JUDICIARY AND ECONOMIC DEVELOPMENT
An efficient justice system can boost business growth
It is often said that an effective judiciary plays a critical role in ensuring economic development of a country. Well-functioning judicial systems play a crucial role in determining economic performance, notably by guaranteeing the security of property rights and the enforcement of contracts and these, in turn, encourage savings and investment while promoting the establishment of economic relationships, bringing positive impacts on competition, innovation, the development of financial markets and growth
A well-functioning judicial system is indispensable to business activities and to society as a whole. Judicial efficiency measured by trial length, one of the essential factors in the effectiveness of the justice system, ensures contract enforcement, which is the basis of market transactions. In an effective justice system, decisions are made within a reasonable time frame, which contributes to a country’s economic growth. But, in Pakistan, superior judiciary is faced with gigantic challenges, the pendency of cases being the most prominent of them. According to a recent report by Judicial Commission of Pakistan, there are around 2.2 million cases currently pending with the country’s courts – as of 31st August 2021, the total number of cases pending with the Supreme Court of Pakistan was 53,686, while 146 cases were pending with Federal Shariat Court and 350,495 with provincial high courts while the cases pending with district judiciary in all the provinces and Islamabad were 1,773,171 in number.
Mr Justice Saqib Nisar, former chief justice of Pakistan, said in one of his judgments in 2015: ‘a judiciary which … is tardy … and has no urge … and ability to decide the cases/disputes before it expeditiously … is a danger to the state and the society, His thoughts resonate with a famous legal maxim: “Justice delayed is justice denied” which means that if legal redress or equitable relief to an injured party is available, but is not delivered in time, it is the same as providing no remedy at all. As the late Martin Luther King, Jr. rightly said, “Law and order exist for the purpose of establishing justice, and when they fail this purpose, they become the dangerously structured dams that block the flow of social progress.”
In one of the World Bank’s World Development Reports published several years ago, the importance of well-functioning courts to strengthen economies and their investment climates was highly acknowledged by the Bank’s researchers.
For economic development, foreign direct investment is necessary as it mobilises a country’s economy by bringing in technology, expanding the share of value-added exports, and creating employment opportunities. However, net FDI inflows to Pakistan averaged about $2.3 billion in the last four years. This lack of FDI inflows can be attributed to our inefficient judicial system. The World Bank’s Doing Business report (2019) ranked Pakistan 156 out of 190 economies on the ‘enforcing contracts’ indicator, based on the cost and quality of judicial processes and time. The report noted that as of 2019, the resolution of a commercial dispute in Pakistan took 1,072 days on average, compared to 164 days in Singapore, 216 in New Zealand, and 437 days in the UK. The ‘enforcing contracts’ indicator is also relevant as the process of investment usually involves the signing and execution of contracts. Contracts not only state the obligations binding on both parties, but also govern what happens in the event of default. In such complex transactions, disputes are inevitable. However, if foreign investors know beforehand that it takes years for disputes to be resolved, they would avoid investing in that jurisdiction altogether.
In commercial, corporate and financial cases, enforcing contracts and settling disputes are critical parts of smooth business operations and sustained economic growth. Whilst it is almost impossible to avoid dispute in commercial ventures, an investor is concerned about the mechanism in place for resolving any disputes that may arise in the course of his business. The popular phrase “time is money” cannot be over-emphasised. No investor is willing to tie down money, capital or investment for an unascertainable period of time due to commercial disputes.
The fear is usually that the investment and/or capital would have lost its value at the time the dispute is eventually resolved. Thus, investors would be averse to investing funds in any country where dispute resolution is not reliable, effective and/or efficient.
Economies with efficient judiciary — in which courts can effectively and timely enforce contractual obligations of business entities — have better developed credit markets as well as people’s trust, and have domestic and international financiers for business as well. Timely judicial verdicts can assist rapid growth of small firms and improve the business climate, foster innovation for small businesses, attract foreign direct investments, and secure strong tax revenue collection that ensures economic and business growth.
To ensure an efficient trial system, the time schedule for every event of a court proceeding — such as hearing, framing charges, recording depositions of witnesses, arguments and delivering judgment — needs to be carefully tracked. The time limit for adjournment of each event should be defined. The number of times a time petition may be granted should be articulated clearly.
The difference in the income levels of rich and poor countries stems from the difference in their institutions, i.e. laws, rules and processes. The former possess laws, rules and processes that not only allow economic activity but also let it proceed at a fast pace and low cost. On the other hand, the laws, rules and processes followed by the latter countries thwart economic activity. Some local examples prove the point. Forty-five steps are needed to lay an optic fibre for internet connectivity. Firms on average spend 577 hours and wade through 47 procedures to pay all the taxes for the year. Nine procedures are needed for a construction permit and this can cost up to nine percent of the construction value. Land developers must obtain 22 NOCs from different agencies in order to proceed.
Productivity and investment, the two key drivers of economic growth, are not only low in Pakistan, they are declining as well. Bad laws and cumbersome procedures keep productivity and investment low in Pakistan. These constraining laws and rules are developed by the government. Lengthy and obsolete processes too are followed mostly by public entities. To follow a high-growth trajectory then, the country will have to be transformed into a well-functioning state — starting from ‘which’ organ of the state does ‘what’, and concluding with ‘how’ this must change. The entire public service including the civil service, judiciary, regulatory bodies, and local governments, etc. must be reformed to serve as ‘enablers’ of the economy. Regulatory bodies — Nepra, Ogra, Pemra, CCP, etc — must be staffed with professionals who are allowed to take decisions without bureaucratic interference. All laws, rules and procedures should be reviewed and amended to allow economic activity to take place and at a brisk pace. A concerted effort is required by all stakeholders including lawyers, judges, bar councils, the executive and legislature to defeat the lethargy and red tape that plague Pakistan’s judicial system.
The writer is a Lahore-based legal consultant.