Rule of Law and Economic Development: a Comparative Analysis of Approaches to Economic Development Across the BRIC Countries
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Rule of Law and Economic Development Research Group – ROLED Dr. Nandini Ramanujam, Principal Investigator with Mara Verna, Lead Researcher & Research Coordinator Julia Betts, Senior Researcher & Editor Kuzi Charamba, Researcher Marcus Moore, Researcher RULE OF LAW AND ECONOMIC DEVELOPMENT: A Comparative Analysis of Approaches to Economic Development across the BRIC Countries Montreal, December 2012 i | Table of Contents Table of Contents | ii Efficient, Independent, Accountable, and Open Public Service 50 C ONTENTS Conclusion 55 Appendix 2.1: Definitions of the Term “Good Governance” as Employed by Various International Organizations 56 Preface vii Bibliography 57 SECTION 1: An Introductory Overview to Rule of Law SECTION 3: Examining the Quality of Institutions and Economic Development across the BRICs 1 across the BRICs 65 Introduction 1 Introduction 65 Political Systems and Legal Traditions across BRIC countries 6 Measuring Institutions: Endogeneity, Causality, and Complementarities 67 Overview of Rule of Law across the BRICs 7 The Primacy of Institutions over Policy 68 Economic Overview of the BRICs 8 Political Economy: Institutions and Credible Commitment by Sovereigns 75 Sustainable Economic Growth 10 Measuring the Impact of Formal and Informal Institutions 82 Conclusion 15 Conclusion 90 Bibliography 16 Bibliography 92 SECTION 2: Governance across the BRICs 19 SECTION 4: The Judiciary across the BRICs – Introduction 19 Institutional Values and Judicial Authority at the Intersection of Governance 98 The State of Governance Today 19 Understanding the Term “Governance” 19 Introduction 98 Evolution of the Term “Governance” 20 Judicial Power and Judicial Independence 99 The Functioning of “Governance” 21 Case Studies of the Judiciary 103 Assessing Governance across the BRICs 23 Brazil 103 Regime or Political Form 24 Russia 107 Normative Political Forms and the Link to Economic Development 24 China 111 Brazil 25 Formal Institutions 111 India 27 Russia 28 Informal Institutions 112 China 30 The Interplay of Political and Legal Criteria 114 Assessing Political Form as a Path to Economic Development 31 Corporate Malfeasance and Selective Access to Justice 114 Political Function 35 Rule of Law and the Judiciary 115 Economic Approaches to Growth and Development 36 A Comprehensive Overview of the Judiciary in India 121 Assessing the Success of the Various Economic Approaches 40 The Structure of India’s Judiciary 122 The Political Element: “Separation of Powers” and “Checks and Balances” 45 Judicial Activism 123 Brazil 46 Judicial Accountability 125 India 48 China 48 What is the Cause of Case Backlog? 128 Russia 49 Improving Infrastructure 129 Shortage of Judges and Backlog 129 iii | Table of Contents Table of Contents | iv Litigation Rates as a Measure of Development 131 Bibliography 227 Attempts to Resolve High-Value Commercial Case Backlog 134 Best Practice – The Bombay High Court and the Maharashtra Cabinet 136 Appendices 233 Alternative Dispute Resolution as a Way Forward 137 Conclusion 142 Appendix A – Laws of Brazil 235 Bibliography 143 Appendix B – Laws of Russia 243 Appendix C – Laws of India 250 SECTION 5: Corruption Across the BRIC Countries 153 Appendix D – Laws of China 258 Appendix E – International Treaties and Conventions 266 Introduction 153 Why Corruption? 153 Definition 154 Scale and Nature of Corruption 156 Petty Corruption 157 Transactional Corruption in the Business Sector 161 Capture or Mutual Exchange? 167 Corruption and Foreign Investment 173 Figures, Tables, and Boxes Tax Evasion and Capital Flight 178 Organized Crime 181 Anti-Corruption Accountability across the BRICs 184 SECTION 1: An Introductory Overview to Rule of Law Legal Framework 184 and Economic Development across the BRICs 1 Anti-Corruption Legislation in Practice in India, Russia, and China 186 Table 1.1: World Justice Project: Rule of Law Index 2011 7 Anti-Corruption Agencies and Political Interference in China, Russia, India, and Brazil 188 Table 1.2: Economic Overview 9 Bureaucratic Integrity in Russia and India 194 Figure 1.1: BRICs GDP growth (annual %) from 2006 to 2012 11 Table 1.3: BRICs move up the GDP rankings 14 Conclusion 197 Bibliography 198 SECTION 2: Governance across the BRICs 19 Figure 2.1: Schematic Illustrating the Interplay between Stakeholders in the Media and Civil Society 208 Governance Process 22 Introduction 208 Figure 2.2: Schematic Illustrating the Interplay between Stakeholders in the Governance Process 22 A Theory of How Responsible Media and Effective Civic Participation Table 2.1: Five Principles of Good Governance 23 Can Support the Rule of Law and Economic Development 208 Figure 2.3: UN Human Development Index 1980-2009 41 Media and Civil Society in the BRIC Countries 210 Figure 2.4: GDP per capita in PPP terms 1980-2009 41 Traditional Media 211 Figure 2.5: Global Competitiveness Report 2011-12, Institutions Score 42 Civil Society 214 Figure 2.6: Global Competitiveness Report 2011-12, Institutions Ranking 42 New Media 218 Figure 2.7: Global Competitiveness Report 2011-12, Infrastructure Score 43 State Control of Media or CSOs 221 Figure 2.8: Global Competitiveness Report 2011-12, Infrastructure Conclusion 226 Ranking 43 v | Table of Contents Table of Contents | vi Figure 2.9: Global Competitiveness Report 2011-12, Macroeconomic Stability Table 5.2: Percentage of Individuals who Experience Corruption versus Score 44 Percentage of Individuals who Perceive that those Institutions are Figure 2.10: Global Competitiveness Report 2011-12, Macroeconomic Corrupt 159 Stability Ranking 44 Table 5.3: Reasons why Individuals did not Give a Bribe 160 Table 2.2: Enforcement of Regulatory Mechanisms 45 Table 5.4: Percentage of People Required to Give a Gift 162 Figure 2.11: Corruption Perception Index, Ranking 46 Figure 5.2: Number of Days to Overcome Regulatory Hurdles in Brazil 163 Box 2.1: Budgetgate 47 Figure 5.3: Number of Days to Overcome Regulatory Hurdles in Russia 164 Figure 2.12: Voice and Accountability (2010) 51 Figure 5.4: Average Number of Days Required to Start a Business across Box 2.2: Rationing Kruti Samiti (RKS) 52 BRIC countries 164 Table 5.5: BRIC Business Competitiveness Rankings (out of 142 countries – 142nd being the worst score) 166 SECTION 3: Examining the Quality of Institutions Figure 5.5: Branch of Government Most Likely to be Corrupted 169 across the BRICs 65 Box 5.1: Corruption Scandals in China 172 Box 3.1: Sino-Forest Corporation and Property Rights in China 79 Box 5.2: Bribery of Foreign Officials 177 Table 3.1: Entry and Exit Rates 84 Figure 5.6: Total Illicit Outflows 2000-2009 179 Figure 3.1: Property Rights and Contract 85 Table 5.6: The Extent to Which Organized Crime Influences Policy 182 Figure 3.2: Labour Regulation Enforcement 85 Box 5.3: Magnitsky Affair 183 Figure 3.3: Infrastructure 86 Box 5.4: Hong Kong’s Independent Commission Against Corruption (ICAC) 190 Figure 3.4: Finance and Access to Credit 86 Box 5.5: Quebec’s Public Protector (Ombudsman) 191 Table 3.2: Getting Electricity Data 90 SECTION 4: The Judiciary across the BRICs – Institutional Values and Judicial Authority at the Intersection of Governance 98 Figure 4.1: de jure versus de facto Index of Judicial Independence across the BRICs 101 Box 4.1: Canada’s Judicial Compensation and Benefits Commission 105 Box 4.2: Examples of Pressure to Produce “Correct” Judgments for the Russian Government 110 Figure 4.2: Regional Dataset of Chinese Judges Sanctioned for Corruption from 2000 to 2008 119 Table 4.1: Vacancy Positions in the Supreme Court of India and High Courts 130 Table 4.2: Indian State Civil Filings & GDP, 2005-2010, Population, HDI, Literacy, Backlog 132 SECTION 5: Corruption Across the BRIC Countries 153 Table 5.1: Percentage of People who have Paid a Bribe in the last year (2009) 158 Figure 5.1: Percentage of Individuals who Experience Corruption versus Percentage of Individuals who Perceive those Institutions as Corrupt in Russia 159 Preface | viii and overlap across the BRIC countries, points of critical importance were highlight- ed within each country across the six sections, thereby deviating from the confines of PrEFACE: a traditional comparative study. Given the nature of the study and the particularities across each country, from historical, economic, cultural, and social factors and the Reinvigorating the faculty’s longstanding research interests in Russian legal devel- variance in political regimes, ranging from Brazil’s new democracy to China’s one- opment, this report is the outcome of a partnership over the past year between the party authoritarian state, this methodology exposed salient points of intersection. Faculty of Law at McGill University and the Center for Legal and Economic Studies A core unifying theme is that each of these regimes has witnessed enormous strides (CLES), based in Moscow. The report complements a larger broad-based study in- in economic development in recent years. Our research aims to provide an in-depth volving contributions by notable legal scholars including Roderick A. Macdonald analysis of the complex and nuanced relationship between rule of law and its impact (McGill University), Peter Solomon (University of Toronto), David Lametti on sustainable economic growth. In the Russian context, the need to foster rule of (McGill University), René Provost (McGill University), and Fabien Gélinas (McGill law remains a critical challenge in pursuit of much-needed sustainable growth. It is University). The primary goal of this partnership for the faculty is to support the hoped that this research may reveal key components for reform to facilitate this goal. work of CLES by channelling Canadian and foreign expertise in a range of areas to advance transparency, accountability, and good governance in Russia. CLES is com- A cautionary note must acknowledge the limitations of this report’s scope. Given the mitted to strengthening the rule of law, with an emphasis on the modernization of complexity of the issues and the nature of the economies examined, it is not an ex- Russian criminal law and law enforcement practice to spur and sustain much-needed haustive study.