As the new century approaches, the universe is completely becoming a global village and our periods as the post-geography times. Political boundaries are not obstacles with the increasing perspective in the global investment and trade policies. Approximately more than hundreds of investment laws and thousands of investments in the bilateral setting have now gone across to the foreign investments, equality in the legal treatment process, and other benefits enjoyed by the local investors. The significance and right to national treatment are now slowly metamorphizing to become part of the customary international law (Contractor et al., 2018). In such situations, it is not advisable to talk about the need for certain legal frameworks for international business as different from domestic enterprises. The only thing required is the legal design or framework that ensures private entities withstanding their nature (domestic or foreign) can find an appropriate environment to grow.
Law and Business Development
In every nation, law, which is supposed to uphold integrity and create a better environment for every activity, has also played a critical role in the guidance and legitimization of the change process. It is used as a tool of development in a specific order and reconciliation of diverse interests. However, the creation of law does not come that easy. For instance, in some countries in Africa, it took civil strife and economic downfalls, while Latin had to experience the collapse of dictatorship, and primarily the transformation of the Eastern and Central regions of Europe to achieve the business development processes. With more developing nations moving en masse to the market economies, they had to develop the necessary and appropriate techniques to encourage local trade and foreign private investment (Fabus, 2018). There is significant evidence that creating or establishing the rule of law can significantly attract private investment for the obvious reason that it creates an ample and habitable environment of stability and predictability, for a rational assessment of the business risks, protection of property rights, and honouring of contractual duties. In essence, experience also shows that the rule of law has numerous propositions needed to provide credibility and commitment to the specific country’s governments to enforce and rely on the applicable laws.
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With the civil laws and criminal laws in place, there is a high possibility that the transaction costs will be low, access to capital will be highly enhanced, and playing fields will be levelled for any business. As a result of such happenings, the focus has been concentrated on the recent literature regarding economic development. Specifically, emphasis is on institutional economics. The need to preserve the quality of institutions by developing and establishing the appropriate and workable legal framework is key. Such designs have proved to be essential for environmental protection and accruing natural resources critical in sustainable development (Halbert & Ingulli, 2020). Most countries have ended up depleting their available natural resources while trying to realize economic development programs. However, environmentally sustainable development can be realized by enacting rigorous regulatory laws. These regulations could involve the demystification of property rights, the creation of a monitoring group with effectively trained employees, and developing efficient international laws and regulations for effective business development programs.
It is now evident that rapid growth calls for various conditions that should be economic or financial and civil or criminal laws appropriate for the business environment. Effective elements or factors can entail definition of the nature and limitations of the State intervention, realizing most effective governance, enhancing the work in the public sector, offering support to the civil societies, creating an effective environment for the rise and development of the private sector and also focusing on the shared norms to influence people and team behaviours in a conducive way for economic and social development. These elements cannot be understood easily, leave alone being executed and sustained in a community under the regulations of the inadequate legal system or less well-functioning places of administration of applicable rules and regulations, and finding an amicable solution towards the disagreements originating from their application.
In a standard environment, legal reforms often happen to intend to create a habitable and friendly legal design at a national stage to address primary procedures. The first one entails reviewing the legal rules or procedures, beginning with the constitution, legislation, and administrative roles and orders. This approach ought to ensure that contents spelled out in the rules incorporated in such tools can respond to the actual social requirements, represent the pre-existing public opinion, relies on enough data research, and originate from participation, particularly by ones likely to be influenced by them. The second one entails the enforcement of the legal provisions, withstanding their content or information (Mahdavi & Daryaei, 2017). Law will not be crucial or sound if the first process is not initiated. However, without the second law is not plausible. In the case where one of the processes is flawed, there will be low confidence within the legal system, and the wider approach of economic and social growth will be adversely affected in multiple ways. The impacts of a flawed legal design or framework on a business environment can be realized in multiple regions, which are quite normal to the business people. The significance of law and its role in a business environment is notable in different situations. In the absence of effectively enforced legal rules, the economy or the business environment will be faced with multiple issues.
In the absence of law, there will be an adverse impact on the contracts. Respecting the contractual obligations or laws will entirely depend on the contracting parties’ goodwill. Besides, the agreements made will only be binding to the level when their beneficiaries have enough power to make them that way, and the only approach of enforcement will depend on the extra-legal processes.
Secondly, without the aw in place, there will be an effect on the property rights. In essence, most people and corporations will start acquiring the only assets which can realize appropriate property rights. Various people will make liquidating assets preferences and keep them in the deposit forms or make portfolio investments in other countries, thus putting more pressure on the local currency.
Without the law, there will be an adverse effect on the corporations. Most companies will aim at taking up the form of a closed corporation. In this case, close allies and associates will be in charge of the shares. As a result, there will be no formation of the huge domestic joint-stock organizations and denying the citizens the chance to have stock portfolios.
Ineffectively utilized laws can also affect the banking system. Banks will be forced to lend individuals who are willing and able to provide real assets in the form of collateral, or those with effectively in an advantaged position of politics, power, or other high offices in the society, hence averting the potential growth of the banking sector and nee investment and facilitating the concentration of wealth. Debt recovery will be a major issue for most banks, and it will threaten the existence of such institutions (Reyes et al., 2017). The banking system and the capital market will not function effectively without enough regulatory approaches strictly under the watch of the appropriate agencies. Additionally, there will be the emergence of various kinds of financial strategies that can promise quicker and lucrative outcomes but which could fail and affect the economy in its entirety.
Lack of law or absence of law could also lead to the transfer of technology. There will be a significant slowdown of foreign direct investment, which usually comes with modern technology. By weakening the intellectual property rights, the invention will be stifled, and so will be the development of new ideas.
The absence of law will also affect the transaction costs. Most businesses will not appreciate competitive bidding as the standard approach of procuring, and they will prefer dealing with familiar and reliable sources. Furthermore, there will be situations when they tend to seek favors from people in power using illegal and corruptible means. Additionally, the absence of laws will have an adverse effect on the current legislation and regulations. In essence, weak laws could result in the enactment of other laws and regulations. Any economy with an over-regulated economy can undermine new forms of investment, increase the costs of the current ones, and results in massive corruption incidences (Komljenovic et al., 2017). Many laws and regulations could further reduce the quality and opportunity of enforcement. Without judicial reviews or the high costs involved and the delays involved when administering justice could compound the negative effects. Lastly, there will be an effect on the level of criminal offenses with an economic condition in the absence of law. With weak laws or ineffective regulations, tax evasion will be high, the rate of smuggling will also increase, and organized crimes will be the norm of the day.
The Legal Framework
Nothing in this work implies that law, itself, is a needed tool for a progressive business society. Instead, there is an indication that law plays a crucial role not only for reactionary and progressive objectives but also for neutrality based on how it is implemented, the interests or goals it serves, and its interaction with the whole range of other components influencing people’s selection. However, it is crucial to indicate that the law, despite playing a role in reflecting the community's prevailing realities, can be implemented as a proactive tool for enhancing, promoting, and developing a business environment, thus influencing and changing the realities it should reflect.
The question of utilization of law to realize a stable economic environment in the short run and realize sustainable development, in the long run, can address the primary aspects of the legal design on the national and international stage. This framework should be defined in regards to a system based on three major pillars. In essence, the first one should represent legally binding rules and regulations. The rules should not be in advance. The state should be proactive in enforcing them to any party involved, and they are also candidates of modification based on the previously understood processes. Secondly, the next pillar should comprise of effective procedures where such rules and regulations are initiated and through which they can be implemented practically or disregarded when the need arises. Each country will obviously have a different situation and appropriateness of the procedures. The success of the legal process will happen only to the level that they are not arbitrary. They will depend on the consultation systems with the affected people by these rules, and they will be realistic in their dependence on the current institutions.
An effectively working public institution or institutions staffed with skilled and trained workers forms the third pillar of the legal framework. These staff members should be open and accountable to their population, and controlled by the rule of law, and implement the regulations with no prejudice or bribery. An effective and balanced judicial system is the arbiter of a functioning legal system. Without efficient institutions for enforcing such rules and resolving conflicts, there are no effective rules and procedures in place. The absence, in this case, could demand a significant focus on the new rules and protect the ones who require a minimum level of court or government intervention until the necessary institutions are put in place. By this, it means that rules depend on the self-enforcing strategies instead of the officials' actions. Some of the examples of such rules in the corporate world entail the requirements of detailed public disclosure or effective and necessary information, auditing periodically by the internal and external auditors, representing minority shareholders in various boards of organizations, and conveying crucial decisions using special majorities in such boards.
The judiciary has a crucial role in the rule of law in the business environment, especially in a system-based situation. This duty can be supported by the business-focused alternative strategy for resolving disputes, primarily mediation and arbitration. As shown in this work, the law should not be regarded as the collection of written laws and regulations. The process of implementing these regulations and rules by the government agencies is also critical in the whole understanding and implementation of the law. Judges and arbitrators have a role in interpreting these laws and regulations for effective implementation. A functioning system of law comprises many factors; primarily, judges should apply laws fairly and in a predictable way without causing undue delays or costs to derail the justice system from being applied. Laws should not be prophecies of what courts want to do, but they should be used to address the inefficacies and inefficiencies in the business environment.
Additionally, such a system of law should have proper interpretations, application, and authorization based on the available processes and procedures. Furthermore, there is a need to have respect for rules during final analysis by the state and that there should be an independent body available for resolving disputes. There are inconsistencies in the rules that can be identified and interpreted by the judiciary with the constitution. It is the lender of last resort for monitoring and addressing allegations of bribery and lack of transparency, among other breaches in the government. When working together, these components will work as a group to create an appropriate competitive structure and environment of social peace for business to function effectively.
The legal framework discussed herein with the three pillars is not only applicable in a formal legal design. In every society, the informal rules of custom and use have a critical function. This could work in cases where the law enforcement processes or approaches are weak and bribery is at its peak. In such circumstances, informal rules can be used instead of formal regulations because the former offers greater compliance. Therefore, reforming the legal framework will not serve its objective if it does not adequately focus on the problems of enforcement and their appropriateness. The issues with the procedures and institutions could be central in addressing such problems. The formal rule should be fair, and its content should be satisfying to every party.
The idea of permissiveness can make the most effective for economics and effective law. Additionally, it has respect for human value. It often assumes that people are good, and in violent situations, the ex-post enforceable sanctions are initiated than approving every act by various government bureaucrats. By having limits kept at reasonable points determined by the exigencies of what is in the public interest, a country can reduce or lower every opportunity of bribery and achieve appropriate limits. This form of effectiveness can easily get lost in systems depending on the presumption of excessive obstacles (Shaheer et al., 2019). By ensuring the market forces are in effect and addressing the failures and excesses in the market, and coming in to shield the poor, can ensure that a state is in a position of following through the legislative policies to support the private sector growth.
However, the permissiveness assumption does not refer to leaving the private businesses and the provisions of the public services unregulated. This may lead to collapsed healthy competition, and the forces of monopoly would take advantage and exploit the consumers. Even though regulation should be reiterated, it should not be taken to mean the enemy of competition. Instead, it ought to be understood as the enemy of excessive state intervention and the use of various rules to competitors in that field. Competition should not be an alternative to effective regulation. With the right rules and laws and hence effective regulation, competition would stand to benefit massively. Therefore, appropriate and effective regulations are needed aiming at an accepted economic and social goals to serve within these aims and disregard any excesses, avert focus of the market for the few people only.
Conclusion
In summary, it is appropriate to indicate that law, either civil or criminal, plays a significant role in providing an appropriate environment for business to flourish. World Banking is undertaking various programs to facilitate and create an enabling environment for private enterprises. The Bank uses the adjustment loans to ensure that the borrowing countries can enhance the macro-economic and micro-economic processes and liberalize their trade procedures. Furthermore, through the World Bank, the investment regimes have increased, and so have the financial sectors such as the banking and financial institutions and the capital market. However, the growth in these practices has been realized because of the appropriate and practical laws that support business functions. Additionally, Banks can offer loans to facilitate legal and judicial reforms. For this reason, the World Bank has provided loans and grants for business processes. The legal system remains a major challenge in carrying out business activities. However, various international institutions such as the World Bank have come in handy to provide critical lessons of appropriate laws to facilitate business practices. A comprehensive approach should be initiated to formulate a business environment that supports business activities. The focus should be on enacting new legislation and regulations, and processes through which such rules are made and executed and protect the institutions tasked with interpreting such rules.
The details and direction of the legal reforms of a nation should be the objective and onus of the country, not other foreign entities, and ought to play by the country’s needs, values, and various special features. It means that the local lawyers, in collaboration with the foreign advisors, should handle the whole procedure. World Bank has massive financial and legal reforms and could be crucial in the local legal and business societies in designing comprehensive reports regarding reforms. In some situations, it has been crucial in establishing a central legal reform process reporting to the governmental heads, thus coordinating the different needs of multiple internal sectors. Finally, having a strong legal education and offering constant training to judges are central elements for successful legal reforms in various countries.
References
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