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Why the law is a poor instrument of economic reform


Populist attempts to use the law to fix perceived problems, including economic ones, often have unintended consequences, warns legal commentator Morry Bailes.

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Law and politics are intrinsically linked because it is usually law that enacts policy.

In spite of a desire for greater detail from our parliamentarians and political leaders about their respective policies, lawyers listening to the myriad of election promises understand that achieving them is a job first for the parliament to create laws, and then for the courts to interpret them.

Neither process lends any guarantee that what is proselytized by our political parties will actually pass the Parliament, nor that what is passed will withstand the scrutiny of the courts.

We all know this reality and vote, I hope, according to what policies we think best. So how should we feel about the law being used to effect large-scale reform, say, when it comes to the economy?

I have written before about making the mistake of placing too much store in the law being a panacea for all ills. This quite often happens in the law and order debate: a horrible crime is committed, there is the perception of a loophole in the law, and parliamentarians leap to fill the gap – real or imagined – by the promise of this or that law reform.

Often, there is already a law in existence to address the circumstances, but victims or their families want something further, however token. More importantly, what is often overlooked is the root cause of the wrongdoing. Law can address and punish wrongdoing, but it can struggle to prevent its occurrence which may be rooted in economic disadvantage, fanatical belief or stupidity.

So what do we make of the ALP’s proposal to use the law to artificially embrace one sector of the economy – child care – and to single it out for special economic treatment?

There is a long history of trying to legislate for economic prosperity, such as forcing an increase in the minimum wage. These attempts usually lead to both unexpected and poor outcomes.

Employers are, at times, oddly demonised in Australia even though they are mostly small-and-medium-sized enterprise and not making much money, compared to, say, parliamentarians and political advisers. One example of a likely response to a legislated increase in wages will be to employ fewer people. It’s a pretty logical and, indeed, foreseeable outcome, especially when worldwide wages growth is flat.

Indeed, it is implicit in the recently announced ALP wage incentive package offered to small business to encourage them to employ the jobless that the cost of wages really matter, and are a determinate in whether to employ or not.

From an economic point of view, some people might be better off, but more people will be unemployed. What will be achieved? Law has been used, but to what effect?

What about the idea of giving preferential treatment to one sector over another? The aged care sector asks why is it less important than the child care sector, when, of course, it is not. Other sectors will pose the same question.

The same can be asked for providing extra funding for one disease. Why is one type of disease to be favourably funded and another ignored? Is a person dying or ill with one thing less important than another suffering with an alternative disease?

Legalised economic measures like this can skew outcomes. People formerly working in aged care may now want to be child care workers, thus inflating one industry at the cost of another. Who can forget the pink batts insulation industry debacle?

As night follows day, government subsidies or legislated favouritism to one economic sector over the other is never a genuine economic answer. In our bones, we all know this to be true. If you think a particular proposal is a good idea, there’s a fair chance your feeling is motivated by a degree of self-interest. There’s nothing wrong with that, but let’s call it out for what it is.

There is a long history on both sides of politics of turning to the law for popular appeal and as an answer to our real or perceived problems. And there is a trail of examples showing why it doesn’t work.

Don’t expect magical legislative tricks to make a better economy. A forced or controlled economy is all but guaranteed to do the reverse of what’s intended.

Happy voting and don’t believe all the hype.

Morry Bailes is managing partner of Tindall Gask Bentley Lawyers and immediate past president of the Law Council of Australia.

Disclosure: Morry Bailes is a member of the Liberal Party.

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