Bad Law, Good Law

It’s obvious that what laws a country has have an impact on its economy. If you make it hard to get a business license, fewer people apply, there are fewer business licenses, less business, and thus the economy suffers.

Recent history also demonstrates that certain large-scale systems are better for the economy than others. Capitalism good. Communism bad. (Also, Fire bad!)

The logical thing to do, Mr. Spock would tell us, would be to plug as many legal and social variables as you can shake a stick at into a database and do regression analysis on them to find out which laws and social factors correlate with the success of an economy.

Who’s going to do that?

Not the politicians who make laws. They’re too busy selling economic snake oil to voters in the form of election promises.

Not lawyers. They’re too busy being lawyers to do economic analysis.

Economists? Yep. They’re the boys for the job.

And so that’s what’s happened.

Four economics sometimes referred to by their last name initials as LLSV (which sounds like a nucleotide base-pair sequences except for the fact that none of those letters represent nucleotides) have constructed such a database, regression analysis-ed it, written some papers, done further research, and in the process become the most-cited economists in the last decade (which is pretty great shakes for econmists).

Some of the things they have found seem obvious, like:

When shareholders have more rights, people are
more likely to invest in markets, because they have more protections
against dishonest executives. When creditors have more rights, they are
more likely to lend money, which spurs markets to grow. And when
countries are free from corruption, investors put more money into them.
The LLSV scholars weren’t the first to recognize that shareholder and
creditor rights spur economic growth, or that corruption stunts it, but
they were the first to connect these conditions to a country’s legal
system and to do so using cold, hard numbers.

But some of the things that they found went is rather surprising directions, like:

The regressions showed that the measures that
indicate high investor and creditor protection or low corruption
connect to common law origin. . . . The
measures that represent low protection and high corruption connect to
civil law origin.

"What does that mean?" you may be asking yourself.

It means:

[C]ountries that come from a French civil law
tradition struggle to create effective financial markets, while
countries with a British common law tradition succeed far more
frequently.

Now, that sounds like a nicely uncontroversial theory, right? Nobody’s going to be upset about a claim of this nature.

GET THE STORY.

Oh, and one post script:

[T]he French government, for obvious reasons [is] the
most elegant and persistent defender of civil law. Initially, the
French government ignored LLSV’s findings. Then it dismissed them.
Starting last summer, it began funding research through its Ministry of
Rights and Justice into what the country can learn from LLSV.