Co-Relating Economics and Law
Monika Bhardwaj, B.Com (Hons.), ACS
Anand Wadadekar, M.A Economics, MBA
This article makes an attempt of co-relating or linking Economics and Law – an out of the world unestablished & rare combination/concept as you may term it.
Sanjay and Deepak co-incidentally met in a restaurant some months after they completed their graduation in Commerce. And a conversation started...
Sanjay: Hey, Deepak! How’s you buddy? How’s life?
Deepak: Hey, Sanjay! What a pleasant surprise to see you here! I am fine, thank you! Life is cool… How about you?
Sanjay: I am doing well! Just got myself admitted to ICSI’s Company Secretary course and also simultaneously registered for Masters in Economics (M.A) from our University.
Deepak: What? CS course and Economics together, how can Economics and Law be studied together? There is no co-relation between the two. These two are completely different fields. To me, this sounds weird, Sanjay! Don’t you feel so? I feel you should pursue either hardcore Economics or hardcore Law.
Well, I am doing 3 years LL.B from our University itself. I have got highly interested in law.
Sanjay: I knew you would react this way and would feel this weird. Actually anybody would have reacted the same way as you did. I understand!
Deepak: I am sorry, Sanjay! Still can you please explain me your thought behind taking such decision of pursuing Economics and CS together? What do you have in mind exactly?
Sanjay: Yes sure! Hey but don’t get bored ok while I am explaining J
Deepak: Hey not at all!
Sanjay: See, as we all know and studied, Economics is the study of human behaviour in relation to the unlimited wants and scarce means to satisfy them. But then, any Law emerges taking into consideration the same human behaviour. Economics tries to make a balance between the unlimited wants and scarce means and Law tries to avoid and penalize the human act which results from the same desire of satisfying unlimited wants but scarce means i.e. Frauds and Scams.
Co-existence of Economics, Commerce and Law makes for a complete economic atmosphere. I feel Economics & Law need to go hand-in-hand in order to make the whole system work smoothly and efficiently and to get the desired results from the economic activity.
We need to understand that any economic activity to derive desired results should be backed and complimented by favourable legal environment.
Deepak: Sorry to interrupt you! Can you give me an example?
Sanjay: A classic example can be given of The Industrial Policy of 1991. Liberalization of the legal compliances and deregulation proved to be a boon for industries and that resulted in increased economic activities, growth and progress, the fruits of which we are witnessing now. New legislations were enacted by the Government and amendments to the existing ones were done to accommodate the changes proposed in the Industrial Policy. Likewise, the Companies Amendment Act, 2000 which brought some forward looking provisions like Postal Ballot Voting, Buyback of shares, Directors Responsibility Statement, etc. and ten-fold increase in penalties for non-compliance, has proved to be a boon for the shareholders. Shareholders are now assured of transparency, corporate governance which will lead to increase in confidence in companies, their goods and services and thereby results in increased demand and ultimately increase in economic activity.
Do you agree, Deepak?
Deepak: Oh yes, I agree!
Sanjay: Economic phenomenon – National and International – also initiates changes in the legal structure of a country. If the laws are extremely or unnecessarily stringent, then the transition to the particular economic change may become difficult and ultimately the country suffers.
A classic example can be given of Globalisation, GATS & WTO. Globalisation being an economic phenomenon, to reap the benefits, favourable legal enactments was necessary. So legislations like Limited Liability Partnership Act (LLP), New Company Law, New Foreign Direct Investment (FDI) norms were required. In other words, introduction of a global economic phenomenon brings about changes as well as the need of new amendments in the legal structure.
See, Under the GATS, the countries signatory to the Agreement are advised to reform their policies so as to allow foreign education institutions, foreign service providers, etc to establish a place of business in their country. In order to allow them, the country needs to amend its concerned laws and give the foreign entities the required legal status to work. The
Deepak: Ok! I got! These examples were on macro level. I am not able to understand how we as individuals or future professionals benefit from this co-relation.
Sanjay: You are right! The above examples were on macro level. If we now think on a micro level, the relation between Economics and Law still exists.
In the industry, management strategies & policies are definitely based & taken on the basis of Economics, irrespective of what type of the organization or sector it is. The implementation of these policies and strategies has to be in the given framework of the law at that particular time. Legal professionals who have studied Economic Laws like MRTP, Competition Act, IPR, Environmental Laws, etc. can well contribute in the strategy and policy making process, provided they have a firm base of knowledge in Economics. Legal professionals can have an edge over others in the management cadre. Knowledge of Economics will enable them to innovate new ideas, strategies and since they are already masters in Laws*, they can put those ideas and strategies to use. They can think whether any legal provision is a deterrent to the implementation of the said policy or strategy and provide solution to that, on the basis of their legal knowledge.
See Deepak, changes in the economic situations bring about changes in legal policies of a country. Knowledge of both – Economics & Law – can bring about a change in how an organization works.
So Deepak, tell me was I able to throw some light on your doubts?
Deepak: Well, buddy! With such an excellent explanation, you have almost convinced me of the relation between Economics & Law. Such combinations are rare, indeed!
Sanjay: Thanks Deepak! Just to give you a live example. We have a person before us, who is a master in law* and also has expertise in Economics. He is none other than our country’s former Finance Minister, Mr. P Chidambaram. He was a hardcore Lawyer first and was a person who shaped our economy through fiscal policies.
So can we still say, “There can’t be a co-relation between Economics and Law?”
- The phrase ‘Masters in Law’ does not necessarily mean any education masters’ degree. Here it is taken as a qualitative concept.