Access to Justice vs. Revenue: A Zero-Sum Game?

The last post talked about the World Justice Project Rule of Law Index. It focused, among other elements, upon the Index’s sub-factor 7.1, “people can access and afford civil justice.” The Rule of Law Index reveals an apparent paradox: some wealthy countries perform poorly with respect to this sub-factor, while at the same time some poor countries perform if not well then at least better than certain wealthy countries. An obvious example is the United States, which the Index classifies as a “high income” country, but which ranks 94th out of 113 countries with respect to accessible and affordable access to justice. A contrasting example is Kyrgyzstan, which the Index classifies as a “lower middle income” country, but which ranks 36th out of 113 countries for the same sub-factor. Consider also Hungary, which the Index classifies as a “high income” country, but which ranks 71st out of 113 countries, as compared to Malawi, classified as a “low income” country, but which ranks higher than Hungary at 66th.

The WJP emphasizes that its Rule of Law Index is not intended to establish causation. This task is left to others.

I recently came across research that steps up to that challenge. It shines a fascinating light on the paradox of the Index’s sub-factor 7.1. More specifically, it proposes a novel and highly intriguing explanation, at least in part, for why some wealthy countries struggle to assure access to justice for a significant proportion of their populations (namely their poor), while some poor countries succeed in providing access to justice for the large majority of their populations, regardless of a person’s wealth or income.

The research is a working paper by New York University PhD candidate Hannah Simpson, entitled “Access to Justice in Revenue-Seeking Legal Institutions.” In this paper, Simpson builds on the work of Marc Galanter, among others, and notably upon Galanter’s seminal work “Why the ‘Haves’ Come Out Ahead: Speculations on the Limits of Legal Change.” In this article, which was published in 1974 and is today one of the most cited law review articles of all-time, Galanter demonstrates how with respect to litigation in the United States, “repeat players,” and especially those that have the resources necessary to pursue long-term interests, have significant and in most cases decisive advantages over “one shotters,” and especially those of limited resources. Since the publication of Galanter’s article, legal scholars have viewed access fees combined with legal-institutional bias as key impediments to access to the court system in the United States and, more generally speaking, as key impediments to access to justice and to large-scale social change. (“Bias” meaning the degree to which a legal institution’s procedural requirements privilege attributes of the wealthy, like the need for and ability to hire a lawyer).

Simpson takes this vision further. She does this in two manners: (1) by examining the specific question of access fees, and, in particular, the use of a state’s legal system to generate revenue for the state, and (2) by expanding the examination to be global in scope. On the basis of her research, Simpson argues that, in any country, the state’s (that is, government’s) use of the legal system to generate revenue, interacting with other institutional and economic conditions, has a profound effect upon access to justice in that country, but that this effect is different depending upon whether the country is wealthy or poor, and, in wealthy countries, the effect is different for wealthy persons as compared to poor persons in the same country.

For Simpson, we have not paid enough attention to how states use their legal systems—which she refers to as their “property rights institutions”—to generate income. She cites as examples England and the United States, both of which have sought to fix court fees not with the intention to simply cover costs, but, instead, to take advantage of an “untapped increased willingness to pay more,” and with the intention of using the fees to fund other functions of government. Further, states’ “property rights institutions” generate income not only for courts, but also for “other segments of the state legal apparatus,” such as land and other property registrars and licensing agencies. Simpson notes diverse examples, such as India where property registration fees and stamp duties are the third largest source of income for many states, and France and Nigeria, where stamp duties are regularly raised to address revenue deficiencies.

In her paper Simpson seeks to answer this question: when a state uses its “property rights institutions” to generate revenue, what effect does it have both upon access to justice as well as upon competition from private legal services providers? Notably, what effect does it have when the state’s system is institutionally biased in favor of wealthy participants? She seeks to answer this question by developing a series of formal models that capture the interaction between “rights protecting institutions” and a population of citizens.

Wealthy Countries vs Poor

On the basis of Simpson’s models, the effect upon access to justice is as follows: in wealthy countries economic growth increases demand for access to the state’s legal system but decreases supply. This is because wealth and economic development in a wealthy country are liable to motivate the state to increase fees, on the grounds that the wealthy can and will pay them. However, those same fee increases are usually substantial enough to dissuade the poor from using the state’s system and thus there is an overall decrease in access to justice. The greater the “opportunities for commerce” (that is, economic growth) in the wealth country, the more this effect is compounded, Simpson observes. In contrast, in poor countries, economic growth increases not only demand for access to the state’s legal system but also supply. This is particularly the case when the state’s system is institutionally biased in favor of the wealthy, even though such a conclusion may appear counterintuitive. The explanation is that economic growth motivates elites to buy into an otherwise fragile and unappealing institutional framework. This participation increases the system’s effectiveness and thus its appeal, and also leads to reduced administrative costs, enabling the state to reduce its fees, thus increasing accessibility. Further, Simpson observes, the strength of this effect increases the more the state prioritizes the legal system as a revenue-generating mechanism (another counterintuitive observation).

Competition from a Private System

Also on the basis of Simpson’s models, the effect upon competition from private legal services providers (without distinguishing between informal or formal providers) is as follows: In either type of country (wealthy or poor), wealthy social groups are willing to pay hefty premiums for access to private legal institutions, whereas poor or disadvantaged groups will prefer private legal systems only if they are cheaper to access than the state’s. Indeed, poor/disadvantaged groups that have low access to state legal protections would, if offered a private group alternative, pay a premium to be able to continue to access the state’s system. The reason for this is the following: private legal institutions constructed by and for poor groups (examples include Sharia Councils, tribal elders, religious militias and even the mafia) face challenges in achieving the level of effectiveness of state legal institutions. More specifically with respect to private legal institutions constructed by and for poor groups, Simpson notes that that such institutions (or mechanisms) often lack substantial procedural protections, and rely instead upon cheap methods of enforcement, such as the use of violence and/or the use of volunteers that exert peer pressure. In contrast, private institutions constructed for a wealthy/advantaged group (examples include members of a particular industry) can easily exceed the state’s effectiveness, making it worthwhile for a member of the group to opt in even if the fees are higher.

Theoretically, competition from a private system should motivate the state to lower its fees. However, Simpson explains, this does not necessarily occur. To begin, Simpson explains, the wealthier an advantaged group, the higher the premium it is willing to pay to opt out of the state institution and into a private one. In other words, the state would need to develop a system that competes with the private one not on fees but on some other factor valued by the advantaged group. If the state were to succeed in this, then it would, likely, need to increase its administrative costs, and consequently its fees, rather than lower them. As for the state going in the other direction, and lowering its fees to the extent it can in order to attract less wealthy groups, Simpson argues that if the state is concerned with generating revenue, then it may find this to be more trouble than it is worth, especially if that less wealthy (but still wealthy enough to pay something) group is not large as compared to the rest of the population. Finally, there is a point below which the state cannot reduce its administrative costs and thus is simply unable to compete with private institutions constructed for poor groups. In those cases, Simpson explains, the state will simply cede to those private institutions. In sum, in situations where a state is able or obliged to compete with a private system, it doesn’t mean that it will necessarily choose to do so, or that it will make sense for it to do so, especially if the state prioritizes the generation of revenue over assuring wide access to justice.

Simpson continues: when any group, wealthy or poor, opts out of the state system in favor of a private one, the state system suffers in effectiveness. This is because the effectiveness of a state legal institution depends in large part upon the number of citizens that have recourse to it. This negative effect is compounded when the exit is by a poor group, because in that case the state will also raise fees. Thus, when a poor group exits the state system, the remaining population is unequivocally worse off because the state system becomes both less effective and more expensive. In contrast, the exit by a wealthy group presents a paradox: the remaining population theoretically could benefit from the wealthy group’s exit, but only under certain conditions: when there is lower economic growth (that is, there are fewer economic opportunities in society or returns on investment are not increasing) and when income inequality is increasing. (This is because these are the conditions under which the state is most likely to lower its fees in response to the exit of the wealthy group). However, Simpson explains, wealthy groups are not motivated to exit the state system in favor of a private one under those conditions; they are motivated to do so under the opposite conditions, that is, when there is higher economic growth (that is, there are greater economic opportunities in society or returns on investment are increasing) and when income inequality is decreasing. (This is because these are the conditions under which a wealthy group is more likely to benefit from participation in a private system rather than a public one, and the group is willing to pay a higher premium to do so). Thus, if a wealthy group is motivated to exit the state system in favor of a private one, its exit is unlikely to benefit the remaining population because the same conditions that motivate the wealthy group to exit the state system are the same conditions that discourage the state from lowering its fees.

This is a complex discussion with many moving parts. On top of that, Simpson’s research is new and, as yet, exists only in the form of an evolving working paper. As she moves past her preliminary work towards something more definitive, her argumentation and her conclusions will in all likelihood continue to evolve. Nevertheless, her work thus far is highly intriguing and it already merits attention.

A future post will consider what some of the important implications of Simpson’s research may be.

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Related posts on this site:

Chapter 27: Rules for a Flat World (or Regulatory Dystopia)

WJP Rule of Law Index: Rankings for Four Sub-Factors

You Asked For Research? You Got It! Now What Are You Going to Do With It?

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