The Chronicles of a Capitalist Lawyer

Oh dear, it seems that I almost forgot the second anniversary of this beloved blog! I've been busy with the preparation for my post graduate study at the University of Chicago Law School, e.g. completing all of my remaining corporate lawyer work prior to leave (so that I won't have any additional homework during my study), preparing my travel to and living needs in Chicago (getting US visa and securing an apartment lease), and pulling together the learning materials (the law school database was opened already in June and I must say that I am overwhelmed with the enormous data, very exciting!).

I hope that I can be more productive in this blog as soon as I have settled my live at Chicago. Stay tune folks.

Welcome to the second episode of Legal Analysis Tool Kit Series! Our today's discussion will focus on the concept of Baseline or to put it in a simple way: where should we start before we can impose a law or policy? The concept of Baseline is an interesting one because it deals with the fundamental issue of the original position of certain rights or obligations. Let me give you an example:

In Indonesia, we have regulations on minimum wage for workers. Suppose that someone goes to the Constitutional Court and demand that such law should be annulled on the basis that it contravenes his constitutional rights of freedom to work (Article 28 D (2) of the Constitution). The basis of the claim? A company rejects him from a working position because it isn't able to pay him the minimum wage and therefore the company refuses to accept him. This is a hypothetical case since I haven't done or read any research on the actual relationship of minimum wages and the companies' willingness to recruit new workers. For the sake of this post, let us assume that: (i) there is a big fine for companies who do not follow the minimum wage law, (ii) we are dealing with small and medium enterprises where salary of their workers is a major factor, (iii) the administrative costs for getting an exemption for the minimum wage is too high and taking a long time, and (iv) they tend to reduce their recruitment activities rather than paying new workers with the stipulated minimum wage.

Question 1: Can we say that this minimum wage law contravenes the constitutional right of the unfortunate potential worker?

Question 2: To what extent can the Government actively limits the rights of freedom of contract of its people? Should the Government leave them alone and deal with this issue by themselves, i.e employers are free to pay their workers provided that the parties mutually agree such arrangement?

Question 3: What would be the position of the Government in this case? If the policy brings problem to certain members of the society but also good things to other members of the society (such as the current worker which will enjoy the minimum wage), should the Government revise such policy? On what basis? Can it say that since more people enjoy the benefit of the policy then the policy should be maintained? Is it fair for the unfortunate ones?

The basic problem of all of the questions above is the issue of Baseline, i.e what's the original position of the Government with respect to its citizen rights to obtain work? Should the Government interfere in the first place or not? Dealing with Baseline is difficult since here we are trying to determine the original position of something to which our next actions will be greatly influenced.

Anyway, let us try to answer the above questions:

1. Minimum Wage and Constitutional Rights

Some people will argue that in general, employers' position are stronger than the workers. Thus, the Government should intervene and provide protection to the weaker party. This should be the intention of the Constitution, fairness and equality for all. But will that argument work for our case? A man losing his job opportunity because the company does not want to pay its additional worker with the current minimum salary. Doesn't this fact contradict the original intention of the Constitution to protect the weaker party (if such intention exists)?

However, with this kind of fact, do you think that we have enough basis to say that the constitutional right of the worker has been jeopardized by the existence of such minimum wage policy? Does the fact that he is actually willing to receive lower wages in order to secure a job but the current law does not permit that and therefore he loses his opportunity to get that job can be considered as a violation to his constitutional rights? In this case we need to go to the second question.

2. The Limits of Government's Intervention

To what extent can the government limits private mutual arrangements between the parties? I would say that we are now dealing with a Baseline, i.e. should Government leave us alone in our private arrangements? Or should Government intervene whenever there is a possibility that a weaker party can face unfair treatment?

To answer the above question, I will tell you another case: A man is really in need for money to pay the medical bills for his wife and to get the money he is willing to enter into a contract which he would never enter into if he is not in dire need. Currently, he doesn't have many choices. He has asked for loans from his friends and family members and no one can provide him with the amount. At last, he found a loan shark that is able and willing to provide the loan. The loan shark believes that this man capacity to pay is rather weak and he is out of option, so he imposes an extremely high rate of interest. The man agrees with the condition, and so he receives the money to pay the medical bills.

If we believe that our basic rule is to always protect the weaker party, should the Government impose a law prohibiting any person to take advantages from this situation or to impose certain conditions that seem unfair in the loan agreement, whereas, as a result of which, the loan must be renegotiated to reduce the interest rate and to give better payment options for the man? Do you agree with this approach?

Now, let us change the case a little bit. The above troubled man has a very beautiful house. He also tries to sell his house to raise some funds, but since the market is busted, no one is willing to take the offer. Suddenly, a person comes and knowing that the man is in dire needs, he offers to buy the house for just 10% of the original price. The actual economic effect of accepting this offer would be similar with receiving the highly interest loan from the loan shark. Eventually, the man chooses this option and sell his house with such terrible price. Question, should the Government forces them to renegotiate the price of the house to find a better and fair price under the rule that we must protect the weaker party? Would you support the Government's act to force these consenting parties to renegotiate the house transaction?

Intriguing isn't it? I would like to know whether your opinion would differ for these 2 cases. To be consistent, the answers for these cases should be the same. Why? Because the economic effects are just the same and both deals are made within an unfair condition, i.e. the man doesn't have many options, is willing to enter into bizarre contracts, the necessity for paying the medical bills is high and he doesn't have much time. But I bet that most of you will say yes for the first case and no for the second case. I would happy to hear other opinion in this matter.

Anyway, the thing that I want to show you here is the fact that it is really difficult to determine the Baseline for Government intervention. Deciding the case on a case by case basis would most likely costly, and avoiding such cost is one of the reasons for stipulating a general law that could be applicable for any cases. And speaking of that, it's the right time for us to move on to Question 3.

3. The Government Option

For the last question, we understand from the above case that some people will receive benefits from the minimum wage policy (current workers) and some won't (potential workers). If we say that the protection for weaker party is necessary for the sake of fairness and equality, how could we justify the fact that this policy may also hurt the parties that we're supposed to protect?

More interestingly, if in the end the Government chooses to maintain the policy on the basis that more people are being protected, do you think we can still justify this act under the name of equality and fairness? To be honest, this would be another form of implementing cost and benefit analysis in designing public policy, i.e.: if the overall costs are higher than the overall benefits, the Government should not pursue such policy. Some philosophers attack this approach as something that against the concepts of fairness and equality. If we calculate that the costs of protecting minorities are higher than the benefits, why bother making policies that protect them?

I would stop at this point as my main purpose with this article is to conduct a training of thought. In public policy and law designing, there are no easy answers and determining the Baseline would always be something that we have to analyze carefully. Hope this is useful.

Islamic Law is one of my most cherished fields as a lawyer and during my 10 years experience in the art of law, I have done a lot of research and read hundreds of books on Islamic law. Nevertheless, until today, I have not found a general theory of Islamic law that can answer these ultimate questions in a satisfactory way:

Are Islamic laws (specifically those stated in the Koran and Hadith) opened to any changes in the society?
Should Islamic laws be applied as they are, without any consideration of the situation and condition?
Suppose they can be changed in accordance with the situation and condition, what part of the laws that are immutable and those that can be considered as changeable?
Are there any consistent methods of interpretation to be used in applying Islamic laws in accordance with the situation and condition?

In reality, there is no unity in the application of Islamic law in any part of this world except for certain undisputable items such as syahadat as the first requirement to enter Islam, 5 times a day prayer obligation, mandatory ramadhan fasting period, mandatory zakat payment, and hajj. You can call yourself a moslem if you perform those basic obligations, but I can assure you that there are many specific legal issues relating to such obligations that are still being disputed until today, and this is only for the Ibadah aspects. In muamalah aspects, you will see countless arguments and counter arguments on whether a law should be applied as it is or not. Different countries have different interpretation of the application of Islamic law, and most of the time, it is hard to assess whether the argument used to interpret the law in one case is consistent with the argument used to interpret another case. The actual implementation depends on many factors, such as political will, the applicable majority Islamic legal school, acceptance by the society, etc.

The above fact is very interesting. It is easy to find people out there who claim that good moslems must follow the Islamic laws as directed by God and the Prophet Muhammad. Some even going further by declaring those that oppose the implementation of Islamic law as followers of heresy. This is an absurd claim. As evidenced by more than 1,500 years of history, people are still arguing and will always argue on what laws to be followed. If you can't reach an agreement on the law to be applied, how can you force someone to follow such law?

It is my dream that someday I can build a general theory of Islamic law that will solve the problem of unity and consistency within the Islamic legal system and legal interpretation. However, in order to achieve such hard task, I refuse to use the standard deductive reasoning used in classical Islamic legal theories book (ushul fiqh). With new development in social sciences and abundant database of cases and precedents all around the world, this is the right time to build a whole new level of Islamic legal theory which will work in practice. You would be surprised to find that for the last 1,000 years, there aren't many developments in the art of ushul fiqh.

Most books that I read still use the similar pattern: definition of ushul fiqh, the 4 main sources of Islamic law: Koran, Hadith, 'Ijma (the collective agreement of the ulemas), Qiyas (analogical reasoning). Then we go with some standards Islamic legal interpretation methods whose validity are still being debatable such as: istihsan (juristic preference), istislah/maslahah mursalah (application of law based on the needs of the society, similar to welfarism), 'urf (customary practices) and syar'u man qablana (the law of generations before Islam). Further, we will have some basic grammatical interpretation methods for the Koran, some basic sciences of Hadith, i.e. analyzing the validity of the Hadith through link of narrators, and simple methods to analyze cases where there are conflicting legal norms. Books that discuss these legal interpretation method in depth are very rare to find, at least that's my experience.

Some of you may think, why the hell a corporate lawyer like me would like to spend his time discussing Islamic laws? Well, to be honest, when I'm still an undergrad student, I focused my research on Islamic legal theories, specifically istislah. I wrote many papers using istislah as my basic legal theory, including my own thesis and a paper that won a national legal writing competition. So yes, I can say that I have sufficient exposures to say that there aren't many developments in the field of Islamic legal theories. I would welcome any different view on this particular issue though.

So what should we do about this? As I said above, it's my dream to build a general theory of Islamic law. The process should be started by first collecting the different trends of interpretation of Islamic laws used in various cases and countries around the world which is essential in knowing whether the laws are applied as they are or with any modification. Next, we need to find the reasoning behind those interpretations and analyze whether such interpretations have been used consistently for all similar cases. We would also need to analyze the effect of such laws to the society, i.e. does the law work? Does it promote the betterment of the society? Hopefully, from these various data, we can start to establish a general legal theory that will work across the world.

Some interesting samples worth to think about that I found during my research:

Under classical Islamic laws, divorce is the right of men and can be done directly without having to wait a court order. This is not the case in Indonesian Islamic law as a divorce can only be done through a court process.

Under classical Islamic inheritance laws, the existence of female children does not block the rights of the deceased's brothers and sister, and commonly, the rest of the inheritance assets will go to the father as an ashabah (since a female child only receive half of the assets) if there are no other family members. Under Indonesian Islamic law, children, female or male, close the rights of the deceased's brother and sister, and the remaining assets will be shared equally.

An empirical research on the application of Pakistan criminal laws for homicide (see The Application of Islamic Law Criminal Law in Pakistan by Tahir Wasti) shows that such implementation does not reduce the crime rate, and in practice allows murderer to be free through diyat (blood money) mechanics, especially powerful people who can buy their freedom by paying the victim's family.

Ever wonder whether slavery is strictly prohibited under the Koran? Yes, freeing a slave can be a way to purchase a seat in the heaven, but there is no verse in the Koran that declares slavery as an evil act or considers slavery as a criminal activity with penal sanctions. More on this after I finished my readings on various literature about Islamic law and slavery.

I must admit that I am on crossroads with my research focus, should I choose Islamic law as my primary interest instead of corporate law and law & economics? Whatever my final decision would be, this is still in my agenda, a work in progress. Currently, I'm still in the process of collecting the data. The plan is to spend some of my time in Chicago to finish the rough manuscript. I would expect that the process may take years before I can be satisfied with the results, so wish me luck :).

Here is a rather gloomy article on the future of lawyering. I would say that while some US and UK law firms might face serious problems, the same thing is not happening in Indonesia, or rather, not happening yet. Will it someday happen? Might be, but I doubt that it will be soon.

The main issues raised in this article are among others: globalization (i.e. legal outsourcing), super expensive bills, and technology innovation that might reduce lawyers' administrative work. Compared to Indonesia, all of these issues are not relevant.

There is no incentive in Indonesia to do a legal outsourcing, especially to India, simply because the costs might be very similar. Expensive bills might be a case, but for most of foreign and local clients, Indonesian firm bills are still cheaper compared to international law firms (in terms of sophisticated projects) and surely Indonesian firms have a better understanding about Indonesian law in any case. Technological innovation? Yes it will help lawyer's job. But can it replace the lawyers? I really doubt it. It would be foolish to think that technology will replace lawyers completely or reduce their existence significantly in the future.

In my opinion, the legal market in Indonesia is strong. There are still a lot of works to do and there are also many types of clients and law firms. In this case, specialization is very important, either you want to focus on administrative tasks or chase the bigger fish and work on sophisticated transactions. In fact, even simple transactions need the expertise of lawyers. I've seen too many examples of poorly drafted contracts which will open an endless debate between the parties whenever their relationship goes sour, and yet, the transactions are not even that complicated.

One thing to remember though, while Indonesian lawyers might enjoy the current strong legal market, we should always remember that business always evolves. In the end the practice of lawyers will need to go with the applicable market practice and law firms must always be ready for such changes. As the law has evolved for thousands of years, lawyers should also do the same. That's why it is important to build an institution, a firm that will live on even when all of its founding partners have died or left the firm, a firm that can produce the next generation that will maintain the stability of the firm, generate new clients and income, and adapt to the ever changing world. Can Indonesian lawyers do this? Time will tell.

A very good source on various articles on Tort Law. I am still confused though, should we elaborate Tort Law based on the concept of justice or this is simply about pure economic matters? Hopefully you can find the answer in the articles listed there. Happy reading.

Here is an interesting article on coordination among government officials. Apparently, the United States faces the same problem with Indonesia, a lack of coordination between officials. I guess this is the problem when we have too many regulators. Some classical legal scholars argue that there are 3 pillars of a government: (i) the legislative (the house of representatives), (ii) the executive (the president), and (iii) the judicial authority (the court). However in this modern world, we need to add another pillar of government, the quasi-regulator a.k.a government agencies. Some examples in Indonesia: the Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK) and the Investment Coordinating Board (BKPM). Not to mention that specific ministries also have authorities to issue technical implementing regulations. The Ministry of Communication and Informatics could be a good example as this ministry governs many important sectors such as broadcasting and telecommunication.

From my experience, there is definitely a lack of coordination among government officials. To be honest, I don't understand why these guys don't meet and start to seriously work together in formulating clear and consistent policies, especially for sectors with high economic impacts. For ministries, this should be coordinated by the Coordinating Minister and supervised by the President, but I guess, that's still a dream in Indonesia.

By the way, the last time I joined a coordination meeting among different ministries for issuing a simple government regulation, it was a mess. Some officials only talk about the old precedent and don't want to make changes (which are actually necessary) simply because they need to discuss it again with their respective ministries. No coordination, no decision maker, and to add the problem, they don't want to listen to suggestions if those are not covered in their manual. Sometimes I wonder, with this kind of government officials, do we actually need a government to survive?

A couple of days ago I found this interesting article in Cafe Salemba. Their basic idea is that competition among law enforcers in fighting corruption, i.e. the Commission of Corruption Eradication ("KPK") and the General Attorney Office ("Kejaksaan") is good as it will increase the cost of bribery and the efficiency of the law enforcers. I beg to differ with this approach, since this will only work under 2 basic assumptions: (i) both law enforcers work in a professional and clean manner or both take bribes seriously; and (ii) cases can be easily transferred between law enforcers (though it seems impossible under the double jeopardy rule). Why do we need the above assumptions in order to ensure that the competition system will work? Because if not, one of the law enforcers can act as a save haven for the bad guys simply by guaranteeing the villains that their bribe will work and that they will be protected from the other law enforcer who don't receive any form of bribery, i.e. if you have been handled by the corrupted law enforcer, there is no way that you will be transferred to the other law enforcer. As a result of this, instead of creating healthy competition among law enforcers, we actually create another super criminal organization. Now this is what I called as a true "Law for Sale".

Designing anti corruption policy is indeed problematic and will need a thorough analysis. However, I would like to raise some general ideas that might be used in fighting corruption. Hopefully this can trigger a bigger discussion on how we can arrange the policy for the greater good of society. My post will deal with two designs, the design of penal sanctions and the design of the law enforcers (as a response to Cafe Salemba's post) Designing Penal Sanction for Anti Corruption Policy In my opinion, with respect to the anti corruption policy, the main focuses of our penal sanctions should be: (i) to ensure that the Government can retrieve all of the stolen assets (together with interests and any lost profits due to the inability to use those assets for certain period of time, and also the costs of investigating the cases); (ii) to prevent corruptors from repeating their criminal conduct and buying their freedom from any penal sanction; and (iii) to prevent the birth of new corruptors by imposing correct incentives. Does Indonesian anti corruption policy follow the above focuses? I don't think so.

What I see is that we only focus on sending the corruptors to prisons in the name of justice. I hate to say this, but it's useless. What's the purpose of sending these bad guys to the prison if you can't retrieve anything valuable from them and if they can still buy their way out of it? Prison only creates additional costs and expenses. It would be cheaper if we just give them death penalty. But then again, what for?

The biggest problem of corruption is that it diminishes the state assets. Those assets are supposed to be used for the greater good of the society, and we pay some of those assets from our taxes. Now, if the end result of our anti corruption policy is only to spend additional money to conduct the investigation for the purpose of paying the living expenses of these evil men in the prison, the entire policy is a big failure! It would be cheaper if we just let these corruptors run free. At least we don't need to pay for the expensive investigation process. If we really want to eradicate the corruption in accordance with the above focuses, the penal sanctions should be, among others: (i) taking over the entire assets of the corruptors (thus getting back the missing assets together with all of the interets and the lost profits); (ii) kicking out the corruptors from their official position and preventing them from getting any governmental position for their entire life (thus preventing their ability to repeat their criminal activities); and (iii) announcing the name of the corruptors in publicly accessed media (such as major newspapers) as a sample for their comrades (thus providing a good incentive for other would born corruptors to not follow the same path). Should we send the corruptors to the prison with the sanctions above? I believe, no. Our main interests have been satisfied, why bother imposing additional costs to the tax payer by sending these guys to the prison? What harm can these people do if they don't have any funds and access to perform their criminal activities? Designing Law Enforcers for Anti Corruption Policy In designing the policy for Anti Corruption Law Enforcers, our main focuses should be: (i) to create a task force that can deal with anti corruption cases quickly and efficiently; and (ii) to provide a better incentives for these law enforcers to perform properly. My first suggestion would be: adding more resources to the law enforcers which means that we don't need competition among law enforcers.

What we need is cooperation and collaboration! If there are 2 law enforcers, their performances should be linked. So a bad or good performance of one law enforcer will affect the other law enforcer. This can be implemented through the financial compensation of both law enforcers. I would prefer one single law enforcer though and add more resources to such body. My second suggestion: we can provide a good financial incentive in the form of granting a portion of the recovered state assets to the law enforcer who can successfully secure those assets from the corruptors. By doing this, we increase the cost of bribery to a new level. Imagine how much a corruptor must pay now to save his ass if he must compete with a portion of his own entire assets? This is also a good incentive to increase the performance of the law enforcers. Now, other than receive an honor as clean and professional law enforcers, they can receive a better financial benefit which is connected with their actual performance. It's time to bring this anti corruption fighting to a whole new business. This is my version of "Law for Sale".