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Lessons Learned: Legal Reform and Technical Assistance 1960-95Hamid L. Sharif Earlier presentations have made references to technical assistance provided by the Bank and other donors. Provision of such legal technical assistance by donors can be divided into two distinct phases. The first phase, to which I will refer as the "Law and Development Movement of the Sixties", was initiated primarily by bilateral aid through the United States Agency for International Development (USAID) and through private foundations such as the Ford Foundation. This movement was driven by the idea that creation or evolution of laws and legal institutions similar to those in western liberal capitalist countries was not only an inevitable stage of social and political development but that creation of such institutions could contribute to creation of similar liberal capitalist economies in developing countries. Legal education and training and laws for a modern capitalist economy, such as securities and corporate laws, were among the areas for which legal technical assistance was provided. However, fairly soon the Law and Development Movement of the Sixties was criticized for its ethnocentricity, its reliance on western and particularly American models, and its assumptions that western and particularly U.S. institutions represented appropriate goals for legal systems regardless of history, culture and social system. The movement was roundly criticized by American academics and under an atmosphere of doubt, uncertainty, and lack of confidence, the movement withered away and funding came to an end. In the literature on the debate about this movement, it is significant to note that the recipient countries are conspicuous by their absence, although significantly the process of legal reform and even the adoption of western laws in these countries did not come to a halt. In contrast, the second phase of donor legal technical assistance has its driving force or momentum in the developing countries. This second phase was triggered in the early 1990s by the momentous historical changes in the Soviet Union and Eastern Europe, although a process of legal change was also underway in the People's Republic of China after the change in economic policies there. Withering away of the "command economies" and the embracing of market economy principles by these new transition economies soon demonstrated that the operation of the law of supply and demand required a host of other laws and legal institutions. In contrast to the first phase of the Law and Development Movement of the Sixties, this second phase has been driven by the economic and social policies pursued by the recipient countries. This brings me to the first important lesson which can be learned:
By ownership I mean that the law reform pursued under a technical assistance must be a law reform which the recipient country regards as its own and one to which it is committed in terms of its willingness to devote the necessary resources and take the necessary steps for its implementation. This first lesson may seem a trite observation, especially to those of us who are insiders to development. This lesson really begs the question as to the conditions under which recipient countries take "ownership" of and show commitment to legal reform. This is a key question but no single precise answer is possible. The impetus for law reform may be the major historical disruptions of the sort witnessed in the former USSR and Eastern Europe or major changes in economic policy as in the People's Republic of China or they may be lesser crises such as the economic crisis in India faced in 1991 which led to a change in economic policy and subsequent law reforms regarding, inter alia, capital markets (e.g., setting up of the Securities and Exchange Board of India) and opening up of key infrastructure sectors to private sector participation. "Commitment" or "ownership" of law reform therefore depends on the strength with which governments pursue the underlying economic or social policies through law or legal institutions. In identifying a legal technical assistance project it is, therefore, in the interest of the donor and the recipient to focus on the policy objectives of the proposed legal reform project. From the donor's perspective, it is also important to assess the recipient country's "ownership" and commitment to legal reform; a useful measure is the amount of resources the recipient country is willing to put into law reform and its willingness to borrow for such reforms. Sole reliance on grant money indicates weak commitment. In discussing ownership and commitment, I should mention that the fact particular laws may be successfully enacted by a country does not guarantee that such laws will lead to the desired social or economic objectives. The overall social and economic context of the law reform has to be fully appreciated. In this respect, it is significant to note that the recent Bank-commissioned study by the Harvard Institute for International Development (HIID) on the relationship between legal and economic development concludes that even though substantive rights based legal transplants (such as company law, partnership law, property law, etc.) were enacted well in advance of the later spectacular economic developments in many Asian countries; they lay dormant until appropriate policy changes allowed individuals or entities to emerge who could invoke these laws to protect or further their economic interests. In this sense, Harvard study notes that, "[A]s a result of these legal transplants in Asia, law developed before, not after, the economy. Economic development often caught up with law much later. During the interim, most of these laws lay dormant." This illustrates the need for legal reform projects to be well conceived, fully taking into account the social and economic policies relevant to such reforms. While government "commitment" or "ownership" is a necessary condition for successful law reform, it is not sufficient. Graphic examples here may be the failure of boot- legging laws or prohibition in the U.S. at the beginning of this century or the nineteenth century law introduced by the British against the Indian custom of sati (burning of the wife at the husband's funeral pyre). While pressure for law reform may be bottom-up (i.e., pressure groups) or from above, what matters is that there must be a consensus that the law in question must be enforced. This is equally true of institutional law reform where the actors negatively affected by the reforms must be co-opted into the law reform process or so marginalized by the overwhelming societal consensus that implementation of the legal reform becomes inevitable. This brings me to the second lesson:
This requires a process of consensus building which may vary from country to country, depending on the political and social structures used to forge such consensus. The bottom line is that without a broad consensus new laws will remain merely on the books while institutional reform will be ineffective. Particularly important in the process is a "coalition building" exercise in which stakeholders are co-opted into the process of change through a dialogue. In practice, this means talking to lawyers, judges, businessmen, consumers and other stakeholders likely to be affected by the proposed legal reform. At an early stage in the process the government, with donor assistance if required, must initiate a coalition building exercise. This exercise should not simply be viewed as an exercise in which the parties are the government on the one hand and elements of civil society on the other. In practice, the picture is likely to be much more complex. The government, that is the part of it which favors legal reform, may have to convince different departments and agencies within government of the need for the legal reform. Similarly, opinions within different parts of civil society may also differ. The need for a broader societal consensus for law reform demonstrate that
The challenge for the Bank's DMCs is to recognize that this is an ongoing process. It is, therefore, important to institutionalize this process and to create capabilities within a country to analyze legal problems, to initiate and conduct a public debate on legal issues and forge a societal consensus for successful reform. The institutions managing the law reform process must not only have the capacity for analyzing technical legal problems but must also be people-oriented, i.e., have skills to deal with people. The third lesson which emerges to date is
This means that while discrete areas of law reform may be pursued such as drafting a law for a particular sector or subsector (e.g., a law for recovery of debts), the overall institutional setting and functioning of the legal system must be taken into account. Donors and recipients are now beginning to learn, at some cost, the importance of this approach. For example, it is now realized that introducing sophisticated economic laws such as securities laws or collateral security laws may be futile in a legal system which is dysfunctional: where the courts are congested and the judiciary is ill-trained and demoralized. There are examples from Africa and Latin America which demonstrate the futility of attempting to build complex court structures or complex securities and exchange regulatory structures when other elements of the system were unable to support such innovations. Scope and design of legal reform projects must, therefore, take into account the larger institutional context of the legal system. An analysis of the legal system will help to prioritize a recipient's law reform agenda and, in case of discrete legal reforms, will help the recipient to make a more realistic assessment of the outcome of such discrete reforms. In this context, it is significant to mention that, faced with dysfunctional legal systems, many developing countries (such as the Russian Federation or, in the Bank's DMCs, such countries as the Maldives and the Kyrgyz Republic) are now pursuing or about to pursue comprehensive law reforms for which they are willing to borrow from international donors. Donors' experience with legal technical assistance projects provides instructive lessons in successful implementation which requires a team effort by the donor and the recipient. The major player in this team effort, however, has to be the project implementation agency in the recipient country. The lesson which emerges is that
In this respect, it is pertinent to mention that, contrary to what one might expect, law ministries or superior courts have not served as the natural counterparts for donors in legal technical assistance projects. This is due to the fact that in many countries the ministries of law are somewhat sidelined. It is also a reflection of the fact that donor-financed technical assistance projects today are driven by economic changes and, therefore, it is the economic ministries (the Ministries of Finance or Commerce) which tend to play a greater role. If law ministries are to play a greater role in donor-assisted legal technical assistance, they must be prepared to make themselves relevant to the overall economic and policy changes under way in many of the Bank's developing member countries. Law ministries have to take the initiative in demonstrating how provision of legal services and strengthening of the legal system can enhance implementation of the government's broader economic and financial policies. This requires in some cases a major break with tradition and a cultural shift in the way in which law ministries see their role. Law ministries need to become involved with mainstream economic and financial policies at an earlier stage, rather than just playing the role of a "word-smith" dotting the "i"s and crossing the "t"s at the fag end of a policy process. This process of mainstreaming law ministries is evident in some countries. For example, in Viet Nam, the Ministry of Justice now plays an earlier and more central role in law-making activity and has been elevated to fourth in the official ranking of ministries, thus symbolizing the growing importance of law and the Ministry's growing role in the legal development process. To play this role, law ministries require reorientation of their staff through enhanced skills and training. This itself may require legal technical assistance from donors. An example of this is the ongoing Bank-financed small scale technical assistance project in Mongolia on Restructuring and Capacity Building for the Ministry of Justice (T.A. No. 2727-MON). Under this technical assistance project, an assessment is being made of the organization, work and staffing of the Ministry and its six regulatory and implementing agencies, and its relationship with other government entities. On the basis of this, a business strategy has been prepared with special focus on developing the Ministry as a policy-making body and decentralizing administrative responsibilities from the Ministry to the agencies under it. This business strategy has been developed through a participatory approach involving Ministry staff. The last point which I would like to end on is the lesson learnt with respect to legal transplants. The lesson is
Many of the Bank's DMCs' legal systems are derived from common law or civil law traditions. It is sometimes dogmatically suggested that a legal system based on a particular legal tradition should only take legal transplants from that tradition alone. Experience suggests that cross-pollination from a different legal tradition may in fact in many instances be preferable. Each country has to assess what works best. The overriding consideration should be to introduce laws which serve the underlying policy objectives while being consistent with the overall legal framework in a country. Legal transplants sometimes suggested by donors may be totally inappropriate to the level of political commitment and economic policies pursued by the recipient country. An example of this is the attempt of some donors to pressure transitional economies to promulgate overly detailed, perhaps overly severe securities and intellectual property regimes that may go too far for the institutional and political boundaries of the countries concerned at the time in question. This demonstrates the need for issues relating to adoption or adaptation of legal transplants to be handled through a participatory approach involving the policymakers, key stakeholders, legal academics, the bar, the judiciary and government officials. If a particular country's law is to serve as a model, it would be preferable to establish close relationships with appropriate counterparts in that country to understand the benefits of and problems with the law in question so that the legal transplant can be appropriately modified. The lessons I have cited draw upon experience of the donors. I would welcome your thoughts from the recipients' perspective.
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