Wednesday, 20 April 2011

Economics of Law

An interesting article by a friend, post my trying to explain him what Options and exotics are......what caused the fall of Lehman Brothers

As an engineer I was supposed to do calculus and develop algorithms in my life. These things somehow made sense to me. Even though I was never the best but I still seemed to be going somewhere with them. But the two things which refused to get into my head were the language of law and the laws of economics. They always seemed so complicated, so alien to me that all my efforts to understand ended up futile. At the end of trying to understand them i would be so tired that I would go back to doing my serverside programming. I have a few aspiring MBAs and a few MBAs as my friends, Whenever I asked them what the hell was wrong with the economics of this world , they would start teaching me futures and equities and commodities and many more such terms . It always would seem as if I was getting near them and then suddenly they would bounce over my head.

My grand old man once told me, if your solution isn’t simple, its not the solution . So I decided to go and find out the simplest way of understanding economics. The basic rule that governs it all. After talking to many MBAs and commerce grads my problem was still unsolved. Then I went to friend of mine, The Gujju, who i was sure would be able to answer me. And he did, in a manner that suggested I had asked him something that was common knowledge. He asked me if I remembered what was taught in the high school economics book, the demand and supply curve .Surprisingly I remembered and remembered it well . He told me whatever jargons the CEOs , CFOs or the MBAs used ,it would always boil down to the demand and supply rule. Wherever there is money, there is demand and supply channeling it around . That was my Buddha moment. Suddenly I started understanding economics. I still did not get the terms but I understood the basic rule. He also gave me another piece of advice , to nod when an MBA talked , that’s the quickest way to shut him up . Any questions and arguments will only extend your trauma.

Having satisfied one part of my ignorant self, I decided to try and satisfy the other using the same principal. I decided to keep it simple. I once read a renowned journalist, he opined, in India we have too many laws but too little justice . I wondered if I could understand India's judicial system using the same rule that I used to understand economics. The demand and the supply rule.

It is not difficult to see how judicial system in India works once you have applied the rule . In India the supply of laws is perennial, every year some new rule is added to the already overflowing reservoir of laws. This abundant supply of laws has made it cheap. Law is bought and sold at every court in this country, sometimes in the name of out of the court settlements and sometimes as bail . Although it must be noted that not all laws are in equal supply. Some are more readily available than the others. Take for instance the traffic laws. They are the cheapest, and are bought and sold at every signal. I sometimes feel they are like the FMCG, the fast moving consumer goods. There are other laws covering petty crimes which fall in this category. The laws covering serious crimes are a little more costly . Murders, rapes, kidnapping are a little costly to buy off , but nonetheless are bought and sold. These laws are not sold in the open market, their availability is restricted to some sophisticated markets . One with money can always find these places with some helpful lawyers eager to show you the way. The most costly of them are the Industrial laws . The laws need consistent investment. The big industrial houses invest generously in the political parties which return the favor once the come to power or reach a position to decide who comes to power. These investments are costly also because the product that the consumer demands has to be custom made as per the customer's demands. The choices of the customer are respected and it is believed that in absence of laws that can be tweaked to help the customer new laws are created to cater to customer's needs.

As far as justice is concerned, in India it is in scarce supply. If the conviction rate can be seen as a variable to the scale of availability of justice, it can be defined as abysmal. If we take into account the amount of time our courts take to deliver the verdict, the supply of justice looks even worse . In such a case justice in this country has become extremely costly and can be considered only as a luxury for the rich . No wonder that many a poor accused in this country spend more time in the jail than their conviction would have warranted had their case been heard. On the other hand the rich move on with their lives often after committing heinous crimes because they were able to buy the bail. Where the poor have to often rely on public prosecutor who is poorly paid, sometimes incompetent and many a times corrupt; the rich come with a battery of foxy lawyers to bid for verdict in the great auction of Indian judiciary .

In a country where food and kerosene are subsidized for the poor, i feel a day has come when the finance and the law ministries will have to subsidize justice too. And also add justice into the basket of items they use to calculate inflation.

Applying the rule of demand and supply may not have helped me understand the language of law , but it has helped me to understand the nature of indian judicial process . I remember an old movie climax where the police officer shouts at our hero, who is holding the villain at gun point "Vijay , kannon ko apne haath me mat lo " . I wondered would I be able to say that to a poor vijay holding a gun at a rich villain . I would be urged to look the other way.


Abhishek Gunjan said...

Very nice post. Thanks to Varun who posted this link on FB. Liked the depth of analysis and yes the connection of article with the title.

Keep writing!!!

Mukund said...

very unique take on the subject!

Varun said...

Your friend has some talent! :) Loved the post.

But are you sure that the Vijay you are talking about is not Vijay Mallya :D

Arvind said...

Nice take on demand & supply. In India, the demand side - be it in justice or commodities or F&O - will always outstrip supply. This means the market will never be efficient as suppliers will continue to have higher bargaining power. Hence, the corrupt bureaucrats, govt & corporates - who are the suppliers of justice or products / services will continue to get away with crimes.