Order in the jungle

Economists became fascinated by the rule of law after the
crumbling of the ‘Washington consensus’. This consensus, which was economic
orthodoxy in the 1980s, held that the best way for countries to grow was to ‘get
the policies right’ — on, for example, budgets and exchange rates. But the Asian
crisis of 1997-98 shook economists’ confidence that they knew which policies
were, in fact, right. This drove them to re-examine what had gone wrong. The
answer, they concluded, was the institutional setting of policy-making,
especially the rule of law. If the rules of the game were a mess, they reasoned,
no amount of tinkering with macroeconomic policy would produce the desired
results.

Pretty quickly, ‘governance’-political accountability and the
quality of bureaucracy as well as the rule of law — became all the rage.
Economists got busy calculating what it was, how well countries were doing it
and what a difference it made. Mr. Kaufmann and his colleague Aart Kraay worked
out the ‘300% dividend’ : in the long run, a country’s income per head rises by
roughly 300% if it improves its governance by one standard deviation. One
standard deviation is roughly the gap between India’s and Chile’s rule-of-law
scores, measured by the bank. As it happens, Chile is about 300% richer than
India in purchasing-power terms. Economists have repeatedly found that the
better the rule of law, the richer the nation.

A report by a new research group, the Hague Institute for the
Internationalisation of Law, argues that people routinely use two quite
different definitions, which they call ‘thick’ and ‘thin’.

Thick definitions treat the rule of law as the core of a just
society. In this version, the concept is inextricably linked to liberty and
democracy.

Thin definitions are more formal. The important things, on
this account, are not democracy and morality but property rights and the
efficient administration of justice. Laws must provide stability.

(Source : The Economist, 15-3-2008)