Law and Capitalism: What Corporate Crises Reveal about Legal Systems and Economic Development around the World

University of Chicago Press, 2008

Columbia Law and Economics Working Paper No. 313

21 Pages Posted: 20 May 2007  

Curtis J. Milhaupt

Columbia Law School

Katharina Pistor

Columbia University School of Law

Abstract

This book explores the relationship between legal systems and economic development by examining, through a methodology we call the institutional autopsy, a series of high profile corporate governance crises around the world over the past six years. We begin by exposing hidden assumptions in the prevailing view on the relationship between law and markets, and provide a new analytical framework for understanding this question. Our framework moves away from the canonical distinction between common law and civil law regimes. It emphasizes the constant, iterative, rolling relationship between law and markets, and suggests that how a given country's legal system rolls with economic changes depends significantly on its organization rather than its formal characteristics or legal origin. We find that legal systems around the world differ significantly along two crucial organizational dimensions: their degree of centralization of the lawmaking and enforcement processes, and the primary function law serves in support of market activity, ranging from protective functions to coordinative functions.

We use this analytical framework to understand why countries as diverse as the United States, Germany, Japan, Korea, China, and Russia have all experienced corporate crises in recent years, and to analyze the different institutional responses to these crises. These case studies provide insights into the diversity of legal systems and institutional arrangements that support capitalist activity over time and across a range of societies. They also suggest that systemic legal change is rarely achieved by changes in formal law alone, but is the result of changes in the composition and identity of core constituencies within a given system who use (or avoid) law to advance their position in the market. Among other things, our study suggests the need for new thinking about how and why legal systems change, the limits of convergence even in a world where national laws increasingly look alike, and a new emphasis on the demand for law in the process of legal adaptation and change.

Keywords: legal systems, economic development, corporate governance

Suggested Citation

Milhaupt, Curtis J. and Pistor, Katharina, Law and Capitalism: What Corporate Crises Reveal about Legal Systems and Economic Development around the World. University of Chicago Press, 2008; Columbia Law and Economics Working Paper No. 313. Available at SSRN: https://ssrn.com/abstract=987291

Curtis J. Milhaupt (Contact Author)

Columbia Law School ( email )

435 West 116th Street
New York, NY 10025
United States
(212) 854-4926 (Phone)
(212) 854-7496 (Fax)

Katharina Pistor

Columbia University School of Law ( email )

435 West 116th Street
New York, NY 10025
United States
212-854-0068 (Phone)
212-854-7946 (Fax)

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