II. Does law ‘just react’?

The concept of legal adaptability may be criticised, because law does not merely react: rather it could be stressed that law ‘matters’ for development. For instance, company law may be the cause and not the outcome of a particular development: when in the nineteenth century restrictions on the establishment of joint-stock companies were broken down, waves of foundations followed, since it then became possible to pursue capital-intensive projects in a permanent, differentiated organisational form (cf. Horn, Reference Horn, Horn and Kocka1979, p. 176). It is also asserted that for financial development the extent of legal protection for shareholders is decisive, because better protection motivates more people to invest in shares and thus leads to a broader distribution (La Porta et al., Reference La porta1998).Footnote ⁴

But causality does not always work this way. If there is causality, it can also go the other way. For instance, there are examples which show that only after the number of investors and the importance of the capital market increased shareholder protection was strengthened (Coffee, Reference Coffee and McCahery2002; Cheffins, Reference Cheffins2001). And it is also likely that, for example, the rise of new technologies, terrorist attacks, new diseases, increased international competition, or corporate scandals cause law-makers to respond.

Of course, this does not mean that the law only responds to these external circumstances. Legal systems have their own internal dynamics (Carvalho and Deakin, Reference Carvalho, Deakin, Rogowski and Wilthagen2007). And the next parts of this article, too, provide various reasons why the law of a particular country does not (or should not)Footnote ⁵ ‘just react’. This is indeed the core of the idea of ‘legal adaptability’. Legal adaptability does not suggest an automatic change but just wonders to what extent the law of a particular country is able to respond to new or changing circumstances.

III. Elbonia: the worst case scenario

The different factors which can be decisive for legal adaptability are best revealed by a worst case scenario. I will use a fictional country called ElboniaFootnote ⁶ to illustrate this.

Here, the Elbonian legislature does not react to changing circumstances – once a particular law has been passed it is there forever. This is first of all based on structural reasons. In Elbonia both inefficient centralisation and decentralisation co-exist. Political powers concerned with local problems are centralised and consequently the central legislature cannot tell how its law is applied locally. Conversely, powers concerned with problems which can only be tackled uniformly are decentralised, and thus the various local law-makers try to solve these problems, but without success. There is no evaluation on how the existing law works in practice on any level of legislation. Empirical evidence is not taken into account and feedback by interested parties and academics is not wanted. This is combined with complex bureaucratic structures which usually prevent any new ideas from being brought up. And even if doubts about the efficiency of the existing law are raised, a lengthy law-making process has the consequence that reforms which eventually take place come far too late. Finally, since Elbonia is not a proper democracy, the people cannot put pressure on the legislature to take changing circumstances into account.

Secondly, there are person-related reasons, which make the Elbonian legislature unresponsive to change. All Elbonian politicians and civil servants come from the same tiny town and all of them have studied ‘rickshaw-spotting’ at the same university. They have therefore, for instance, no knowledge of foreign languages, natural sciences, sociology and economics. Thus, they disregard developments in foreign laws, new scientific inventions and discoveries, as well as research on the economic and social impact of their laws. Moreover, Elbonian politicians and civil servants are notoriously corrupt. They can therefore be bribed by rent seekers so that it is ensured that even the most urgent reforms do not take place.

Thirdly, in order to stabilise the Elbonian system the legislature is keen on preventing any adaptability by other persons or groups from taking place. Thus, there is neither freedom of contract nor arbitration nor self-regulation. All law is mandatory. Contractual parties are banned from taking modern developments (such as the use of e-mail or new types of contracts) into account. Neither can this be evaded by choosing the law of a different country, because ‘choice of law’ is equated with a ‘race to the bottom’Footnote ⁷ and thus outlawed completely. The same line of reasoning applies to arbitration and self-legislation. Here too it is said that parties must not evade the official national laws and courts.

Fourthly, the Elbonian legislature hinders courts from reacting to external change. The safest way to guarantee this is that not a lot of legal actions are taken in the first place. Court costs are extremely high. All parties have to be represented by at least four lawyers, which also leads to an increase in costs. In order to bring a suit burdensome forms have to be handed in and various other formalities have to be complied with. And usually it takes about ten years until judgment is given. If, despite these reasons, parties take legal action, Elbonian law guarantees that all similar cases are decided in exactly the same way, thus eliminating response of the courts to new circumstances. On the one hand, this is achieved through substantive law. Since all laws are not only mandatory but also very detailed, judges have little discretion. This is strengthened by strict rules on interpretation in order to ensure that judges stick closely to the wording and do not ‘fantasise’ about the law’s purpose, customary law, equity and good faith. On the other hand, there is a strict procedural law. Judges are not allowed to question the parties or experts who may point out the practical out-datedness of particular legal concepts. There is also a strict doctrine of stare decisis, because precedents must never be overruled. Yet, this doctrine can only be assessed by the judges themselves, because Elbonian judgments are not allowed to be published, thus ensuring that judges are not ‘unduly influenced’ by outside pressure. Finally, in order to guarantee little change, there is a unique law on judges. Appointment of judges is decided on political grounds. A special test is held in order to exclude applicants who may disrupt the present system by ‘innovative ideas’. For appointed judges the principle of non-independence applies. This means an ongoing screening of the judges’ political attitudes as well as their adherence to the substantive and procedural ‘doctrine of formality’. Only if they comply with this doctrine, judges may be promoted.

Fifthly, Elbonian law prevents advocates (solicitors and barristers) from putting pressure on the courts to change outdated legal concepts. This is mainly achieved by law firms not facing competitive pressures. As there is only a very limited number of lawyers, they do not have to make any effort to get clients. Rather it is the case that clients have to beg lawyers to act as their counsel.Footnote ⁸ If clients manage to get counsel, there is no guarantee that their lawyer will act in their interest, because contingency fees are forbidden and liability suits against lawyers are inadmissible.

Sixthly, the legislature also ensures that the general public and legal academia do not foster the adaptability of the law. Freedom of speech and press is prohibited, and discussions at schools or universities not desired. Foreign languages are not taught, and Elbonian universities do not provide any information about foreign laws. The legal education is controlled through state universities and state exams. The examination itself only tests codified law, which must be learned by heart and is then recited.

But it would not be fair simply to blame the legislature. As far as judges have some room for manoeuvre, they do not respond to changed circumstances either. They only apply deductive and formalistic lines of reasoning and take no notice of anything that is not written in the laws or is not part of binding precedents. Foreign ideas are resolutely disregarded. If you mention a comparative idea to a judge of the Supreme Court, he may, for example, cut you off by saying that ‘just because the English do it this way, we don’t have to do the same’.Footnote ⁹ And in two decisions it was even stated that ‘this Court should not impose foreign moods, fads, or fashions on Elbonians’.Footnote ¹⁰

Advocates do not foster change either. For example, the drafting of contracts is not regarded as an ‘art’ but as a mere technicality. The templates which are used are not adapted to new circumstances and any creativity is said to be as alien to the legal profession. For instance, it may be stated that: ‘Lawyers are boring. They sit at their desks in their offices surrounded with dull tomes containing antiquated judicial opinion on cases no one cares about with little relevance to the modern world.’Footnote ¹¹

Legal academics and the general public as a whole have similar attitudes. Formality is always considered as paramount, and criticism of out-dated laws is not expressed. In public discussions neither Fichte’s ‘dialectical triad’ (thesis, antithesis, synthesis) nor Popper’s ‘trial-and-error method’ can be used, because principles of harmony oppose any disagreement. The legal academic is not a lot better: different schools of thought are not tolerated. It is also not appropriate to raise points which are based on economic, social, or political lines of reasoning, or on the law of foreign countries. This is also reflected in the teaching of future lawyers which celebrates the model of a lawyer as a ‘Paragraphen-Automat’ (Weber, Reference Weber and Winckelmann1988, p. 323).

IV. Adaptability criteria

The ‘Elbonian case’ demonstrates that adaptability depends on a complex set of criteria. If one attempts to structure them, it may look like the list in Table 1 overleaf.

Table 1

This list is not comprehensive. However, it should be noted that some topics have deliberately not been included because they are ambiguous. For instance, ‘natural law’, on the one hand, may foster legal adaptability because it gives judges a tool to disregard codified law that is too formal and inflexible. On the other hand, it may also prevent innovation by incorporating ethical and moral arguments which are based on the status quo. Another example is whether there are professional or lay judges. On the one hand, professional judges may be more knowledgeable and thus notice that certain legal concepts are outdated. On the other hand, it is also possible that lay judges foster adaptability because they may not bother about formal legal arguments in the first place.

Regarding the composition of the list, it is noteworthy that the category ‘courts’ is only one out of five groups. This differs from an article by Beck et al. (Reference Beck2003, p. 664), which tries to measure legal adaptability. Beck et al. just use the variable ‘legal justification’ as a proxy for legal adaptability. This variable is ‘formed by the normalised sum of: (i) complaint must be legally justified, (ii) judgment must be legally justified, and (iii) judgment must be on law (not on equity)’.Footnote ¹² However, as the Elbonian case shows, this is too limited as the degree of legal adaptability of a particular country depends on a larger set of criteria. This is also in line with the origins of the term ‘legal adaptability’. The English version of this term was probably first used in an article by Jamin (Reference Jamin2002), in which he re-examined the position of the great French jurist Lambert. In the original article, Lambert (Reference Lambert1900) advocates the openness of legal science in general, thus ensuring a continuous adaptation du droit.

In another study, Pistor et al. (Reference Pistor2003) use different indicators. In order to ascertain the innovative capacity of the corporate law of particular countries they look at: (i) the rate of statutory change; (ii) the mandatoriness of the law; (iii) the establishment of a supervisory authority for stock exchanges; and (iv) the difference between legal-origin and transplant countries. However, this is still considerably shorter than the aforementioned list. This is also acknowledged by Pistor et al. themselves, by admitting that they do not address political and constitutional factors although they may influence the innovative capacity of legal systems (Pistor et al., Reference Pistor2003, p. 681). Furthermore, it has to be noted that Pistor et al.’s purpose is different from this article. Whereas the present article seeks to understand legal adaptability generally, Pistor et al. are interested in the development of corporate laws and the specific case of transplant countries.

In another respect, these previous studies could, however, be exemplary. Beck et al., Pistor et al. (to some extent) and other studies use a quantitative methodology in order to ascertain whether law or specific features of the law, such as legal adaptability, matter for financial development. In order to make this work, it is necessary to translate the variables of the aforementioned list into numbers. Partly, this quantification of legal adaptability could be based on previous research. For example, some of the criteria on the legislature may be related to the empirical data which exists for the rule of law and corruption.Footnote ¹³ For courts, research by Djankov et al.Footnote ¹⁴ can be useful. And for the general public, one can contemplate employing some of the Hofstede-criteria on culture.Footnote ¹⁵ Of course, for a number of variables, such as, for instance, ‘open-minded politicians’, ‘pluralist society’, and ‘innovative legal thinking’, quantification is difficult. Thus, as always, a numerical approach to law has its inherent limits (Siems, Reference Siems2005). But, despite these limits the next part will provide an example of how it may be possible to ‘measure’ the degree of legal adaptability of particular countries.

V. Why Estonia is not Elbonia

The three Baltic States (Lithuania, Latvia, Estonia) may be regarded as very similar. They are relatively small north-eastern European countries and in the last 100 years they have shared many historical similarities, namely the occupation by Germany and the Soviet Union, the first and second independence after World War I and 1990, and the accession to the EU in 2004. But there are also differences. For instance, Lithuania is the only Catholic country, Latvia is the country with the largest ethnic minorities,Footnote ¹⁶ and Estonia is the only country whose language belongs to the Finno-Ugric languages.Footnote ¹⁷ With respect to legal adaptability, it may therefore be an open question of whether similarities or differences prevail.

In gathering information, the first problem was that not all data collections cover the three Baltic States.Footnote ¹⁸ Secondly, the choice of variables can often be challenged. For instance, the meaningfulness of indices of the World Bank and of Transparency International are disputed (Perry-Kessaris, Reference Perry-kessaris2003; Twining, Reference Twining2005). One can also criticise variables which use rankings based on hits on the internet,Footnote ¹⁹ because they do not take into account what actually is mentioned on the specific web pages. Thirdly, legal adaptability may vary between different areas of law. In particular, there may be a distinction between public and private law, because in the former areas of law not only the integrity and competence of the parliament but also of the competent authority is crucial.

Despite these limits, Table 2 displays some general indicators for legal adaptability. The main categories derive from the groups of Table 1 (Part IV, above). In general, Estonia performs significantly better than the two other countries. It is 25 times in first place (Lithuania 15 times; Latvia 8 times). Its result could even be better as Estonia has a smaller population than Lithuania and LatviaFootnote ⁵³ and some, but not all, variables take this difference into account.Footnote ⁵⁴ In detail, Estonia is particularly strong in the categories ‘legislature’ and ‘legal academics’. In the category ‘general public’ Estonia and Lithuania perform well and in the category ‘courts’ all three countries display similar values. Finally, with respect to advocates Lithuania and Latvia perform better than Estonia, which may be due to the bigger markets in these countries.

Table 2

Proxies for legal adaptability in the Baltic States

These differences in legal adaptability correlate with economic data. For instance, the GNI per capita is higher in Estonia (7,010) than it is in Lithuania (5,740) and Latvia (5,460).Footnote ⁵⁵ Yet, this does not necessarily mean that the economic differences are caused by the different degrees of legal adaptability. It could equally be possible that the wealth of a country results in having better institutions which in turn have an influence on legal adaptability.Footnote ⁵⁶

VI. Advising Elbonia: caveats

Returning to the miserable state of legal adaptability in Elbonia, one may wonder which adaptability criteria would be most urgent to incorporate. In particular, it can be questioned whether any of the five categories (Parts IV, V, above) works best. This could be based on the different ‘leverage’ of each group. For instance, the use of statutory law could be superior to the use of case law, because the legislature can make decisions about everything whereas courts can only decide about the cases which are brought before them. Yet, the counterargument would be that courts can act more quickly and in a more balanced way than the legislature. Thus, the leverage of the legislature may be higher, but adaptation by courts may be more efficient. Things are getting even more complicated when the criteria ‘legal academics’ and ‘general public’ are taken into account: since judges and advocates are trained at universities and politicians, civil servants, judges and advocates are part of the general public, the ‘leverage’ of adaptability of these two groups of criteria is higher than that of the other groups (legislature, advocates and courts). Yet, the counter-argument is again efficiency, because the way academics and the general public think and behave cannot be changed easily. As a result, adaptability with respect to each of the five groups has its advantages. One could therefore suggest that for a country such as Elbonia it would be best to make everything, i.e. all criteria of the list, as adaptive to external change as soon possible. This would, however, be naïve for two reasons:

VII. Concluding remarks

This article started with the adaptability of Viking ships and then focused on the topic of legal adaptability. However, adaptability is a general social phenomenon,Footnote ⁶⁸ and its explanatory power is even used in areas where this may appear alien. For instance, according to a newspaper article, ‘Cambridge economists are planning to use mathematical methods to find out why some religions prosper and others decline’, in particular, ‘which factors help religions to adapt to the modern world’.Footnote ⁶⁹

Given these diverse uses of the concept of adaptability, one may wonder whether the output of this article can be valuable more generally. This may indeed be possible. The groups of the above-listed criteria of legal adaptability (Part IV) can be extended to other types of adaptability. Here too there are usually global factors (above: general public), educational factors (above: legal academics), personal features of the actors involved (above: courts and advocates), and structural elements (above: legislature). For example, adaptability in shipbuilding may also depend on global factors (perhaps: general technical skills of a particular society), educational factors (perhaps: a particular apprenticeship system for shipbuilders), personal features (perhaps: rewards for innovate shipbuilders), and structural elements (perhaps: functioning supply chains in order to get the materials necessary for shipbuilding).

In face of these similar features, it would be interesting to link different types of adaptability. This would be particularly useful for legal adaptability, as law cannot be understood without its social, cultural and economic context. The next step in the investigation of legal adaptability would therefore be an analysis of how fields, which are related to law, adapt to changes, and how this interacts with legal adaptability.