Moderator: Thomas Carothers, Vice President for Studies, Carnegie Endowment
On November 16, 2001, Mr. Carothers convened the third meeting of the Carnegie Endowment Rule of Law Roundtable. The Roundtable brings together a diverse group of rule-of-law aid practitioners on a regular basis to discuss the lessons of experience and future challenges in this rapidly growing area of foreign aid.
Mr. Channell's Presentation:
Mr. Channell discussed challenges to rule-of-law reform programs and conclusions based on his USAID commissioned work in eight countries over the last four years. He began with the supposition that law has no "intrinsic value," and that the value of law is derived from the policies and policy processes that give rise to laws.
Within the development community, the first years of legal reform resulted in a great deal of frustration. First, many laws in developing states were adopted or amended with disappointing social results. The development community responded by working to strengthen institutions through a "second generation" of reform by improving institutions such as courts, but found that even this additional assistance did not produce desired results.
In the past few years, reformers have begun to look more closely at two additional dimensions. Work and analysis are now being focused on the role of ancillary or supporting institutions in supporting or driving reforms, and on the market for reform itself. For Channell, the analysis of the supply and demand vectors in legal reform is crucial to understanding the process and structuring successful projects.
Channell presented several lessons from his work at Booz Allen & Hamilton, which has involved examining reforms in bankruptcy, collateral, company, competition, contract, FDI, and trade laws. One basic lesson is that law might be better treated as an endpoint in a socio-political process, not a beginning. The overwhelming focus in the rule-of-law and development community has been to create proper laws as a necessary starting point with other development objectives assumed to follow therewith.
Some non-specific lessons include:
· Good legal drafting is not enough. Many reform efforts have produced well-written laws. These are often drafted in social isolation, however, and do not garner public respect.
· If law reform is merely a social tool (as in Channell's original supposition), law reform must arise from or be founded on underlying social change, or endogenous demand. For some areas, such as human rights for unpopular ethnic minorities, external pressure on either the public or government may be the most effective starting point. In the realm of commercial law, however, social attitudes and expectations need to be altered if legal changes are to be effective.
· In many areas of law reform it is essential that reformers start by disseminating information about the intended changes in what should essentially be an educational approach. To take one example, public understanding of competition law in most societies, including the United States, is extremely weak. Merely drafting a new competition law in a knowledge vacuum will accomplish little.
· Dialogue between the law reformers and the recipient community at all levels is necessary. Social and public debate must occur.
·Public leadership on the law reform is a prerequisite for success. It can follow private sector demand (chronologically), but cannot be omitted if the demand is to result in public action.
Local level demand for local changes must exist. External actors cannot simply manufacture demand for law reform. External actors can play a role in clarifying how fundamental concepts such as secured transactions and other benefits of law reform actually shape individual lives.
While both public and private sector action is necessary, the private sector must often take the initiative in commercial law reform.
Mr. Channell then offered several broader conclusions:
· Anchoring legal changes in deeper social conventions and cultural identity would seem to provide a more certain foundation for change. For example, corruption is often fought through very useful tools such as transparency, salary reforms, and administrative changes. Channell offered the idea that combating corruption can involve "theological" arguments by playing to individuals' moral attitudes toward corruption. For example, 95% of Serbs claim to uphold Orthodox Christian practices, which expressly state "thou shalt not steal." Channelll argues that engaging the religious institutions in that country might be an effective way to hold people "morally" accountable for corruption.
· Law reform is a vertical process and should not be viewed distinctly from other policy reform processes. For example, one African state's law reform stemmed from economic reform in which the private sector identified constraints to trade, investment, and commerce. Some of the barriers required legal reforms, which were effectively addressed once identified as having a negative economic impact. The demand for greater private sector participation in the export economy based on market principles led directly to repeal of anti-competitive laws (thus dismantling a cartel) and administrative reform in de-centralizing certain key processes. The commercial law reform occurred even though it was not the original goal of the policy reform.
· The substance of the law should not be confused with its written form; enforcement mechanisms are critical to the form of law having any effect. For example, Albania adopted a generally well drafted bankruptcy in 1994. In 1996-97, over half of the population's savings was wiped out in a Ponzi scheme, yet only one bankruptcy case prosecuted between 1997 and 2000. Channell argues that the bankruptcy law was essentially irrelevant to the situation, because it addresses commercial debt and Albania has almost no commercial lending. Although bankruptcy law is certainly important in the long-term economic development, it may have very little importance in early legal reform efforts or priorities. (With respect to foreign investors, in Channell's experience, foreign investors rarely consider the ineffectiveness of bankruptcy laws to be a deterrent to investing). The Albanian case is an example of the law reform community wrongly prioritizing. The focus on less important areas of law reform may engender public disrespect for future law reform efforts.
Implications
1. Law reform sponsored by actual donors is often not demand driven, but it should be. More dialogue with the private sector is needed; agenda setting cannot be done from "abroad." Especially with respect to commercial law, the domestic small business community (not just foreign investors) needs to be consulted.
2. Law reform is a long-term process, even though funding for such reform is often short-term. The process can take at least 25 years before true "results" are visible. Those funding the process, however, must hold implementers accountable for measurable short-term results. More attention should be paid to how the results can be measured or quantified aside from the "end point" of adopting a new law.
3. The law reform community should get beyond its preoccupation with just getting laws passed. The average time for a US law to take effect is two years because of participation and testimony of various interest groups; the same democratic process should take hold in developing states. Congress, and other financial supporters of law reform, must revise their expectations of the time frame and type of results. Results should not be equated with the act of passing laws.
Channell concluded by cautioning against drawing false dichotomies, especially in commercial law. Easy distinctions such as 'top down' versus 'bottom up' initiatives obscure the collaborative process needed for long-term law reform. In the end, though, the law reform community must work within the market and utilize underlying market forces to capture, focus and harness demand as the driver of legal reform, a task it has neglected.
Discussion
Mr. Channell's presentation stimulated several lines of discussion, principally regarding the need for social "demand" of law reform for reform to succeed, and the applicability of his observations to non-commercial aspects of law.
The Necessity of Public Demand for Law
One discussant noted that Mr. Channell's conclusions also apply to the field of women's rights law. In the case of women's rights in Nigeria, the discussant argued that public demand of reform remains critical. Laws may not address societal needs; public education and outreach are needed so that human-rights laws resonate with the public. Active education of families is an example of creating such market 'demand.' One participant countered by questioning whether law reform should lead or follow social change; in the case of US reform in women's rights, "forcing" the passage of law helped create a social norm and public support for both the law and the norm. The participant argued that law could compel social change and act as a social marker.
Related to this issue, another discussant argued that rule of law may compel social change by forcing creation of new enforcement or management systems. Law reform might be an instrument to broader social reform, whether through public support or institutional change.
On the issue of public demand for law, the moderator raised the example of Romanian treatment of homosexuals; both the general public and government would have remained utterly disinterested in law reform had external actors not continually pressured the government to take action. Thus cases exist where law change would not occur without external pressure.
One participant concluded the discussion the importance of public demand of law reform with three points: 1) There are gradations in political will and demand - different sectors may expect different types of law reform; 2) Political demand for law reform does not exist in a vacuum; a political matrix should be assessed to see how the demand will take on a political voice and 3); Any assistance program must consider how this demand acts in a political context; the assistance program must ask if those coalitions can be created. In short, law reform is a political as well as legal process. This raises the issue of whether law programs should simply be broader social reform programs.
Applicability to Non-Commercial Sectors
The moderator raised the point that there is potentially greater consensus within the commercial domain compared to non-commercial domains as to what constitutes necessary law. For example, the European Bank for Reconstruction and Development (EBRD) has an extensive checklist for transition economies that specifies key areas for reform in the commercial sector. There is no comparable institutionally supported mechanism for other arenas of law, such as family or human rights law.
A discussant argued that the demand for law reform in the non-commercial sector is vastly more diffuse than in the business community. Many people simply are not aware of what precise changes in law are necessary. This makes gauging success in criminal law reform more difficult. Micro-level reform is also important, but institutional changes must also follow from action at the public level.
One other distinction between commercial and non-commercial law reform is the higher level of difficulty in gauging the reason behind actual social outcomes. While one participant agreed with Mr. Channell that many legal codes are unenforced (as the participant viewed firsthand in El Salvador), the actual outcome (increased crime) is not necessarily traced to faulty execution of law. In a multi-causal problem of violent crime, the causes could be both socioeconomic and legal.
With respect to commercial law reform, one discussant concluded that the law reform debate reveals a disconnect between what the commercial community (in this case, foreign investors) desire and what external aid providers think is best. Aid providers often do not pinpoint what investors desire; often it is minor barriers in the texts of law, not fundamental execution obstacles, that deters investment.