16.

THE
LEGAL
TANGLE

One day in November 2011, 87-year-old Danish farmer Niels Kristensen was standing inside the steel shovel of his front loader, 115cm above the ground, cleaning his gutters. Unfortunately for him, a representative from the Working Environment Authority passed by and reported him to the police for violation of health and safety regulations. This resulted in a fine of 20,000 kroner, which, on appeal, was commuted to a fine of 10,000 kroner or 10 days in jail. “I accept the alternative penalty of 10 days in jail rather than paying the fine,” he later said in an interview. “I admit that I was standing in the front loader. But I have not posed any danger, and it is completely impossible to fall out. I simply cannot imagine a safer place to clean the gutter than from the front loader.”³⁵¹

Less than three months later, on 2 February 2012, the successful Danish juice chain, Joe & The Juice, received a message from the Food and Drug Administration: its juice bars could no longer call their fruit-and-vegetable juices “Hangover Heaven”, “Stressless”, “Go Away Doc”, “Stress Down”, “Strong Bones” or “Immunity” and they would have to pay substantial fines if they kept doing it. The reason, the authorities explained, was that such product names violated labelling regulation 76 which set out how you could describe a product. Why? Because if you bought a “Go Away Doc”, for instance, you could not be sure you wouldn’t need a doctor afterwards - so the name was misleading. The same could be said of the other ones. That was a big problem for the chain because the brands had been expensive to develop and were very popular.

Less than a month later, a new law was passed requiring vendors of seafood to quote all fish names in Latin. Berlingske, a Danish newspaper, subsequently interviewed fish wholesaler Axel Jessen, who explained what this new law meant to him:

“I had to hire a secretary to come in the morning and fill out all this stuff on my bills because I do not have time to do it. In the morning, when the fish come in, I have to sell my fish to customers, which by the way show blind indifference to what a hake is called in Latin. What matters to them is whether the fish is fresh.”³⁵²

The following month, the Danish parliament began debating whether tractors were considered “single offices” as trucks were considered to be, because if they were, then they should be covered by the smoking ban.

Many such laws in Europe originate from the European Union (EU) - including the aforementioned marketing law and the law demanding Latin naming of fish. By 2015, the EU had issued more than 35,000 binding regulations, 5,000 non- binding directives and 50,000 standards, plus 12,000 judgements by the European Court of Justice, all of which had led more than 80,000 pages of legislative text.

The original thinking behind the EU was that it would ensure free movement of capital, services, goods and labour. To meet those objectives it was necessary to develop certain shared standards, so that member states would, for example, recognize each other’s education programmes, product standards and services. The idea was that the EU would remove bureaucratic barriers and make life easier for companies and citizens, and that is exactly what it did in the beginning.

The original plan for the EU was also to respect what is known as the subsidiarity principle, which means that central leadership may only act (make laws) where the action of individual communities (here EU member-nations) is insufficient. In fact, this very principle was established in the EU via the European Charter of Local Self-Government in 1985, and was reaffirmed in the 1992 Treaty of Maastricht.

However, in the EU the reality has been an ongoing creep towards centralization, where lawmakers write evermore detailed manuals about how life should be lived, governments run and companies managed.

Don’t get this wrong. Centralization and indeed international laws can serve good purposes such as providing rules for diplomacy, aviation, postal systems, international navigation, free trade and more. However, the trend within EU has increasingly been to make international laws about labour rights, expulsion rights, minority protection, marketing norms, and many other issues, without respecting parliamentary majorities in the nations concerned. In fact, when local politicians have failed to get their proposals through their domestic legal systems, they have often subsequently succeeded via the EU.

A specific problem is that decisions made via the EU are typically made by haggling, where each group or nation manages to extract concessions and exemptions. Thus, in March 2005, former EU Competition Commissioner Mario Monti described, in a speech in Monaco, how EU decision-making was a “total chaos”, in which every decision required negotiation between the EU ‘s (then) 25 member states, which, individually, could demand compensatory measures before agreeing to anything; this, in turn, tended to trigger an endless cascade of special rules, grants, footnotes and exceptions.

In the EU you are no longer allowed to serve olive oil in a bowl in a restaurant or sell food per dozen (price should be per unit weight). Nor may you point out that water prevents dehydration (which it does) or that plums prevents constipation (they do). It is forbidden to eat your own horse, if it is a pet (why?). If pollen represents more than 0.9% of honey, you should indicate whether any of the bees have visited GM plants (how can the farmer know that?), and vacuum cleaners may only use 900 watts (doesn’t work).

Since 2013 it has been illegal for EU citizens to plant any seeds that are not approved by the EU Plant Variety Agency. Children under the age of 13 can no longer deliver newspapers, and children under eight years old should not blow up balloons, unless supervised by an adult.

The US is no better. In 2010, the “Land of the Free” introduced the socalled FATCA system, under which foreign banks had to collect taxes from Americans living abroad on behalf of the US state or be sued for billions. By mid- 2014, more than 77,000 non-American institutions had agreed to do this, which probably involved an additional administrative workforce of 300,000-400,000 people.³⁵³ For the seven million Americans abroad, it meant thousands of dollars spent filing tax forms to another country (the US) than the one in which they actually reside.

While many financial institutions chose to comply, a large number reacted to the regulation by terminating their relationship with US clients which obviously made life very difficult for these seven million people and the US companies, for which they worked. It is hardly surprising that the number of Americans renouncing their citizenship rose. Of course, it was only a question of time before an US citizen sued a Dutch bank for kicking him out. He won, and this implied that the US could force other nations to collect its taxes. The US Congress estimated the system would generate approximately $800 million in extra revenue for Americans, but the cost to non-American financial institutions, plus the affected expatriates, was a very large multiple of that.

On 6 May 2011, the EU called on all its members to ban the use of WiFi in classrooms. The motive was to protect children from a potential radiation hazard; this is despite the fact that the ban prevents modern education, and even though WiFi is used virtually everywhere else and constitutes no proven hazard.

And so it goes, but without the least element of consistency. You are not allowed to clean your own gutters in the safest way possible, but sky-diving, performing on a circus trapeze or taking part in heavy-weight boxing is perfectly fine. You cannot call a drink “Go Away Doc”, but calling it “Sex on the Beach”, “Sex With an Alligator”, “Death in the Afternoon” is ok, even if the promised sex or death doesn’t always come with it. And “Gorillas Milk “ is acceptable, even though it doesn’t come from an ape, as indicated. It takes $1.3 billion to register a scientifically-based medication, but next to nothing, if it isn’t. If a bank sends out an analysis of a company or currency, it comes with pages of legal disclaimers and any major bank is entangled in thousands of lawsuits, but if an environmental organization inaccurately states environmental data by a factor of approximately 5,000 times while collecting money, that’s fine.

The bureaucratic law machine becomes an undemocratic political machine that prevents experimental activity and choice. For example, The Maastricht Treaty provides for a “Social Charter” which, in direct contradiction to its own aforementioned subsidiarity principle, says that member states should harmonize their social policies, apparently to a level that would turn the entire EU into a new Argentina.

In November 2011, The Economist reported on three young Spaniards who (heroically) decided to open a combined bookstore and cafe in Madrid. It took them three years to gain the required licences to sell books, coffee and wine. Furthermore, in Spain, as in many other European countries, it has - for many years - been extremely expensive to sack employees. The consequence had been that many small businesses simply closed in bad times, where the alternative in a freer market could have been to reduce staff numbers or working hours temporarily. This contributed to an unemployment rate which exceeded 25% in 2013.

Laws have become so complicated that people often have no idea whether they are doing something illegal, which means they often seek permits to do something that is already legal, while violating laws they have never heard about.

One of the problems people experience is that public offices tell them what they cannot do but not what they can do. And there is rarely a public office with the guts and authority to say “enough is enough” and issue a general permit to start your business, build your bridge or whatever it is you want to do. This means you never know for sure whether there is yet another permit you didn’t know about and for which you have failed to apply that could stop you in your tracks after you have invested all your money.

In 2009, President Obama initiated a programme to weather-proof 607,000 homes, but this virtually ground to a halt because a law from 1931 said that weather proofers should be paid the local prevailing rates. Instead of weather-proofers now going to work, an army of bureaucrats began a massive work to find out what the going rates were for weather-proofers in each of thousands of local counties involved. In California, the number of houses that should have been weather-proofed by 2009 was approximately 30,000, but the actual total was 12. When the port authority of New York and New Jersey needed to raise the road on an existing bridge to accommodate the new global standard size for container ships, it required 47 permits from 19 government bodies and included a mandatory survey of 2,500 historical buildings in the community that were not in any way affected by the project. One law said that an environmental study should include participation from native tribes, and Indians from all over the nation, including Nebraska and Oklahoma, were thus invited to oversee it. A number of years after the start of the process, the authorities were bogged down in paperwork and lawsuits with no end in sight, even though the modest change proposed had huge environmental and economic advantages.³⁵⁴

American workers, whether in the public or private sector, are often so restricted by what they can and cannot do that nothing is done. When a manager fires or reassigns an employee, he or she is so afraid of being sued for the cause given that none is given. It’s a case of: “You are fired and we will not tell you why”. If anyone brings home-cooked food to school parties or charities, they are shut down or sacked for violating food regulations. If children sell lemonade to raise money for charities, they can be stopped by the police and prosecuted.

One of the problems with legal jungles is the lack of focus on eliminating outdated or ineffective laws. We continuously add new laws to existing ones, and the total volume of legal tangle grows unceasingly. In March 2012, US lawyer and writer Philip K Howard pointed this out:

“At this point, democracy is basically run by dead people. We elect new representatives, but society is run by policy ideas and political deals from decades ago. Congress has a tragic misconception of its responsibility -- it sees itself as a body that makes new law, not one that makes sense of old laws.”³⁵⁵

This created many problems, he pointed out. The first was the sheer accumulated amount of laws and prohibitions, which often made it increasingly difficult for people and businesses to manoeuvre. In addition, the laws typically created unintended consequences that required adjustment via new laws, and they often reflected outdated priorities. For instance, US farmers were given subsidies in the 1930s, because they had major financial problems then. These problems ended in 1941, but the subsidies continued. When Brazil sued the US for subsidizing cotton farmers, it was awarded the right essentially to confiscate $800 million worth of intellectual property rights from US companies at its choosing. Instead of cancelling its subsidies, the US responded by negotiating a deal whereby it would also subsidize Brazilian cotton farmers, so that these also could compete unfairly.

In the US, total federal tax regulations constituted 400 pages in 1913. In 1969, they had grown to 16,500 pages and in 2013, they filled 72,513 pages full of cross-references.⁷ This, and many other legal areas, are now so complex that no one can know for sure where they stand, and when politicians want to streamline or cut, they routinely run into so much complexity that they give up and leave the existing structures as they are. They are no longer in charge; the bureaucrats are. As Howard writes:

“Nothing today is legally feasible. Nothing. Government is on autopilot, its legal flaps locked in an unsustainable position’ headed towards a stall and then a frightening plummet towards insolvency and political chaos.”³⁵⁶

Everything a politician wants to touch is tied up in a web of cross-referencing laws, rules and regulations that make change almost impossible. And if you try to effect change, you will be hit by an avalanche of lawsuits that can go through cascading appeals lasting decades. US regulations concerning the production and sale of hamburgers involve in the region of 200 laws as well as 41,000 rules and precedents derived from 110,000 related lawsuits.³⁵⁷ In addition, there is a tradition that lawyers offer to sue people and companies based on profit-sharing with the lawyer’s client. Such lawsuits often end with the defendant paying to have the case dropped even if he is completely innocent – a concept that is not materially different from paying protection money to the Mafia. Examples from outlandish lawsuits include a man who attempted to commit suicide by jumping under a train in Manhattan. He was injured, but survived, and afterwards, sued New York City Transit Authority, because they had not been better at stopping the train.³⁵⁸ Due to this extreme lawsuit culture, US products are often labelled with absurd warnings and instructions, such as ones that advise people to seek medical advice before using a kayak.

The US has more than twice as many lawyers per 1,000 inhabitants as Germany and more than five times as many as France; the number of US court cases has tripled within just 30 years.³⁵⁹

Overall, the legal maze the Western world is constructing is as absurd as the way the Eastern Islanders built statues as their societies atrophied, and just as stifling, and it is a symptom of a drift towards centralization of government. One of the reasons is simply this: To start with, a society may have a high degree of freedom and local self-rule. Then someone makes a mistake somewhere. The press picks up on this and puts pressure on government politicians to intervene. These then issue standard rules for all local communities so that this mistake can’t happen again. In this way, step by step, over time, everything becomes standardized, centralized and ruled from afar. This stifles creativity and de-motivates people, and it creates another problem: overdependence on statistics. When you rule from afar, you only see quantities, not quality. Ruling from afar is ruling by numbers; not by insight, intuition or compassion.

It’s hard to measure exactly to what extent exaggerated legal mazes and litigation culture damage the implicated economies, but in the US, studies have shown that the 7,800 lawsuits that, in 2010, were started daily, cost society the equivalent of 8% sales tax on all products or 13% income tax on all wages.³⁶⁰

Often, public lawsuits (where tax payers bear the costs) are conducted without any consideration for the costs. The trial of former Yugoslavian president Slobodan Miloševi, which had to be terminated without judgement (he had died) had already accumulated bills of more than €160 million (or $200 million), even though it wasn’t even finished.

International comparisons show that the smaller the proportion of a country’s academics that are engineers, and the greater the proporption of lawyers, the slower its economy will grow.³⁶¹ The reason is, arguably, that engineers primarily engage in win-win activities, while lawyers often work with win-lose or lose-lose transactions.

One of the reasons for this ever-growing Mandarin-style legalism is that the bureaucrats and politicians who make all these laws and appeal bodies have rarely experienced how frustrating it is for normal people to live with them. US Democratic presidential candidate George McGovern left the Senate in 1981 and then had to support himself, after which he invested in the hotel Stratfort Inn. In 2008, he explained what it was like suddenly to be on the other side of the table - to be among those who must follow the laws instead of make them:

“In retrospect, I wish I had known more about the hazards and difficulties of such a business, especially during a recession of the kind that hit New England just as I was acquiring the inn’s 43-year leasehold. I also wish that during the years I was in public office, I had had this first-hand experience about the difficulties business people face every day. That knowledge would have made me a better U.S. senator and a more understanding presidential contender.”³⁶²

There are three basic ways to pursuit the delivery of good products and services:

Legalism (command and control). Central bureaucrats write rules, manuals and forms, have police and inspectors check that people act accordingly and punish them if they don’t.

Principles (guide and consult). Bureaucrats describe broad goals and use “guided discretion” rather than detailed commands, but empower the people actually doing the jobs to figure out how to meet such guidelines. If they are not met, it is resolved through dialogue with stakeholders.

Markets (vote with your feet). Suppliers are free to work out ways of attracting and pleasing customers; and if they are not good at this, they go under.

Western societies have, for decades, moved further away from markets and principles and towards greater legalism. The over-reliance of rules can easily turn people irresponsible and disengaged. If everything you have to do is written down in laws and manuals, you will no longer feel free and you will not be engaged and creative. To do a job well often requires performing tasks that cannot be described in writing, but which require intuitive decision-making on the spot.

Increasingly, there is also a risk that people who are subject to an excess of rules will inadvertently feel compelled, or be forced, to act immorally. In 2012, the Floridian life guard Thomas Lopez was sacked for saving the life of a drowning person outside his own area of the beach. In 2013, an elderly resident of a care home collapsed and somebody called 911 for an ambulance and handed the phone to a nurse, who spoke with the call-handler. When the call-handler asked the nurse to perform CPR (Cardiopulmonary Resuscitation), she declined on the basis that she was not authorized to do so. “Is there anybody that’s willing to help this lady and not let her die?” the dispatcher later asked. Refusal again. And then it went:

Dispatcher: This lady is going to die.

Nurse: Yeah.

Dispatcher: Well, if you get anybody, any stranger that happens to walk by, who is willing to help … I understand if your boss is telling you can’t do it. But if there’s any … it’s a human being. I don’t, you know … is there anybody that’s willing to help this lady and not let her die?

Nurse: Not at this time.

The patient died.³⁶³ US teachers are now scared to put their arms around crying children for risk of being sued. People walk pass the injured or dying without acting for fear of being held liable. In 2011, firefighters stood on a beach in Alabama watching a suicidal man battling the waters for an hour before drowning. They didn’t intervene because they were not authorized to do so and had been told by their superior about the legal liabilities for performing uncertified rescues.

Legalism has made it ever more risky to do the right thing and evermore difficult to be an innovator. Many countries have whole sectors of people collecting “speed money” for helping gain permissions to do business faster (you don’t want to know how). The intentions may be good, but the consequences are negative, and what we are recreating is the stifling mentality of Chinese mandarins of the past.