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Law and Capitalism: What Corporate Crises Reveal About Legal Systems and Economic Development Around the World.



Origins of the "endowment perspective" literature
The New Institutional Economists
The common law 'best' promotes economic development
Policy implications
Understanding economic development


The Matrix
Institutional Autopsies

   i. Legal systems are flexible
   ii. Beyond the NIE framework
   iii. Benchmarking questioned
   iv. Legal transplants: A more nuanced approach




Legal institutions create the boundaries, or "the rules of the game", in which economic activity can occur. (1) Law and economic development scholars suggest that studying these boundaries can help us understand why some countries develop while others remain stagnant. The basic argument for linking law and development is simple: without the protection of property rights and a system to enforce contracts, investors lack the means and confidence to invest; without investment, economies are unable to grow. The law thereby fosters economic growth by providing predictability and ultimately facilitating market activity. Beyond this general assertion, however, the precise attributes of legal institutions that fuel development continue to be vigorously debated (2) as scholars seek to unravel the relationship between specific legal models and development outcomes. Despite this uncertainty, policymakers advocate for a strengthened "rule of law"--spending billions (3) on legal transplant policies, whereby laws are taken from countries with high economic growth and extensive legal structures, and are transplanted into countries with low economic growth and weak economic protections.

In Law and Capitalism: What Corporate Crises Reveal about Legal Systems and Economic Development around the World, (4) Curtis J. Milhaupt and Katharina Pistor critique the prevailing understanding of the links between the law and economic development. In particular, the authors question the claim that a narrow focus on property rights and contract law is sufficient for understanding how law, and governance more broadly,s promotes market activity. They propose that we should consider the capacity of legal systems to balance competing interests beyond the private ordering generated by property and contractual rights (the 'coordinative' function) and the extent to which market actors participate in the shaping of the law (the degree of 'decentralization'). Furthermore, they argue that a complete understanding of the role of law in economic development requires consideration of how legal systems signal and enhance the credibility of a government's commitment to enforcing the law.

The authors propose a novel method of analysis for evaluating these factors: first, they invite us to visualize a matrix on which legal systems can be positioned according to the degree to which they can be defined by these variables--that is, as protective or coordinative, and centralized or decentralized. Second, they examine a series of high-profile corporate crises in various legal systems around the world, using these variables to conduct "institutional autopsies" of failed systems. The authors examine both the effectiveness of these legal systems before those crises and the institutional responses to the problems to which they have been exposed. In this way, the authors recognize that the law should not be regarded as a static endowment, like geography or natural resources. Instead, attention should be given to the responsiveness of the legal institutions to the demand for law. On the basis of these findings, the authors conclude that laws designed to promote economic development (6) must be tailored to specific governance regimes.

This contribution to the law and development literature is significant. First, Milhaupt and Pistor question the prevailing linear concept of the relationship between the enforcement of property and contractual rights and economic development. Second, their methodology provides important insight into the complexities inherent in legal reform. The authors' approach, however, is limited by their exclusive focus on the instrumental role of the law in achieving economic development. This limitation is attributable to Milhaupt and Pistor's failure to engage with the values underlying economic development. In particular, they sidestep the debates sparked by Amartya Sen which highlight the objectives and values underlying "development". Sen argues that development is best understood as freedom: freedoms in turn support the attainment of further freedoms because they advance the capabilities of individuals to act as agents of change. As a result of Milhaupt and Pistor's assumption of a one-dimensional role for economic development, their analysis supports legal policies that may promote economic activity, but may also be injurious to individual economic freedoms, without acknowledging the tradeoffs involved. The authors' focus on financial markets suggests that it was not their intention to create a framework that captures all aspects of development. Nevertheless, the tradeoffs that exist even within capitalist systems must be considered. This evaluation requires that the framework be grounded in the values and goals of development. In this vein, we endorse Sen's more robust concept of development and evaluate Milhaupt and Pistor's analysis in light of these values. We conclude that while their approach has value in what it reveals about the complexities inherent in legal transplants, an additional layer of analysis is required to effectively capture the true impact of the law on economic development.

This review will proceed in the three sections. Section II situates Law and Capitalism in the current law and economic development literature; this section will elaborate upon the scholarship explicitly addressed by the authors, as well as introduce the 'development as freedom' literature. Section III provides a summary of the book and examines the authors' key findings and contributions to the literature; throughout this section, we will discuss the potential for their framework to contribute to scholarship that adopts a more robust concept of development. Section IV examines the implications of the authors' incomplete set of values, focusing on China as a case study to elaborate the shortcomings of their approach. It suggests that Pistor and Milhaupt's framework, by starting from an incomplete set of values, is limited in its analysis of the link between the law and economic development. As it exists, their analysis supports the use of freedom-limiting systems that, while conducive to economic growth, may involve important trade-offs for economic development.


Milhaupt and Pistor's project emerged from a "shared frustration with the current state of the literature". (7) More specifically, the authors are critical of the prevailing view that the common law tradition provides more effective support for market activity than the civil law traditions, including the Scandinavian and the German. (8) The authors are concerned, given their reservations about that approach, about the real-world applications of this academic view: countries facing serious institutional challenges are being encouraged, sometimes forcefully, by organizations such as the World Bank to implement a set of standard legal norms--which are most often based on the American system. (9) Thus, Law and Capitalism represents a reaction and a challenge to an academic view that has been incorporated into practice by various organizations around the world. By means of a simple, yet highly effective, analytical framework, the authors question the prevailing view that any legal system can be promoted as inherently the "best" for furthering development objectives.

This section will situate Law and Capitalism in the context of the broader discourse surrounding the relationship between the law and economic development. The focus of this section will be on the scholarly context with which Milhaupt and Pistor explicitly engage: the 'endowment' perspective, including New Institutional Economics and the theory that the common law tradition is more conducive to economic development. The impact of these theories on development policy, a matter of particular concern to Milhaupt and Pistor, is also discussed. The final part of this section introduces the broader debate over the bases for economic development, noting in particular the contribution of Amartya Sen. We rely upon this literature in the sections that follow to test Milhaupt and Pistor's analysis.

Origins of the "endowment perspective" literature

Milhaupt and Pistor's work responds to a body of literature that relies on the works of the German political economist Max Weber for its foundation)[degrees] They describe Weber's concept of the law as an "endowment" (11) that facilitated the development of Western European countries during the time of the Industrial Revolution. (12) At the heart of Weber's theory are the twin necessities of private property rights and contract enforcement for promoting growth. (13) Property rights facilitate the ability for individuals to use privately held physical resources more efficiently. It allows individuals to prevent overexploitation and may create an incentive to promote long-term sustainable use over immediate consumption. (14)

In the context of capitalist financial systems, Hernando De Soto, for example, argues that property rights are essential to facilitate individuals' access to credit by providing collateral which can guarantee loans)s In essence, De Soto suggests that this process increases the supply of credit extended in the economy and gives individuals the opportunity to use this credit to improve the capital over which they exercise ownership rights, thus facilitating economic growth.

There is vigorous debate as to whether the economic hardships facing developing countries are attributable to weak financial systems. Many scholars argue that even with the necessary access to credit, developing countries are limited by more fundamental factors, (16) such as geography (17) and culture. (18) Nonetheless, if formal property rights are essential to economic growth, then contract enforcement is a necessary complement. Individuals who rely on property rights to access credit and allocate resources must be assured that their claims will be recognized. In his study of financial regulation, Ross Levine examines the risk that a government can modify contracts ex post. He finds that legal systems that can enforce these contracts will support financial, and ultimately economic, development. (19) Investors' confidence will be bolstered and business costs will decline because of the reduced likelihood of contract breach.

The New Institutional Economists

The New Institutional Economics school of thought builds upon the earlier theories of Weber and considers how property and contract rights exist in their institutional context. The New Institutional Economics framework ("NIE framework") posits that differing degrees of economic success cannot be explained by property and contract rights alone. Milhaupt and Pistor view the NIE framework as likewise guilty of assuming the "endowment perspective" because they conceive of institutions as fixed investments that pre-determine a country's capacity for economic growth. (20)

The NIE framework is grounded in the writings of Nobel laureate Douglass North. North argues that strong institutions, including legal institutions, are essential for fostering and facilitating economic development because they set the "rules of the game in society". (21) Institutions are not necessarily tangible structures. In addition to formal structures, institutions can also be "constructs of the human mind" (22) that embody both "formal rules and informal codes of conduct and behaviour". (23) In this way, they can be understood as constraints that society imposes on itself.

Institutions, by setting the rules and codes for society, determine how organizations become actors in society, interact with each other and affect social change through their choices. These interactions determine a society's ability to achieve its objectives by influencing the costs of exchange and production. (24) The more institutions are able to lower the costs of these processes--that is, reduce transaction costs--the more efficient and rapid economic growth will be. In this way "good" institutions will facilitate economic growth, while ineffective institutions will limit it. North also sees property rights (25) and contract enforcement as central institutions in the growth process. For these core institutions to function effectively, North argues that they require two types of complementary institutions: first, "credible" third-party (most commonly state) institutions, which include the judiciary, and institutions to enforce decisions (26); second, more intangible institutions that "constrain parties in their interaction" such that parties do not unduly burden the third-party institutions with cheating, opportunism and the like. (27) North, therefore, and the NIE framework generally, argue that it is the quality of a country's institutions and the capacity of these institutions to promote property rights and contract enforcement that are essential to determining economic growth. (28)

The common law 'best' promotes economic development

In the late 1990s, Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer and Robert Vishny ("LLSV") began to examine the structure of the financial sector in a variety of countries (29) in an effort to flesh out the link between the law and economic development. They began with the premise that because investors calculate their decisions based on the protections that they expect their investments to receive, the shape of these protections could have an important bearing on the strength of financial markets. (30) Thus the authors examined the relative strengths of different countries' legal measures for protecting parties' investments,, such as the protection of minority shareholders and creditors in bankruptcy, and the capabilities of legal systems to support contract enforcement. (31)

The findings of LLSV were groundbreaking. They concluded that countries with legal systems derived from the common law had more effective legal structures for creating strong financial systems than did legal systems derived from the civil law. (32) Indeed, while the civil system is the most pervasive, it appears to be the worst equipped for fostering economic development, at least in the area of corporate law. (33) German and Scandinavian financial legal rights were found to be somewhere in between. (34) In Law and Capitalism, Milhaupt and Pistor question the wisdom of LLSV and the NIE thinkers who, though differing in significant respects, (35) both approach the link between the law and economic development with an "endowment perspective". They caricature this perspective as: good laws and good enforcement lead to good economic outcomes. (36)

Policy implications

Many policymakers, encouraged by LLSV and the NIE framework, have produced studies and compiled indices that further examine the relationship between the law and economic development. For example, since 1996, the World Bank has issued a series of studies entitled "Governance Matters" (37) which examine the correlation between governance, (38) which includes the rule of law, and economic development outcomes. Its 1999 study concludes that there exists a "strong positive causal relationship from governance to better development outcomes". (39) As a policy tool for investors and financers, the World Bank Group regularly issues its "Doing Business" indices, which ranks countries according to the strength of their legal and regulatory climates for foreign investors. (40) These rankings are designed to track regulatory reforms that are aimed at making the economy more conducive to doing business. (41) The top three countries with respect to "the ease of doing business" are Singapore, New Zealand and the United States. (42) Relying on these resources, policymakers now actively promote the adoption of legal rules and institutions that characterize these strong economies' as a critical component for economic development. (43)

The American system is commonly understood to be optimal: its highly regulated and complex financial system is viewed to be a driving force in its economic success. (44) Consider the following example: after the Asian financial crisis, the International Monetary Fund (IMF) recommended that Indonesia adopt certain reforms, based on American law. Close to ten years later, the IMF was still monitoring and providing assistance to Indonesia to properly achieve these reforms. The IMF's persistence illustrates the depth of the commitment that some of these organizations have toward legal reforms. (45)

Recent commentators have expressed harsh criticism of this policy approach. Michael J. Trebilcock and Ronald J. Daniels argue that "[t]hroughout the history of the law and development movement, foreign-funded reforms have foundered on their insensitivity to the needs and contexts of target states by espousing top-down, one-size-fits-all reform blueprints". (46) Thomas Carothers questions the very premise of the link between law and development. (47) He argues that policymakers advocate for rule of law reforms, and specifically stronger judiciaries, more out of instinct than from any strong theoretical basis for making the claim. (48)

Even where a link can be shown, some suggest that it is a product of a unique history that may not be replicated and question the trend of promoting American-styled laws internationally. (49) Katharina Pistor had been a vocal critic of this "transplant approach" in her earlier work. She argued forcefully against the use of indices to map legal systems to preferred legal frameworks--such as that of the United States--pointing out that there are often disparities between the law as it exists and the law as it is applied. (50) Nevertheless, in spite of these critiques, policymakers continue to approach questions of law and development by relying on an 'endowment' framework that encourages the reproduction of American-style legal protections around the world.

Understanding economic development

Although Milhaupt and Pistor emphasize the relationship between their own arguments and the endowment perspectives described above, there is another body of development literature which they side-step. The authors avoid this debate by narrowing their discussion to one of methodology and presuming that capitalist legal reforms aim to act as an instrument for economic development. Nonetheless, the failure to engage in the broader debate over the bases for economic development may have a pronounced effect on how their book is received (and how their methods are put to work) by other academics and policy makers, who are already prone to conflate the concepts of "market activity" and "economic growth" with "economic development." By assuming a one-dimensional role for the law in capitalism, Milhaupt and Pistor neglect the tradeoffs inherent in promoting economic development.

This debate is highlighted in the works of Amartya Sen. Together with Martha C. Nussbaum, Sen advances a "capabilities" approach to understanding human well-being. (51) The "capabilities" approach refers to a framework for evaluating well-being based on individual abilities "to achieve various valuable functionings as a part of living". (52) "Functionings" are, simply put, the things that an individual is actually able to do. For example, at the most basic level, functionings include the ability to be well nourished, to read or to avoid mortality. "Capabilities", in turn, refer to alternative combinations of functionings that an individual has available to himself or herself. (53) Thus an individual with greater capabilities will have more functionings from which to choose. An individual with lower capabilities, in contrast, will have fewer functionings available.

From this theoretical base, Sen argues that "development" should be conceived as both a means--that is, an instrument--of realizing freedom, and an end of freedom. (54) On his terms, economic development, while inclusive of economic growth and market activity, is not limited to those aspects, (55) Rather, development is a process of expanding real freedoms, (56) with 'freedom' understood to include political and civil rights, as well as economic and social arrangements. The process of development requires the removal of the sources of 'unfreedom' imbedded in these arrangements, such as poverty and the use of overly repressive measures by states. (57) Economic poverty, for example, is a pervasive 'unfreedom', as it can prevent individuals from accessing proper nutrition and treatment for illness. Yet, economic poverty is only one of many barriers that individuals face in trying to realize substantive freedoms. (58) These freedoms are in turn essential to determine what capabilities are available to an individual. (59) Any meaningful evaluation of development must therefore evaluate the extent to which individual freedoms have been enhanced: development is the end of realizing freedoms. (60)

The second component of Sen's concept is that development (including economic development) is also a means for achieving freedoms. The realization of substantive freedoms in one context increases the capabilities of individuals to promote freedoms in another. Thus, the functions of law and economic development must be evaluated on the basis of how they interact and work together to promote the realization of freedoms. For example, economic opportunities, along with what Sen refers to as "enabling conditions", (61) enhance individual capabilities to participate in social choice and public decision-making. This freedom to participate, in turn, can influence the institutional arrangements that affect economic opportunities. (62) In this way, freedoms are interconnected and mutually reinforcing. (63) To fully comprehend the relationship between the law and economic development--their mutually reinforcing properties and value as freedoms--it is necessary to conceive of development in this more robust framework.

Legal scholars have employed Sen's concept of development to expand on the value of the rule of law for development. For example Trubek and Santos, like Milhaupt and Pistor, criticize the transplant approach of current policymakers. (64) Unlike Milhaupt and Pistor, they support a "reconceptualization of development that would de-centre the focus on economic growth". (65) In addition to the freedoms promoted by economic development, development as freedom requires that "equal consideration should be paid to political, social, and legal development". The implication of this analysis is that there are minimal values in the idea of the "rule of law", which are universally desirable for promoting development as freedom. (66)

Trebilcock and Daniels draw out values in the rule of law that are consistent with this broad concept of development as freedom. (67) Like Milhaupt and Pistor, Trebilcock and Daniels recognize the difficulty of legal transplants, focusing in particular on the political economy, resources, and cultural factors that inhibit the process of legal reform. (68) They expressly argue, however, that there are some minimal, normative values that should be promoted across legal systems to advance whatever concept of economic growth or development being adopted: legal institutions require some form of minimal values such as transparency and accountability if they are to effectively promote individual freedoms as well as economic freedoms. (69)

The failure of Milhaupt and Pistor to engage with this literature allows the authors to praise legal systems without considering the range of potential impacts on freedoms. While their undertaking is primarily a methodological one, the failure to consider the values informing economic development leads the authors to overlook the implications of their analysis on development as freedom.


Law and Capitalism is divided into three parts. In Part I the authors set out their motivation for writing the book, summarize and critique the mainstream literature (along the lines laid out above, but omitting Sen) and conclude by explaining the matrix. Part II applies their framework to six corporate crises, in a process they refer to as institutional autopsy. In Part III, the authors bring together the results of their analysis to refute four significant conclusions of what they conceive to be the relevant existing literature. First, they dispel the idea that legal systems are fixed endowments, arguing instead that they are better understood as adaptive creatures that respond to demand. (70) Second, the authors see themselves as adding depth to arguments posited by the New Institutional Economists, by suggesting that property rights and contract enforcement cannot fully explain the link between law and development. (71) Third, they question the validity of legal benchmarking, the practice of evaluating the soundness of the legal systems of developing countries by comparison to those of economically successful, common law countries, by pointing to the range of non-common law legal systems in countries with high rates of economic development. (72) Finally, they suggest that policymakers' advocacy for legal transplants may be misguided, at least to the extent that they fail to take into account local cultural and institutional contexts.

This section will examine the methodology and major contributions to the literature offered by Law and Capitalism and will reflect on the value of these contributions in light of Sen's critique of the growth-centered concept of development.

The Matrix

In response to perceived shortcomings in the development literature, Law and Capitalism proposes a new methodology for analyzing legal systems. The authors emphasize the need to analyze both the demand for and supply of law and argue that the multiple functions of law must be considered when examining the effect of legal reform on economic development. This is the theoretical basis for the authors' framework which, combined with the institutional autopsies of Part II, forms the two-pronged approach that is used throughout the book. (73)

The matrix depicts the relationship between two characteristics of legal systems which the authors view as relevant to understanding the relationship between law and development (see Figure 1). The protective/coordinative function is plotted on the x-axis. (74) Protection, according to Milhaupt and Pistor, refers to the traditional rights-protective approach that prioritizes individual property and contract enforcement. (75) Coordination, on the other hand, involves a more holistic view, balancing competing interests rather than just defining and protecting traditional contract and property 'rights'. Collective bargaining regimes, for example, depart from a purely rights-protective model, taking a number of social and economic goals into account in structuring the legal relationships between employers and employees. (76) As an example, Milhaupt and Pistor point to Germany's legal system, which requires that management deal directly with labour representatives--two often conflicting interest groups--by mandating a given representation of labour groups on the boards of German companies.

The degree of centralization of a legal system is represented on the y-axis. (77) A highly decentralized system will allow private actors to challenge in a court of law the validity of laws and regulations enacted by the government, with the United States being, according to the authors, the most decentralized system described in their book. (78) A centralized system, in contrast, leaves market actors with very little power to challenge the law, as seen in China, discussed below. (79)

In addition to the two main variables present in the matrix, the authors identify two other functions of the law which they have chosen to keep separate from the matrix: signaling and credibility enhancement. These variables are not plotted on the matrix, but are factored into the analysis in the case studies. Specifically, the law can send powerful signals about the kind of behaviour that the authorities want to see (signaling), (80) and can urge market actors to have confidence in what governments are saying (credibility enhancement). (81) Below is a depiction of the matrix, plotted with the countries studied by Milhaupt and Pistor. (82)


Analyzing legal systems using this matrix has, according to the authors, the significant advantage of allowing scholars to consider both the supply of law, such as the political institutions responsible for the production and design of laws, as well as the demand for law, such as challenges to the law through lobbying. (83) It does so on several levels. First, when considering how coordinative a system might be, it is necessary to consider the interaction and influence of private actors in lawmaking and law enforcement. Second, when thinking about a system's centralization, one must analyze not only how lawmaking and law enforcement are structured by the authorities, but also how private actors might be, and are, able to challenge that structure. Third, using the matrix requires the analyst to consider how these two fundamental aspects of the legal system (supply and demand) influence each other. These three factors together allow Milhaupt and Pistor's matrix framework to overcome the overemphasis on the supply of law in linear factorial analyses (84) of legal systems.

The matrix itself, and the exercise of situating legal systems within it, might seem to the reader to be little more than a visualization of the analysis of separate factors. The authors themselves consider this critique. They recognize that the matrix serves only qualitative functions and that the position of each legal system cannot be numerically pinpointed. (85) They emphasize, nonetheless, that it is the exercise of situating a legal system on the matrix that represents a marked departure from the endowment perspective by forcing the user to think simultaneously about more than one component of the legal system under analysis.

Although Milhaupt and Pistor appear to take a growth-focused approach for granted, the methodological implications of the matrix may in fact be relevant to legal systems analyses driven by Sen's priorities. Indeed, matrix analysis highlights a range of actors and institutions that respond to and influence legal systems, and may be compatible with analyses that define 'development' itself as a multi-layered, dynamic process. For example, when analyzing the centralization of a legal system, one should consider how centralization could impair the ability of individuals to act as agents of change within their society. Similarly, the degree of protection or coordination afforded by a legal system is relevant to an individual's political and economic freedoms. Because Milhaupt and Pistor do not highlight these considerations in their own treatment of the matrix, we note the onus on development scholars to incorporate Sen's goals and values into the matrix analysis.

Institutional Autopsies

In Part II of Law and Capitalism, Milhaupt and Pistor apply their matrix analysis (in case studies they call "institutional autopsies") to six international corporate governance crises: the Enron Scandal in the United States; the Mannesmann trials in Germany; the Livedoor bid in Japan; the SK saga in Korea; the China Aviation Oil scandal in China and Singapore; and the renationalization of Yukos in Russia. (86) Just as a medical autopsy allows a coroner to find the cause of death, so can, the authors argue, the analysis of a corporate governance crisis reveal important details about how a legal system is set up and how it responds to crisis. Such an approach, according to the authors, is advantageous because it exposes the various players' demands for law reform and offers insight into the future direction one can expect a particular legal system to take. (87) Despite the authors' confidence in their methodology, however, they are aware of its flaws and are careful to confront the main ones as explained below.

First, the authors admit that the decision to focus on corporate law might seem like an easy path--as both are comparative corporate law scholars--that may obscure some complexities of 'growth' or 'development' outside of the corporate context; nonetheless, they suggest that corporate governance is a powerful way to explain the relationship between legal and economic institutions: "[F]irms are the most important private actors in a market economy" and "corporate governance is linked to every facet of a country's economic, political, and legal structures". (88) Thus, through a corporate governance lens, the authors set out to analyze in a fresh way the link between legal institutions and market activity. While, as will be explained later, we think that this methodology has significant value, the authors tend to equate market activity with economic development, a foundation we consider to be short sighted.

Second, Milhaupt and Pistor acknowledge that analyzing crises only is not without limitations. (89) For instance, they are aware that the selection of these particular scandals could have influenced their findings. Nevertheless, Milhaupt and Pistor believe that the examples selected are important despite being potentially skewed because these crises were sufficiently important to force a reconsideration of the underlying systems. (90) Another limitation of the institutional autopsy approach resides in its use of extraordinary events to try to understand the ordinary workings of a legal system. The authors acknowledge that a corporate scandal may not be fully representative of the overall workings of a particular system, but believe that an out-of-equilibrium event reveals much more about the strengths and weaknesses of a system than a regular event. (91) Thus, the authors argue that their autopsy model, while suffering from some limitations, is powerful for achieving the book's goals.

While these autopsies are illustrative in what they reveal about legal systems, we believe that the authors' valuation of the various attributes of the systems are inconsistent with the broader concept of economic development, developed by Sen, which values the enhancement of individual freedoms and capabilities.


Milhaupt and Pistor, after applying the matrix framework to the six institutional autopsies, proceed in Part III to extrapolate arguments from the individual autopsies to refute four significant conclusions of the mainstream endowment perspective as outlined above. In the remainder of this section we will highlight the authors' contributions to the law and development literature by summarizing the authors' main conclusions from Part III, and by giving examples of how the authors support their conclusions with the institutional autopsies of Part II.

Throughout this section, we will focus on the strengths and shortcomings of Milhaupt and Pistor's contributions with reference to Sen's broadened concept of the goals of economic development.

i) Legal systems are flexible

Milhaupt and Pistor take issue with the simple view that legal systems are fixed and politically neutral endowments. To the contrary, they argue that legal systems (the supply of law) are constantly evolving in response to market pressures (the demand of law)--a process they characterize as a "rolling relationship" between legal systems and markets. (92) By this, the authors mean that the law is neither created nor applied in a vacuum: market players have an influence on lawmakers, such as by influencing politicians, and thereby affecting the creation of laws; they also have an influence on legal professionals, such as by using the court system to promote or enforce their interests and thus interacting with the judiciary and lawyers, thereby influencing how law is applied in practice. This rolling relationship shapes legal systems and will influence how changes to legal systems will be received. Thus, the authors claim that it is futile to consider legal systems outside of the political economy in which they evolve. (93) As a general rule, they believe that the endowment perspective captures the supply of law, but is unable to consider how the demand of law shapes the evolution of legal systems.

Milhaupt and Pistor identify three ways in which the interaction between supply and demand for law affects legal systems. First, the authors argue that the availability of lower cost, informal alternatives to strong legal rights and contract enforcement may reduce the demand for law. (94) The authors point to Japan's post-war corporate culture, in which market actors seldom sought to enforce their rights through the courts because they could rely on powerful bureaucrats in the economic ministries to wield their influence over other market actors; (95) market efficiency was thus ensured by reliance on extralegal alternatives rather than formal rights protection. (96)

Second, the authors demonstrate how the supply of formal law in one country can affect the demand for law elsewhere. (97) For instance, the identification of low-cost, effective "legal technology" in other countries can prompt market actors to demand that it be imported into their country. (98) In Japan, after the Livedoor bid, (99) Japanese corporate actors started to request protection against corporate raiders. Japan responded by adopting guidelines that virtually transplanted to Japan the Delaware takeover laws. (100)

Third, Milhaupt and Pistor suggest that the complexity of the market systems will influence the demand for law--the greater the complexity of the market, the greater the uncertainty for market actors. (101) This uncertainty will prompt market actors to demand more law to reduce the financial risks associated with more complex financial markets. (102)

The authors rely on their institutional autopsies to highlight this concept that legal systems are flexible and responsive to demand. For example, after the Enron scandal, the legal system in the United States went into a state of flux: the government made a push toward centralization--in an attempt to send a powerful signal that the market was soundly regulated--while private market actors were trying to push back toward a more decentralized equilibrium. (103) The subsequent enactment of the Sarbanes-Oxley Act, (104) which contained strong investor protection provisions, (105) signaled that the Federal government would now take a stricter position toward financial crimes; since Sarbanes-Oxley was not supported by powerful private actors, this constituted a shift toward centralization. All of a sudden, prosecuting financial crimes, an activity that had not carried much clout in the past, became fashionable and cases dealing with financial crimes became very high profile cases. Prosecutors and politicians alike understood this signal, saw the potential for career and political advancement, and more cases of alleged financial crimes were prosecuted. (106) This shift prompted a backlash from the business community, which claimed American capital markets had lost their competitive edge and tried to lobby against some of the components of Sarbanes-Oxley. (107) According to the authors, the Enron scandal and its aftermath demonstrate that a legal system is not static, and that supply and demand for law can generate significant repercussions in a short time period.

The Livedoor bid (108) is another example employed by Milhaupt and Pistor to illustrate the ability of legal systems to rapidly adapt in response to significant events. In this case, a hostile bid, coupled with extensive use of litigation, took Japan by surprise, because this type of corporate practice was not part of the internal social norms of that country. (109) The target attempted to issue warrants to the parent company in order to defend against Livedoor, the corporate raider; the Japanese courts, however, struck down these defensive measures as illegal and allowed the bid to proceed. (110) The negative public reaction to this ruling led to the prosecution of Livedoor's CEO for misrepresentation and illegal stock trading (111) and the adoption of guidelines that virtually transplanted Delaware's takeover laws to Japan. (112) Almost immediately, Japanese corporations started adopting poison pills to protect themselves against hostile bids. (113) In response to a single, isolated hostile bid, Japan's legal takeover system proved itself to be highly flexible.

Together, these institutional autopsies demonstrate that, irrespective of a country's legal tradition, systems can change quickly and dramatically in response to changes in the demand for law and the availability of alternatives to formal law. The United States enacted centralized legislation more in line with the civil law tradition, while Japan, a civil law country, adopted common law takeover rules from Delaware. The authors hence conclude that it does not make sense to focus, as LLSV have done, on a country's legal tradition. Furthermore, the authors highlight that these theories are unable to account for why some systems belonging to the same family have changed more than others. (114) In reality, differences between countries will continuously develop over time as legal systems evolve. (115)

Milhaupt and Pistor also suggest that the demand for law is likely to vary in influence depending on the degree to which market actors can participate in the process of lawmaking and enforcement. (116) More specifically, the authors predict that countries in which the law is more protective and decentralized, such as the United States, will be more flexible and responsive as market actors with strong incentives to see change will be more aggressive and most likely more effective at pursuing change in response to an event than a government would be. For instance, business people who would like to see a more beneficial taxation scheme are more likely to push for such a change in a decentralized and protective environment, such as in the US, as opposed to a centralized and coordinating environment, such as in China. Flexibility, according to the authors, increases the value of a legal system by allocating the lawmaking and enforcement functions to those who have the most incentives to resolve the disputes that arise out of unpredictable and surprising events. (117) This in turn facilitates the ability of the system to change quickly as those highly incentivized parties will act rapidly and forcefully to further their interests. (118)

While the authors do not explicitly address the goals of 'development', their emphasis on the importance of flexibility in legal systems comports well with a broader definition of 'development as freedom'. The impact of legal change, in turn, has an effect on economic development, which further affects human capabilities. The linear, supply-driven understanding of how legal systems evolve, in contrast, does not capture the contributions of these feedback effects on human freedom. Milhaupt and Pistor's concept of a more flexible, demand- and supply driven process is consistent with Sen's concept of freedoms as interconnected and complementary. For example, when individuals participate in public decisionmaking they are at the same time affecting economic growth and any number of other freedoms. In this way, promoting flexibility and responsiveness to individuals who are exercising their capabilities reinforces development both as a means and as an end.

ii) Beyond the NIE framework

Milhaupt and Pistor's consistent message is that the endowment perspective does not adequately explain how the law actually functions in different legal contexts. (119) Because the endowment perspective focuses solely on the supply of law, as opposed to the demand for law, it cannot explain why countries use similar laws differently. (120) Furthermore, the focus on protective law of the endowment perspective and NIE theorists cannot account for the other functions that law can play (signaling and credibility enhancement), as well as some other characteristics it may have that overshadow its protective function (emphasis on coordination). (121) The authors employ their institutional autopsies to demonstrate the shortcomings of employing the protection framework to explain these corporate crises.

The authors use the Enron autopsy to demonstrate that governmental actions that appeared to be increasing the protective functions of the law can have other intended effects that would be missed by followers of the endowment perspective. The Sarbanes-Oxley Act in the United States, for example, was perceived as highly protective legislation that marked a shift toward systemic centralization. (122) The authors argue, however, that Sarbanes-Oxley did not actually provide any rights that were not already contained in other legislation. In this way, they question the protective characterization that has been attributed to Sarbanes-Oxley. (123) The authors propose that the legislation was meant to signal that accounting fraud was going to be taken seriously by the government so as to provide market stability. (124) The signal worked--prosecutions of accounting fraud notably increased. (125) Similarly, markets actually stabilized, suggesting that the credibility enhancement function was also served. (126)

Many countries, perhaps based on the principles ingrained in the endowment perspective and promoted by the NIE framework, subsequently adopted legislation similar to Sarbanes-Oxley. Unlike the United States, however, these countries lacked the specific need for signaling and credibility enhancement, as the soundness of their own financial markets were not necessarily called into question at that particular moment in time and may never actually have been in the future. As a result, countries enacted expensive (from the corporations' perspective) legislation where it was not necessarily needed--a questionable exercise according to the authors. (127)

As a further rebuke to the NIE focus on protection, the authors use their autopsy of the renationalization of Yukos, in Russia, to show that laws which are facially protective can be used in ways that are anything but--that is, that protection rights can be deployed to serve specific political agendas which might otherwise be conceived of as 'coordinative' in their orientation. (128) Russian oligarchs, who are powerful business leaders controlling former state-owned enterprises, used specifically designed bidding rights to fend off the foreign acquisition of Russian companies during the wave of privatization that followed the post-Soviet era. (129) In this way, the oligarchs used takeover law, which is purported to be protective, as a means to fend off competitors, to buy assets on the cheap, and to make fortunes using Russia's natural resources.

While the oligarchs had made good use of the newly protective aspects of Russian law to enrich themselves, Russian protective laws soon began to be used against them by newly elected President Vladimir Putin. Putin used taxation law to claim that Yukos owed more than USD$17 billion in back taxes, and then used bankruptcy laws to put Yukos into receivership. (130) An obscure company, called Baikal Finans, bought the assets of Yukos during the auction, and almost immediately resold them to a state-owned enterprise. (131) Putin effectively coupled tax law with bankruptcy law, which is supposed to protect creditors, in order to re-nationalize the assets of Yukos at the expense of those creditors. This is the most powerful example that Milhaupt and Pistor rely upon to demonstrate that one cannot understand law without looking at the political context in which it evolves. "Protection laws", such as bankruptcy proceedings, can be used, in practice, in ways that are anything but protective. This greatly undermines the endowment perspective and the NIE framework, which rely almost exclusively on the importation of protective law to understand the function of legal systems.

Through their discussion of the Livedo0r bid in Japan, the authors demonstrated that non-law factors can also promote economic development. Indeed, Japan's powerful governmental ministries adopted guidelines from Delaware takeover law. (12) This sent a strong signal to the market and firms began implementing poison pills as protection against hostile foreign takeovers. (133) In this way, non-legally binding standards were used to respond to the fears of Japanese managers, who were worried about the potential vulnerability of Japanese firms to foreign hostile takeovers following the Court's ruling in the Livedoor case. This confirmed, in the authors' minds, that non-law tools, such as the ministerial guidelines, can support economic activity. (134) This episode also showed, along with the other autopsies, that it is important to look at the role of relationships in protecting economic interest as well as the signaling and credibility enhancement functions of the law. Therefore, while the NIE thinkers do slightly better than the classic endowment perspective because they incorporate social institutions into their analysis, Milhaupt and Pistor make a strong argument that it does not adequately explain how the law actually functions in relation to market activity because it neglects the impact of the demand for law. (135)

Milhaupt and Pistor do not specifically address the impact of these corporate crises on development. Nevertheless, their analyses of the processes at work are consistent with Sen's broad concept of development. For example, the authors emphasize the diversity of tangible and intangible factors that are interacting in society: social arrangements can impact legal rights, as illustrated by the Sarbanes-Oxley example, and political structures can impact economic freedoms, as illustrated by the Yukos example. Like Sen, therefore, the authors highlight the need to understand how the law works within, and is affected by, other factors in society.

iii) Benchmarking questioned

The authors forcefully conclude that benchmarking (136)--against American law or other successful legal systems--without regard to the broader legal and institutional context is not a sound practice. (137) Since legal systems are flexible, protective functions alone cannot explain how laws interact with markets. Furthermore, the institutional autopsies suggest that there is no such thing as "good law" in a vacuum. Rather, the context of a developing country's legal system needs to be taken into consideration when evaluating its soundness by comparing it to the legal system of a developed country with a successful economy. Thus, the authors suggest that a system's position on the matrix should be used to determine which other system might best be used to benchmark against it, if benchmarking is going to be done at all. The decision to benchmark, in turn, will be based on a thorough analysis of all the factors that the authors use to analyze legal systems.

Milhaupt and Pistor use an examination of the Mannesmann compensation trials in Germany to illustrate this point. These trials involved a backlash by German authorities against Anglo-American style executive compensation in the sale of Mannesmann. (138) The group that approved the compensation package, including a Swiss banker, had designed the compensation package by relying on international business practices. Unfortunately for them, they failed to take into consideration the German social value of balancing corporate profits with social goals that have evolved throughout the post-war era. (139) This story, according to the authors, provides a warning against benchmarking on specific legal systems without considering the context in which laws evolve.

Milhaupt and Pistor construct their analysis as a response to the proliferation of studies, such as the one by LLSV, which focus only on implementing "good protective law" in developing countries. Scholars frequently argue for the implementation of Anglo-American law as the epitome of good law. Nonetheless, the authors forcefully argue that the American model, for example, should not be considered a gold standard, and that, while American laws may work well in the United States, other systems operate differently and may not be well suited to receive American law. The authors place particular importance on the use of non-law tools that may be more effective in other contexts, and urge the reader to consider the American model in its own historical and social contexts.

Milhaupt and Pistor, in contrast to authors such as Trubek and Santos, (140) emphasize the diversity of structures that promote their understanding of economic development. Milhaupt and Pistor universally promote flexibility, but Otherwise dismiss the opinion that there are specific features--including political and economic freedoms--which are central components to a legal system for promoting development. As a result of this oversight, legal systems that limit individual freedoms can serve as "benchmarks" for other countries with similarly repressive systems. While this methodology is informative about the likelihood of "successful" adoptions of legal reform, it fails to capture many of the values, proposed by Sen among others, that should be driving the law reform process as we have argued above.

Legal transplants: A more nuanced approach

Milhaupt and Pistor contest benchmarking most forcefully where the Anglo-American model is used to evaluate the various components of a developing country's legal system. It is therefore not surprising that the authors are even more opposed to legal transplantation, as the adoption of portions of, or even entire, legal systems can have even more dire consequences than modeling changes to a specific legal system based on a benchmark. They forcefully argue that context is very important to the way in which legal transplants will be received in the host, both in terms of supply and demand. As such, the authors encourage the World Bank, and other policymakers, to move away from the current approach of encouraging the adoption of American-style legal standards in developing countries. Other authors, such as Thomas Carothers, have similarly argued that policy makers--often lawyers--whose frame of reference is limited to their own legal systems, exacerbate these problems. When prescribing reform, Carothers argues, these policy makers tend to turn to legal transplants, despite the different, unique, social, and institutional context. (141) This trend is further perpetuated by the fact that many policymakers from developing countries are increasingly receiving legal education in the United States and England.

Similarly, in response to this growing trend, Milhaupt and Pistor argue that the success of a transplant will vary depending on the local context and ability of the system to adapt. More specifically, the authors argue that the success of a legal transplant is dependent on its "micro-fit" and "macro-fit". (142) "Micro-fit" refers to whether or not the transplant resonates with the people applying the law, such as the judiciary, lawyers, regulators, and so on. (143) "Macro-fit" refers to the level of complementarity of the legal transplant to the political economy in the receiving country. (144) To illustrate this point, we can refer again to the Mannesmann autopsy. (145) In that example, assuming a transplantation of US compensation practices to Germany, the transplant would be unsuccessful for lack of "micro-fit", as the judiciary would try to continue to enforce Germany's traditional equilibrium between capitalist and social objectives. With respect to "macro-fit", the general public and the politicians are equally uninterested in allowing American style compensation--the public was actually outraged.

For these reasons, Milhaupt and Pistor suggest that internally developed legal systems are preferable to transplants. (146) The authors' "matrix and autopsy" framework is intended to give policymakers the tools they need to test proposed laws against the specific legal systems of their home countries. Moreover, because of the variations in the ways in which laws are adapted in each institutional and social context, they conclude that it is wrong to assume that globalization is leading us towards international standardization. (147) Milhaupt and Pistor convey an important lesson: even where stronger protective rights are desired, importing these laws from other systems will rarely produce the desired results, particularly where there is a mismatch in the institutional context of foreign supply and local demand. In this way, they argue that internally developed systems are preferable because they are consistent with internal values and practices.

Nonetheless, we suggest that Milhaupt and Pistor fail to consider that some legal systems, even while successful on their own terms, may still produce outcomes that actually reduce economic development, more broadly defined. The authors suggest that because all of the legal systems discussed have achieved high levels of economic wealth, the wide variation evident among legal systems--both on the centralized/decentralized axis as well as on the protective/coordinative axis of the matrix--is perfectly acceptable. While we share Milhaupt and Pistor's wariness of the "one size fits all approach", we disagree with the implication that minimal legal standards, such as transparency in law-making or enforceability, (148) are not essential to promote economic development. By emphasizing the diversity of systems that can achieve economic wealth, the authors have failed to consider the capacity of these systems to achieve the goal of economic development as freedom. The foremost illustration of this point is in the authors' lauding of China as an economic success, to suggest that protection rights and decentralization are not necessary for successful economic development. We counter, as might Sen, that it is essential to consider the impact of protective rights and the ensuing increase in freedoms, including the freedom to exchange and participatory freedoms, before declaring China's economic development an outright success.


Motivating Law and Capitalism is the need to better conceive of the role that law and legal reform play in supporting economic development. The "matrix and autopsy" methodology reveals that this relationship is in fact much more complex than policymakers make out. The contributions of Milhaupt and Pistor are significant. As David A. Skeel Jr. has described, "In the hands of other scholars, the framework will continue to deepen our understanding of governance and governance change. It is a gift that will keep on giving." (149) Skeel employs Milhaupt and Pistor's "matrix and autopsy" method to examine three corporate crises not covered by Law and Capitalism: the collapse of World Corn in the United States, (150) the collapse of Parmalat in Italy, (151) and the failure of Bear Stearns. (152) Skeel's analysis of World Corn and Parmalat extends the work of Milhaupt and Pistor to include the phenomenon of "single firm governance transplant". (153) The Bear Stearns crisis, Skeel claims, reveals that even within the same country, different industries may be regulated in different ways. (154) In other words, Skeel pushes the Milhaupt and Pistor's framework further by showing that transplanting governance standards from one firm to the next (especially when the firm is situated in a different country as was the case with Parmalat) can present similar problems as transplanting a legal system from one country to another. He also used the Bear Stearns example to show that regulations and legal norms can have very different effect on different industries.

We agree with Skeel that there is great analytical value in Milhaupt and Pistor's clear methodology in that it reveals the complexity inherent in the process of designing legal systems. However, we disagree with Milhaupt and Pistor's conclusion, based on their findings of variation, that the protective aspects of the law are not essential for promoting economic development. This conclusion is derived from the authors' concept of economic development, which can be characterized as a one-dimensional, instrumental understanding of both law and development. By starting from this limited concept, Milhaupt and Pistor overlook an integral aspect of the legal system and its implications for development: the function of economic governance cannot be measured by its ability to promote economic growth alone.

We advance Sen's concept of development to suggest that the protective aspects of the law cannot be discounted to the extent that they support an increase in human capabilities. In contrast to Milhaupt and Pistor, we submit that property rights and contract enforcement must be understood in their role for supporting freedom. As Sen suggests, economic facilities (155) and transparency guarantees (156) are instrumental freedoms that benefit from the rule of law. (157) This is because "a denial of opportunities of transaction, through arbitrary controls, can be a source of unfreedom in itself". (158) Thus, an individual's ability to exercise his or her freedoms (enforce property rights, exchange, consume, and enter markets) and ultimately have these rights transparently respected by others (including the state) are in themselves factors that contribute to an individual's ability to exercise free agency. These rights are also basic freedoms themselves--not simply means to an end: "[F]reedom of exchange and transaction is itself part and parcel of the basic liberties that people have reason to value." (159) It is therefore shortsighted to conceive of the role of law in a purely instrumental fashion.

In the same vein, we reject Milhaupt and Pistor's argument that there are no necessarily desirable conditions which are favourable to economic development. The framework advanced by the authors, by starting from this narrow perspective, has the potential to create seemingly illogical results. The authors' focus on the coordinative function of law, and governance more broadly, neglects the contribution of the law as an "end" of development. For example, they present the Chinese system as a coordinative example of where governance is "maximizing common interests". (160)

In fact, from the perspective of development as freedom, China's economic and financial system is far from optimal. The Chinese model of governance falls on the coordinative and centralized corner of Milhaupt and Pistor's matrix, meaning that the government seeks to balance economic achievements with social objectives (coordination) and that it does not readily allow private citizen challenges to its authority (centralization). (161) Milhaupt and Pistor point to China's economic success as further evidence that no single system is associated with economic success. (162) Yet they acknowledge that this model of governance is not overly facilitative of the protective functions of the law:
   Individual rights protections are used only sparingly as a
   governance device, and they tend to be paired with veto powers
   exercised by the state or its agents. Recent history has shown that
   this model can produce dramatic economic growth and the perception
   of governance by the rule of law. (163)

In this sense, while the Chinese model of financial governance may effectively support many of the means for development, such as higher incomes and access to credit, it is less effective at supporting freedom within its existing institutional structures. As a result, while some human capabilities will be enhanced by economic growth and the benefits that can flow therefrom, other human capabilities are limited by the Chinese model, (164) such as participatory freedoms and the freedom of market exchange. Sen illustrates this tradeoff with an example:
   Consider ... a case in which the same economic result [as would be
   achieved by a competitive market] is brought about by a fully
   centralized system with all the decisions of everyone regarding
   production and allocation being made by a dictator. Would that have
   been just as good an achievement?

   It is not hard to argue that something would be missing in such a
   scenario, to wit, the freedom of people to act as they like in
   deciding on where to work, what to produce, what to consume and so
   on. (165)

The tradeoffs between economic growth and other freedoms should be explicitly acknowledged if Milhaupt and Pistor's analysis is to be relevant to a discussion of economic development. In this way, while it is important for highlighting the diversity of systems that may promote economic growth, their analysis could benefit from recognizing more explicitly the value of legal systems that promote individual freedoms too. As it stands, by exclusively promoting institutional flexibility, the authors do not capture the more nuanced relationship between the law and economic development. There are, in fact, some minimally applicable values (166) that can be promoted by policymakers, though as Milhaupt and Pistor argue, the implementation of these policies cannot be done in a linear form. Legal reform policies require creative designs that recognize the uniqueness of each system, while at the same time advancing the fundamental values and goals of economic development.


Law and Capitalism provides a valuable methodology through which to approach the link between legal institutions and economic growth. Applying their "matrix and autopsy" method, the authors come to four important conclusions. First, legal systems are not fixed endowments. Second, given the flexible nature of legal systems, and the influence that the political economy has on their application, the New Institutional Economics perspective (which focuses on institutions and their roles in supporting property rights and contract enforcement) cannot capture how legal systems really work. Third, because of these first two findings, the current trend of benchmarking "good law" to American law is erroneous. Rather, the extent to which a certain law will spur economic growth is highly dependent on the conditions prevalent in the domestic country. Finally, legal systems cannot be imported with the expectation that they will lead to economic growth. Therefore, the current practices of the World Bank, the IMF, and other international institutions, which impose American law on developing countries, need to be rethought.

The authors' conclusions with respect to the nature of legal systems are significant. They reveal the complexity of the factors and interactions that shape legal systems. Furthermore, Milhaupt and Pistor's contribution provides a much needed critique of the existing transplant method relied upon in the law and development field. Nevertheless, we caution that the authors' promotion of flexibility as the only necessary attribute for legal systems does not capture the values inherent in the relationship between the law and economic development. Milhaupt and Pistor's methodology fails to consider the values of economic development that go beyond the simple flourishing of market activity. The best evidence of that is their use of China as an example to support the position that there are no intrinsic values which should be present in all legal systems. This conclusion ignores the broader economic development literature, which suggests that legal systems can and should be evaluated based on their capacity to foster both the means and ends of development.

Given the explanatory power of the authors' matrix and autopsy approach, and the early, positive response to it from Skeel, (167) it would not be surprising to see these theories gain wide acceptance among development practitioners. Our concern is that the framework could become the new popular and oversimplified approach of the development field. As mentioned by Milhaupt and Pistor, the study by LLSV had a profound effect on the policy design of development practitioners, contributing to the implementation of "one size fits all" strategies such as the "Governance Matters" series produced by the World Bank. (168) The concern is that, having illustrated the analytical shortcomings of the NIE framework and the endowment perspective, Milhaupt and Pistor's model could gain widespread acceptance, and be relied upon, as is, by the law and economic development field. This fear is heightened by Skeel's open-armed embrace of the matrix-autopsy approach.

Our criticisms are not fatal. In practice, Milhaupt and Pistor's methodology can be coupled with the more robust concept of development as advocated by Sen and glossed in this review. This requires a careful consideration of the consequences not only for economic growth, but rather on freedoms more broadly. Thus, as we see it, the main flaw of the methodology proposed here is not in its design, but rather in its application. We leave the challenge to future scholars to build upon Milhaupt and Pistor's "matrix and autopsy" method. By starting with a more robust concept of development, the authors' methodology has the potential to be a powerful tool.

* The authors gratefully acknowledge the assistance of the Senior Board Notes, Comments and Reviews Editors, in particular Lead Researcher Inie Park, and the Senior Editors of the University of Toronto Faculty of Law Review. The authors also thank Prof. M. Prado.

(1) Douglass C. North, Institutions, Institutional Change and Economic Performance (New York: Cambridge University Press, 1990) at 3-4 [North].

(2) For a survey of the debate see further Thomas Carothers, "Promoting the Rule of Law Abroad: The Problem of Knowledge" (Washington, D.C.: Carnegie Endowment for Peace, 2003).

(3) David M. Trubek, "The 'Rule of Law' in Development Assistance", in David M. Trubek and Alvaro Santos, eds., The New Law and Economic Development: A Critical Appraisal (New York: Cambridge University Press, 2006) 74 at 74 [Trubek]. For example, the World Bank reports that it has supported 330 "rule of law" projects since 1990.

(4) Curtis J. Milhaupt and Katharina Pistor, Law and Capitalism: What Corporate Crises Reveal about Legal Systems and Economic Development around the World (Chicago: The University of Chicago Press, 2008) [Milhaupt and Pistor].

(5) Milhaupt and Pistor argue that in addition to the law, "[s]ocial norms, self-regulatory organizations, best practices, and other rules for market activity that are not legally enforceable" are necessary to understanding how the law supports economic activity. Ibid. at 21.

(6) The terms "economic development" and "economic growth" are used synonymously by Milhaupt and Pistor. Where we employ these terms, however, we distinguish between "economic growth", which we understand to refer to the package of traditional measures of economic activity, such as gross domestic product and income per capita, and "economic development", which we believe to encompass a much broader conception of development, such as economic freedoms and capabilities. This more robust conception of economic development will be discussed in Section II, below.

(7) See further Milhaupt and Pistor, supra note 4 at ix.

(8) Ibid.

(9) Ibid.

(10) See further Max Weber, General Economic History (New Brunswick, NJ: Transaction, 1981) [Weber].

(11) This is the term used by Milhaupt and Pistor to characterize the perspective that law is a static good. See further Ross Levine, "Law, Finance, and Economic Growth" (1999) 8 Journal of Financial Intermediation 8 at 13 [Levine]. Levine argues that law is an endowment because it was spread through conquest and imperialism.

(12) Weber suggests that the absence of similar 'rational' legal systems elsewhere is one of the principal factors that limited industrialization in developing countries. Thus, when rational and static legal systems are institutionalized, they act as a state investment that facilitates sustained economic growth. Weber, supra note 10.

(13) Ibid. In the context of economic development, policymakers typically understand private property rights to include "the exclusive right to use an asset, the right to appropriate its economic value, and the right to sell or otherwise alienate that asset". Michael J. Trebilcock and Paul-Erik Veel, "Property Rights and Development: The Contingent Case for Formalization" (2008) 30(2) U. Pa. J. Int'l Econ. L. 397 [Trebilcock and Veel]. See further Thrainn Eggertsson, Economic Behaviour and Institutions (New York: Cambridge University Press, 1990) at 34.

(14) Individuals will themselves benefit from the care that is invested into the resources because they, and not "the commons", will be entitled to its rewards. Eirik Furubom & Rudolf Richter, Institutions and Economic Theory: The Contributions of the New Institutional Economics, 2d ed. (Ann Arbor: The University of Michigan Press, 2005) at 113. See also Thrainn Eggertsson, "Open Access versus Common Property" in Terry Anderson and Fred McChesney, eds., Property Rights: Cooperation, Conflict, and Law (Princeton: Princeton University Press, 2003) 73 at 77. For a comprehensive overview of the link between property rights and economic development see generally Trebilcock and Veel, supra note 13.

(15) Hernando De Soto, The Other Path: The Invisible Revolution in the Third World (New York: Harper and Row Publishers, 1988). In this way, banks can extend credit with the assurance that they will have an asset to appropriate in the case of a default on the loan.

(16) Jean-Philippe Platteau, "Does Africa Need Land Reform?" in Camilla Toulmin and Julian Quan, eds., Evolving Land Rights, Policy and Tenure in Africa (London: DFID/IIED/NRI, 2000) 51. Scholars, such as Platteau, argue that because of these variable factors, developing countries cannot simply mimic the strategies--including property rights---employed by developed countries. Nevertheless, those committed to property rights as a tool for development continue to advocate for policies that create legal systems that protect property rights to encourage efficient resource uses and facilitate access to credit.

(17) Paul Krugman, Development, Geography and Economic Theory, 6th ed. (Massachusetts: MIT Press, 2002). See also William Easterly and Ross Levine, "Tropics, germs and crops: how endowments influence economic development", (2003) 50 Journal of Monetary Economics 3 (Science Direct).

(18) Lawrence E. Harrison, Who Prospers? How Cultural Values Shape Economic and Political Successes (New York: Basic Books, 1993). See also G. Hoftstede, Culture's Consequences, International Differences in Work-Related Values (London: Sage, 1997). For a contrary opinion, see Eric Lionel Jones, Cultures merging: a historical and economic critique of culture (Princeton, New Jersey: Princeton University Press, 2006).

(19) Levine, supra note 11 at 19-21. Levine further finds that the ability to enforce contracts is equal in significance to the formal legal and regulatory codes.

(20) Milhaupt and Pistor, supra note 4 at 18. For example, Douglass C. North introduced his book with the assertion: "History matters. It matters not just because we can learn from the past, but because the present and the past are connected to the future by the continuity of a society's institutions." North, supra note 1 at vii.

(21) North, ibid. at 3-4. See further John Harris, Janet Hunter, Colin M. Lewis, eds., The New Institutional Economics and Third World Development (New York: Routledge, Taylor & Francis Group, 1995).

(22) North, ibid. at 107.

(23) Michael J. Trebilcock and Jing Leng, "The Role of Formal Contract Law and Enforcement in Economic Development" (2008) 94 Va. L. Rev. 1517 at 1520. For a more robust description of the NIE framework see further North, supra note 1 at 3-10.

(24) North, ibid. at 5.

(25) See also De Soto, supra note 15 at 63. De Soto points to two functions of such a system: "First, it tremendously reduces the costs of knowing the economic qualities of assets by representing them in a way that our senses can pick up quickly; and second, it facilitates the capacity to agree on how to use assets to create further production and increase the division of labor."

(26) North, supra note 1 at 59. See further Douglas C. North, "Institutions and Economic Growth: A Historical Introduction" in Jeffrey A. Frieden and David A. Lake, eds., International Political Economy: Perspectives on Global Wealth, 4th ed. (New York: Routledge, Taylor & Francis Group, 2000) [North (2000)]. See also De Soto, supra note 15 at 185-87. Kenneth Dam extended this analysis by arguing that in addition to protections for property rights and contracts, institutions should include protections for shareholders and promote well functioning credit markets. See generally Kenneth W. Dam, The Law-Growth Nexus: The Rule of Law and Economic Development (Washington: Brooking Institution Press, 2006) at chapters 5-9 [Dam].

(27) North (2000), ibid. at 49-50. Conversely, North attributes the absence of economic growth to the breakdowns of exchange because of the absence of institutions. This absence is compounded by the fact that without a "community of common ideologies" rulers are given power with which they create inefficiencies because the rules and norms do not align with the most efficient structure.

(28) Dam, supra note 26 at 230. See also Dani Rodrik, Arvind Subramanian and Francesco Trebbi, "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development" (2004) 9 Journal of Economic Growth 131. See further Dani Rodik, "Understanding Economic Policy Reform" (1996) 34 Journal of Economic Literature 9.

(29) Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer and Robert Vishny, "Law and Finance" (1997) 106 Journal of Political Economy 1113 [LLSV]. See also Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer and Robert Vishny, "Investor Protection and Corporate Governance" (2000) 58 Journal of Financial Economics 3.

(30) LLSV, ibid. at 1115-16.

(31) In this respect they differ from North and the NIEs who examine institutions more broadly. Instead, LLSV appear to focus their inquiry on the organizations that are created by these institutions.

(32) Ibid. at 1153-54. Subsequent authors have attempted to further develop the reasons behind LLSV's findings. For example, Glaeser and Schleifer argue that historic factors led the United Kingdom to use the courts as the primary protectors of private property, as compared to the civil system (France) that let the Crown have a monopoly over the power of the courts and therefore were less individualistic and private property centric. Edward L. Glaeser and Andrei Schleifer, "Legal Origins" (2002) 117:4 Quarterly Journal of Economics 1193.

(33) LLSV, ibid.

(34) Ibid. at 1154.

(35) The reception of La Porta et al.'s conclusions amongst the New Institutional Economists has been mixed. While many rely upon this empirical data to support the claim that the protective functions (i.e., property rights and contract enforcement) of law are critical (see, for example, Thorsten Beck and Ross Levine, "Legal Institutions and Financial Development" (2004) NBER Working Paper No. W10417, online: SSRN <>), others refute the idea that these laws can be evaluated without a consideration of broader institutions. Kenneth Dam, a leading NIE scholar, takes a guarded approach to the legal origins theory by arguing that no one system of law is, in its essence, better than another. Dam is cautious of enacting new legislation that citizens will ignore "because it runs contrary to social norms or dominant religious groups." Dam, supra note 26 at 223, 225-26.

(36) Milhaupt and Pistor, supra note 4 at 5.

(37) Daniel Kaufmann, Aart Kraay and Pablo Zoido-Lobaton, "Governance Matters" (New York: World Bank Policy Research Working Paper 2196, 1999) [Governance Matters]. See further the companion paper, Daniel Kaufmann, Aart Kraay and Pablo Zoido-Lobaton, "Aggregating Governance Indicators" (New York: World Bank Policy Research Working Paper 2195, 1999).

(38) Governance Matters, ibid. at 2. The study examines what is identified as the six basic governance concepts: voice and accountability, political instability and violence, government effectiveness, regulatory burden, graft, and rule of law. These rule-of-law indicators are compiled from a variety of existing sources.

(39) Ibid. at 18. For further details of these indicators see 59-60.

(40) See further Doing Business, (New York: The World Bank Group, 2009), online: Doing Business <> [Doing Business]. See also Aymo Brunetti, Gregory Kisunko and Beatrice Weder, "Institutional Obstacles to doing business: region-by-region results from a worldwide survey of the private sector" (New York: World Bank Policy Research Working Paper Series No. 1759, 1997).

(41) These rankings are the product of a survey (which uses a business case) of business experts, lawyers, accountants, government officials...etc, in each economy. In 2009, 73 economies were surveyed. The data captures ten indicators: starting a business, dealing with construction permits, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across boarders, enforcing contracts and closing a business. See "Methodology & Research" in Doing Business, ibid.

(42) See "Rankings" in Doing Business, ibid.

(43) Carothers, supra note 2 at 6. See also Trubek, supra note 3 at 81. "Aid agencies, like the World Bank, which once focused primarily on building roads and dams and getting macroeconomic variables right, now spend billions to reform the legal system of countries as different as Albania and Argentina, Bangladesh and Bolivia."

(44) David M. Trubek and Marc Galanter, "Scholars in Self-Estrangement: Some Reflections on the Crisis in Law and Development Studies in the United States" (1974) Wis. L. Rev. 1062 [Trubek and Galanter]. It will be interesting to see how this trend is impacted by the current popular opinion that American under-regulation is a contributing factor to the global financial crisis.

(45) Ian Lienert, "Indonesia's Push for Treasury Transparency" IMF Survey Magazine (10 December 2007), online: IMF Survery <>.

(46) Michael J. Trebilcock and Ronald J. Daniels, Rule of Law Reform and Development: Charting the Fragile Path of Progress (Northampton, MA: Edward Elgar, 2008) at 336 [Trebilcock and Daniels]. See further David Trubek and Alvaro Santos, eds., The New Law and Development: A Critical Appraisal (New york: Cambridge University Press, 2006).

(47) Carothers, supra note 2.

(48) Ibid. at 9.

(49) Trubek and Galanter, supra note 44.

(50) Katharina Pistor, Martin Raiser, & Stanislav Gelfer, Law and Finance in Transition Economies (2000) 8 Econ. Transition 325 [Pistor et al.]. The substance of these critiques is incorporated into Milhaupt and Pistor's Law and Capitalism, supra note 4.

(51) Amartya Sen, "Capability and Wellbeing" in Amartya Sen and Martha C. Nussbaum, eds., The Quality of Life (Oxford: Oxford University Press, 1993) 30 [Sen and Nussbaum]. See further Martha C. Nussbaum, "Capabilities and Human Rights" (1997) 66 Fordham L. Rev. 273.

(52) Sen and Nussbaum, ibid. at 30.

(53) Ibid. at 31-32.

(54) Amartya Sen, Development as Freedom (New York: Anchor Books, 1999) at 3 [Sen].

(55) See also Martha C. Nussbaum and Amartya Sen, The Quality of Life (New York: Oxford University Press, 1993). See further Jean Dreze and Amartya Sen, India, Economic Development and Social Opportunity (Delhi: Oxford University Press, 1995).

(56) Sen, supra note 54 at 3.

(57) Ibid. Sen uses the term "unfreedom" to mean "deprivations of freedom". See further Sen's section entitled "Forms of Unfreedom" in ibid. at 15-17.

(58) Ibid. at 4.

(59) Ibid. at 33.

(60) Ibid. at 4.

(61) "[G]ood health, basic education, and the encouragement and cultivation of initiatives". Ibid. at 11.

(62) Ibid. at 5.

(63) Ibid. at 5-8.

(64) David M. Trubek and Alvaro Santos, "Introduction: The Third Moment in Law and Development Theory and the Emergence of a New Critical Practice" in David M. Trubek and Alvaro Santos, eds., The New Law and Economic Development: A Critical Appraisal (New York: Cambridge University Press, 2006) [Trubek and Santos].

(65) Ibid. at 7. Milhaupt and Pistor, in contrast, omit this discussion from their analysis.

(66) Trubek, supra note 3 at 93-94. Trubek believes that these minimal values include human dignity, equality, and fairness. Furthermore, Trubek and Santos suggest that while the judiciary remains central to the law-development nexus, judges must "be sure they interpret regulatory law correctly, protect a wider range of human rights, and contribute to poverty reduction" in addition to the protection of property rights and contract enforcement. Ibid. at 9.

(67) Trebilcock and Daniels, supra note 46.

(68) Ibid. at 332-39.

(69) Ibid. at 23. Trebilcock and Daniels label these minimal values as a 'thinner' conception of the rule of law, in contrast to scholars that promote either "thick" or "thin" versions of the rule of law. This conception, they believe, promotes critical, normative benchmarks for key legal institutions. These benchmarks include procedural values (transparency in law-making and adjudicative functions; predictability of laws and their implementation; stability of laws; enforceability), institutional values (accountability and independence) and legitimacy values. The mechanisms for achieving these goals vary dramatically, but Trebilcock and Daniels still believe that they universally accord with the purpose of promoting development, in both the economic context and otherwise.

(70) Milhaupt and Pistor, supra note 4 at 219.

(71) Ibid.

(72) Ibid. at 220.

(73) Ibid. at 36-37.

(74) Ibid. at 37.

(75) Ibid. at 31. This also includes contract enforcement, rights to be protected from government expropriation, etc.

(76) Ibid. at 33-34.

(77) Refer to Figure 1.

(78) Milhaupt and Pistor, supra note 4 at 183.

(79) Ibid. at 37.

(80) Ibid. at 34.

(81) Ibid. at 35.

(82) Russia was deemed to be at the most centralized and most coordinative, because the states continue to play a major role in the design of law but also control the economy and society. In contrast, the United States was found to be the most protective, because its laws tend to value contract enforcement and property protection the most, and the most decentralized, based on the ease with which private actors can challenge governmental actions. The other countries fell somewhere in between the two. China is very coordinative, with the communist party controlling almost every aspect of the legal system (centralization), yet with property rights that are more secured than under the Russian system. Germany and Japan differed mostly from one another based on the extent to which the legal systems seek to balance property rights with other desirable social objectives (coordination).

(83) Milhaupt and Pistor, supra note 4 at 40-44. The supply for law is divided into two camps: people who make laws and people who use laws. This becomes important to the analysis of legal system as the judges, lawyers, etc, who use the laws may disagree with the lawmakers, thereby influencing how the laws will be applied in the real world. The demand for law refers to the actions of powerful individuals to influence those who control the supply of law. Lobbying and private legal actions, for instance, influence the rules law makers develop. Thus, in the absence of a demand for certain laws, it is unlikely that the law makers would even bother changing the legal system. Conversely, the passing of a law, which would displease powerful demand side groups, would be met with powerful resistance. Thus, the demand for law influences the supply of law and the legal system as a whole.

(84) Linear factorial analysis is the analysis of factors individually, without thinking or accounting for the relationships and interactions that factors may have to one another.

(85) Milhaupt and Pistor, supra note 4 at 183.

(86) The critical nature of this paper does not allow, unfortunately, for a full exposition of the facts of these scandals. Details will be provided subsequently, as needed, to allow the reader to understand how Milhaupt and Pistor have used some of these examples to support their main findings. For a more complete summary of each of the institutional autopsies, please see David A. Skeel, Jr., "Governance in the Ruins" (2008) 113 Harv. L. Rev. 1 [Skeel].

(87) Milhaupt and Pistor, supra note 4 at 46.

(88) Ibid.

(89) Ibid. at 10.

(90) Ibid. at 11.

(91) Ibid. at 10.

(92) Ibid. at 28.

(93) Ibid. at 40.

(94) Ibid.

(95) Firms were engaged in informal interactive relationship with officials in economic ministries. These officials engaged in an ongoing process of accommodations and enforcement of regulations with private actors that made reliance on formal law and the court process unattractive from the point of view of private actors. The power these bureaucrats yielded was created by formal law--i.e., the ability to prosecute and make life very difficult for companies; nevertheless, their use of that power was very informal and favoured compromise and discussion outside of the formal court system. People trusted them to be able to resolve issues and therefore avoided going to court. Ibid. at 91.

(96) Milhaupt and Pistor, supra note 4 at 41.

(97) Ibid.

(98) Ibid. "Legal technology", as used by the authors, means that entire segments of a successful economy's legal system can be adopted, more or less without change, in a developing country. Thus, the country does not have to undergo the expensive process of trial and error that other countries had to go through.

(99) Ibid. at 88-89. Livedoor was an internet company which tried to acquire Nippon, a subsidiary of Fuji TV (a powerful corporate conglomerate), in an hostile manner. Hostile takeovers had not been part of Japan's corporate culture at the time. Nippon defended itself by trying to issue warrants to its principal shareholders. Livedoor, in a move that was deemed to be totally outside of Japan's mainstream business culture, decided to challenge the validity of the warrants in court. The Japanese court held the issuance to be illegal. The takeover itself ended peacefully, but Livedoor's CEO was prosecuted for improper disclosure and illegal stock trade. After the court ruling, Japan's business community became very concerned about the vulnerability of their firms to hostile takeovers, especially by foreign firms. These concerns were voiced to the authorities, leading Japan's economic ministries to adopt as guidelines most of Delaware's takeover law. Following this adoption, poison pills were introduced into many Japanese corporations.

(100) Ibid. at 95.

(101) Ibid. at 42

(102) As business deals and financial transactions become more complex, "old" laws may no longer be adequate in regulating the more complex transactions. This legal vacuum is at the source of the uncertainty which pushes market actors to demand more "law".

(103) Milhaupt and Pistor, supra note 4 at 47-51. The Enron scandal refers to the bankruptcy of Enron, due mostly to widespread accounting fraud. The US government reacted by enacting the Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745 ("Sarbanes-Oxley Act"). Milhaupt and Pistor, supra note 4 at 56. The provisions of this act were aimed mostly at protecting investors from the types of accounting fraud that had led to the collapse of Enron. Thus, it appeared to be well in line with the US's protective character. Furthermore, the Act gave powers to the Securities and Exchange Commission, a Federal entity, powers to regulate conduct that would have traditionally been dealt with under states' corporate law, which leads the authors to conclude that the enactment of the act was a push toward centralization. The Act, so the authors claim, did not create new legal requirements as most of the prohibitions contained therein were already prohibited by penal law, but sent a signal to prosecutors and politicians that the federal government now had a keen interest in seeing financial crimes prosecuted. A significant increase in prosecution of financial crimes was indeed seen in the aftermath. A derivative consequence of this push toward centralization and increased financial crime prosecution was the increased cost of operation to many companies. Private actors started grumbling about the lost efficiency and attractiveness of the US financial markets and started to lobby for a return toward the pre-Enron position, thereby creating a backlash against the centralization push of the federal government. Such grumbling could be caused by, for instance, an increase in difficulty in raising new capital through the stock exchanges, which would make CEOs, investment bankers, and lawyers, particularly unhappy--the CEOs because their companies are not as well capitalized and the lawyers and investment bankers because of the reduction in fees associated with more sluggish financial markets. Actors such as these were contributing to the backlash to the act.

(104) Ibid. Sarbanes-Oxley Act.

(105) Milhaupt and Pistor, supra note 4 at 56. The Sarbanes-Oxley Act was a comprehensive piece of legislation aimed at curbing corporate fraud. It increased several disclosure requirements, and also contained whistle blowing provisions among other things. As such, it was perceived by the business community to be a "get tough" on financial crimes piece of legislation.

(106) Ibid. at 60-61.

(107) Ibid. at 65.

(108) See further supra note 99 for a more detailed description.

(109) Milhaupt and Pistor, supra note 4 at 87.

(110) Ibid. at 88-89.

(111) Ibid. at 89.

(112) Ibid. at 97.

(113) Ibid.

(114) Ibid. at 174.

(115) Ibid.

(116) Ibid. at 44.

(117) Ibid. at 43.

(118) Ibid.

(119) Ibid. at 219.

(120) Ibid.

(121) Ibid. at 32-34.

(122) Ibid. at 56.

(123) Ibid. at 58.

(124) Ibid. at 58-59.

(125) Ibid. at 60-61.

(126) Ibid. at 59.

(127) Ibid. at 67.

(128) Ibid. at 168.

(129) Ibid. at 153.

(130) Ibid. at 158.

(131) Ibid. at 159.

(132) Ibid. at 93.

(133) Ibid. at 97.

(134) Ibid. at 39.

(135) Ibid. at 173.

(136) "Benchmarking" refers to the practice of evaluating the soundness of the legal systems of developing countries by comparison to those of economically successful countries.

(137) Milhaupt and Pistor, supra note 4 at 221.

(138) Milhaupt and Pistor, supra note 4 at 79. Following a successful bid by a foreign company for Mannesmann, a German flagship, an American style compensation package (extremely large by Germany's standards, but not out of the ordinary in the United States) was approved for the exiting CEO of the German company. Despite the fact that none of the players involved raised concerns, the German government prosecuted everyone who had approved this compensation package (both the bidder and 98% of the shareholders) or who had received compensation. The charges were dropped after lengthy court proceedings; nonetheless, the prosecutions sent a message to German companies that Germany, although part of the globalized world, was not ready to accept all Anglo-American style corporate practices.

(139) Ibid: at 78-80.

(140) See further supra note 64.

(141) Carothers, supra note 2 at 8-9.

(142) Milhaupt and Pistor, supra note 4 at 210-11.

(143) Ibid. at 210.

(144) Ibid.

(145) Note, this is our use of the facts of this case to explain the difference between these two concepts as used by Milhaupt and Pistor.

(146) Milhaupt and Pistor, supra note 4 at 211.

(147) Ibid. at 213.

(148) Skeel, supra note 86.

(149) Ibid. at 23.

(150) Ibid. at 30.

(151) Ibid. at 35.

(152) Ibid. at 44.

(153) Ibid.

(154) Sen, supra note 54 at 38-39, defines economic facilities as "the opportunities that individuals respectively enjoy to utilize economic resources for the purpose of consumption, or production, or exchange".

(155) Sen, ibid. at 39, defines transparency guarantees as "the freedom to deal with one another under guarantees of disclosure and lucidity".

(156) In Trebilcock and Daniels, supra note 46 at 27. See also Sen, supra note 54 at 38.

(157) Sen, ibid. at 25.

(158) Ibid. at 6.

(159) Milhaupt and Pistor, supra note 4 at 147.

(160) Ibid. at 183.

(161) Ibid. at 220.

(162) Ibid. at 147.

(163) See further Sen, supra note 54 at 41-43. Sen compares the Chinese experience to the Indian experience. He notes that China has achieved greater success in reducing poverty, promoting education and raising health conditions, all of which support individual freedoms. Sen also notes, however, that "there are real handicaps that China experiences compared with India because it lacks democratic freedoms". The absence of democratic freedoms has, in turn, created a negative impact on other aspects of the development process.

(164) Ibid. at 27.

(165) As it stands, their analysis is only applicable to economic growth, despite their frequent use of the term "economic development" in its place.

(166) Here, we are aligning ourselves with Trebilcock and Daniels. See supra note 46.

(167) Skeel, supra note 86.

(168) See supra note 37.

JACKIE VANDERMEULEN, B.A. (Hon.) (McGill University), J.D. (University of Toronto).

PHILIPPE PERRON-SAVARD, B. Sc. (Hon.) (McGill University), M. Sc. (McGill University), J.D. (University of Toronto), M.B.A. (University of Toronto).
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Author:Vandermeulen, Jackie; Perron-Savard, Philippe
Publication:University of Toronto Faculty of Law Review
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Date:Mar 22, 2009
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