Chinese Premier Li Keqiang. Demotix/Goncalo Silva. All rights reserved.At first sight, the rule of law long promoted by the west appears to be declining along with it. The prospects for the rule of law that burned so bright 25 years ago when the Berlin wall was breached now appear dimmed. Even one of the heroes of the collapse of the Warsaw Pact, Viktor Orban, now Hungarian Prime Minister, decries the effectiveness of liberal democracy. He sees better and more efficient models for the future in China, Russia and Turkey than in the rule of law propounded by the states of the west.
However Orban’s analysis overlooks the underlying value of the rule of law to all states, western or not. Without independent courts and sound administration of justice, investment flows dry up and innovation through the generation of intellectual property rights becomes impossible. It is noticeable that China, held up by Orban as an alternative model, is seeking to improve the quality of its judicial institutions and improve the delivery of the rule of law.
Underpinning Orban’s gloomy assessment for the prospects of liberal democracy and the rule of law are two major factors undermining belief in these values. The first is the misfeasance of the west. The west has lectured the rest of the world on the importance of the rule of law for decades. But the 2008 economic crisis demonstrated that at the very heart of the western financial system, either the rules did not apply or in reality there were no rules. In respect to the rule of law, the revelations of the financial crisis inflicted enormous damage to western credibility.
The second factor is the rise of China. While the Chinese government has provided room for some protection of commercial legal rights, it is by no means complete, and judicial power remains subject to the Party. Yet contrary to all the western arguments about high standards of the rule of law being vital for economic development and foreign investment, China’s economy has increased in size, reaching 20 times its 1990 levels, and is the recipient of the second largest flows of foreign direct investment after the United States.
These two factors empower the Orban thesis; underpin the acceptability of military coups in Bangkok and Cairo, and reaffirm Russian suspicions that there is no need to worry much about the rule of law. While these factors are influential, they are also wrong.
The resilience of the rule of law is underlined by the current discussion in the Chinese Communist Party on the value of the rule of law. The latest Party Plenum emphasised the importance of the rule of law, and the value of an effective and non-corrupt judiciary. While the Communist Party was not proposing to apply the rule of law to its higher echelons, it nevertheless recognised its value. What the party also recognized was that when China started its economic rise, it started from a very low economic base. From such a low economic base and with the population being so large, it could get by with minimalistic compliance with the rule of law while generating immense economic growth.
But for the Chinese economy to develop further, it needs to be able to provide far sturdier protection of property rights. For instance, to develop a sophisticated digital economy it needs effective protection of intellectual property rights. In addition, its growing middle class demand protection of the property they have accumulated and predictability in the application of the law to them.
The importance of the rule of law for economic growth and continued foreign investment is underlined by looking at the two recent judicially supported military coups in Egypt and Thailand. In both states, foreign direct investment fell significantly after the coups took place. Part of this is no doubt due to instability following the coup, and the tendency of military regimes to bring in measures that suppress foreign investment. However, the participation in Cairo and Bangkok of the judiciary in support of the coup undermined foreign investor perception of the legal stability of the country and incentives to commit further investment.
The resort by many ‘weak rule of law’ states to selective justice is also another major but unacknowledged way states deter future investment, whether it be President Putin ordering the arrest and trial of Mikhail Khodorkovsky in respect of Yukos, the interminable trials of Yulia Tymoshenko arranged by former President Yanukovych in Ukraine, or the cases brought against former Prime Minister Shinawatra by the Thai military junta. If the local population, local business leaders and the former heads of government cannot rely on the judiciary, why should foreign investors?
The value of the rule of law is likely to also be underlined over the next few years by the differing experiences of Russia and Ukraine. The remaining elements of Russian constitutionalism are now under significant pressure. Most notably the merger of the arbitral supreme court which largely operates to international standards with the far less efficient and far more politically influenced supreme court. This merger is likely to remove the one last avenue of potentially effective legal redress and it will only further undermine the prospects of Russian economic growth. By contrast, if the new Ukrainian government is able to enact and execute its legal reform programme, and develop a credible and reliable legal regime, it will provide Ukraine with a strong framework for significant economic growth.
The rule of law is not a western monopoly. In many ways, the economic crisis has demonstrated that the west is not a fit and proper custodian of the rule of law. Nevertheless, despite western hypocrisy and incompetence, the rule of law is resilient. Its value transcends a specific geography or culture.