Market-Oriented Legislative

A market economy requires a high degree of confidence in the rule of law
for business to meet its economic, social, and environmental responsibilities.
In many emerging market economies, the vast majority of people do
not trust one another. The distrust surrounding the enforceability of contracts,
for example, leads to large portions of the population believing that
negotiations are not over even after a contract is signed. Transaction costs
to protect one party from the other in such circumstances are much higher
as a result.
A legal framework oriented toward free markets and reliable judicial
institutions is essential for this confidence to develop over time. Such a
framework will need
• Contract laws
• Laws regarding the formation, operation, management, and dissolution
of corporations
• Laws on privatization
• Real estate laws
• Laws against unfair competition
• Labor–management laws
• Tax laws
• Accounting and auditing standards
• Laws protecting intellectual property rights
• Bankruptcy laws
• Environmental protection legislation and regulation
• Laws ensuring fiduciary responsibilities of managers and directors
• Rules governing the rights and obligations of shareholders, managers,
and boards of directors
• Laws permitting class-action suits
A confusing, burdensome, or even unfair legislative and regulatory
framework drives up the cost of setting up a business, dissuades investors,
and provides a fertile ground for corruption. As one researcher observes,
“Some critics even believe that regulations are intentionally drafted in a confusing
manner to provide officials with more discretion.”23 Such a framework
is particularly damaging to the SME. Under such circumstances, responsible
business conduct is frequently discarded in favor of survival, or the law is
bent or interpreted to fit the circumstances.
Even where laws and regulations are well drafted, they are often
enforced unevenly—or ignored by the population—in practice. The failure
to enforce the legislative and regulatory framework, or to comply with it,
contributes to confusion, places the law-abiding enterprise at a competitive
disadvantage, discourages investors, and extends a climate of corruption.24
Although this manual urges building an RBE from an ethical perspective,
it is often the case that the state itself must actively support enterprises that
are trying to be responsible but that find themselves at a competitive disadvantage.
A key to introducing ethics in an emerging market economy, then, is
to build a market-oriented legal framework and reliable judicial institutions.
Prescriptive rules, which would be undue government interference in a
developed economy, may be necessary to ensure that responsible business
conduct becomes a norm, a value, and a standard. The RBE works with other
leaders to influence government regulation to that end.
No less important than new laws, one researcher notes, is a judiciary
proficient at interpreting and enforcing the law with integrity.25 The creation
of effective dispute resolution mechanisms that can offer businesses transparent,
predictable, and cost-effective results is one of the most important
steps a government can take to support market processes in an emerging
market economy.26 Finally, government agencies must exercise their authority
and responsibility to execute the judgments reached.