1 Introduction
The extent to which the rule of law is implemented surely is an important component of an index of economic freedom. And indeed, the Economic Freedom Index (EFI) does contain some variables that capture important aspects of the rule of law.1 These are primarily taken from the International Country Risk Guide. Though the data are certainly very interesting, they do have their shortcomings.2
1 See part five of the components of the index which is entitled „Legal Structure and Property Rights“. It consists of three components, namely the legal security of private ownership rights, the viability of contracts, and the “Rule of Law: Legal Institutions Supportive of the Principles of Rule of Law and Access to a Nondiscriminatory Judiciary.”
The following indicators are related to our question but cannot be considered as completely covering our interest. Within the index started by Charles Humana and now taken over by Freedom House, the so-called “Checklist for Civil Liberties” contains a question: “Are citizens equal under the law, with access to an independent, non-discriminatory judiciary, and are they respected by the security forces?”. The World Values Survey which is administered by the Inter-university Consortium for Political and Social Research contains a question concerning the confidence of those citizens polled in the legal system. The Economist Intelligence Unit publishes scores on the transparency and accountability of the legal systems of 60 countries. The “International Country Risk Guide” a commercial publication aiming at potential investors has a variable “Rule of Law-Tradition.” None of these, however, focuses on the independence of the constitutional (supreme) court and explicitly takes potential divergences between de jure and de facto-independence into account.
This is the reason why I would like to propose an alternative way to measure the rule of law and discuss its advantages and also its possible disadvantages with you today. The basic idea is a very simple one but as always, God is in the details.
In the early 1990s, a new literature was started whose authors aim at measuring the independence of central banks and who then use the degree of independence to explain the level of inflation. It turns out that the degree of independence of a central bank can indeed explain a good deal of the variance in inflation rates, at least for the industrialized countries. In the meantime, an entire cottage industry that deals with these issues has emerged.
I want to propose here that a similar indicator measuring the independence of the judiciary be developed. I believe that this could be an important step towards measuring a crucial aspect of the rule of law. I conjecture that the degree of judicial independence is an important factor for economic growth.
My talk will proceed as follows: I will first give some reasons for why the independence of the judiciary is of overwhelming importance for the rule of law. Then, the question why the focus on supreme courts (or constitutional courts) might be warranted is dealt with. The fourth section deals with the structural similarities between central banks and the judiciary and thus serves as a justification for analyzing the independence of the judiciary with criteria also used in the analysis of the independence of central banks. In section five, an indicator for measuring the independence of the judiciary is proposed. Section six deals with possible extensions of the implied research agenda.
2 Why the Independence of the Judiciary is of Overwhelming Importance for the Rule of Law
The rule of law is often contrasted to the rule of man. It is also called government under the law because the law is to be applied equally to all persons (isonomia), government leaders included. According to the rule of law, no power used by government is arbitrary, all power is limited. Drawing on Immanuel Kant (1797/1995), laws should fulfill the criterion of universalizability, which has been interpreted to mean that the law be general, i.e. applicable to an unforeseeable number of persons and circumstances, abstract, i.e. not prescribing a certain behavior but simply proscribing a finite number of actions, certain, i.e. anyone interested in discovering whether a certain behavior will be legal can do so with a
fairly high chance of being correct and can furthermore expect that today's rules will also be tomorrow's rules, and that the law be justifiable via rational discourse vis-à-vis anybody.
There are a number of institutional provisions regularly used in order to maintain the rule of law. Amongst the most important ones are the separation of powers and the closely connected judicial review, the prohibition of retroactive legislation, the prohibition of expropriation without just compensation, habeas corpus, trial by jury, and other procedural devices such as protection of confidence, the principle of the least possible intervention, the principle of proportionality and the like.
In cases of conflict between government and the citizens, the citizens are in need of an organization that can adjudicate who is right (who has acted according to the law) – the judiciary. This does not only mean to ascertain the constitutionality of newly passed legislation but also to check whether the representatives of the state have followed the procedural devices that are to safeguard the rule of law.3 If the judiciary is not independent from executive and legislature, there will be a government of people – and not of the law. If the judiciary is not independent from executive and legislature, citizens will not trust in the existence of the rule of law.
An independent judiciary is also relevant for settling conflicts between various government branches. In the absence of an impartial arbiter, conflicts between government branches are most likely to develop into simple power games. An independent judiciary can keep them within the rules laid out in the constitution.
Among the many functions of legislation, the reduction of uncertainty is certainly of paramount importance. But the law will only reduce uncertainty if the citizens
3 Alexander Hamilton has put this succinctly in the Federalist Paper #78 (Hamilton, Madison, and Jay, 1788/1961, 466): “The complete independence of the courts of justice is peculiarly essential in a limited Constitution. By a limited Constitution, I understand one which contains certain specified exceptions to the legislative authority; such, for instance, as that it shall pass no bills of attainder, no ex post facto laws, and the like. Limitations of this kind can be preserved in practice no other way than through the medium of courts of justice, whose duty it must be to declare all acts contrary to the manifest tenor of the Constitution void. Without this, all the reservations of particular rights or privileges would amount to nothing.”
can expect the letter of the law to be followed by government representatives. An independent judiciary could thus also be interpreted as a device to turn promises – e.g. to respect property rights and abstain from expropriation - into credible commitments. If it functions like this, we can expect citizens to work harder, to develop a longer time horizon, and to invest more. In short, an independent judiciary is not only of overwhelming importance for the rule of law, we also expect it to be conducive to economic growth.
Of course, the judiciary should not be unconstrained. It needs incentives to interpret the law and not to make new law itself. It needs to be accountable just as the other branches of government. Elsewhere, I have shown that factually, the judiciary is never entirely independent from the other branches. Indeed, their interactions can be modeled as a strategic game. If we assume that the judiciary is interested in getting its sentences implemented, it has incentives to take the preferences of the other actors explicitly into account (Voigt 1998).
In their treatise on the separation of powers and the competencies that should be given to the various government branches, the authors of the Federalist Papers note that in hereditary monarchies the executive would be the most powerful – and the most dangerous – branch. In democracies, this could well be the legislature, having access to the purse (papers 48 and 51). In paper 78, Alexander Hamilton makes the famous assessment of the judiciary being the least dangerous branch.4 In this talk, our primary focus is, however, not with normative issues, i.e., we are here not interested in an “optimal” degree of judicial independence. Rather, we are interested in measuring the various degrees of the rule of law found in different countries. And we hope to have argued in this section that an independent judiciary is of overwhelming importance in this respect. Indeed, we
believe it to be of such importance that we propose to use the degree of judicial independence as a proxy for the degree of the rule of law.
3 Why Focus on the Highest Courts?
We are here interested in a measure of the independence of an entire government branch. In most states, this branch is made up of thousands of decision-makers. Often, there is an elaborate division of labor between specialized courts.5 In federal states, there is usually a state judiciary which is separate from the federal one. In short, a measure which takes all this complexity explicitly into account would be too difficult to carry out.
We therefore propose to focus on just one court for every country, namely its highest court. Regardless of whether it deals exclusively with constitutional issues (as, e.g., the German Constitutional Court) or whether it is the Supreme Court for all areas of law (as, e.g., the U.S. Supreme Court), it will deal with interpreting the Constitution. If the Constitution is viewed as the most basic rule set of a state, its interpretation will be of great importance. The court system is organized hierarchically, with the higher courts being able to overrule the sentences of the lower courts. It is therefore the independence of the highest court that is important for the degree of the rule of law observed in a polity: If lower court judges are “too daring”6 in the eyes of the highest court members, their decisions will be modified.7
4 Why the Independence of Central Banks and Highest Courts can be analyzed using similar criteria
There is an obvious similarity between independent central banks and an independent judiciary: both can make decisions that are against the (short-term) interests of the other government branches, in particular the executive. The final outcomes of their decisions depend, however, on the cooperation of the other government branches: the monetary policy of a central bank aiming at price stability can, at least in the short run, be offset by a fiscal or wage policy not in
5 In Germany, e.g., there are ** highest courts (...).
6 Cooter and Ginsburg (1996) analyze the conditions under which highest court judges tend to bring about implicit constitutional change (my words) or be “more daring” (their formulation).
line with monetary policy. A highest court’s declaring a certain statute as unconstitutional will only change the final outcome if the legislature either passes fresh legislation that is in accordance with the constitution or – if it is not able to organize the necessary majorities – to accept the concerned piece of legislation as null and void.
There seems thus a puzzle common to independent central banks and an independent judiciary: why is it that the legislature and the executive often follow their decisions, although they run counter their (short-term) interests? As an economist, I could answer that this must be their rational choice maximizing their (expected) payoffs given the valid constraints. But this is, of course, not an answer but simply a reformulation of the problem which contains a search-instruction, however, namely to look for possible cost components that would make it more likely for governments to cooperate with organizations that seem to work against their (short-term) interests.
This is not the place to search for cost components systematically. But suppose the government branches do cooperate because it would be costly not to, then independence can be interpreted as an instrument to credibly commit: the independent central bank to commit to a policy of price stability and the independent judiciary to commit to playing by previously published rules.8
Other similarities between independent central banks and an independent judiciary include:
Their members are not elected by popular elections, but by a nominating procedure in which the other government branches often play a crucial role;
In their decisions, both groups of actors are subject to what have been called “low cost decisions” (Kliemt 1986, Kirchgässner 1991): the effect of their decisions on their own (economic) well-being will be negligible most of the time (safe in times of hyperinflation). This means that their preferences are very important for their decisions. Politicians thus have incentives to search for persons with preferences similar to their own.
Of course, there are also differences, some of which might, however, be less important than they appear at first sight: It could be argued that we are dealing
with organizations usually institutionalized on different levels: the competencies of the highest court are enumerated in the constitution, whereas the competencies of the central bank are typically dealt with on a post-constitutional level. If one perceives the legal system as hierarchical with the constitutional level being the most important one, then it might almost suggest itself to conjecture that central bank independence (cbi) is a function of judicial independence.9
But this difference in the relevant rule-level might not be so important after all: first, there is no necessity of the two bodies being dealt with on different levels, or, in other words: cbi can be dealt with in the constitution itself. Second, and more important, the distinction between the constitutional and the post-constitutional level might be less important than claimed by some post-constitutional economists: if it is as costly to overturn decisions of the central bank as it is to overturn decisions of the highest court (or even to abolish it altogether), the central bank has gained de facto constitutional status. More on the distinction between de jure and de facto independence below.
To sum up: The similarities between independent central banks and an independent judiciary seem to be far-reaching – and also quite obvious. It is surprising that this apparent similarity has been dealt with so rarely (Elster 1994 and Keefer and Stavasage 199* are two exceptions). When devising an indicator for measuring the independence of the judiciary, it seems therefore obvious to turn to the literature on the independence of central banks and to look for analogies. That the discussion on pros and cons of an indicator concerning the independence of central banks is quite advanced might well prove to be an advantage: some of the apparent problems pointed out by critics might thus be avoided from the outset.
5 A Proposal for an Indicator measuring Judicial Independence
With regard to our topic, independence implies that judges can expect their decisions to be implemented regardless of whether they are in the (short-term) interest of other government branches upon whom implementation depends. It would further imply that judges – apart from their decisions not being implemented – do not have to anticipate negative consequences as the result of their decisions, such as (a) being expelled, (b) being paid less, or (c) being made less influential.
This section is organized in four subsections: first, we propose some criteria to measure de jure independence. Quite often, the constitution seems to be more a book of intentions than an enforceable document. Private citizens will, however, base their decisions not on the law as it is declared in the books but as they perceive its implementation. In principle, one could ascertain the realized degree of judicial independence by carrying out surveys.10 In section 4.2, we will, however, stick to our more objective measures and propose ways in which the de facto independence of the judiciary could be measured. Thirdly, possible divergences between de jure and de facto independence are dealt with. Fourthly, some possible difficulties in executing our proposals are discussed.
5.1 A de jure measure for court independence11
This measure for the de jure independence of highest courts is solely based on their legal foundation as it is found in the text of legal documents.
(1) The independence of judges is dependent upon the stability of the set of institutional arrangements within which they operate. Formally, the stability of the powers and procedures of the court depend on how difficult it is to change them. If they are specified in the constitution itself, we expect a greater degree of independence than in cases where these arrangements are fixed by ordinary law. This does only hold, however, if a majority is needed to change the constitution which is more inclusive than that which is needed to pass normal legislation.
We propose to check for the following aspects:
(1) Is the highest court anchored in the constitution?
a. Are its competencies enumerated in the constitution? b. Are its procedures specified in the constitution? c. Is its accessibility specified in the constitution?
d. Are the arrangements concerning the members of the highest court enumerated in the constitution?
aa. Is the term length specified in the constitution? bb. Is the number of judges specified in the constitution? (2) How difficult is it to amend the constitution?
10 More on this below in section 6.
a. Is a majority necessary that is above that necessary for changing ordinary legislation?
b. How many branches of government have to agree?
c. Are majority decisions necessary at different points in time?
(2) The procedure of appointment of constitutional court judges and the identity of those who have the power to appoint them may have a notable effect on the independence of the court. The constitutional court is supposed to protect the citizens from illegitimate use of powers by the authorities, as well as to settle disputes between the branches of government. Thus it ought to be as independent as possible from the other branches. The most independent procedure for judicial appointment is election by professionals (other judges or jurists).12 The least independent method is appointment by one powerful politician (prime minister or a minister of justice). In between we may find combined arrangements, for example, appointments which are made by politicians but from different branches of government or representing different parties.
Below, we assume that it is possible to separate the process of nominating persons for the position of judge and the decision to appoint them. If we assume that in principle representatives of every government branch could have the competence of nomination as well as that of appointment and further suppose that it is also
12 In Federalist Paper 51, James Madison (Hamilton, Madison, and Jay 1788/1961, 321) writes: “In order to lay a due foundation for that separate and distinct exercise of the different powers of government, …, it is evident that each department should have a will of its own; and consequently should be so constituted that the members of each should have as little agency as possible in the appointment of the members of the others.”
conceivable that some entity other than government branches (e.g. the public) could be assigned both of these powers, we obtain a 4x4 matrix:
Competence to elect/appoint members of highest court
Executive Legislature Judiciary Other
Competenc
e to
nominate members of highest court
Executive A B C J
Legislature E D F J
Judiciary H I G J
Other
We propose to check for the following aspects:
(3) How are the members of the highest court elected/nominated?
a. Judges are nominated and elected by one or more members of the executive
b. Judges are nominated by one or more members of the executive and are elected by parliament (or a committee thereof).
c. Judges are nominated by one or more members of the executive and are elected by the judiciary.
d. Judges are nominated and elected by parliament (or a committee thereof).
e. Judges are nominated by parliament (or a committee thereof) and are elected by one or more members of the executive.
f. Judges are nominated by parliament (or a committee thereof) and are elected by the judiciary.
g. Judges are nominated and elected by the judiciary.
h. Judges are nominated by the judiciary and are elected by one or more members of the executive.
i. Judges are nominated by the judiciary and are elected by parliament (or a committee thereof).
j. Judges are nominated by the judiciary, the legislature, or the executive and are elected by actors not representing any government branch (academics, the public at large).
mandatory retirement age) and cannot be removed from office, save by legal procedure. Judges are least independent if they are appointed for a set period, where subsequent terms are optional, and removal from office is a fairly easy process. If judges can run for a second term, their independence in the first term is severely harmed and they will want to be popular among their nominators. Judges who are appointed for a set period and cannot be re-appointed are in between. They are more independent than judges who can run for a second term, but less independent than life-tenured judges, as they may seek another position contingent on those who elected them, subsequent to their end of term at the court. Further, if their salaries are determined by the members of one of the other government branches, this raises incentives to take the preferences of these members explicitly into account. General rules that their salary cannot be reduced increase, in turn, the independence of the judiciary.
We propose to check for the following aspects:
(4) What is the legal term length of the judges on the highest court? (less than election period; less than six years; less than eight years; less than ten years; less than twelve years; more than 12 years).
(5) Can judges be reelected? Yes; no
(6) How can judges be removed from office? a. only by judicial procedure
b. by decision of one or more members of the executive c. by decision of parliament (or a committee thereof)
d. by joint decision of one or more members of the executive and of parliament (or a committee thereof).
(7) Is there a measure against income reduction of judges? Is there a mechanism securing adjustment in real terms?
(8) Are the judges paid adequately?
a. Are they paid more than university professors? b. Are they paid more than an average private lawyer? c. Are they paid as well as the minister of justice?
(4) Another component of judicial independence is the accessibility of the Court and its ability to initiate proceedings. A court which is accessible only by a certain number of members of parliament or other officials will be less effective than a court which is accessible by every citizen who claims that her rights are violated.
a. Individuals in any case relevant to the constitution and with which they are personally concerned.
b. Individuals, but only in a subset of cases relevant to the constitution (such as human rights)
c. Only other government branches.
(5) If the allocation of cases to the various members of the court is at the discretion of the chief justice, his influence will be substantially greater than that of the other members of the court. It follows that in such an institutional environment, it could be interesting to try to “buy” just the chief justice. We expect independence to be larger if there is a general rule according to which cases are allocated the responsibility of single members of the court (see Salzberger 1993).
We propose to check for the following aspects:
(10) Is there a general rule allocating the responsibility concerning incoming cases to specific judges? (or does the chief justice have discretion on the allocation of cases?)
(6) The competencies assigned to the constitutional court do not bear directly on its independence. Yet, highest courts must have certain competencies in order to be able to check the behavior of the other government branches. If the constitution is interpreted as the most basic formal layer of rules that is to restrain (and to enable) government, then the competence of the court to check whether legislation is in conformity with the constitution is crucial.
We propose to check for the following aspects:
(11) Does the constitution (or the law establishing the highest court) preview the power of constitutional review?
Are there any limits to it (e.g., only before a law has been promulgated?)
If courts have to publish their decisions, the can be scrutinized by others and the reasoning can become subject to public debate. This can be interpreted as making it more difficult for representatives of the other government branches to have irrelevant considerations influence their decisions. The transparency will be even higher if the courts publish dissenting opinions. We propose to ask:
5.2 A de facto measure for court independence
We now turn to possible ways of measuring the independence not as it is written down in legal documents but as it is implemented.
The literature on central bank independence has focused on one single such indicator, namely the “turnover rate of central bank governors” (TOR; Cukierman 1992, de Haan and Kooi 1999). It almost suggests itself to apply the same criterion to the highest court.
(12) What has been the effective average term length of judges since the respective legal foundations have been passed?
a. does it deviate from the average term length to be expected by the legal foundations?
b. How many judges have been removed from office before end of term? The influence of a judge depends on the number of other judges who are members of the same court. By increasing the number of judges, the weight of those judges who do not decide along the lines of the preferences of the median members of the other branches can supposedly be diminished. This is exactly what President Roosevelt had in mind with his plan to “pack” the Supreme Court.
(13) How many times has the number of judges been changed since 1960?
We discussed the relevance of adequate income in 4.1. Here, we could ask whether the incomes of judges have at least remained constant in real terms. But the efficacy of courts does not only depend on the income level of judges but also on the number of clerks employed, the size of the library, the availability of modern computer equipment etc. We propose to catch this aspect by asking for the development of the court’s budget as an organization.
(14) Has the income of judges remained at least constant in real terms since 1960?
(15) Has the budget of the highest court remained at least constant in real terms since 1960?
Any change in the basis of the legal foundation of the highest court will increase uncertainty among its potential users, i.e. will be counter to one of the most fundamental functions of the law. Frequent changes of the respective legal rules are here interpreted as an indicator for low de facto independence.
The de facto degree of judicial independence is low if decisions of the highest court, in order to be implemented, depend on some action of one (or both) of the other branches of government and this cooperation is not granted.
(17) In how many cases has one of the other government branches remained inactive when its action was necessary for a decision to become effective?
5.3 Comparing de jure and de facto independence
We assume that the international variance concerning de jure judicial independence is relatively small: the normative ideal of constitutionalism seems so promising that even autocrats have incentives to write constitutions which mimic the basic tenets of the rule of law at least formally. Factually, we do know, however, that many countries are not following the rule of law. We expect this to be reflected in a higher variance of the measure for the de facto judicial independence. It appears thus promising to compare the difference between de jure and de facto independence. The difference could be a measure of the realized degree of the rule of law of its own right: It does not measure and compare the rule of law formally found in a constitution by some abstract list of criteria (those developed in section 4.1) but takes the respective constitution of a country as the list of relevant criteria and compares them with the realized state of affairs. It could furthermore be interesting to estimate the de facto independence for various points in time and ascertain the development of the difference between de jure and de facto independence over time.
Until now, we have implicitly assumed that the de facto independence cannot be larger than the de jure independence. This might, however, be a short sighted assumption. There are many cases in which the highest court has acquired more independence than originally granted to it in the constitution. The U.S. Supreme Court, e.g., acquired the competence of judicial review with Marbury vs. Madison in 1803, the European Court of Justice with Van Gend en Loos in 1963 etc.
5.4 What is the (de jure/de facto) independence to explain?
In section 2, it was hypothesized that an independent judiciary should lead to citizens working harder, developing a longer time-horizon, investing more, thus creating higher growth rates and higher income levels. Possible left-hand variables therefore suggest themselves: investment levels, growth rates, and interest rate differentials.13
The following control variables should be taken into account: (a) whether the judicial system is a civil law or a common law system; (b) the length of time societies have been democratic; the stability of the (political) regime; (c) whether we are dealing with countries in transition. To be able to compare data, questions of ambivalence in the law have to be dealt with beforehand. A question that can dealt with after having collected the data is the aggregation – and the possible weights - of the various aspects.
6 Possible Extensions
Producing an indicator to measure the degree of independence of the judiciary promises to be lots of work. It would come in handy if the results could not only be used as another criterion of the EFI but if the generated dataset could be used for other pertinent research questions. This would clearly be the case.
The possible interdependence between judicial independence and central bank independence is a case in point. In the cbi-literature, the degree of independence has been taken as an exogenous variable. The explanation of the different degrees of the de facto-independence remains a clear deficit of the theory (Berger 1997). But it almost suggests itself to hypothesize that an independent judiciary is a precondition for an independent central bank – and thus to endogenize cbi. This hypothesis could, of course, be extended to other independent government agencies such as antitrust agencies, statistical offices etc.14
If one endogenizes cbi, endogenizing ji seems a logical next step. Under what conditions does an independent constitutional court emerge? Ad hoc hypotheses
13 We are facing an endogeneity problem here: is a country wealthy because it has an independent judiciary – or have wealthy countries independent courts because they can afford to implement their dicta? EFI has some experience with these problems having demonstrated that increases in economic growth have regularly been preceded by improved EFI-ratings. 14 It could, of course, also be the case that there is a high correlation
could be: once executive and legislature are separated, the possibility of conflict and deadlock between them becomes more serious, and the necessity of a third actor who could adjudicate arises. It could further be argued that the probability of a constitutional court emerging should, c.p., be higher in federally organized states because here the conflict potential is not restricted to one layer of government but can also arise between layers (i.e. not only horizontal conflicts, but also vertical ones). What are the variables that explain the variance in (de facto) ji? What are the instruments, the representatives of the independent agencies use in order to increase their independence?
Hayo (1998) argues that the conventional wisdom on central bank independence causing low inflation rates might be short sighted. He proposes to look at public attitudes towards inflation and hypothesizes that preferences for low inflation are a necessary condition for low inflation rates to be brought about. It is tempting to hypothesize that de facto ji also depends on public attitudes: if the highest court enjoys a high reputation amongst the public, this will increase the probability of its dicta being implemented by the representatives of the other branches since non-implementation will be costly. Non-implementation would lead to a decrease in their reputation, could result in not being re-elected etc. Hayo uses Eurobarometer-data for public attitudes toward price stability. The problem with testing a similar hypothesis with regard to court independence would be data availability.
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