Keynote of Matthew Murray at Rule of Law and The Business Environment in Bulgaria Conference

Thank you, Mr. Marquette and the American Chamber of Commerce.  Thank you to the America for Bulgaria Foundation for hosting me today. 

It is a true honor to be here today with this esteemed group of Ambassadors from the United States and Europe and representatives of international and local business associations.  Congratulations on convening this topical conference on the Rule of Law and Business Environment at this critical time for Bulgaria, for the world – when the future rules of the game of globalization are being debated, decided and determined … in forums just like this taking place across the world.

My purpose this morning is to address how the private sector in Bulgaria can identify and develop new opportunities to strengthen the rule of law in the nation and in the Balkan region. In particular:

  • How should you — as business leaders– define the “rule of law” in Bulgaria?
  • What are new approaches for the private sector to take “collective action” in support of the rule of law
  • Broadly, how to strengthen the rule of law and counter corruption to help achieve new levels of economic prosperity?
  • Even more broadly, how does the rule of law bolster Bulgaria’s independence and sovereignty as a nation? How does your legal culture and business ecosystem express the values that Bulgarian citizens share?

Let me start with an agreed definition of the rule of law: As defined by the United Nations, the rule of law is a principle of governance in which all persons, institutions and entities, public and private, including the State itself, are accountable to laws that are published, equally enforced and independently adjudicated, and which are consistent with international human rights norms and standards. The rule of law requires measures to ensure adherence to the principles of supremacy of the law, equality before the law, accountability to the law, fairness in the application of the law, separation of powers, participation in decision-making, legal certainty, avoidance of arbitrariness, and procedural and legal transparency.

Notwithstanding the United Nation’s definition, the rule of law is hardly universal. The term “rule of law” has been used in vague and ambiguous ways since its coinage by the British jurist Albert Venn Dicey in the 19th century.

Scholars now distinguish between two kinds of rule of law: (A) the minimal, thin, or formalistic variety; and (B) the deep, thick, or substantive variety.

The thin or formalistic type of rule of law, includes:

  • Open and legitimate procedures for making laws
  • Transparency of laws and regulations
  • Laws that are prospective, clear, consistent and stable
  • Enforcement of laws is conducted in a manner that is just and impartial

The thick or substantive, adds that the law must also have a moral basis, that it must be good law that is based on a normative foundation beyond the state and its laws (such as religion, natural law, or the international law of human rights).

In many countries, including countries in the former Soviet Union, we encounter a third type – super thin or the imitation of the rule of law. Where the laws are changeable, easily manipulated, selectively enforced by rulers. 

In many of these countries, the rule of law has indeed been replaced by the law of rulers, or by what is called the iron law of oligarchy …

The “iron law of oligarchy” is that powerful, connected, networked groups are above the law; they are embedded in the system of governance; and control key sectors of the economy and levers of law enforcement.

Rule of Law Challenge in Bulgaria – Lawfare

We are here today to discuss the rule of law in Bulgaria but we need to first recognize that the rule of law is itself under significant pressure regionally, globally. There is a correlation between globalization, the rise of authoritarian states and transnational corruption and the decline of the rule of law.

The “iron law of oligarchy” has prevented rule of law-based institutions from taking root in the former Soviet Union, in parts of Eastern and Central Europe and in parts of the Balkans.

To begin to address this conflict, it is very important to consider how we got here, the root causes of this tension between the rule of law and the iron law of oligarchy. As the Berlin Wall fell and the Soviet Union was dissolved, it appeared that capitalism prevailed over communism as the optimal way to organize and grow economies.

But capitalism is not monolithic. There are different types of capitalism—big corporate, entrepreneurial, state-guided and oligarchic – and the role of government differs profoundly in each.

In the post-Soviet region, the legacy of central planning could have led to a state-guided model geared to maximize societal growth by investing in specific sectors, goods and services, until such time as it was replaced by a more entrepreneurial form of capitalism.

But instead, countries moved in the direction of oligarchic capitalism. They were shaped by strong feudal traditions or patrimonial traditions from pre-Soviet times, when tsars, their boyars and clans controlled the national wealth by extracting rents from peasants, prohibiting ownership of private property and stifling growth of modern industry. 

Drawing on imperial pre-Soviet and Soviet traditions, leaders in the post-Soviet region displayed oligarchic tendencies to survive the transition to capitalism by creating new networks of loyal patrons based on shared interests. During the initial period of post-Soviet transition, many were convinced that reforms to instill free markets, free trade; privatization would inexorably create demand for the rule of law to protect private property. But, as the Nobel Prize economist Joseph Stiglitz has shown, we did not see clearly the difference between an individual’s owning an asset and an individual’s having control over an asset of which he is not the sole owner.

Oligarchic capitalism was being built on “control rights”, which enables one to take others’ assets. Control rights undermine more general property rights because they make it easy to steal. Indeed, they give those with control rights an interest in the persistence of a weak, corrupt state.

When the law of oligarchy prevails, formal government decision-making processes are captured by informal networks of political and business elites who exert significant control over allocation of public resources. Corruption becomes a central organizing principle of governments.

In the last ten years, we have witnessed state efforts to  expand the iron law of oligarchy. On the one hand, oligarchs cannot be contained with their own borders; they seek to enjoy the fruits of a rules-based system internationally, including selling on global markets, laundering their finances, hiding assets abroad, investing in real estate and other companies abroad.

On the other hand, they also seek to export corruption and cronyism to capture institutions of governance in other nations that have a thin-rule of law. As a result, the rule of law itself has become a strategic battleground. What has come to be known as “lawfare”.

Lawfare is the battle between the rule of law and the iron law of oligarchy.

But of course, you all know of this and have done battle in “lawfare”.  And you have seen how it can undermine the most well-intentioned efforts at rule of law reform.

When rule of law reforms are made to introduce independence, accountability, transparency and a level playing field, , oligarchic networks can subvert, out maneuver, and out last these reforms. They can and they do thwart real business competition in the market.

The question now is how should you as business leaders respond to lawfare in this region? How do you move Bulgaria from a thin to a thick rule of law? 

First, part of the an answer is taking voluntary initiative through collective action. You as a business community should consider that you cannot wait for the next Bulgarian governments to coalesce around rule of law reform.  Yes, a pro-reform government is condition of success, but it is not the starting point.  And as history has shown, nor is it sustainable. Instead business, well organized and networked as a group, has significant market power.  Business can be a change agent for society.  Business can form what Joseph Stiglitz calls a “rule of law constituency”. I note that businesses leaders of many nations are represented here today; not just American, but the United Kingdom, France, Switzerland, Germany, Greece, Sweden. I note that the Bulgarian Chamber of Commerce is also represented.  This is important.  You have already taken the first step.

Second, collective action requires you to consider a dedicated effort to building faith and belief in the rule of law. In other words, as you evaluate how to develop effective policies, laws, institutions and tools to build the rule of law, you must also tackle the larger question of beliefs, trust and collective behavior.

Third, to instill belief and trust, you must consider how to build a rule of law on a foundation of Bulgarian norms and values?  

How can your legal culture and business ecosystem support the creation of a thick rule of law? Where does Bulgaria stand on the fundamental question of whether a citizen or business truly owns or simple controls assets?  Have you transitioned to a country that honors and respects private property?

This is a matter of human rights of Bulgarian citizens. Enjoyment of private property is a human right under international human rights law, under the European Convention on Human Rights, Article 1, Protocol 1. European States have agreed — private property is a human right.

Private property is a natural extension of John Locke’s theory of liberty, and protection of property rights as a form of human expression.

Fourth and finally, consider the military adage “it takes a network to defeat a network”. Networks of individuals with a stake in the irone law of oligarchy will try to defeat reform and institution-building. Organizing and sustaining a new constituency for the rule of law faces strategic uncertainties. It requires building a large constituency that coalesces around belief and faith that the rule of law will be enforced and changes its behavior accordingly. The probability of transition to a thick rule of law depends on size and the reach of constituency that demands it. 

This requires an approach to reform that is more focused on creating behavior change, horizontal change through shared interests and values, and quite importantly, trust and confidence

I know that this may sound theoretical.  Maybe! But ask yourself why rule of law reforms in Bulgaria are not working? The theory of change driving rule of law reform in Bulgaria, in any country, Is foundational to success.

You are hardly alone in this. There are long-standing efforts by the private sector to organize collective initiatives to counter corruption globally, regionally and by sector.

There is practical help available … From the America for Bulgaria Foundation.  From  the Center for International Private Enterprise in the United States and from the Basil Institute on Governance in Europe. These and other organizations provide advice and resources on Collective Action to companies, business associations, NGOs and multi-stakeholder groups around the world and help to develop and facilitate specific collective action initiatives that bring together businesses and other stakeholders.

But while theoretical, there is no mystery here.  The goal is to build Bulgaria’s future on the foundation of the protection of private property as an absolute principle in order to attract smart capital.  Yes, it is important to meet the conditions to the EU to secure access to “Recovery and Resilience” funding. But the goal is deeper to attract smart investment to Bulgaria to foster economic growth that is equitable, with wide access to economic opportunity and empowerment of entrepreneurs who are rewarded for innovation. Entrepreneurial capitalism triumphs when the law is built on fundamental respect for the sanctity of contract and the human right of private property.

Thank you for your attention today.