How Does the “Rule of Law” Contribute to Development?: Revisiting the Role of Law in Facilitating Development

Abstract

Recent years have witnessed ever-widespread and increasingly entrenched belief that the rule of law is a sine qua non for social and economic development. The rule of law is considered to contribute to development by providing two things: firstly, legal system for the deterrence of arbitrary behavior of the state, and secondly, legal infrastructure for the entrenchment of private property rights as well as for the enforcement of contractual obligations. Such conventional understanding, formed under considerable influence from neoclassical and neo-institutional economic theories, and derived from Anglo-American historical experience in which the role of the state in facilitating social and economic development was limited, has serious defect: it is based on the notion of minimal state and skepticism for active role of the state, and thus leaves the role of law in facilitating development in so-called “developmental state” undertheorized and empirically unexplored.

Bearing the above-mentioned in mind, this article examines the role of legal system in rapid economic growth period of Japan. It is argued that the industrial laws of Japan played two important roles, both of which worked as a solid foundation of successful economic growth: achieving a favorable balance between state intervention and market competition, and fostering long-term relationship of mutual trust between the government and the business. It should be noted that these achievements were not at the cost of arbitrariness of the state or loss of predictability of business activities. Further investigation of the role of law in developmental states in East Asia is guaranteed.