There are two possible roles that the law can fulfill: protecting the weak from being exploited, or protecting the exploitation of the weak. In the first case it works for the interests of the poor, in the second case for the interests of the rich.

In the case of employment, trade unions successfully fought to implement laws that prohibit the most severe cases of exploitation. Namely, physical exploitation. What remains is financial exploitation: the ratio of annual wage to yearly gain per employee is mostly far below 1, meaning people do not at all get what their work is worth just because the company owners (or investors) have the right to the company’s organizational “shell” and market power – though that was built up with the labour of employees also!

In the case of self-employment where well-defined customer relations exist that are regulated by law, exploitation is also not much of a problem. Probably less of a problem that in the case of employees, who still suffer from financial exploitation. This includes for example companies like a doctor’s surgery, a pysical retail shop, a web shop, a cab company, a small manufacturer, being a hirer, and all craftsmen and other people who are paid by time. Among them are also freelancers who got a high reputation by some means, and can now demand being paid by time.

Now the problem is the case of the self-employed freelancer. There are no laws that protect him (or her) from even physical exploitation. The freelancer mostly has to give fixed-price offers, and the full risk of miscalculation is his. There is no minimum wage guaranteed by law – and this can drive him out of business. The problem is that a freelancer is in the economically weaker position: he has to fulfill obligations before getting paid, and needs the payment to exist. This seems to be a hole in the law system: for every other economically weaker party, the state created laws (like for tenants, employees etc.), but the freelancer has to negotiate his own rights though being in the weaker position. Bold freelancers can succeed here, but many others fail. It is also no solution to set up very rigid contracts with customers, ideally payment by time; as customers simply would not accept that as they are themselves often forced by their situation to avoid such high risks. And the state does not do something about this except calling it “precarious occupation”. The best thing is leaving this business area as fast as possible …

Looking at the other side of the scale, there are many laws protecting “possession”, and laws that implement rights so that possession generates more possession (the fact that interest rates are not forbidden etc.). Also, politiciany are currently (2008-2010) very eager to minimize the risk of investors by state-based guarantees that their loans plus interests are going to be paid back (see e.g. the Greece sovereign debt crisis). All these are laws that protect and increase the means of the rich (investors, people with a private or passive income etc..). Sad but true, this seems to make up the majority of the German laws, its primary intention.

Summary: I now see that law (or: a legal system) can be a good thing, because it can prohibit people to exploit each other (meaning, the stronger exploiting the weaker ones). Strict legislation and well-defined rights make it possible for people to get along with each other in a large society, even though you do not know the people you interact with personally. So even though you cannot trust the people you interact with, law makes meaningful interaction possible nonetheless because it guarantees you meaningful rights in the case the other party should try to exploit you. In the case of Germany, there are many good aspects where the legal system fulfills this role; but there are also many holes (see above), and many things where overcomplication makes law effectively unapplicable (e.g. through high process costs that you have to pay yourself if you win but the other party has no money).

My more visionary solution is however this: to live in a resilient, autarkic community of trustable people. Within it, very little laws are needed (just about getting and losing membership, and a daily time of “community work” for everybody). And in the external relations, no protective laws at all are needed: the community is autarkic, so is never in the weaker (exploitable) position because it needs nobody from outside. It would for example accept no fixed-price contracts, but demand getting paid by time. If customers do not want this: no problem, the community does not need customers.

There is another side to the medal of law-regulated protection from exploitation: this normally makes it possible for the protected “weak” persons to exploit the state that protects them, by drawing its welfare finances etc. without need, and without motivation to repay by working at ones maintainable capacity. We have such a free rider problem in the German welfare system, clearly. It simply means the waste of resources that are there: the workforce of unemployed but unmotivated workers etc.. (Note that the “free rider” designation is not applied here to the motivated unemployed – exactly those are what the state should be proud to protect from economic calamity by simply not finding a job.) So liberals are clearly right by saying that there is a free rider problem and that it has to be solved; but it does not get solved by the neo-liberal, laissez-faire, capitalist style of economy, as this effectively cancels also all the valuable protection of the weak just becaus of the free rider problem. Which is clearly an overreaction. But still, leftist people, Keynesian economists etc. need to find an answer for the free rider problem within their proposals – or their proposed system is not long-term maintainable. We should look at Scandinavic models for economy how this might be possible. If taxes would be guaranteed to be used efficiently (!) for the good of all (!), why not pay higher taxes? They would come back immediately or mediately (less crime, better educated employees etc.) to oneself. We have only a problem, therefore, in a state that is incompetent to use its tax money that way. See for a discussion of this and related problems: Wikipedia on the New Deal, and this ZEIT article.

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