Introduction to the theory of Law and Development

1. Introduction to the theory of Law and Development By Chen Lei University of Stellenbosch Presentation for Land Law Forum 20 September 2005

2. Introduction • Law and development, as an academic field in the US, began in the 1940s, thrived in the middle to late 1960s, and was declared dead by its advocates in late 1970s. • This study can be said to have been a short-lived movement. • However, quite recently, this field of study has experienced a resurgence as signaled by some far-reaching academic writings by legal scholars, economists and NGO’s.

3. Main Arguments • How to restructure the economy to create economic growth. • How to institute a legal infrastructure that maximizes the rule of law while sustainable economic development are promoted.

4. Hypothesis • Neo-classical • Formal property institutions with clearly defined property rights is essential to the functioning of a market economy and sustained economic growth, • on the other hand recent commentary suggests that a causal link between the clarity of property rights and market efficiency is also necessary. • Development should also include economic and political factors. • See Carty, Kennedy and De Soto

5. Background • Law and development theory are inherently related to international political and economic events. • It began in the late 1940s with the design of a postwar order and the independence of former colonies. • The objective of this theory is to promote the adoption of western-like institutions and western-oriented legal infrastructures. • This theory has recently gained new impetus with the collapse of the Soviet Union and the reassessment of the value of centralized planning.

6. Main Representatives: • Origin: Weber’s thesis: The relationship between “rational law” and economic development. • “Rational”, ‘formal” and “logical” law • Founders: David Trubek, Douglas North. • Revivalists: Anthony Carty 1992, Hernando De Soto and David Kennedy.

7. Evaluation • Advantages (Institutionalist view) • Law and development theory provides a very reliable theory for sustainable development in developing countries. • Especially because quite a few developing countries in Africa, Latin America and Asia lack a unified and all-encompassing property system to capitalize on marketable assets in especially land.

8. Evaluation • To achieve a sustainable market economy with a unified, impartial, and efficient legal framework, law and development theory contributes a logical framework. • Some developing countries achieved positive results by using this theory. • E.g. South Korea, Singapore, Thailand and Malaysia.

9. As a theoretical tool, Law and development theory contributes significantly to the accelaration of globalization of international markets. • The Law and development theory is itself still in a process of self-development and introspection. • This allows for the adaptation of new social, political and economic transformations.

10. Evaluation • Disadvantages (Cultural view) • Motivation: “Legal transplantation” & “legal imperialism” • A real assistance for developing countries? • Some political purpose behind this study----to bring those developing countries within the orbit of the West instead of the Soviet bloc.

11. Evaluation • Every jurisdiction is politically, culturally, economically, and socially contingent. • Legal denationalization - Legal liberalism • Direct transplantation without corresponding adjustments

12. Evaluation • “A flawed and rather inept attempt to offer American legal assistance and implicit American models …were themselves flawed, vulnerable to executive ordering and authoritarian abuse.”----James Gardner • Example: Ethiopia Civil Code of 1966

13. 3 Convergence v. divergence The study of law and development which is based on so-called “rational law” will lead to legal globalization. It was and will never be the case for globalization of all kinds of jurisdictions in the world due to the diversity of pluralism and different backgrounds.

14. Evaluation • The right and indispensable way to promote sustainable economic growth in different countries is to formalize a corresponding legal framework, which is compatible with its political, economic and cultural situation. • Different countries has different unique historical background and current problems. Those divergent problems, which are existed in different countries, cannot be resolved in one formula. • No elixir : Culture matters.

15. Evaluation • Independence v dependency • Political independence v. economic and legal dependency = right of development.

16. Law & Development Theory’s impact on the South African Land Reform Programme • Application: the relationship between property institutions (land) and economic development through a survey of the institutional changes of property rights in post-apartheid South Africa.

17. Land redistribution or restitution is extremely necessary and urgent • Without land redistribution, democracy would not be a real democracy. • The current situation of land occupancy is a colonial and apartheid legacy which is starkly contrast with democracy and social justice.

18. Utilization of land use rights (land tenure) • The apartheid land distribution vested 87 percent of South Africa's land area in the hands of the white minority. Hence, a legal framework for the state’s acquisition of land for resettlement purposes and enforcement mechanism are very necessary. • Three ways:

19. Utilization of land use rights • State compensation for land expropriation according to market value, or at least justified value. • This method is appealed to those land which is not fully utilized and wisely developed in order to increase the land productivity. Also, it is suitable for those land which influences the public construction for public interests. • Comment: a direct way but must be applied very carefully. It is only appealed to a smidgen of land. However, it is still worthwhile and cannot be discarded.

20. Utilization of land use rights • The policy of fair State buy-out on the basis of “willing seller and willing buyer” principle. • This method is appealed for those landowners who are willing to sell their commercial farms and accept price offer from state. • Comments: it is also a direct way and easy to be managed by the state. However, such “both-win” success can be only achieved under a special circumstance, namely a willing sell. Also, land willing sellers are not the majority of white landowners therefore the ensuing method is introduced.

21. Utilization of land use rights • Introduction of land use right • separation of land ownership and land use right is a suitable and reliable way at this stage to carry out land reform in South Africa. • The reasons: first of all, the psychological adherence to land by white landowners---generations by generations--succession; • secondly, the purpose of land reform is to keep country stable and peaceful;

22. Utilization of land use rights • thirdly to comfort white landowners by maintaining or balancing their economic status in a progressive way; • fourthly, it is a double-win if white landowners retain the land titles while simultaneously vast majority of black people use and enjoy the land.

23. 3 ABS (asset-backed securities) • It is kind of co-op to make farm workers become shareholders. This form can be compared with shareblock ownership to make sense.

24. Main theories of land reform • Productivity theory (economic analysis of law): • State stability and prosperity theory: • Social justice theory---democracy---crimes • Balance theory---must take both sides’ interests into consideration • Transaction cost theory

25. Suggestions • 1 Land reform and tax reform. Reduce land tax and other kinds of agricultural tax to comfort white landowners. • 2 Strengthen NGO’s role: many staff of the department of land affairs had come from the NGO sector, which has been a tremendously important source of knowledge and skills, and the Department intended to rely heavily on NGOs for implementation of its programs.

26. Suggestions • 3 Effectiveness of local government • 4 Department of Agriculture staff remain committed to agricultural development scenarios based on an expansion to the black community of older models of large-scale mechanized commercial farming.

27. Suggestions • The Department of Land Affairs staff and the Land NGOs are more aware of the success in other African countries in modernizing smallholder agriculture, but are perhaps insufficiently concerned about productivity and how increases can be achieved in the reform sector. • Joint training exercises for staff of the two departments, which would focus on reconciling theclaims of equity and productivity, was recommended as a partial solution.

28. Suggestions • 5 “Haste makes waste”. Land reform is a progressive project, which cannot be applied in a very ruthless and forceful manner

29. International Examples: China • China - from 1949 to 1956 • Pay money and interests to former private owners by the state • Differences: • a. The same race in China (Racial homogeneity) • b. The land convergence is not as serious as in SA • c. Different political system, i.e. ideology • d. Result of civil war (from the political economic perspective, is a consequence of a violent revolution)

30. International Examples: USA • US - 17 and 18 centuries • Land is not scarce • The population of native groups was small • US’s government has a political motive to expand its territory