Decisions by the Bush administration and others, in choosing whether to invade Iraq, deciding on how to invade Iraq, and thinking about the chances for "rule of law" there, can be analyzed using law and economics. The results are mixed, suggesting that other factors were used by the Bush administration, and also that the public's understanding of "rule of law" is different from that used by scholars.Law

Kenneth Koford

English

Research Papers in Economics

135
Eastern Economic Journal, Vol. 30, No. 1, Winter 2004
Kenneth Koford:  Lerner Business School, University of Delaware, Newark, DE 19716. E-mail:
KofordK@lerner.udel.edu.
EDITOR’S CORNER
Iraq and Law & Economics
Kenneth Koford
Lerner Business School, University of Delaware
Over the past decade I have been trying to understand the move to a free market
in transition countries, mostly Bulgaria, using law and economics. Often it turns out
that understanding society, institutions and “rule of law” values are needed to make
any sense of how contracts work—or don’t. As director of the University of Delaware’s
Legal Studies program, I have learned about “law and society”—a movement that
argues, among other things, that law is not just what is in law books and in judges’
decisions, but in what people think is just and what is the law. The U.S. attack on
Iraq and the current effort to create in Iraq a new democratic government and a
“rule of law state” pushed me to use law and economics to understand these events.
Four issues seem to be fit for analysis. The legal rationale for the war under the
U.S. Constitution, and whether the move to war satisfied this requirement, is the
first issue. Second is the choice of whether to move against the Iraqi government
under international law, specifically the UN Treaty and the UN Security Council.
These are questions about the rule of law in the U.S. and among the advanced de-
mocracies.
Turning to creating a new Iraq, a third issue is what is the chance of creating a
new democratic system in Iraq? And, fourth, what is the chance to assure the “rule of
law” in the ordinary business of life?
The U.S. Constitution grants the right to declare war to the Congress; the law
and economics question that struck me comes from the understanding of contracts:
how specific should this provision be considered? Ultimately, the question is the
“efficient” contract. For example, in 1991 the Congress did not specifically “declare
war” against Iraq. Were the fundamental requirements upheld? A constitutional
scholar might answer differently, but if the constitution is a long-term contract be-
tween the U.S. public and its governmental agents, we want to find the “understood
contract” for choosing to go to war. The public is not specialized in law, and doesn’t
worry about esoteric details. The public does rely on experts in law—for interpreta-
tion of personal rights guaranteed by the constitution as well as the technical rules
of declaring war. We might worry if the public neglects the clear statement of the
Constitution; this might indicate that the public really lacks understanding of fun-
damental Constitutional provisions.136 EASTERN ECONOMIC JOURNAL
In the case of the invasion of Iraq, I was very surprised that there was no serious
debate over a U.S.-led war. The Vietnam war showed the terrible consequences of
“sneaking” our country into war, while the Gulf war showed that the U.S. Congress
and public were willing to discuss a war seriously and back the war if a convincing
rationale was given. The “contract” that Presidents cannot drag the country into war
by fiat seemed to be broken.
Now, in cases of emergency, the President can resist attack, and a fair extension
of that principle is that the President could order a pre-emptive strike. But no evi-
dence of such a strike has been provided; I am surprised at the lack of severe criti-
cism. The Congress did vote to let the President go to war pursuant to a U.N. Secu-
rity Council resolution to invade Iraq, but it would be pushing legalism to an ex-
treme to argue that the war actually was fought in accord with such a resolution; it
is obvious that the effort to get such a resolution failed.
So why was the war supported in the United States, and why is it still fairly
popular now in late November 2003? Thinking about the contract between the public
and the Congress and President, I think that the war was seen as a good, small war,
something like the U.S. invasions of Panama, Haiti and Granada. If the war is small
enough and won’t lead to bad results, no declaration is needed—just like a de mini-
mis violation of the wording of a contract. The President said it would be easy and
work out well, and the Congress, basically acting as judge in the matter, did not
disagree. If in the end the war turns out badly, the President and Congress could
still say, “it looked like a good, easy and small war” and that would be some defense.
But the bar for starting a similar war would be higher.
Why didn’t the U.S. government persevere with its effort to obtain the support of
the U.N. Security Council for a war against Iraq? At the time, it seemed possible to
gain such a resolution and so to have a large coalition to fight the war, if the United
States were to wait a few weeks, and if other countries were brought into helping
lead the war and the following occupation. The rationale would have had to change,
to “collectively ridding the world of a dangerous dictator” rather than repelling an
impending attack.
Looking back, such a resolution would have made the U.S. (and United King-
dom) position much easier. If countries with more Middle-Eastern experience like
France and Turkey had been involved, and perhaps countries with Arabic speakers
like Egypt or Saudi Arabia, the war and occupation would have taken a very differ-
ent course. Since the United States has to deal with many countries on a regular
basis, attacking some as “Old Europe” and their advice as wrong just stores up trouble
for future cooperative efforts, such as the continuing Doha round of trade talks.
The reason for the “go-it-alone” approach seems to be a view of the world’s coun-
tries as short-term dealmakers, where the countries come together for a particular
agreement or invasion that benefits that group of countries then, and afterwards
they go their own ways—the “coalition of the willing.” This is a “spot market” deal, in
economic terms. It’s striking that most European Union countries strongly objected
to this approach. For forty years, they have been involved in a kind of “rule of law”
activity, in which proper norms of international behavior have slowly evolved, in the137 EDITOR’S CORNER
European Union and elsewhere, as in Bosnia and Kosovo. While they haven’t cre-
ated an “international law” comparable to domestic law, they have encouraged inter-
national courts, decisions by the United Nations, and in general moved toward a
“rule of law” system. They have to deal with each other on numerous issues, on a
daily basis—in the EU—and these interactions are subject to treaties that are effec-
tively a constitution, so it seems to them, and to their publics and elites, more normal
to work together in a “rule of law” environment in international relations in general.
One country acting on its own, without regard to others, seems more like the bad old
days of power politics, or even the actions of a Napoleon or Hitler aiming to dominate
the world. This contrasts with the U.S. public and elites, which don’t have the same
history and see the rest of the world as remote and “different”—not a place of the
rule of law. So violating the WTO treaty on steel tariffs isn’t seen in the United
States so much as illegal behavior that violates law, but as a possibly risky action
that helps some Americans.
When much of the world sees a system of international “rule of law” it makes
sense for countries like the United States, with a weaker sense of such a system, to
pay attention to those values. What looks like aggressive but proper independent
action to Americans can be seen as extreme and improper violations of international
law by others. When this is true, we can expect conflict, as people try to punish the
“law violators.” Today, most U.S. interactions with the rest of the world involve trade
and a combination of social and economic issues, and on these it is very hard for one
country to impose its will. So acting as a “law violator” in one area (Iraq) is likely to
lead to retaliation or lack of cooperation in others, with painful consequences for the
United States Globalization keeps increasing close connections that rely on all coun-
tries cooperating and accepting a “rule of law,” so I expect that the United States will
pay a high price for its Iraq approach, and will eventually come to a more law-gov-
erned approach.
What is the chance of creating a new democratic government in Iraq? A law-
based perspective notes that a democratic constitution is basically not majority rule,
but a set of rules that structure political decisionmaking and also a set of rights that
protect people from their government. These rules are not just written on paper, but
are in the hearts and the expectations of the public, and the elites, and elected lead-
ers.
Will it be possible to bring such a system of rules into effect in Iraq? A written
constitution may be possible, but making it clear that the majority does not “rule”
could be very difficult. Iraq and the Middle East in general have had very aggressive
governments that ruled dictatorially and certainly had no sense of rights for political
or cultural minorities. Setting up a structure that protects such rights effectively
has to involve giving the public, the elites, and for that matter the police and the
army, the idea that rules protecting a minority are not to be trampled. These groups
must see the value to them of a “rule of law state” and also believe that most other
people see these values too. Otherwise, people will fear that others will act first to
capture total power and destroy any opposition. And if they resist this, they will be
alone and will be destroyed.138 EASTERN ECONOMIC JOURNAL
Roger Scruton’s [2002]very interesting book points out that it took centuries for
democratic institutions and moral values to develop in the “West”, starting with the
separation of religion and government, and then building a healthy skepticism of
government backed by institutions that would fight against an overweening govern-
ment. While we see in the ex-communist countries of Eastern Europe some fast
movements to democratic limited government, we see many failures too. And this is
in a region with some traditions of democracy and limited government. Farther east,
in regions that never had democratic government, it is hard to see any truly demo-
cratic systems. A culture of authoritarian rule, and a view that “capturing every-
thing” is better than being cautious, make it hard to make and keep limited govern-
ment.
What is the chance for a working free market economy in Iraq, where contracts
are enforced and private business can rely on other firms and ultimately on courts
and prosecutors to assure that private contractual arrangements are fulfilled? Here,
we can think of incentives, norms and institutions, using new institutional analysis
to flesh out law and economics. Certainly, democracy isn’t needed to have effective
rule of law in business. But oil- or mineral-rich economies have a terrible history of
assuring the enforcement of private contracts. It is just too easy to grab the oil, using
force. No owner can move the oil elsewhere, and in contrast to manufacturing or hi-
tech or trading, incompetence or a bad reputation don’t destroy its value. So there’s
always an incentive to capture the oil with business tricks or politics. Proper busi-
ness courts aren’t needed to have prosperity, and so there is little incentive to de-
velop them.
The norms of obeying one’s contracts can develop in a complex economy where
continued relations are needed for prosperity. LaPorta et al. [1998] show that a “his-
tory” of effective law, like the common-law tradition in the English-culture coun-
tries, helps economic growth. Could these norms or traditions be developed quickly,
or imported, to Iraq? While most history is negative, there are some cases of rapid
economic growth under a workable rule-of-law system, starting from nearly zero.
China might be the most positive current example. The Middle East’s merchant
culture certainly has the makings of some norms of contract, but it might not be
sufficient for an advanced industrial economy.
Perhaps importing a set of laws and courts from another country would be the
fast and effective way to develop a system of contracts in Iraq. British or American
law could be imported, and local judges, prosecutors and lawyers trained. This would
have considerable advantages: it would be a modern, internationally known and
effective system, and if enforced with help from the United States or the United
Kingdom, it could quickly focus expectations and put down roots. It would greatly
help in business relations with the West. The disadvantages are first that Iraqis
would likely oppose it as something imposed from outside, and second that it has
very different structures from Sharia (Islamic) law and so would conflict seriously
with the domestic legal culture. (Again, see Scruton [2002]). If it were accepted as
generically “modern” like the internet or cellphones, as a new technology, it might
succeed.139 EDITOR’S CORNER
These four “rule of law” questions regarding Iraq all were tied to law and eco-
nomics, and I think that the focus of the law and economics approach helps us to see
the questions more clearly. Yet in each case, differences in culture and history made
a difference in practice, and they influenced the institutions of law and economics.
Certainly, Coase emphasized transactions costs as important in the analysis of prop-
erty; what seems significant here is that the transactions costs are different in differ-
ent environments. I had to go to the new institutional economics, such as Douglass
North’s 1990 book, and to works on culture to structure the law and economics ques-
tions.
REFERENCES
 La Porta, R., Lopez-de-Silanes, F., Shleifer, A., and Vishny, R. W. Law and Finance. Journal of Politi-
cal Economy, December 1998, 1113-55.
North, D. C. Institutions, Institutional Change and Economic Performance. New York: Cambridge Univer-
sity Press, 1990.
Scruton, R. The West and the Rest: Globalization and the Terrorist Threat. Wilmington, Delaware, ISI
Books, 2002.

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