In relation to Kaplow’s and Shavell’s claim, Ward Farnsworth argues that people may have larger tastes. People have tastes for decision makers, institutions and processes that include fairness in setting legal policy and making everyday decisions.9 Farnsworth considers this as a way to distinguish between tastes for particular rules and results and tastes for processes of generating rules and results (including decision makers).10
In addition to the arguments of Kaplow and Shavel above that the taste of fairness cannot be proved empirically, their other reluctance to base the making of legal polices on ‘fairness’ is due to their belief that legal decisions should be based exclusively on their effects on the welfare of individual. Consequently ‘welfare economics’ is the only and the most appropriate consideration in the making of legal policies. This is because ‘welfare economics’ encompasses people’s individual levels of material comfort, their aesthetic fulfillment, any item or feelings they might value, however intangible it is.11 Many welfare economic proponents including Kaplow and Shavell insist that welfare economics is the science of improving well being, and should always be their only explicit rationale for making decisions. Therefore, if economic welfarism is given no complete ground for legal policy making, then that weighting not only will risk creating a reduction in overall social welfare but also make every individual worse off. In brief, Kaplow and Shavell insist notions of fairness will make individuals worse off and thus should be discarded.12
The arguments of Kaplow and Shavell were criticized by Ward Farnsworth. Farnsworth asserts that economics is inadequate to explain answers to questions of policy in areas where the intricate and debated issue is how much certain goods should be valued – what should be count as cost and as benefit. Consequently, many doubts will surface on legal policy matters where market centred valuation is unavailable and empirical testing of peoples’ taste is unlikely. 13
The formal theory of cost-benefit analysis is based on foundations that assume each individual has well-defined preferences over policy results. This theory was asserted by Professor Lewis Kornhauser in a conference of cost-benefit analysis and a paper published by the Journal of Legal Studies, The University of Chicago.14 Kornhauser further reiterates that these preferences must fulfill certain conditions. These conditions must be sufficient enough to assess policy outcomes including ones that are risky or uncertain and ones that may implicate irreplaceable commodities.15 The use of cost-benefit analysis to measure ‘welfare’ is certainly appropriate in this regard, but there are also other criterion (methods) used in policy analysis. One good example is the maximization of quality-adjusted life-years (QALYs) which is of course nonmonetized and used in some public policy areas.16 In theory, when compared to cost-benefit analysis, this method is less ambitious.17 This is because QALYs only determine how allocation of fixed budget is done across policies.18 However, cost benefit analysis can determine the number of resources allocated to ‘risk-reducing’ or ‘environment-enhancing’ actions.19 As a result, cost-benefit analysis seems the sounder option.20
By virtue of the arguments above, it can be deduced that even if - as Kaplow and Shavell suggest – that cost-benefit analysis is superior to fairness as ‘fairness of a decision reflect crude beliefs or intuitions about the costs and benefits at stake’,21 it can’t be solely accepted as an approach to a decision. The benefits of either approach probably cannot be compared vis-à-vis, but it could also be possible that the enhancement of overall welfare be achieved by making specific decisions on a basis other than welfare.
Which approach is adopted by the Australian legal system?
Society as a whole has certain objectives. One of these objectives is to improve the well-being of all members of society. The question may arise how to create a legal system that will maximize well-being if it is accepted that the ‘final cause of law is the welfare of society’ as professed by Benjamin Cardozo.22 Society possibly views nonwelfarist values like fairness as a mode of enhancing social welfare. Yet, ‘some law and economics analysts proclaim that considerations of fairness are incompatible with their standard of welfare, Pareto optimality’,23 as Spigelman argues. Then, the relevance of standard should be questioned not the relevant of fairness.24 In addition, judiciary that are bound by the law, agencies that implement rules faithfully, decision makers that decide totally on merits and everybody cooperating equally are what societies strongly desire.24
In the context of law, taking fairness into account would serve as a heuristic to enhance welfare more effectively than other methods, namely economic analysis. This is very much acknowledged by judges.25 Thus, supporting Chief Justice Spigelman’s assertion that justice can be served in courts if considerations of fairness are used.26 This is because the substantive rule of law and procedures by which the law is administered is also affected.27 This is true because laws promote social justice in order to obtain welfare, therefore the main considerations in the making of legal policies should be given to the approaches of fairness rather than ‘welfare economics’. In the Australian laws, a number of legislation can be drawn as the examples of laws promoting social justice such as civil rights acts that encourage equal opportunity for all citizens, labor laws that require employers to negotiate with employees for a fair share of economic gains,28 and voting laws that permit all citizens to participate to the greatest possible extent in government.
However, it does not mean that considerations in the making of legal policies in the Australian legal system merely weight in the values of fairness. The legal system in this country has applied a mixture of welfare economics and other considerations, namely ‘truth, justice, rights and fairness’ as it can be ascertained from the Australian approach to public policy is generally referred to as ‘economic rationalism’. This approach can be found under the application of Trade Practices Act 1974 (Cth). This Act reflects the combination of welfare economics and fairness-based analysis in order to suit to everyone, thereby it makes everyone better off and hence is favored under welfare economics, and it is favored by the identified notions of fairness as well.29
The Australian Legal System Includes both fairness and welfare economics. Therefore, they aid in identifying legal policies that enhances society’s well being. The application of corrective justice in the Australian Legal System is a classic example as future harm is deterred; thus enhancing society’s welfare.
In the Australian legal system, the combined approach between ‘ the value of fairness’ and ‘welfare economics’ is adopted to the making of legal policies. This approach is usually known as ‘economic rationalism’ as held by Chief Justice Spigelman.29
Conclusion
This essay aims to evaluate the claim of Chief Justice Spigelman who asserts that in the context of the legal system, the values of truth, justice and fairness demand primary consideration for the purpose of making legal policies. The result of this evaluation will provide an answer as to whether legal policies under the Australian legal system should be based exclusively on their effects on the welfare of individuals (welfare economics) or explicitly on complete grounds of fairness and justice.
The entire discussions in this essay apparently show that there are pros and cons as to whether the notions of fairness should be set aside in the making of legal policies. Those who support ‘welfare economics’ as the only considerations in the making of legal policies purport to apply a market ideology to virtually any aspect of the law, to all legal institutions and to any participant in the legal process. For this purpose, these walferists set up a dichotomy between two ways of evaluating legal policies, namely on the basis of welfare or on the basis of fairness. The walferists eventually conclude that legal policies should rely exclusively on walfare economics in making decisions and give no independent weight to fairness or other considerations.
Distinctive from the approach of the welfarists above, those who remain steadfast to believe that the fundamental values of the legal system are ‘truth, justice and fairness’ reject the apparoach of the welfarists. They argue that the notions of justice and fairness have a legitimate and probably inevitable place in the making of legal policy even if the purpose of the enterprise is to improve welfare. Yet, it does not mean that those who oppose the arguments of the welfarists do consider ‘welfare economics’ are not relevant to be relied for the purpose of making legal policies. They believe that a mixture of welfare economics and other considerations, including the values of fairnes, rights and justice are the appropriate sources of guidance for the making of legal policies. They explicitly argue that a successful market economy is the product of good government and of the law. In the words of the famous Adam Smith in his book the Wealth of Nations :
Commerce and manufactures in short, can seldom flourish in any state in which there is not a certain degree of confidence in the justice of government.30
This mix approach stated above is also adopted by Chief Justice Spigelman. In the context of the Australian legal system, this approach is also adopted by using the term economic rationalism.
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Including the ideas of ‘justice’ and ‘rights’: see Louis Kaplow and Steven Shavell, ‘Fairness versus Welfare’ (2001) 114 Harvard Law Review 961, 975-6.
9 Ward Farnsworth, ‘The Tastes for Fairness versus Welfare’ (2002) 102 Columbia Law Review 1992, 1997.
11 Kaplow and Shavell, above n 4, 968.
12 Kaplow and Shavell, above n 4, general deduction from overall article.
13 Farnsworth, above n 9, 1992.
14 Lewis A. Kornhauser, ‘On Justifying Cost-Benefit Analysis’ (2000) 29 The Journal of Legal Studies 1037, 1039.
21 Farnsworth, above n 9, 1993.
22 Benjamin Cardozo, The Nature of the Judicial Process (1921)
23 The Hon James J Spigelman AC, ‘Economic Rationalism and the Law’ [2001] UNSWLJ 19, 5.
24 Farnsworth, above n 9, 2002.
26 Spigelman CJ, above n 23, 5.
28 See, eg, preamble for the International Labour Organisation Act 1947 (Cth)
29 See s 2 of the act as it explains the purpose of the act which relates directly to the two approaches mentioned.
29 Spigelman CJ, above n 23, 1.
30 Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (Encyclopaedia Britannica ed, 1952) through updated Cd-Rom Version (2003).
