Institutions – established law, custom and practices – matter and should not be ignored. How is it that Western Europe and the United States managed to amass unprecedented wealth while countries of the former Soviet Union, China, Africa, South America and the Middle East haven’t? The answer has little to do with the people of those countries. After all, people who migrate to Western Europe or the United States often wind up doing quite well.
The reason why the West has been able to amass great wealth is that rule of law is embedded in Western values. Where there's rule of law, human initiative flourishes. Rule of law refers to freedom of contract and enforcement of contracts, protection of private property, stability of laws, a requirement that all persons, private individuals and government officials are subject to the same laws, and most importantly, limitation of the authority of government. For more than a half-century, various elements of the rule of law have been under ruthless attack in America. Private property means the person deemed as the owner makes decisions on its uses, and that applies to the most valuable property we own -- ourselves. Sanctions are taken against persons who use their property in ways that violate the property rights of others. However, when the U.S. Fish and Wildlife Service bans an owner from using part of his property because some animal has chosen it for a habitat, that's a private property rights violation, resulting in losses to the owner. Government attacks on private property have become routine in today's America. John Adams warned, "The moment the idea is admitted into society that property is not as sacred as the laws of God, and there is not a force of law and public justice to protect it, anarchy and tyranny commence." Freedom of contract has come to be viewed with contempt. Suppose you offer to pay me for $3 an hour and I agree; suppose I live in Virginia and want to purchase liquor in Washington, D.C.; suppose in rent-controlled New York and San Francisco a landlord and tenant mutually agree to pay a higher rent; suppose I'm a California navel orange grower who wants to sell his entire crop; and suppose you want to provide taxi services in New York but don't have $170,000 for a license. There are literally thousands of restrictions like these on freedom of contract. You might say, "Williams, there are good reasons for restricting the freedoms of others." You're right, and every tyrant who has ever existed has had what he considered a good reason. Another part of rule of law is simply the stability of laws. For most of our nation's history, people could make plans. For the most part, they could expect today's laws to be tomorrow's laws; hence, they could plan for the future. Today, that's not true. A businessman making investment decisions doesn't know what Congress is going to do a year or two down the line making today's investment decisions worthless. As such, it produces the quick-buck mentality -- get in and get out. Another increasingly prevalent violation of the rule of law is seen in companies using government to overturn lost competitive advantages in the market. The Microsoft case is an example where its competitors, not customers, employed the heavy hand of government to accomplish what they couldn't accomplish in the market. It's increasingly paying companies to invest more resources, currying favor with government officials rather than investing those resources in real productivity. We're such a rich nation that the immediate effects of attacks on rule of law aren't readily apparent. But enough pinpricks, even into an elephant, will eventually kill.