Being Economically Legal

Said one friend to another, â��I am pursuing Economics and Legal studies.â�� â��What?â�� asked the other in shock. â��How can Economics and Law be studied together? There is no co-relation between the two. You should pursue either hardcore Economics or hardcore Law.â�� â�" This is the reaction we get when somebody expresses something out of the world and unestablished.

This article makes an attempt of co-relating or linking Economics and Law â�" an out of the world concept as you may term it.

As we all know, Economics is the study of human behaviour in relation to the unlimited wants and scarce means to satisfy them. But then, any Law emerges taking into consideration the same human behaviour. Economics tries to make a balance between the unlimited wants and scarce means and Law tries to avoid and penalize the human act which results from the same desire of satisfying unlimited wants but scarce means i.e. Frauds and Scams.

Co-existence of Economics, Commerce and Law makes for a complete economic atmosphere. Economics and Law need to go hand in hand in order to make the whole system work smoothly and efficiently and to get the desired results from the economic activity.

It should be understood that any economic activity to derive desired results should be backed and complemented by favourable legal provisions. A classic example can be given of The Industrial Policy of 1991. Liberalisation of the legal compliances and deregulation proved to be a boon for industries and that resulted in increased economic activities, growth and progress, the fruits of which we are witnessing now. Likewise, the Companies Amendment Act, 2000 which brought some forward looking provisions like Postal Ballot Voting, Buyback of shares, Directors Responsibility Statement, etc and increase in penalties for non-compliance to ten folds, has proved to be a boon for the shareholders. Shareholders are now assured of transparency, corporate governance which will lead to increase in confidence in companies, their goods and services and thereby results in increased demand and ultimately increase in economic activity.

Economic phenomenon â�" National and International â�" also initiates changes in the legal structure of a country. If the laws are extremely or unnecessarily stringent, then the transition to the particular economic change may become difficult and ultimately the country suffers. A classic example can be given of Globalisation, GATS, and WTO. Globalisations being an economic phenomenon, to reap the benefits of it, favourable legal enactments were necessary. So legislations like Limited Liability Partnership Act (LLP), New Company Law, New Foreign Direct Investment (FDI) norms were required to be brought. In other words, a global economic phenomenon brings about changes and new inclusions in the legal structure.

Under the GATS, the countries signatory to the Agreement are advised to reform their policies so as to allow foreign education institutions, foreign service providers, etc to establish a place of business in their country. In order to allow them, the country needs to amend the concerned laws and give the foreign entities the required legal status to work. The US wants India to amend the Intellectual Property Laws and bring them a par to the global practices. This will benefit the country immensely.

The above examples were of macro level. If we now think on a micro level, the relation between Economics and Law still exists.

Management strategies and policies are definitely based on Economics, irrespective of what type of the organization or sector it is. The implementation of these policies and strategies has to be in the given framework of the law at that particular time. Legal professionals who have studied Economic Laws like MRTP, Competition Act, IPR, Environmental Laws, etc. can well contribute in the strategy and policy making process, provided they have a firm base of knowledge in Economics. Legal professionals can have an edge over others in the management cadre. Knowledge of Economics will enable them to innovate new ideas, strategies and since they are already masters in Laws*, they can put those ideas and strategies to use. They can think whether any legal provision is a deterrent to the implementation of the said policy or strategy and provide solution to that, on the basis of their legal knowledge.

It should be remembered that, changes in the economic situations bring about changes in legal policies of a country. Knowledge of both â�" Economics & Law â�" can bring about a change in how an organization works.

We have a person before us, who is a master in law* and also has expertise in Economics. He is none other than our country�s Hon�ble Finance Minister, Mr. P Chidambaram. He was a hardcore Lawyer first and now a person who shapes our economy through policies.

So can we still say, �There is no relation between Economics and Law?�

* The phrase �Masters in Law� does not necessarily mean LLM or any masters� degree. Here it is taken as a qualitative concept.

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