The Right Coast

December 25, 2004
The Superiority of the English Common Law?
By Mike Rappaport

Nicholas Thompson in Legal Affairs writes:

According to research published by a group of scholars beginning in 1998, countries that come from a French civil law tradition struggle to create effective financial markets, while countries with a British common law tradition succeed far more frequently. While the scholars conducting the research are economists rather than lawyers, their theory has jolted the legal academy, leading to the creation of a new academic specialty called "law and finance" and turning the authors of the theory into the most cited economists in the world over the past decade.
What explains this distinction?

In a 2003 paper titled "Judicial Checks and Balances," the [scholars] demonstrated mathematically that common law countries give judges more independence, which in turn correlates with the sound economic policies they had examined in "Law and Finance." The paper compared factors like whether judges in a country's highest court system have life tenure against measures of what LLSV called economic freedom, such as whether people have secure property rights. The numbers showed that judicial independence closely correlates with common law legal origins. It also correlates strongly with economic freedom and investor protection.
While these conclusions should be of interest to legal scholars, many have criticized the work. The authors, however, are not terribly impressed with legal scholars, though:

The [authors] acknowlege [certain] weakness in their research. They have little patience, however, for most of their critics in the legal academy, who they believe look through microscopes, not telescopes. According to Lopez-de-Silanes, you can't come up with a theory about the way the world works if you're fretting over whether Canada has been miscategorized as a common law country because Quebec uses civil law. Lawyers worry about such issues, Lopez-de-Silanes said, so they don't have to come up with grand theories. "Lawyers don't do empirical work," said Shleifer. "They just argue with each other."
Sad to say, but it is hard to argue with that.