ISSN 1062-7421
Vol. 11 No. 11 (November 2001) pp. 537-540.

ASSESSING THE VALUE OF LAW IN TRANSITION ECONOMIES by Peter Murrell (Editor). Ann Arbor: University of Michigan Press, 2001. 388 pp. Cloth $70.00. ISBN: 0-472-09763-6. Paper $32.50. ISBN: 0-472-06763-X.

Reviewed by Patrick Schmidt, Centre for Socio-Legal Studies and Nuffield College, University of Oxford

For any Americanist who still ponders whether law matters (for some answers, see Garth and Sarat 1998) or who struggles with the notion that the justices of the U. S. Supreme Court (in one of the most law-centric political systems of the world) are guided not just by political attitudes but by sincerely-held commitments to legal logic, an exploration into the "value of law" in the transition economies of Eastern Europe, Russia, China, and the former Soviet republics must seem a bridge too far. One could be forgiven for thinking that formerly totalitarian states, by repute now mired in corruption and organized crime, presents an inhospitable environment for
observing the rule of law. In bringing together eleven studies that ground the analysis of transition economics in empirical research, and making the assumption that legal processes and institutions are vital to maturing political and economic systems, this volume argues that we now need to identify when, and under what circumstances, legal and institutional reforms are successful.

The goal of the book, as described by Peter Murrell and Cynthia Clement in the book's introductory chapter, is to focus on "the individual economic agent who is subject to the new institutions" in order to look at "the microeconomic pathways through which legal and institutional reforms change economic activity" (p. 7). The goal marks it out as an antidote to the macro-level analyses that leave unanswered questions of causality and dependence. At the same time, the authors find wanting the plethora of rhetorical and anecdotal accounts about the centrality of law, both in practice and in the theory of development economics.

Conceived in this way, the book sets a lower hurdle than its title would suggest because, to analyze the dependence of economic relations on legal institutions, one need not probe too closely the internal psychology of decisionmaking of business officials, lawyers, and judges. The extremes of institutional development (or lack thereof) instead can be used to test whether and when observed behaviors change in the shadow of the law. At the same time, the book remains an ambitious enterprise because of the variations across national contexts, the difficulty of conducting empirical research there, and the inherent fuzziness of what we mean whenever academics try to articulate what "law" is anyway. Fortunately for these authors, it is still true that the sweat necessary to research a question correlates positively with that topic's importance, and so this is indeed a valuable collection with some fascinating highlights.

The book organizes its eleven substantive chapters by the "arbitrary" (p.

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12) principle of moving from the most individual-oriented behavior up to more organizational and structural level of interaction. It is at the individual level that Kathryn Hendley and then Hendley, Murrell, and Randi Ryterman reward readers with some of the most revealing empirical research in the first two chapters. Hendley's solo contribution reports ethnographic case studies of businesses disputing over nonpayment of debts, with the conclusion that strategies depend not just on legal options but on contextual variables such as sectoral competition. The conclusions will strike the reader as very familiar, as Hendley bases her work in American studies of business disputing and makes ample reference to the canonical literature of Stewart Macaulay and Marc Galanter among others. Similarly, the contribution by Hendley, Murrell, and Ryterman attends to the broader issues suggested by a study Russian inter-enterprise transactions. Their survey of businesses
reports that investment in legal resources and attention to the quality of contracts help to prevent problems and protect firms when business relationships sour, results which reflect the strength of the system of ARBITRAZH courts. Glenn Hendrix, a litigator in a Georgia (U. S.) law firm, follows these two chapters with unique data (secured with the assistance of the Russian authorities) on the relative success of foreign litigants in ARBITRAZH courts. Hendrix's conclusion-that the reform of the Russian legal system seems to have been successful in overcoming any tendency to bias among judge-raises many more empirical and theoretical questions than it answers, but is indicative of how enterprising research can lend insight on issues typically given over to anecdote.

As might be noticed in this precis of the first chapters, Russia is very much at the center of this book, and it appears either singly or in comparative perspective in over half of the book's chapters. In an eccentric but engaging piece of research, Timothy Frye, a political scientist, put small business managers (a.k.a. "shopkeepers") in Moscow and Warsaw to a survey. Examining shopkeepers' decisions to renovate their properties in light of perceptions about the legal environment, Frye concludes that the perceived security of property rights (stronger in Warsaw than Moscow) depends most strongly on the perceptions of the police, a conclusion with potential significance for reform efforts. Few collections sustain readers' attention from cover to cover, and the topical and disciplinary spread of this volume makes it no exception, even among the pieces on Russia. An economist's view on Russian control of oil export allocations, by Daniel
Berkowitz, has relatively little to say about the impact of law, instead emphasizing efficiency considerations. Michael Heller elaborates theoretically on the "tragedy of the anticommons"-a resource underused because of too many owners holding rights to exclude others-in the context of Russian corporate governance to explain how the distribution of property rights can limit the success of corporate law. The last chapter of the book, an essay by Leonid Polishchuk, is far removed analytically from Hendley's opening chapter but is no less absorbing. Polishchuk explores the effect of political decentralization to regional decisionmakers on the path of legal
reform, and he explains persuasively that regional attempts to develop systems of private law for enterprise are stifled by the failures of public law in the central government. The Russian lesson seems instructive to other nations or regions where impulses to centralization and decentralization exist simultaneously.

The four other chapters in the volume stretch the book geographically but

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mostly develop along similar substantive and methodological lines. A chapter by Young Lee and Patrick Meagher on business finance in the Central Asian states of Kyrgyzstan and Kazakhstan offers "sobering" thoughts about the value of law for transition economies. Yet, the finding that law proves more useful to, and is received more positively by larger firms resonates with our understanding of law in other contexts. Similarly, business networks are of wide interest in political science and socio-legal studies. So, although the chapter by Raja Kali, presenting a theoretical model for the effect of business networks on overall economic efficiency, does not contain the empirical research that is so central to the other chapters, some readers may find it an interesting perspective on the phenomenon. Crossing more borders, geographic and otherwise, Katharina Pistor dissects the role of laws in stock market development in the Czech Republic, Hungary, and Poland. Like Hendley's chapters, Pistor's clear and sophisticated analysis displays the need to understand the complexity of transition economies, for economic
engineering needs more than cookie-cutter institutions, but an appreciation of path dependence and the needs of the system. Contextuality must issue the wider the geographic net is cast. Minxin Pei's chapter on economic transactions in China thoroughly brings together available data into a basic but useful introduction to dispute resolution in its evolving court system. Although not out of place in a book on transition economies, China presents a much different type of transition and legal culture, the implications of which need to be teased out more fully than its place in this volume allows.

Indeed, for all that the original empirical research in the various essays has to offer, the most notable gap in this volume is the absence of a concerted effort to bring these articles together. In the absence of a conclusion chapter (this volume is not alone on that account, of course), the introductory chapter does too little to set the stage for the diversity found within. Certainly, few would envy the editor's position here. The concerns extend so far geographically, and more important, by definition the nature of institutional development in transition economies is still too raw. Perhaps one must be willing to tilt at windmills to theorize from eleven focused studies, so hopelessly complex and ephemeral are the relationships in rapidly evolving economic and political systems. What the introduction chapter does offer is
seven very general categories of "themes" to be found in the various chapters, including "the preconditions of productive legal and institutional reform that are located in the surrounding economic environment," "the nature of relationships outside or apart from the formal legal sphere may influence how well legal institutions function," and "the text of the law does matter" (pp. 10-11). With such concerns running through this volume, readers beyond those interested in transition economies cannot help but find work they should read and cite. Still, the reader will have to decide to what purposes these articles can be put: windows into highly particular societies and institutions, case studies for theories of world-wide scope, or most temptingly, pieces of a great puzzle about the interrelationship of institutions, law, economy, and society. Had this book done more to bring the pieces together, it would have been an unqualified achievement; having exposed so many pieces to view, readers still cannot help but find direction in this collection.

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REFERENCE:

Garth, Bryant G. and Austin Sarat. 1998. HOW DOES LAW MATTER? Evanston, IL: Northwestern University Press and American Bar Association.

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Copyright 2001 by the author, Patrick Schmidt.