Why business should protect the rule of law

An elective despotism was not the government we fought for; but one in which the powers of government should be so divided and balanced among the several bodies of magistracy as that no one could transcend their legal limits without being effectually checked and restrained by the others.

[James Madison, Federalist No. 58 (February 20, 1788)] We are today facing a situation where the rule of law is being replaced by the rule of a man. Parliament has refused to accept the interpretation of the Constitution given by the Supreme Court, which alone is empowered to do so under our Constitution.

The concept of the rule of law is the principle of nondiscretionary governance of those people currently in authority. It stands in contrast to the arbitrary or discretionary rule of some of our ancient kings although they too were expected to follow custom and law. In shorthand, either we have the rule of law or we have the subjective rule of persons who exercise arbitrary authority.

Under the rule of law, government agencies do nothing but faithfully enforce statutes already on the books. Under the rule of persons or authorities, those in positions of executive authority have the discretion to decide any matter as they please and they do not have to follow any existing rules or laws.

 Friedrich Hayek in his classic work ‘The Road to Serfdom’ contrasted “a country under arbitrary government” from a free country that observes “the great principle known as the Rule of Law”.

“Stripped of all technicalities,” he continued, “this means that government in all its actions is bound by rules fixed and announced beforehand — rules which make it possible to foresee with fair certainty how the authority will use its coercive powers in given circumstances and to plan one’s individual affairs on the basis of this knowledge.” This is necessary for businessmen who plan to invest whether they are local businessmen or foreigners. So don’t expect direct foreign investment in the form of factories or long term investments if there is no rule of law and the courts are not free to decide against the government on any commercial matter.

It is of course true that laws must be executed by people in authority. People in authority can be men who act rightly based on their conscience or men who act only in their self interest and such self interest may involve the perpetuation of their power. The people they appoint to the Judiciary can either be people who impartially enforce the laws or those who decide on the basis of serving their self interest. Did the Chief Justice show any such impartiality in her decision on the 18th Amendment?  I am reminded of Pastor Niemoller. Those who are silent in the face of injustice and will not uphold the law will have their own turn to face similar injustice and unfairness.  But the fate of the Chief Justice is entangled with the Rule of Law and hence we have to ensure the Rule of Law for trying her for any offences.  

Consider a soccer match referees. They can be people who arbitrarily enforce rules against one team but not the other, or (even worse) who penalise a team for “infractions” of novel “rules” that they have made up in mid-match. When there is no rule of law we will find those in authority making up their own laws and rules like Alice found out in Wonderland.

The rule of law concept has deep historical roots. Hayek quotes David Hume’s History of England — written two centuries earlier — on the value of establishing the rule of law in place of the unconstrained discretion of government officials. Hume acknowledges that it is not always convenient in the short run to forego ad hoc measures.

He writes that “some inconveniences arise from the maxim of adhering strictly to law,” but affirms the lesson of history that in the long run we are better off from adhering to the rule of law. According to Hume, “It has been found, that… the advantages so much overbalance” the inconveniences that we should salute our ancestors who established the principle.

The contrast between the rule of law and the rule of men is sometimes traced still further back to Plato’s dialogue entitled Laws. In that work, the Athenian Stranger declares that a city will enjoy safety and other benefits of the gods where the law “is despot over the rulers, and the rulers are slaves of the law.” In other words, government officials are to be the servants and not the masters of society.

The rule of law is vitally important because it allows a society to combine freedom, justice, and a thriving economic order. When legal rules are known and government actions are predictable, free people can confidently plan their lives and businesses, and can coordinate their plans with one another through the market economy.

Citizens need not fear arbitrary confiscation of their possessions or nullification of their contracts. Entrepreneurs know that if they succeed in turning lower-valued bundles of inputs into higher-valued products, they get to keep the rewards. If they fail, they fail, and they bear the losses. So let businessmen not be silent in this crisis in the rule of law.