The Bingham Centre for the Rule of Law published interesting research late last week, trying to answer the question which European economies, including our own, are asking with greater desperation every year: will our rule of law help us to escape our economic decline by attracting investment, and so helping us to grow?
The research, called The Rule of Law and the Institutional Roots of Economic Performance, was undertaken in association with the Law Society, which has a particular interest in its outcome, given the need to promote the economic role of the profession.
There is interesting history inside, with academic citations. For instance, medieval Italian city-states accelerated their growth relative to other cities when they gave up authoritarian princely rule and introduced greater rule of law. Or Costa Rica, following independence, overtook other former Spanish colonies in Central America through reforms that produced increasingly inclusive institutions from the 19th century onwards.
But the stumbling block for all claims about the rule of law being a magic ingredient is China. The Bingham report admits as much.
Since the mid-1990s, China’s GDP has expanded more than twenty-fold. It vies with the US for the position of the world’s largest economy. Yet, according to the World Bank’s Worldwide Governance Indicators (2023), China’s rule of law score stood at -0.04 on a scale from -2.5 to 2.5, significantly below the scores of advanced economies like Germany (1.55), the UK (1.40), the US (1.33), and France (1.18).
China’s rule of law has progressed, and its scores on various indicators have been rising - it is now approaching the global mean - but there continues to be a sizeable gap separating it from others with more established systems. China rejects central rule of law principles like judicial independence, and it continues with arbitrary detentions (of which lawyers are particular victims). There is no doubt that China has adapted and adjusted its legal, regulatory, and institutional frameworks to serve economic growth. But what role do those improvements play in China’s spectacular growth when set against other factors like technological innovation, workforce skills, and size?
To quote what may prove to be a dying metaphor, the jury is still out on the role of the rule of law in China’s growth (‘this is poorly explained by current frameworks and would benefit from further investigation’).
That surely means that the jury is out on the whole premise of whether the rule of law is the magic potion we would like to believe. The Bingham research itself raises the question of publication bias – whether the many studies cited show a positive value for the rule of law in relation to the economy because that is what we would like to believe, ie ‘researchers whose data support the relationship get their findings published, while studies which do not find a relationship are more likely to go unpublished’. A meta-analysis finds not, but I wonder.
There is a long and interesting section on England and Wales. Various studies have found that institutional continuity – and we certainly have that - has underpinned investor confidence, contract enforcement, and innovation-led growth. Our institutions have protected property and restrained arbitrary state power, with everyone, including the sovereign, subject to the law. As an example, the constitutional settlement of seventeenth-century England is cited, particularly the constraints placed on fiscal authority when taxation became a matter for Parliament, which anchored market confidence and public credit credibility, including national borrowing costs.
When the industrial revolution arrived, the legal framework was ready. But again, as with China, there were other factors at play: capital accumulation, access to natural resources, and expanding colonial markets.
Personally, knowing nothing about international economics, I tend to believe that our expanding colonial markets – which eventually covered roughly a quarter of the world’s surface and population - were the largest factor, towering high over the rule of law’s contribution. The report obviously admits that the common law system of England and Wales was not the sole driver of industrialisation, but says it contributed decisively to the architecture which made economic modernisation viable and enduring.
The mechanics of colonialism included the export of the English language and English law. I tend to believe that this legacy is still a leading contributory factor in explaining why London remains a global legal centre, a magnet for the settling of international disputes and a power-house for exporting legal services.
At the end, there is no final answer as to the extent of the rule of law’s contribution. The example of China continues to challenge us – and eventual data from the US after the second Trump administration may do likewise.
But, just in case - and in any case - I obviously agree with the report that we should do what we can to preserve the rule of law regardless.
Jonathan Goldsmith is Law Society Council member for EU & International, chair of the Law Society’s Policy & Regulatory Affairs Committee and a member of its board. All views expressed are personal and are not made in his capacity as a Law Society Council member, nor on behalf of the Law Society
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