Business Needs and Deserves the Rule of Law


By Joe Wallace
Business Consultant

The United States of America was founded as a Republic by the founding fathers because they had their fill of King George and because they understood that a pure democracy was just another term for mob rule. The proclivities of mob rule to appropriate resources on their own and to remove the heads of those who fell out of favor with the democratic mob was demonstrated clearly with the birth of the French nation through the utilization of Madame Guillotine to appropriate the heads and property of those whom the mob deemed to be of the ruling class.

One of the hallmarks of a Republic is the rule of law. The rule of law is the only thing that protects the rights of individuals from the capriciousness of a King or Queen and the emotional whims that the huddled masses can bend to under a pure democracy. In a well designed Republic, laws are created to protect the health and well being of people from callous exercise of free will by other people. Balancing the common good with the rights of individuals is what enables a Republic to survive the cyclical swings toward democracy or a charismatic leader.

As much as we as citizens need and depend on the rule of law, the business entities through which we derive most of our sustenance and wealth are in need of a similar system. Businesses need a form of the rule of law to insure that the rules are known prior to making investments and to stabilize industrial output. Businesses and people both seek routines and predictability to insure that prosperity earned is prosperity kept. The rules of business should not change in the middle of the game any more than criminal laws should be allowed to change in the middle of a trial. The whims of the mob or the will of the dictator damage many people when business gets jerked around unnecessarily and without merit.

When it comes to business, the rule of law takes the form of regulations. There are local, state, and federal regulations surrounding nearly every type of activity or transaction that businesses can contemplate at the time the regulations were written. As profit seeking enterprises, businesses have traditionally sought ways to minimize taxation and regulation to the highest extent possible. In financial markets, when stock sales are regulated, options are invented, when options become regulated, derivatives are invented, and so on and so forth. Derivatives will soon be regulated and traded on an open bourse or stock exchange. Guess what? Something else will be created to skirt that regulation.

Why are governments so slow in responding to the invention of financial instruments that are just outside the reach of regulation? It always seems that deregulation is blamed for failures in financial markets whether it is the savings and loan failures, banks, credit default swaps, or Alt-A mortgages. I would submit that either the regulation was in place or could have easily put in place to prevent all of these expensive melt downs. The only real needs are expediency of adapting the regulations or the will to enforce the regulations that are already in place.

Under the rule of law, the enforcement of the law is just as important as the fairness and soundness of the law itself. In a city with a murder problem there must be enforcement to blunt the growth of the murder rate. In business, if the regulations are not enforced it is as if there is not regulation at all. The businesses of the United States depend not only on good regulations but on fair and equal enforcement of those regulations. Passing new regulations, while allowing violations of the existing ones is of little value. That is a guard dog with no teeth.

Regulations are being called for by the chattering class and the mob in the areas of finance reform, medicine, oil exploration, food supply, and even salt in prepared meals. Maybe these are necessary and will make our lives better and maybe they are just the head of a monarch for the American Bastille. Either way, if these regulations and the ones that are already in existence are not enforced, they will be meaningless. It is incumbent upon the governing authority to find solutions to monitor and enforce all of our sane regulations. After all, our business community deserves the rule of law as much as our citizens do.


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