Rule of Law Matters: A De Facto Reboot Needed?

I am not a legal scholar, yet dare to challenge orthodoxy on rule of law issues. My perspective and priors come from empirical analysis in economics and governance, as well as practical observation as a practitioner in many countries. I find that judiciously combined, experience, cross-country econometric analysis as well as case studies, can also provide useful insights.

In a just-released report, I reflect upon three disparate circumstances, centuries and worlds—institutions presently in Kenya and the U.S. and those ruling the mighty seas hundreds of years ago. Although convention may classify these events as disparate, a common thread among them emerges: each challenges established wisdom on the rule of law at very basic and practical levels. In each case, de facto application of the rule of law fundamentally departs from the de jure. Since much of the attention has traditionally fallen on the de jure aspects, this departure may have repercussions on how to practically proceed in the rule of law field.

The case in Kenya refers to the interaction between donor aid agencies and the Kenyan government prior to and during their recent electoral crisis. The U.S. case covers how financial regulations were undermined earlier in the previous decade. And then I refer to a comparative analysis between naval and commercial shipping 300 hundred years ago, on the one hand, and piracy on the other.  

In themselves, these three idiosyncratic illustrations cannot conclusively prove anything. Yet the unexpected events that transpired in each case give rise to questions about many conventional premises held in the law and development and rule of law fields. When complemented with broader empirical analysis, the case to revisit convention becomes stronger. For starters, these cases may illuminate why billions of dollars channeled by donors to countless law and development projects have generally not fared well. But they also illustrate that challenges are rife beyond the development field. The traditionally sharp divide between developing and developed countries implied in “law and development” might not be helpful any longer.

Building on these anecdotal illustrations, coupled with empirical analysis, a number of observations are made.

First, the excessive legalistic focus on de jure aspects in the rule of law has been, to the detriment of the de facto, reality. Focus on the de facto implementation of adopted laws matters because such implementation tends to deviate from what is codified by fiat. The gap between de jure and de facto is vast in scores of countries.

Second, the gap between the de jure and the de facto is mostly due to the informality in the application of the rules of the game in the legal and regulatory institutions. Insufficient attention is paid to such informal rules of the game. Empirically, we have found that informality, through corruption and other distortive implementation mechanisms, is more indicative of how long it takes for a firm to start operating in many emerging economies than the de jure legal requirements for business start-up.

Third, the institution of legal and regulatory capture, which is an insidious form of informality, has also been neglected. A previous analysis I performed, based on a worldwide survey of enterprises, showed that the U.S. exhibited relatively low levels of bribery. In sharp contrast, it rated poorly in “legal corruption” and capture.

Fourth, politics must feature more prominently in the rule of law field. Even today, in the U.S., we tend to see technocratic knee-jerk approaches to financial regulatory reforms, as if technical regulatory fixes by fiat are the answer. There is limited debate about the role of money in politics, as well as campaign finance and lobby reform.

Fifth, a broader strategy should concentrate on key issues, such as increased accountability, checks and balances, and judiciary reform, alongside the narrow law and order concerns, such as training and hardware to police and the judiciary.

Sixth, more extensive use of data is needed in the rule of law field. The treatment of law and development (and rule of law) has often been prose-intensive. Paying more attention to the data—and not just “official” statistics—would have raised flags about the extent of capture in the U.S., as well as on the subpar governance conditions in Kenya.

Probing deeper into these questions may lead to changes in the strategies of donor aid agencies in the rule of law field. But these institutions are also politically constrained. Often, the imperative to push funds out the door drives project decision-making, the engine being narrow short-term geopolitical considerations unrelated to longer-term aid effectiveness.

Thus, it is likely that the ongoing muddling by the aid industry, hoping that “business as usual” somehow delivers the legal goods, may continue for some time among the key bilateral and multilateral donor agencies. But some exceptions among official aid donors, alongside a far-sighted private donor organization, may buck this ill-advised trend and challenge the conventional approach among some of the larger aid donors. And the urgent need to learn from the lessons of past donor aid missteps in the now-devastated-Haiti may also steer a few aid agencies towards an improved strategy to support undeveloping countries that have faced huge governance and rule of law problems for a long time.