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The State vs. The Rule of Law

The Haitian tragedy underscores how governments hurt people while law helps them.

by James Leroy Wilson
January 21, 2010

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The State vs. The Rule of Law

In several articles on the web, you could see the comparison of the Haiti earthquake to San Francisco's of 1989. Both registered 7.0 magnitude, but whereas perhaps hundreds of thousands perished in Haiti, only 63 were killed in San Francisco.

The point of such pieces has been to underscore the poverty that plagues Haiti.

The question being asked is, why is Haiti poor?

The same could be asked of any poor nation.

As Ronald Bailey pointed out in 2002, it is a miracle that anyone is poor at all. Bailey quotes economist Hernando de Soto:

"The cities of the Third World and the former communist countries are teeming with entrepreneurs. You cannot walk through a Middle Eastern market, hike up to a Latin American village, or climb into a taxicab in Moscow without someone trying to make a deal with you. The inhabitants of these countries possess talent, enthusiasm, and an astonishing ability to wring profit out of practically nothing."

Yet even in many such places, there is no rule of law. There is a State, with armies and police. And there are laws. But no justice system to speak of.

Before the earthquake, the Heritage Foundation studied the economic freedom of all countries. Haiti came out as the 141st freest economy of 193 countries.

Haiti actually came out decently in five of the ten areas studied:

  • low tariffs
  • moderate tax rates
  • low government spending
  • moderate monetary freedom (e.g., not many price controls)
  • relatively flexible labor laws

But where Haiti's bad, it is terrible:

  • laws make it five times longer to get a business license and start a business than the world average
  • foreign investment and foreign ownership of land is severely restricted
  • a haphazard banking sector with scarce access to financing
  • an almost non-existent judicial system makes the recognition and enforcement of property rights impossible
  • one of the most corrupt nations on earth - e.g., customs officials demanding bribes to clear shipments

What struck me most was the absence of a functioning judicial system, as the Heritage evaluatation would mention:

  • "inefficient judicial system [as a serious obstacle] to entrepreneurial activity."
  • "weak judiciary"
  • "The legal and institutional framework is not conducive to deepening financial intermediation."
  • "resource-poor legal system"

The State is a military-police-bureaucratic apparatus whose employees coerce and tax others in order to raise revenue. The people of the developed world accept this because the State promises we can have fair access to an impartial system of justice. The State takes advantage of our trust to increase its power, but as long as it gives us our day in court when we need it, we go along. With some semblance of the rule of law, respect for rights, and enforcement of contracts, there is still opportunity in the developed world for the entrepreneur to prosper.

In Haiti, the State has been effective at exactly one thing: destroying the economy with oppressive laws combined with corrupt and arbitrary enforcement so as to make business growth nearly impossible. As a result, the government can't even raise the revenue to provide a functioning judicial system, while at the same time the government makes it impossible for private courts and other entrepreneurial innovations to take its place. The result is an informal, black-market economy in which people have no incentive but to do what they must to live from day to day. The result is grinding poverty.

Paul Craig Roberts recently noted that mankind's greatest achievement has been "the subordination of government to law," first achieved in England
.  But the rule of law replacing the rule of men is more than just checking the executive powers of Kings, Presidents, and other heads of State. It is about equal respect for the equal rights of everyone to their own person and their own property. Genuine law stems from this impartial respect for the equality of rights.

This law has never been respected fully anywhere. But those societies that have respected it most often and most consistently have also prospered the most.

Indeed, we need law more than we need the form of "government" known as the State. We can hire out protective services. Our insurance providers have an incentive to prevent accidents and lawsuits. From roads to utilities, nothing - not even the judicial system itself - has to be controlled by the State.

What mankind needs most is the rule of law. Some reliance on the fact that there is an institution committed to respecting the right of an individual and his property to be free from aggression and to get compensation when harm is done.

The Haitian people had a "government," but they didn't have "law" in any meaningful sense. That, more than anything else, is what held them back, and why the earthquake was a much greater tragedy than it should have been.

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