Tuesday, April 7, 2009

Over-supplied with law and under-supplied with courts

It is a characteristic of modern democratic states that they are over-supplied with law and under-supplied with courts. Medieval England would have had a least one judicial officer per village: so maybe one judicial officer per 300 or so people. There were expenses and dangers involved in "going to court" but the use of courts, at least at a basic level, was remarkably accessible.

Victoria has a population of 5.2m. Even if we specify one judicial officer for every 500 people, that would mean over 10,000 judicial officers to provide a comparable level of accessibility to court services.

Of course, medieval courts generally made a profit (from the fines and fees levied)--which encouraged their supply--and were run by people who received a direct benefit from the protection of the life and property of peasants (since they were their income source). This is not to romanticise a system which had some glaring conflicts of interest (hence the ability of royal courts to compete with manorial courts). But it did mean high levels of accessibility and courts directly concerned to make things work.

In modern democracies, courts are nowhere near that well-supplied or accessible. Given that they are not net revenue generators, their under-supply is not surprising. The length of time it takes cases to come to court is an indication of the under-supply of judicial services, relative to the demand for their use.
This under-supply and lack of accessibility has various consequences, one of which is the multiplication of specialist tribunals. This is not a good thing, since such tribunals easily become captured by particular interests and/or mindsets.

That modern societies are over-supplied with law is also fairly clear. Even though it is a crude measure, the ever-shorter time it takes for the number of pages of legislation passed by Parliament to double is an indicator of that.

But the under-supply (and thus expense) of court services can have quite invidious effects. Take, for example, unfair dismissal law. A dismissed employee can effectively extort money from a former employer no matter how feeble their case provided they set their "go away" money at less than the amount it would take to go to court to prove how feeble their case is. Given the expense of such actions, and the time delay before they go to court (a cost in itself), such unfair dismissal laws effectively increase the cost of dismissing an employee by a few thousand dollars. Not a big deal to a large corporation, a very big deal to a small business.

All of which increases the risk of employing people: and with no offsetting benefit to the employer. That being the case, businesses will seek to compensate for the increased risk. So, they will do the following things:
(1) Employ less people than they otherwise would.
(2) Seek to structure their business so as to not be covered by the law.
(3) Seek more information about likely employees.
(4) Seek greater expected benefit from employing someone.

The last two means things such as:
(1) Increased reliance on certification.
(2) Increased use of in-place networks (where prior connection provides an implicit guarantee and a basis to assess any recommendation).
(3) Decreased willingness to hire employees who are harder to assess.

So less educated workers who are not well-plugged into existing networks and who have greater cultural distance from employers (since that increases communication difficulties) will be particularly avoided. In France, for example, the high levels of difficulty in sacking employees basically means that Muslim youths from the banilieue are profoundly legislatively penalised in the labour market.

This without considering the implied notion that employees have some sort of property right in a job and that an employer (who does not have any property right in customers, apart from that covered by "goodwill" which an unsatisfactory employee can seriously damage) is expected to continue to pay someone they no longer wish to employ if they have not gone through the specified steps.* Nor that there is no “unfair resignation” law. But the point of these laws is not to make the labour market operate "better". It is to display conspicuous compassion, protect incumbent workers and provide unions and lawyers with more levers against employers. That it will have the effect of discouraging employment of marginal workers can just be dismissed as an "evil of capitalism".

* Governments do have property rights in income from customers--they are called 'taxes'--and so their employees do have property rights in jobs (though less so than they used to). But public service employment is hardly a universalisable model.

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