Farmers, Middlemen, and the New Rule of Law Movement

Abstract

This paper investigates the economic relationships between farmers and middlemen in Vietnam’s Mekong Delta and places it in the context of the new rule of law movement. The new rule of law movement, which has grown in the wake of the collapse of formerly centrally planned economies, argues that the rule of law is a prerequisite for economic growth and that transition economies can only succeed by adopting strong formal legal rights and institutions. Notwithstanding more than two decades of an aggressive rule of law reform program, Vietnam’s formal legal system remains weak. Using survey data from a sample of fruit farmers and middlemen we find that participants in the farm-gate market for pomelos carry out relatively complex transactions by granting buyers credit with little explicit reliance on formal legal structures. The development of complex markets for fruit in the Mekong Delta in the absence of strong legal rights provides lessons for proponents of the new rule of law movement. First, in the absence of formal structures, private parties find ways of structuring transactions in order to assure contract performance. Second, development of formal legal structures is a very long term proposition with uncertain results. And finally, the experience of farmers and middlemen suggests that formal law and the development of formal legal institutions appear to trail economic development and should not therefore be considered an essential component of short-term economic reform efforts.