Saturday, November 7, 2020

Review of Solomon's Knot: How Law Can End the Poverty of Nations by Robert D. Cooter, Hans-Bernd Schäfer

This review was written by Eugene Kernes

Book can be found in:
Genre = Economics, Law
Intriguing Connections =  Capitalism, Socialism, their Alternatives and Critiques

Elaborate Description

The core of this book targets trust, more specifically, the double trust dilemma. The innovator has ideas but does not want the investor to steal them. The investor has capital (money) but does not want the innovator to steal them. Without the innovators and investors coming together, the innovations are rarely realized. The authors propose that law can be the trust binding mechanism between the two parties. Law can facilitate the cooperation between innovators and investors by making sure the ideas and money are not stolen. Law can be a faciliatory of innovation, or it can be a faciliatory of the plunder of the nation, the choice is very political.

Innovations are a huge determinant of economic growth. Financing innovation requires more funds than person ties can bring together, but strangers would not trust the innovator so easy. Poor countries have politicians who use the law to create mistrust their communities. Corruption breeds policies which withhold innovators and investors from meeting. The focus is on wealth creation not its consumption, or so it appears. The authors do not proclaim how the society should choose to use the wealth, they just provide an undercurrent for wealth creation. Consumption in the private case might not be a topic, but consumption by politicians certainly is. From the types of laws that politicians can pass, some can generate more income for them than others. The politicians' consumption, use of income, matters to the laws and policies created.

Wealth creation is the focus of this book, not its redistribution or how the wealth is used. GDP does not measure the true wealth of nations, but is a good approximation and it appears that too little equality or too much equality stifles growth. The authors want to make sure that the inventor gain the benefits of releasing the innovation, which does create some inequality. The innovative release provides a catalyst for the whole society to benefit, so some inequality is expected in policies.

Laws are strangers trust infrastructure. Although it seems that the authors want to deregulate economies, that is not intent. They want to remove the laws that create corruption, decrease competition, and other laws which inhibit economic growth. The authors do want regulations which provide for agreements that can be effectively enforced. Contact, corporation, and default laws are all highly important. When properly enforced, a solution to the double truth dilemma can present itself. Enforcement of laws will be different in every culture and country, so the authors do not provide certainty in the laws and policies. Informal and formal sanctions work based on those laws and customs. For strangers, formal sanctions become more important.

Competition is looked upon favorably. To increase competition, the authors want to remove tax preferences and subsidies which usually only apply to influential groups. Tax preferences are inherently worse as they are not as salient, they do not appear in the budget. Friends of politicians are shielded from competition by these policies, and these policies help those friends pilfer the national wealth legally. Competition help increase the wealth of nations, while privileged policies help expropriate the wealth of nations to the few. Although the aim is the reduce privileged policies, some may end up being appropriate for political favors. Political favors which can be used to decrease corruption and promote legal stability.

With policies that try to have sustainable growth and reduce arbitrary legal distinctions, the authors of this book really covered their bases. For every argument, they targeted the fears of potential opposition, and took on the challenge of facing the deep questions. Alternative the problems faced are not shied away from. Without simplifying the economics or law, this book is well written. A very provocative read.

Book Details

Edition ISBN:  9780691159713
Pages to read:   231
Publication:     2013
1st Edition:      2011
Format:            Paperback

Ratings out of 5:
Readability    5
Content          5
Overall           5