The Chronicles of a Capitalist Lawyer

Suppose one day a major automobile publicly listed company announces that it is selling a new cheap product that will allow people to have car more easily (for the sake of discussion, we will not discuss the externalities that people will face with more cars in the road). The car is a huge success for the company, generating a huge profit, and the stocks' value of the company has also increased several times in a year. But then, an accident happens, a gruesome one. Further independent investigation shows that while the probability of the accident is very low, around 1:100,000 per year, it can be avoided if only the company install a safety device.

Facing this result, the company announces to the public that to cut the costs of the car, it did not install the safety device required for preventing such accident. Why? Apparently, the cost for installing the safety device is around US$10 per car and since they produce 2,500,000 car a year, the total additional costs that the company will bear for a year is US$25,000,000. Meanwhile, by attaching a value of at least US$100,000 per person as a compensation for each accident and with the assumption that the car will be purchased entirely, the company estimates that the total costs of the accident per year wouldn't be more than US$2,500,000. So, by a simple cost and benefit analysis, the best option of the company would be not to install such safety device.

Soon this controversial information fills all the major newspapers. The enraged citizens are calling this company as an evil car company, and politicians demand the company to be responsible for such matter. Assuming that you are a policy maker, what will you do with this case? What kind of policy that you will formulate against the fact that the company has chosen not to install such safety device?

This is the first part of my post that deals with the basic question. I'll post my proposed policy but I would like to see first how my readers will respond to this kind of question. Your comments will be much appreciated.

All first year law students in any part of the world should know this principle: ignorantia legis neminem excusat or simply saying, you will not be able to defense your illegal act in front of the court on the basis that you don't know the law. This might be a simple principle, but there is a deep meaning here and I had a very nice discussion with Prof. Anup Malani this morning regarding this matter.

Try to consider this. Suppose you're attending a class of a "killer" professor. Most of the time, he only mumblings aimlessly. Then, on the final examination day, you suddenly realize that the questions presented do not contain a single thing that has been taught in the class. It's completely different and you stare blankly at the exam paper. What do you feel? That it isn't fair? That it seems like the professor is cheating the student? Well if you think so, I would completely agree. This is not fair at all. In fact, if I were you, I will definitely report the professor to the higher ups and ask him to be removed since this is so unprofessional.

But if you think it through, wouldn't you find the similarities between the case above and the legal principle that we are now discussing? With so many regulations issued each year, in reality we've already drowned in regulations (and the parliament is still thinking about issuing new regulations each year?). No human being, even the best lawyer in the world, can know and fully understand the entire law in a single country. And yet, with all of these facts, there would be no excuses for all citizens to say that since they don't know the law, they should be exempted from legal liabilities in case they mistakenly violate a law. How can that even be possible?

Apparently, there is a good economic reasoning for this certain principle and that is the fact that the cost of faking your ignorance of the law is so cheap (as easy as I say: "I don't know") that opening the possibilities of exempting people out of ignorance would be a major disaster for legal enforcement. Of course, this is not a perfect solution. When the laws aren't as many as nowadays and when the laws are usually still in line with basic common sense, adhering the non ignorance principle would be a good choice. But the case would be different with the current development in legal system.

One of the issues that was discussed today is the fact that there are a lot of new laws in the United States that criminalize acts without any mens rea element. Mens rea basically means the intent to violate the law or the "guilty mind". In other words, you can be criminalized for doing certain acts even when you do not have any intention to conduct such act. Let us take an example, suppose that there is a local law that restricts people to put their cars on the road sideways in certain hours. Say that the regional parliament members have their own reasoning and it is common for the people there to put their car on the road sideways. Wouldn't you be surprised when one day you are being fined for putting your car in the sideways without any warning whatsoever and you can't defense yourself on the basis that you don't know about that law?

What was considered as a good legal principle can be turned into a giant mess. Try the regional regulations in Indonesia. It's very hard to access any information about these laws, there are plenty of them, and each person, including companies, are expected to comply with all of the requirements set out under these regional laws. It does not work that way and a legal system that works like that is no different than legalized burglary.

Having said that, I have to admit that finding the right balance is difficult. On one side, we do not want to provide huge incentives to people to violate the law. On the other hand, we can't let government officials do as they please without proper restriction or we will end up with high cost economy in many part of our lives. Some suggestions would be: (i) with respect to criminalization, the government should be careful in not creating too many new criminal acts, it sends the wrong signal and it increases inefficiency in state management; (ii) even if we need to criminalize, adding the element of mens rea would be helpful in reducing unnecessary violation; and (iii) socialization of new laws is imperative and it would be better if the Government can introduce those kind of laws gradually. Remember the introduction of seat belt rule?

It's been a while since the controversial discussion on whether mini skirts induce men to rape women. Various debates have occurred but I would say that most of the times they miss the important points. You see, criminals are human being and to some extent they will calculate the costs and benefits of doing their criminal activities. It does not even have to be a sophisticated analysis, it can be in the form of a quick analysis that anyone can do by himself.

Let us use corruption as an example. The benefit? A huge amount of money to be used by yourself and maybe your family. The costs? Going to prison and/or losing your corruption assets. Then do a simple calculation on the probability of you getting caught by the authority and how severe the punishment will be. If you think that the probability of enforcement is low and that you can buy your freedom later on, then the benefits of corruption outweigh the costs. The result? People will have strong incentives to corrupt.

The same analysis goes with rape. Why do men rape? Is it because the urge of their hormones? Because they can't withstand the sexiness of a hot girl in front of them and thus they must channel their sexual needs by raping such girl? Well, those might be added to the equation, say the benefits of rape. But there are more important factors and those are timing and situation for the rape itself. A rational human being, even the stupidest one will never conduct a disgusting activity such as rape at the middle of the day in front of many people. The costs will be too big to bear by any rapist existing in this world. And there would be other ways that are far cheaper and less risky to channel your sexual needs in the above case, such as masturbation or even looking out for a prostitute (yes there are other costs associated with having sexual activities with a prostitute, but we can safely assume that the costs should be lower than raping a woman in front of the public).

Going back to timing and situation. Why do I say that these are the main factors in determining whether a rapist will conduct his evil deed? Timing and situation affect greatly the success rate of a rape! And each rapist who have minimum thinking capacity knows that if he has a good chance to rape someone and a small chance of getting caught, the benefits of the rape outweigh the costs. You know the rest of the story. Furthermore, I would assume that in the mind of the rational rapist, whether the victim wears a mini skirt or a long dress is simply a small factor in the equation. In the end, a rapist will do something to let the victim out of her dress, longer dress takes longer time, but that's it. If the timing and situation do not permit, I dare to say that no one will rape even an almost naked woman.

Even worse, rape is not a criminal activity that can be easily proofed in the court. Usually the crime is conducted behind the scene and the longer the crime is reported to the authorities the harder it would be to find any supporting evidence for bringing the rapist to justice. All of these facts minimize the cost of rape crimes! The fact that the public normally blame the victim does not help at all. To certain extent, it induces the authorities to think that the victims have a role in the crime and you may say this is as a baseless claim, but I would assume that such kind of thinking will slow them down in doing their job. Imagine this: a friend comes to you saying that he lost his wallet because he put it carelessly in a public park. Would you quickly help him, or will you say: "dude, that's stupid and is your own fault, and now you ask me to help you?".

Will all of the above things, how can we effectively prevent rape crimes? By not working together in creating a safer environment and instead blaming the victim, the general public are actually responsible for supporting the crime itself! Honestly, I don't even want to be a part of it. Would you want to be a part of such bad act? I hope not.

Note: For follow up readings on the economic analysis of criminal activities, I would suggest you to read the articles of Gary Becker (Crime and Punishment: An Economic Approach and The Economic Approach to Human Behavior can be a good start), a Nobel laureate from the University of Chicago. He writes a lot and has a very nice blog with Judge Richard Posner here.

Imagine that you are a voter in a general election for the newest legislative members. Suppose that you dedicate your own time to know each particular candidates in order to vote as an informed voter. You further realize that individually, your voting will be pretty much insignificant, you can't and will never know whether your voting will be a decisive one in case there are a lot of voters (let us just say that in the context of Indonesia, there are around 60 million voters). Calculating all the costs for doing your personal research and doing the act of vote itself plus your understanding of how insignificant your vote is, would you still call yourself as a rational being if in the end, you still vote? (To shed some light, the typical definition of rationality used in this discussion is the definition used by economist, rational person means a person who act for his own best interest)

This is the basic premise of the Voting Paradox's concept, at least the first part of it (I'll deal with the second part later). It genuinely asks why rational people vote even though the circumstances show that it's an useless act and costly. Is this a solid evidence that people are irrational? Or is there something else that we miss? From what I have read, there are a lot of explanations for this behavior, but no solid answers. Nevertheless, for the sake of discussion, I guess it would not be a problem if I share some of these theories to my readers. Maybe one of you can provide a better explanation.

Voting as a Way to Express Your Voice

The first theory argues that people vote because it is a way to express their voice. It might not be effective, but hey, people have not found a better way anyway, so why don't with stick with voting? Under this theory the act of voting is considered as a type of consumption. The satisfaction of voting comes from the act of voting itself, i.e. shouting your opinion and hoping that somehow your voice matters. At first, I consider this as a ridiculous theory, but then I realize, I'm doing the same with my blog :p

What can we conclude from this theory? Since the rationality is derived from the satisfaction of doing the act of voting, such satisfaction comes with certain expectation, there is an inherent cost and benefit analysis here. If you know the probability of your vote being significant is small, and thus the benefits of voting are uncertain, you would be less likely to vote if the costs of doing so are increased. A simple conclusion but apparently this is supported by some empirical findings. Some good examples, people are less likely to vote in a rainy day or if the voting location is too far from their home or if the registration process is too complicated.

Voting as a Strategic Act

The second theory argues that people vote when they think it is a strategic one. I would guess that the applicability of this theory is limited. First, there are not many occasions where voting can be a strategic one, such as in a election where the results will be close. Second, while this might work in smaller groups, it is difficult to asses when your voting will be a strategic one in terms of big elections.

Voting Due To Group Mobilization

The third theory's basic argument is simple, people vote due to group "pressures". I can agree with this. Sometimes, group pressures is the best way to encourage people to vote, whatever the platform of the group is. And I have a very good example of this behavior. In my university days, I saw how the University's Islamic student organization encouraged their members to vote for their candidates for student senates and they were quite persuasive in doing this (although persuasive might be an understatement). And these guys have won the election for many times. How can they win the election even though they are not the majority? Well it seems, being "rational people," the other students chose not to participate in the voting process, thus, giving a major benefit to the groups who vote militantly. This end result actually has a strong connection with our last theory.

Voting as A Game of Cat and Mouse

Suppose that we know that most people are rational and there is a huge probability that they will not vote since it's an useless act. In this kind of situation, what will you think? If you vote now, you voice will absolutely matter! You will be the determinant of the voting result. But then again, when all the people think the same, we'll back to square one, i.e. people are returning to the voting chambers, meaning your voice becomes worthless again. See how this resembles a game of cat and mouse?

It should be noted, however, that while this game can be cyclical in theory, in practice it can actually alter the end results. My case of the Islamic student organization is a good example. Other students didn't vote, they were skeptical with the election. Now, as a rational person, what would you do in the place of the Islamic student organization? Of course the answer is: gathering all the like minded people to vote for your interest and beat the majority that have chosen not to vote.

Conclusion

So, in the end, can we say that voting is an irrational act? Is there any Voting Paradox? I still don't have an exact answer. But my gut feeling says that voting is a rational act. My reason is simple, as long as the costs of doing so is not that significant, you should always vote and even better, encourage other people to vote too. And when calculating the cost of voting, you must also calculate the costs of not voting, such as getting people that you hate to lead you, or even worse, getting incompetent people that will ruin your life as your leader and you don't have any mechanism to put them down other than a bloody revolution (yeah, I'm talking about our honorable members of legislative board). I guess this is something that missing from the equation. There are costs and benefits of voting, but on the other side, there are also costs and benefits of not voting. To be an informed voter, we need to calculate both, or else, you'll end up thinking that you a are rational person, though in reality, you're just an ignorant fool.

Note: Most of my materials are derived from Stearns & Zywicki's Public Choice - Concepts and Applications in Law. A highly recommended book for the student of Public Choice Theory and anyone interested with Public Policy.

I can still clearly remember how I learn the law during my days at the University of Indonesia. I seldom took any notes, usually I preferred to copy my friends' notes which were available for a cheap price at our beloved copy center, Barel. Most of the time, I sat at the back of the class since I'd already known that I can found most, if not all, of what the lecturers said in the learning materials provided by them in the copy center. And lastly, I usually learned for my exams during the trip from my home to the faculty (which took around 2 hours). As I said in my previous post, life is pretty simple and easy in the faculty of law. I even once declared my faculty as the most relaxed faculty in the South East Asia (that's during my trip for an international student meeting in Korea in 2004 and it is based on comparison with what other students doing in South East Asia, Japan, China and Korea).

I must say though that the above system is not entirely bad. Since the students were not that busy, I had plenty of time to do other activities, including joining student organizations, doing personal research (this is how I can have the time to learn Islamic legal theories), reading other legal materials that were interesting to me, taking as many classes as I want (I once took 8 classes in a semester without any difficulties), and of course, dating my girlfriend who later on became my wife :p.

But I guess I can no longer maintain that learning style in the University of Chicago. Last Thursday, I took a simulation test for a criminal law course concerning criminal attempt (percobaan tindak pidana). Although my quick answers are correct, I can't finished the exam in time! The problem? I used too much time to read the cases which serve as the background for the exam's answers. The cases have been provided two weeks ago to the LLM students, but I only have the chance to read it once and I already forgot everything by the day I arrived at Chicago (just coming out straight from a 19 hours flight). Facing this dreaded fact, I quickly realized that having the ability to correctly analyze legal issues is one thing, but you can't trick the pages that you need to read in order to complete your analysis and make it as a correct one.

So while reading the materials for my corporate law course, I start to understand little by little how the US law schools shape their legal education. This Cases and Materials book is designed so that the reader can't get a full understanding of the legal issues without reading the cases and materials completely. There are no simple summarized issues that can be easily grasped and memorized like in Indonesian law text books. You have to walk through a maze of judges opinions and excerpts of law review articles, and analyze the arguments within before you can reach any conclusion on what you have learned from those materials. Like it or not, you are being forced to read and think it through. But by the end of the day, the concept will stay with you forever.

While I consider this as a good method for studying the law, I also realize that this method requires a lot of preparation and therefore, it's time consuming. I can understand now why people do not recommend us to take more than 4 courses. Heck, I've already spent much of my time just for one course, what about the other 4 courses that I'm also taking? Wish me luck.

You can read the post here. Enjoy.

I've spent the last three weeks collecting law journal articles for my personal research and I was very surprised when I realized that I had obtained around 900 articles from only 20 or so US law professors. I note that Richard Posner and Cass Sunstein are probably the most productive ones. Posner himself has written more than 290 articles for law journals (that's what I've gotten from Hein-Online) and I know that he also write countless books and opinions as a federal judge. So yes, saying that he is a prolific writer would be an understatement.

My first reaction to this fact is making a comparison with Indonesian law professors. Honestly, it is very rare to find Indonesian law professors who actively write their thoughts in Indonesian law journals or books. Heck, it is even harder to find law journals which can survive their first publication. To the best of my knowledge, most professors spend their times writing newspapers op-ed or acting as expert witnesses. It's a pity, but I cannot blame them entirely.

The Problem of Compensation and Lack of Funding

There are two key issues relating to the poor performance of our professors and journals. First, it's the lack of compensation . It's just too small compared to their US counterparts! A US law professor in a prestigious law school can obtain around US$150,000 dollar per year. By Indonesian standards, this is ridiculously huge. Even the salary of a senior lawyer in a first class Indonesian law firm does not reach that amount. The last time I heard about the salary plan for a professor in University of Indonesia, it's around Rp10 million per months or around US$14,000 per year (not clear though whether this is a gross or net amount). For junior or mid term lecturer, the salary is even lower.

The fact that the legal status of some state universities is in turmoil does not help solving the above problem. Not only that it is not clear how universities should be able to procure their own internal funds, the employment status of their lecturers are confusing. What are the incentives then for them to focus on doing useful research and producing high quality academic products?

A major source of this compensation problem is lack of university funding. I must admit, there is a huge discrepancy of school fees between Indonesia and United States and it affects the overall compensation for the professors and lecturers. Imagine this, between 2001 and 2005, my yearly tuition fee for studying at the Faculty of Law, University of Indonesia is around US$250 (assuming that US$1 is equal to Rp9,000). That is 1/192 of my current tuition fee at the University of Chicago. I know that University of Indonesia's tuition fee has increased considerably within the last 6 years, but I am quite certain, it is still far away from our US counterparts.

Tuition fee is the primary source of university funding, other than sponsors and donors. That's the hard fact. Asking universities to cut down their fees while requiring them to maintain or even improve their quality is absurd. Asking the government to finance the entire education costs is also difficult, especially in a period where we don't know whether having a government is worse than having no government at all. Two basic principles that should be adhered: (i) great education does not necessarily have to be cheap and (ii) people should not be discriminated from getting high quality education based on their poor financial condition. The solution? Cross subsidy between the rich and the poor.

Another way for getting fresh money for the University is by finding a sponsor. I applause University of Indonesia's decision to bring Starbucks to the campus. If these shops can attract more money from the rich kids and they are being used to foster the University, why not? Unfortunately, instead of having realistic and pragmatic debates such as does the University get a good deal from this transaction and does the University put the money for good use, we have some ridiculous debates on whether this decision brings the University of Indonesia toward consumerism or whether it is appropriate for the University to bring Starbucks, which is owned by a "villain" (by the way, the said villain's company owns countless major products and brands across Indonesia and I wonder whether people know that they might actually use the products without knowing who own the company, but that's for another discussion on liability of shareholders and their companies), to the campus area.

As long as this funding issues cannot be solved, I do not expect that the life quality of the professors and lecturers can be significantly improved and the incentives for them to perform better are getting smaller. Why do you think that professors choose to write for op-eds instead of journals? It's a gate for becoming famous, and once you're famous, Indonesian people will mostly hear what you said. Then you can become an expert witness or a speaker in seminars and workshops. The payment is quite good. Why bother doing research that produces almost nothing?

Another people may argue that being a lecturer means devoting yourself for the betterment of the society. True, but it is hard to find those kind of people, and even if you find them, how many of them will stay the same for a long time if they can't properly feed themselves and their family. In the end, incentives matter. Compensation means a lot, and you can't expect to have a better compensation with lack of funding.

Lack of Research Culture

This might sound like a broken record, by the second key issue is very typical, there is a lack of research culture in Indonesia. I don't have a solid empirical data to back up my claim, but at least for the subject of law, I have not found any legal groundbreaking ideas for the past 10 years, either in the form of books or journal articles. The days where professors wrote countless books, such as the legendary Subekti and Wirjono Prodjodikoro, are over. I think the only remaining productive legal writer is J. Satrio and that's it. Most professors only publish unedited anthology of their articles and therefore it's difficult to find a coherent and systematic thinking within the book.

I can also tell my experience during my law undergraduate study days. Most of the time, the lecturers have already summarized the reading materials to be read by the students and they instruct to student to purchase those summarized reading materials. Yes, learning is easier by this way, but it also discourage our reading and writing culture which is essential for creating a culture of research! I can tell you that living as a law student, at least in my time, was not that hard. In fact, I had plenty of leisure time during my study. If you really want to advance your own thoughts, there are no other ways than investing your own time to read materials and write by yourself. For some people this is good, meaning that they will have additional time to learn new things without having to cope with too many tasks from the school. The ultimate question is, how many people actually choose this way?

Since the professors and lecturers don't have enough time to maintain their student (i.e. too busy to do other additional jobs), they usually don't give the students plenty of reading materials or ask the students to make papers. Even if they do, papers are usually made in group. Furthermore, since they won't have much time to read too many papers, grades are usually determined by a mid test and a final test. If you have read the summarized reading materials, I can assure you that you should be able to obtain good grades. Thus the vicious circle of our legal education is created. The lecturers have little incentives to conduct academic researches nor to encourage students to do their own research and the students also have little incentives to give extra effort in their study since in the end of the day, they can always survive the test by only reading the summarized reading materials. Life is easier, of course, but it's a dull one.

To solve this vicious circle, there is no way other than giving the correct incentives and I say the first priority should be given to the academics since they are the life and blood of the university. Without them, there would be no one to educate the students. So compensation should be the start.

To close this post I want to show the irony in Indonesia with respect to the quality of the University outputs. The admission test in Indonesian Universities is extremely competitive. I bet that getting admitted at the University of Indonesia is harder than getting admitted at Harvard (in terms of the amount of people submitting their application and the percentage of those who are eventually admitted). Yet, with such rigorous application process, we are not yet able to produce the quality of output as good as Harvard. Isn't that a waste of time? Collecting the best of the best of Indonesian young students but fail to nurture their maximum potential. Let us do what we can to contribute for the betterment of our legal education system.