on Nations With Distinct Legal Tradition (Common, Civil, Socialist)
This review of the related literature focuses on broad definitions of the law as historically legislated and then as practiced in three countries: Malaysia, Indonesia and China. Common law, civil law and socialist law will be defined separately and then as they each apply to the country which has used that system as its focus for legal practice. The effect that neo-liberalism had after the Asian financial crisis on these three nations will be then be examined. Finally, this review will determine if there has been a change post-crisis in merger and acquisition or public finance law.
Definitions
It is necessary to begin by defining terms that will occur throughout this review. The three systems of law to be initially discussed in the review are common law, civil law and socialist law. Of course, many dispute the fact that socialist law even exists[footnoteRef:1], but, since Marxism is applied to the court system and it has long been understood that communist-based countries such as China have molded civil law according to political principles, for the purposes of this review socialist law will be considered a separate entity from civil law. Another definition which will be applied to the three countries post-crisis is the neo-liberal system (which is more political and anthropological than legal) which has shaped policy in the three countries discussed since the Asian financial collapse in the late 1990’s and early part of the current century[footnoteRef:2]. Other concepts will be defined as they appear in the text. [1: Alvin Y. So, “Post-Socialist State, Transnational Corporations, and the Battle for Labor Rights in China at the Turn of the 21st Century,” Development and Society 39, no. 1 (2010).] [2: Abdel M. Agami, “The Role that Foreign Acquisitions of Foreign Companies Played in the Recovery of the Asian Financial Crisis,” Multinational Business Review 10, no. 1 (2002).]
The two primary law systems in the world are common and civil. At one time many countries have adapted one or the other of these systems to their own purposes and established a new branch such as socialist law. Common law is also called precedence law[footnoteRef:3] and is determined in the courts rather than the legislature or by an executive. While this system works for certain parts of the world and was specifically the focus of the Malaysian system[footnoteRef:4], civil law is the predominant practice in the world[footnoteRef:5]. Civil law is a system of coded laws formed by a legislative or executive branch of government. A special form of civil law, as discussed above is socialist law. This system which has been common on socialist states and differs from the civil law system in that it has specific courts which oversee state owned, or collective, enterprises[footnoteRef:6]. [3: Helen Hershkoff, “Just Words”: Common Law and the Enforcement of State Constitutional social and Economic Rights,” Stanford Law Review 62, no. 6 (2010).] [4: Alan Berman “The Anwar Saga: Sexuality and Politics in Contemporary Malaysia,” Gay & Lesbian Issues and Psychology Review 4, no. 3 (2008).] [5: George Fane, and Ross H. McLeod, “Banking Collapse and Restructuring in Indonesia, 1997-2001,” The CATO Journal 22, no. 2 (2002).] [6: Michael Dutton, “The End of the (Mass) Line? Chinese Policing in the Era of the Contract,” Social Justice 27, no. 2 (2000).]
Neo-liberalism is a term that has come to be used more in the past decade[footnoteRef:7] because “it can refer to a type of economic policy, to an overarching economic or even cultural structure, or, closer to the ground, to particular attitudes or inclinations towards entrepreneurship, competition, responsibility, and self-improvement”[footnoteRef:8]. Of course taking the term literally it basically means new radicalism[footnoteRef:9]. However, the term is “much more complicated than that” (ibid Mirowski). Possibly the best explanation comes from a definition razed from the Mont Pelerin Society which says; [7: Andrew Kipnis, “Neoliberalism Reified: Suzhi Discourse and Tropes of Neoliberalism in the People’s Republic of China,” Journal of the Royal Anthropological Institute 13, no. 2 (2007).] [8: Ibid.] [9: Philip R. Mirowski, “The ,” Renewal: A Journal of Labour Politics 17, no. 4 (2009).]
“Neo-liberalism is perhaps most tellingly viewed as a sort of caricature of liberalism, where liberal concerns for individual liberty, political equality and human rights have been warped into a purely economic ideology whose concerns lies with the establishment of free markets and in keeping state intervention in such markets at bay”[footnoteRef:10]. [10: Ibid.]
Thus, although it this system has been applied to international law, neo-liberalism did not come into existence as a legal system. It is political and intellectual thought that has worked its way into the legal systems of many countries around the world.
Current Approaches
This neo-liberalist approach to the world of legal systems has helped redefine commercial law as it has been known[footnoteRef:11] in the past. Commercial law now has to take social responsibility and transnational interests into consideration[footnoteRef:12] . This means that the courts and the governments of one nation affect the commerce that is carried on in another[footnoteRef:13] which is one of the central arguments of this thesis. [11: Ross Cranston, “Theorizing Transnational Commercial Law,” Texas International Law Journal 42, no. 3 (2007).] [12: Christopher R. Drahozal, “Commercial Norms, Commercial Codes and International Commercial Arbitration,” Vanderbilt Journal of Transnational Law 33, no. 1 (2000).] [13: Ibid.]
Specific Systems of Law Pre-Collapse
Malaysia, Indonesia, and China were devastated, as were many of the, so-called, Asian Tiger companies during the Asian economic collapse[footnoteRef:14]. Many of these countries came to understand that archaic legal systems and thought processes were a primary reason that they were forced to endure this period. This section recounts the systems of thought that were partially responsible. [14: Abdel M. Agami, “The Role that Foreign Acquisitions of Foreign Companies Played in the Recovery of the Asian Financial Crisis,” Multinational Business Review 10, no. 1 (2002).]
Malaysia
Malaysia, like many of the states that adopted common law, was colonized by the British in the eighteenth century[footnoteRef:15]. The system is familiar to many in America and Britain in that it is basically the same legal system seen in those countries. Malaysia has a central federal court system and legislature, and different state and local governments. The legislative body makes the law and the courts enforce them[footnoteRef:16]. The exception to the British system is that Malaysia is a Muslim country and therefore recognizes sharia law as supreme. In the county’s constitution this is spelled out[footnoteRef:17]. [15: Wai Chan Meng, “Rights of Foreign Workers in Malaysia.” Competition Forum 6, no. 2 (2008).] [16: Ibid.] [17: Patricia Sloane-White, “The Ethnography of Failure: Middle-Class Malays Producing Capitalism in an ‘Asian Miracle’ Economy,” Journal of Southeast Asian Studies 39, no. 3 (2008).]
Indonesia
Indonesia, which was colonized by the Dutch, is a civil law nation. This codified law is enacted through a constitution, presidential decrees in various forms, and legislative regulations[footnoteRef:18]. This system of laws was inadequate after the banking collapse destroyed more than half of the banks extant at the time[footnoteRef:19]. It took government intervention in the form of new regulations to correct former mistakes. [18: George Fane, and Ross H. McLeod, “Banking Collapse and Restructuring in Indonesia, 1997-2001,” The CATO Journal 22, no. 2 (2002).] [19: Ibid.]
China
China has one of the oldest law systems in existence[footnoteRef:20], but it has changed over the centuries with the advancement of its government through many stages. Chinese law today is basically civil law that is influenced both by the traditional handed down from Confucius, and the law which was written after 1949 when the People’s Republic began[footnoteRef:21]. This history of law has been modified to accept the changing economic landscape in China and around the world. Because of the Asian economic collapse, there have had to be reforms which brought the legal system into the (by western standards measurement) twenty-first century[footnoteRef:22]. [20: Michael Dutton, “The End of the (Mass) Line? Chinese Policing in the Era of the Contract,” Social Justice 27, no. 2 (2000).] [21: Ibid.] [22: Christopher Hamp-Lyons, “The Dragon in the Room: China’s Anti-Monopoly Law and International Merger Review,” Vanderbilt Law Review 62, no. 5 (2009).]
These three systems of law were adequate when these countries were small economies that did little business on an international scale, but since the crisis in Asia at the turn of the century it has become apparent that changes were needed[footnoteRef:23]. The research shows that by using the neo-liberalist norms that had permeated the legal systems of the rest of the world[footnoteRef:24], these three countries emerged stronger and more economically capable than ever before[footnoteRef:25],[footnoteRef:26],[footnoteRef:27]. [23: O. Omre Ergungor, “Legal Systems and Bank Development,” Federal Reserve Bank of Cleveland Economic Commentary (2002).] [24: Andrew Kipnis, “Neoliberalism Reified: Suzhi Discourse and Tropes of Neoliberalism in the People’s Republic of China,” Journal of the Royal Anthropological Institute 13, no. 2 (2007).] [25: Abdel M. Agami, “The Role that Foreign Acquisitions of Foreign Companies Played in the Recovery of the Asian Financial Crisis,” Multinational Business Review 10, no. 1 (2002).] [26: Anita Chan, and Jonathan Unger, “A Chinese State Enterprise Under the Reforms: What Model of Capitalism?,” The China Journal 62 (2009).] [27: Ross Cranston, “Theorizing Transnational Commercial Law,” Texas International Law Journal 42, no. 3 (2007).]
Impact of Neo-Liberalism
The above is sometimes one of political expediency, but it makes government, and the laws that are enacted, more responsible[footnoteRef:28]. In his article about “The Dark Side of International Business”[footnoteRef:29], Madan Batra wrote that; [28: Andrew Kipnis, “Neoliberalism Reified: Suzhi Discourse and Tropes of Neoliberalism in the People’s Republic of China,” Journal of the Royal Anthropological Institute 13, no. 2 (2007).] [29: Madan M. Batra, “The Dark Side of International Business,” Competition Forum 5, no. 1 (2007).]
“The dark side of international business is a harm imposed upon a population through either the action or inaction of a multinational business. Such a harm results in moods or actions that involve selfishness, intolerance, impatience, anger, greed, jealousy, loss or lust of power, and hatred. Overall, dark side activities are undertaken to improve company profitability at the cost of non- owner stakeholders and the community at large.”
This “dark side” is what business has become known for in many circles. A disregard for the consequences of actions is in large part what caused the Asian financial collapse[footnoteRef:30]. Because this system was no longer tenable, businesses and countries realize that changes had to be made, and researchers have tried to understand exactly how the turn-around to today’s thriving Asian economies has occurred. [30: Abdel M. Agami, “The Role that Foreign Acquisitions of Foreign Companies Played in the Recovery of the Asian Financial Crisis,” Multinational Business Review 10, no. 1 (2002).]
Part of the mystery can be explained in the fact that with the realization that such an event could happen, governments began to understand better the power of free markets[footnoteRef:31]. The state run model that China had long used was unsuccessful “To be successfully competitive, state enterprises in China have recast themselves in the image of capitalist companies.”[footnoteRef:32] The Indonesian government, which had been saddled with authoritarian rule for more than three decades[footnoteRef:33] remade the government with the help of international partners. Of course, this happened just prior to the collapse of the Asian economies, but the partners were able to work through the crisis to form a new model of democracy. “As elsewhere, the concept of good governance is relatively new in Indonesia, though one that has gained a certain currency, stimulated in particular by the public campaign against KKN, an abbreviation for Korupsi (corruption), Kroniisme (cronyism) and Nepotisme (nepotism).”[footnoteRef:34] This is in reference to the rule of former president Soeharto who used a form of democracy, that was controlled by his political party, to prove that the people trusted him. The China and Indonesia models are two gross examples of how state run enterprises did not prosper. This is also indicative of the Asian model, in many respects copied from the seemingly successful Japanese[footnoteRef:35], which allowed private businesses to be artificially propped up by the government. [31: Anita Chan, and Jonathan Unger, “A Chinese State Enterprise Under the Reforms: What Model of Capitalism?,” The China Journal 62 (2009).] [32: Ibid.] [33: Gordon Crawford, and Yulius P. Hermawan, “Whose Agenda? “Partnership” and International Assistance to democratization and Governance Reform in Indonesia,” Contemporary Southeast Asia 24, no. 2 (2002).] [34: Ibid.] [35: O. Omre Ergungor, “Legal Systems and Bank Development,” Federal Reserve Bank of Cleveland Economic Commentary (2002).]
The goal of the neo-liberalist approach has already been stated, but research has shown that the ideas impact has been global in scope. Schneiderman says that “The determinate rules and structures associated with “economic globalization,” the ensemble of legal rules and structures for the promotion and protection of foreign investment. These rules and structures cumulatively attempt to fashion a global vision of economic policy, property rights, and constitutionalism that institutionalizes the political project called “neo-liberalism.”[footnoteRef:36] [36: David Schneiderman, “Constitutional Approaches to Privatization: an Inquiry into the Magnitude of Neo-Liberal Constitutionalism,” Law & Contemporary Problems 63, no. 4 (2000).]
This idea of allowing business to shape the fortunes of the country was foreign to many of powers around the world[footnoteRef:37] because they had been run with notion that business is there to support the state instead of the other way around. Schneiderman goes on to say; [37: Abdel M. Agami, “The Role that Foreign Acquisitions of Foreign Companies Played in the Recovery of the Asian Financial Crisis,” Multinational Business Review 10, no. 1 (2002).]
” A number of options to achieve privatization and denationalization are available to states, but two prevailing themes emerge, each corresponding to a different vision of constitutionalism. The first is the “state capitalist” model, designed to enhance the capacity for state control and public participation. The other is the “neo-liberal” model, which places legal limits on the state’s regulatory capacity.”[footnoteRef:38] [38: David Schneiderman, “Constitutional Approaches to Privatization: an Inquiry into the Magnitude of Neo-Liberal Constitutionalism,” Law & Contemporary Problems 63, no. 4 (2000).]
States can modify to one of these two models depending on their comfort level with allowing business to have more control. The different countries in question — Malaysia, Indonesia, China — have taken different paths toward this goal. The state-run model is seen as unable to compete in the new global market. Without this ability, these states would be not be able to realize the full potential of their populations and their people’s entrepreneurial spirit[footnoteRef:39]. The change was gradual, but it has been accomplished with a mixture of the neo-liberalist and state capitalism models (especially in China). [39: Alvin Y. So, “Post-Socialist State, Transnational Corporations, and the Battle for Labor Rights in China at the Turn of the 21st Century,” Development and Society 39, no. 1 (2010).]
The Chinese experience had always been one of governmental control. In ancient times this was through some ruling family which imposed its considerable will on the people[footnoteRef:40]. Although the name of the ruling fraction changed, the facts remained the same. The country was also very closed off from foreign exposure to its goods and services, or any real exchange for many years. The first inroads happened when Richard Nixon made visits to China during his presidency and began forging relations with Mao to except foreign investment into his country. Famously, large companies such as Coca Cola opened large factories in China[footnoteRef:41]. Slowly the dragon came to realize that to compete with the rest of the world that “In an era of pervasive economic globalization, state institutions are expected to subordinate political considerations to economic ones.”[footnoteRef:42] The state began to relax its grip on enterprise to the extent that large cities such as Beijing and Shanghai welcomed industry. It first spread through the influx of many multinationals and the large state run concerns (such as steel and coal production[footnoteRef:43]), but then it moved into the cottage industries which were encouraged by the state. Sometimes entire towns would fabricate one item that could be sold on the global market, or a family would manufacture individual parts that may be needed in the manufacture of an automobile[footnoteRef:44]. This model was able to grow the economy in all parts of China[footnoteRef:45], but the collapse of the Asian markets brought a further realization that more was needed[footnoteRef:46]. [40: Jie Lin Dong, and Jie Hu, “Mergers and Acquisitions in China,” Economic Review — Federal Reserve Bank of Atlanta 80, no. 6 (1995).] [41: Ibid.] [42: David Schneiderman, “Constitutional Approaches to Privatization: an Inquiry into the Magnitude of Neo-Liberal Constitutionalism,” Law & Contemporary Problems 63, no. 4 (2000).] [43: Alvin Y. So, “Post-Socialist State, Transnational Corporations, and the Battle for Labor Rights in China at the Turn of the 21st Century,” Development and Society 39, no. 1 (2010).] [44: Ibid.] [45: Andrew Kipnis, “Neoliberalism Reified: Suzhi Discourse and Tropes of Neoliberalism in the People’s Republic of China,” Journal of the Royal Anthropological Institute 13, no. 2 (2007).] [46: Alvin Y. So, “Post-Socialist State, Transnational Corporations, and the Battle for Labor Rights in China at the Turn of the 21st Century,” Development and Society 39, no. 1 (2010).]
Neo-liberalist thought also says that;
“The movement from the “social state” to “enabling state” requires a restructuring of state institutions, as well as the meta-rules that govern state institutional behavior. This change does not necessarily entail the abstention of the state, but rather activism of another sort: the creation of conditions to facilitate the smooth operation of the market.”[footnoteRef:47] [47: David Schneiderman, “Constitutional Approaches to Privatization: an Inquiry into the Magnitude of Neo-Liberal Constitutionalism,” Law & Contemporary Problems 63, no. 4 (2000).]
Working on an international scale has forced many nations, including those which have long operated in free market economies to adopt new methods of doing business[footnoteRef:48]. For many this meant that they had to start acting more responsibly or buyers on the global market would not purchase their products. However, this did not mean the same thing to companies from different countries. [48: Ian Johnstone, “Law-Making through the Operational Activities of International Organizations,” The George Washington International Law Review 40, no. 1 (2008)]
Researchers from the west have often had a difficult time understanding how the transition to the neo-liberal pattern is different in Asian nations.[footnoteRef:49] The predominant culture in the west is individually based. Individuals are seen as the primary unit and people are expected to look toward their own best interest and the government will support them.[footnoteRef:50] In many Asian cultures the family is first, the culture is second and the individual is not even considered. People are part of a collective instead of working for themselves. Due to this fact, western researchers have not been easily able to grasp how this line of thought would be utilized in eastern cultures. [49: Christopher R. Drahozal, “Commercial Norms, Commercial Codes and International Commercial Arbitration,” Vanderbilt Journal of Transnational Law 33, no. 1 (2000).] [50: Benjamin C. Zipursky, “A Modern Legal Ethics: Adversary Advocacy in a Democratic Age,” Yale Law Journal 119, no. 8 (2010).]
Most nations in the west had long been run by democratic governments that encouraged free markets in some guise.[footnoteRef:51] Thus, when the people began demanding more responsibility out of large companies, it was natural, and easy, for them to change their mode of operation. Also, governments, who worked for the people, demanded that companies change the way they conducted themselves.[footnoteRef:52] [51: David Schneiderman, “Constitutional Approaches to Privatization: an Inquiry into the Magnitude of Neo-Liberal Constitutionalism,” Law & Contemporary Problems 63, no. 4 (2000).] [52: Colin B. Picker, “International Law’s Mixed Heritage: A Common/Civil Law Jurisdiction,” Vanderbilt Journal of Transnational Law 41, no. 4 (2008).]
However, these are not pressures that would influence many of the eastern nations. Democracy, and democratic thought, are new to the east. Japan and South Korea were among the first Asian nations to adopt democratic reforms after World War II and the Korean conflict. American influence had a lot to do with it, but these nations also realized the prosperity of the west as opposed to the east. The pressure to exert these changes came from demands placed by western cultures which did not want to see imperialism dominate as they had prior to the Second World War.
Japan changed its governmental structure, but many of the old ways of conducting business remained. The financial collapse was especially difficult for the Japanese economy which lost half the value that its stock market had accumulated. This, in turn, hurt the economies of the neighboring Asian countries[footnoteRef:53] because Japan and Korea had been among the strongest economies in the world. All of the countries in this region had a basic belief in the power of the state which had been stamped on the collective culture.[footnoteRef:54] [53: Martha A. Starr, “Growth and Conflict in the Developing World: Neo-Liberal Narratives and Social-Economy Alternatives,” Review of Social Economy 64, no. 2 (2006).] [54: Ibid.]
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