High Cost of Legal System Justified by “Intangible” Value?

by Guest Blogger Victoria Pynchon

Overlawyered is a natural read for mediators such as myself.  The high cost of litigation. Expensive. Procedurally encrusted and, with electronic discovery, a 21st century e-Bleak House.  Endless legal process for those with the funds to foolishly waste on pre-trial dispositive motions; appeals; returns to the trial court; verdicts; motions for new trials and judgments notwithstanding the verdict, further appeals.  A process that is brutal on the people and an enjoyable though intense board game to the lawyers who participate.  Lawyers for whom winning everything because that’s our job. Win. Not write a brilliant motion.  Not make a cogent closing argument.  Not buy our witnesses $150,000 in new clothes.  All that might be necessary.  But without the  win, pointless.

Having said that — and having personally experienced the case that went to trial only after it was “old enough to drive” (the Stringfellow Insurance Coverage Litigation) — what I am about to say may surprise Overlawyered’s readers.

The rule of law (and the human resources necessary to keep its machinery running) accounts for a full 57% of the wealth of developed nations like ours.

This statistic comes not from the ABA, some self-serving trial lawyers association (i.e., the Plaintiffs’ bar) or a left-leaning academic at an Ivy League University.  No.  This comes from the World Bank!

As ReasonOnline science correspondent Ronald Bailey recounted in The Secrets of Intangible Wealth a little more than a year ago;

Human capital and the value of civil institutions – as measured by the rule of law – constitute not just a part of the economic well-being of nations, but the largest share of wealth in virtually all countries.

The statistics compiled by the World Bank should surprise you as much as they did me:

Once one takes into account all of the world’s natural resources and produced capital, 80% of the wealth of rich countries and 60% of the wealth of poor countries is of this intangible type.  [According to] the World Bank[‘s] economists  . . . .  the rule of law explains 57 percent of countries’ intangible capital. Education accounts for 36 percent.

We need only return to the first principles we were taught in law school — certainty of contracts, for instance — for the following figure to be less than completely astonishing:

the  natural wealth in rich countries like the U.S. is a tiny proportion of their overall wealth—typically 1 percent to 3 percent.

Why?  Because we

derive more value from what [we] have. Cropland, pastures and forests are more valuable in rich countries because they can be combined with other capital like machinery and strong property rights to produce more value.

And the role of the rule of law here?  Predictability — trust in civic, political and financial institutions (cf. the stock market when it’s working productively) — freedom of contract, the internalization of legal precedent for managing disputes that are never litigated, and many more efficiencies made possible by the mere presence of a working justice system in America.

I write this as we experience an unprecedented Presidential campaign, the result of which is uncertain and, to many people, frightening.

All I can say to those filled with fear of a McCain or of Obama presidency, is to remember this — America’s political institutions and the people who elect representatives to serve them are more powerful than any single man (or woman).  Whoever is elected, we retain the power to eject him if he over-reaches.  So let’s get past this ENDLESS campaign and laissez le bon temps roulez!


  • Wow!
    It’s amazing to read this even though somehow I knew the importance of the rule of law. Thanks for sharing!

  • The Rule of Law is extraordinarily important, but it’s also important to note that most of the legal policy issues where Walter and I take positions are issues where scaling back the reach of the legal system would promote the ideals behind the Rule of Law by increasing certainty. (For example or another example.) One can easily hypothesize a Laffer Curve where devoting too much of a society’s resources to legal disputes is counterproductive, and the arguments that we are, in many areas, on the wrong side of such a curve are quite persuasive.

    Unfortunately, both Obama and McCain are proposing increased government interventions in the marketplace that will increase uncertainty and have a devastating effect on the economy—repeating the mistakes made by Hoover and Roosevelt. Whoever wins should be forced to read Amity Shlaes’s The Forgotten Man multiple times.

  • i totally agree, it matters who gets in office but in the end they don’t really have the power to ruin our system or anythink like that. There are too many checks and balances set up and the people, as you said has too much power to let that happen. So even if the liberal illuminati do get into office not all hope is lost.

  • What a silly attack on a strawman.

  • Where’s the attack? Seriously. I’m missing it.

  • I think most Americans understand that if the law were to change, they could suddenly be out of their house and into the street. We know how much of our wealth is tied to our legal system. We just don’t understand why lawyers get such advantages when relieving us of our wealth.

  • You probably meant “laissez”.