Question

• How does the rule of law affect business?
• What would business be like in a land without any rule of law system? Be specific.

Answer 1

Rule of law prima facie ensure that businesses have certain rules and regulations that they should adhere to while functioning. Without these rules and regulations, there can be too many problems affecting the economy in the country

For example, businesses are governed by statutory compliance as per well defined standards in most countries. These laws ensure that the businesses are running their operations and reporting their numbers as per a well defined standard.

Further, there are labour laws that a company adheres to which ensure that all employees working for the organization have their interests protected in terms of their rights and compensations

Further, there are competition laws that ensures the businesses are fare to ensure that the end consumer (or other businesses) get a fair deal and there is no monopoly/oligopoly in the system which can be harmful to the consumer

Laws in short ensures not only the business running smoothly and effectively but the different stakeholder that get impacted by the business getting a fair deal

What will happen in a country with no rule of law? Well suffice it to say that we will go back to the good old days when there was everything unorganized and barter system was prevalent. Also, since there wont be any laws, businesses will do as they like. The people running the business wont be bound by any rules and regulations

The interests of different stakeholders wont be protected. Depending on the whims and fancies of few key people running the business, anything would be possible. We may see people getting hired and fired whenever required. The financial statement reporting would not be defined and businesses do not have to declare any income to be liable for taxation. There wont be any restriction to collude with other companies and form cartels to ensure that no other businesses operate. In short the economy may by severly impacted without any laws and all stakeholders including the employees and customers will suffer adversely