THE WORLD BANKS DILEMMA

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THE WORLD BANKS DILEMMA

• Rule of Law Promotion or Doing Business
• Julio Faundez
• University of Warwick
• Justice, Power and Law in the Pursuit of
  Development
• Birkbeck College 10 December 2007

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Rule of Law(ROL) Promotion

• Today ROL is inevitably linked to democratic
  regimes - legal reform in the perspective of
  democratization
• But, could also be linked exclusively to efforts
  to enable states to reform economic laws
• Are these objectives incompatible?

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Why focus on World Bank?

• It has played a major role in legal and judicial
  reform
• It has offered (several) justifications for its
  involvement in ROL promotion
• It has played a prominent role steering the world
  towards neo-liberal economic policies.

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Objectives of this Presentation

• Trace the evolution of the Banks approach to ROL
  promotion
• Suggest that the focus on governance and
  institutions provide a unique opportunity to
  consolidate the role of law in development
• Explain why today the Banks ROL activities are
  firmly locked within an orthodox interpretation
  of the Washington Consensus.

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Consequences for ROL

• Bank economists have reaffirmed their dominance
  and play a leading role in determining strategic
  objectives and content of ROL promotion
• Objective of comprehensive legal development in
  which law plays a variety of roles has been
  abandoned

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I Market Friendly Laws

• Objective to serve as a tool to shift from
  state-centred to market-based development
  policies
• Emphasis on legal drafting (rules of the game)
  and judicial reform to facilitate the operation
  of the market.

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Mixed Results

• Some positive outcomes new laws enacted,
  awareness of the importance of judicial
  independence, improvements in court
  administration
• But, several problems
• Not sensitive to local context
• Top down approach no local ownership
• Doubts about sustainability.

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II CDF and ROL Promotion

• Comprehensive Development Framework (CDF) every
  aspect of social life is equally important to
  achieve development objectives
• CDF guarantees the place of law in the
  development agenda
• But, what is the role of law in development?

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Amartya Sen Responds

• Sen validates the Banks CDF, albeit with an
  emphasis on human freedom
• Even if law did not contribute an iota to
  economic growth, it would still play a central
  role in development
• But, laws role is not self-evident Sen asks
  Bank to investigate the nature and form of its
  role.

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III Governance versus Law

• Bank did not take up Sens challenge
• Yet, could not ignore institutions, as they play
  a crucial role in determining the fate of
  economic reforms
• But, governance agenda soon ran out of control
  so, why not focus on good enough governance?

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Redefining Governance

• Good economic outcomes linked to quality of
  institutions
• Quality institutions implement sensible economic
  policies
• Quality institutions defined in economic terms
• Property rights and contracts
• Restraints on populist politicians
• Reduction of levels of corruption

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Institutional Reform

• Improvements in quality of institutions lead to
  improvements in GDP per capita
• Quality of institutions is determined by quality
  of the policies causality is a two way street
• Institutional reform (including legal reform) is
  not always slow.

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Reviving One Size Fits All

• Law is critical in determining institutional
  quality
• But, avoid Civil Law - Common Law is more
  efficient and market-friendly
• If Civil Law cannot be avoided, focus on simple
  rules and procedures do not over-regulate and
  do not suffocate the market with politics.

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Labour Law Reform

• The World Bank (Doing Business) awards low marks
  to countries that
• Set minimum wage above 25 of GDP per capita
• Set maximum workweek below 5.5 days or below 50
  hours a week
• Require advance notice or establish other
  procedures to protect workers from arbitrary
  sacking.

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Why is this advice controversial?

• If countries in Sub-Saharan Africa fix minimum
  wages below 25 of GDP p.c. the minimum wage in
  most of these countries would be less than one
  dollar a day
• Advice is often inconsistent with human rights
  standards enshrined in ILO Conventions
• Contradicts the Banks objective of empowering
  the poor and protecting vulnerable groups.

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Conclusion

• CDF as an approach to ROL promotion offered
  interesting possibilities
• Bank, however, has abandoned it opting instead
  for an orthodox interpretation of the Washington
  Consensus that assumes that most politicians, if
  not corrupt, are on the verge of becoming nasty
  populists.