THE WORLD BANK’S 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

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?

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.

Objectives of this Presentation Trace the evolution of the Bank’s 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 Bank’s ROL activities are firmly locked within an orthodox interpretation of the Washington Consensus.

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

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.

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.

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?

Amartya Sen Responds Sen validates the Bank’s 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, law’s role is not self-evident – Sen asks Bank to investigate the nature and form of its role.

III: Governance versus Law Bank did not take up Sen’s 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”?

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

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.

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.

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.

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 Bank’s objective of empowering the poor and protecting vulnerable groups.

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.