chapter  2
25 Pages

Why developing countries prove so resistant to the rule-of-law


Why do developing countries prove so resistant to the rule-of-law and, more generally, good governance? The problem is all the more paradoxical because the institutional technologies for providing the rule-of-law – systems of property rights, civil rights, and personal liberties, general incorporation laws, corporate governance structures, contract law, and judicial systems – are relatively well known. To address these questions, I draw on the new approach developed by North, Wallis, and Weingast (2009) – NWW – to suggest how the rule-of-law emerged in the West and why the rule-of-law cannot readily be transplanted into developing countries. The traditional approach to development in economics, political science,

and law sees developing societies as incomplete versions of developed ones; that is, as lacking essential ingredients of mature developed societies. Economists, democrats, and legal scholars all recommend that new institutions and policies be transplanted from developed societies into developing ones – typically capital, technology and competitive markets; parties and elections; and rights, constitutions, and judicial institutions. And yet these reforms rarely succeed in producing long-term economic growth, stable democracy that polices public officials, and rule-of-law institutions with efficient justice. The NWW approach provides a new explanation for why it is so difficult to

transplant these institutions from developed societies into developing ones. This framework divides today’s societies into two different types of social orders, arguing that developing countries differ dramatically in their organization from those of developed ones. Missing from traditional approaches is how societies reduce or control the problem of violence. The most common social order throughout history, the limited access order or natural state, solves the problem of violence through rent-creation, granting powerful individuals and groups valuable rights and privileges so that they have incentives to cooperate rather than fight. The resulting rents, limits on competition, and limited access to organizations hinder long-term economic development of these societies. In contrast, open access orders use competition, open access to organizations,

and institutions to control violence and are characterized by rent-erosion and long-term economic growth. I focus on two aspects of the rule-of-law in this chapter: first, the ideas of

certainty, equality before the law, and the absence of arbitrary abuse by authority; and second, a dynamic component missing from most treatments that emphasizes that the rule-of-law must hold not only today, but also tomorrow. The dynamic issue raises the problem of turnover in the ruler or dominant coalition of a state: what binds new political officials to honor existing rules and institutions? This issue is especially problematic in authoritarian regimes but is relevant in all natural states, including nominally democratic ones: the inability to bind successor regimes to today’s rules and institutions is a fundamental barrier to establishing the rule-of-law. No matter how attractive are today’s institutions or rights, they are no good in the long term if tomorrow’s regime can alter them at will. This issue is intimately tied to the issue of creating a perpetually lived state, a state whose characteristics and institutions do not depend on the identity of leaders or dominant coalition. Too often, students of the rule-of-law focus on the form of rights – for

example, the nature and specification of the law – or the form of institutions that should implement and oversee those rights – for example, the nature and specification of judicial institutions. They fail to study how to sustain these institutions and protect them from abuse by political officials. Leaders in natural states typically have the power to undo these institutions when they prove inconvenient, as witnessed by Nazi Germany’s Adolf Hitler, Russia’s Vladimir Putin, Venezuela’s Hugo Chávez, or Zimbabwe’s Robert Mugabe. Similarly, many natural states’ leaders grabbed power by force, and these leaders often directly compromise existing institutions; examples include Chile’s Augustin Pinochet and Spain’s Francisco Franco. Finally, many natural states fall into civil war, which also ends continuity of institutions, as illustrated by the former Yugoslavia in the early 1990s, Rwanda in 1994, and Somalia since the early 1990s. All three forms of instability hinder the natural state’s ability to create the rule-of-law. These examples show that maintaining the first part of the rule-of-law – equality and the absence of arbitrary abuse – critically depends on the creation of a perpetual state in which the rules and institutions of government do not depend on the identity of political officials. The chapter’s main lesson is that natural states cannot create the rule-of-law

by adopting the institutions and governance structures possessed by open access orders. To gain the rule-of-law, natural states must begin to transition to open access orders. Rule of law emerges as part of this transition when the society transforms from one based on personal relations and personal exchange to one based on impersonal relations and impersonal exchange. Part of the transition is institutional. Indeed, creating the rule-of-law requires two separate institutional changes: institutions to provide for the law; and a set of credible commitments that protect those institutions and ensure that they survive.