Download Ed Meese - The Foundation for Democracy in Africa

It is a pleasure for me to be here and to join my colleagues in welcoming you here to Heritage.
I've been asked to talk about the rule of law, and I know that you've been told a lot of things both
yesterday and today, but I think two of the essential requisites for growth and opportunity of an
economy in any country is number one free markets and secondly the rule of law. These two
concepts really go together and that's what I’d like to talk about today. The free market system is
basically that the individual decisions of thousands, perhaps in some cases even millions of
people, is a better indicator of what the economy ought to do, than the command and control type
of regulation of the economy by a governmental entity or by anyone else that has what you might
call top down direction of the economy.
You've already heard, I believe, about the Index of Economic Freedom, and it talks about this
combination of rule of law and free markets, free enterprise systems. The interesting thing in the
book that you'll find in talking about a free market system the various components that have to
do with that and the criteria on which this book and the rating of the various countries is based
are things like the trade policy - the ability of a country to engage freely in trade, the fiscal
burden of government - to what extent the government taxes the businesses and the people of the
country, the amount to which the government intervenes in the economy through regulation,
monetary policy - whether it's stable or whether it is subject to ups and downs in terms of
monetary policy which can have a disastrous effect upon the economy, capital flows and foreign
investment - the ease with which money can be invested in a country and its businesses, the
banking and finance system, wages and prices, property rights, regulation and whether or not
there's a black market. It's really a systematic analysis of these various factors that demonstrate
that the countries with the highest levels of economic freedom are also those that have the
highest living standards. Corollary to these different components of a free market system is, of
course, this rule of law, and just like the free market system imposes constraints and limitations
on government, the rule of law also imposes certain constraints and limitations on government.
When we say that we're talking about the rule of law, we're talking about a rule that is opposed to
such things as arbitrariness, favoritism and unfairness. Basically, what is essential is that the
kinds of things that are necessary for a successful economy depend essentially on the rule of law.
Whether people are investing money in an economy in one way or another (through business, the
banking system or otherwise) and also the people themselves in terms of investing their own
labor, rule of law is critical in order to have the kind of investment of both capital in the sense of
financial capital and also of human energy and contribution. People are not going to want to
work vigorously and produce for a system that does not have essential fairness, which is the
essence of the rule of law. The key to the rule of law and its relationship to investment is
predictability. Before someone is going to risk their money by putting it into a business or by
investing in a particular country in a business, they want to know what's going to happen to that
money. They want to be able to predict what's going to happen in terms of various criteria.
Some of the principles of the rule of law that are important are (1) Consistency - the same rules
apply across the board and will apply on a continuing basis; (2) Continuity - the fact that ten
years from now or five years from now, people will be under basically the same rules and if there
are changes in rules, they are done in a way in which people can have input as to the direction
that change is going to go, so that you're not subject to arbitrary changes in rules from one day,
week or month to another. All of which is a key to this element of predictability; and (3)
Impartiality - the important requirement in a fair economy and for the rule of law is equal
application of the law. There's not one favorite group or one favorite individual, or that the law
is not going to be applied differently to one person who comes before a court or before some
other regulatory body against another. So that people can be confident that they will be treated
impartially. Now, what are the components of rule of law? Well one of the most important which is critical again to this predictability and the willingness to invest - is the sanctity of
contracts. The idea that if people make an agreement (usually in writing), that contract will in
fact be enforced, so that a person can depend upon the agreement they made on this date,
throughout the term of the contract. Without that confidence and predictability, very few people
are going to enter into agreements particularly when they are risking something (whether it be
their labor or their money) and enter into that contract unless they know in fact that that contract
will be respected, not only by the other parties to the contract but by government and those that
might be in a position (like courts) to enforce the contract. A second component has to do with
property rights. Property rights are absolutely critical to the rule of law. When the founders of
the United States came together as to what were the three essential ingredients of liberty, they
were life - the ability for a person to live without being attacked by government, liberty - the
ability to go about your business in a way unhindered by others, and property - the right to own
property, to dispose of property, to utilize property for your benefit, the benefit of your family
and so on. So that's why property rights become a very important component. In this book, the
Index of Economic Freedom, it says it very well. It says, "the ability to accumulate private
property is the main motivating force in a market economy, and the rule of law is vital to a fully
functioning free market economy. Secure property rights give citizens the confidence to
undertake commercial activities, to save their income and to make long term plans because that
they know that their income is safe from expropriation. A key to whether an economy is sound or
not is the extent to which the government protects private property by enforcing the laws and
how safe private property is from expropriation." Private property then becomes one of the
critical things that is a part of the rule of law. Some of the factors regarding property rights that
are mentioned in the Index are the freedom from government influence over the judicial system,
that is an (1) independent judiciary. A judiciary that is not subject to whatever body may be
ruling the country at a particular time, but will enforce the laws in the same way no matter who
the rulers happen to be; (2) A commercial code defining contracts, that is a body of law that
explains how contracts will be protected and how they'll be enforced. The sanctioning of foreign
arbitration of contract disputes, and this is particularly important to developing countries because
most developing countries are absolutely dependent upon foreign investment for at least a
portion of their ability to function as an economy, and some system for the arbitration of disputes
with people from other countries is an important protection of property rights; (3) Protection
against government expropriation of property - I mentioned that earlier, but the whole idea is the
critical aspect of the government not being able under this rule of law and under this system of
law in a particular country to go in and simply take other people's property from them without
due compensation or some legal process that enables them to do so with the sense of fairness and
impartiality. The protection of the right to private property so that it cannot be taken away either
by government or by someone that's stronger than you - your neighbor or someone else that
wants to infringe on your private property. Besides contracts and besides private property,
another aspect is also the ability to obtain and keep or repatriate profits, particularly if you're a
foreign investor. The confidence that if your business that you've invested in a particular country
is making a profit that you will benefit from those profits and be able to take those profits out of
the country to wherever you happen to be, or if you're in the country to move the profits from
wherever they are earned into whatever part of the country you plan to live in and do business in.
This is the general concept of the rule of law. An important part of the rule of law is an effective
judiciary. There needs to be a body that will enforce the law and will apply the rule of law to
specific situations and will stand up for the rights of individuals whether it be under contracts or
private property concepts or wherever it happens to be. That's where you need a judiciary. In
the United States, we're very proud of the fact that we developed one of the first independent
judiciaries. A judiciary that was not subject to the President and not subject to the Congress. We
had two protections written into our constitution for judges to secure their independence from
whatever the political situation might be at a particular time. One is a lifetime appointment or as
the constitution says appointment during good behavior. As long as the judges do not
themselves violate the law, they have essentially lifetime appointments. The second is that the
judge's compensation (their salary and benefits) cannot be reduced during their term in office
because our ancestors had an experience back in the 1700s with the way in which the King of
England was able to control the judges. If he didn't like the decisions they were making, he
would stop paying them so it was written into the Constitution that you can't decrease the
compensation of the judge during the term in office. These two elements lifetime appointments
and no reduction of compensation have made for our independence. There are a lot of different
ways it can be done. The states do it differently. They have elections of judges and so on, but
the fact that you have a judiciary that is sufficiently constituted that it can protect the rule of law
and that it is immune essentially from political forces is a very important part of the rule of law.
The judiciary needs to be reliable. You need to be able to rely again on it putting forth the
components mentioned earlier of consistency and continuity. It has to be impartial obviously,
and it should be efficient which means that the courts should make its decisions without undue
delay. We have a saying that justice delayed is justice denied. Even if you win a case and it's
taken you five years to get that judgment. In that period of time, the amount of money have been
deprived of or rights you've been deprived of during the time prior to that decision in itself can
defeat the ultimate decision because by that time it might not make any difference. So, effective
and efficient judiciary courts are very important as well. They should operate with a minimum
of cost (particularly cost to the litigates) as well as a timely fashion so that you can obtain a
decision and have your rights vindicated in a prompt manner. One of the key things that is
absolutely critical to the rule of law is the prevention of corruption and the necessary steps to
both prevent corruption occurring and to rapidly get rid of corrupt officials. A corrupt court or a
court that can be influenced by a bribe or by political people and anything that relates to
corrupting a fair and impartial decision is absolutely anathema. It's not just the courts, it needs to
be removed from the entire governmental system and from any institutions or people that have to
do with the economy. There needs to be a lack of corruption throughout the governmental
bureaucracy. If a person has to put money under the table in order to get a permit to do business
or if a person who is stopped for a traffic infraction can buy his or her way out of it by bribing
the officer, the concept of the rule of law is destroyed because then one person will get privileges
that another person won't. It also destroys the integrity and the honesty of the system,
particularly those that are in a position to render services in customs, police and those other kinds
of situations where they have a great deal of power over the individual or over a business.
Finally, let me say that there is also a relationship between regulation and the rule of law. The
less regulation that a government imposes upon its people and its businesses, beyond that
necessary for a reasonable protection of the health and safety of the population, the more
regulation there is the more opportunity there is for corruption and the more opportunity there is
for the violation of the rule of law. So when we talk about a free market system as a necessary
component of a fair economy, the two go hand in hand. The absence of regulation - besides
being one of the criteria that indicates the freedom that a business has - is very important in terms
of having the obedience and the probability that the rule of law will be followed. All of this has
to do then with the basic foundation for good business opportunities and for the chances of
growth, expansion of the economy and the betterment of the society which it serves. When you
get right down to it, it is indeed first freedom and secondly as a part of that freedom the rule of
law as a means of sustaining it. The rule of law is one of the absolute essentials to any economy
which is looking towards growth and providing an opportunity for its expansion.
Thank you.