The View

Different legal traditions on mainland and in Hong Kong lead to different approaches to economic and social problems

There’s hope for new narrative that could reorient city’s development

PUBLISHED : Tuesday, 08 December, 2015, 1:16pm
UPDATED : Tuesday, 08 December, 2015, 1:16pm

Recent economic research into legal institutions has found overwhelming evidence that different legal traditions approach the control of economic and social problems very differently. Most countries have adopted these traditions from mother countries through conquest or colonisation and only in a few cases voluntarily.

A survey of 150 countries shows 42 have a common law legal system and 108 have a civil law legal system, which has its own sub-traditions: 84 are French, 19 German, and five Scandinavian. China, Japan and Korea adopted the German system voluntarily.

Legal origin can help us comprehend Hong Kong’s present difficult predicament in the transition from British colonial rule to “one-country, two-systems” under Chinese sovereignty. It also offers hope for developing a new narrative that could reorient our future development and our participation in China’s “one-belt, one-road” overseas strategy.

But first, it helps to consider the economic outcomes and social behaviours that are shaped by legal origin.

The two legal traditions each make different trade-offs while trying to simultaneously address the twin problems of social disorder or market failure on the one hand, and dictatorship or state abuse on the other

First, in common law countries, financial and capital markets are deeper and more developed than in civil law countries because of more efficient financial institutions.

Civil law is generally associated with lower shareholder and creditor protection, less efficient debt enforcement, and higher government ownership of banks.

Second, in terms of government regulation, or even ownership, French legal origin countries have more entry and labour regulations, higher state ownership of the media, and heavier reliance on conscription.

Third, in terms of judiciary and government institutions, civil law countries generally have more legal formalism and less judicial independence, which is reflected in lower judiciary tenure and sharply lower constitutional acceptance of appellate court rulings as a source of law.

Fourth, legal origin has large and persistent effects across societies of widely different cultures and very different political arrangements (or power configurations), whether autocratic or democratic.

The two legal traditions each make different trade-offs while trying to simultaneously address the twin problems of social disorder or market failure on the one hand, and dictatorship or state abuse on the other.

The civil law tradition is relatively more concerned with disorder when considering solutions to social and economic problems, and tends to respond by restricting markets or even replacing them with state commands.

The common law tradition is relatively more concerned with dictatorship and public abuse of power, and responds by buttressing markets and resolving disputes. As a consequence, freedom and prosperity have made bigger strides in common law countries.

The tensions between the two traditions can be seen in how Hong Kong has dealt with the economic and social shocks it has experienced since the opening of China in 1979.

Property-driven wealth, created when the manufacturing industry expanded and cut short when that industry disappeared across the border, has divided Hong Kong into property haves and have-nots.

Family breakdowns have become common, fuelled by growing cross-border marriages among low-income households. Hong Kong’s divorce rate is now among the top 10 in the world and nearly one in five children is raised in a single-parent household.

These problems are at the root of a growing crisis of economic and social inequality that has not been properly addressed through policy. In retrospect, Hong Kong’s greatest political failure is that it has focused on settling political issues first rather than tackling social and economic problems. But this is characteristic of those used to the common law tradition.

The common law fear of state abuse of power trumps its fear of disorder. Unfortunately, in choosing to insulate Hong Kong from Beijing’s political reach out of fear of its interventionist and control instincts, the democratic movement has had to directly confront Beijing. The search for absolute security has ended up creating greater insecurity.

Yet embedded in the common law tradition lies the strength of Hong Kong’s financial, economic and social institutions and the people who run them. They possess the skills necessary for building and forging contractual relationships, and the tolerance, trustworthiness and openness towards different cultures in foreign communities that make them natural ambassadors to reach out to the peoples and places along the “one belt, one road” without having to be given a purpose by the state.

Such is the strength of Hong Kong’s common law-inspired institutions and people. They are deep and many; and are somewhat in short supply in the civil law tradition on the mainland.

Richard Wong Yue-chim is Philip Wong Kennedy Wong Professor in Political Economy at the University of Hong Kong