Privatization for whom?

Almost every contribution to the symposium points out that a direct import of the LPE positions from Yale to Europe and specifically the German legal order is not possible. Here I want to draw the attention to research projects on law and political economy in Europe that are both theoretically grounded and would like to translate these into an agenda for teaching law. These debates around the notion of “transformative law” provide new perspectives on privatization and its regulatory law (“Regulierungsrecht”). Through them, “privatization” might be directed towards a social economy.

I will first briefly discuss the debates in German constitutional law around the turn of the millennium, which responded to the waves of privatization of public infrastructures with the concept of a “guarantee state” (Gewährleistungsstaat). Regulatory law (Regulierungsrecht) emerged as a concrete consequence of these discussions to counteract market failures in network economies.

This turn from “collective” to “privatized” imaginaries of prosperity (Bartl 2023) has slowed down since the financial crisis of 2009 and got some deeper cracks with the European Green New Deal. The LPE debates in Europe have in turn responded to this with a concept of transformative law that pays particular attention to the “social economy” or the “commons”.

I propose a synthesis between regulatory law and the reorientation of transformative law in the direction of a social economy that could be a building block for stable, climate-friendly and innovative infrastructures.

Regulatory law as a response to an expected market failure

Since the 1990s, the major public infrastructures In Germany (postal services, railroads, telecommunications, energy) have been transformed into markets, in part even through constitutional means. Dominik Rennert convincingly points out the corporatist embedding of the Grundgesetz. However, this could not prevent those privatizations. The accompanying constitutional law debates were dominated by the abandonment of strong public services (so-called “Daseinsvorsorge” Voßkuhle 2003, 275) directed by the state. The reasons given for privatization at the time were a lack of innovation (Mariana Mazzucato would disagree), changes in demographics or high costs (Voßkuhle, § 1 GVwR I, 3. ed., Rn. 59).

The innovations hoped for with privatization came at another high price. The pursuit of short-term profits is in tension with the goal of a reliable, well-developed and generally accessible infrastructure. The words “Deutsche Bahn” trigger nervous reactions for passengers who travel a lot with German trains. The destruction of the telecommunication infrastructure was a worldwide phenomenon and led to similar problems in both the USA and Europe: A disconnection of non-profitable spaces from the latest technological innovations (fibre optic cabling, 5G), which can only be compensated for by billions in public investment.

These difficulties came as no surprise. The key concepts of the guarantee state or regulatory law (developed specifically for the network economies mentioned above) already point towards the need for a state that might no longer provide “its own” services, but still has to moderate them. As this is not a simple withdrawal from responsibility, the guarantee state is, according to Gunnar Folke Schuppert, precisely “not neoliberal” (Schuppert 2005, 22). This becomes clear regarding the remaining responsibility of the state discussed at the time, which also includes a “catching” or “cushioning” responsibility to compensate for or even replace market-based action (Hoffmann-Riem 2005, 96). In concrete terms, this form of “context control” was restricted by setting a framework whose content is filled in by the market players and compliance with which is monitored by relatively independent institutions such as the Federal Network Agency (Bundesnetzagentur).

Regulatory law emerged as an area of law that has been specifically designed for network industries, but is also applied to areas such as the media, the health sector and the like. Just as in the debates on LPE, it is not possible to directly translate the US-concept of “regulation” as it has a much broader meaning (Ruffert, § 7 in: Fehling/Ruffert, 2010, op. 11). Conversely, the aim of German regulatory law strives for active market support and prospective market design instead of mere compensations after a market failure (Eifert, § 17 GVwR I, 3. ed., op. 126). Especially markets for (network) infrastructures are characterized by natural monopolies. Regulatory law intervenes in an already broadly constructed market through access rights and price control, among other things (Schmidt-Preuß 2015, 73). The problems of hierarchically organized public services have been intensively discussed in German constitutional debates, but a full turn to law & economics approaches has never taken place in public economic law (Ludwigs 2020, 12).

The European LPE movement and transformative law

In their groundbreaking article, Purdy et. al. discuss the legal construction of the economy, inspired by Polanyi, to legitimize a democratizing potential of the law. The fact that markets are highly determined by the law is, as just shown, part of regulatory law’s DNA. The terminology of “transformative” law already points towards the aim of the European movement to use law as a mechanism for social-ecological change. While the problems in the privatized infrastructures of regulatory law are becoming more and more obvious and the critical voices are becoming louder, the LPE current in Germany and Europe could be an opportunity to reopen fundamental debates on the direction of regulatory law.

The concept of decentralized transformative constitutionalism developed lately is also a variant of “contextual control”, as in regulatory law outlined above. The decisive difference is that the internal structure of the indirectly influenced organizations is also considered. (Constitutional) law thus becomes a network that holds together social subsystems (such as the economy) and at the same time respects their logic to a certain extent. Here, law acts as a mode of form-giving and the state in particular has the opportunity to exert infrastructural influence. This connecting infrastructure of law is committed to the common good, but merely sets goals. It should therefore be emphasized, particularly in relation to Thomas Wischmeyer’s article, that a detailed constitutional regulation, such as that in the Weimar Constitution, is not intended.

At the same time, this is not just another variant of “regulated self-regulation” (Franzius 2009, 116). This becomes particularly clear when the concept of transformative law is brought together with the concept of “non-reformist-reforms”, which claims to influence the “self-regulation” of social institutions in such a way that they become more democratic. Form-giving becomes a creation of concrete institutions, that pay attention to the participation of all stakeholders. How exactly these institutions are structured cannot be determined in advance, but must be found out in an experimental-reflexive process in practice. To be able to accompany this process analytically, the legal analysis also raises the question of the prevailing power relations in these institutions.

The European LPE movement carefully analyses the European Commission’s efforts to shape the socio-ecological transformation. For example, the recently enacted Ecodesign Regulation contains the basis for prescribing detailed product parameters for companies in various product groups. Although the negotiation process may be time-consuming, the digital product passport also introduced with the regulation enables feedback-supported coordination of the economy, which was previously unthinkable.

As mentioned above, following Marija Bartl this can be considered as a turn from a “privatized” to a “collective” idea of “prosperity”, which at the same time does not fall back into ideas of a purely state-determined, centralized provision of public services. The LPE approach is aimed at the purpose and internal governance structure of companies. The ideas presented by Marvin Reiff on “steward ownership” also point in a similar direction. Marija Bartl relates the EU regulations on the Green New Deal to the EU strategy for a “social economy”, whose social enterprises are characterised by a social purpose as the main reason for their existence, the consistent reinvestment of profits and internal democratic structures.

At this point, further parallels become apparent: To cooperatives, to older concepts of the social economy (Gemeinwirtschaft), but also to the more recent (and at the same time ancient) discussions about commons. With reference to Elinor Ostrom, but at the same time arguing more in terms of political economy, Massimo de Angelis sees commons as “social systems in which resources are pooled by a community of subjects who also govern these resources to guarantee the sustainability of the resources (if they are natural resources) and the reproduction of the community, and who engage in Commoning, that is, doing in commons that has a direct relation to the needs, desires and aspirations of the commoners.” (De Angelis 2017, 90) This way of organizing is absent from the legal discussions of regulatory law. From the outset, German law schools are dominated by a way of thinking in individual claims or subjective rights. Those can only be brought together retrospectively, namely via the market as a mode of cohesion. Commons also protect individual freedom, but freedom does not start there.

A research program for a different regulatory law

An LPE-perspective on transformative law is challenging but productive for the theory and practice of “regulatory law”. The fact that markets are constructed by law, are legally contained and must be legally “accompanied” (or created) is already clear from their basic principles. If the above-mentioned problems of inadequate infrastructures now arise, an LPE perspective could be used to examine whether it is perhaps not just a matter of market failure in “bottleneck” situations (such as an energy network with a local monopolist), but whether the market as a form of organisation is the problem. As Eva Herzog correctly points out (Herzog 2023, 970), an essential aspect of LPE is keeping democratic decision-making spaces free from market logics. This does not always require a “great transformation” (although occasionally, it does); rather, regulatory law could also look at the internal functioning of companies that operate in such a market.

Commons already provide some infrastructures mentioned above. For example, there are energy cooperatives, free W-LAN networks and, at the data and software level, numerous freely licensed information commons that ensure the smooth operation of global networks. These organizational forms of Commoning are more resilient, as they are not only geared to the needs of local stakeholders, but also have a modular structure and can therefore be better repaired or supplemented (Gerhardt 2023, 113). The crucial question is then whether regulatory law in its current form could be applied to variants of the commons to strengthen them in line with its (openly formulated) regulatory objectives (depending on the respective sectors, e.g. energy security in energy law). Ultimately, the market-based form of organization is not an end in itself.

This does not point towards a fallback to centralized public service infrastructures. The debates on the “guarantee state” described above have left those behind. Instead, we should now have a closer look at the potential of privatization and ask more specifically who the actors of “the private sector” are. While the debate on regulatory law sees the organization (the company) alongside the market as an essential actor in the formation of social order and possibly still allows for network-like links between them (Eifert, § 17 GVwR I, 3. ed, op. 147), it would also be conceivable to see commons as the goal of building network infrastructures. Since regulatory law has always been a flexible mix of instruments and the orientation towards competition was merely a tool. Recent discussions about “remunicipalisation” could be enriched through a transformative perspective. When Markus Ludwigs, for example, states from a regulatory law perspective that competition could possibly be pushed back by public welfare-oriented regulatory objectives and Eva Herzog argues from an LPE-perspective in favour of democratic decision-making spaces over markets.