Power and efficacy of a law reside in beliefs held by ordinary people, including beliefs about other people’s beliefs.
The big question that plagues developing economies like India is why so many laws that are so well formulated on paper languish without implementation. In India, the laws are often excellently drafted but they gather dust with not just the citizenry, but also the police, the magistrate and other functionaries of the state looking the other way.
Trying to grapple with this problem of the non-implementation of laws, one is forced to also confront the obverse question: Why are some laws implemented so well? After all, the law is nothing but some rules on behaviour written down on paper. Why should some ‘ink on paper’ affect the way we behave?
The core ideas of the modern discipline of law and economics, which is referred to as the ‘traditional approach’, emerged in the 1960s. Despite its success, traditional law and economics are built over deep fault lines.
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This traditional approach to law and economics assumed that the functionaries of the state – the police, the tax officer, the judge – will simply do their job. But the attribution of robotic qualities to the functionaries of the state, whereby they are assumed to do what the law requires them to do, is clearly unacceptable. They are also rational agents with their own aims and motivations.
Once this is recognised, the traditional approach to law and economics runs into foul weather. It becomes evident that the discipline is flawed and needs to be reconstructed, recognising the rationality of not just the citizens, but also the bureaucrat and the magistrate.
It is this ambitious reconstruction of law and economics that my book, The Republic of Beliefs, attempts. The new approach enables us to get a handle on the beguiling observation on the rule of law attributed to Gordon Brown, the former British Prime minister: “In establishing the rule of law, the first five centuries are always the hardest.”
The core idea of the new approach is to recognise that, in the final analysis, the power and efficacy of the law reside in the beliefs held by ordinary people, including the beliefs about other people’s beliefs. Nebulous though this may seem, it is possible to create formal arguments based on structures of beliefs on how and when a law will be effective.
The germ of this idea was already there in the 18th century, in the writings of philosopher David Hume. In 1742, he pointed out how a tyrant’s power does not rely on what the tyrant can do to individuals, “since, as a single man,” his reach is limited. The power he possesses “must be founded either on our opinion, or on the presumed opinion of others”. Hume did not have the wherewithal of modern game theory to give formal shape to his deep idea. That is what the book tries to do. It uses the idea of a ‘focal point’, which enables individuals to coordinate their actions to develop a new and richer theory of law and economics.
The power of the state and its laws, and also the power of the tyrant and his cronies, resides in nothing but the opinions and choices of ordinary citizens.
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My first encounter with this approach occurred when in the early 1980s, I stumbled upon Vaclav Havel’s then unpublished essay ‘The Power of the Powerless’. It was a samizdat document that had been smuggled out of a Czechoslovakian prison where Havel was confined. Its argument was Humean. Powerful political institutions, such as dictatorship and authoritarianism, which seem to be large, top-down structures, are nothing but the outcome of beliefs of ordinary individuals. Therein lies an important lesson and responsibility on the shoulders of ordinary people—the power of the powerless.
One can see this in many real-life examples. Some of India’s caste practices have roots in this. A person may not believe in caste but abide by its rules for fear that if he/she violates those norms others will ostracise him/her. And those others who ostracise him/her may do so for fear that if they do not ostracise those who violate the caste norms, they will be ostracised by others too. We are all locked in a trap of beliefs.
Political power, the trampling on individual freedom of speech that we see in many countries, is a manifestation of these belief traps.
India had an encounter with this during the Emergency from 1975 to 1977. But barring that brief episode, India stands out, especially among developing nations, for having upheld these freedoms. This is an achievement that all Indians should be proud of. Equally, it is sad to see some recent retreat with incidents of crackdown on critical speech and political witch-hunt against activists. It is important to recognise that to be able to take criticism is a sign of strength rather than weakness.
In a recent essay, ‘It Can Happen Here’ (New York Review of Books, June 2018), Cass Sunstein has pointed out how some of the worst tyrannical excesses in history occurred through a slow and almost imperceptible slide into such traps. Discussing Milton Mayer’s book on Germany from 1933 to 1945, he notes how “each step was so small, so inconsequential … that people could no more see it developing from day to day than a farmer in his field sees the corn growing”.
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The aim of my book is to show that these seemingly abstract ideas can be given formal shape and used for good purposes, such as to craft laws that are not just good on paper but get implemented and are effective.
Law and economics is an exciting field not merely for its innate intellectual challenge but because of the intimate connection between the kind of laws a nation has and the nature of economic development the nation experiences. A new law enacted with a tunnel vision of eliminating one social ill but unmindful of its fallout on the economy can have a devastating negative backlash that stalls growth and slows down the nation’s progress. It is the attention given to the economic fall-out of law that has contributed to the advance of many of today’s high-income nations, prominently the United States. So, there should be a vested interest everywhere, and especially in developing countries, to doing law and economics right. The aim of the book is to try to lay out a foundation for such an exercise.
The author is Carl Marks Professor, Cornell University. Former Chief Economist and Senior Vice President of the World Bank, 2012-16, and Chief Economic Adviser to the Indian Government, 2009-12.