Asia’s Legal Systems in the Wake of the Financial Crisis: Can the Rule of Law Carry any of the Weight?

Abstract

People have long been interested in the relationships between legal systems and economic performance, and have approached these issues in many different ways. The original American institutional economics produced such works as Ely’s Property and Contract in Their Relations to the Distribution of Wealth (Ely 1914) and Commons’ The Legal Foundations of Capitalism (Commons 1924). That law should have occupied a central place in their thinking about economics should come as no surprise, since the study of legal institutions was key to the German historical approach to political economy (Cohn 1894), which strongly influenced many American institutionalists (Kloppenberg 1997; Hovenkamp 1991). For Weber, of course, legal, political and economic organization were intimately related, and the rise of a specific style of legality (‘formally rational’ in his terms) was closely tied to the rise of modern, industrial capitalism (Weber 1968; Trubek 1972). And although he seems not to have elaborated on the theme, law, or rather the lack of a functioning legal system, also played a role in the theorizing of the economic historian Alexander Gerschenkron. In explaining why the modernizing Russian state of the 1890s had to assume capital accumulation and allocation functions that had been successfully performed by private universal banks in Germany, Gerschenkron speculated that ‘no bank could have successfully engaged in long-term credit policies in an economy where fraudulent bankruptcy had been almost elevated to the rank of a general business practice’ (Gerschenkron 1965).