On Tuesday 7 June 2022, we invited a panel of legal, economic and political experts to discuss how and why efforts should be made to quantify the true economic value of English Law.
Hosted by Partner and Chief Brand Officer Elliot Moss our panel consisted of:
- The Rt. Hon. Dame Elizabeth Gloster DBE, PC, former judge of the Court of Appeal of England and Wales and Vice-President of the Civil Division;
- Richard Hyde, Senior Researcher at Social Market Foundation, Britain's leading cross-party think-tank; and
- Dr Vanessa Pham, Senior Consultant at Oxera, an economics and finance consultancy.
In 2021, LegalUK commissioned Oxera, an economics and finance consulting firm, to produce a report evaluating the true economic value of law in England and Wales. Published in October 2021, the report determined that the true value of English Law is that it underpins hundreds of trillions of pounds of annual business activity in the UK and across the world, extending far beyond the legal sector.
Our expert panel was asked a series of questions: Why should the value of English law be quantified? Who ultimately benefits from this value? How does an economist approach the issue? What are the consequences of not capitalising on these findings?
The economist's approach
When asked how economists could help quantify the value of English Law, Dr Victoria Pham explained that it was vital to go back to well established economic principles:
"At its core, value is created through transactions – we are better off when we interact and trade with each other, and the law is vital to ensure predictability and confidence in those transactions. This in turn reduces transactions costs, helps increase the volume of trade and the complexity in different types of transactions."
In this way, Dr Pham argued that English Law serves as a critical platform, as it is the international standard in different industries and sectors for commercial transactions.
Market failure: The Free-rider issue
The issue with market failure is that English Law is not only serving or generating economic benefits for the legal sector, but generating economic benefits to the whole UK economy, Dr Pham explained.
"No one single party can capture all the benefits, therefore no one single private party can come up with enough incentives to build the amount of investment required."
Known to industry experts as "free-riding", the idea is that if another private party were to invest their time, energy, and resources in promoting English Law as a commercial product to be built on and exploited, other private parties will ultimately get to benefit from that input without having to foot the bill at the start. Ultimately, "parties are waiting for someone else to make that initial plunge."
Changing the narrative – the "Network Effect"
Our experts agreed that a key barrier for businesses "taking the plunge" is that the commercial viability of English law is still seen through the narrow lens of the legal sector. "It is not about lining the pockets of lawyers," clarified Dame Elizabeth Gloster, "it is something tangible that can benefit the whole economy."
When you circle back to core economic principles, Dr Pham explains, because English Law is the standard for many contracts around the world, the volume of these transactions places the Courts in prime position to decide on complex issues. It becomes the "first-mover" as it were; by being the first to solve complex issues businesses face, precedents are set for other businesses to use. When there are more users of English law, the more benefits they will see – it is this "Network Effect" which will establish English Law as the ahead of the curve in international commerce.
Businesses need to be made aware of the importance of the legal system within the economy, explained Richard Hyde. In the recent report entitled "Law and the Open Economy, Securing the future of English law and civil justice system for 21st Century prosperity", Hyde argues the data shows that policy makers need to recognise more clearly the importance of English law as an indispensable element of the "social infrastructure" of UK society.
"In one of the businesses surveys which fell into the report" Hyde explained "it is clear policy makers were taking the law for granted." Furthermore, "of the 1,000 businesses we asked, only 31% said rule of law was important for doing business in UK."
In a world where it has been proven time and again that the law is fundamental to a stable and functioning economy, the "fact that less than a third put it high on their list for doing business in UK" is quite staggering, explains Hyde.
Staying ahead of the curve
With the emergence of new, incredibly complex markets of cryptocurrency, Fintech and low carbon products, our panel of experts agreed it is vital English Law stays ahead of the curve in the development of the law in these areas.
Hyde outlined that in researching his report, a round table of experts were asked that exact thing: namely why politicians have not done enough to think strategically about how to invest in the English and Welsh Legal System. The discussions centred around a broad consensus of complacency.
"The English and Welsh Courts are part of the underwiring of society, they help society function, to enable commerce, however apart from that very little thought is given to it."
The reputation of English Law is almost a contributing factor our experts agreed – it is seen as one of the best in the world for trade and commerce, so why must more money and energy be spent on it?
Pushing to the front of the queue
When asked about how he would "push the issue to the front of the queue" for policy makers, Hyde emphasised how the UK would soon fall behind other jurisdictions who are investing in their legal systems. The warning signs are already there: in 2020, England and Wales was ranked 43rd in the world for contract enforcement, which given its reputation as the predominant legal system in the commercial sphere is "worrying."
Questions from the audience appeared to support this claim, with audience members agreeing with Hyde that it is important to show businesses exactly what they will lose if commercial contracts are taken overseas. There are currently trillions of pounds of transactions underpinned by English Law – should these contracts start to move to other legal systems, the loss would be astronomical. This more than anything demonstrates how it is not just a problem for lawyers; it's a problem for the country at large.
Furthermore, Dame Elizabeth Gloster argued that what we are missing is "some sort of institute for legal innovation" – a coordination of the public and private sector ensuring there is strategic thinking behind English Law and Dispute Resolution.
English Law and the fourth industrial revolution
A reoccurring theme which permeated the panel's discussion was how English Law also needs to tap into the broader economic success around the "fourth industrial revolution"; that is, the cyber-physical systems which give us cryptographic methods such as the blockchain.
Dame Elizabeth Gloster highlighted how the ground-breaking Digital Dispute Resolution rules introduced by the UK Justice Task force in April 2021 can be seen as a first step in this process. These rules are designed to enable faster and more cost-effective resolutions to legal disputes relating to novel digital technology such as crypto assets, smart contracts, and blockchain applications, and foster confidence amongst businesses in the adoption of these technologies.
The consultation process between public and private sectors show that a collaborative approach is tried and tested, however, without a champion and ambassador at the forefront this development may be a one off.
"Post-Brexit, there is a whole new world about how to do things differently and unless you have investment in someone with imagination to harness new technologies, no one will do it." – Dame Elizabeth Gloster said.
According to our experts, a cohesive, structured strategy needs to be devised, building on the Oxera report and the Digital Dispute Resolution Rules. By combining enhanced levels of investment and coordination with opportunities presented by cryptocurrency and Fintech, progress can be made in the promotion English Law as an innovating platform benefitting the entire UK economy.