Private Order and Public Institutions

In Private Order Under Dysfunctional Public Order, John McMilan and Christopher Woodruff describe the private institutions that order commercial transactions in developing economies where commercial actors view the formal legal regime as unreliable. Presenting evidence from surveys of market participants in several Eastern European countries and in Vietnam, McMillan and Woodruff depict a system of private order that requires formal organization and the creation of institutions to share information and coordinate multiparty responses. These institutions do not simply offer a viable alternative to public procedures, but also enable commercial transactions to occur where the vacuum in public order would otherwise preclude valuable trades. In conclusion, however, the authors allude to the reliance of some private-order institutions on practices of exclusion, collusion, and physical violence that yield economic inefficiencies. This downside to private order, they assert, means that while private order in developing economies can usefully supplement public law, [it] cannot replace it. This assertion is correct but incomplete. McMillan and Woodruff rightly note that private order is not a substitute for public governance, and that public-order institutions are needed to facilitate internalization of the negative externalities that private order produces. But public order serves a much broader and deeper function. Democratic public-order institutions, when accompanied by public-order norms of transparency and accountability, offer processes and policies of greater legitimacy and fairness than can private-order institutions. While the goal of the public realm ought not be to supplant private-order decisionmaking, the inclusiveness of democratic decisionmaking ultimately means that public order should be seen as the preferable form of governance, even if public order does nothing more than ratify the existing private-order system. These comments will discuss the difficulty in structuring public institutions in a developing economy where a vibrant, though perhaps problematic, system of private order operates, and will address the role of public order more generally as a source of legitimacy for governance of any kind