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Law and Long-Term Economic Change: A Eurasian Perspective
Published by EH.Net (June 2012)
Debin Ma and Jan Luiten van Zanden, editors, Law and Long-Term Economic Change: A Eurasian Perspective. Stanford: Stanford University Press, 2011. xiv + 358 pp. $65 (cloth), ISBN: 978-0-8047-7273-0.
Reviewed for EH.Net by Tuan-Hwee Sng, Department of Economics, National University of Singapore.
Researchers have long recognized the relationship between secure property rights and economic growth. Discussion on the subject, however, has often fallen into an oversimplified dichotomy between a “progressive” West and a “corrupt” East. As the editors of this volume -- Debin Ma (London School of Economics) and Jan Luiten van Zanden (Utrecht University) -- point out, the need to maintain some level of justice and fairness is probably shared by all societies. While they are not advocates of the revisionist view that the West’s decisive lead in the security of property only appeared with the advent of the industrial revolution, they recognize the need to study non-Western legal systems more systematically. Their admirable goal is to build “a richer and subtler perspective on global legal traditions” that is “much more than a simplistic tale of European exceptionalism.”
The volume brings together an impressive group of scholars with expertise on different parts of Eurasia to explore diverse aspects of property rights across space and time. Most of the 15 essays compiled in the volume originated in a conference on law and economic development held in Utrecht in 2007. Some of the questions that they addressed include: What are the main characteristics of a particular legal tradition? How did these characteristics evolve over time? How effective were different legal systems in the protection of property? Did differences in legal traditions contribute to the “Great Divergence”?
As one would expect from a collection of essays, many chapters in the volume are only loosely connected to one another under the broad theme of law and long-term economic growth. Some readers will enjoy the diversity. Others might have preferred a more focused comparative agenda. It is a matter of personal taste, but every reader should find something inside that is interesting and relevant to his/her own work.
The chapters are ordered from east to west, starting with Japan and ending with Britain. Very broadly, they can be classified into four groups: those arguing that an overly powerful state is the main obstacle to legal development; those seeking to explain the internal logic of individual legal systems without offering theories on “what went wrong (right)”; those that analyze the transmission of legal institutions; and those that examine the performance of a specific institution in a local (British) context.
The State as an Obstacle to Legal Development
In the introduction, the editors offer a three-layer analytical framework to understand the evolution of law and legal institutions: culture provides the range of ideas; the state filters these ideas and selects those compatible with its interests; the ideas selected are then expressed as institutional rules. This is a simple yet powerful framework, with much food for thought.
Chapter 2, by John Haley, discusses the evolution of private law in the West and Japan. It argues that constraints on political power in Europe -- itself the outcome of European geography, major tribal migrations between the third and the sixth centuries, the emergence of the church as a political player, and incessant warfare -- prevented rulers in medieval Europe from adopting the kind of public-law system that emerged in imperial China. Instead, they were forced to accept adjudication as a principal means of maintaining order. According to Haley, the presence of similar political conditions (in particular, the existence of competing centers of power) also led to the development of an embryonic private-law order in early and medieval Japan. It was this “shared institutional experience” that would allow Japan to adopt Western law successfully and with relative ease during the nineteenth century.
Recent revisionist scholarship has shown that the legal system in imperial China did a much better job of protecting property rights than previously thought. In Chapter 3, Debin Ma provides a critique of this view. Through a short review of the Chinese legal tradition, he argues that the imperial state’s desire to maintain its monopoly of power prevented the formation of an autonomous legal profession in China. Litigation masters who gave legal advice to ordinary people were driven underground as their presence was viewed by the state as a threat to a harmonious society, while court decisions continued to be made by magistrates with little legal expertise and whose primary concern was to satisfy the review from above. To Ma, “[t]he rise of an independent legal profession in England and Western Europe and its absence in traditional China were merely reflective of two contrasting political structures at opposing ends of the Eurasian continent.”
The most theoretically oriented chapter in the volume is Metin Cosgel’s analysis of the adoption of legal and other innovations in the Ottoman Empire (Chapter 8). By building a theoretical framework to analyze interactions between a ruler, an organized religious and legal authority, and the citizenry, Cosgel suggests that the support of powerful groups in the society is an important factor that helps explain why the Ottoman state was quick to adopt some innovations (e.g. gunpowder technology) but not others (e.g. printing press, the legal concept of corporation).
In Chapter 10, Jerome Sgard asks why bankruptcy laws were first invented in medieval Europe and not elsewhere. Historically, societies without bankruptcy laws to manage commercial failures ex-post often imposed rules (e.g. usury laws) to prevent economic agents from taking too much risk ex-ante. While bankruptcy laws promote trade and investment by providing a mechanism to solve this dilemma, allowing the court to intervene in commercial affairs could also potentially lead to state predation. According to Sgard, it is therefore unsurprising that bankruptcy laws first emerged in northern Italy, where “burghers and merchants could actually govern their local public affairs.” Republican institutions and bankruptcy statutes are natural complements.
Chapter 13, by Jaime Reis, studies the mortgage loan market in nineteenth-century Portugal. Using a new metric to identify the component in the interest rate that reflects institutional quality, Reis shows that creditor rights were weakly protected in Portugal between 1870 and 1910. By complementing his statistical analysis with a historical narrative, he argues that the relative high cost of credit observed cannot be attributed to flaws in the architecture of the Portuguese legal system. At root, the problem lies with political meddling with the judiciary and the appointment of judges based on political favoritism.
The Long-Term Evolution of Legal Arrangements
In Chapter 7, Anand Swamy’s insightful survey on land law in colonial India reflects the difficulties of promoting legal and economic development in traditional agrarian societies. In the late 1700s, the East India Company introduced a system of civil courts in Bengal with the belief that secure property rights would promote investment and growth. Over time, however, the colonists became increasingly worried that the court system, with its greater formalism and costs of access, might have disadvantaged poorer segments of society at a time when peasant demand for dispute resolution was rising due to the commercialization of agriculture. After the Mutiny of 1853, measures were readily adopted to curb the transfer of land. Ironically, concludes the author, “at the height of its power, the colonial state was more fearful of market forces than at its insecure beginning.”
Akin to the situation in Colonial India, the judicial process in imperial China also placed much emphasis on the maintenance of social order. Mio Kishimoto points out in Chapter 4 that the imperial state in China saw the protection of private property rights as a means to reduce social tensions, not as an end in itself. An example used to illustrate the point was the imperial state’s willingness to tolerate the widespread custom of “two masters to a land.” The custom weakened the rights of landowners by prohibiting them from replacing tenants at will and allowing a tenant to transfer cultivation rights without the landowner’s consent.
Kishimoto’s analysis is complemented by Harriet Zurndorfer’s case study (Chapter 5) on property litigation in sixteenth-century Huizhou (Anhui, China). The chapter discusses how population and commercial growth drove an increase in litigation and how the Chinese state and society coped with it.
Chapter 9, by Toru Miura, presents rich historical details on how legal institutions functioned in the Islamic Middle East. Miura highlights several unique features of the Islamic judicial system, including an emphasis on individual ownership, the reliance on oral testimonials instead of written documentation, and the role of the Islamic qadi as a mediator instead of a judge. Through a careful examination of the actual operation of the court, he shows that the Islamic court was far less arbitrary than commonly perceived.
The Transmission of Legal Institutions
The subject of institutional transmission features prominently in Chapters 6, 11, and 12, by Tirthankar Roy, Jessica Dijkman and Oscar Gelderblom, respectively. Roy traces the evolution of law in India between 1600 and 1900. Particular attention is paid to the way British colonial legislators, driven by a desire to secure the acquiescence of powerful communities to British rule, introduced the procedures of the common law system into India while preserving the content of India’s indigenous law. The result, however, was not a happy one. As multiple legal codes arose to reflect the diversity of the Indian society, the judicial process became unnecessarily costly in time and money. As Roy puts it, the colonial legal system was a “monstrously inefficient hybrid.”
Dijkman’s chapter sets out to understand whether the development of debt litigation institutions in Holland between 1200 and 1350 led to its strong economic growth after 1350. She points out that many of the legal procedures for debt recovery used in medieval Holland were likely to be imports from the southern Low Countries. But unlike the case in colonial India, institutional transplantation worked well in medieval Holland. Dijkman’s analysis suggests that preexisting institutional similarities between the innovator and the follower matters. The towns of Holland could easily adopt innovations made by its neighbors because in most cases, doing so would require only modifying an existing institution rather than creating a new one.
In Chapter 12, Gelderblom surveys the institutions used by long-distance traders in Bruges, Antwerp, and Amsterdam between 1250 and 1650 to resolve disputes among themselves. He discusses how trade expansion led to the rise of consular courts in Bruges and Antwerp, and subsequently how, as business practices converged and local judges became more competent in adjudicating disputes among foreign merchants, local courts developed into the preeminent third party enforcer of contracts in the Low Countries.
Two British Institutions
Two chapters on Britain, one by Larry Neal on the London Stock Exchange and the other by Dan Bogart on the use of juries to approve infrastructural projects, conclude the volume. In Chapter 14, Neal describes the image of the pre-WWI London Stock Exchange as an entirely self-regulating entity as an “illusion.” He argues that the exchange operated under the “ever-present threat that the authorities could sanction the creation of a competing exchange,” and it was this fear of additional legislation that helped prevent the exchange from imposing self-interested restrictions on competition and innovation.
In the final chapter, Dan Bogart studies the link between British legal institutions and infrastructural development. After the Glorious Revolution, parliamentary acts gave juries, whose members often came from the landowning class, the authority to determine compensation for infrastructural projects such as roads, canals, and railways. Bogart finds empirical evidence showing that jury decisions were biased in favor of landowners. He warns, however, against taking the study as conclusive by pointing out that in pre-revolutionary France, infrastructural projects could take decades to receive the green light from the courts. By comparison, the system of juries, which often needed only a few months to reach a decision, could be more of a catalyst than an impediment to innovation.
Tuan-Hwee Sng is Assistant Professor of Economics at the National University of Singapore. He received his Ph.D. in economics from Northwestern University in 2011. His doctoral research has focused on the effects of geographic size on taxation and the quality of governance in Qing China and Tokugawa Japan, 1650-1850.
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