The importance of clear laws shown in impressive evidence from Italy – Bryce Wilkinson

Could clearer laws make us richer? Photo / 123RF

THE FACTS

• New research by Tommaso Giommoni finds Italian incomes could be 5% higher with clearer laws.
• Ambiguous laws harm business decisions, causing costly legal uncertainty and reversed court decisions.
• Improving law clarity could prevent significant economic losses, with New Zealand potentially saving $20 billion annually.

New research finds that incomes per capita in Italy could be 5% higher if the Government wrote better laws.

Many laws are confusing and hard to understand. Even for the courts. The uncertainty harms business decisions and costs everyone money.

The research is by economist Tommaso Giommoni and co-authors. Their study The Economic Costs of Ambiguous Laws was published in June this year by the Munich Society for the Promotion of Economic Research.

If New Zealand’s laws were as ambiguous, we would be worse off by $20 billion – or about $10,000 per household – every year. What family would not welcome avoiding that?

What is “poorly drafted” law? The researchers used 10 indicators of writing that likely lacks clarity. It assesses each of over 75,000 Italian laws.

One measure is sentence length. According to experts, sentences with more than 25 words are likely to be unclear. The authors found that 85% of the millions of sentences in all of this law exceeded 25 words.

That might seem staggering for those who do not read law books. Authors of children’s books might think it was absurd. Lawyers are likely less surprised, but still disturbed.

Greater clarity in drafting should be easy to fix. So why isn’t it? The paper’s answer lies in law-making imperatives. These include haste, compromise, personal career aspirations and short-term expediency. Ambiguity conceals likely outcomes. It shields blame and defuses critics’ attempts to pinpoint a proposed law’s problems.

Even lawyers cannot be sure how courts will interpret unclear laws. Nor can judges in a lower court be sure about how a higher court will interpret them.

This uncertainty creates a cascade of problems throughout the legal system. The authors examined 620,000 Italian Supreme Court judgments between 2004 and 2017. They found 32% of them reversed a decision of a lower court solely on legal grounds

The rule of law is a precondition for national prosperity. The law should be clear and accessible. When it is not clear to judges, it cannot be clear to those who must obey it.

The paper next assessed the effects on over 700,000 Italian firms of reversed court decisions. It looked, for example, at changes in their investment spending and output growth. This aspect was another exhaustive, path-breaking achievement.

It found the adverse effects were significant. The estimated permanent 5% drop in Italian national income encapsulates that. The paper’s approach is ingenious, but too complex to explain here.

Are New Zealand’s laws better drafted in these respects? It would be good to know, because low productivity is holding New Zealanders back.

It should be easy to improve drafting quality. The bigger the gains, the more it should be a priority.

To better inform this article, I used AI to count the word lengths of sentences in two of New Zealand’s acts. From an Italian perspective, the results were encouraging. The proportion of sentences in the Health and Safety at Work Act 2015 that exceeded 25 words was “only” 70%. For the Resource Management Act 1991, it was 53%.

Even so, the implication is that most New Zealanders would not find the Resource Management Act (RMA) law clear and accessible. Parliament could be more insistent about improving clarity.

The Government’s Regulatory Standards Bill would increase this discipline. One part requires the Government to tell Parliament if a bill is unclear and hard to understand – and explain why. Small comfort, but better than nothing.

Of course, there is more to good law than just clear drafting. Its content surely matters even more.

Prominent symptoms of content problems include unaffordable housing, and infrastructure delays and inadequacies. However, much more is hidden or accepted as “part of the woodwork”.

Content problems have many sources. Public pressure on governments to “do something” about the latest adverse headline is one source. Appeasing that pressure can be the easiest option.

More mundane are the relentless daily calls on ministers to regulate or spend for this or that partisan or public-spirited cause. Such calls often fail to consider the costs to others.

The Italian paper acknowledges that content also matters. It cites literature that shows property rights and institutional quality are key determinants of economic prosperity.

The RMA is deficient in both respects. It offends almost everyone. The Regulatory Standards Bill also recognises the importance of protecting private property.

Ministers must tell Parliament of any grounds for concern but Parliament can ignore this information at will and continues to be supreme lawmaker. (Most public opposition to this bill ignores this limiting aspect.)

Greater transparency about these matters could help inform voters. Governments would spend and regulate more judiciously if more voters rewarded them for doing so.

This exhaustive Italian research helps make the potential gains more concrete.