What Is the Relationship Between Legal and Economic Development? Is the Marketisation of the Economy the Most Important Force Behind Legal Change in Contemporary China?

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Mid-term Research Essay

Topic: What is the relationship between legal and economic development? Is the marketisation of the economy the most important force behind legal change in contemporary China?

Table of content:

I. Abstract ……………………………………………………………………………..2

II. Relationship between legal and economic development ……………………..……2

A. Max Weber’s theory ……………………………………………………….2

B. Believes of Douglass North and Kanishka Jayasuriya …………………….4

C. Contemporary views ……………………………………………………….4

III. Key drivers for legal reform in China …………………………………………….7

A. Pre- culture revolution ……………………………………………………..8

B. Post- culture revolution…………………………………………………….9

C. China’s accession to WTO ……………………………………………….11

IV. Conclusion ………………………………………………………………………12

V. Reference list ……………………………………………………………………..14

I. Abstract
This research paper is split into two parts. First part aims to examine the relationship between legal and economic development by literature review and to see what lessons one can learn from the East Asia Miracle. This leads to the second part of the paper which is to understand the legal reform in contemporary China and to determine whether marketisation is the main driver.

II. Relationship between legal and economic development
The relationship between legal and economic development does not seem to be very clear due to many environmental factors. Nevertheless, legal scholars and economists have tried to establish the link between legal and economic development over the years. To assess the relationship, this session is split into three parts: A) Max Weber’s theory B) Believes of Douglass North and Kanishka Jayasuriya and C) Contemporary view on the issue.

A. Max Weber’s theory
Weber believed that a rational legal system is a key to economic development[1] since some certainty and predictability are necessary to encourage individual to enter any kind of private transactions. Further, he saw the “rational institutions as technically superior, efficient and supportive of economic growth”[2]. In Weber’s work, he also described some characteristic of the relationship between legal system and economy: . 1) The strong correlation between the legal system and economic development could be traced back to who make law and whom these laws will benefit. It is clear that law is in favor of those who have a strong economic interest since law would help them to defend their rights. This can be seen from Weber’s quote: “Any authority guaranteeing a legal order depends, in some way, upon the consensual action of the constitutive social groups, and the formation of social groups depends, to a large extent, upon constellations of material interests.”[3] . 2) Despite the fact that there are many factors which are pointing toward the strong influence economic interests had toward law, Weber pointed out that law does not have the same effect on people with economic interests. The effect is indeed limited in some ways. Weber also suggested two major reasons causing the limitations: first is the conflict between law and the economic actors’ interest and second is that it is often very difficult to alter or influence one’s value. . 3) Weber also concluded that the enforcement of law can be done by social groups other than the government, as long as the rules or laws can be applied in timely and relatively predictable manner.

. B) Believes of Douglass North and Kanishka Jayasuriya
. Both North and Jayasuriya supported Weber’s theory on the relationship between the legal and economic development. What’s more is that they both mentioned the importance of property rights and contract law in relation to the confident of an investor. Moreover, having the law written down is not enough, the effectiveness of enforcing agreements is equally if not more important. North said that the enforceability of an agreement is the “single most important determinant...
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