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Want more entrepreneurship? Embrace long-term legal stability – Dateway

The continuing evolution of the regulatory framework in which market players do business is a hallmark of modernity: as the intrusion of the state expands, the rules are constantly expanding and changing.

On the other hand, every investment requires a number of calculations 1, since business as a human activity in itself has uncertain and risky outcomes.

Knowing which rules apply at a specific time is not a sufficient condition for “rational” planning if these rules change later; in other words, a very reasonable action today could turn out to be quite unreasonable under the rules applicable tomorrow.

A change in the tax code, for example, could retroactively make a past investment less profitable today. How many tax reforms has the United States undergone in recent decades?

This article examines the “schizophrenia” of the modern legislator in the general context of the instability of the applicable rules and then recalls the reflections of the Italian libertarian scholar Bruno Leoni on the need for “long-term” legal certainty.

Bruno Leoni, the Athenians and “long-term” legal certainty

In multi-party systems, regulatory and legal agendas can change dramatically as power shifts from one party to the other.

In some cases, governments are subject to an “eraser” political culture, in which each new political administration or coalition seeks to “erase” the political agenda of the governing coalition that preceded it.

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This can create a significant degree of uncertainty about what will follow in terms of legislation and regulation. This presents a significant difficulty for the entrepreneur.

An entrepreneur is future-oriented and, in order to be successful, investing is an action that requires precise economic calculation.

Legal certainty conceived of as “imminent” certainty – in which operators know the applicable rules now but only for now – is not sufficient to make an economic calculation.

The “contingent” guarantee that the rules will be framed in a certain way at a certain time, and that they will be applied, does not replace another important certainty necessary for the exercise of economic rationality, the certainty that these rules will not change time, because changing the rules will change the outcome of the economic calculation itself.

Bruno Leoni, the Italian libertarian scholar, noted this difference. In his book Freedom and law (Liberty Fund, 1991), he wrote a chapter entitled “Freedom and Certainty of the Law” (p. 76), in which he explored this question in relation to what freedom meant to the Athenians. Here are his words:

[T]The Greeks, and particularly the Athenians, were to realize fully in the second half of the fifth and fourth centuries BC the serious drawbacks of a legislative process by means of which all laws were certain (i.e. formulated precisely in a written formula), but no one was sure that a law, valid today, could last until tomorrow without being repealed or modified by a subsequent law. (p. 78)

The Athenians, however, tried to solve this problem. Leoni continues:

A rigid and complex procedure was then introduced in Athens in order to discipline legislative innovations. Every bill proposed by a citizen … has been carefully studied by a special committee of magistrates (nomotetai) whose task was precisely to defend the previous legislation against the new proposal…. Even when the bill was finally passed by the assembly, the promoter was held accountable for his proposal if another citizen, acting as a plaintiff against the promoter himself, could prove, after the approval of the law by the assembly, that the new legislation… was in irremediable contradiction with the old laws still in force in Athens. (pp. 78–79)

In other words, the Greeks have devised a system intended to guarantee “long-term” legal certainty – namely, the maintenance of the current rules applicable for a longer period alongside “short-term” legal certainty. – which allows “instant” security, knowing the applicable rules.

As Antonio Masala, senior fellow at the Bruno Leoni Institute, notes:

Leoni… observes that written, general and abstract laws are not necessarily capable of guaranteeing long-term legal certainty (a new law can always easily replace a previous law which was “certain” until the day before)…. What the Greeks had already understood, and which in the contemporary world seems underestimated, is that to be truly free from the interference of political power, it is necessary to be able to foresee the consequences of its actions in view of future laws. ; long-term certainty matters as much and even more than short-term certainty2.

Conclusion

Repeated changes in political platforms and party control can make it nearly impossible to engage prudently in long-term economic calculation.

In other words, economic calculation requires long-term legal certainty, because short-term legal certainty can only allow an entrepreneur to “navigate on sight”.

The Athenians saw the need for “long-term” stability as a problem; they did not repudiate the legal change, but they made it more difficult to introduce. After all, recognizing the problem is the first step to solving it.



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