Legal Origins and the Tasks of Corporate Law in Economic Development: A Preliminary Exploration

I. INTRODUCTION The Legal Origins approach, and the wealth of literature it has spawned, is surely good for something other than generating more literature (for which it clearly is very good). The approach has garnered a great deal of criticism,1 but it has nonetheless raised very interesting issues about relationships between legal systems, business forms, and economic performance. It has also raised a challenge to traditional comparative law, a field that has been a bit staid and introverted.2 In its favor, Legal Origins also takes methodology seriously, which is unfortunately too rare in traditional legal scholarship. The approach's attention to social science methodology suggests that it also aspires to advance the state of our knowledge about the world, but as other papers in the symposium point out in one way or another, there are problems with understanding the Legal Origins literature as a scientific breakthrough.3 Whether or not Legal Origins scholarship actually constitutes scientific progress, it may still be very important if it influences the real world of law, policy, and economic activity. As will be discussed in more detail below, developing countries do not select their economic policies and financial legal regimes in a vacuum, but rather are often pressured to adopt policies and legal institutions advocated by developed countries and international institutions. Given that one application of the Legal Origins theory is to advance economic and legal policy objectives for developing economies, the potential for Legal Origins to influence policy directives of these global institutions is substantial. It is therefore important for those interested in law and development4 to pay attention to the fate of Legal Origins as a scholarly enterprise, and as an inspiration for policy. Corporations and other business entities are so obviously important to economic life that one might assume that comparative corporate law would long ago have been a point of interest for scholarship on law and economic development. Unfortunately, by and large this has not been the case. To date, the main focus of comparative corporate governance scholarship has been limited to comparisons between the United States, the United Kingdom, Western Europe, and Japan,5 while traditional law and economic development literature has had little focus on the law of business organizations. If Legal Origins scholarship is misguided, however, its ill effects will not be felt in the developed countries that are the main focus of comparative corporate law scholarship, because the corporate governance regimes of such countries tend to continue on their path-dependent ways unless domestic interests - not a group of foreign economists - align to shake them up.6 Rather, it will be developing and transition countries, influenced as they are by the policy prescriptions of aid agencies and international financial institutions, that could bear the costs. This paper offers a preliminary roadmap for interrogating the Legal Origins school. Before focusing on Legal Origins, however, Part II will address a basic issue facing development efforts: the contractual and ideological restriction of policy choices available for the development of economic and legal systems. Part III then demonstrates how Legal Origins theory influences, and has the potential to further influence, the actual development of policy choices in international development. Given the actual and potential impact of Legal Origins theory on policy choice availability, Part IV then examines specific concerns raised by Legal Origins, and a common theme in this section will be how corporate law functioned in successful developing economies in Northeast Asia, as compared to the claims of Legal Origins and the development policy prescriptions that have followed. There may always be room for methodological debate with respect to how advocates of a general theory such as Legal Origins should deal with particular cases that do not seem to fit the general model, but for questions of economic development policy East Asia's exceptional development performance suggests that a general theory ought to be able to explain the East Asian experience. …