Free Enterprise - Principle 6

Select your language

Read the Previous Principle, Read the Next Principle, or Return to Table of Contents

Principle 6: Rule of law is important so workers, owners and investors know that investments they make today will be treated fairly in the future.

A judge in robe with gavel

When an investor contracts for a 9% return on his investment he wants to know it can’t be changed to 5% in the future. Rule of law is what keeps this from happening to him. The judge makes sure laws are upheld so there will be fairness for all. If a worker is contracted to work for $9 an hour, he wants to know the owner can’t change it to $7 an hour after he has gone to the effort and expense of moving his family to the new job location. If an owner builds his factory to government specifications, he wants to know the government can’t change the law in the future and say his building is illegal!

Rule of law is what protects workers, owners and investors from having the rules changed. Rule of law keeps things predictable. People will take the risk to start a new business, or move their families to a better paying job, if they know the rules cannot be changed on them. Rule of law says greedy people cannot change conditions just because it will benefit them to do so.

Rule of law also says all people must be treated fairly. It is illegal to pay one group an hourly wage to pick fruit, or operate machines in the factory, and another group a lower wage.

In countries ruled by law, the economy is usually efficient and prosperous. It is illegal to pay bribes to officials to get special favors. If an owner’s factory does not pass safety inspection, he cannot pay a bribe so the inspector will let him slide by while another owner is required to meet the safety requirements. In the long run, bribes are inefficient and costly and only hinder, not help, the economy. Rule of law prevents rule by bribe.


When Allen and Andre met with Sabetha, Marcella, Kovrich and David they had primarily one thing in mind—protecting their contracts and future profits for years into the future. They were willing to work hard, to put in extra hours to make the hut building business a success, but they wanted to be sure that payments owed to them in the future would actually be made. They knew people can change their minds and so might not want to keep paying in the future. So, they had gathered the leaders in hopes they could reach decisions that would give them protection far into the future.

In a friendly tone, Andre started out. “We trust you guys and most of the other kids here, but we need to make sure ALL agree to go by the plans, you know, the regulations you might say. We don’t want to be cheated out of our money down the road. We want regulations or laws to be what rule. That way, people can’t get mad or something and just up and change their mind! We don’t want emotions to rule—they change too often.”

“And it is not just for us,” Allen spoke up. “The kids we hire to build the huts, and the people that put together the materials we will be using—everyone needs to know that agreements made this year will be honored next year, and the after that, and so on.”

Kovrich was eager to get his voice heard. “I sure wouldn’t like it if David and I prepared all the window plastic for someone’s hut and then they could go back on their word and get away with it! I agree, rule of law is important or anyone could get hurt.”

“Everyone deserves to be treated fairly,” David said. Then he looked sharply at Sabetha, but no one seemed to notice his glance. “If we have rule of law, then greedy people can’t change things just because it would be good for them. Law rules! They’ll have to go by the law!”

Sabetha and Marcella clearly wanted rule of law so the money they were going to invest would pay off in future profits. They didn’t want conditions or rules to change in middle of the process!

“It only makes sense,” Marcella said. “I make deals today, and I want the law to stand behind me tomorrow … you know, to protect me. You better believe I am for rule of law—I don’t want anyone turning the tables on me after I have already taken the risk.”

“I have another reason for wanting rule of law,” Sabetha said. “Where there is real rule of law there is very little bribery. I know from being around my parent’s business — bribery makes everything cost more. It breeds dishonesty. I don’t like it! It has no place in efficient business.”

They took a vote. It was unanimous. They would be a society ruled by laws, not by whimsy. Their business would be conducted under the rule of law.

“So, it looks like we have an agreement” said Andre. “We have made the decision to run our little economy by rule of law. That’s good. I think it will make us more efficient and prosperous!”

Amid nods and smiles the group broke up for the evening. Each felt good. Here in their little valley, probably lost to the outside world for years and years and maybe forever, they had a way to move forward. Rule of law would not only keep economic conditions more predictable as they developed businesses in their new life in this valley, but people would be treated fairly. No one could bend the law just to satisfy his or her greed!

There was a feeling of, “we are going to’ make it! We will pull together, treat each other fairly, and start businesses and take on jobs that meet our needs for everyday living. YES, we can do this!”

Activity: There are two points to be made with this principle: Rule of law 1) prevents someone from making changes unfairly for self gain and 2) prevents the costly and unfair practice of bribery.

Tell the students they will be given a small prize if they can write the names of at least ten (or five or six) countries on a sheet of paper in one minute. After explaining, you say, “Start now.” Give them one minute, then say, “Stop writing.” “How many wrote at least ten?” Some will have done so. Teacher says, “Oh, I changed my mind! I am only going to give a reward if you wrote 25 countries.” The students will complain. Encourage their complaining. “You think it is unfair? You want the rules to stay the same? Why?”

Finally you can say, “I wanted to make the point of principle six: It is unfair to change the rules. When the system is unfair, people will not want to be a part of it!” Give the small reward, perhaps a penny or a pat on the back to those who had ten countries.

Teacher says, “I want to make one more point from principle six.” Tell them the following skit is just pretend—they can’t keep the money. Have two students play the parts of two sick grandmothers. (Sit in chair in front of class and act sick) Have another student come up and be the “bad” shop keeper. He has medicine to sell. It is the medicine grandmother needs to stay alive.

Quietly tell one grandmother she has only $30 to spend. Quietly tell the other grandmother she has $40 to spend. Take the shop keeper student aside and quietly explain to him/her how to act this part.

Now, have the shop keeper go back and forth between grandmothers asking how much each will give him for the medicine (the regular price is $15). The price keeps going up as they offer him bigger and bigger bribes—to give him secret money on the side for his own pocket. Finally, shop keeper gives the needed medicine to the grandmother who pays the biggest bribe!

Discuss with students: Is it fair? Does it make things cost more or less? Does it leave some people out? While it may help the few who demand bribes, does it help the economy and the society?

Read the Previous Principle, Read the Next Principle, or Return to Table of Contents