Revisiting the emergence of the rule of law in Russia

Abstract

In an extended comment on work by this paper’s authors, Gustafsson in a previous issue of this journal reaches scathing judgements on Russia’s arbitrazh (or commercial) courts and draws strong conclusions about the prospects for the rule of law in Russia. He concludes that litigants use the courts because they can bribe the judges. His paper revives old tales about the 1990s that we showed previously were myths. We examine Gustafsson’s argument both conceptually and empirically. We demonstrate that this argument rests on two erroneous assumptions: that the use of legal institutions equates with trust in these institutions and that strategies for use of law are not context-dependent. We show that Gustafsson’s empirical specification is not uniquely related to a single theory and indeed that one interpretation of his results is that enterprises use the courts because they perceive less corruption there than in other venues, a theory diametrically opposite to the one Gustaffson chose emphasise. Using a rich data set collected in Russia in 1997, we are led to the tentative conclusion that firms turned to the arbitrazh courts because of the relative quality of this institution.

Keywords:

• arbitrazh courts
• Russia
• rule of law
• corruption
• legal institutions

Notes

1. Gustaffson, 101.

2. Ibid.

3. Hendley, Murrell, and Ryterman, “Law, Relationships and Private Enforcement,” 627–56; Hendley, Murrell, and Ryterman, “Do ‘Repeat Players’ Behave Differently,” 833–67.

4. Gustaffson, 82–3.

5. “Order in the Jungle.”

6. The origins of this debate lie in the dialogue between Fuller and Hart. See Fuller, The Morality of Law and Hart, The Concept of Law. For a more contemporary review of the very different ways the concept of the rule of law has been used by scholars and policy makers, see Chukwumerije, “Rhetoric Versus Reality,” 399–414; Kleinfeld, “Competing Definitions,” 31–74; Tamanaha, On the Rule of Law; and Peerenboom, “Let One Hundred Flowers Bloom,” 471–544. For a discussion of the rule of law in Russia, see Hendley, “Telephone Law,” 241–64; Kahn, “Vladimir Putin,” 511–58; and Ledeneva, “Telephone Justice,” 324–50.

7. Raz, The Authority of Law, 89. Elsewhere in his essay, Gustafsson implies that the rule of law requires judicial independence. See Gustaffson, 82. This argument, which goes to the institutional role of courts and their relationship with the legislative and executive branches, broadens his original definition.

8. Hendley, Murrell, and Ryterman, “Law, Relationships and Private Enforcement.”

9. Gustaffson, 83.

10. Murrell, “The Transition,” 164–78; Hendley, “Legal Development,” 231–56.

11. Hendley, Murrell, and Ryterman, “Law, Relationships and Private Enforcement” and Hendley, Murrell, and Ryterman, “Do ‘Repeat Players’ Behave Differently.”

12. For example, Hay and Shleifer, “Private Enforcement,” 398–402; Black and Kraakman, “A Self-Enforcing Model,” 1911–81; Greif and Kandel, “Contract Enforcement Institutions,” 291–321; and Rubin, “Growing a Legal System,” 1–46.

13. Interestingly, when the general directors responded to the highly specific and structured questions in the survey, they gave a more favourable view of the use of the courts. This dissonance is not unusual – going to court is not a pleasant experience and is, in some senses, an admission of failure. It is not unusual to see a combination of a very negative general impression of courts and highly specific data that indicate otherwise.

14. Hendley, Murrell, and Ryterman, “Do ‘Repeat Players’ Behave Differently.”

15. Gustaffson, 88.

16. Gustaffson writes as if ‘trust in the commercial courts’ and ‘trust that the commercial courts will accept my bribes and respond to them’ are using the same word ‘trust’. In fact, the semantic content of trust in the two phrases is very different. For example, a paper that proved that Stalin could be reliably trusted to kill his political enemies should not be entitled ‘The Soviet People Trust Stalin’.

17. Gustaffson, 88.

18. Hendley, “Business Litigation in the Transition,” 305–48 and Hendley, “Growing Pains,” 302–31.

19. Hendley, “Are Russian Judges Still Soviet?” 240–74.

20. Hendley, “Business Litigation” and Kathryn Hendley, “Enforcing Judgments,” 46–82.

21. Although Gustafsson cites the articles reporting these data (Hendley, “Business Litigation” and “Enforcing Judgments”), he does not reference them, preferring to rely on sources that repeat the common wisdom of Russian managers about the difficulty of enforcing judgments. Our survey results document that enterprise lawyers viewed problems with enforcing judgments as the biggest shortcoming of the arbitrazh courts. Hendley, Murrell, and Ryterman, “Law, Relationships and Private Enforcement,” 646. In a 1996 interview, the then-Chairman of the Higher Arbitrazh Court identified enforcement as the ‘achilles heel’ of the arbitrazh court system. See Vasil'eva, “Nel'zya zhit,’ ” 54–9. Yet, Hendley’s research shows that, at least for debt collection cases, most of the victors in court were able to recover something. The reality is that litigants and court officials everywhere complain about enforcement. Russia is no exception.

22. Lambert-Mogiliansky, Sonin, and Zhuravskaya, “Áre Russian Commercial Courts Biased?,” 254–77.

23. Hendley, “Enforcing Judgments,” 319.

24. Sharlet, “Stalinism and Soviet Legal Culture,” 155–79.

25. Hendley, “Beyond the Tip,” 20–55.

26. Gustaffson, 90.

27. As is clear in the quote, there is a slippage in Gustaffson between manipulating the system and manipulating the court. This vagueness leads to the validity problem.

28. Gustaffson.

29. Ibid., 106.

30. The arbitrazh courts are open to legal entities, individual entrepreneurs, and shareholders. The first two categories require formal registration. The third category opens the door to individuals, but only if they are pursuing claims as shareholders. Unregistered or informal entities cannot bring claims to the arbitrazh courts.

31. Gustaffson, 96. One reason why he reaches this finding is that he uses the erroneous reasoning that the size and significance of a regression coefficient is indicative of the pervasiveness of a phenomenon. Being at the epicentre of a nuclear bomb explosion is surely strongly and statistically significantly related to death, while indicating nothing about the prevalence of such events.

32. Hendley, Murrell, and Ryterman, “Law, Relationships and Private Enforcement” and Hendley, “Business Litigation.”

Additional information

Notes on contributors

Kathryn Hendley

Kathryn Hendley is the William Voss-Bascom Professor of Law and Political Science at the University of Wisconsin, Madison. Her research focuses on the role of law in contemporary Russia, with a particular emphasis on how enterprises and individuals experience law in their daily lives. Her work has been published in a variety of social science journals. She has been a visiting fellow at the Law and Public Affairs Program at Princeton University, the Woodrow Wilson Center, and the Kennan Institute.

Peter Murrell

Peter Murrell is the Mancur Olson Professor of Economics at the University of Maryland, College Park. He received his B.Sc. (Econ) and M.Sc. (Econ) from the London School of Economics and his Ph.D. from the University of Pennsylvania. His research interests have always lain in comparative economic institutions, focusing first on the socialist economies of Eastern Europe and the USSR and the social democracies of Western Europe, then on reforms in post-Soviet countries and China, and currently on the genesis of institutions in seventeenth-century England. He has undertaken field research – surveying firms – in Mongolia, Russia, and Romania.