrity of judges and, to quote Dworkin: “legislation …flowing from the community’s present commitment to a background scheme of political morality.”
Now, to proceed from the ethical roots of law to its economic consequences may seem like rather a leap. But it’s not.
Few truths are today more universally acknowledged than that the rule of law – particularly in so far as it restrains the grabbing hand of the rapacious state – is good for economic growth, as well as just good.
According to Douglass North: “The inability of societies to develop effective, low-cost enforcement of contracts is the most important source of both historical stagnation and contemporary under-development.’
Enforcement of contracts by a third party is necessary to overcome the reluctance of private sector agents to participate in transactions over significant time or distance. The creditor fears the debtor will welch on the deal.
Contract enforcement can be provided by private sector agencies such as exchanges, credit companies and arbitrators.
But usually, in North’s words: ‘Third-party enforcement [means] … the development of the state as a coercive force able to monitor property rights and enforce contracts effectively.’
The problem is getting the state not to abuse its power – hence the need to constrain it. As Avner Greif has argued, if public contract-enforcing institutions reveal information about the location and amount of private wealth, the state, or its functionaries, may be tempted to steal it.
Where states are not constrained by law, therefore, private contract-enforcing institutions are safer, like the network operated by 11th Century Maghribi traders in the Mediterranean, which was based on their common Jewish religion and kinship ties. The defect of such institutions, 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’s the property rights - more than the human rights - that are fundamental.
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 non-Western systems of law.
What was it that made and makes common law economically better? In their seminal 1997 article, La Porta, Lopez-de-Silanes, 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.
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 – or emperor. The result was an even less independent judiciary and courts precluded from reviewing administrative acts. 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 non-Western legal systems. As He Weifang has argued, in the imperial era, Chinese government made: ‘no arrangement whatsoever for the separation of powers’ so that ‘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. Yet attempts to import elements of the British legal system to China were a failure. When the late Qing state belatedly entered the commercial sphere, it did so in a counter-productive way, over-taxing merchants and delegating power to monopolistic guilds without effectively constraining itself or its agents. The results were rampant corruption and economic contraction.
In recent years there has been something of a backlash against the legal origins hypothesis. Naomi Lamoreaux and others have pointed out that the French economy performed rather well, not least financially, despite not having the common law. Yet for me the theory’s weakest point becomes apparent if we just 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:
… [S]ome score of members of the … bar … are … mistily engaged in one of the ten thousand stages of an endless cause, tripping one another up on slippery precedents, groping knee-deep in technicalities, running their goat-hair and horsehair warded heads against walls of words and making a pretence of equity with serious faces, as players might…
[T]he 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, cross-bills, answers, rejoinders, injunctions, affidavits, 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, “Suffer any wrong that can be done you rather than come here!”’
(Audience Laughter)
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. And historians of the 19th Century 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.
Second, until 1855 there were severe statutory restrictions on the ability of entrepreneurs to create limited liability 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.
Third, in the single most important sector of the Victorian industrial revolution, the railways, recent research has revealed that ‘English common law and common law lawyers had a profound and largely negative impact’. Solicitors were notorious as speculative railway share promoters, judges were publicly accused of favouritism and the Parliamentary Bar ran a nice little racket, effectively selling statutory approval for new rail lines.
What are we to make of this? Does history essentially refute the legal origins 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 and Baxendale.
The dispute was between two Gloucester flour millers, Joseph and Jonah Hadley, and the London-based carriers Pickford & Co. The Hadleys had sued Pickfords for the full amount of their losses – including foregone profits – resulting from late delivery of a replacement hand-crafted mill shaft. It’s 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 appellant judges in London reversed their decision. According to the American judge and legal scholar Richard Posner, Hadley and 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’.
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’.
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.”
So the loss of profits couldn’t be taken into consideration in estimating damages. To put it really 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 and 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.
I believe this gives an invaluable insight into the authentically evolutionary character of the common law system. In this lecture, however, I want to address a different question: How good in practice is the rule of law in the West – and in particular in the Anglosphere – today? There are four threats 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 of the 1914 Defence of the Realm Act. Recent debates about the protracted detention of terrorist suspects are in no way new. Somehow it’s always a choice between habeas corpus and hundreds of corpses. (Audience Laughter)
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 far-reaching effects of the incorporation into our law of the 1953 European Convention on Fundamental Rights and Freedoms. This may be considered Napoleon’s revenge: a creeping French-ification of the common law.
A third threat is the increasing 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.
A fourth threat – especially apparent in the United States – is the increasing cost of the law: an estimated $1.7 trillion a year, according to the U.S. Small Business Administration Report, in additional costs arising from compliance with regulations. On top of that come the costs arising from the U.S. system of tort law, which the Pacific Research Institute puts at more than 2.2 per cent of U.S. GDP in 2003.
Well, one may argue about such figures. 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 old England. 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.
Evidence that the United States is suffering some kind of institutional loss of competitiveness can be found not only in Porter’s recent work but also in the World Economic Forum’s annual Global Competitiveness Index and, in particular, the Executive Opinion Survey on which it’s partly based. The survey includes 15 measures of the rule of law, ranging from the protection of private property rights to the policing of corruption and the control of organised crime.
It’s an astonishing yet scarcely acknowledged fact that on no fewer than 15 out of 15, the United States now fares markedly worse than Hong Kong. In the Heritage Foundation’s Freedom Index, too, the U.S. ranks 21st in the world in terms of freedom from corruption, a considerable distance behind Hong Kong and Singapore.
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 the control of corruption.
Compared with Germany or Hong Kong, the U.S. is manifestly slipping behind. One consolation is that the United Kingdom doesn’t appear to have suffered a comparable decline in institutional quality.
If the rule of law, broadly defined, is deteriorating in the United States, where is it getting better? 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 rule-based governance;
4. Public sector management and institutions; and
5. Transparency, 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’ve 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.
The African winners are, in order of achievement, Nigeria, the Gambia, Mauritius, Botswana and Burundi. Other emerging markets on the right track are Azerbaijan, Croatia, Iran, Malaysia and Peru. Yes, I did say Iran - but I would hold off on investing there this year. (Audience Laughter)
By contrast, The People’s Republic of China has achieved astonishing growth without good legal institutions and without much improvement in them. However, many scholars argue that if China does not now transition to the rule of law, there will be a low institutional ceiling, limiting its future growth.
The case of Bo Xilai’s anti-corruption campaign in Chongqing illustrates just 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 cross-examination. 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 rights in Article 35 of the PRC Constitution.
For those of us who live in the West, where lawyers often seem to have become their own vested interest, it’s strange to encounter lawyers who aim at this kind radical change. Today, however, Chinese lawyers – who numbered just 150,000 in 2007 – are a crucial force in China’s rapidly evolving public sphere.
Recent surveys suggest that they are ‘strongly inclined towards political reform… and are profoundly discontented with the political status quo’.
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 English-speaking world, too:
‘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.’
The fall of Bo Xilai this year is one of a number of signs that elements within the Communist Party hear these arguments.
In a recent speech in Shenzhen, Zhang Yansheng, secretary general of the academic committee for National Development and Reform, argued that – and I quote – ‘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.’
What we don’t know is whether or not 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 a rather 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.
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’s organic, the product of slow-moving 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. We may imagine Oriental gardens 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 rent-seeking activities by organised interest groups. 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’s surely no coincidence that more than a third of Senators are lawyers, and a quarter of members of the House of Representatives. But how is the system to be reformed if, as I’ve argued in these lectures, there’s 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 my final Reith lecture, is that reform – whether in the English speaking world or the Chinese speaking – 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.
Thank you very much. (Audience Applause)
SUE LAWLEY: Many thanks, many thanks indeed Niall Ferguson. So there you have it - a look across the landscape of law where the West is found wanting, and emerging nations such as China have fundamental lessons to learn. Let me turn to our invited audience here in Gresham College in the City of London. Ladies and gentleman, the floor is yours, though I can’t pretend that the professor will be putty in your hands - gentleman here.
JOHN COOPER: Thank you. My name is John Cooper, Queen’s Counsel. I’m also a Visiting Professor of Law at Cardiff University. But perhaps more pertinent to this question, I was also counsel who represented Occupy outside St. Paul’s in that recent litigation. You seem to argue in your eloquent lecture that it’s property rights, not human rights, that should be fundamental. In the Occupy case, it was the enforcement of property rights which trumped the rights of freedom of expression and freedom of assembly. Were the city’s rights more important than human rights?
NIALL FERGUSON: There are two points that I would make in response to that. The first was not to say that property rights were as a general principle more important than human rights, but from an economic point of view that they were more important. So that’s the distinction that I’d like to make at once.
The second point is that there’s a difference between the right of assembly and the right to protest and the right to squat illegally on private property. It wasn’t only the city that had a problem with the Occupy Movement. Harvard Yard found itself occupied for a period in the fall semester and this caused tremendous inconvenience to my students as well as to their professors.
I had no idea what they thought that they were achieving by pitching tents for a period of weeks in the increasingly chilly weather of New England since at no point was any articulate set of propositions made visible to me. So that is the distinction we must make. I would never stand in the way of people who wanted to walk through Harvard Yard one afternoon and express their dissatisfaction with the financial system - as I made clear in my second lecture, I have many dissatisfactions with the financial system too. But to pitch tents for a period of days, indeed weeks, and disrupt the life of ordinary people, that seems to me a very clear breach of the rule of law.
SUE LAWLEY: Question there.
LINDA YEUH: Linda Yeuh, Bloomberg’s Economics Editor, Economics Fellow at Oxford, and former practising lawyer. The Chinese paradox is as you’ve defined it, which is very strong growth and weak legal institutions. However, what has been under appreciated is the extent to which the Chinese have had institutions that don’t fit the formal definitions of what we think of in the West as rule of law or effective rule of law, and in fact it’s that aspect which has underpinned a great deal of its performance.
So, therefore, for you to argue that China has a great deal to learn from the West, the Chinese scholar might turn around and say do you fully appreciate the kinds of institutions which have arisen in China which are not common law derived. In fact they’re civil law derived because they derive from the major era of the Japanese, which was itself derived from the German system.
So in fact the Chinese picking and choosing of the law is very evidenced if you look at its statute. So, for instance, corporations have a supervisory board like the Germans do. So, perhaps my question is simply that - for you to argue there is a ceiling to Chinese development because of institutions. I would have to say you have to articulate perhaps a little bit more about what this Chinese paradox is and why they can’t continue down this road.
NIALL FERGUSON: There are two parts to this story and you mentioned one of them. One part is the legacy of the post-imperial, the nationalist era’s experiment with German-type institutions. There’s no doubt that they decided the English route wasn’t the one to go down and it would be better to copy some continental style institutions - rather as the Japanese had done. This did not work well. And it didn’t work well for a whole range of reasons, probably more to do with the fundamental instability of the politics of the nationalist era.
And that doesn’t mean - and I want to reiterate this - that there’s something fundamentally wrong with German or, for that matter, French legal systems. I hope you picked up my scepticism about the Schleifer argument about legal origins. I’m rather more agnostic than Andrea on this point and I think any real historian would be.
There’s a second set of institutions, though, that turn out to be more important as far as I can understand it in China today, and those are the informal contracts enforcing institutions in the private sector.
The thing that we associate with words like guanxi: the networks of kinship or of friendship which are often the reason that disputes don’t go to court or don’t get settled in court.
One of the interesting things that I read in my preparation for this lecture was the evidence that a huge number of processes that are initiated in the Chinese court system don’t actually ever get concluded or judgements never get enforced. And that tells us something.
It tells us that there is a private system of contracts enforcement going on. The question is can such a system which relies on a mix of imports and private contract enforcement be as successful as the idealised common law system of Bingham and Dworkin, and I think the answer is no.
The networks that run China are, we would say, corrupt - and economists might say inefficient. And this will ultimately prove to be a major handicap as the economy becomes more complex and particularly as the financial system becomes more sophisticated.
SUE LAWLEY: Come back on that.
LINDA YEUH: Just very quickly if I might. There is a very strong strand of argument the Chinese are substituting legal reform for effective political reform. And my own take on this in one sentence is that eventually the rule of law will hit the rule of the party and I think that’s going to be the point when China has to decide what its future ultimately is.
SUE LAWLEY: I see a former Reith Lecturer nodding hard on the front row. Tony Giddens there, Reith Lecturer 1999 I think I’m right in saying, aren’t I?
TONY GIDDENS: Also former Director of The London School of Economics. I wonder if one shouldn’t make more of a distinction between, as it were, first phase economic development and second phase economic development than you seem to do because the conditions which underlay the first origins of the Industrial Revolution anywhere in the world are arguably different from those once you’ve got a model to follow, and that might limit the application of common law and might suggest you’re using a rather British sort of centric view of the world because the state, for example, played a very important part in economic development and Japan, Germany, now in China on the basis that you’ve got something to copy, which you didn’t have originally in the UK.
And I just wonder also if, you know, you’re a bit too harsh on the state and government really. I mean we all know that, as you say, rapacious states need to be controlled, but the state is also the basis of legitimacy, it’s the basis of a monetary system, it’s the basis of many of the things that we assume as social and legal order, and if you’re going to control rapacious lawyers in the US, no matter how difficult it might be, surely it’s only government that can really do that?
NIALL FERGUSON: I don’t think that you can avoid the Anglo-centric nature of the Industrial Revolution. It just happened here first and that’s inescapable. Moreover, when one asks the question how did the state led models fare in the 20th Century, the answer is disastrously because in each of the cases that you mentioned - Germany, Japan, you might have added Russia - the power of the state to steer or accelerate industrialisation ended up being catastrophically abused, and as a result not only were property rights violated, all conceivable rights ended up being violated in Germany, in the Soviet Union and to some extent also Japan.
So, I think the lesson that I infer from it is that there was something preferable about the way in which things unfolded in the English and North American context. One ought not to be Anglo-centric in the sense of looking only at these parts of the British Isles we call England because the really important thing is the way in which the English common law was exported globally by the British Empire.
TONY GIDDENS: I do have to say I disagree fairly fundamentally with that and what I was saying was that the situation you sketched in was correct for the first origins of the Industrial Revolution anywhere, but after that you have a very different ball-game and I think continental law is much more interesting and much more positive than you seem to do.
I think if you look at Germany today, it’s clearly a leading economy in the world anywhere. Of course, it had to go through massive dislocations, but this was true of many parts of the world.
NIALL FERGUSON: Can I just say one mustn’t overlook the extent to which the original model, the 19th Century Victorian model that I sketched in both its Dickensian and let’s say its more positive light.
This model didn’t simply become obsolete because German manufacturing industry outstripped British. This model continued to be the framework within which the most successful economy in the world, the United States economy, flourished.
The US kicked these economies’ butts - to use American English - where it really mattered, which was in sustained productivity growth, rapid industrialisation, and constant technological innovation without the sacrifice of individual freedom.
DR DAMBISA MOYO: Yes, I’m Dr Dambisa Moyo. I’m an author and economist. I find your comment that China - I’m paraphrasing - should learn something about the rule of law from Britain or the West rather disturbing.
I should say that my fundamental belief is that the rule of law as a policy tool is actually largely irrelevant and in fact the rule of law is an artifact - or an outgrowth - of economic growth and, thus, the primary goal of policymaking, particularly in the international landscape, should be to ensure that these emerging economies can establish on a sustained basis economic growth and meaningfully put a dent in poverty.
NIALL FERGUSON: Dr Moyo, as a Zambian you of course must be aware of some of the less appealing aspects of the Chinese economic model since they are visibly to be… to be appreciated in your native country today. And that of course has become something of a hot-button issue in Zambian politics. The substantial presence of Chinese companies, mostly state-owned, in the Zambian economy was probably one of the decisive issues in the last Zambian election.
The African experience seems to me to be quite at variance with what you’ve just said, with all due respect. As African countries improve their institutions in the direction of improving property rights and political rights, so their economies do better. When African countries are run like China with a one party state, they do disastrously badly.
That’s surely the lesson of the post-colonial experience. And when you pick out. as I sought to do in the lecture, the countries that really measurably have improved their institutional framework, it correlates pretty closely with the best performers in Sub-Saharan Africa. Botswana’s the case that Paul Collier has written about and I think it’s worth reflecting on why Botswana is one of the most prosperous counties in Sub-Saharan Africa.
It’s not because they copied the Chinese model. It’s because actually, unlike most post-British colonies, they preserved a non-corrupt system of administration under the rule of law.
SUE LAWLEY: You mentioned then the African countries and other developing countries during the course of your lecture that had scored well in the polls - being good where you could set up business and so on.
I don’t know whether you were surprised or sceptical. I mean Nigeria, Azerbaijan are notoriously corrupt.
NIALL FERGUSON: What’s important about these measures that the World Bank produces is that you’re measuring improvement. What I didn’t tell you, of course, is that they were starting …
SUE LAWLEY: (over) Where the base is.
NIALL FERGUSON: (over) … in Nigeria (Audience Laughter) from an almost staggeringly low base. But the direction is important and those countries - Rwanda is, I think, a better example - those countries where there is improvement and you’re getting out of the foothills and up to something more like a mountain in terms of legal quality, I think there you actually do see consequences. But I specifically singled out the countries that empirically score well in those exercises.
SUE LAWLEY: (over) Okay.
NIALL FERGUSON: … because we need to ask the question: is this right? And I don’t want to make it seem as if I’ve got all the answers here to African economic development. I’m telling you what best practice in development economics currently is.
GEOFFREY ROBERTSON: Geoffrey Robertson. I’m a lawyer. I want to take you on this mantra that stopped the rule of law being the rule of lawyers. We do that, particularly in America, through the jury system but when it comes to judging governments, when it comes to deciding questions of power, we have no alternative but judges who are jumped-up lawyers, and it is the independence of the judiciary that is the most crucial aspect of the rule of law. It is the reason why London, not America or Paris, is the centre of arbitration, and so forth. It’s idle to talk about China ever undergoing a rule of law because it’s a country that cannot allow the independence of the judiciary. And you talk of Hong Kong - I’ve argued a case in Hong Kong for the Vietnamese refugees. They were succeeded in the Supreme Court. The Communist Party of China exercised its veto and reversed the decision.
NIALL FERGUSON: I think this is one of the key points that He Weifang and other Chinese legal reformers is that, as you say, the independence of the judiciary is the key; and the fact that in Chongquing essentially the judges were lackeys of Bo Xilai is probably the single most important thing that has emerged.
Initially when Bo Xilai was riding high, he could portray himself as the scourge of the corrupt officials and it was as an anti-corruption populous that he was really making his mark. But on closer inspection he was in fact running an extortion racket in which he would look at any successful Chongquing business operation and say ‘we’re going to do you for corruption’ and then they would take the chap away, interrogate him, the confession would be produced and the judges would say ‘you’re quite right’ end of story, no cross-examination. So I completely agree with what you’re saying.
You also made a really important point that needs to be emphasised and that is that enduring success of London as a centre for international litigation. Why is it that they want to come to London rather than, let us say, Shanghai? It’s a no-brainer: because the system here delivers a far higher quality of justice.
WILLIAM AYLIFFE: William Ayliffe. I’m the Gresham Professor of Physic. I’m really intrigued as to how you might reconcile the rule of law and the rule of property with the accumulation of capital by these economies, which completely ignored the property rights of the people they were involved with and, furthermore, even their human rights.
NIALL FERGUSON: Which economies are you talking about?
WILLIAM AYLIFFE: Well, I was thinking of the expansion of America into Native American territories. I was thinking of the British Empire in Africa - even into our lifetime - which ignored property laws and human rights.
NIALL FERGUSON: (over) Well I …
WILLIAM AYLIFFE: … as we’re finding out to this day.
NIALL FERGUSON: I highly encourage you to read my book Empire (Audience Laughter) in which I address precisely these issues. John Locke, of course, was the political philosopher who most articulately defined what property rights signified in his ideal commonwealth and it was Locke who argued that freedom, liberty, was essentially bound up with property rights. The self same Locke was of course the man who drew up a constitution for the slave state of Carolina, a constitution which explicitly defined the ways in which slaves would be treated.
At the heart of the expansion of England was a huge hypocrisy, which in some ways Locke personified - that the property rights were peculiar to white men. It was only gradually that that kind of idea was questioned. An obvious way in which that happened was the recognition that slavery was not legal in English common law. The famous Mansfield judgement in the late 18th Century fundamentally shattered the legitimacy of slavery as a legal institution, and within a very short space of time the anti-slavery campaign developed unstoppable force. So I think one has to recognise, in again taking an historical approach to these questions, the dynamic character of the discussion on human rights or, for that matter, property rights.
What people said and thought in the 1700s became very different by the early 1900s. The question really is - and this is the central point I’m trying to make - how does an evolutionary system differentiate itself from one in which absolute principles are enunciated and imposed from up on top? And the great benefit of an evolutionary system is it can evolve in the kind of direction that you implicitly favour.
SUE LAWLEY: Over here.
AILEEN McCOLGAN: Aileen McColgan. I’m Professor of Human Rights Law at King’s College London. You say essentially that the common law does it better than imported structures of rights, but isn’t the problem with the common law that its focus on property, in particular, serves to protect the interests of the wealthy?
And if you look at an area such as discrimination law, the common law was terrible. It did not deal with race discrimination. It was helpless in the face of sex discrimination…
NIALL FERGUSON: (Over)… But can that argument be upheld in the American case, where exactly these same issues had to be dealt with and exactly these same issues were resolved? I think one of the points that’s being missed here is that as attitudes changed on these questions - and they changed around the world at different times and in different ways - so law, legal systems had to adapt, and the implication that somehow the common law couldn’t, I’m not sure is compelling - at least if one looks at the US.
AILEEN McCOLGAN: (Over) Well, it couldn’t and in the US it was constitutional rights and then the Civil Rights Act which was legislation. It wasn’t common law.
NIALL FERGUSON: Yeah but I’m not saying you do… with all due respect, I’m not saying you don’t need legislation. The whole point about the common law is the interplay between what judges interpret as precedent and what the statutes new and old say.
SUE LAWLEY: And a last question here.
MICHAEL BRINDLE: Michael Brindle. I’m a lawyer. You talk about Ronald Dworkin’s views about law and morality, which I’ve always thought were beautifully expressed but rather confusing. I’d like your view on that, particularly in the context of the current debate about tax avoidance.
Our Prime Minister goes out and castigates one private individual for having acted immorally, perhaps in the hope that it might become illegal merely by being shouted very loudly. Has this got anything to do with law and has it got anything to do with the rule of law?
NIALL FERGUSON: I am the first to concede that much of Dworkin’s prose is opaque to me, but that’s a limitation of my intellect. I have never been terribly philosophically inclined. As I said, I’m an empirical thinker. I think there is a really important point that you’ve raised here, which is that if he’s right and that our common law system is in some sense derived from implicit principles, then it’s quite easy, isn’t it, to vary those principles if you make a loud enough noise. And this of course empowers an institution about which too little has perhaps been said in the course of these lectures - the press.
So there’s nothing more odious to me than the sight of the British media in one of their period fits of faux morality. I’ve mentioned hypocrisy once tonight in the context of British imperialism. Let me mention it again in the context of the British press - this kind of thing in which we stipulate that, while the law has in fact been obeyed, never-the-less some moral code has been violated, is perhaps Dworkin inspired. I could take it from him, but from The Daily Mail? That I think really crosses a threshold which I can’t bear.
SUE LAWLEY: (over) What about from the Prime Minister? Is it for the Prime Minister to stand in moral judgement on the taxpayer?
NIALL FERGUSON: One of my rules is never publicly to criticise the Prime Minister (Audience Laughter) It’s a very, very difficult job that he has to do and I’m sure, just as occasionally he leaves a child in a pub (Audience Laughter) now and again he says things which I’m sure on reflection he will realise were not entirely judicious.
SUE LAWLEY: And there we must stop. (Audience Laughter) Next week, for the last lecture in the series, we’ll be in Edinburgh where Niall Ferguson will be offering some solutions to the systems of politics, finance and the law, which he’s been holding up to the light.
And, as he’s indicated, he’s going to be arguing that the answers lie in our own hands. Until then, Niall Ferguson, BBC Reith Lecturer 2012, thank you very much. And from Gresham College in the City of London, goodbye.
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