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From Rags to Riches: The Cayman Islands Revolution

The rule of law, Hayek wrote, is “a rule concerning what the law ought to be”: It ought to be general and abstract; equally applied, with legal privileges for none; certain, not subject to arbitrary changes; and just. In this Learn Liberty Academy, Andrew Morriss sets sail to show how the law of the Cayman Islands conforms with Hayek’s ideals, how it got that way through astute political entrepreneurship, and how the world at large benefits from its legal wisdom. The benefits of Caymanian rule of law are so diffuse and far-reaching that we can even attribute the American poor’s high consumption of healthcare to it.  Embark on Morriss’s expedition — read, watch lectures, and discuss!

Song credit: “Coconut Water” – Dan O’Connor

Archival images courtesy of the Cayman Islands National Archive

1) Offshore Prosperity (article) Andrew Morriss details the institutions in the Cayman financial system that give it advantages over most on-shore systems.


2) Decline of the Rule of Law (essay) Friedrich Hayek describes the varied and long history of the idea and practice of the rule of law from Greek times through postwar England.


3) The Political Foundations of Democracy and the Rule of Law (working paper) Barry Weingast explores why constitutional provisions are enforceable in some places but not in others, among other aspects of the rule of law.


4) The Common Law and Economic Growth: Hayek Might Be Right (essay) Paul Mahoney argues that well-developed financial markets arise in countries with strong restrictions on arbitrary executive legal authority and greater protection of property and contract rights.


From Rags to Riches: The Cayman Islands Revolution

Andrew Morriss: Ah, the Cayman Islands! What a place. If you listen to American politicians and the media, you’d think this is nothing but some kind of luxurious Caribbean beach filled with scoundrels helping Americans and American companies evade taxes.

Barack Obama: Once you’ve got a building in the Cayman Islands that supposedly houses 12,000 corporations, that’s either the biggest building or the biggest tax scam on record.

Morriss: What if I told you that thanks to Caymanian insurance companies, Americans pay less for healthcare? What if I told you that poor Americans get more healthcare delivered to them by nonprofit hospitals because of Caymanian insurance companies? What if I told you that investment from Cayman investment vehicles is driving jobs and economic growth in the United States? We’re talking about the same Cayman Islands, right?

Well, truth be told, the Cayman Islands isn’t a place of no regulations, but a place of regulations done right. How so? Well, it’s built on a concept called the rule of law — a foundational concept where we get the rules of the game clear and people can play a fair game. For example, consider playing basketball in the streets without a solid court, a clear set of rules, or even a referee. Under those conditions, chaos ensues, and fights often break out. When the rules of the game are clear to everyone on the court, with referees to settle disputes, then you’ve got a game that’s fair.

So getting back to the rule of law, back to when Caribbean jurisdictions left and right were seeking independence, the Caymans actually resisted independence and in fact clung to the Crown. Why? Because Cayman Islanders knew that few places had the quality legal institutions the U.K. had. In fact, the ability to have disputed decisions appealed to British courts became a key selling point for investors.

Caymanians were actually very entrepreneurial — real risk takers. They’d after all been seamen sailing around the Caribbean and elsewhere on boats they'd built themselves , seeking economic success with their families. When they looked around and saw the booming, off-shore financial business started in the Bahamas, and Bermuda, the Channel Islands, the Isle of Man, and places like that, Caymanians sought out to build the infrastructure here to bring that here.

Join me, Professor Andrew Morriss, as we go on location here in the Cayman Islands and talk to local experts about how these three islands transformed themselves from a place of turtle fishermen and thatch rope makers into financial powerhouses the envy of the world. We’ll look at its rich history and how the Cayman Islands used an effective regulatory environment to build a platform that enabled financial innovation to benefit people around the world, including — surprise, surprise! — in our own United States.

 

Sign up today. Go to LearnLiberty.org. Click on Learn Liberty Academy, and sign up for this Cayman Islands video program starting May 5.

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