Prof. Michael TrebilcockLaw and Development

Professor Michael Trebilcock

Introduction

Of the world's almost 6 billion people, about 1.2 billion live on less that one dollar a day and 2.8 billion on less than two dollars a day. Infant mortality, life expectancy, morbidity, nutrition and literacy levels in developing countries are typically dramatically inferior to those of developed countries. Improving the life chances of the world's most desperately impoverished citizens in developing countries is the most urgent imperative of our times.

Through much of the 1980s and early 1990s academics and policy makers interested in development focused on policies that had little or nothing to do with the legal system. The overriding goals of development policy were macroeconomic stabilisation, privatisation and 'getting prices right'. Recently, however, the focus of attention has shifted to institutions, which Douglass North defines as 'the rules of the game of a society'. Those rules of the game include formal legal rules, and consequently the new reform agenda - so-called Second-Generation Reforms - is typically understood to include legal reforms.

To the extent that the new agenda includes legal reforms it is premised on the notion that legal institutions play an independent and significant role in development. Ironically, just over 25 years ago this notion was discredited and renounced by scholars who had once been its most ardent proponents. According to Trubek and Galanter in a famous article published in 1974, "Scholars in Self-Estrangement," the notion that American liberal legalism could be successfully transplanted to LDCs was completely misguided. This idea was deemed "ethnocentric and naïve," as the pre-conditions to the successful implementation of the liberal legal model contrasted sharply with reality in developing countries. As Trubek and Galanter stated:

Empirically, the model assumes social and political pluralism, while in most of the Third World we find social stratification and class cleavage juxtaposed with authoritarian or totalitarian political systems. The model assumes that state institutions are the primary locus of social control, while in much of the Third World the grip of tribe, clan, and local community is far stronger than that of the nation-state. The model assumes that rules both reflect the interests of the vast majority of citizens and are normally internalized by them, while in many developing countries rules are imposed on the many by the few and are frequently honored more in the breach than in the observance. The model assumes that courts are central actors in social control, and that they are relatively autonomous from political, tribal, religious, or class interests. Yet in many nations courts are neither very independent nor very important.

In the light of this historical record it is essential to analyse critically the theoretical and empirical bases for current assertions that legal institutions play an important role in development.

This question - what role do legal institutions play in development? - is merely the first of three critical questions that ought to be explored by scholars interested in law and development. The second question is: to the extent that law does play a role in development, why is it that some countries have developed the types of legal institutions that are conducive to development while others have not? The third and final question is: what steps if any can be taken to encourage the emergence of the legal institutions that facilitate development in countries where those institutions have not evolved?

Suggestive Evidence

In recent years, a number of large-scale econometric studies have been undertaken to test various aspects of the claims by those who view law and legal institutions as important determinants of development. One group of studies tests the relationship between the quality of bureaucracy, the level of political corruption, likelihood of government repudiation of contracts, risk of government expropriation, and overall maintenance of the rule of law, and growth rates, finding that improvements in these measures have significant impacts on growth rates. Other studies test the relationship between indices measuring respectively government effectiveness, rule of law, graft, and growth. The government effectiveness index combines survey results on perceptions of the quality of public service provision, the quality of bureaucracy, the competence of civil servants, the independence of the civil service from political pressures, and the credibility of the government's commitment to policies. The rule of law index reflects survey results on perceptions of the incidence of violent and non-violent crimes, the effectiveness and predictability of the judiciary, and the enforceability of contracts. The graft index reflects survey results on perceptions of corruption. Again, improvements in these indices result in substantial increases in per capita GDP. Moreover, improvements in the government effectiveness index have significant positive impacts on infant mortality and literacy rates. Other studies examine the relationship between corruption and investment and growth rates, and typically find that high levels of corruption have negative impacts on the latter.

Other studies have examined the relationship between growth and investment on the one hand, and indices of government credibility on the other. Responses to survey questions have been used to produce indices of government predictability in rule-making, subjective perceptions of political instability, security of persons and property, predictability of judicial enforcement, and corruption. One such study found significant a positive correlation between the aggregate credibility index and both growth and investment, suggesting that 71% of cross-country variation in investment rates are explained by variations in credibility. Another recent study compares the growth and performance of common law and civil law countries and finds that the growth rate in per capita GDP was about 1% higher in common law countries than it was in civil law countries.

Another group of studies examines the relationship between the nature of political regimes and development, and in particular whether democracy is more conducive to development than other political regimes, such as an autocracy. These studies yield a very mixed result. Some find that democracy has an insignificant effect on growth. Others find evidence of a positive correlation between growth and various indices of political and economic freedoms. One survey of these studies reports that eight studies found democracies more conducive to growth, eight found authoritarian regimes to be more conducive to growth, five found no significant difference. If development is defined in broader terms than economic growth, some studies find that more extensive civil liberties and political rights have a significant positive impact on infant mortality and adult literacy, and democracy is more conducive than authoritarian regimes to the promotion of economic growth in ethnically fractionalized societies.

A major limitation of all of these studies is that they do not allow us to differentiate the effects of different types of legal institutions on economic development. The variables that these studies use to represent the characteristics of legal institutions do not shed much light on which types of legal institutions play the most important roles in development, whether measured in terms of economic growth or some other dimension of development. They also do not shed any light on which, if any, substantive bodies of law are more important than others in promoting various conceptions of development.

Conclusions

The utility of many legal reforms can be challenged on empirical grounds. In recent years a number of scholars and commentators have vigorously advocated reforms to property rights, contract law, and political and civil rights. Interestingly enough though, there is little conclusive evidence that reforms in these areas have been effective in furthering development, however conceived. Further empirical research on these topics is clearly warranted. In the meantime however, a tentative conclusion is that, as far as legal reforms are concerned, developing countries should not focus exclusively on enacting or adopting appropriate substantive bodies of law or regulation designed to vindicate the particular conception of development that motivates them. Rather, the empirical evidence suggests that it is appropriate to emphasise reforms that enhance the quality of institutions charged with the responsibility for enacting laws and regulations, and institutions charged with the subsequent administration and/or enforcement of those laws or regulations.

The evidence suggests that effective access to the courts for individuals and groups of citizens, and the integrity, competence and independence of the formal criminal and civil courts systems, as well as adequate staffing and resourcing of them, is a major problem for many developing countries. However, an exclusive or predominant preoccupation with the court system inappropriately discounts the important role played by government departments and agencies, the police and specialised administrative or regulatory bodies in the administration and enforcement of laws. In fact, the challenge facing many developing countries in upgrading the quality of their legal systems is far more daunting than simply reforming their civil and criminal court systems, and is likely to reach deep into the domain of government or public administration more generally.

These comments are derived from past and current research by myself and my colleague, Kevin Davis.