Informal institutions and the transition to the rule of law

In the previous section, I analysed the role of informal institutions on the course of institutional change by reviewing some of the NIE studies, notably those of North (1981, 1990) and Knight (1992). In this section, I explore the role of informal institutions for a particular kind of social and institutional change, namely the process of transition to the rule of law.

As I already mentioned, paralleling with the economic reform, transitional countries have supported the political and institutional reform in order to transform from “rule of man” states

(dictatorial regime) to “rule of law” states. This is because rule of law reform creates the foundation for economic development (see e.g.: Hayek 1960; Ghai 1986; and Barro 1999).

However, as I have also already argued, many countries have failed in their transition to the rule of law. For instance, it is evident that mass privatisation in Russia did not lead to the emergence of the rule of law, but it did prolong the absence of the rule of law (Stiglitz and Hoff 2002, Voigt and Kiwit 1995, 1999). According to Feige (2003), many of the transition economies have yet to establish the rule of law, and suffer instead from the legacy of arbitrary discretion that encouraged noncompliant behaviour. This judgment can be illustrated by the World Bank’s (1996 cited in Feige 2003) estimates of unofficial activities. Specifically, in a sample of Central and Eastern European countries, the underground economy increased from 18 to 22 percent between 1989 and 1994. For a sample of NIS countries, the underground economy appeared to grow from 12 to 37 percent during the same period. A similar empirical finding in Voigt (2003c) shows that rule of law, constitutional democracy and market economy, the core formal institutions of free society, are hardly implemented in the Muslim world. The contemporary situation in Iraq seems to undermine a belief of Americans who think that they can pay their money and even their life to change the regime and force people in other countries to accept new democracy-institutions (i.e., the American democracy style).

From the aforementioned situation of the rule of law reform, one can raise some questions.

For example, why does the rule of law reform fail in many transition countries? More precisely, why does the state of “no rule of law” such as arbitrary discretion, noncompliant behaviours, corruption, etc still persist regardless of many efforts and determinations of host countries as well as international support in order to put the rule of law into practice? In order to answer these questions, many recent studies seek for an explanation from the role of legal origins. Those studies try to find evidence illustrating that the countries with Common law origins have better legal institutions and thus exhibit better protection of economic freedom than those with Civil law origins (e.g. see: La Porta et al. 1998, 2000 and 2003, Glaeser and Shleifer 2001, Djankov et al. 2002).

However, some others do not stress legal origins, but examine the “initial conditions” of applied countries. For example, Acemonglu et al. (2000) propose a theory of “colonial origins” to argue that the western colonizers used different policies for different colonies.

These policies seem to be determined by the feasibility of colonial settlement. If the conditions in the colonies (e.g. settler mortality rate) are favourable to settlers, they will create good institutions, but if they could not well settle, they will create institutions apt to exploit

the indigenous populations (Acemoglu et al. 2000, p. 5). Therefore, the authors suppose these institutional choices to be locally optimal in the sense that equilibrium institutions are likely to have been designed to maximize the rents to European colonists, not to maximize long-run growth for the colonies. Having realized the importance of local conditions, Berkowitz et al.

(2003) and Pistor (2004) explain that the failure of transplanting western legal systems to transition countries is due to the fact that policymakers in these countries do not take into account the impact of initial conditions that can have a negative long run influence on the quality of new legal institutions.

Similarly, Stiglitz and Hoff (2002) and Gelman (2000, 2003) claim that the prevalence or dominance of the informal rules and norms over formal institution of political regimes that creates obstacles to the rule of law is a typical outcome of many post-authoritarian transitions, especially in post-soviet regimes. A similar argument can be found in Voigt (1999b, 2003c).

In chapter V of his book “Explaining Constitutional Change” (1999), he supposes that shared moral norms will be a necessary prerequisite for being capable of establishing an effective legal system in general and a successful constitution in particular. Based on a game theoretic analytical framework, he further argues that the possibility of a society’s members of effectively constraining the ruler and therefore establishing the rule of law depends upon their capability of bringing internal institutions, i.e., informal institutions about (1999, p. 94-99).

However, the success in bringing about such informal institutions differs in degree from place to place. Furthermore, in many countries like Muslim societies, informal institutions do not constrain but buttress the powers of ruler. Accordingly, having considered institutional reforms in Muslim societies, Voigt (2003c) claims that the impediments of informal institutions rooted in Muslim societies make it difficult to implement the rule of law in those countries.

In short, it is supposed that when the formal contents of the rule of law is not compatible with the informal institutions in a transitional society, the transition to the rule of law may fail. For such reason, policy makers in many transition countries are facing a dilemma. On the one hand, the development of the market economy requires political reform in which the transition to the rule of law is considered as a pre-condition. On the other hand, the emergence of the rule of law faces the resistance of informal institutions rooted in transition societies. In this context, how can a country surmount such dilemma? What are solutions to the conflict between the rule of law and informal institutions?

In my viewpoint, the only way for overcoming such dilemma is to make the rule of law reform compatible with informal institutions of society. This is because it is under the necessity of making a “close fit” between the “supply” and the “domestic demand” for the overall effectiveness of legal and institutional reform (Berkowitz et al.2003). Moreover, the constitutional rules (as well as the legal system as a whole) chosen by a given society need to be compatible with its internal institutions (Voigt 1999b).

The next question is how to modify the rule of law to make it consistent with the informal institutions in society. To my opinion, such modification is only accomplished by using the mechanism of “gradual refinement of institutional design” developed by Greif (2003).

According to Greif, institutional change does not necessarily imply a wholesale systemic change. Such a change can be accomplished through institutional refinement, through changing, introducing, or manipulating a particular institutional element. He presents his views as follows:

“The tendency for institutional refinement reflects the fundamental asymmetry between existing institutional elements and alternative ones and the local learning that institutions imply. The former imply that it is much easier to change a particular institutional element or add new ones to an existing institution rather than attempt to create a completely new set of institutional elements, a new institution” (p. 38).

Based on Greif’s argument, I suppose that the rule of law reform should be implemented gradually. It is my contention that because the rule of law is a formal institution with various elements, the transition countries should apply these elements partly to the existing institutions rather than copy entirely the Western model.

It has been argued that such gradual transition does not lead to the most efficient model of the rule of law. But the counter argument is that the rule of law in many western countries currently is still not perfect (e.g. Hager, 2000). Thus, there is not the most efficient model for the transition to the rule of law at all. Additionally, even in the West, the rule of law also took a couple of hundred years to develop. Furthermore, as sociological institutionalists like Hall and Taylor (1996) argue, something would happen because cultural style and expectations accepted worldwide demand them, not because they most effectively achieve the goals of rational actors. Therefore, in structuring the rule of law institutions in a particular society, actors will be motivated more by conceptions of what they believe to be appropriate than by conceptions of what would be effective. Many of the institutional forms and procedures used

by modern organizations were not adopted simply because they were most efficient. Rather, they should be seen as culturally specific practices (Hall and Taylor 1996, p. 946-947).

In order to illustrate the theoretical considerations in above section, the following section gives an empirical analysis regarding the influence of Confucian values on the transition to the rule of law in Vietnam. First, I will scrutinize the historical development of Confucianism in Vietnam. Second, I will analyse the way in which Confucian values may influence the current society generally and legal system particularly of Vietnam. Finally, based on the data in the latest waves of the World Values Survey (1995-98, 2001) and the Pew Global Attitude Survey (2003), I will take an empirical test of Vietnamese opinions and acceptances relating to some features of Confucian values in Vietnam currently.