Independent Judges Defending Rule of Law Are Good for Business

When we speak of judicial independence and the rule of law, we usually recognize how both are crucial to preserving our personal freedoms as citizens—freedom of speech and of assembly, equal protection under the law, the right to vote, and the protection of private property.

But that overlooks a key benefit protected by judicial independence and the rule of law: the economic health of businesses and national prosperity.

The law must offer a way for people to settle disagreements fairly and equitably, as well as shield them from excessive government power. It should further safeguard and encourage a balanced business environment that benefits the entire nation.

An independent judiciary that applies and enforces the rule of law—including, when necessary, to restrain its own government—strengthens a country’s economy and markets by:

Protecting property rights. An independent and reliable court system secures the private property rights of citizens and investors. When people and companies are confident that their assets won’t be seized arbitrarily by the government or others, and that court decisions won’t be orchestrated, dictated or controlled by the government or a select few powerful figures, they’re more likely to invest in productive economic activities.

Enforcing contracts. Independent courts enforce contracts between private parties impartially, which is essential for a well-functioning market economy. Confidence in fair and equitable outcomes that follow established law reduces transaction costs and provides a predictable environment for businesses—promoting growth, financial development, and certainty.

Encouraging investment. The presence of an independent judiciary increases domestic and foreign direct investment, including in a country’s stock and bond markets. Investors are more willing to commit capital to countries where they know their interests will be protected and disputes will be resolved fairly and impartially, rather than being subjected to political whims or improper influence.

Boosting credit markets. Strong, independent courts lead to more developed credit markets. Creditors are more likely to provide loans if they trust legal agreements—including terms impacting repayment, interest and collateral—will be upheld by law in a fair, consistent, and unbiased manner. A weak system, by contrast, can lead to lower credit availability and higher interest rates. Uncertainty is the enemy of both investment and credit availability.

Fighting corruption. An independent judiciary not influenced by politics is more effective at tackling corruption. This fosters public trust, enhances market dynamics, and creates a more transparent and fairer economic environment.

Increasing business confidence. Judicial independence and application of the rule of law in resolving cases reduce uncertainty for businesses. An independent, functioning, and predictable legal system boosts business confidence, which in turn encourages expansion, innovation, investment, and job creation.

In contrast, a weak, docile, and manipulable judiciary has been shown to have a substantial negative effect on economic development. In countries with courts that aren’t independent, where the rule of law isn’t applied fairly and consistently:

• Economic activity is more limited and average income per capita is lower.
• Private economic activity, investment, and entrepreneurialism are reduced.
• The overall credit market contracts because lenders are more reluctant to extend credit.
• Unpredictability of the court system deters investors and increases the risk of favoritism, corruption, and opportunistic behavior by business partners.

Our Founders sought not only to protect individual liberties, but also to build a resilient and prosperous nation capable of defending those rights in peace and war. That vision is reflected in Article I, Section 8, Clause 8 in the Constitution, empowering Congress to promote innovation by protecting the intellectual property rights of authors and inventors. They understood that protecting IP and other economic rights would fuel prosperity and national strength.

Our nation’s success rests on protecting fundamental rights (and the Founders’ clear-eyed understanding of what it takes to sustain them) while maintaining a vibrant economy. History has proven them right: the US is one of the world’s most innovative and productive nations. That prosperity in turn helps preserve our freedoms and provides the resources to defend them.

Studies have shown that there is a direct and positive correlation between countries that apply the rule of law and have an independent judiciary, and the economic strength and prosperity of a country. In addition to protecting personal freedoms, it encourages investment, economic growth, and stability and helps prevent corruption.

But without a functioning, vibrant economy in which we can find meaningful employment, produce wealth for ourselves and our families, and provide sufficient resources for the national defense, those rights are likely to wane.

This is an objective lesson we can learn simply by examining the fundamental rights and economic opportunities of people who are unfortunate enough to live in a country not governed by the rule of law or protected by an independent judiciary.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Robert J. Cindrich is a former judge for the US District Court for the Western District of Pennsylvania, appointed by President Bill Clinton, and a former US attorney appointed by President Jimmy Carter.

Robert B. Kugler is a former judge for the US District Court for the District of New Jersey and the US Foreign Intelligence Surveillance Court who was appointed to the bench by President George W. Bush.

Both are members of Keep Our Republic’s Article III Coalition, a group of retired federal district and circuit court judges who support and defend the rule of law and judicial independence.

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