The Right Coast

July 29, 2004
The Rule of Law
By Mike Rappaport

In Wednesday's Wall Street Journal print edition, Francis Fukuyama has an interesting piece about the art of reconstructing failed states. One of his main points is the importance of the rule of law in these states. Fukuyama says: "Milton Friedman admitted that his advice to former socialist countries in the early '90s had been to 'privatize, privatize, privatize.' 'But I was wrong,' he continued, 'it turns out that the rule of law is probably more basic than privatization.'"

Thus, there are two problems with the governments of undeveloped countries. Some governments interfere with the market and impoverish their people that way. Others, however, fail to enforce the rule of law and therefore allow private criminals to interfere with productive activity. What is needed is a government that enforces and follows the rule of law, but does not excessively regulate. While this has long been the position of classical liberals (including free market conservatives), sometimes they have forgotten that both of these goals are important and that the rule of law may even be more important.

Modern liberals who favor strong, ambitious regulatory states have missed the mark even more, however. When they urge undeveloped countries to provide social welfare and to regulate business for the public interest, they are providing undeveloped governments with too much opportunity to interfere with markets. And they divert the attention of those governments from the really fundamental thing: enforcing property and contract rights, and impartially implementing the law.