4 - The Role of State Legal Capacity

Summary

The preceding chapter examined Russian firms’ increasing reliance on formal legal institutions. How can this trend be explained? A temptingly straightforward explanation for the evolution of property security strategies in Russia would be that enterprises increasingly adopted legal strategies in response to rising state legal capacity. After all, Putin assumed the presidency in 2000 pronouncing the goal to build a “dictatorship of the law.”1 The very ambiguity of this phrase, however, speaks volumes about trends in Russian state legal capacity since Putin has assumed power. On the one hand, Putin has sought to improve the effectiveness of courts, law enforcement agencies, and other formal legal institutions. On the other hand, state agencies under Putin, including those responsible for upholding the law, have often arbitrarily persecuted businesses for the sake of government officials’ private gain. As this chapter makes clear, rising state legal capacity can atmost provide a partial explanation for the evolution of Russian firms’ strategies, for it is highly questionable whether Putin succeeded in his efforts to improve the effectiveness of formal legal institutions.

Returning to the analytical framework introduced in Chapter 2, three key explanatory factors influence firms’ willingness to use formal legal institutions: state legal capacity, demand-side barriers to the use of legal strategies, and the effectiveness of illegal strategies. The current chapter examines how the first of these explanatory variables – state legal capacity – evolved throughout the 1990s and 2000s, leaving analysis of the other two variables for Chapters 5 and 6. More specifically, this chapter demonstrates the book's key propositions concerning state legal capacity: (1) While a dearth of state legal capacity may impede firms’ use of formal legal institutions, improved legal capacity frequently does not induce firms to rely on law; and (2) firms frequently adopt legal strategies even when the effectiveness of formal legal institutions remains in doubt. Consequently, the correlation between state legal capacity and firm strategies is weaker than commonly assumed.

Measuring and assessing state legal capacity is, of course, a difficult task.