Professors Katharina Pistor and Curtis Milhaupt draw their cases from Japan, Russia, Germany, and other nations. Photo credit: Dustin Ross
Fifteen students in the Law and Capitalism seminar gather each week for an invigorating discussion that could be found in few other places. Some of the international students come from nations whose economic and legal institutions are undergoing major reforms, greatly enriching class discussion. The seminar examines in detail how law supports market-oriented economic development, and revolves around "institutional autopsies"—student projects that explore a scandal involving the legal and economic structures of a given country.
"Corporate governance scandals are used because they illustrate a system's inherent weaknesses," says Professor Katharina Pistor, who co-teaches the course with Professor Curtis Milhaupt '89. "Students try to explain the pathologies that gave rise to the governance problem."
The course begins with readings by Max Weber and other theorists as well as empirical economics literature that is unfamiliar to most law students. "This literature forces students to think about how different legal systems operate and what role, if any, law plays in economic growth and development," says Prof. Pistor. "Using individual case studies plays to the strengths of law school students, allowing them to link the theoretical literature to real world events."
Says Prof. Milhaupt, "We are examining the background coordination mechanisms for economic development around the world—only some of which are ‘legal' in the conventional sense. The seminar takes a particularly close look at a recent and provocative argument in economics: that there is a deep linkage between a country's legal system—whether common or civil law—and its economic institutions and capital markets. No one has provided a satisfying answer as to why that may be true, but the debate goes all the way back to Weber and Friedrich von Hayek." By focusing on a series of recent corporate governance failures around the world, the seminar seeks to understand the commonality of the economic problems facing all market-oriented systems and the diversity of institutional responses to them.
Cases are drawn from a variety of countries in different stages of economic development, including the United States, Germany, Japan, Korea, Russia, and China. "It turns out that in China the biggest question is not why accounting rules are not strictly enforced, but how financial markets operate at all in the presence of extensive state control," says Prof. Pistor. "In Russia, the conventional lens of ‘good corporate governance' misses the political forces that drive outcomes. And in Korea the call for better law and greater transparency challenges a system that relied heavily on family control and close relations between business and government."