Cartier-Bresson, 1948
French photographer Henri Cartier-Bresson is in Shanghai just a Maoist troops are about to take the city, in late 1948. (1, 2, 3). Note the anguish of depositors. They are rushing to take their money out of banks. Some of them are looking to the photographer.

[QUESTION: What do you think was happening to the supply of loanable resources at that very moment? Are interest rate going up or down? Why?
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Iran, 2010

[DISCUSSION: “Iranians switch to informal savings funds as loans dry up”, Financial Times, March 13, 2010].
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Argentina, 2009

Another fascinating case. The country has an enormous wealth of natural resources; it is huge. Yet its per capital GDP is stagnant; poverty is widespread. What is going on? Here’s a hint. Argentina’s Supreme Court on criminalizing small amounts of drugs. Most recent rulings: 1978 (criminalizing); 1986 (de-criminalizing); 1991 (criminalizing); 2009 (decriminalizing). [Not required reading! Jonathan Miller: "Judicial Review and Constitutional Stability: A Sociology of the U.S. Model and Its Collapse in Argentina", Hastings International and Comparative Law Journal, Vol. 77, No. 21, 1997].

In other words, the Argentine Supreme Court does not follow its own precedents!

Argentina: the concept of “strategic defection”, developed by Gretchen Helmke. Courts under Constraints. Judges, Generals, and Presidents in Argentina (New York: Cambridge University Press, 2005) [webpage] [see] [review].
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England, 1300 (Braveheart)

In 1300, king Edward I is at war with the Scots. He needs lots of money. There is no tax system as we understand it today. The barons and the London merchants are unwilling to assist the king with more funds, unless he re-issues Magna Carta. "When we have secure possession of our forests, and of our liberties, often promised to us, then we will willingly give a twentieth, so that the folly of the Scots may be dealt with" (p. 525). Very interesting! It pays to strengthen the rule of law! Meanwhile, Edward puts tremendous pressure on courts to expropriate as much resources as possible. There is little information about the level of interest rates at that time, because lending at interest was forbidden by the Church. However, we learn that an investigation of Jewish bankers yields a very interesting discovery: many loans carry a 43% interest rate! (*)

(*) Michael Prestwich. Edward I (University of California Press, 1988).
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Europe & Precedents as a source of law

- The Netherlands: “There is no stare decisis in Dutch law, as there is in common law [mostly English-speaking countries], although in practice the Supreme Court will not usually overrule its own previous decisions” (Sanne Taekama, ed. Understanding Dutch Law. Boon Juridische uitgevers, 2004).

- The European Court of Justice: “Where a question referred to the Court for a preliminary ruling is identical to a question on which the Court has already ruled, where the answer to such question may be clearly deduced from existing case-law or where the answer to the question admits of no reasonable doubt, the Court may, after informing the court or tribunal which referred the question to it, give its decision by reasoned order in which, if appropriate, reference is made to its previous judgment or to the relevant case-law” (Hans Baade: “Stare Decisis in Civil Rights Countries: The Last Bastion”, in Peter Birks & Adrianna Pretto, eds. Themes in Comparative Law. In Honor of Bernard Rudden. Oxford: Oxford University Press, 2002); 

- Finland Supreme Court (see): “The most important function of the Supreme Court is to establish judicial precedents in leading cases thus ensuring uniformity in the administration of justice by the lower courts”.

- Sweden Supreme Court (see): “Leave to appeal is required for a case to be considered. This is granted by the Supreme Court itself, basically only in those cases where it is important to establish a judgment that may provide guidance for the Swedish district courts and courts of appeal. Such judgments are called precedents”.
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More stories

- Venezuela & “onerous financing costs”. Oil development in the Orinoco Belt is in jeopardy: “Repeated delays in the bidding for rights to exploit the Orinoco Belt reflect investor concerns about political risk, onerous financing costs and the profitability of the projects” (Benedict Mander: “Chávez a problem for oil groups eyeing vast field”, Financial Times). Note that both Venezuela and Iran are usually the most aggressive OPEC member countries when it comes to reduce output …

- Tunisia. Thomas Fuller: “Head of Reform Panel Says Tunisia Risks Anarchy as It Moves Toward Democracy”, The New York Times. Abdelrazek Kilani, president of the Tunisian Bar Association, estimated that “about 100 judges are totally corrupt” and needed to be removed. ‘They took bribes and followed orders from the Ministry of Justice,’ Mr. Kilani said in an interview. ‘They convicted people because the ministry told them to’. The country’s official unemployment rate is 14 percent, concentrated among young people, but the rate is much higher in Sidi Bouzid, say local union leaders, who put it at higher than 30 percent. Neglected by successive central governments, bereft of factories, seized with corruption and rife with nepotism, Sidi Bouzid and the small towns surrounding it are filled with idle young men, jobless, underemployed or just plain poor. 

- From an IMF study. John D. Burger & Francis E. Warnock: “Local Currency Bond Markets”, IMF Staff Papers, Vol. 53, 2006 (only pp. 141-142). “The importance of institutional and policy settings suggests that even emerging economies have the ability to develop local currency bond markets. Emerging market economies are not predestined to suffer from original sin. To gauge the importance of various factors, our estimates in column 1 of Table 3 imply that (other things being equal) if Brazil had Denmark’s rule of law, its bond market as a share of GDP would be 43 percentage points higher. If Brazil had Denmark’s inflation history, its bond market would be 42 percentage points (of GDP) larger. These amounts are both economically significant—Brazil’s local currency bond market is currently only 22 percent of GDP—and suggest an important role for creditor-friendly policies in emerging markets. The results suggest that the determinants of the size of government and private bond markets are quite similar: Countries with better inflation performance and stronger rule of law have larger sovereign and corporate bond markets”. [MY COMMENT: Think about it! Brazil’s GDP is about $1.27 trillion. Now, 43 percentage points would mean that no less than $546 billion that could be made available to entrepreneurs and/or to the government (poverty reduction, etc)].

- Singapore. Lee Kwan Yew: Keynote speech , International Bar Association Conference, Singapore, October 14 2007: “Important for investors and economic growth is the rule of law, implemented through an independent judiciary, an honest and efficient police force, and effective law enforcement agencies. The rule of law would give Singapore an advantage in Southeast Asia where the law was often what was decided by the leader. A stable and predictable legal environment facilitates the enforcement of contractual rights and protection of property rights. The independence of our courts is protected by the constitution that prevents removal of judges by the executive. We still look to English precedents and examples, but increasingly we look as well to those of the US, Australia, New Zealand. This also needed a Chief Justice who is not only legally qualified, but also has managerial and administrative experience to reform the system. [We] selected the most able and balanced of those at the Bar to become judges. Good governance, a sound legal framework and judiciary have resulted in stability and economic growth”.

- United States. In most American states, local judges are elected by the people. According to The New York Times: “As spending in state judicial races by special interests has vastly escalated in recent years, so has the threat to public confidence in judicial neutrality that is fundamental to the justice system”. [New York Times: "Fair Courts in the Cross-Fire"].

- Nigeria. A BBC documentary highlights the case of a talented Lagos entrepreneur (in the gas station business) whose main complaint is the high cost of capital: 25%! By definition, credit depends on confidence and —as Adam Smith put if— on the performance of contracts. Can we trust the performance of contracts when we see scenes like this one?
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