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Making light regulation work

A permanent problem of political and economic management – and one on which many people hold very strong opinions – is how to ensure commercial enterprises comply with society’s sense of fairness and justice without strangling them in red tape. There are many examples of economies whose productive potential appears to have been limited by over-regulation (most of Eastern Europe for much of the twentieth century, for example). On the other hand it was clearly a combination of inadequate regulation and enforcement that allowed the recent financial crisis to happen. What is more, our sense of fairness is outraged by the fact that many of those who had advocated self-regulation played a major part in creating the crisis, walked away with large bonuses and, almost without exception, have escaped criminal charges.

The response in most jurisdictions has been to develop new and stronger regulations, though it is likely to prove politically difficult to fund improved enforcement. Another approach might dispense with regulation altogether and still ensure that commercial malpractice is dealt with according to community values. Classical Athens managed that brilliantly.

There was no regulation, just a very strong belief that contracts should be enforced if they were reasonable, and that people who behave dishonestly should be punished. This was put into practice by a very powerful and democratic legal system, under which anyone could bring a case and have it heard by a jury of 500 of his peers, selected by lot. In making decisions, the jurymen would listen to the lawyers from both sides and any witnesses they produced but would not be guided by any detailed definition of what was right and wrong in particular circumstances. The lawyers might choose to cite precedents, but there was no need for that to affect the way jurors decided to vote. Jurors had to decide who was telling the truth and whether the punishment demanded (generally some form of restitution, sometimes with damages) was fair.

Athens had no need for any official machinery for checking on activities before they went wrong; there were no regulatory bodies, inspectors or auditors. But if you were going to cheat in your business dealings, you were highly likely to be charged by the other party and face the judgement of your fellow citizens. Nor would you bring a case with no merit. Being seen to be honest was important; if a handful of other citizens took a strong dislike to you, they could vote to “ostracise” you and you had to leave town.

This belief in the power of the law, democratically defined and enforced, also meant Athens only needed a small police force (a posse of Scythian archers used to keep public order). Whenever an incident occurred in the streets, we are told “a crowd came running”. Without a police force, the crowd came partly to sort out the problem, but also so they could bear witness in any trial that arose.

Similarly democratic principles applied to the use of wealth. Athens had no income tax system. It collected taxes on harbour movements, sold leases to work the local silver mines, and received a large tribute from allies for defence purposes. Much of this was spent on military campaigns, paying citizens to attend the assembly or serve on a jury, and on magnificent public buildings. There was no regular revenue to cover common needs Athenians considered important, ranging from maintaining ships to staging plays. It was also seen as reasonable that these things should be paid for by the rich. Instead of taxing them, the Athenians established a system of sponsorships or “liturgies” and the wealthy were expected to pick up the costs on a regular basis. If you were identified as being due for a liturgy (which could be very expensive – think a million dollars and more), you still had some legal options. You could demonstrate that you had funded a liturgy recently or more than your share over a short while. This was easy to determine. Or you could identify someone else who was not up for a liturgy and claim they were richer than you. This was not so easy; you had to offer to exchange all your assets for theirs! Athens’ public projects always found funding.

Could a society today operate without regulation and without taxation, depending instead on the power of judgement by peers? Athens had the benefit of its small scale. In its classical heyday, the male citizen population (only males voted in the assembly or served on juries) was never more than about 35,000. (The total population was about 250,000, mostly slaves.) Many citizens knew each other or knew someone who would know any other person they were interested in. Athens also had the benefit of limited technology. Living in the days before machinery provided overwhelming advantages to large companies and full-time operations, many Athenians could attend the assembly or serve on a jury or in the army or navy and still be able to supplement their income by making simple wooden, ceramic or textile objects when they had time at home. On the other hand it has never been so easy as today to tell stories to a large audience and to measure responses. Setting up and managing an effective litigation system that enables anyone to bring a case and has a random group decide on fairness and justice would not be easy, but it worked wonderfully for Athens. Do we take the opportunity seriously enough to try?

Headline image: Bazar of Athens, Edward Dodwell: Views in Greece, London 1821, public domain via Wikimedia

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