The developing world in the new millennium: international finance, development, and beyond.

• Author: Sarkar, Rumu

Former Treasury Secretary Lawrence Summers once commented that the end of the Cold War was the second most interesting story of the past two decades. According to him, the most compelling story during that time was the emergence of global capital markets.(1) This viewpoint heralds a subtle sea change that signals the beginning of a newly formed international consensus. Making a successful transition from being a "developing nation" to being an "emerging capital market" is now the most serious challenge facing the developing world today.

Trade relations and capital investments are now being rationalized in a new international economic order where the post-colonial imprint of the past is gradually becoming irrelevant. Whether we consider trade in goods, technology, or capital, the marketplace has become truly global. Over the course of the past decade, the playing field has been leveled to such an extent that virtually any commodity, product, service, or information may now be obtained from anywhere by anyone using the vehicle of e-commerce.(2)

The rise of a new global economy over the past two decades has meant that the increased cultural diversification within this newly created international marketplace now poses complex, new ethical challenges and dilemmas. This is particularly the case where a plurality of cultural values, norms, and beliefs is fundamentally changing the nature of international business transactions.

In this dynamic context of change, the need for ethical decisionmaking in support of the economic development of emerging economies has become more critical, and the process by which such decisions are made by policymakers in emerging markets has become more complicated and difficult to manage. This, in turn, has profound implications for the course of the development of emerging and transitional economies. This Essay defines the new legal architecture of development law and underscores the importance of ethical decision-making--a new and critical tool in exercising principled choices in the development law process.

1. THE GENESIS OF DEVELOPMENT LAW: THEORETICAL UNDERPINNINGS

   The exponential expansion of international law into the private domain has been a function of the new and rapid globalization of the economy, and the need to express international business, commercial, and financial relations in a coherent legal form. Thus, the fairly narrow paradigm established by the parameters of public international law--heretofore both defined by and confined to the relations between states--has been forced to change radically over the past decade. Indeed, even the dynamic world of international business transactions, the mainstay of most international law practitioners, has been forced to contend with current trends in globalization and often has been instrumental in imposing new legal requirements in order to protect foreign capital investments.

   More generally, international law practitioners are also engaged in an effort to rationalize legal relations between individual actors, such as lenders, borrowers, project sponsors, and investors. Accordingly, it is now appropriate, if not imperative, to address the relations of nations, peoples, and other development actors within the changing global context of economic development. Two interrelated causes giving rise to the current matrix of development law and international finance are critical to this examination: (1) the failure of ideology and (2) the failure of the state.

   1. The Failure of Ideology

      The failure of ideology in the twentieth century is embodied in the demise of fascism, communism, Stalinism, and Soviet-backed socialism in Africa and Asia. The dramatic fall of the Berlin Wall in 1989 heralded a new post-Cold War era where old policies of containment, proxy wars, and non-alignment have now become defunct. But if these ideologies have failed, what remains in its place?

      The new ascendancy of the "Rule of Law" on a global scale is certainly worth considering. In the fracas of dying and defunct ideas, a core ideal of Western thought has endured, namely, Adam Smith's elevation of the drive to acquire material wealth to a classical economic ideal. This, in combination with John Locke's demand that the state protect private property and individual liberties, sets the stage for liberal political theory. In other words, the pursuit of one's own personal happiness through the material acquisition of personal wealth as well as the state's protection of individual liberties, has been elevated to a Western classical ideal. Indeed, the terrifying force of this ideal may be its universality.

      While Western societies developed legal structures over the centuries to protect private property--such as contract enforcement, mortgages, secured loans, liens, and bankruptcy proceedings--and to ensure the protection of individual liberties--for example, passage of a Bill of Rights, due process of law, and jury trials, non-Western societies did not, for the most part, develop similar institutions. What began revolutionizing our world at the end of the last millennium was not the adoption of a Western classical ideal by the non-Western world, but the adoption of the Western methodology of achieving this ideal through private property, democratic governance, and the Rule of Law (ROL). The adoption of this Western-based methodology is what is fueling legal reform efforts in the developing world, as discussed below.

   2. The Failure of the State

      The role of the state in the economic development of emerging economies has been critical. In the decades following the independence of most developing world nations, the state was the only institutional actor large enough and sufficiently creditworthy to assume an entrepreneurial function. In other words, the state was the only actor capable of borrowing funds and providing for basic human needs, including power generation, transportation, and telecommunications. In response to the urgent needs of its population in such sectors, the state created state-owned enterprises (SOEs), which borrowed capital to support the capital infrastructure and other nation-building needs of the state. The SOEs, however, engaged in inefficient borrowing practices that burdened numerous developing states with high levels of debt leading to the debt crisis and the continuing debt overhang of many countries. In sum, SOEs failed over time. As a result, the state began divesting itself of ownership interests in its SOEs.

      The withdrawal of the state from the productive sectors of the economy led to the massive privatization efforts that we have witnessed over the course of the...