This provocative book brings together twenty-plus contributors from the fields of law, economics, and international relations to look at whether the U.S. legal system is contributing to the country’s long postwar decline. The book provides a comprehensive overview of the interactions between economics and the law—in such areas as corruption, business regulation, and federalism—and explains how our system works differently from the one in most countries, with contradictory and hard to understand business regulations, tort laws that vary from state to state, and surprising judicial interpretations of clearly written contracts. This imposes far heavier litigation costs on American companies and hampers economic growth.
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About the Author
F. H. Buckley, a Foundation Professor at George Mason School of Law, has been published by the Journal of Legal Studies, the International Review of Law and Economics, and Public Choice. He is also the author of four books, including The Morality of Laughter, and the co-author of four books.
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The American Illness
Essays on the Rule of Law
By F.H. BUCKLEY
Yale UNIVERSITY PRESSCopyright © 2013 F.H. Buckley
All rights reserved.
The Rule of Law in America
Fifty years ago we thought we knew how to make a country rich: self-government, good education, free markets, and loads of World Bank infrastructure grants. Nothing very complicated, in short. We know better now. The gap between rich and poor countries, which we expected to shrink, has grown larger. What we failed to recognize was the role of intangible assets: the cultural values of thrift and industry, honesty in government, and the rule of law.
What the rule of law might mean is, as we shall see, not always clear. But however one might define it, rich countries enjoy a robust rule of law, and departures from it in third-world countries have left their citizens impoverished. More recently, America itself has suffered from an economic decline, and this book asks, with the assistance of leading scholars in the legal academy, whether a decline in the rule of law has contributed to this. America sends experts to lecture people in other countries about the importance of the rule of law, but in doing so, do we fail to recognize the beam in our own eye?
America's legal system, and its reliance upon lawyers, has long made it the world's outlier. Other countries seem to depend more on informal social norms and less on legal ones. Here, however, the rule of lawyers seems almost to be coded in the country's DNA. Or so at least Edmund Burke thought, as he surveyed the men whom today we call the Founders of America. In his 1775 Speech on the Conciliation with the Colonies, Burke attributed the "untractable" spirit of the colonists to their lawyers and students of law: "This study renders men acute, inquisitive, dexterous, prompt in attack, ready in defence, full of resources. In other countries, the people, more simple, and of a less mercurial class, judge of an ill principle in government only by an actual grievance; here they anticipate the evil.... They augur misgovernance at a distance; and sniff the approach of tyranny in every tainted breeze."
Not everyone would disapprove of the Founders' litigiousness. Moreover, America's fascination with the law has not prevented it from becoming the richest country in the world. It does not follow, however, that America's legal system has been a help and not a hindrance. Beethoven wrote the Ninth Symphony in spite of his deafness and not because of it.
The question of what the legal system has contributed is more acute today because of America's recent economic decline. Before now, the contribution of the legal system, positive or negative, had been obscured by the relative advantages the country enjoyed when compared with other nations. As we will see in my article that follows, these advantages have been largely dissipated in recent years, and America's exceptional legal system, warts and all, will now stand out in sharper focus. And that is why this book is timely.
The Rule of Law
This is the century of the rule of law. In the 20th century, economists such as Milton Friedman offered a simple prescription for economic growth. All that a country like Russia need do, he thought, was shrink the state by privatization: "Just after the Berlin Wall fell and the Soviet Union collapsed, I used to be asked a lot: 'What do these ex-communist states have to do in order to become market economies?' And I used to say: 'You can describe that in three words: privatize, privatize, privatize.' But, I was wrong. That wasn't enough. The example of Russia shows that ... privatization is meaningless if you don't have the rule of law." Friedman's prescription for growth was an important component of what came to be called the Washington Consensus, a set of classically liberal policies that dominated the literature about economic development after the fall of communism. Apart from privatization, other elements included deregulation, free trade, and low taxes. Property rights came in last in the list. As Friedman and others came to realize, however, this ignored the crucial role of social and legal institutions in promoting growth.
The recognition that the simple economic rules of the Washington Consensus could not capture the secret of growth, and that institutions mattered, came to be called neo-institutional economics. Neo-institutional scholars argued that changes in growth patterns could not be explained without recourse to cultural differences. For example, Ghana and South Korea had very similar economies and per capita GDP in the 1960s. Thirty years later, the South Korean per capita GDP was 15 times that of Ghana. What explained the difference, said Samuel Huntington, was each country's culture.
Culture embraces such things as the private virtues of fidelity, thrift, and industry, the social norms of promise-keeping and trust, and the practice of religion. One important component is legal culture, or the rule of law. Daniel Kauffman reports that rule of law variables are associated with significantly better development outcomes: "An improvement in the rule of law (or, say, control of corruption) from relatively poor to merely average performance would result in the long run in an estimated fourfold increase in per capita incomes, a reduction in infant mortality of a similar magnitude, and significant gains in literacy."
The economist's recent discovery of the rule of law has been mirrored in the legal academy. In the 1970s and 1980s, an influential group of radical legal scholars, associated with the Critical Legal Studies Movement, rejected the goals of formal equality, certainty, and predictability, which are the hallmarks of the rule of law. For the CLSers, law was necessarily indeterminate, in failing to provide a single right answer in most or all cases. Indeterminacy was then a permission slip for socially progressive judges and lawyers to bend the law to suit their politics. Such ideas, once fashionable, now find few adherents, and most legal academics, like their peers in departments of economics, have come to recognize that departures from the rule of law are troubling.
But what is the rule of law? In what follows I distinguish between two things it might mean: the absence of government corruption and a benign set of legal norms. Let us take each in turn.
Studies show that corruption has a significant negative effect on economic performance. Entrepreneurs and investors cannot safely start or finance businesses in states that cannot credibly commit to respect property rights and to honor contracts. As a prosperous society, then, one might expect America to rank high on measures of credible commitment and to have relatively little corruption. Surprisingly, however, the U.S. does not come out particularly well on cross-country measures of corruption. Transparency International conducts surveys of business leaders on their perceptions about bribery, kickbacks, and public sector anti-corruption efforts, and ranks the U.S. behind many of its first-world competitors.
This likely understates America's corruption problem, when corruption is understood to embrace wasteful lobbying of the kind described in Steven Magee's article. What corruption is for poor countries, lobbying is for rich ones, a means of obtaining political influence through the expense of money. No other country has anything like the number of American lobbyists who load up legislation with interest group bargains.
This is not to suggest that lobbying is devoid of value or that it is unworthy of First Amendment protection. Lobbyists do provide useful information about the likely effect of legislation. At the same time, however, there is little reason to think that interest group pressure is invariably benign, where a concentrated rich group (e.g., an industry association) competes against a dispersed and poorly organized group (e.g., consumers). When a narrowly concentrated group is able to act collectively, through lobby groups, it has an incentive to redistribute wealth to itself even if its gains are small compared with the losses it imposes on the society as a whole. In a large country such as America, the dispersed groups are relatively more spread out, and the relative clout of the concentrated groups stronger. Interest groups just might provide unbiased information—but only as an incidental by-product of their business.
B. Legal Norms
Courts might fail to adhere to the rule of law for a variety of reasons. The judges might be corrupt; they might not be in de pen dent of the government; they might shirk their duties and impose unnecessary wait times on litigants; they might be ill-trained. None of these problems beset American courts (even if American judges are greatly underpaid). Instead, any departure from the rule of law in America results from the content of its legal norms, which frustrate the intentions of bargainers and permit their property to be plundered.
It is conventional to distinguish between thick and thin definitions of the rule of law. A thick definition would include democratic institutions and the protection of personal and religious freedom. As I define it, a thin definition of the rule of law would include substantive private law rights: contracts are enforced and private parties are protected from looting by the state or other private parties. Countries that adhere to a thick definition are attractive places to live; countries that adhere to a thin definition are attractive places to do business.
A country might have both kinds of rule of law, or one and not the other. China seems to be adopting a thin rule of law without embracing a thick version. As for the U.S., an adherence to the rule of law, thickly defined, has obscured America's relative weakness on a thin definition of the rule of law. This is a pleasant place to live, but we are shipping business and jobs offshore, often to first-world countries that adhere as closely as we do to a thick definition of the rule of law.
While I concentrate on a thin definition of the rule of law, I do not wish to minimize the importance of upholding a thick rule of law. We should want both, even if one seems at times to exclude the other. For example, Justice Roger Traynor, who eviscerated the law of contracts in California in Pacific Gas, was also the first judge to hold that an anti-miscegenation statute was unconstitutional. However, that's not to say that the choice is between a socially progressive but economically dangerous Roger Traynor and an economically sophisticated but socially illiberal judge. Other first-world countries that adhere more closely to a thin rule of law have no lessons to take from America on democracy and civil rights.
How then should we define the thin rule of law? I argue that it must have a substantive component, that its rules must permit entrepreneurs to flourish without fear of predation, that contracts should be enforced and that tort law predations should be banned. That is not what the thin rule of law is typically taken to mean. Instead, the rule of law is defined as the output of a set of formal, neutral procedural requirements. The best known such definition is that offered by Lon Fuller in his Storrs Lectures.
According to Fuller, laws should be (1) general, (2) publicly promulgated, (3) prospective (i.e., not retroactive), (4) clear, (5) consistent (i.e., not contain any contradictions), (6) practicable (i.e., not demand the impossible), (7) constant over time, and (8) congruent with the actions of officials. If we accept that list as defining the rule of law, America's departures from it will be apparent to readers of this book.
Laws are general when established in the name of the whole society and applied in the same way to all parties. For the most part that is true in the U.S. However, the ability of plaintiffs to forum-shop, and the perceived tendency of some courts to stick it to out-of-state defendants, as described by Mark Ramseyer and Eric Rasmusen, suggest a troubling departure from the norm of generality.
Before laws can be said to be public, two conditions must hold. They must be publicly promulgated so that everyone can look them up, and they must not be so complicated and detailed as to be effectively unintelligible. It doesn't help to publish laws if no one can understand them. American laws are public in the first sense, but one might wonder whether they satisfy the second sense of publicity. Business regulations, promulgated in mind-numbing detail, with criminal sanctions attached, can make felons of people who are without a guilty motive or mind, a problem described in Jeffrey Parker's essay.
American private law rules are often anything but clear. Contextualist rules of contractual interpretation, described by Robert Scott and prescribed by the Uniform Commercial Code (UCC), permit courts to ignore a clearly written contract and make its meaning wholly obscure. The tort law regime discussed by George Priest makes it difficult for manufacturers to put a value on anticipated civil liability costs. Formerly, unmeritorious claims were given short shrift under the doctrine of demurrer, in which judges granted a motion for summary judgment by the defendant. The decline of demurrer in America introduces a degree of uncertainty that has little parallel in other first-world jurisdictions that dispense with juries in non-criminal matters. The loss of predictability adds a level of risk and imposes a cost on American business.
In the past, American private law rules were fairly constant over time, as George Priest and Richard Epstein note. A law student transported from 1900 to 1960 would not have found his lectures unfamiliar. However, the 1960 student transported to 1980 would be confronted with entirely new theories of law and legal rules, and would have felt like Rip Van Winkle. The changes weaken the incentives of parties to make long-term reliance investments in contracts and relationships.
Rules are congruent with the actions of officials when courts and regulators agree on standards of liability. Were that the case, federal and state regulators would "pre-empt" the courts, and a manufacturer would have a defense against a law suit if it had conformed with safety regulations. However, this pre-emption defense is not available to defendants, as Eric Helland and Jonathan Klick note in their article, and as Kip Viscusi does in his second article.
On Fuller's definition of the rule of law, then, one might not give America's private law rules high marks. But even if they scored better, is that all there is? Fuller saw the rule of law as a set of neutral procedures, where rules are established in accordance with a democratic process under a thick rule of law. What the substance of the rules might be seemed not to matter. Similar procedural and substance-free definitions of the rule of law were proposed by Dicey and Hayek, the assumption being that, provided one gets the procedural inputs right, the substantive outputs will take care of themselves.
However, Fuller's procedural categories provide an inadequate definition of the rule of law. A legal regime might offer generality, publicity, clarity, consistency, constancy over time, and congruency with regulators, and still be a legal system from Hell. It might weaken property rights and impose civil liability on the flimsiest of grounds, all the while conforming to Fuller's idea of law. It might permit disappointed bargainers to walk from their contracts whenever they turn against them. It might narrow the scope of free bargaining to nothing by expanding the categories of paternalism and perfectionism. It might leave an economy in ruins and still count as the rule of law.
That is a very short-sighted idea of the rule of law, if freedom matters, if wealth is better than poverty, and if one wants to fund social programs with something more substantial than pious aspirations. For this reason, I suggest that a thin rule of law must have a substantive content and must bar what Mark Ramseyer and Eric Rasmusen describe as "judicially sanctioned theft." The probability that one's property will be unjustly taken from one in a tort action, that one's contracts will not be enforced, is as troubling as the depredations of a corrupt court system, if the probability of loss is the same.
Excerpted from The American Illness by F.H. BUCKLEY. Copyright © 2013 by F.H. Buckley. Excerpted by permission of Yale UNIVERSITY PRESS.
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Table of Contents
Part 1 Introduction
The Rule of Law in America F.H. Buckley 3
Part 2 Relative Decline
An Exceptional Nation? F.H. Buckley 43
Part 3 Empirical Evidence
Are Americans More Litigious? Some Quantitative Evidence J. Mark Ramseyer Eric B. Rasmusen 69
Lawyers as Spam: Congressional Capture Explains Why U.S. Lawyers Exceed the Optimum Stephen P. Magee 100
Regulation and Litigation: Complements or Substitutes? Eric Helland Jonathan Klick 118
Does Product Liability Law Make Us Safer? W. Kip Viscusi 137
Part 4 Civil Procedure
The American Illness and Comparative Civil Procedure Daniel Jutras 159
The Proportionality Principle and the Amount in Controversy Peter B. Rutledge 175
The Allocation of Discovery Costs and the Foundations of Modern Procedure Martin H. Redish 201
Does Increased Litigation Increase Justice in a Second-Best World? Jeremy Kidd Todd J. Zywicki 211
Part 5 Tort Law
A Tamer Tort Law: The Canada-U.S. Divide Michael Trebilcock Paul-Erik Veel 229
The Expansion of Modern U.S. Tort Law and Its Excesses George L. Priest 249
Regulation, Taxation, and Litigation W. Kip Viscusi 270
Part 6 Contract Law
An English Lawyer Looks at American Contract Law Michael Bridge 291
Text versus Context: The Failure of the Unitary Law of Contract Interpretation Robert E. Scott 312
Exit and the American Illness Erin O'Hara O'Connor Larry E. Ribstein 336
The Dramatic Rise of Consumer Protection Law Joshua D. Wright Eric Helland 361
Part 7 Corporate and Securities Law
How American Corporate and Securities Law Drives Business Offshore Stephen M. Bainbridge 381
Part 8 Criminal Law
Corporate Crime, Overcriminalization, and the Failure of American Public Morality Jeffrey S. Parker 407
Part 9 How Nations Grow (or Don't)
The Legacy of Progressive Thought: Decline, Not Death, by a Thousand Cuts Richard A. Epstein 435
Overtaking Robert Cooter Aaron Edlin 472
The Rule of Law and China Francis Fukuyama 487
Part 10 Changing Course
Reversing F.H. Buckley 505