THE High Court(Mbeya Division) has today ruled in favour of Tanzanian dubs Court deal.
A panel of three judges led by Judge Dunstan Ndunguru, in collaboration with judges Mustafa Ismail and Abdi Kagomba has ruled that the Intergovernmental Agreement (IGA) is not a contract that can be governed by laws of contract.
“In general, we decide that the complaints brought by the plaintiffs are unfounded, and we dismiss them. Consequently, with that decision, the IGA contract is valid” stated Judge Ndunguru.
I’m not a lawyer. Therefore, I will not pontificate as one. However, I have been in a law class as a Constitutional Economics student and as such, I have become a permanent student of the same. May point is not constitutional economics but the philosophical and ideological interplay of law and economics in international economics in one extreme and development economics on the other in which I’m trained. But why?
As an economist, I’m trained to think, on how law as a macro economic tool makes a nation secure it’s sustainable economic possibilities in the world of stiff and rough competition of individual country’s resources in the pretext of globalization especially since the era of hyper-globalization. It is against this background, I therefore, wish to address the question of law and economics in this judgement.
The question of economic policy has always been with the legal minds for many years as they belabor in legal philosophy. On such basis, my analysis will not be inventing the wheel. In 1824, Judge Burrough in *Richardson Vs Mellish case* in England, argued:
Public policy is a very unruly horse, and when you get astride, you never know where it will carry you. It may sound as if Burrough was arguing for the public policy and not economic policy but it economic policy is shaped by public policy because public policy is bigger than economic policy even though public policy feeds on economic policy.
With Burrough’s argument, the positivism school of thought in his mind was clear. Positivism as a legal school of thought gravitates on the law as it is. It is the law and therefore, the law itself.
In 1971, Lord Denning in Enderby Town Football Ltd v. The Football Association Ltd argued;
“With a good man in the saddle, the unruly horse can be kept in control” Judge Denning’s statement subscribes to *Realism* as a school of legal thought. This school gravitates around the law as ought to be.
In this philosophical discourse, economists are not allowed to play the man but the ball in a sense that makes economic policy have ability of rejigging contradictions for sustainable economic development. It is more so when confronted with ways of international economic architecture which trembles individual state’s strategic economic interests. But to do this, economics starts with clear thinking for the law to conform. When that doesn’t happen as is the case in our country, the legal philosophy comes in.
In such circumstances the economic analysis of the law becomes at the centre stage as Lord Denning argues.
LAW AND ECONOMIC EFFICIENCY
Where did the tools of analysis go in matters of grave concern to the future economic possibilities of a nation in jurisprudence?
The struggle to find these tools becomes a vivid path in understanding not only the narrow aspect of economic stabilization but the bigger purpose of the economy of what is being stabilized and for what end.
In the world dividend into means and ends, judges are expected not to be swallowed in bounded rationality in which the means-end rationality is misconstrued to suit the business logic which doesn’t necessary conform to the strategic economic interests of a nation. The case in point is a perfect example.
To truncate the question of sovereignty in this case, is to justify the lack of awareness that small states get their natural resources into economic resources only if, the law brings about allocations that mimic the results of a properly functioning market in international contractual relationships. Awareness of such cognitive deficit could help reshape legal reasoning and its subsequent decisions accordingly.
With insights from constitutional economics, we understand; the application of the tools of economic reasoning in justified and consistent legal practice, is the dominant theory of jurisprudence when dealing with intricacies of international political economy. The central thesis is that, law is the critical social tool to promote economic efficiency in such a way that economic analysis and efficiency become a pillar in guiding legal practice.
For the uninitiated, economists argue that contractual exchanges in matters of endowments between nations, centers at the public interests not the government interests. As the result, an efficient allocation in any contract is what is defined to be morally optimal. For it to be morally, however, the contract must represent a good example of interaction between free and rational agents. A free and rational agent in the owner of the endowment aspect, is the public which contends with idea of wealth maximization as wealth necessarily and sufficiently translates into more utility than before.
For the law, therefore, to enhance economic efficiency in such contractual relationships, the bringing of together of legal and economic reasoning is paramount in offering a framework with which to model legal outcomes. It is these outcomes that are used to improve market conditions in return. To do so, judges are brought to two fundamental principles.
a). Pareto Optimality.
This is a point at which possible outcomes of economic exchange necessarily thwarts partners’ willingness to trade further. It is the eventual end point of which the contract anticipates further efficiency in such a way that, a Pareto superior change in the future makes at least one person better of without making anyone worse off. The idea is to make Pareto improvements enhance efficiency even at different Pareto Optimal points.
b). Kaldor-Hicks Efficiency.
This is where the overall economic gains outweighs the losses in a freely contracted exchanges. The idea is to have economic efficiency to the loser from the winner’ compensation that do not make the winner worse off after the compensation.
The above economic analysis of the law, consequently equips the judge to reason and interrogate international public law based upon economic aims, therefore giving the law(the contract) a more coherent basis. And as such, the judgement devoid of analytical approaches to economic explanation of the law is the judgement in bounded rationality.
The IGA between Tanzania and Dubai both in form and content; as a matter of patriotism in judicial corridors and elsewhere, invites accurate and conceptually necessary description of law and economics as social institutions in guiding judicial decision making. The basic reason is that; in form, it presents a glittering economic efficiency prospect while fronting economic absurdities that intrinsically grants towering strategic economic interests to Dubai with little yet parochial business interests to Tanzania.
PRODUCTIVE CAPITAL OR SPECULATIVE PROFIT?
One must admit, this is not the contradiction only in judicial corridors but a major contradiction within economic war rooms in our government. Our development aficionados in public offices are darlings of capital fundamentalism even when that capital is nothing but the “vapour” of the financialized economy which is not natural development but a regulation of induced flight from production. In the context of stabilization policy which is inherently destabilizing, one could not hesitate to think that the legal judgements to conform such a context are thought to be a panacea with regards to our economic ills. Contrariwise, today’s judgement is a precursor in which our economic modus vivendi is for abandoning productive capital for speculative profits. Yet, the economy is not for speculative profits but for planned productive capital through capital deconcentration and markets that work for the internal incentives.
In glorifying this judgment as an important milestone in modeling our economy, sympathisers and apologists of the convoluted IGA, are only encouraging the government to manage the economy on speculative profits. It is the speculative profits that the court has given a clean bill. If “we” were to set the economy for productive capacity, our arguments in favour of IGA wouldn’t be manufactured financial statistics such as the 26 Trillion Shillings or retaining and even scaling up employment from this kind of investment. “We” wouldn’t be talking about nourishing our economy from foreign direct investments that dwarfs the existing domestic direct investments(DDIs)
The modus vivendi of capital fundamentalism we have embarked on since the emergence of hyper-globalization era(1990’s), has killed even the basic principles of managing the economy in our economic body behaviour in strategic investment decision; the critical ones being; policy incentive is superior to revenue incentive, capital intensive policy requires deliberate labour intensive mix policy, productivity of firms is not synonymous to productivity of the economy. Had our economic thinkers took time to review their intermediate macroeconomics notes, they would not have allowed our politicians to throw numbers without proper policy simulation.
They would not have allowed the voodoo economic statements of employment creation while it is common knowledge that ports- investment is a capital intensive policy initiative which requires deliberate labour intensive policy to reap the employment trajectories. More importantly, they would not have allowed our politicians(from the ruling class) to argue for productivity of the economy.
As an economics lecturer, I always make sure students understand economics not through the lens of non-contradictory environment as our curricula designed. I ignite the fact that modern economists don’t subscribe to contradictions because the theory has systemically and consistently been extricated from the mastery of the subject.
But it is the theory that help us see the “unseen” in economic decision making. It is with theoretical grounds and history, we are able to decipher the political musculation of economic management. One of the political musculation we have consistently made as a country, is to think that a productive society is the same as a productive company. Yet, the historical evidence speaks of the opposite.
When my third year student asked me why I don’t relate foreign companies’ productivity with productivity of the society in Tanzania, my response was to take the whole international economics class into some economic history.
In 1990’s, hyper-globalization engulfed our economy like any other. The premise was;*globalize economics, and liberalize politics* in return for economic paradise of the proletariats. We did as it was economically preached. As foreign investment increased, the economy grew in output terms. The economy grew because flagship projects thrived, capital penetrated the economy, business as a response to the nature of capital mushroomed and vertical increase of urban growth in nominal terms became a critical feature of our growth mantra. As a result, GPDism as the measure of growth without equity caught up with us. But that was just GDP(Gross Domestic Growth) without total factor productivity (TFP) as productivity that make people wealthy over time. A critical review of the IMF annual economic outlooks of every year in the past ten years, indicate productivity as the critical disease of our economy.
As company’s productivity increased by leaps and bounds, the productivity of our economy as a whole in which these companies domiciled, stagnated. The reason is that, when trade costs fall as the case at the apex of hyper-globalization, manufacturing production spread around the world as general macroeconomic conditions inevitably invite firms to integrate globally but our institutional capacity remained sophisticatedly fragile.
We forgot that economies thrive on incentives and incentives is a function of working and stable economic institutions. As we promoted productivity in business( good business environment), some of our policies never worked and many backfired especially in natural resources orientations to match the required level of productivity in the economy as a whole.
We foolishly equated productivity with technology even as we didn’t control the end results of that technology as has been the case in our service economy. I’m arguing that we needed not to turn into techo-pessimists or Luddites but we largely became optimists without proper economic campus. And that is the tragedy that is still alive and kicking.
ECONOMICS IN NORMATIVE JURISPRUDENCE
Back to our to our main topic about economic analysis of the law.
One of the best ways to purposely manage the economy when law is used as a macro- economic tool, is to avoid the one-issue reductionist approach. In the eye of sustainable economic management, this means advocates of economic analysis of the law( judges included) by necessary implications, ought to be cognizant of the analytical tools offered by economics and law in other jurisprudential traditions that helped societies make their way out poverty.
Every critical analysis of a 436 page book by Angus Madison which is considered as one the brilliant macroeconomics history book, has vindicated the role of economic analysis of the law in investment movements as a path to prosperity. For staters, the book is called CONTOURS OF THE WORLD ECONOMY; 1-2030 AD. It’s main thesis is how countries managed to prosper in the last 2000 years. It goes further to crystalize 30 years after the new millennium had started. i.e up to year 2030. It consists of three parts.
Part 1; Factors for growth in the Roman Empire, Asia, Africa, Europe and America.
Part 2; Macro-economic tools of analysis for Development from 17thc to date.
Part; The future and what shape of economies might be in 2030.
When analysing this book, Prof of Law, Roberto Mangebeira Ungar in (2009) argued;
“It very clear from Angus’ book that development of nations is both a function of clear analysis of the interplay between the law and the economy”
For the legal minds to get out the basket of bounded rationality, hence to play the expected role in the internal economy, the interplay between normative jurisprudence and economics is inevitable. The following tools of economic analysis are important.
Game theory is a powerful economic analysis tool which deals with strategic actions in equipping the proper economic analysis of the law. It is about the strategic actions and in this case, the tool for economic strategic interests when confronted with short-term business interests.
It is applied in anticipation of how one partner is likely to act in response of the strategy by another. In international agreements that affects the future economic possibilities of one partner, the judicial decisions deploys the tool because much of the bargaining to have effective contracts appear to be made in the interests of strategic motives. Yet the strategic motives, more often times ends with short-term parochial interests as case in point. Because the rules in international investment are designing to conform to the logic of global business- economics and not individual nation’s economic possibilities, the legal systems in individual states must have an eye on possible-genuine strategic actions to ensure there is no perverse outcomes. When systems are not in place, judicial interpretations ought to apply the public choice theory.
Public Choice Theory
In essence, the theory conforms to the long-term economic interests of the public in such a way that judges should understand their position within the system of the collective decision process. This is to say, judges are simply an eye of the public in the international global economy.
In this imagination, the interests of agenda-setters(government and policy wonks) will need to be interpreted regarding the choice of the public in the struggle of turning their natural resources to economic resources. This is important because the interests in the five (5) levels of policy nomenclature are *different* and *competing*
The five levels are;
1). Policy Makers.
2). Policy Distributors.
3). Policy Enforcers.
4). Policy propagandists
5). Policy Subjects.
A judge needs to be a visitor in Jerusalem to not decipher that the policy subjects in this IGA thing are emasculated and manipulated. The judicial decisions are not for emasculating the policy subjects but to defend them. For that to happen the third instruments has to be present.
Law and Behavioral Economics
Human limits are real in every discipline. However, they are more real to experts of contracts when dealing with the world. The explicit way of looking at these limitations is how international contracts in natural resources hits a dead weight to means-end rationality.
Means-End Rationality is simply the ability to choose good means to ends. In national classical economics, nonetheless, means-end rationality as it is related to transition from philosophical reason to sociological rationality has continually turned bright negotiators(from the South) into dead weights as they struggle to enter meaningful contracts. This is the reason why behavioral economics and law is essential to judges.
The main issue is for judges to unlock the outcome of bounded rationality in which information in contracts are not as per the proper model of means-end rationality but manipulated because of the limits of abilities of negotiators. When a legal minds tells the policy subjects to air their views on the contract without proper public participation standards, it is very clear that, the legal mind is working for the policy maker whose intentions are to turn the legal mind into a policy propagandist. The question is; to what end?
The end can easily be easily detected through having jurisprudential practice that factor in cognitive failure. The court through judges are well positioned to that.
THE WAY FOWARD
I understand; these are the raptures of a failed economic thinking on our economy. To salvage it, let us go back to the drawing board on how we think about the economy as I wrote in this letter….. to the President.
As to the court case, I’m still convinced, all is not lost. Whereas, this judgement may have cut the slice of bread in the bakery of pettiness, the Court of Appeal may patriotically consider to cut this economy some slack.