It’s hard to make a deal when democracy keeps on changing the rules
WHAT’S the deal? That is what any sensible person wants to know before investing or otherwise transacting. The terms may be stated but that is not enough. People also need to know that these terms won’t change on them.
Between private parties, including businesses, this confidence is created by enforceable contracts and by reputation. A company with a valuable brand to protect is likely to honour its obligations.
Alas, like Princess Diana’s ill-fated marriage to Prince Charles, private transactions these days are “a bit crowded” – not by Camilla Parker-Bowles but by the government. Not only does it tax them but it specifies their terms.
Consider just employment. The government specifies a minimum wage and age for employees, the permitted grounds and process for dismissal, the minimum number of vacation days, the physical features of the workplace, paid time off in the event of giving birth, and so on and on and on.
There are also rules about the products that may be offered for sale and their permitted prices, balance sheet structures, corporate disclosure, governance structures and almost every other business decision. And then there are taxes.
These rules hinder private parties from finding terms that suit them best, and thereby impose high costs on society. But they have another effect, less often noticed, that may be even worse. Because the terms of doing business are always changing, we do not know what “the deal” is. So we become reluctant to do business.
The deal keeps changing because our leaders are powerful and changeable, both in their identities and their minds. Francois Hollande was elected French President on Sunday. How will he change the deal? Maybe he will increase taxes and renege on the Eurozone fiscal pact. Or maybe he won’t. The uncertainty alone is a problem for anyone trying to make plans.
Don’t blame Hollande. The uncertainty has a structural cause. Democracy has become an enemy of the rule of law. Democratic politicians rule us with legislation, of course. But the rule of law requires more than legislation. It requires us to know “the deal”, which we cannot when politicians are practically compelled continually to change it. All are elected on promises to create new rules that favour of those who vote for them.
Entrepreneurialism and other socially creative activities require freedom and certainty of contract. These thrive when the rules are few and stable. In other words, active citizens need passive legislators. Yet our democracy creates a torrent of ever-changing and increasingly intrusive rules. The UK gets 25,000 pages of new legislation a year.
Our government is now fretting about how to reform appointment to the House of Lords. Who cares? The serious constitutional question is not how we get our legislators but how to stop them.
Jamie Whyte is a senior fellow of the Cobden Centre.