Govern by Li, or Govern by Law

The Master said: “Lead the people with administrative injunctions and keep them orderly with penal law, and they will avoid punishments but will be without a sense of shame. Lead them with excellence and keep them orderly through observing ritual propriety and they will develop a sense of shame, and moreover, will order themselves.”
From this paragraph, we could see that Confucius values self-discipline more than extra-discipline. Leading by rules and laws could restrict people’s evil conduct to some extent because people are afraid of punishment, but fear could not teach people the sense of shame. Once the external restraint is lifted, they will be free to do whatever they want because then they are fear of nothing, and they haven’t yet known shame. This is like a prisoner could behave well with handcuffs on, but as soon as the handcuffs are took off, he could be ever more evil and violent. As we know, human character is what we call “what you are when no one else is looking”. What makes human a superior being is that they are not ruled by others, but by themselves.
Confucius contextualizes “ruling by oneself” by saying people are ruled by their sense of shame which are developed through observing ritual propriety. Just as punishments are based on laws and rules, ritual propriety is not only attached with excellence (De) but also based on it. While laws and rules keeps people away from evil, excellence and ritual propriety are magnets that attract people to virtuous conducts. For that reason, Confucius believes that governing people by laws can only have the people’s a superficial obeisance, only leading by excellence can change the status quo fundamentally. It is said that western medicine takes less time to take effect but it only treats the disease superficially, which leaves room for the disease to reoccur in time; in comparison, traditional herb medicine takes longer to take effect, but it cures the disease from it’s very source to the surface eliminating the possibility of reoccurring. This may or may not be the case, but it’s an analogy of the relationship between govern by law or govern by Li. While govern by law may receive instant obeisance, only govern by Li can make the people virtuous at heart.
Confucius said, “If a man is able to govern a state by observing the rites and showing deference, what difficulties will he have in public life? If he is unable to govern a state by observing the rites and showing deference, what good are the rites to him?”
Confucius also stresses on the word “guide, lead (dao)”. Just as a tourist guide had to travel the same place to lead the way, a governor should behave with the same excellence and virtue as he wish the people to behave. Confucius way of governing is inclusive, not exclusive. In ancient China, most of the time, the so-called “ruled by law” is exclusive, meaning the governors, superior officers, let alone emperors are exempted from the laws and rules imposed on the people. Confucius is a man that have high respect for authorities, “On going through the outer gates to his lord's court, he drew himself in, as though the entrance was too small to admit him. When he stood, he did not occupy the centre of the gateway;' when he walked, he did not step on the threshold. When he went past the station of his lord, his face took on a serious expression, his step became brisk, and his words seemed more laconic. When he lifted the hem of his robe to ascend the hall, he drew himself in, stopped inhaling as if he had no need to breathe.” By advocating “leading by excellence”, “having a sense of shame through observing ritual propriety”, Confucius does not mean that all people are the same, quite the contrary, he put the people of high status on a higher level because they will be models for their people, their conduct should represent a superior excellence. Hence we can see another advantage of Confucius way of governing: it’s effective on the superiors.
Only when the governors themselves are being an example can the people be expected to behave as such. Confucius said, “If people are proper in personal conduct, others will follow suit without need of command. But if they are not proper, even when they command, others will not obey.”
From above, we could see that it is not easy to be a good governor by Confucius’ definition, as he is expected to be an example of excellence. Confucius also knows this, therefore when Duke Ting asked, “’Is there such a thing as a single saying that can lead a state to prosperity?' 
Confucius answered, 'A saying cannot quite do that. There is a saying amongst men: "U is difficult to be a ruler, and it is not easy to be a subject either." If the ruler understands the difficulty of being a ruler, then is this not almost a case of a saying leading the state to prosperity?'” Then when Duke went on to ask “'Is there such a thing as a saying that can lead the state to ruin?' 
Confucius answered, 'A saying cannot quite do that. There is a saying amongst men: "I do not at all enjoy being a ruler, except for in fact that no one goes against what I say." If what he says is good and no one goes against him, good. But if what he says is not good and no one goes against him, then is this not almost a case of a saying leading the state to ruin?'” By saying that, Confucius has yet a higher requirement for a good governor, on top of realizing the difficulty of being a model of excellence, he should enjoy being so, finding happiness in conducting himself in a proper, appropriate, and authoritative way.
In conclusion, Confucius advocates govern by Li for it prevents transgressions at the very basis, human heart, and leads people to excellence. It is done by making an example of the excellence and enjoying doing so.