Legal origins, doing business, and rule of law indicators: the economic evaluation of legal systems.

Position:Proceedings of the One Hundred Fifth Annual Meeting of the American Society of International Law - Discussion

This panel was convened at 11:15 a.m., Thursday, March 24, by its moderator, Renaud Beauchard, of the law offices of Peter C. Hansen, who introduced the panelists: Corinne Boisman of the University of Metz; Kevin Davis of New York University School of Law; Carolin Geginat of the World Bank Group; and Ralf Michaels of Duke University.


We will talk today about "Legal Origins, Doing Business, and Rule of Law Indicators: The Economic Evaluation of Legal Systems." Behind that rather technical and dry title hides a very important question with strong policy implications. That question could be well-researched as economic analysis, the referential language, the meta language to articulate a common ground between different legal systems and assessing their merits. In other words, in the critical process of evaluation of legal institutions, does economics trump other, neutral forms of analysis, such as legal history, comparative law, legal sociology, or anthropology? That is exactly what the deviation of the legal origin or the law of finance movement has assumed, and all that with the institutional support of the World Bank.

They identified a kind of legal blueprint limited in its scope of application to commercial and company law, a sort of legal technology in some way guaranteeing economic growth. We had in turn the era of the beauty contest between legal systems, and they found that this blueprint closely resembles the common law much more so than the Napoleonic civil law.

I would like to note at this stage that my accent betrays me. I am indeed from the Napoleonic. I was born and raised in the Napoleonic family, and you might infer that I am biased against the legal origins. It's not so much in fact the ranking of the legal system and the critical evaluation of legal system that I have a problem with. It's more of the econocentric approach of the legal origins and its claim to certainty and universities.

I would like to illustrate that by a phrase by Oliver Wendell Holmes. "The logical method and form flatter that longing for certainty and for repose, which is in every human mind, but certainty generally is an illusion, and repose is not the destiny of man." I would like the focus of this panel to be largely on the method more than on the beauty contest.

So, to discuss the legal origins today, we have assembled a panel of distinguished experts with very diverse expertise. Our first panelist, Kevin Davis, is the Beller Family Professor of Business Law at New York University School of Law. Professor Davis received his B.A. in economics from McGill University and LL.B. from the University of Toronto and then LL.M. from Columbia University. He served as the law clerk to Justice John Sopinka of the Supreme Court of Canada, and later as an associate in the Toronto office of Torys, a Canadian law firm. He then started an academic career at the University of Toronto, before being appointed at NYU. Professor Davis has been a visiting assistant professor at the University of Southern California, a visiting fellow at Cambridge University's Clare Hall, and a visiting lecturer at the University of the West Indies in Barbados. Professor Davis' current research is focused on contract law, the governance of financial transactions involving developing countries, and the general relationship between law and economic development. And Professor Davis will introduce the legal origins movement and will discuss its influence and world developments.

Our second speaker, Corinne Boisman, a French national, is a professor at the University of Metz School of Law. Ms. Boisman spent two years doing research at Northwestern University's Law School in Chicago for her doctorate and relational contract. Ms. Boisman specializes in business enterprise agencies, secure transactions, and comparative law. She provides a very useful contribution to the Institut de Droit d'Expression et d'Inspiration Francaise (IDEF), which I cooperate with as well by providing and analyzing Anglo-American case law for the annotated code of the OHADA (l'Organisation pour l'Harmonisation du Droit des Affairs en Afrique). Ms. Boisman will provide us with a perspective on the legal origins from the OHADA, which is the organized business law in West Africa.

Our third panelist, Carolin Geginat, a German national, is the only economist on the panel. She is a senior economist at the World Bank Group. She joined the Doing Business Team in October 2006 to develop the new infrastructure indicator. Ms. Geginat holds a master's degree in economics from the University of Cologne and a postgraduate degree from the Institute of World Economics in Kiel. Before joining the Doing Business Team, Carolin worked on issues of debt and fiscal sustainability in low-income countries. In particular, Ms. Geginat was working on the implementation of the debt relief arrangements for a number of African countries through the Heavily Indebted Poor Countries Debt Relief Initiative (HIPC). Ms. Geginat will present the Doing Business perspective under legal origins. She will address how the Doing Business Team responded to criticism of the Doing Business method, and the result has been somewhat inspired from the legal origins.

Our last panelist I would really like to thank because he helped me propose that panel. He put together that proposal, and so I feel special gratitude for him. It is Ralf Michaels, professor at Duke University. He is an expert in comparative law and conflict of laws. He was educated in Cambridge and Passau, and Professor Michaels has been a visiting professor at several foreign universities, including Pantheon/Assas, Princeton, Pennsylvania, and Toronto. He held a fellowship at the American Academy in Berlin and the Max Planck Institute for Private Law in Hamburg. He was recently named a member of the Advisory Board of the IFC's Doing Business indicator. He edited the special volumes of the American Journal of Comparative Law on legal origins in 2009 in which he wrote one of the most important articles on the topic, "Comparative Law by Numbers." He will precisely assess the legal origins from the perspective of comparative law and interdisciplinarity.

Thank you very much. We will start with Kevin Davis.


My role here is twofold. First of all, I am supposed to present the basic outlines of the legal origins theory and then say a few words about its impact and relevance. On the last point, just to preview what I'll be saying later on, I think the interesting aspect of this theory and the way it's been elaborated and the role it's played in the world is that it shows the relationship between theory and practice--that theory actually matters and influences decisions that people make in the real world. What happens in the world of ideas does seem to have an impact on decisions that are being made by policymakers and investors on a global scale, and so for me, that's one of the interesting sort of meta-features of this whole story.

So let me start off, since I have limited time, with a presentation of the basic elements of the theory. For those of you who aren't familiar with it, it's a theory that comes out of the work of a group of economists. Andrei Shleifer, Rafael La Porta, and Florencio Lopez-de-Silanes are the three core members of the group, but they've had other co-authors work with them on a series of papers over a decade now that basically consists of statistical analyses of the relationships between countries' legal heritage, defined according to the legal family, whether the country belongs to or traces its origins to one of the five legal families--common law and various kinds of civil law. So, on the one hand, they look at the country's legal heritage, and on the other hand, they look at a range of outcomes. And they try to see if there is a correlation between the legal heritage on the one hand, and those outcomes on the other hand.

What they found in the course of this research (which they've summed up recently in a very helpful survey article) is that the common law tends to be associated with better investor protection and improved financial development; lighter government ownership and regulation, which in turn means less corruption, better functioning labor markets, less black market activity; and then finally, less formalized and more independent judicial systems, which in turn are associated with more secure property rights and better contract enforcement. So there are these three dimensions along which they find that common-law countries or countries that trace their legal origins back to the common law have distinctive institutional and economic outcomes, so again, better investor protection, better finance basically, less regulation of all sorts, and less formalized and more independent judicial systems. So that's the claim; in other words, common law good; civil law bad, especially French civil law which they focus on.


With apologies. And there have been quibbles about some of the specific findings, but I think I agree with the authors of the studies in saying that what's remarkable about this work is that the findings are quite consistent, and they're fairly robust. I mean, there is a pattern here. It's hard to argue with that.

There are two crucial caveats, though. First of all, they haven't found a causal connection between legal origin on the one hand, and economic growth on the other hand, and for a lot of people, that's what it's all about--that you would want to show that common law is better in the sense that it is associated with better economic growth--but they have not found that. And they are very clear about admitting that that's not something that they found. Even though it seems to be correlated with all the things that economists think make for economic growth, there is no robust statistical evidence that the common-law countries have better economic...

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