{"id":232474,"date":"2025-07-08T07:15:28","date_gmt":"2025-07-08T11:15:28","guid":{"rendered":"https:\/\/today.uconn.edu\/?p=232474"},"modified":"2025-07-02T11:49:05","modified_gmt":"2025-07-02T15:49:05","slug":"the-rule-of-law-is-key-to-capitalism-%e2%88%92-eroding-it-is-bad-news-for-american-business","status":"publish","type":"post","link":"https:\/\/today.uconn.edu\/2025\/07\/the-rule-of-law-is-key-to-capitalism-%e2%88%92-eroding-it-is-bad-news-for-american-business\/","title":{"rendered":"The Rule of Law is Key to Capitalism \u2212 Eroding it is Bad News for American Business"},"content":{"rendered":"

Something dangerous is happening to the U.S. economy, and it\u2019s not inflation or trade wars. Chaotic deregulation and the selective enforcement of laws have upended markets and investor confidence. At one point, the threat of tariffs and resulting chaos\u00a0evaporated US$4 trillion in value<\/a>\u00a0in the U.S. stock market. This approach isn\u2019t helping the economy, and there are troubling signs it will hurt both the U.S. and the global economy\u00a0in the short and long term<\/a>.<\/p>\n

The\u00a0rule of law<\/a>\u00a0\u2013 the idea that legal rules apply to everyone equally, regardless of wealth or political connections \u2212 is essential for a thriving economy. Yet globally the respect for the rule of law is slipping, and the U.S. is slipping with it. According to annual rankings from\u00a0the World Justice Project<\/a>, the rule of law has declined in more than half of all countries for seven years in a row. The rule of law in the U.S., the most economically powerful nation in the world, is now weaker than the rule of law in Uruguay, Singapore, Latvia and over 20 other countries.<\/p>\n

When regulation is unnecessarily burdensome for business, government should lighten the load. However, arbitrary and frenzied deregulation does not free corporations to earn higher profits. As a\u00a0business school professor<\/a>\u00a0with an MBA who has taught business law for over 25 years, and the\u00a0author of a recently published book<\/a>\u00a0about the importance of legal knowledge to business, I can affirm that the opposite is true. Chaotic deregulation doesn\u2019t drive growth. It only fuels risk.<\/p>\n

Chaos undermines investment, talent and trust<\/strong><\/p>\n

Legal uncertainty has become a serious drag on American competitiveness.<\/p>\n

A study by\u00a0the U.S. Chamber of Commerce<\/a>\u00a0found that public policy risks \u2014 such as unexpected changes in taxes, regulation and enforcement \u2014 ranked among the top challenges businesses face, alongside more familiar business threats such as competition or economic volatility. Companies that can\u2019t predict how the law might change are forced to plan for the worst. That means holding back on long-term investment, slowing innovation and raising prices to cover new risks.<\/p>\n

When the government enforces rules arbitrarily, it also undermines property rights.<\/p>\n

For example, if a country enters into a major trade agreement and then\u00a0goes ahead and violates<\/a>\u00a0it, that threatens the property rights of the companies that relied on the agreement to conduct business. If the government can seize assets without due process, those assets lose their stability and value. And if that treatment depends on whether a company is in the government\u2019s political favor, it\u2019s not just bad economics \u2212 it\u2019s a red flag for investors.<\/p>\n

When government doesn\u2019t enforce rules fairly, it also threatens people\u2019s freedom to enter into contracts.<\/p>\n

Consider presidential orders that\u00a0threaten the clients of law firms<\/a>\u00a0that have challenged the administration with cancellation of their government contracts. The threat alone jeopardizes the value of those agreements.<\/p>\n

If businesses can\u2019t trust public contracts to be respected, they\u2019ll be less likely to work with the government in the first place. This deprives the government, and ultimately the American people, of receiving the best value for their tax dollars in critical areas such as transportation, technology and national defense.<\/p>\n

Regulatory chaos also allows corruption to spread.<\/p>\n

For example, the\u00a0Foreign Corrupt Practices Act<\/a>, which prohibits businesses from bribing foreign government officials, has leveled the playing field for firms and enabled the best American companies to succeed on their merits. Before the law was enacted in 1977, some American companies\u00a0felt pressured<\/a>\u00a0to pay bribes to compete. \u201cPausing\u201d enforcement<\/a>\u00a0of the law, as the current presidential administration has done, increases the cost of doing business and encourages a\u00a0wild west economy<\/a>\u00a0where chaos thrives.<\/p>\n

When corruption grows,\u00a0stable and democratic governments weaken<\/a>,\u00a0opportunities for terrorism increase<\/a>\u00a0and\u00a0corruption-fueled authoritarian regimes<\/a>, which oppose the interests of the U.S., thrive. Halting the enforcement of an anti-bribery law, even for a limited time, is an issue of national security.<\/p>\n

Legal uncertainty fuels brain drain<\/strong><\/p>\n

Chaotic enforcement of the law also corrodes labor markets.<\/p>\n

American companies require a strong pool of talented professionals to fuel their financial success. When legal rights are enforced arbitrarily or unjustly, the very best talent that American companies need may leave the country.<\/p>\n

The science brain drain is already happening. American scientists have submitted\u00a032% more applications<\/a>\u00a0for jobs abroad compared with last year. Nonscientists are leaving too. Ireland\u2019s Department of Foreign Affairs has witnessed a\u00a050% increase<\/a>\u00a0in Americans taking steps to obtain an Irish passport. Employers in the U.K. saw a\u00a0spike in job applications<\/a>\u00a0from the United States.<\/p>\n

Business from other countries will\u00a0gladly accept American talent<\/a>\u00a0as they compete against American companies. During the Third Reich,\u00a0Nazi Germany lost its best and brightest<\/a>\u00a0to other countries, including America. Now the reverse is happening, as highly talented Americans leave to work for firms in other nations.<\/p>\n

Threats of arbitrary legal actions also drive away democratic allies and their prosperous populations that purchase American-made goods and services. For example, arbitrarily threatening to punish or\u00a0even annex<\/a>\u00a0a closely allied nation does not endear its citizens to that government or the businesses it represents. So it\u2019s no surprise that Canadians are now boycotting American goods and services. This is\u00a0devastating businesses<\/a>\u00a0in American border towns and hurts the economy nationwide.<\/p>\n

Similarly, the Canadian government has responded to whipsawing U.S. tariff announcements\u00a0with counter-tariffs<\/a>, which will slice the profits of American exporters. Close American allies and\u00a0trading partners<\/a>\u00a0such as Japan, the U.K. and the European Union are also signaling their own willingness to\u00a0impose retaliatory tariffs<\/a>, increasing the costs of operations to American business even more.<\/p>\n

Modern capitalism depends on smart regulation to thrive. Smart regulation is not an obstacle to capitalism. Smart regulation is what makes American capitalism possible. Smart regulation is what makes\u00a0American freedom<\/a>\u00a0possible.<\/p>\n

Clear and consistently applied legal rules allow businesses to\u00a0aggressively compete, carefully plan, and generate profits<\/a>. An arbitrary rule of law deprives business of the true power of capitalism \u2013 the ability to promote economic growth, spur innovation and improve the overall living standards of a free society. Americans deserve no less, and it is up to government to make that happen for everyone.<\/p>\n

 <\/p>\n

Originally published in The Conversation.\u00a0<\/em><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Capitalism works only when rules are enforced fairly and predictably<\/p>\n","protected":false},"author":68,"featured_media":232475,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"wds_primary_category":0,"wds_primary_series":0,"wds_primary_attribution":0,"footnotes":""},"categories":[2460,1862,2235],"tags":[],"magazine-issues":[],"coauthors":[1902],"class_list":["post-232474","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-faculty","category-busn","category-today-homepage"],"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"publishpress_future_action":{"enabled":false,"date":"2026-06-17 01:59:20","action":"change-status","newStatus":"draft","terms":[],"taxonomy":"category","extraData":[]},"publishpress_future_workflow_manual_trigger":{"enabledWorkflows":[]},"_links":{"self":[{"href":"https:\/\/today.uconn.edu\/wp-rest\/wp\/v2\/posts\/232474","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/today.uconn.edu\/wp-rest\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/today.uconn.edu\/wp-rest\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/today.uconn.edu\/wp-rest\/wp\/v2\/users\/68"}],"replies":[{"embeddable":true,"href":"https:\/\/today.uconn.edu\/wp-rest\/wp\/v2\/comments?post=232474"}],"version-history":[{"count":1,"href":"https:\/\/today.uconn.edu\/wp-rest\/wp\/v2\/posts\/232474\/revisions"}],"predecessor-version":[{"id":232476,"href":"https:\/\/today.uconn.edu\/wp-rest\/wp\/v2\/posts\/232474\/revisions\/232476"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/today.uconn.edu\/wp-rest\/wp\/v2\/media\/232475"}],"wp:attachment":[{"href":"https:\/\/today.uconn.edu\/wp-rest\/wp\/v2\/media?parent=232474"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/today.uconn.edu\/wp-rest\/wp\/v2\/categories?post=232474"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/today.uconn.edu\/wp-rest\/wp\/v2\/tags?post=232474"},{"taxonomy":"magazine-issue","embeddable":true,"href":"https:\/\/today.uconn.edu\/wp-rest\/wp\/v2\/magazine-issues?post=232474"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/today.uconn.edu\/wp-rest\/wp\/v2\/coauthors?post=232474"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}