The Rule of Law dan bank

The Rule of Law
1 Introduction
The extent to which the rule of law is implemented surely is an important
component of an index of economic freedom. And indeed, the Economic Freedom
Index (EFI) does contain some variables that capture important aspects of the rule
of law.1 These are primarily taken from the International Country Risk Guide.
Though the data are certainly very interesting, they do have their shortcomings. 2
1

2

See part five of the components of the index which is entitled „Legal
Structure and Property Rights“. It consists of three components, namely
the legal security of private ownership rights, the viability of contracts, and
the “Rule of Law: Legal Institutions Supportive of the Principles of Rule of
Law and Access to a Nondiscriminatory Judiciary.”
The following indicators are related to our question but cannot be
considered as completely covering our interest. Within the index started by
Charles Humana and now taken over by Freedom House, the so-called
“Checklist for Civil Liberties” contains a question: “Are citizens equal under
the law, with access to an independent, non-discriminatory judiciary, and

are they respected by the security forces?”. The World Values Survey which
is administered by the Inter-university Consortium for Political and Social
Research contains a question concerning the confidence of those citizens
polled in the legal system. The Economist Intelligence Unit publishes
scores on the transparency and accountability of the legal systems of 60
countries. The “International Country Risk Guide” a commercial
publication aiming at potential investors has a variable “Rule of LawTradition.” None of these, however, focuses on the independence of the
constitutional (supreme) court and explicitly takes potential divergences
between de jure and de facto-independence into account.
The International Country Risk Guide generates these data by polling firms
who have invested in the respective countries. Nobody answering to these
polls has thus a complete picture of all the countries surveyed. The grades
attributed to the countries depend on the expectations one has with regard
to them. These will be influenced (a) by the home countries of those being
polled and (b) by what those being polled have heard about the country
before (if one expects things to be very bad, one is positively surprised if
they turn out to be only bad). For more details on the ICRG, see Knack and
Keefer 1995. Brunetti, Kisunko, and Weeder (1997) argue that subjective
measures of uncertainty are superior to objective measures because these

2
This is the reason why I would like to propose an alternative way to measure the
rule of law and discuss its advantages and also its possible disadvantages with you
today. The basic idea is a very simple one but as always, God is in the details.
In the early 1990s, a new literature was started whose authors aim at measuring
the independence of central banks and who then use the degree of independence to
explain the level of inflation. It turns out that the degree of independence of a
central bank can indeed explain a good deal of the variance in inflation rates, at
least for the industrialized countries. In the meantime, an entire cottage industry
that deals with these issues has emerged.
I want to propose here that a similar indicator measuring the independence of the
judiciary be developed. I believe that this could be an important step towards
measuring a crucial aspect of the rule of law. I conjecture that the degree of
judicial independence is an important factor for economic growth.
My talk will proceed as follows: I will first give some reasons for why the
independence of the judiciary is of overwhelming importance for the rule of law.
Then, the question why the focus on supreme courts (or constitutional courts)
might be warranted is dealt with. The fourth section deals with the structural
similarities between central banks and the judiciary and thus serves as a
justification for analyzing the independence of the judiciary with criteria also used

in the analysis of the independence of central banks. In section five, an indicator
for measuring the independence of the judiciary is proposed. Section six deals
with possible extensions of the implied research agenda.
2 Why the Independence of the Judiciary is of
Overwhelming Importance for the Rule of Law
The rule of law is often contrasted to the rule of man. It is also called government
under the law because the law is to be applied equally to all persons (isonomia),
government leaders included. According to the rule of law, no power used by
government is arbitrary, all power is limited. Drawing on Immanuel Kant
(1797/1995), laws should fulfill the criterion of universalizability, which has been
interpreted to mean that the law be general, i.e. applicable to an unforeseeable
number of persons and circumstances, abstract, i.e. not prescribing a certain
behavior but simply proscribing a finite number of actions, certain, i.e. anyone
interested in discovering whether a certain behavior will be legal can do so with a
would not measure uncertainty but instability. The proposal to be
developed in this paper could be interpreted as an objective measure trying
to come to grips with uncertainty instead of instability.

3
fairly high chance of being correct and can furthermore expect that today's rules

will also be tomorrow's rules, and that the law be justifiable via rational discourse
vis-à-vis anybody.
There are a number of institutional provisions regularly used in order to maintain
the rule of law. Amongst the most important ones are the separation of powers and
the closely connected judicial review, the prohibition of retroactive legislation, the
prohibition of expropriation without just compensation, habeas corpus, trial by
jury, and other procedural devices such as protection of confidence, the principle
of the least possible intervention, the principle of proportionality and the like.
In cases of conflict between government and the citizens, the citizens are in need
of an organization that can adjudicate who is right (who has acted according to the
law) – the judiciary. This does not only mean to ascertain the constitutionality of
newly passed legislation but also to check whether the representatives of the state
have followed the procedural devices that are to safeguard the rule of law. 3 If the
judiciary is not independent from executive and legislature, there will be a
government of people – and not of the law. If the judiciary is not independent
from executive and legislature, citizens will not trust in the existence of the rule of
law.
An independent judiciary is also relevant for settling conflicts between various
government branches. In the absence of an impartial arbiter, conflicts between
government branches are most likely to develop into simple power games. An

independent judiciary can keep them within the rules laid out in the constitution.
Among the many functions of legislation, the reduction of uncertainty is certainly
of paramount importance. But the law will only reduce uncertainty if the citizens
3

Alexander Hamilton has put this succinctly in the Federalist Paper #78
(Hamilton, Madison, and Jay, 1788/1961, 466): “The complete
independence of the courts of justice is peculiarly essential in a limited
Constitution. By a limited Constitution, I understand one which contains
certain specified exceptions to the legislative authority; such, for instance,
as that it shall pass no bills of attainder, no ex post facto laws, and the like.
Limitations of this kind can be preserved in practice no other way than
through the medium of courts of justice, whose duty it must be to declare
all acts contrary to the manifest tenor of the Constitution void. Without
this, all the reservations of particular rights or privileges would amount to
nothing.”
Montesquieu is also very outspoken: “… es gibt keine Freiheit, wenn die
rechtsprechende Gewalt nicht von der gesetzgebenden und vollziehenden
Gewalt getrennt ist.” (ENGLISH TRANSLATION!)

4
can expect the letter of the law to be followed by government representatives. An
independent judiciary could thus also be interpreted as a device to turn promises –
e.g. to respect property rights and abstain from expropriation - into credible
commitments. If it functions like this, we can expect citizens to work harder, to
develop a longer time horizon, and to invest more. In short, an independent
judiciary is not only of overwhelming importance for the rule of law, we also
expect it to be conducive to economic growth.
Of course, the judiciary should not be unconstrained. It needs incentives to
interpret the law and not to make new law itself. It needs to be accountable just as
the other branches of government. Elsewhere, I have shown that factually, the
judiciary is never entirely independent from the other branches. Indeed, their
interactions can be modeled as a strategic game. If we assume that the judiciary is
interested in getting its sentences implemented, it has incentives to take the
preferences of the other actors explicitly into account (Voigt 1998).
In their treatise on the separation of powers and the competencies that should be
given to the various government branches, the authors of the Federalist Papers
note that in hereditary monarchies the executive would be the most powerful –
and the most dangerous – branch. In democracies, this could well be the
legislature, having access to the purse (papers 48 and 51). In paper 78, Alexander

Hamilton makes the famous assessment of the judiciary being the least dangerous
branch.4 In this talk, our primary focus is, however, not with normative issues, i.e.,
we are here not interested in an “optimal” degree of judicial independence. Rather,
we are interested in measuring the various degrees of the rule of law found in
different countries. And we hope to have argued in this section that an
independent judiciary is of overwhelming importance in this respect. Indeed, we
4

Hamilton (Hamilton, Madison, and Jay 1788/1961, 465) writes: “Whoever
attentively considers the different departments of power must perceive
that, in a government in which they are separated from each other, the
judiciary, from the nature of its functions, will always be the least
dangerous to the political rights of the Constitution; because it will be least
in a capacity to annoy or injure them. The executive not only dispenses the
honors but holds the sword of the community. The legislature not only
commands the purse but prescribes the rules by which the duties and
rights of every citizen are to be regulated. The judiciary, on the contrary,
has no influence over either the sword or the purse; no direction either of
the strength or of the wealth of the society, and can take no active
resolution whatever. It may truly be said to have neither FORCE nor WILL

but merely judgment; and must ultimately depend upon the aid of the
executive arm even for the efficacy of its judgments.”

5
believe it to be of such importance that we propose to use the degree of judicial
independence as a proxy for the degree of the rule of law.
3 Why Focus on the Highest Courts?
We are here interested in a measure of the independence of an entire government
branch. In most states, this branch is made up of thousands of decision-makers.
Often, there is an elaborate division of labor between specialized courts. 5 In
federal states, there is usually a state judiciary which is separate from the federal
one. In short, a measure which takes all this complexity explicitly into account
would be too difficult to carry out.
We therefore propose to focus on just one court for every country, namely its
highest court. Regardless of whether it deals exclusively with constitutional issues
(as, e.g., the German Constitutional Court) or whether it is the Supreme Court for
all areas of law (as, e.g., the U.S. Supreme Court), it will deal with interpreting the
Constitution. If the Constitution is viewed as the most basic rule set of a state, its
interpretation will be of great importance. The court system is organized
hierarchically, with the higher courts being able to overrule the sentences of the

lower courts. It is therefore the independence of the highest court that is important
for the degree of the rule of law observed in a polity: If lower court judges are
“too daring”6 in the eyes of the highest court members, their decisions will be
modified.7
4 Why the Independence of Central Banks and Highest
Courts can be analyzed using similar criteria
There is an obvious similarity between independent central banks and an
independent judiciary: both can make decisions that are against the (short-term)
interests of the other government branches, in particular the executive. The final
outcomes of their decisions depend, however, on the cooperation of the other
government branches: the monetary policy of a central bank aiming at price
stability can, at least in the short run, be offset by a fiscal or wage policy not in
5
6

7

In Germany, e.g., there are ** highest courts (...).
Cooter and Ginsburg (1996) analyze the conditions under which highest
court judges tend to bring about implicit constitutional change (my words)

or be “more daring” (their formulation).
It might be the case that there are systematic differences in the
independence of highest courts, depending on whether they are supreme
courts or constitutional courts. Such institutional variation should thus be
controlled for.

6
line with monetary policy. A highest court’s declaring a certain statute as
unconstitutional will only change the final outcome if the legislature either passes
fresh legislation that is in accordance with the constitution or – if it is not able to
organize the necessary majorities – to accept the concerned piece of legislation as
null and void.
There seems thus a puzzle common to independent central banks and an
independent judiciary: why is it that the legislature and the executive often follow
their decisions, although they run counter their (short-term) interests? As an
economist, I could answer that this must be their rational choice maximizing their
(expected) payoffs given the valid constraints. But this is, of course, not an answer
but simply a reformulation of the problem which contains a search-instruction,
however, namely to look for possible cost components that would make it more
likely for governments to cooperate with organizations that seem to work against

their (short-term) interests.
This is not the place to search for cost components systematically. But suppose the
government branches do cooperate because it would be costly not to, then
independence can be interpreted as an instrument to credibly commit: the
independent central bank to commit to a policy of price stability and the
independent judiciary to commit to playing by previously published rules.8
Other similarities between independent central banks and an independent judiciary
include:




Their members are not elected by popular elections, but by
a nominating procedure in which the other government
branches often play a crucial role;
In their decisions, both groups of actors are subject to what
have been called “low cost decisions” (Kliemt 1986,
Kirchgässner 1991): the effect of their decisions on their own
(economic) well-being will be negligible most of the time
(safe in times of hyperinflation). This means that their
preferences are very important for their decisions. Politicians
thus have incentives to search for persons with preferences
similar to their own.

Of course, there are also differences, some of which might, however, be less
important than they appear at first sight: It could be argued that we are dealing
8

Independence will, however, always be constrained since the actors find
themselves in a strategic game.

7
with organizations usually institutionalized on different levels: the competencies
of the highest court are enumerated in the constitution, whereas the competencies
of the central bank are typically dealt with on a post-constitutional level. If one
perceives the legal system as hierarchical with the constitutional level being the
most important one, then it might almost suggest itself to conjecture that central
bank independence (cbi) is a function of judicial independence.9
But this difference in the relevant rule-level might not be so important after all:
first, there is no necessity of the two bodies being dealt with on different levels,
or, in other words: cbi can be dealt with in the constitution itself. Second, and
more important, the distinction between the constitutional and the postconstitutional level might be less important than claimed by some constitutional
economists: if it is as costly to overturn decisions of the central bank as it is to
overturn decisions of the highest court (or even to abolish it altogether), the
central bank has gained de facto constitutional status. More on the distinction
between de jure and de facto independence below.
To sum up: The similarities between independent central banks and an
independent judiciary seem to be far-reaching – and also quite obvious. It is
surprising that this apparent similarity has been dealt with so rarely (Elster 1994
and Keefer and Stavasage 199* are two exceptions). When devising an indicator
for measuring the independence of the judiciary, it seems therefore obvious to turn
to the literature on the independence of central banks and to look for analogies.
That the discussion on pros and cons of an indicator concerning the independence
of central banks is quite advanced might well prove to be an advantage: some of
the apparent problems pointed out by critics might thus be avoided from the
outset.
5 A Proposal for an Indicator measuring Judicial
Independence
With regard to our topic, independence implies that judges can expect their
decisions to be implemented regardless of whether they are in the (short-term)
interest of other government branches upon whom implementation depends. It
would further imply that judges – apart from their decisions not being
implemented – do not have to anticipate negative consequences as the result of
their decisions, such as (a) being expelled, (b) being paid less, or (c) being made
less influential.
9

With regard to other government agencies, in particular regulatory ones,
this argument can be found in Levy and Spiller 1994.

8
This section is organized in four subsections: first, we propose some criteria to
measure de jure independence. Quite often, the constitution seems to be more a
book of intentions than an enforceable document. Private citizens will, however,
base their decisions not on the law as it is declared in the books but as they
perceive its implementation. In principle, one could ascertain the realized degree
of judicial independence by carrying out surveys.10 In section 4.2, we will,
however, stick to our more objective measures and propose ways in which the de
facto independence of the judiciary could be measured. Thirdly, possible
divergences between de jure and de facto independence are dealt with. Fourthly,
some possible difficulties in executing our proposals are discussed.
5.1 A de jure measure for court independence11
This measure for the de jure independence of highest courts is solely based on
their legal foundation as it is found in the text of legal documents.
(1) The independence of judges is dependent upon the stability of the set of
institutional arrangements within which they operate. Formally, the stability of
the powers and procedures of the court depend on how difficult it is to change
them. If they are specified in the constitution itself, we expect a greater degree
of independence than in cases where these arrangements are fixed by ordinary
law. This does only hold, however, if a majority is needed to change the
constitution which is more inclusive than that which is needed to pass normal
legislation.
We propose to check for the following aspects:
(1) Is the highest court anchored in the constitution?
a. Are its competencies enumerated in the constitution?
b. Are its procedures specified in the constitution?
c. Is its accessibility specified in the constitution?
d. Are the arrangements concerning the members of the highest court
enumerated in the constitution?
aa. Is the term length specified in the constitution?
bb. Is the number of judges specified in the constitution?
(2) How difficult is it to amend the constitution?

10
11

More on this below in section 6.
This section draws heavily from Salzberger and Voigt (forthcoming). I am
indebted to Eli Salzberger for letting me use this material here.

9
a. Is a majority necessary that is above that necessary for changing
ordinary legislation?
b. How many branches of government have to agree?
c. Are majority decisions necessary at different points in time?

(2) The procedure of appointment of constitutional court judges and the identity of
those who have the power to appoint them may have a notable effect on the
independence of the court. The constitutional court is supposed to protect the
citizens from illegitimate use of powers by the authorities, as well as to settle
disputes between the branches of government. Thus it ought to be as independent
as possible from the other branches. The most independent procedure for judicial
appointment is election by professionals (other judges or jurists).12 The least
independent method is appointment by one powerful politician (prime minister or
a minister of justice). In between we may find combined arrangements, for
example, appointments which are made by politicians but from different branches
of government or representing different parties.
Below, we assume that it is possible to separate the process of nominating persons
for the position of judge and the decision to appoint them. If we assume that in
principle representatives of every government branch could have the competence
of nomination as well as that of appointment and further suppose that it is also
12

In Federalist Paper 51, James Madison (Hamilton, Madison, and Jay
1788/1961, 321) writes: “In order to lay a due foundation for that separate
and distinct exercise of the different powers of government, …, it is evident
that each department should have a will of its own; and consequently
should be so constituted that the members of each should have as little
agency as possible in the appointment of the members of the others.”
On the same topic, Hamilton writes (Hamilton, Madison, and Jay
1788/1961, 470f.): “That inflexible and uniform adherence to the rights of
the Constitution, and of individuals, which we perceive to be indispensable
in the courts of justice, can certainly not be expected from judges who hold
their offices by a temporary commission. Periodical appointments, however
regulated, or by whomever made, would, in some way or other, be fatal to
their necessary independence. If the power of making them was committed
either to the executive or legislature there would be danger of an improper
complaisance to the branch which possessed it; if to both, there would be
an unwillingness to hazard the displeasure of either; if to the people, or to
persons chosen by tehm for the special purpose, there would be too great a
disposition to consult popularity to justify a reliance that nothing would be
consulted by the Constitution and the laws.”

10
conceivable that some entity other than government branches (e.g. the public)
could be assigned both of these powers, we obtain a 4x4 matrix:
Competence to elect/appoint members of highest
court

Competenc
e
to
nominate
members of
highest
court

Executive

Legislature

Judiciary

Other

Executive

A

B

C

J

Legislature

E

D

F

J

Judiciary

H

I

G

J

Other

We propose to check for the following aspects:
(3) How are the members of the highest court elected/nominated?
a. Judges are nominated and elected by one or more members of the
executive
b. Judges are nominated by one or more members of the executive and
are elected by parliament (or a committee thereof).
c. Judges are nominated by one or more members of the executive and
are elected by the judiciary.
d. Judges are nominated and elected by parliament (or a committee
thereof).
e. Judges are nominated by parliament (or a committee thereof) and are
elected by one or more members of the executive.
f. Judges are nominated by parliament (or a committee thereof) and are
elected by the judiciary.
g. Judges are nominated and elected by the judiciary.
h. Judges are nominated by the judiciary and are elected by one or more
members of the executive.
i. Judges are nominated by the judiciary and are elected by parliament
(or a committee thereof).
j. Judges are nominated by the judiciary, the legislature, or the executive
and are elected by actors not representing any government branch
(academics, the public at large).
(3) Judicial tenure will be crucial for the independence of the judiciary. We
assume that judges are most independent if they are appointed for life (or up to a

11
mandatory retirement age) and cannot be removed from office, save by legal
procedure. Judges are least independent if they are appointed for a set period,
where subsequent terms are optional, and removal from office is a fairly easy
process. If judges can run for a second term, their independence in the first term is
severely harmed and they will want to be popular among their nominators. Judges
who are appointed for a set period and cannot be re-appointed are in between.
They are more independent than judges who can run for a second term, but less
independent than life-tenured judges, as they may seek another position
contingent on those who elected them, subsequent to their end of term at the court.
Further, if their salaries are determined by the members of one of the other
government branches, this raises incentives to take the preferences of these
members explicitly into account. General rules that their salary cannot be reduced
increase, in turn, the independence of the judiciary.
We propose to check for the following aspects:
(4) What is the legal term length of the judges on the highest court?
(less than election period; less than six years; less than eight years; less than
ten years; less than twelve years; more than 12 years).
(5) Can judges be reelected? Yes; no
(6) How can judges be removed from office?
a. only by judicial procedure
b. by decision of one or more members of the executive
c. by decision of parliament (or a committee thereof)
d. by joint decision of one or more members of the executive and of
parliament (or a committee thereof).
(7) Is there a measure against income reduction of judges? Is there a mechanism
securing adjustment in real terms?
(8) Are the judges paid adequately?
a. Are they paid more than university professors?
b. Are they paid more than an average private lawyer?
c. Are they paid as well as the minister of justice?
(4) Another component of judicial independence is the accessibility of the Court
and its ability to initiate proceedings. A court which is accessible only by a certain
number of members of parliament or other officials will be less effective than a
court which is accessible by every citizen who claims that her rights are violated.
(9) Who has the possibility to access the highest court?

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a. Individuals in any case relevant to the constitution and with which they
are personally concerned.
b. Individuals, but only in a subset of cases relevant to the constitution
(such as human rights)
c. Only other government branches.
(5) If the allocation of cases to the various members of the court is at the
discretion of the chief justice, his influence will be substantially greater than that
of the other members of the court. It follows that in such an institutional
environment, it could be interesting to try to “buy” just the chief justice. We
expect independence to be larger if there is a general rule according to which
cases are allocated the responsibility of single members of the court (see
Salzberger 1993).
We propose to check for the following aspects:
(10)
Is there a general rule allocating the responsibility concerning incoming
cases to specific judges? (or does the chief justice have discretion on the
allocation of cases?)
(6) The competencies assigned to the constitutional court do not bear directly on
its independence. Yet, highest courts must have certain competencies in order to
be able to check the behavior of the other government branches. If the constitution
is interpreted as the most basic formal layer of rules that is to restrain (and to
enable) government, then the competence of the court to check whether legislation
is in conformity with the constitution is crucial.
We propose to check for the following aspects:
(11)
Does the constitution (or the law establishing the highest court) preview
the power of constitutional review?
Are there any limits to it (e.g., only before a law has been promulgated?)
If courts have to publish their decisions, the can be scrutinized by others and the
reasoning can become subject to public debate. This can be interpreted as making
it more difficult for representatives of the other government branches to have
irrelevant considerations influence their decisions. The transparency will be even
higher if the courts publish dissenting opinions. We propose to ask:
(12)
Does the highest court have to publish (a) the main reasons for a
decision, (b) an extended proof? Are dissenting opinions published regularly?

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5.2 A de facto measure for court independence
We now turn to possible ways of measuring the independence not as it is written
down in legal documents but as it is implemented.
The literature on central bank independence has focused on one single such
indicator, namely the “turnover rate of central bank governors” (TOR; Cukierman
1992, de Haan and Kooi 1999). It almost suggests itself to apply the same
criterion to the highest court.
(12)
What has been the effective average term length of judges since the
respective legal foundations have been passed?
a. does it deviate from the average term length to be expected by the legal
foundations?
b. How many judges have been removed from office before end of term?
The influence of a judge depends on the number of other judges who are members
of the same court. By increasing the number of judges, the weight of those judges
who do not decide along the lines of the preferences of the median members of the
other branches can supposedly be diminished. This is exactly what President
Roosevelt had in mind with his plan to “pack” the Supreme Court.
(13)

How many times has the number of judges been changed since 1960?

We discussed the relevance of adequate income in 4.1. Here, we could ask
whether the incomes of judges have at least remained constant in real terms. But
the efficacy of courts does not only depend on the income level of judges but also
on the number of clerks employed, the size of the library, the availability of
modern computer equipment etc. We propose to catch this aspect by asking for the
development of the court’s budget as an organization.
(14)
Has the income of judges remained at least constant in real terms since
1960?
(15)
Has the budget of the highest court remained at least constant in real
terms since 1960?
Any change in the basis of the legal foundation of the highest court will increase
uncertainty among its potential users, i.e. will be counter to one of the most
fundamental functions of the law. Frequent changes of the respective legal rules
are here interpreted as an indicator for low de facto independence.
(16)
How often have the relevant articles of the Constitution (or the law on
which the highest court is based) been changed since 1960?

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The de facto degree of judicial independence is low if decisions of the highest
court, in order to be implemented, depend on some action of one (or both) of the
other branches of government and this cooperation is not granted.
(17)
In how many cases has one of the other government branches remained
inactive when its action was necessary for a decision to become effective?
5.3 Comparing de jure and de facto independence
We assume that the international variance concerning de jure judicial
independence is relatively small: the normative ideal of constitutionalism seems
so promising that even autocrats have incentives to write constitutions which
mimic the basic tenets of the rule of law at least formally. Factually, we do know,
however, that many countries are not following the rule of law. We expect this to
be reflected in a higher variance of the measure for the de facto judicial
independence. It appears thus promising to compare the difference between de
jure and de facto independence. The difference could be a measure of the realized
degree of the rule of law of its own right: It does not measure and compare the
rule of law formally found in a constitution by some abstract list of criteria (those
developed in section 4.1) but takes the respective constitution of a country as the
list of relevant criteria and compares them with the realized state of affairs. It
could furthermore be interesting to estimate the de facto independence for various
points in time and ascertain the development of the difference between de jure and
de facto independence over time.
Until now, we have implicitly assumed that the de facto independence cannot be
larger than the de jure independence. This might, however, be a short sighted
assumption. There are many cases in which the highest court has acquired more
independence than originally granted to it in the constitution. The U.S. Supreme
Court, e.g., acquired the competence of judicial review with Marbury vs. Madison
in 1803, the European Court of Justice with Van Gend en Loos in 1963 etc.
5.4 What is the (de jure/de facto) independence to
explain?
This is presumably the most difficult problem of such an indicator. Monetary
policy produces various degrees of price stability. If that is the product, it is
already operationalized. Courts produce decisions. Their quality is, however, not
subject to easy measurement. For a possible extension of the EFI, this does,
however, not constitute a fundamental problem since the variables to be explained
are income and changes thereof.

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In section 2, it was hypothesized that an independent judiciary should lead to
citizens working harder, developing a longer time-horizon, investing more, thus
creating higher growth rates and higher income levels. Possible left-hand variables
therefore suggest themselves: investment levels, growth rates, and interest rate
differentials.13
The following control variables should be taken into account: (a) whether the
judicial system is a civil law or a common law system; (b) the length of time
societies have been democratic; the stability of the (political) regime; (c) whether
we are dealing with countries in transition. To be able to compare data, questions
of ambivalence in the law have to be dealt with beforehand. A question that can
dealt with after having collected the data is the aggregation – and the possible
weights - of the various aspects.
6 Possible Extensions
Producing an indicator to measure the degree of independence of the judiciary
promises to be lots of work. It would come in handy if the results could not only
be used as another criterion of the EFI but if the generated dataset could be used
for other pertinent research questions. This would clearly be the case.
The possible interdependence between judicial independence and central bank
independence is a case in point. In the cbi-literature, the degree of independence
has been taken as an exogenous variable. The explanation of the different degrees
of the de facto-independence remains a clear deficit of the theory (Berger 1997).
But it almost suggests itself to hypothesize that an independent judiciary is a
precondition for an independent central bank – and thus to endogenize cbi. This
hypothesis could, of course, be extended to other independent government
agencies such as antitrust agencies, statistical offices etc.14
If one endogenizes cbi, endogenizing ji seems a logical next step. Under what
conditions does an independent constitutional court emerge? Ad hoc hypotheses
13

14

We are facing an endogeneity problem here: is a country wealthy because
it has an independent judiciary – or have wealthy countries independent
courts because they can afford to implement their dicta? EFI has some
experience with these problems having demonstrated that increases in
economic growth have regularly been preceded by improved EFI-ratings.
It could, of course, also be the case that there is a high correlation
between the two but that the (de facto) cbi is not caused by the (de facto)
ji. There might then be a third variable which could help us explain both,
e.g. cultural elements (see, e.g., Hayo 1998.

16
could be: once executive and legislature are separated, the possibility of conflict
and deadlock between them becomes more serious, and the necessity of a third
actor who could adjudicate arises. It could further be argued that the probability of
a constitutional court emerging should, c.p., be higher in federally organized states
because here the conflict potential is not restricted to one layer of government but
can also arise between layers (i.e. not only horizontal conflicts, but also vertical
ones). What are the variables that explain the variance in (de facto) ji? What are
the instruments, the representatives of the independent agencies use in order to
increase their independence?
Hayo (1998) argues that the conventional wisdom on central bank independence
causing low inflation rates might be short sighted. He proposes to look at public
attitudes towards inflation and hypothesizes that preferences for low inflation are
a necessary condition for low inflation rates to be brought about. It is tempting to
hypothesize that de facto ji also depends on public attitudes: if the highest court
enjoys a high reputation amongst the public, this will increase the probability of
its dicta being implemented by the representatives of the other branches since
non-implementation will be costly. Non-implementation would lead to a decrease
in their reputation, could result in not being re-elected etc. Hayo uses
Eurobarometer-data for public attitudes toward price stability. The problem with
testing a similar hypothesis with regard to court independence would be data
availability.
There are many other possible research questions that could be addressed with
such a dataset. Not only does such research promise to be scientifically
interesting, it also promises to be highly relevant with regard to the future of the
rule of law. Substantial constitutional change is not only taking place in many less
developed countries and the countries in transition in Central and Eastern Europe,
but also within the European Union. Better knowledge on the working properties
of fundamental institutions is a necessary prerequisite for making informed
choices concerning the rule of law.

17

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