Economics & rule of law
By Shahid Javed Burki
Tuesday, 23 Feb, 2010
THE main purpose of my latest visit to Pakistan this month was to chair the fourth meeting of the task force on private-sector development set up in November 2008 at the urging of President Asif Zardari.
As chairman, I was asked to present to the government ideas on how Pakistan’s private sector could be commissioned not only to revive the economy but to set it on the path of sustainable, high-level growth. It is the government’s hope that it can institute economic and social reforms to make it possible for Pakistan to attain the sort of GDP growth that has become common in Asia.
It was on the second and final day of our deliberations that Pakistan was convulsed by another crisis that had its origin in the continuing conflict between the executive and judicial branches of the government. The private-sector members of the task force commented on this development on the sidelines of our meeting. They were unanimous in their view that one of the factors standing in the way of development of the private sector was the weak legal and judicial system. They felt that it would remain weak for as long as its role was not clearly defined. This would require our political and legal systems to come to an understanding.
For some time now development economists at institutions such as the World Bank and the Asian Development Bank (ADB) have been analysing the relationship between the efficiency of the legal system and performance of the economy. Recognising the importance of a well-functioning legal and judicial system the ADB some years ago funded a large programme for judicial reform in Pakistan. The programme has not done well since it appears that it did not have the full support of the various parts of the executive.
Development economists who have explored the relationship between law and economics have reached several conclusions. Two are worth noting. The first is that a well-functioning legal system is an important contributor to economic growth and social improvement. Those who wish to invest in an economy find comfort in a well-functioning legal system. Such a system not only has institutional mechanisms for dispute resolution, it also creates an environment of certainty that assures investors that they will not be surprised by ad hoc and whimsical decisions by the executive.
Common law that is the basis of the system in Pakistan functions by recognising precedence as equally important as formal laws. In the case of Pakistan the executive has shown considerable contempt for precedence. With frequent changes in administrations and changes in ideologies, those who operate in the field of economics have had to deal with a great deal of uncertainty. That is not good for the process of economic development.
The second conclusion reached by many development economists is that legal systems based on common law are better for economic development than those that follow fixed and unchanging codes. Examples of the latter are the Napoleonic and religious codes. The former is being followed in most of Europe and Latin America. This is one reason why the Anglo-Saxon world, as well as those parts of the world that came under its influence as a result of colonial expansion, are doing better in economic development compared to those following rigid legal systems. Common law systems provide flexibility while those based on codes are less open to accommodating change.
The changes made in the legal system by the administration of Gen Ziaul Haq have created systemic confusion. The addition of the Sharia bench has added an element of codification to the common law foundations laid down by the British during their long rule in India. However, the main issue at this point is the conflict between the executive and the judiciary on the extent of independence the latter will enjoy. This matter needs to be settled in a way that while the judiciary enjoys full autonomy in its operations, it should not encroach upon the working of the executive branch.
In a recent book, The Rule of Law, Lord Tom Bingham who held three of Britain’s great judicial offices, holds that the rule of law is the “the nearest thing we are likely to approach to a universal secular religion”. He maintains that the blessings for people who live under the rule of law can be clearer than those conferred by liberal democracy or free markets. In other words, in the three-legged systems — liberal democracy, open and competitive markets and the rule of law — that have been adopted by the more successful states around the globe adherence to the rule of law must be the strongest leg.
According to Bingham the rule of law has many elements. Among these are the accessibility of the law, equality before the law, the right to a fair and speedy trial, the legal accountability of the functionaries of state, accountability also of those who sit in judgment over other people, and the ability of the system to change as society changes and develops. It is evident that most of these elements are absent from the Pakistani legal and judicial systems as they are presently constituted. It is their absence that the ambitious programme launched by the ADB was seeking to address.
Looking at the current debate from the perspective of an economist I can only hope that some good will come out of the current confrontation between the executive and the judicial branches of government. If this leads to a clear demarcation we may see the evolution of a legal system that would create some certainty for the entrepreneurs who work in the markets and for common citizens who look to the markets to provide them with the goods and services they need at competitive prices.