Attorney and author Philip K. Howard on why foreign investors worry about the American legal environment:
What's largely missing in this debate is the critical role of trust in the law. Perhaps the most chilling parts of the Bloomberg-Schumer report are the surveys of foreign business leaders who suggest, overwhelmingly, that they no longer trust American law. For most of the last century, trust in American commercial and securities law was one of our greatest competitive advantages. Investors flocked to our markets because securities laws guaranteed transparency and honesty. American contract law was the gold standard for world business, in part because of a long tradition of judges rigidly applying guidelines of liability and damages. Economist Douglass North received a Nobel prize in part for his work on the vital role of legal stability in economic prosperity.
What's largely missing in this debate is the critical role of trust in the law. Perhaps the most chilling parts of the Bloomberg-Schumer report are the surveys of foreign business leaders who suggest, overwhelmingly, that they no longer trust American law. For most of the last century, trust in American commercial and securities law was one of our greatest competitive advantages. Investors flocked to our markets because securities laws guaranteed transparency and honesty. American contract law was the gold standard for world business, in part because of a long tradition of judges rigidly applying guidelines of liability and damages. Economist Douglass North received a Nobel prize in part for his work on the vital role of legal stability in economic prosperity.
An "essential element of the concept of justice," legal philosopher H.L.A. Hart observed, "is the principle of treating like cases alike." That's why law is the foundation of freedom — people know where they stand. They can act freely instead of looking over their shoulders all day long.
But that trust has now capsized. Companies are afraid that if a few employees out of thousands do something wrong — even if not material to the bottom line — the company faces the prospect of ruin. An indictment, not a conviction, could put a company out of business. Why roll the legal dice in America when legal systems in Britain and elsewhere focus on punishing the individual wrongdoer, not shooting everyone in sight?
We should have seen it coming. Over 20 years ago the dean of Harvard Law School, Derek Bok, observed that "Foreign businessmen express amazement at a system … that exposes the entrepreneur to legal challenge so easily and on so many different fronts, a system that lends itself so readily to harassment, obstruction, and delay."
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