The case for a rapprochement between law and economics

January 10, 2022

By Guy Beringer CBE, former chair of UKEF and of the Legal Education Foundation

Legal UK recently published a report from Oxera, the economics consultancy, on the economic value of English Law. The Report concluded that English Law provides a business platform which is used at enormous scale but whose value is largely invisible. We are used to invisible earnings. It appears that we also possess an invisible earner.

But it is not the invisibility of the plumbing in a house. This is not seen but is highly valued. The invisibility of legal platforms conceals both their value and their existence. The consequences of this blind spot affect both high City finance and everyday life. The City is a global hub. Why does it hold this position?

An overview of the last 50 years shows a series of advances in financial services in which London has been a leader. Eurobonds, multicurrency financings, derivatives and swaps, securitisations and structured financial instruments have enabled London to prosper as a hub.

What explains this? The inventiveness and ingenuity of bankers? The existence of a reliable yet commercial regulatory environment? A deep talent pool? Some have suggested that London is a wonderful place to live but those people may not have travelled widely.

A plausible explanation is the legal plumbing. English Law is a platform which is both malleable and reliable. It provides novel outcomes without having to switch platforms. It travels globally and it is fair and predictable. This an attractive set of features for any platform for economic activity.

The period ahead will see new investment instruments and techniques which embrace environmental concerns, smart contracts, sustainable development alongside the relentless advances of AI.

It will require new corporate financing techniques which will have to cater for the unforeseeable. It will need to embrace purpose, technology and automation simultaneously.

This will require R&D investment. Might London’s future as an economic hub be tied to the ability of its legal platform to deliver against future challenges? There is a great economic prize on offer but the starting point is a realization that the platform exists. The R&D  cannot be left to the legal technicians who service the platform.

Much rides on a proper understanding of legal platforms as economic agents yet we live in an era where economics and law are estranged. This could prove an expensive estrangement.

A rapprochement between economics and law is also badly needed in a wholly different world, the world of social welfare law. Access to justice is an integral part of a fair society. The civil legal aid system has been the main state funded platform through which this principle is to be made real. Access to justice is not, however, a disembodied goal where rights overshadow outcomes. It should be the route to happiness, self-sufficiency and prosperity. What is the organizational platform charged with enabling citizens to use the law to improve their lives?

Legal aid providers are currently a collection of over 1,000 SMEs which receive funding allocated by legal category, determined by categories of legal cost and overseen by micro-managed gateways. The platform provides one of the largest identifiable groups of SMEs in any field of economic activity in the UK.

An economic analysis of the system would be scathing. No significant attempt is made to  treat the platform as a set of SMEs whose sustainability will determine the outcomes for citizens.

The system is built on red tape and over-regulation. Its delivery is notable for micromanagement, friction costs, late payment and induced organizational fragility. It prioritises its own rules over citizens’ interests. The Treasury Green Book tells us that wellbeing and social welfare benefits are significant factors in determining policy. Sadly, the estrangement of economics and the law have excluded the legal aid system from such modernist thinking.

A rapprochement would also show the economic sense in building an effective and sustainable delivery system for social welfare law which was informed by better economic outcomes for those who rely upon it. It would show that law is vital to everyday economic outcomes and that it is a part of outcomes in health, education, housing, employment and wellbeing.

Such a rapprochement would also show clearly the case for R&D investment in English Law as a platform for global business with all the cutting edge and world leading characteristics seen as the holy grail in science. We would have world leading plumbing for crypto assets, smart contracts and purpose-led investing, and it need no longer be invisible.

Who is currently charged with making the invisible visible and with driving the crossover between economics and the law in either of these worlds? The answer is nobody. We are in Corinthian Casuals land, trusting that innate ability will make it come right on the day. Unless we professionalise, the day will have passed us by.

We need to create an independent entity whose objective is to understand legal economy and thereby to maintain and promote the innovative tradition of English Law. English Law can then be the plumbing for both a thriving City and a working legal aid system. This will only happen if law and economics are reunited.