Seminar 5

Seminar 5: The Legal Origins Debate

 This seminar looks at new strand of comparative law and economics that builds on the so-called legal origins thesis. The La Porta paper is a literature review, I have then selected a paper by Hadfield who represents a different take on this but still looking at matters from the perspective of ‘new institutional economics’ broadly defined. The French response to the policy implications of this mode of analysis are worth noting.

 Reading

 La Porta et al ‘The Economic Consequences of Legal Origins’(2008) 46 Journal of Economic Literature 285

 Hadfield ‘The Levers of Legal Design: Institutional Determinants of the Quality of Law’ (2008) 36 Journal of Comparative Economics. 43

 Valcke ‘The French Response to the World Bank’s Doing Business Reports’ (2010) 60(2) University of Toronto Law Journal 197

 Further Reading

 Michaels ‘The Second Wave of Comparative Law and Economics?’(2009)  59(2) University of Toronto Law Journal 197

 Milhaupt ‘Beyond Legal Origin: Rethinking Law’s Relationship to the Economy—Implications for Policy’ (2009) 57(4) American Journal of Comparative Law 831

 Favarque-Cosson and Kerhuel ‘Is Law an Economic Contest? French Reactions to the Doing Business World Bank Reports and Economic Analysis of the Law’ (2009) 57(4) American Journal of Comparative Law 811

 Plus the 57(4) issue of (2009) American Journal of Comparative Law has a number of papers on legal origins.

5 comments on “Seminar 5

  1. Tim says:

    As to the La Porta paper, I must admit I had difficulties to see the actual underpinning message. I thought there were two – which could be considered to be connected to a certain extent but also a bit contradicting.
    A first message I thought it incorporated – and which I actually only distinguished in the “conclusion” part – is: it depends on the social context of a society whether common law or civil law (I’m not distinguishing within the types of civil law) produces the best outcome. So, the social context is like a stream and the law system just sails on it? Indeed, in the last paragraphs the authors point to the fact that the world economy moves more and more to a market dominated economy, for which common law is best suited. My problem with this message is that law making should not be dominated by markets. Facilitating economic transactions is one task the law has, but at the same time a balance should be struck with interests of the weaker – protecting weaker parties is also a role law should fulfill.
    A second message I thought there was in it concerned a kind of “policy message”: specific features of a law system determine whether or not that law system produces good economic performance. Thus, the policy message consists of two steps: (i) certain countries having rules belonging to a particular law system perform well economically and (ii) in order to perform economically well as well the other countries should consider adopting or converting into a law system having the those features. I understood that the authors took the view that the common law system is overall the system to be preferred. But then, if it is accepted that laws adapt to their social environment (see the first message), how will such a transplant work out in practice?

    The Hatfield paper made me consider that the judicial review by specialized administrative courts of administrative decisions, where the judicial control is limited to checking the legality of a decision possibly followed by a mere annulment of that decision, is actually problematic as evolution of the law through case law is not likely to be expected. Hence, the way procedural law is conceptualized can be an obstacle for efficient law-making. The fact that this only applies to administrative decisions raises suspicions.

    Another point that crossed my mind when reading the Hatfield paper was the dual position the ECJ adopts. On the one hand sometimes the ECJ makes law itself, e.g. the way how it introduced through the free movement provisions EU law into national tax law or social security law, notwithstanding the provision in the EU treaties that these fields should remain to be regulated nationally. Another example is Member State liability for breaches of EU law. On the other hand, the ECJ has build through such activism mechanisms to sanction national courts if they don’t stick to EU law provisions – i.e. Member State liability for breaches of EU law by national courts (cf the Kobler case) – thereby depriving them from the possibility to adapt their position if need be (which would be virtue, according to Hadfield). The question then arises whether Member State liability for breaches of EU law by national courts is desirable. The argument against it could be that it stands in the way of rule adaptation because of its deterrent character.

  2. Irina Domurath says:

    I was surprised about the connection between the analysis of legal origins and EAL. It seemed to be implicit in all articles that legal origins are to be examined within a framework of economic analysis. Initially I had expected the legal origins debate to be much more sociological. This expectation probably has an impact on my take on the readings.

    In this regard, I find Valcke to convincingly question the economic analysis of law as the basis of the legal origins debate and explains the resistance of French lawyers to EAL. Valcke also points at socio-cultural and ideological factors that play a role in legal systems and questions economic efficiency as the highest-ranking value when assessing the merits of a legal system. In this vein, she supports the behavioural explanation for jurist’s behaviour as put forward by LaPorta. Even more convincingly, she questions the EAL approach to legal analysis that disaggregates different phenomena and thus ignores the complexity of legal regimes and treats them as a mere of its parts.

    That being said, LaPorta however makes some interesting points. He shows that different legal origins of different legal systems have an impact on the economic and social constitutions of different countries. He broadly distinguishes between common and civil law systems, explains their different societal uses in different historical developments (use of law against or in support of monarchist regimes or revolutions, unifying or deliberating use in times of war or peace), and shows that legal origins are the reasons for different approaches to, for example, financial market regulation. As a consequence, he contends that common law systems have produced better economic performance and are superior when markets work well, whereas civil law systems’ markets are less developed, but are superior when there is a sufficiently serious market disorder. LaPorta shows that judges and their independence from the legislator play a significant role in this development in terms of willingness to take the law and legal reform outside of the realm of the legislator.

    Hadfield’s criticism of LaPorta’s article did not convince me. Hadfield claims that institutional aspects of judicial behaviour play a more important role in analysing legal change than legal origins. However, I do not find Hadfield’s analysis contrary to LaPorta’s, as in my view both are not analysing mutually exclusive angles. What is more, LaPorta’s approach the development of legal systems and their indications for judicial behaviour on a probably more psychological level (ideological preconceptions) remains valid in Hadfield’s approach. For example, Hadfield claims that there are substantial overlaps in the different legal systems so that a clear-cut distinction between common and civil law is not reflective of reality and that, instead, institutional dimensions play a bigger role. This does, however, not render LaPorta’s claim invalid, as for example different education in different legal systems does lead to different approach to law, which in turn surely affects judicial decision-/law-making. This can remain in true in mixed systems, to respectively different extents. In this way, different education and different legal system can lead to different preconceptions that influence all factors in Hadfield’s analysis, such as the structure of the court, the exposure of judges to the welfare benefits of their decisions, or exchange and learning of information on behalf of judges. In short, I understand LaPorta’s analysis to be a much broader analysis of the meta-level of the role of law in general and judicial decision-making in particular.

  3. Argyri says:

    I read La Porta/Lopez/Shleifer’s article with great interest, especially as it is a very elaborate attempt to explain the differences between civil and common law systems looking at real data from a big number of jurisdictions. I agree, however, with Tim that there are lots of questionable points. I found especially weak their responses to the three lines of criticism (sections 5-7) that legal origin is a proxy for other factors that influence legal rules and outcomes; culture, history or politics.
    I found their response as regards culture particularly poor. The reason why I think there is significant gap there is maybe because 1. In this part they only answer with the example of creditor rights and 2. At the very end of this brief section 5, although they recognize that “one can alternatively include in culture beliefs about the law, regulation and the role of the state”, they do not develop that point at all. They simply state that “this theory of culture is of course broadly consistent with our views”, which I did not think was true. Quite the opposite, if that is so then their theory is circular; is it legal origins or culture the determining factor? And is legal origin the same as culture, or maybe history?

    For reasons that they identify themselves at the end of this article, the distinction between common and civil law might become outdated at some point. In this sense I agree with their ending remark that globalization has lead to much faster exchange of ideas and encourages competition among countries. In order to attract more investments, the regulatory framework of a country finds itself competing with the others and necessarily adapts. But is this a way for more efficient systems to rise or is the race to the bottom danger always present? I presume this depends on what does one consider race to the bottom and what not; healthier financial markets v. labor regulations etc.
    Last point on this article: at their very final statement, the authors condition their prediction for continued liberalization upon the absence of disruptive wars or ‘great depressions’. Since the article was published 2008 (and I presume on the basis of data collected before 2008) I was wondering if the authors would consider today’s financial crisis as such disruptive event which affects their results.

    I found Hadfield’s criticism very interesting, but to me also the article rather complements the first (La Porta et al) than contrasts it. For the legal origins theory to be complete, I think one should develop the argument both in the way La Porta et al. do and also add Hadfield’s institutional dimension. Indeed La Porta et al. on pp. 325-6 (end of part 8) accept that “understanding what actually happens in the ground is essential”. One must look at the rules in general and draw conclusions as regards the importance of legal origin, but also, as Hadfield would add, at institutions, their design and actual function and their effects on what I think are the same results. Nevertheless, because Hadfield concentrates on the courts, I think she leaves out a lot.

    Last, I definitely agree with Irina’s point that different education in different legal systems does lead to different approach to law, which in turn surely affects judicial decision-/law-making.

  4. Marios says:

    Generally I did not find this particular strand of Comparative L&E to be useful methodologically for my research. I agree with Tim that it is a bit difficult to understand what the message that La Porta et al want to get across is. Perhaps this is a result of the article being a literature review and a response to some of the criticism they have received. But I found it difficult to understand why it is so important what the label of the legal system is at the end of the day. If some rules of country A are better (by the authors’ measure) than some comparable rules of country B, let us say with regard to shareholder protection, and B feels that they want to improve their rules, they may look to country A (the transplants from last week). If, as the authors admit, reforms must be sensitive to legal traditions (so they’re not arguing that country B should ignore its tradition and convert to a common law tradition) and at the same time “many legal and regulatory rules, such as entry regulations, disclosure requirements and some procedural rules in litigation, can be reformed without disturbing the fundamentals of the legal tradition”, what does it matter if country A was a common law jurisdiction whereas B was a civil law one to begin with?

    I suppose that as they admit themselves,the most useful contribution of their research is to establish the possibility of collecting objective data on legal and regulatory rules, in comparative form, so that consequences of particular rules can be evaluated. I found it regrettable that they did not discuss Scandinavian countries more (I suppose the French would have found it less “Anglo-Saxon”?). These countries show that even a civil law jurisdictions can have an environment conducive to growth and economic prosperity, while offering a welfare state coupled with a faith in state institutions and a labour market which is flexible.

  5. Haukur says:

    I found the La Porta article interesting and entertaining to read. However I can´t say that I agree with the importance he lays on the legal origins theory. I think that what he considers the greatest criticism of the theory, that the origins are essentially a proxy for something else, is very valid. Although he tries to refute that criticism he does not do so convincingly in my opinion. If he is right then the origin of a legal system must represent a value in it self, if not it is simply an effect of some other value. It is beyond my imagination what independent value the origin of a legal system could possibly represent. I think conversely that the choice and design of a legal system is meant to implement predetermined political values. The origin of a legal system thus reflects the political values of its designers. Socialist legal system was simply an instrument to implement political ideology and disappeared at the same time as this ideology. The same can be said about the civil law system which owes part of its success to the revolutionary ideology of social justice it was meant to implement and the willingness of other countries to replicate this ideology.

    Ironically the La Porta article was published in june 2008 just months before the collapse of Lehman Brothers and the onset of the financial crisis. The US and the UK have been particularly badly hit by the crisis while Scandinavia and northern European countries with mixed private-public sector economies have shown better performance. The exception is Iceland that replicated Reagan-Thatcher era privatisation-dereguleation economic strategy in the late 90s and early 2000s which La Porta could be seen as praising. The focus of assessing the success of a society through the narrow lens La Porta suggest is just that; a very narrow view that hardly represents anything. If we were for example to compare economic equality between the common law legal origin and the Scandinavian legal origin I’m not sure that the outcome would be as favourable for the US and the UK. I would at least rather choose to be poor in Sweden then in the US. Which should be deemed a better society? Probably depends on what you want and which values you hold dear, not the legal origin you hold dear. That is what a legal system represents; the political values of its constituency.

    I think that the other articles are fine criticism although the French response was perhaps not very concrete.

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