Chicago Global

Comparative Maternity Leave

It is well known that the United States has one of the least generous parental leave policies in the world. A current project of mine is to try to explain why this is so, and then to project the likely future path of law and private practice in this area. I am very eager for insights arising out of other countries' law and practices, and so I welcome readers' comments and observations.

I begin with a few observations, and then I will return in a subsequent post to a few theories. First, in the U.S. only recently has law required employers to hold jobs for employees who take leave to give birth, beyond that leave which they may have under disability clauses. Meanwhile, most other countries, ranging from rich ones to poor ones, promise paid leave for weeks or months. Some extend the leave to fathers, but for the present I focus on the most basic maternity leave. In some countries the cost of paid leave is shared between the government and the employer. My first observation is that the U.S. system is "upside down" compared to others, and can be seen either as regressive (in terms of income) or simply as designed to respond to market pressures against a backdrop in which there is an expectation of participation in the labor force by women. Thus, many private firms in the United States offer astonishingly generous leave (astonishing as compared with other countries) to highly paid employees.  Many law firms give several months paid leave in the event of maternity, and yet paralegals or secretaries at the same firms may get only a few weeks of paid leave. In many other countries, indeed in most, the "paid leave" is capped at something like the social insurance wage.  A banker or lawyer in the U.S. might get $100,000 worth of leave time; the secretary in the same firm might get $3,000; the delivery-person who works for a vendor to that firm might get $0 (or perhaps we should put some option value on the promise of the job held open, as required by law).  Meanwhile, in many other countries all three persons would get the equivalent of perhaps $10,000. We might say that the private market perceives that generous maternity leave is a means of attracting women to high-end jobs, and perhaps of retaining them as well, while the political "market," or moral climate, in most countries is more egalitarian, to be sure, but not necessarily more generous in terms of overall cost or aggregate benefits.

It goes without saying that if private employers offer real (market wage rather than minimum wage or social insurance level) paid leave to enough employees, there is less political pressure for the social insurance approach. Note also that birth rates and child health do not explain very much of the international variance.  They explain a little, such as Scandinavian generosity, perhaps (longer leaves, with paternity included if not required), but not much.

I do not believe that any system ties its benefits to retention. Many systems have vesting periods, so that one cannot begin work and then very soon thereafter earn paid leave. But I do not think any requires that a portion of benefits be forfeited if the beneficiary does not return to work. I will return to this possibility - and to why we are likely to abhor it in a future post.

EU merger control: a new episode in the coordinated effects saga

Today the Court of First Instance (CFI), the first level of judicial review of the EU Commission decisions has annulled the authorization granted by the Commission to the Sony BMG merger.

The transaction involving the two music powerhouses was a 5-to-4 merger in the European market of online music, raising concerns as to the possible creation of a collective dominant position.

Under both US and EU merger control rules, a merger results in a substantial lessening of competition when it makes collusion on the post-merger market more likely or more effective than it was on the pre-merger market (coordinated effects).

The assessment of coordinated effects, heavily relies on the principles of oligopoly theory, as shaped by the work of George J. Stigler (See Stigler, A Theory of Oligopoly). In particular, a conclusion on coordinated effects may be reached considering (i) the ability of the parties resulting form the merger to reach a common, profit-maximizing strategy, (ii) the ability of the same parties to detect deviations from such a strategy, and (iii) the ability to timely punish firms deviating from the concerted strategy.

The EU Commission has adopted this approach in assessing the Sony - BMG merger and has authorized it, considering that, in the pre-merger market, there was no sufficient evidence of retaliation by or against any firm active in the online market and, therefore, the third prong (ability to punish) of the above test was not met. However, the CFI has found that the latter conclusion is flawed.

The Court has stated that, in order for the third prong of the test to be satisfied, it is not necessary that retaliation has actually taken place in the pre-merger market, being enough that retaliation mechanisms are in place on the market and ready to be employed against deviating firms.

This position is justified by the consideration that, where coordination is effective on the pre-merger market and all the players abide to the common strategy, there is no need for punishment. Therefore, absence of punishment should not be mistaken with absence of effective collusion in the pre-merger market. Of course, it is true that a definitive conclusion on coordinated effects can only be reached by taking into account all the structural features of the market and the behavior of the firms on that market.

During this year I have had the chanche to study the Commission decision on SonyBMG and to compare it with some other EU merger cases involving coordinated effects, such as Gencor and Airtours. The Sony BMG decision by the EU Commission appeared prima facie inconsistent with the previous Commission practice. Of course this was primarily due to the CFI judgment in Airtours. However, my impression was that the EU Commission, after Airtours, was adopting a correct economic approach to coordinated effects, but combined with a burden of proof which was too heavy to be appropriate in merger control cases. I have analyzed the problem in a paper which I posted on SSRN in May and can be downloaded here.

Libertarian Paternalism and a Nationwide DNA Database

In numerous countries, there is considerable debate about establishing or expanding national DNA databases as an investigation tool for criminal law enforcement. The potential benefits of such a database seem enormous in this field: A comprehensive DNA database would not only help to solve crimes more easily, it would also function to prevent future crimes by preventing multiple crimes committed by the same offender and deterring crimes from being committed by other offenders. Finally, DNA evidence can play a large role in exonerating innocent suspects either if the true perpetrator is identified using the "genetic fingerprint" or if the innocent suspects genetic material is not found at the scene of crime.

Many countries have already introduced some forms of collecting DNA samples of criminals. Great Britain established the first criminal DNA database in 1995 and has now the world’s largest of such databases. With great success New Zealand has set up a DNA database including not only coerced samples of convicted felons but also samples of volunteers: Currently, approximately 55% of the crime scene samples match an individual sample present on the database (ESR, The DNA Databank, at http://www.esr.cri.nz/competencies/forensicscience/dna/DNAdatabank.htm, last visited May 14, 2006). In the United States, all states collect samples from certain convicted sex offenders, while some states even require collection of samples from all felons both violent and non-violent. A number of states restrict the types of criminal investigations allowed or require a court order for police access to the database. In addition to the individual state DNA databases, the FBI has created a national DNA database allowing for the exchange of data between the state databases (Combined DNA Index System, CODIS).

The best results in solving and preventing crimes as well as reducing wrongful arrests would arguably be achieved by a comprehensive population-wide DNA database (Kaye, D. H. / Smith, Michael E., DNA Identification Databases: Legality, Legitimacy, and the Case for Population-Wide Coverage, 2003 Wis. L. Rev. 413 (2003)). There should be network effects to large participation in national DNA databases. The more people participate the higher the success rate in solving and preventing crimes. Perpetrators that are part of the database would be found and convicted more easily, and if they are not part of the database the pool of suspects would be at least greatly reduced. Furthermore, people that are registered in the database will be more reluctant to commit crimes in the first place given their higher chances of being apprehended and punished. Moreover, law abiding citizen would not need to worry about being erroneously suspected to have committed a crime since they can quickly clear their name using the genetic data. Finally, it can be argued that the present practice of collecting DNA samples of only convicted persons creates an inherent bias in the system against certain groups. For example, the large number of felons who are black males also increase their abundance of black males in the databases and therefore lead to higher conviction rates in that part of the population (Kaye/Smith, 2003, 454). A nationwide DNA database could avoid such inherent biases.

However, assuming the desirability of a population-wide DNA database, if a government would introduce such a scheme on a voluntary basis, one would expect low participation for numerous reasons discussed below. The concept of libertarian paternalism could be a solution to the participation problem. This concept allows for steering people’s choices in welfare promoting directions without eliminating the freedom of choice (Sunstein, Cass R. / Thaler, Richard H., Libertarian Paternalism is not an Oxymoron, 70 U. Chi. L. Rev. 1159, 1162 (2003)). Applied to DNA databases, the idea is to switch the default rule to mandatory membership in the national DNA database with the right of each individual to opt out of this default. Practically, one could take a DNA sample of each newborn (and each immigrant) and store it safely without government access until the 18. birthday, when each individual receives the right to opt out of the database and have their genetic material deleted. (Possibly there should be an exception from the right to opt out of the database for persons that already committed certain crimes at that point.) In this case, there is no alternative to paternalism (Sunstein/Thaler, 2003, 1180-1182): Once you agree on the desirability of a comprehensive DNA database, the government has to set the default rule one way or the other. Social welfare can be maximized by setting frames and defaults in a welfare promoting way while still respecting the individual choice not to participate.

In this setting, two defaults can be imagined: either having a no mandatory participation in the national DNA database with the option for people to voluntarily opt-in into the database (as used in New Zealand today); or having mandatory registration in the database with the right to opt-out (as suggested by libertarian paternalism). In order to assess whether switching the default rule to mandatory participation with the right to opt out will reach higher participation rates, it becomes necessary to examine the reasons for low participation in a voluntary nationwide DNA database.

Numerous reasons for low participation in a voluntary national DNA database can be found in people’s bounded rationality. Sunstein and Thaler explain the importance of default rules with the psychological phenomena of status quo bias, suggestion, inertia, endowment effect, and ill-formed preferences (Sunstein/Thaler, 2003, 1179-1180). Due to these factors, either default will be "sticky" to some extend. Firstly, status quo bias can play a role in the stickiness of default rules. The existing regime is often robust against changes (Sunstein/Thaler, 2003, 1171; Kahneman, Daniel / Knetsch, Jack L. / Thaler, Richard H., Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias, 5 J. Econ. Persp. 193, 197-199 (1991). Given uncertainty about the correct choice, people will often give the default an informational content: the default is seen as something most people do or at least that more informed people do. Moreover, depending on the default setting opting-in or opting-out requires the actions of people. Due to inertia there is a tendency to stick with whatever the default is. The endowment effect is likely to affect people’s valuation of what rights they have making the initial allocation of rights by a default more robust. Finally, many people might lack clear, stable preferences in this area (Sunstein/Thaler, 2003, 1179-1180). For the average law abiding citizen it might not be clear whether participation in the database will make him better or worse off. The above effects of bounded rationality will contribute to the low participation in a voluntary database. These psychological factors play a large role in the low participation of a data base with voluntary opt-in. The same phenomena will support high participation in a national DNA database as soon as the default is switched to mandatory registration with the right to opt-out.

There are several more aspects determining low participation in a voluntary database that are affected by a switch to default participation with an opt-out option:

Some people do not voluntarily join a criminal DNA database because they feel it infringes their right of privacy. These people will not be affected by the switch in the default because they can readily opt out of the database.

Another reason for the reluctance to join voluntarily can be explained by a free-riding effects. Citizen can already profit from the decrease of crime linked to the use of a DNA database in investigating crimes without having to join themselves. Default membership in the database can to some extend avoid such free-riding on the public good of general safety: The stickiness of participation as a default could balance out some free-riding tendencies. However, free-riding on reduced crime rates is still possible by opting out of the default database.

Other people may have an incentive to hold out as long as possible with their participation. For example, a person with criminal intention will be better off not being a part of the database as long as the participation rate in the database will not be significantly above 50% of the population. It is only then that holding out without being registered can result in being in the smaller pool of potential suspects. Switching the default rule would rid this group of the hold out option. Only if the majority of the population opted out of the database, it would be safe for these people to also have their data deleted. However, such a large opt-out rate is unlikely given the psychological phenomena described above.

Another obstacle to joining a voluntary DNA database could be the stigma attached to be in the "database of criminals". This effect is likely to disappear after switching the default for two reasons. First, the suggestive power of the new default will give database participation a better social reputation. Second, the increased participation in the database will make it hard to see the participants as high-potential criminals. A stigma of having something to hide will rather be attached to people opting out of the database while people that are part of the database make a contribution to overall safety.

Finally, many people might feel reluctant to join a database because of the risk of being erroneously suspected of a crime. There is a fear that one might find oneself entangled in investigation because of a mistake in the handling of the DNA. However, this risk assessment of people might be inaccurate. British authorities estimate that the likelihood of a match occurring at random is only one in thirty-seven million (Willing, Richard, Mismatch Calls DNA Tests Into Question, USA Today (Feb. 8, 2000)). Furthermore, there should be benefits offsetting the increase in the risk of error: Current false arrests and convictions could often be prevented if there was genetic evidence to exonerate the suspect. There are often cognitive errors involved in people’s assessment of the risk of error. Rare cases of false indictment based on DNA material will be more salient, triggering the availability heuristic (Tversky, Amos / Kahneman, Daniel, Judgment under Uncertainty: Heuristics and Biases, Introduction, 11-14). Also, people frequently have difficulties comparing risks and benefits of a new technology (Slovic, Paul, in: Tversky, Amos / Kahneman, Daniel, Judgment under Uncertainty: Heuristics and Biases, Chapter 5, 129-131). Setting the default rule on general participation in a DNA database can help overcome such judgment errors by balancing it with the stickiness of the default that works in the opposite direction.

As shown above, employing libertarian paternalism in the context of a national DNA database has numerous positive effects. Several aspects of bounded rationality, such as the status quo bias, suggestion, inertia, endowment effect, and ill-informed preferences, will make the new default rule sticky resulting in higher participation rates that allow the desired network effects in the reduction of crime. Switching the default to mandatory registration with the right of the individual to opt-out, is likely to solve collective action problems connected to voluntary participation, such as free-riding and hold-outs. In the face of the above collective action problems, it seems to leave society better off to switch the default rule automatic membership in the DNA database. Furthermore, the negative stigma of being part of such a database will be turned to a positive contribution to crime reduction. Moreover, people’s frequently ill-informed assessment of the risk of error can be balanced out to some extend by switching the default rule.

The above analysis does not, however, answer two questions:

First, the desirability of nationwide DNA databases to fight crime needs to assessed in a cost-benefit analysis based on empirical data. It is well imaginable that including the large law abiding majority of citizens in such a database will cause enormous costs of acquiring and administering the genetic material that will outweigh the benefits of increased conviction and deterrence (For a positive assessment of a population-wide database see: Kaye/Smith, 2003, 450-459).

Second, the introduction of a national DNA database can be challenged on constitutional grounds. The protection against unreasonable searches and seizures in the 4th amendment can pose a problem (Kaye/Smith, 2003, 442-446). Furthermore, freedom from self-incrimination protected by the 5th amendment could be infringed (Betzel, Margaret, Biometrics: Privacy Year in Review: Recent Changes in the Law of Biometrics, 1 ISJLP 517, 540). These questions need serious examination. However, by establishing a nationwide DNA database using the concept of libertarian paternalism, as argued by this paper, the constitutional problems should rather be diminished that increased: The non-discriminatory sampling of genetic material at birth and the right to opt-out respect the rights of the individual as much as possible.

Privatization: a bitter bite for consumers

In 1990, a century after the enactment of Sherman Act, the Italian Parliament adopted law no. 287, introducing competition law (as it is called in Europe) in Italy, a country with too many monopolies.

Since that date, many privatizations have been carried out. Telecommunications, Energy (oil, gas, electricity, water) and Highways. They have all been extremely profitable, since have allowed the new owners to exploit in the competitive market infrastructures and licences (i.e. essential facilities) respectively built and granted under the public monopoly and paid for by taxpayers money. The economic potential of these companies became clear when they were listed on the Milan stock exchange and many investors slept in tents set in front of the banks' doors to be the first one to buy the newly issued shares. Of course, the shares have been sky-rocketing since their issuance!!!!

Privatization seemed the dawn of a new era of prosperity and many foresaw increased competition and lower prices to the benefit of Italian consumers. The truth, instead, was that the wave of privatizations has replaced the public monopolist with private monopolists. There are several evidences of this phenomenon.

In the telecom sector there has been a moderate increase in competition. New operators have entered the market of both fixed and mobile telephony. However, the process seems to be incomplete. In the fixed telephony there is competition, but the infrastructures (the phone network and the relevant band capacity) are firmly held by the former incumbent. Pursuant to EU telecom rules, the incumbent has been notified as a holder of Significant Market Power (SMP), a definition which triggers temporary and asymmetric regulatory measures aimed at increasing competition. The former incumbent has been fined € 152 million for violating such measures. However, full separation between network ownership and service provision has never been considered...

In the mobile telephony market an oligopoly with three operators has established. Competition might further develop if Mobile Virtual Network Operators (MVNO) were allowed to enter the market. MVNO are operators which lack the network to operate mobile telephony services, but are entitled, pursuant to asymmetric regulation, to purchase band capacity from the SMP operators already in the market. The SMP operators, however, refuse to sell band capacity and are under investigation by the IAA (the decision shall be adopted within days).

In the energy sector, there is a substantial monopoly held by the former incumbents. The biggest of these once state-owned giants, has recently been fined € 290 million for refusal to deal, having refused to sell pipeline capacity to new entrants on the Italian energy market. The cost of energy in Italy is the highest in Europe.

Highways are the last example of ill-fated privatization. The Italian highways network was privatized and sold to ASPI. ASPI was under investigation by the IAA for attempt to monopolizing and has settled a private antitrust lawsuit brought for the same reason. In these days ASPI is planing a merger with the Spanish counterpart Abertis. The merger, however, has raised multiple complaints and is currently under scrutiny because it is alleged to be a disguised sale of ASPI to Abertis, in breach of the Italian law regulating the sale of entities holding public licenses.

All these example make me reflect and conclude that privatization does not always mean increased competition. Is there a philosophy for privatization I can turn to?   

Toward a Theory of Country Size

It is well known that following consolidation, during which it might have looked as if countries were destined to combine into a few supercountries, we entered a period of secession and disintegration, with the number of countries growing.  One puzzle associated with this is why there are so many federations.  What follows is the beginning of a theory of size and confederation - and I look forward to comments before putting this in the form of a full-blown theory.

My starting point is that resources are not spread evenly across regions, so that when one part of a country is rich (as from salt deposits (long ago) or natural harbors or oil reserves), it will prefer to be on its own in order not to share its wealth with a larger group. But of course these pockets of wealth will be vulnerable to attack (trade wars and embargos for starters, but then military invasions too) if they are on their own and not in reliable alliances.  "Optimal" country size is thus about compromising security (which is positively correlated with size) with the cost of sharing valuable resources. Risk averse people might agree on a large country size if they did not know whether they would be rich or poor, but once they discover regional wealth, that region can be expected to be exploited.

At the same time, large scale and central control creates a monopoly on power and that can be bad for everyone.  A federation can be seen as a kind of compromise.  The central government provides security against outsiders, and to a degree manages competition among the member states or regions.  The members are left with enough power to enjoy some of their regional wealth, and they are in the business of competing with one another for mobile citizens, outside investment, and so forth.  It is as if the region, or province, buys security and some insurance (because it might be resource poor in the future) in return for some ability to enjoy its wealth and to gain from the competition among jurisdictions within the federation.

If invasion comes to be seen as politically or even morally unacceptable, or international organizations spring up that succeed in reducing international grabs, then we should expect more independence movements and more sovereign states because there is less need for mutual security.  I am tempted to say that this is where we are in history, except that it is also true that services and human capital have become increasingly important in the creation of wealth. If immobile natural resources are less important than in the past, then we might find less of a drive to smaller states.  Smaller states will continue to provide more competition among jurisdictions, and that is good in the market for political power and policies, but there will likely be less of a gain in terms of excluding outsiders from making tax or ownership claims on valuable resources.  If so, and other things (especially the threat of invasions) constant, we should expect another phase of consolidation.

At the same time, large scale and central control creates a monopoly on power and that can be bad for everyone.  A federation can be seen as a kind of compromise.  The central government provides security against outsiders, and to a degree manages competition among the member states or regions.  The members are left with enough power to enjoy some of their regional wealth, and they are in the business of competing with one another for mobile citizens, outside investment, and so forth.  It is as if the region, or province, buys security and some insurance (because it might be resource poor in the future) in return for some ability to enjoy its wealth and to gain from the competition among jurisdictions within the federation.

If invasion comes to be seen as politically or even morally unacceptable, or international organizations spring up that succeed in reducing international grabs, then we should expect more independence movements and more sovereign states because there is less need for mutual security.  I am tempted to say that this is where we are in history, except that it is also true that services and human capital have become increasingly important in the creation of wealth. If immobile natural resources are less important than in the past, then we might find less of a drive to smaller states.  Smaller states will continue to provide more competition among jurisdictions, and that is good in the market for political power and policies, but there will likely be less of a gain in terms of excluding outsiders from making tax or ownership claims on valuable resources.  If so, and other things (especially the threat of invasions) constant, we should expect another phase of consolidation.

Employees’ Misperception about their Rights

An interesting study shows that employees do not perceive to be employed at will. Pauline T. Kim, Bargaining with Imperfect Information: A Study of Worker Perceptions of Legal Protection in an At-Will World, 83 Cornell L. Rev. 105 (1997). The employees in such studies were presented with several descriptions of discharges of workers, identifying the reason for each discharge, and asking whether these discharges were lawful. The result showed a tendency that employees perceive to be better protected than they actually are by the employment at will doctrine and its exceptions in the respective states. They live under the impression that termination of their employment relationship is possible only for job-related reasons, which resembles much more the for cause rule than the at will doctrine that actually governs their employment. "Workers appear to systematically overestimate the protections afforded by law, believing that they have far greater rights against unjust or arbitrary discharges than they in fact have under an at-will contract." Kim, at 106.

While it seems plausible in many areas that laymen do not know the exact legal rules due to a lack of information, this systematic misperception poses a puzzle. The goal of this blog post is to show to what extend this misperception can be explained by systematic errors and biases tied to the heuristics that employees use to evaluate the degree of their legal protection. Furthermore, I will draw conclusions on what that means for the employment at will doctrine.

In my opinion, the availability heuristic will be influential in the employee’s decision whether a particular discharge was lawful or not. Hereby, the frequency and the probability of an event are assessed by the ease with which instances or occurrences can be brought to mind. Kahneman, Daniel / Slovic, Paul / Tversky, Amos, Judgment under Uncertainty: Heuristics and Biases, Cambridge: Cambridge University Press, 1982, 11. While lawfulness is not the same as the frequency or probability of occurrence of an incident, it seems likely that these two factors will get intermingled by subjects dealing with the questions posed by the study. The average employee will not have any legal training on the doctrines of employment law. He will have to heavily rely on incidents, stories, and assumptions from inside his own sphere of experience. In doing that, the subject of the study will not only evaluate the lawfulness of the discharge in front of him (even if that is all the question is asking for). He will decide this depending on his perception of whether it is generally legally possible to be discharged for that certain trait, behavior, or incident. Not knowing the general rule, he will also include in his assessment the perceived likelihood that a discharge will actually be based on such grounds. Furthermore, he will take into account how likely this will happen to him being guided by his personal assessment of the risk of him being discharged on the several grounds.

While the availability heuristic might be very useful given the limited legal information of the employee, it also has some inherent systematical errors. Whether an incidence comes to mind is not only determined by its frequency or probability, but also by other factors such as salience and recent occurrence. Whether a reason for discharge sticks out in the memory of an employee (e.g. the person was discharged for setting the factory on fire), or whether it is not that salient (e.g. discharge for continuous underperformance) does not say much about the frequency of that reason and its lawfulness. The same is true for recent occurrence. Also the availability heuristic is prone to bias because incidents that are out of sight are also quickly out of mind. Therefore, even arbitrary but rare incidents can be less retrievable in the employees mind.

Another bias that is even more likely lead to systematic error in the employee’s judgment about his legal protection is the optimistic bias (Slovic, 20) and the tendency that people perceive the world in a way that avoids cognitive dissonance (Kahan/Braman, 188). Even if the employee can easily retrieve information about a certain discharge, he might think that it will not happen to him. Furthermore, it is troubling to live in constant awareness of the world violating your own picture of it. And people find it comforting to believe that what is good according to their own set of values is also permitted under the law. In turn, people like to think of behavior inconsistent with their values as unlawful. Employees have their own sense of what grounds they find reasonable for discharge and which reasons for discharge are arbitrary or unjust. They project that vision of a fair employment relationship into what they believe the legal rules for employment to be. This also leads to people assimilating information biased by what their view on the world is. Kahan, Dan M. / Braman, Donald, Cultural Cognition and Public Policy, 2006, 24 Yale Law & Policy Review, p. 151, 156. "Biased assimilation is the tendency to embrace evidence that supports one’s beliefs about the world and reject evidence that is inconsistent with one’s beliefs about the world." Rachlinski, Jeffrey J., The Psychology of Climate Change, 2000 U. Ill. L. Rev. 299). To maintain or increase their own personal self-esteem people often perceive the world in a way that is self-serving. Blasi, Gary /Jost, John, System Justification Theory and Research: Implications for Legal Advocacy and Social Justice, California Law Review Symposium on "Behavioral Realism and Implicit Social Cognition 2006, 15. Therefore, unjust incidents in the experience of an employee might be filtered out as exceptions to the rule and do not stick with the employees memory that much. This ties in with the availability heuristic because the information that passes the "cultural cognition filter" will be easier retrievable in the decision whether a practice is lawful or not.

One might argue that it seems natural for an employee not to project his view of the employment relationship into his beliefs about the legal system, but that he is more likely to be discontent and to exaggerate the inappropriateness of his legal protection. After all, the employee can be seen as the less powerful party in that relationship that might easily feel taken advantage off. (This is at least frequently the rhetoric of union representatives.) However, system justification theory seems to defy that argument. "People want to hold favorable attitudes about themselves and about their own groups, but they also want to hold favorable attitudes about social and political systems that affect them." Blasi, Gary /Jost, John, System Justification Theory and Research, 5. In particular, members of disadvantaged groups are prone to justify the status quo due to a stronger need to reduce dissonance by justifying their suffering and their position in the current system. Blasi, Gary /Jost, John, System Justification Theory and Research, 16.

Finally, employees might use the heuristic of representativeness also incurring systematical errors. Situations are often evaluated by the degree to which one situation resembles another situation. Kahneman, Daniel / Slovic, Paul / Tversky, Amos, Judgment under Uncertainty: Heuristics and Biases, 4. The employee might know about some legal rules that prohibit arbitrary discharges by employers, such as the anti-discrimination in employment rules in Title VII of the Civil Rights Act, the ADEA, and the ADA. These laws, being subject to much public discussion even on newspapers and TV, might also be more available and more easily retrievable to employees. Seeing some prohibitions of arbitrary behavior (e.g. unlawful discharge because of race) the employee might draw the conclusion that other arbitrary behavior (e.g. discharge because the employer does not like the employees brother) is also unlawful. Even if the discharge decisions seem similarly arbitrary, the law does not attach the same consequences to them.

The biggest distortion of the perception of the rights of employees can result from a combination of the above sources of bias. If cultural cognition leads to the predominant assimilation of information about a high level of employee rights, this information will tend to be more easily retrievable under the availability heuristic and than form the basis for comparison under the representativeness heuristic. This way only selected positive experiences, incidents or stories might be the source of evaluation of the lawfulness of the discharges presented in the study by Kim.

The conclusion that Kim draws from her study is that the assumption that employees bargain with employers in full knowledge about their rights does not reflect reality. This casts serious doubts on the argument that the prevalence of employment at will contracts in the real world represents the efficient outcome, reflecting the desires of the parties. Kim, 106, 155.

While I agree with that account, there is another conclusion one can draw from this study and its cognitive explanation behind it. One concern about the employment at will doctrine is that it is unfair and puts the employee at mercy of the employer’s arbitrariness. This will arguably result in a less motivated and therefore less productive workforce. One weakness of this argument is that market pressures constitute a check on arbitrary decisions. The economic self-interest of the employer will urge him to discharge people on economic grounds not and not for arbitrary reasons. But the study of Kim also casts some doubts on the conclusion that employment at will has a demotivating effect on the workforce. The results suggest that the employees feel a level of protection close to their desired protection even if that is not their legal status. Therefore, the employment at will doctrine might be a way to combine a content and motivated workforce with the maximum flexibility of the employer for his discharge decisions.

The creation of the International Court for Cambodia

New Steps towards International Justice

Very significant news for the international human rights community flourished one month ago, when, on March 14th, the United Nations and the government of Cambodia signed a series of multiple agreements for the creation and establishment of the legal foundations for the Extraordinary Chambers in the Courts of Cambodia (ECCC), a special tribunal that will try Khmer Rouge leaders accused of horrific crimes, including mass killings and genocide.

Under these international agreements, a newly created ad hoc trial court and a Supreme Court within the Cambodian legal system will investigate those most responsible for crimes and serious violations of Cambodian and international law between April 17, 1975 and January 6, 1979.

The international community has witnessed that during the last decade, unprecedented steps have been taken to limit the impunity of atrocious war crimes and crimes against humanity. Since the early 1990´s we are witnessing the creation of new international criminal justice mechanisms which apply universal jurisdiction to hold perpetrators of the most serious crimes that the human race has ever committed.

The Security Council created two ad-hoc international criminal tribunals, the International Criminal Tribunal for the former Yugoslavia (ICTY) in 1993 and the International Criminal Tribunal for Rwanda (ICTR) in 1994, to try alleged perpetrators of genocide, war crimes, crimes against humanity, and other serious violations of international humanitarian law that occurred during the outbreak of conflicts in those regions. Both the ICTY and the ICTR have revitalized the international criminal jurisprudence that had not developed since the Nuremberg and Tokyo trials.

Since the creation of both tribunals, hundreds of suspects have been arrested and tried regardless of their official status, leading to the first indictment of a sitting head of state (Slobodan Milosevic by the ICTY), as well as the indictment of the former Prime Minister of Rwanda, Jean Kambanda, by the ICTR.
In 2002, taking a different “hybrid” approach and in an attempt to bring justice in Western Africa, the United Nations signed an agreement with the government of Sierra Leone to create the Special Court for Sierra Leone (SCSL).

With the newly created ECCC, it will be the fourth adhoc UN backed tribunal created during the past 15 years and a great leap from the international human rights perspective. The three-year budget for the ECCC is about $56.3 million, of which $43 million is to be paid by the UN and $13.3 million by the Government of Cambodia.

History will never forget the atrocities that where committed all through the countryside and cities of Cambodia during the years 1975 to 1978, where an estimated 1.7 million people were killed or died of forced labor, starvation or disease (the death toll represented almost one third of Cambodia’s population).

The regimen leader, “Brother Number One” Pol Pot, died in 1998, but others such as “Brother Number Two” Nuon Chea, former head of state Khieu Samphan and former Foreign Minister Ieng Sary are living as free men.

Almost every single Cambodian family lost relatives under the rule of the “back to the land” Khmer Rouge, who emptied the cities and isolated the entire country.

In the near future, national courts will still be not able to become uniformly capable to bring justice for global atrocities and international war crimes. This is particularly true in post-conflict situations where justice systems have been either partially or completely destroyed. As a result, international justice today still remains a crucial last resort that must continue to be fortified against efforts to undermine it.
The achievements and failures of the ICTY and ICTR have been assessed and it has helped the creation of later tribunals such as the SCLS, the East Timor Tribunal, and now the ECCC. While it may be unrealistic to expect that full-scale ad hoc international tribunals will be created in the current environment, the lessons of these tribunals can help initialize other efforts, including the development of hybrid justice mechanisms.

Hybrid mechanisms (such as the ad hoc Tribunal for East Timor and the ECCC) should not be established simply because they are an inexpensive alternative when an international mechanism would be more appropriate. In addition, we need to evaluate situations in which international mechanisms are rejected notwithstanding serious concerns about national capacity and willingness to pursue justice, as in Sierra Leone and probably in Iraq.

Ad hoc tribunals are a welcome step, but not a permanent solution. I believe that if the international community keeps on creating such tribunals, this will lead to delays, primarily because they are established after the fact. It has been proven to be costly and inefficient to create a new institution for each situation. Likewise there have been problems concerning selective justice.

A permanent institution can overcome these defects. In this sense, the International Criminal Court (ICC) has been propelled by strong support from the world community and many NGO´s. The Rome Statute of the ICC has obtained the necessary 60 ratifications and has entered into force on July 1st, 2002. Currently there are 92 states parties, and the list is slowing growing.

On the other hand, the United Nations has to play a more central and systematic role in post-conflict situations. Although the United Nations has often been pivotal in forging the international response to serious human rights crimes, the “justice gap” in countries such as Sierra Leone, Cambodia, Liberia and the Democratic Republic of Congo underscores the need for more systematic U.N. efforts.

The development of a system of international justice to limit impunity for serious human rights crimes has struck at outmoded notions of national sovereignty and the absolute prerogative of states. It would have been unrealistic to expect that progress would occur in a straight line. To address today’s more difficult environment, recent achievements must be secured and the system must be refined so that perpetrators of the most serious crimes are increasingly held to account.

In an everyday more global and interdependent world, the role that international criminal courts play must gain importance and acceptance. The past decade has given us a variety of examples and forms of these international tribunals, in an attempt to bring to justice to any individual that has committed atrocious crimes against humanity.

Has Globalization Become a Stale Cookie?

Something interesting is happening at this very moment in Europe. Something which is likely to teach a valuable and unforgettable lesson about the scope and the destiny of globalization.

The EU common market, the powerful engine behind European Union economic aggregation and growth rests on four fundamental freedoms: the free movement of goods, the free provision of services, the freedom of establishment and the free flow of capitals.

Roughly speaking, free movement of goods means that there are no customs, tariffs or non-tariff barriers between EU Member States. Free provision of services means that anyone who is qualified to provide a service in a Member State can do the same in any other Member State. Freedom of establishment means that sudents, workers and corporations can elect their residence in any Member State without restrictions. Free flow of capitals means that investors may invest their capital in any Member State without nationality-based restrictions.

These fundamental (I would say constitutional) liberties of the European Union are now at jeopardy, due to the new taste of national governments for protectionism. The EU Commission sensed the threat posed to European aggregation and is fighting back to keep the common market open and competitive.

Everything started last summer, when two banks, the Dutch ABN Amro and the Spanish BBVA attempted to take over two Italian banks, respectively Banca Antonveneta and BNL. The Italian banking sector has been traditionally reluctant to host foreign operators and this has also harmed effective competition over the years (Italian bank accounts are the most expensive in Europe!!!!). Once again, like other times in the past, the Bank of Italy stepped in and denied authorization to the takeover bids by the foreign banks.   

The Spanish and the Dutch screamed at the scandal and called the Italians bad names, until the judges in Milan found out that the governor of the Bank of Italy (and some politicians) was colluding with Italian banks to favor them in the bidding and keep Antonveneta and BNL under Italian control. To make a long story short, the governor eventually resigned, a new governor was appointed and the foreign bidders got the green light to jump on the Italian hot chicks. ABN Amro got control of Antonveneta and the French BNP Paribas bought BNL.

Italian media were still flogging the government over its medieval attitude in the circumstance, when the Italian energy giant Enel attempted to purchase the French energy company Suez. In a rapid sequence, however, the French government made it clear that it was not enthusiastic at the idea, got Gaz de France ready to buy Suez, amended the existing French law to allow the Suez-GdF merger and adopted a new statute against foreign takeovers in 'strategic sectors' (i.e. energy, telecoms, defence, etc.).

The French example was followed by Spain and by Poland. The latter, despite being a new Member State, did not want miss its chance to behave badly and opposed to the merger between the Italian bank Unicredit and the German HBV, which had previously been cleared by the EU Commission.

This was too much for the Commission, which opened investigations on these cases, charging the governments of restricting the freedom of establishment of foreign companies on national markets and restricting the free flow of capitals by making national companies less contendible. Proceedings for the infringement of the EC Treaty (providing for such freedoms) have been opened against some 20 Member States, but the most serious charges concern France, Spain and Italy, which are all trying to protect national companies in the energy sector.

The story raises a number of considerations. Globalization has been magnified as a driver for economic development. Jobs and workers' economic and social stability have been scarified on the assumption that globalization is efficiency-driven and makes of flexibility a condition to survival of businesses. Then we find out that globalization works when children manufacture soccer balls at one dollar per day, but miserably fails when it is called upon to liberalize the banking, energy and defense markets, traditionally fertile grounds for anticompetitive practices resulting in consumers' exploitation.

Valuable Secrets in Antitrust Enforcement

With its 2002 Leniency Notice, the EU Commission has established the Leniency Program, one of the most effective tools for prosecuting illegal cartels pursuant Art. 81 of the EC Treaty.

Under the Leniency program, a company involved in a cartel can ‘blow the whistle’ and cooperate with the Commission by providing detailed evidence on its own involvement, as well as that of other undertakings, in the cartel.

The program rewards the first whistleblower with a 100% rebate on the fine applicable to him (participating in the program does not avoid ‘conviction’ for the infringement) - if the information provided allows the Commission to open an investigation - and grants lower rebates to other companies that cooperate after the opening of the investigation.

Great part of the evidence the applicant company submits to the Commission is documentary evidence – notes of meetings, flights schedules and tickets, e-mails – but the most valuable documents are corporate statements, with which corporate officials and attorneys explain to the Commission’s case handlers the functioning of the cartel.

Corporate statement, however, have a highly undesirable downside, when the applicant company is involved in a trans-national cartel and is being tried (or faces a trial) in a third-country jurisdiction (often the US) as a defendant in an antitrust private lawsuit.

The rules of pre-trial discovery, in fact, require the parties to disclose any documents relevant to the claim at trial, including, therefore, any written corporate statements rendered to the EU Commission. The risk of having to disclose self-incriminating information often restraints companies involved in cartels from cooperating with the EU Commission and puts the leniency program – so far a successful enforcement tool – at jeopardy.

The EU Commission has taken action to tackle this risk. In fact, it has launched on its website a proposal for amendments of the 2002 Leniency Notice. Pursuant to the proposed amendment, companies cooperating within the leniency program will no longer be required to submit a written statement, which later might be subject to discovery in a trial.

Under the new procedure, the Commission, in fact, will also accept submissions by corporations in oral form. The Commission will record these statements and prepare its own transcript of the statement. Applicants will be required to confirm that the transcript is a correct rendering of the oral statement. This confirmation may be given orally and will then be recorded. The transcript will serve as evidence, if necessary supplemented before the EU Courts with the original recordings.

Access to the records will be allowed by the Commission only for purposes related to administrative and judicial proceedings related to the enforcement of art. 81 of the EC Treaty. Access for any other purpose will be denied. If any company granted access exceeds the permitted scope for accessing the statements, the Commission will sanction such behavior by filing a complaint to the national bar of the lawyer who has exercised the access or increasing the fine on the infringing company.

The sanctions threatened by the Commission appear prima facie sufficient to grant protection to the companies submitting corporate statements. What remains to be seen is whether exists, under procedural rules of non-EU jurisdictions (especially the US) any device allowing plaintiffs or courts to pierce the veil of protection set by the Commission and obtain disclosure of such information.

This outcome appears unlikely, since the Commission is ready to intervene as amicus curiae in any private antitrust proceedings to stress the relevance of corporate statements and the need to ensure their secrecy.

Relativization of Sovereign Immunity

Every year countries turn to foreign private financial entities in order to obtain finance for several different reasons, from specific projects to be able to pay its short-term internal obligations. However, although it is not the rule, sometimes a country interrupts the payment of its debts with foreign private creditors, not performing its obligations assumed with such foreign private financial entities. And because of that, those financial entities have filed lawsuits in foreign courts in order to recover their losses from the defaults.

Such facts bring to discussion a matter that has been occupying scholars and judges for many years: if countries that are debtors do not perform their obligations assumed before foreign private creditors, can such foreign private creditors charge, in foreign courts, such debts? According to the traditional principle of sovereignty of nations, every and any judicial lawsuit against one State can only be filed in the national courts of such State. In the last decades, however, we have seen a relativization of this principle.

Sovereign immunity can be divided in two parts, that can not be confused: the immunity of jurisdiction, that is related to the immunity of a nation to have a lawsuit filed against it before a foreign court; and the immunity of enforcement, that is related to the immunity of a nation to have an enforcement lawsuit filed against it before a foreign court.

The sovereign immunity of nations with respect to the jurisdiction of foreign courts was derived, originally, from theoretical premises and political conceptions that, based in the essential equality of State sovereignty, considered the absolute character of immunity of jurisdiction of the States in connection with foreign courts.

From the 1970s, however, such orientation was modified because of the dynamism imposed by international relations, starting to prevail the understanding that immunity of jurisdiction was no longer absolute. The new vision of this matter was due to the fact that the immunity of jurisdiction of sovereign States, which was usually based in international practices, found juridical grounds in international conventions and in internal legislation of several countries. And this new legislative picture in the international scene permitted the construction of the theory of relative jurisdiction immunity of sovereign States.

In this regard, sovereign immunity is only applied to the exercise of acts of empire, as external public entities does not benefit from immunities any more when they carry out business or management activities with private parties. For business or management activities it is understood that a sovereign State acts as a private party in the same legal level as private entities.

Therefore, it is not viable to impose to citizens from any country the burden to litigate, around business, commercial, civil or labor matters before courts of other countries, if the fact that generated the judicial controversy is not only chargeable to a foreign country, but necessarily strange to the understanding of acts of empire, and derived from its strict performance as a private party, as it is the case of loans and securities issuances made by several countries.

The immunity of enforcement has a broader character, and it shall only be excepted, according to decisions of the Brazilian Supreme Court, in two exceptional hypothesis: (i) waiver, by the foreign State, of the privilege of intangibility of its own properties or goods; or (ii) existence, in the territory where the lawsuit was filed, of properties or goods that, although belonging to the foreign State, do not have any connection with diplomatic activities made in such country, as such properties or goods related to diplomatic activities are protected from attachment, seizure or related acts by the inviolability guaranteed by the Conventions of Vienna of 1961 and 1963.

As a result, countries that, for example, do not perform its obligations assumed in loan agreements or in securities issuances related to its external debt, could be submitted to foreign courts. Such obligations assumed before private foreign investors are private obligations, being considered acts of business, and not acts of empire. In addition, if any country in this situation looses a cognitive proceeding before a foreign court, its properties or goods that are not related to diplomatic activities can be enforced, even if such country does not waive its immunity of enforcement. On the other hand, if a country does not waive its enforcement immunity and does not have properties or goods in the country where the lawsuit is taking place, the only way that the private creditor has to claim its rights is before the national courts of such country.