Wednesday, October 31, 2007

Why Law and Economics Failed in Germany

This is an interesting, and prima facie plausible explanation.  What do those better-informed than me think?

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We have a very different theory on our paper forthcoming in the Alabama Law Review:

Posted by: Nuno Garoupa | Oct 31, 2007 7:02:08 AM

In addition to the reasons mentioned in the post to which you linked, one thing to examine is the system for legal education in Germany and other civil law countries. In Germany, law is an undergraduate discipline and is situated within a university system in which students are, for the most part, required to choose their course of study prior to matriculation. So, unlike the U.S. where students arrive at law school with an undergraduate degree in economics (or philosophy, or political science etc.) under their belts, German law students are unlikely to have had any meaningful training in these disciplines beyond what they have learned in their Gymnasium (the academic high school). They then focus on their individual university subjects, and it is these students who go on earn doctorates in law and become professors.

My own anecdotal experience as a student in Germany confirmed this, both as to the German students and as to some of the other international students in my class from civil law countries. For example, on the first day of my civil law class, I was called on for a question and the answer was “Adam Smith and the invisible hand.” The professor was really impressed and asked if I had studied economics in the U.S.

Posted by: Robin Effron | Oct 31, 2007 7:28:23 AM

I doubt I am better informed than you, but Hanno's description is certainly consistent with what those who attended the series of "Luhmann" expositions at the Law & Society Conference in Berlin this summer heard. Hanno's link to his other post describes the "autopoiesis" that is central to one very influential sociological view of the law on that side of the Atlantic. For example, Luhmann takes an ironic and, it seems to me, Continental view of an issue we get all passionate about: justice or the rule of law. To the Luhmannites, juridical justice is a paradox - it doesn't exist by the very nature of conflicting interests if you were to look at it from outside the system, but the legal system nevertheless requires that its participants believe justice is possible (an internal point of view?) And Luhmann's views reflect a willingness to engage with Kantian metaphysics in a way most Americans are inclined against. One of the speakers in Berlin, Hans-Georg Moeller, has a book whose title probably says it all: Luhmann Explained: From Souls to Systems.

Posted by: Jeff Lipshaw | Oct 31, 2007 7:28:44 AM

The distinction between the internal and external perspectives on law seems right to me, but I'm not sure that an explanation focused on German legal culture is the most helpful here. It is the US [and to a lesser extent Canada] that is exceptional in this respect, compared to most of the rest of the world. In my experience, there is more interest in law and economics in Germany than in most other European countries, including the UK.

Posted by: Avery Katz | Oct 31, 2007 10:49:09 AM

Some quick comments from a German lawyer who did graduate studies at a US law school well known for its contributions to L&E. To be clear from the outset: the following comments draw nothing but a (very) rough picture. This isn’t a paper. I know that some remarks about the US aren’t made from the finest silk you get on the market.

First of all, to relate to anecdotal experience (second comment) to prove a general claim seems a bit fishy to me. Personally, I discussed Friedman, Keynes and Adam Smith in school on more than one occasion. Perhaps one should consider the possibility that the other students knew of the invisible hand but didn’t want to answer the question. To give anecdotal evidence from the law school I went to: Professor: “Can anyone tell me what the main conclusion of Miller-Modigliani is?” In spite of the fact that so many US students have undergraduate training in economics “under their belt” and thus should know about this famous theorem, no one answered (and this was a big class). Is this because undergraduate training in the US doesn’t cover basic economics/because students are dumb (with respect to both: certainly not) or because students didn’t want to answer the question for whatever reason they had (the class was early in the morning). On other occasions, foreign students from Germany or other countries outside the US were able to answer questions to the surprise of the professor. Perhaps that doesn’t mean anything more than that school and studies in different areas of the world focus on different things (my favorite remark from a US student: “Denmark? That’s the capital of Stockholm, right?!”).
To compare US undergraduate studies with undergraduate studies in Germany is a hard thing to do, to put it mildly. Even though, e.g., economics, to use US terminology, is undergraduate in Germany, it cannot be compared to undergraduate studies in economics in the US. Additionally, even though there are students with an economics/politics/philosophy-background, I met many other US students with a chemistry/physics/architecture-background. That does not help you much in the study of law, I presume.

To L&E: From my point of view, the success of L&E in the US has a lot to do with the fact that the US is a common law system. Precedent doesn’t exist within a “system”, it is a rule delivered in a specific case. To compare precedent (and thus: different legal rules) is a hard thing to do, because these rules aren’t abstract and they are bound to the facts of the case before the court. Even if the facts are similar, there is no “system” or general rule. To give an example: have a look at the one hundred and four variations of the business judgment rule. With L&E, suddenly, there was a system providing tools to compare different rules and to interpret rules. In Germany, there is a system legal rules exist within. If L&E is one consequence of legal realism, one should ask to what extent a similar way of thinking (e.g., with all due care, the free-law movement in Germany) may lead to success. If parliament enacts rules, these rules cannot be overcome (some exceptions, but this is the general rule). It simply doesn’t help you much when you want to deal with the existing law to take external considerations into account, as long as the law does not empower you to pay attention to them. Most German lawyers, professors, attorney, and judges alike, deem the interpretation of the existing law as one of the main tasks of legal academia. Furthermore, a judge usually is not allowed to deviate from the written law (again, some exceptions). If he encounters a new fact pattern (no precedent) with respect to which a written rule is applicable, he has to follow the rule. There is no place for external considerations (not true in all cases, but roughly correct). This necessarily involves explanation of certain rules within a given system.
For a judge in a common law system who hears a case with respect to which there is no precedent and no statute, the situation is different. He must come up with something new. Here, the judge has the chance to consider external aspects. In the US, at least in the classic common law areas (contracts, torts, etc.) there was no way (this might be a bit rough) to discuss “the law” if there was no precedent. Because, at least in the absence of statutes, without precedent, it was hard to discuss different legal rules (I know that this description is less than perfect; however, I hope you get my point). L&E provided a “remedy”: economics delivered the systematic concept to talk about questions against a broader background.
One last point: L&E (and other interdisciplinary approaches) plays a role in talking about the law in Germany – about the law de lege ferenda – future law. In the course of discussions about reform, economics is (and was) one lense to look through.

With respect to the other paper mentioned in the first comment: this is not convincing at all. The paper misses the fact that US law and German law (or other civil law systems) are quite different. There are other indicators how to measure innovation. The authors of the paper neglect that professors and judges in Germany may look at legal scholarship from a different angle than their US colleagues. The conclusion that L&E is successful in the US and is a failure in Germany because of a lack of competitiveness in Germany (or other civil law countries) implies private notions about “progress” which are genuinely bound to the US (or the authors’) perspective on the law and the legal profession.

Posted by: Thilo Kuntz | Oct 31, 2007 11:24:59 AM

I also posted the following comment on the referenced website.

I cannot speak about Germany. This understates the importance of elite legal academics in the US in the 19th and early 20th century. It overstates the commitment among US legal elites to “formalism.” A colleague, David Rabban, has a forthcoming book that demonstrates that legal thinkers in the US in the latter half of the 19th century had an historical and evolutionary view of the law. This overlooks what I believe is a central reason why legal realism flourished in the US. It is because of the practice in US legal education of teaching an amalgam of the law of the several states in private/common law courses. One cannot help but realize that legal formulae are not solving concepts when there is a confusion of formulae.

Posted by: Mark Gergen | Nov 1, 2007 8:08:09 AM

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