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8 E. Eur. Const. Rev. 105 (1999)
Supply and Demand for Law in Russia

handle is hein.journals/eeurcr8 and id is 325 raw text is: Can supply stimulate demand?

Supply and Demand for Law in Russia
Katharina Pistor

athryn Hendley's essay is a timely comment on
legal reforms in Russia. After years of intensive
awmaking in the hope that-by creating a
well-designed legal system and improving legal institu-
tions-economic growth would resume, an assessment
is in order. The sheer volume of legal rules that have
been issued in Russia over the past eight years is truly
stupendous. In the beginning, economic reforms were
driven by regulations and decrees issued by the execu-
tive, most notably the president. Since the mid-1990s,
however, many key laws were adopted by the legislature,
and earlier laws that had been rushed through parlia-
ment were substantially revised. As Hendley points out,
these legal statutes were backed by newly established
institutions. Thus, law reform was not limited to intro-
ducing new formal rules but was reinforced by
institution building. Why has this proved inadequate for
establishing a law-bound economy in Russia?
Hendley argues that what went wrong is that
most reform measures were implemented top-down.
They were motivated by lacunae in the formal legal
system but their sponsors ignored the legacy of the
socialist system and how it had shaped the perception
by citizens and entrepreneurs of formal law. Both law
and law-enforcement agencies are greeted with a skep-
ticism that has been bred for decades-if not for
centuries-by the experience that extralegal motives
often influence decision making and that law is chiefly

an instrument of those in power. Few will see it as the
neutral transaction-cost-reducing and transparency-
enhancing mechanism it is idealistically said to be by
foreign-policy advisers. Because of this distrust of
formal law, Russians rely much more on informal
mechanisms, at best on networks of trust and relation-
ships, at worst on private security services and
organized crime.
One should add that the claim that informal
rules, relational contracts, and networking are impor-
tant features of business transactions is in line with
both the law-and-society literature and a new trend in
the economic analysis of law that has enriched this
approach-regarding informal rules and networking-
with elements of legal pluralism. (In recent years there
have been several legal symposia that discussed the
relation between norms and formal law. See Law and
Society & Law and Economics: Common Ground,
Irreconcilable Differences, New Directions, Wisconsin
Law Review 375, no. 3 [1997]; Law, Economics, &
Norms, University of Pennsylvania Law Review 144, no.
5 [1996]; and The Nature and Sources, Formal and
Informal, of Law, Cornell Law Review 82, no. 5
According to this literature, the role of formal law
is usually overstated. Even in the most efficient legal
systems, most contractual disputes are solved outside the
formal court system; indeed, entire trades or communi-

FALL 1999

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