showCASE No. 111: The Rule of Law in the Economic Life. Does It Matter?
In this issue of showCASE, we address the problem of the rule of law, which has been undergoing a clear erosion in Poland since 2015. In a most recent exhibition of a misalignment of the rule of law priorities throughout the European Union Member States, Poland, alongside Hungary, engaged in a debate over the rule of law conditionality for the disbursement of the EU funds and subsequently vetoed the recovery plan and the EU long-term budget of about EUR 1.8 trillion.
The article, while timely, is not an immediate reaction to the recent events, however, but rather tackles the issue of the rule of law in broader terms, looking at it and its social reception as determinants of economic development. It is based on a study prepared by CASE (Krzysztof Głowacki, Christopher Hartwell, Kateryna Karunska, Jacek Kurczewski, with contributions from Maria Krell) and European Academy Berlin (Elisabeth Botsch, Tom Göhring, and Weronika Priesmeyer-Tkocz) within the project ‘Norma praworządności i jej oddziaływanie społeczne jako czynniki rozwoju gospodarczego Analiza porównawcza Niemiec i Polski’/‘Das Prinzip der Rechtsstaatlichkeit und ihre soziale Wirkung als Determinante des ökonomischen Wachstums Eine vergleichende Analyse Deutschlands und Polens’ supported by the Polish-German Foundation for Sciences (No. 2018-26).
The rule of law is, as a matter of course, a sine qua non for a modern democratic society. It is also a necessary condition for existence of a stable, effective, and sustainable market economy. The connection between the rule of law and the economy has increasingly been the focus of much scientific and analytical work. According to the new institutional economics stream of research, the rule of law – and particularly inclusiveness and the transaction reducing properties of well-functioning institutions – are among the main determinants of the economic growth. The applicability and effectiveness of the relevant norms depends, however, on their social reception and validation. In the long term, insufficient understanding of the rule of law in a society can prompt the government to abandon or undermine the rule of law, which in turn threatens socio-economic wellbeing of a given population.
Understanding the Rule of Law in Poland and Germany
The current state and perception of the rule of law and public institutions in Poland and Germany have been shaped by historical and economic factors. While both countries benefit from rich constitutional traditions, there are clear divergences in terms of the role and level of the rule of law across the old lines of division that used to cut both countries in two (Germany) and three (Poland).
Performance of Germany in terms of the available rule of law indicators has remained high and historically stable. In the latest World Justice Project Rule of Law Index, in particular, Germany ranked 6th globally (score of 0.84) with the government accountability, freedom from corruption, and accessibility and efficiency of the court system praised as particularly strong. Similarly, according to the World Bank Doing Business ranking, Germany remains among the 25 top global performers.
As suggested by the results of the national surveys, however, a certain degree of divergence in terms of trust in public institutions can be found across the country. Subject to the economic downturn, missing identification of the newly built institutions, and a legacy of the former authoritarian state, the distrust in media, government, police, and administration have been found to be more common in the East Germany than in the Western part of the country. Thus, even if the absolute trust in public institutions continues to rise, the intra-country gap persists and remains one of the major challenges of the Federal Republic of Germany.
Despite being a historical vanguard of constitutional development in Europe, Poland underperforms relative to Germany and other EU countries in terms of the rule of law. More importantly, in the recent years, Poland experienced a significant downturn across all main rule of law indicators. Following a strong performance in the World Justice Project Rule of Law Index and recognition as a successful reformer in the 2010 and 2011 editions of the report, Poland recorded a 25% drop in the constraints on government power indicator between 2015 and 2019, the largest decrease among the 126 countries included in the study. According to the Heritage Foundation’s Index of Economic Freedom, a significant decline was also recorded in the judicial effectiveness components (by 24% since 2018).
That erosion of the rule of law in Poland has taken form of both detrimental changes in the legal rules and in the approach of the ruling class to law or legal culture. Indeed, in the recent years the situation has been raising numerous concerns across both European and international actors.