7 - Market modernization of law: Economic development through decentralized law

Summary

Glendower: “I can call spirits from the vasty deep.”

Hotspur: “But will they come when you do call for them?”

– Shakespeare, Henry IV

Many people believe that modernizing the law in developing countries requires comprehensive reform directed by politicians and state officials. For example, labor law must restructure employment relations to protect jobs, land reform must reorganize agriculture by redistributing rural property, antitrust law must suppress monopolies that obstruct development, and safety regulation must protect consumers and workers against defective products. Priorities vary, but reformers agree that political leaders and state officials must take the initiative to replace outdated laws with comprehensive statutes.

This article concerns an alternative approach to modernizing the law. Economic competition changes products and techniques, which in turn creates new problems of coordination and cooperation. Communities of people solve these problems by developing norms of behavior. Social norms impose obligations and coordinate expectations. The state raises some social norms to the level of law. To illustrate, consider safety on the steps of a family's house. Custom determines a standard of safety in maintaining steps. If someone is injured on the steps and sues the homeowner, the court in a common-law country will use the customary standard to determine whether the homeowner was negligent in maintaining the steps. Similarly, the American Bar Association imposes a code of ethical responsibility on lawyers and courts hold lawyers liable for some harms resulting from their unethical conduct.