Twins who don’t know each other
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The Aeroflot plane on the BIA tarmac before it was allowed to be flown back. Pic by T.K.G.Kapila
Mundy vs. Central Environmental Authority and others (2004) is an interesting court case in Sri Lanka, which has received international attention in the study of law and and which has also been referred to in the United Nations Environmental Programme (UNEP). During the time of its construction, the Southern Expressway had cut across private lands along the way from Colombo to Matara. The appellant, Heather Therese Mundy, complained against infringement of fundamental rights in regard to the route of the Expressway, which had adversely affected Mundy’s private property.
There was no question that the Southern Expressway project was of national importance and national interest which would add far reaching economic value to transportation and development of the country. On the other hand, the value of Mundy’s private property – a small plot of land with a little hut that was to be infringed by the project – , was “extremely negligible” in relation to a multi-billion-rupee national project, as UNEP reported.
In spite of the above discrepancy, the Supreme Court, in its judgment balanced the two sides without affecting the construction of the Southern Expressway and forgoing Mundy’s right to a fair procedure. The court admitted the importance of the Expressway for economic development and community welfare, while permitting the appellant to be compensated adequately for the loss, balancing national interest and fundamental rights.
Economic costs
It was because of this fair balance, that Mundy’s case received much attention in law studies worldwide. However, it has not been so all the time and elsewhere. There are plenty of cases that have been leaned unto one side: For instance, in Eugen Schmidberger v. Austria (2003) – another fundamental rights case – an environmental group carried out a public protest for about 30 hours along a motorway, blocking traffic flow.
The claimant, Eugen Schmidberger who has been running a transport company, was held up for being unable to drive his truck due to the protest on the motorway; the truck was transporting merchandise goods between Germany and Italy. He filed a court case claiming damages for the losses. The EU law guarantees both the free movement of merchandise goods across EU member countries and the people’s democratic fundamental rights! Under the given circumstances, the court held the decision in favour of the protesters, arguing that it would guarantee a fair balance due to proportionate weights of the two sides.
The two cases quoted here also raise another issue: Although a rich country can afford to bear the economic costs at least to a certain extent, would it be possible to apply it equally to a developing country? And after all, the law itself acknowledges that “the fundamental rights are not always absolute” so that there is room for flexibility in deciding between individual rights and community interests.
Infringing each other
Last week there was an interesting court decision by the Commercial High Court of Colombo, preventing the departure of an Aeroflot flight from the Bandaranaike International Airport (BIA). As the decision has cost millions of dollars directly and, resulted in potential losses of trade and travel between the two countries indirectly, it became a hot topic for discussion. And under the given circumstances, probably the loss was unbearable for Sri Lanka which is facing a dollar shortage crisis.
Apart from that, it also raised issues of concern under the bilateral relations between Russia and Sri Lanka. After all, Sri Lanka which must carry out the court case was only an outside party to the so-called dispute between the Russian airline and an Irish insurance company.
As my last week column on “Under-taxing and over-spending” saw many responses and queries, I wanted to write along the same lines. But the Aeroflot story diverted my attention to take up a different issue about law and economics – the “twin brothers” who don’t seem to know each other! However, it is not my interest to write anything about the Aeroflot story which only inspired me to bring about a couple of issues pertaining to the relationship between law and economics.
Unknown twins
Apparently, there is much space in between the two disciplines for an inner-contradiction to emerge and influence the well-being of a society: Simply, the subject of law is aimed at “following procedures for fairness and justice” in the conduct of affairs. In contrast, the subject of economics deals with “achieving efficiency and effectiveness” in the conduct of affairs that are falling within economic spheres.
Thus, it is clear that the ultimate objective of both law and economics is to “promote the well-being of the people” through two different approaches; one has to look at the established and accepted procedures – laws, rules and regulations – while the other needs to focus on the efficiency and effectiveness of the economic system.
Here is the problem: When the two disciplines do not acknowledge the essentiality of each other, they can easily infringe into each other’s domain and harm the achievement of the ultimate objective of both law and economics – welfare of the people. As a result, an economy that needs to improve efficiency and effectiveness in order to achieve national interests and economic development may be constrained by the laws, rules and regulations which may act as complicated red tape.
In contrast, a society that needs to follow the procedures to guarantee fairness and justice may be caught up in a system that damage economic interests and development prospects. This means that law and economics should be able to recognise and understand the importance of each other and, responds accordingly.
World trade
Many universities and higher educational institutes around the world offer law and economics as a combined field of higher studies. However, in Sri Lanka these are two distinctive subject areas which do not recognise each other. I acknowledge the fact that there are lawyers who have studied economics and, economists who have studied law as well as the students who study both subjects separately. But in most of the cases, they select, or they have to select one subject area and forget the other when they enter their professional life.
The academic and professional world of law and economics is inseparably integrated. In addition to the recognition of combined studies in law and economics, there are a number of international journals which have incorporated the two disciplines: For instance, the Journal of Law and Economics; the Journal of Law, Economics and Organisation; Research into Law and Economics; International Review of Law and Economics; and finally the European Journal of Law and Economics.
The World Trade Organization (WTO) with 164 member countries is the only international organisation to deal with fair and open trade among the member countries and to promote economic development. Out of over 600 employees at the WTO Secretariat, the professional staff comprises mostly lawyers and the economists. It is because these two groups of professionals have to work together in order to ensure trade and development of the member countries and its underlying legal infrastructure. Without acknowledging the importance of both sides, it is impossible for the WTO to achieve its objectives.
In conclusion, our discussion points to inseparable connectivity between law and economics in achieving people’s well-being and economic development of a developing country like Sri Lanka. If we fail to strike a fair balance between the two sides, it would be difficult to conduct affairs in our economic decision-making. And the “democracy” that we have been attempting to cherish would be a major hindrance to economic development. In fact, it has been so in the past too.
(The writer is a Professor of Economics at the University of Colombo and can be reached at sirimal@econ.cmb.ac.lk and follow on Twitter @SirimalAshoka).
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