One of the basic tenants of international development has always been an evaluation of the Rule Of Law in a country as a measure of the risk of doing business in a country.
Countries with a strong Rule Of Law have been perceived to be inherently less risky for foreign investors. A strong Rule Of Law has generally meant foreign investors were treated equally to local investors. And, economists have repeatedly found that the better the rule of law, the richer the nation.
A new set of studies show that the tie of the Rule Of Law to economic growth is not as simple as previously thought, as discussed in an article in the current issue of ‘The Economist‘ magazine (see link at right).
There is an “intrinsic difficulty of defining the rule of law, combined with the problems of knowing how specific laws work in practice.” What the new studies have “not yet shown beyond doubt is that the rule of law is a precondition for economic growth everywhere.”
New definitions of the Rule Of Law are emerging, as quoted from this article:
“(1)‘Thick’ definitions treat the rule of law as the core of a just society. In this version, the concept is inextricably linked to liberty and democracy.
(2) ‘Thin’ definitions are more formal. The important things, on this account, are not democracy and morality but property rights and the efficient administration of justice. Laws must provide stability. They do not necessarily have to be moral or promote human rights.
The existence of competing definitions of something may seem fatally to undermine its usefulness.”
After discussing efforts to improve the Rule Of Law in places such as Argentina, Chile, Eastern Europe and Russia, the article concludes as follows: “the more economists find out about the rule of law, the more desirable it seems—and the more problematic as a universal economic guide.”
All that having been said, my 36 years of experience working in over 60 countries from first to fifth world, says where there is strong Rule Of Law foreign investors are much more likely to get a good return on their investment and to be able to maintain control of their brands and business than in counties with weak laws.
Investor beware!
