Researchers study when prosperity does, doesn’t require rule of law
The “rule of law” is characterized by transparent and stable laws that are applied equally to all citizens. The rule of law thereby limits government discretion, thus inspiring the investment and innovation that produces economic growth.
It is well-recognized that all of today’s most successful democracies are based on a rule of law. Two Clemson University professors have looked to ancient Athens, which pioneered both democracy and a rule-of-law system, to learn more about the conditions under which successful societies will establish the rule of law.
In research soon to be published in the Journal of Legal Studies, Andy Hanssen and Rob Fleck, professors in the John E. Walker Department of Economics, sought to understand how Athens flourished under two different systems.
First, in the fifth century BCE, all male Athenians belonged to the Popular Assembly, a democratic institution where majority decisions were unconstrained by the rule of law. Later, in the fourth century BCE, Athenians established something more akin to a modern rule-of-law democracy, in which the will of the voters was constrained by the need to follow procedures overseen by independent courts; i.e., a rule of law.
So, why did the Athenians change their system?
Fleck and Hanssen argue the Athenians changed their legal system in response to changes in Athens’ economic opportunities. “In the fifth century BCE, Athens headed an empire, the revenues from which provided the main source of Athens’ public funds,” Hanssen said. “Having that source of wealth reduced the gains of establishing a rule of law, because it allowed Athens to reap many of the benefits of commercial transactions without having to guarantee legal stability.”
Athens even dismantled some previously established checks on decision-making, so that “law” essentially became whatever its Popular Assembly deemed the law to be. During this period, Athens’ economy prospered, even though it lacked a rule-of-law system.
This changed in the fourth century, after Athens was defeated by Sparta in the Peloponnesian War, and in the process lost its empire and influence.
“After the war, Athens was in a position like that of a modern state, having to attract rather than coerce commerce,” Fleck said. “Athens responded by writing laws and creating institutions to support them. Under the new rule-of-law system, Athens thrived, equaling and maybe even exceeding its fifth-century wealth levels.”
Today, countries lacking the rule of law are common throughout the world. Examples include most Middle Eastern states and the majority of Latin American states, including many democracies, Hanssen said.
“Venezuela is a particularly egregious example where citizens elected a government democratically, but that government then dispensed with the rule of law,” Hanssen added. “In fact, even in many of the more successful of Latin American states, it is distressingly common for rulers to rewrite constitutions each time they take power. As a result, citizens suffer because there isn’t sufficient confidence in the stability of the rules, or that the rules will be equally applied, to inspire potentially wealth-enhancing investment.”
Fleck said in a government where citizens are confident in the system of justice, it’s more conducive to there being a stable economy.
“When laws are applied to everyone equally and won’t be changed retroactively, a citizenry is more likely to invest and innovate, which ultimately leads to economic growth,” Fleck added.
Hanssen and Fleck, who have jointly done research on Athens for almost 20 years, said that although the rule of law’s benefits generally outweigh its negatives, it does come with a cost.
“Athenian philosopher Plato likened the rule of law to ‘an obstinate and ignorant tyrant’ because it limits the government’s ability to adjust policy quickly to respond to changing circumstances,” Hanssen said. “So, there are tradeoffs, and in the fifth century when Athens could collect tribute from their allies and require that trading partners use Athens’ main port, the costs of establishing the rule of law would have perhaps been greater than its benefits.”
The Clemson researchers said understanding the trade-off the rule of law presents can promote a better understanding of institutional choices in the modern world.
“Although the rule of law is widely accepted because of the many benefits it brings, it is far from universal. The case of ancient Athens helps to show us the conditions under which a society can or cannot thrive without rule of law.”
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