Law and Development in East and South-East Asia

Christoph Antons

• Publisher: Routledge
• Year: 2005
• ISBN:
  9781135795849
• Edition: 1
• Topic: Law
• Subtopic: Financial Law
• Index: Law

During the 1980s and 1990s Asian 'developmental states' attracted much attention in political science and economics literature, but the role of law in the economic development was neglected. It was only after the Asian crisis of 1997 that many analysts began to focus on a lack of regulation and transparency as a major factor triggering the crisis. The crucial questions now are how successful the current reforms will be, and which features of the Asian approach to commercial law will be resistant to reform pressures. This book examines the prospects for commercial law reform in Asia, giving particular attention to Japan and Singapore, as frequently cited role models for Asian developmentalism, and also examining development related business laws in countries such as China, Korea, Indonesia, Malaysia, Vietnam and the Philippines.

PART ONE

PARADIGMS OF LAW AND DEVELOPMENT IN ASIA

CHAPTER 1

INTRODUCTION

CHRISTOPH ANTONS

This is not simply another book on the Asian crisis. A lot has been written over the last few two years on the economic and political causes of the crisis. Nevertheless, the Asian crisis will provide an important background for the arguments in this book. At the core of the book are papers from a workshop at the International Institute for Asian Studies at Leiden in the Netherlands in January 1998. The workshop thus took place only a few months after the first shock waves of the crisis reached Asia in May 1997.¹ The crisis had an important impact on the workshop discussions as it brought the long neglected question of the role of law in what had become termed as Asian capitalism back into play. The idea for the workshop came from my earlier research on law and development in Japan, Singapore, and Indonesia which had been funded by the Australian Research Council (ARC) from 1994 to 1996. Participants thus consisted of many people that I had spoken to during my research and there was consequently a concentration of papers on the Japanese, Singaporean, and Indonesian developments, four of which (by Baum, Boyd, Carter, and Antons) are published in this volume. Other papers discussed the theoretical and cultural framework of Asian legal development (Yasuda, Ohnesorge) or analysed legal developments in China (Chen) or particular areas of business law in the region (Heath, Blakeney, and Lutz). During 1999 and 2000, for the publication of this book, the conference papers were updated and three further chapters (Wu on labour law in Malaysia, Bishop on APEC, industry policy and the role of law, and Tomasic on the Asian economic crisis and legal institutions in Singapore and Hong Kong) were added to them.

My earlier ARC funded project was entitled ‘Japan as a Model? – Law and Development in Japan, Singapore and Indonesia.’ It examined the question in how far the Japanese experience of development had provided a role model for Southeast Asian countries such as Singapore and Indonesia and in how far this was reflected in the approaches to legal development. During the course of the project it appeared that Singapore as one of the initial followers of Japan in the flying geese picture painted by political scientists at the time, was beginning to present itself to developing countries as a role model in its own right and was making attempts to export its approach to countries such as China and India. The structure of the workshop represented the debate surrounding these role models for Asian economic development and their influence on commercial law. While some chapters have been rearranged, this structure has basically been maintained for the present volume.

Part 1 provides a theoretical and historical background to the question of Asian legal development. It begins with a chapter by Nobuyuki Yasuda on Southeast Asian perceptions of the role of law in economic development. The first notable feature of this chapter is Yasuda’s redefinition of the boundaries of Southeast Asia. He contrasts the accepted definition of Southeast Asia with what he calls Monsoon Asia. Apart from those countries commonly grouped under the label ‘Southeast Asia,’ Monsoon Asia includes also parts of India, China, Japan, and Korea. Yasuda returns to Wittfogel’s (1977) argument of the importance of rice farming in these areas and the common characteristics created by this mode of production and the climatic circumstances of it. The scope of his paper is thus different from other politically and culturally defined notions of Southeast Asia, but it is also different from the ASEAN plus three group of countries that is currently harmonizing its policies to a certain extent. This is perhaps a timely reminder that the roots of the term Southeast Asia go back no further than fifty years and that the term was increasingly used during and after World War II to refer to what was previously called ‘Further India,’ predominantly former colonies between India and China (on the origins and the future of the term ‘Southeast Asia’ see Fifield, 1983). In the era of globalization and stronger rights to self-determination of various ethnic groups in border regions, the colonial distinction between South, Southeast, and East Asia might be increasingly questioned.

Yasuda’s chapter is an appeal for inclusion of cultural aspects into the study of law and development. He proposes to analyse Asian legal developments by contrasting three types of law (indigenous law, imported law, and development law) and their operational concepts ‘community,’ ‘market,’ and ‘command.’ By applying these concepts to the historical development of Southeast Asian legal systems, to political, economic, and social development in ‘Asian developmental states’ and in post-crisis Southeast Asia, he comes to some interesting findings. While ‘indigenous law’ has been superseded by ‘imported law’ with origins mostly in Western jurisdictions it continues to play an important role in the daily life of Asian people, in particular in legal areas related to family or religious matters. There is even a revival of originally Asian laws as with Islamic law in much of South and Southeast Asia. Yasuda explains the relative lack of success in completely transplanting Western derived systems with the fact that they were mostly introduced during colonialism and, as a consequence, displayed an oppressive nature during much of their history. From the community principle, Asian states have inherited their tendency towards authoritarian forms of government and patron-client relationships, to which development law and the developmental state has added a large discretionary power.

In the epical struggle between the market and the community principle, globalization and the information technology revolution have led to a victory of the former over the latter and nationalism, nation states, and socialist regimes are losing their power. Business laws have been liberalized since the 1980s following demands of the IMF and the World Bank to combat inefficiencies in national economies. Yasuda sees this hasty liberalization as one of the main reasons for the Asian crisis, which was made worse by structural deficiencies such as lack of transparency, crony capitalism, and nepotism in the countries concerned. Yasuda believes that as a result of the developments of the last few years, the paradigm of the ‘Asian developmental state’ has come to an end. Southeast Asian countries have democratized their political systems considerably and crucial commercial laws have been amended. Nevertheless, the community principle still plays a role in dispute resolution, at the level of the family and in rural areas, but also in informal mutual assistance schemes, which in many parts of Asia are a substitute for a social security system. With the disastrous social consequences of the Asian crisis, these informal support systems have in fact seen a revival. While globalization means that the state becomes less important as a tool for identification, the community principle and local interests will in future be represented increasingly at a regional instead of at a national level.

The paradigm change in the law and development debate in Asia is also the topic of Bernard Bishop’s Chapter 3. He presents an excellent overview of what he calls the ‘old’ idea of industry policy. Bureaucratic and political capacities were decisive for the success of this policy. By bureaucratic capacity, he means generally the competence of the bureaucracy, but also the degree of cohesion within and between government agencies. Political capacity refers to the degree that decision-makers are insulated from social pressures, but still ‘embedded’ enough within society to formulate policies that reflect market conditions. In this regard, Bishop sees factors at work in Northeast Asia that were not, or not to the same extent, present in Southeast Asia. In Northeast Asia, bureaucrats held prestigious social positions that made them less prone to rent seeking activities than their counterparts in Southeast Asia. The considerable ethnic and social divisions in Southeast Asia also made policies there less cohesive. Southeast Asian industrial policies were, therefore less insulated from politics and also more difficult to supervise, because of the important role of Overseas Chinese business networks for their economies.

Since the mid-1980s, the pressures resulting from democratization processes have reduced the effectiveness of developmental policies in Asia. Economic deregulation has required the separation of business-government links and the WTO agreement has restricted the possibilities for governments to intervene in key areas of the economy. What has also to be kept in mind is the increasing complexity of Asian economies, which makes them much more difficult to supervise than the relatively small economies of the 1960s and 1970s. Bishop perceives a growing consensus within APEC to replace the old industry policy with a new policy that favours a healthy degree of competition. The new policy requires the prevention of industry dominance, cartels, and unfair trade practices. Paradoxically, however, the implementation of this policy relies on the same bureaucratic and political capacities that are now under pressure. To decide about dominant market position and to define what this means, for example, requires a high degree of bureaucratic competence. Again, policy makers must be sufficiently independent to prevent a use of the new approach for particular interests. On both of these issues, Bishop is rather pessimistic. On the one hand, the intensive networks built between business and government in Asia will not disappear quickly. On the other hand, democratic institution building in Asia might ultimately take more time than the quickly changing international environment will allow. In the absence of strong bureaucratic and political capacity, the rule of law needs to fill this gap immediately. The competition policies will, therefore, lead to a renewed emphasis on the rule of law and away from the traditional Asian understanding of law as an instrument of state power, that suited the needs of the old industry policy.

John Ohnesorge questions in Chapter 4 precisely this renewed importance attached to the rule of law for economic development. If the rule of law was really such an important prerequisite for economic growth, then how was the East Asian success of the last few decades to be explained? Ohnesorge differentiates between an approach to the rule of law as an ideal of jurisprudence that is reached in different societies to a differing degree, but that is hardly ever fully established, and a vision of the rule of law as a complete and seamless legal infrastructure. The latter perception is often to be found in the writings of social scientists and economists rather than lawyers. The ‘Rule of Law-Economic Development’ literature focuses on two themes: the definition and enforcement of private property rights and the reduction of bureaucratic discretion in economic government. The first theme relates to the avoidance of ‘transaction costs’ in the economy, whereas the second theme relates to transparency and avoidance of corruption to attract foreign investment. It must be noted, however, that contrary to a common assumption by institutions such as the World Bank, the rising complexity of commercial transactions in Asia was not accompanied by a rising importance of contracts and courts. The small litigation rates actually suggest a relatively well functioning system, which is supported by socio-cultural values favourable to contractual market behaviour. This in turn either suggests that legal norms are well integrated into society or that they are simply not of primary importance. Similarly, the reasons for private property protection are often political rather than socio-legal and have to do with the attraction of foreign investment. However, portfolio investors in Asia seem generally little interested in questions of ownership rights and corporate control. The Asian crisis has demonstrated how little foreign banks cared for transparency in their lending to Asia. Furthermore, the lack of enforcement of intellectual property rights and of competition law in Asia belies the claim that these laws are necessary for development. Currently, the rule of law is on the rise in the national screening of foreign investment, yet its strict application may actually be disadvantageous to foreign investors, because the decision making in this area will lose its former flexibility. John Ohnesorge concludes that the rule of law needs a more concrete definition to defend itself against claims of ‘Western’ vs. ‘Asian’ versions. Finally, the assumption that the current Rule of Law approach with its focus on trade issues will have spillover benefits in other areas of law is questionable.

The book then proceeds in Part 2 to examine the impact of what has been called the ‘Japanese model’ on Asian legal developments. The alleged superiority of Japanese capitalism and its features was a topic for hefty debates during the 1970s and 1980s. The many titles of popular books on the topic from this period range from enthusiastic appraisals of the ‘Japanese economic miracle’ (e.g. Kahn, 1970; Morishima, 1982) to often gloomy pictures of a ‘Nipponized’ world painted at a time of heightened US-Japanese trade tensions (e.g. Burstein, 1988, and Prestowitz, 1988).² The picture changed again after the burst of the Japanese ‘bubble economy’ in the early 1990s, when ‘the end of Japan Inc.’ was promulgated (Wood, 1994), only to make way for publications asking how to restore the Japanese economy as an economic locomotive for Asia after the onset of the Asian crisis (Posen, 1998).

Perhaps the most famous and most influential appraisal of the particular features of Japanese economic development was made by Professor Chalmers Johnson in his book on ‘MITI and the Japanese Miracle’ (1982). Chalmers Johnson proposed a move away from an overemphasis on cultural explanations of Japan’s economic development. In his view, the famous Japanese consensus was due to a large extent to the various economic and social emergencies the Japanese had been facing throughout their history (Johnson, 1982:8-9, 307). To explain Japan’s economic performance, the view should rather be directed towards its nature as what he termed a plan-rational, developmental state. In a summary of his thoughts in the 1992 Panglaykim Memorial lecture on ‘Capitalism: East Asian Style,’ he cited former MITI official Koji Matsumoto for some of the key features of Japanese postwar development: de facto total separation of management from the wishes of the owners, a shift of the burden of corporate risk to the side of labour and the autonomy of management. A further interesting Japanese source for the features of the Japanese ‘developmental state’ is a chapter entitled ‘Developmentalism as a System’ in Yasusuke Murakami’s book An Anticlassical Political-Economic Analysis: A Vision for the Next Century.³ Here, Murakami finds the following policies fundamentally necessary for developmentalism: designation of priority industries, industry-specific indicative planning, policies to promote technological progress, and regulation of excessive price competition. Protectionist policies and a policy of subsidies may further supplement ...

Table of contents

• Cover
• Title
• Copyright
• Table of Contents
• Contributors
• Preface
• Part One: Paradigms of Law and Development in Asia
• Part Two: Japan as a Model for Law and Development in Asia
• Part Three: Law in a ‘Socialist Market Economy’: The Case of China
• Part Four: Southeast Asian Approaches to Law and Development
• Part Five: Law and Development and ‘The Region’