Different Jurisdiction, Same Problems?
Law and Political Economy in the European Context
The relationship of Economics and Law is long, contested, and entangled. Law and Political Economy (hereinafter: LPE), a group of legal scholars that are mostly working at universities in the United States, offers yet another perspective on this relationship. In a nutshell LPE may be described as an attempt to analyse, criticise and shape Law and legal scholarship to contribute to a more democratic and more egalitarian society. In the words of the LPE manifesto that was published in 2017, LPE scholarship includes “a commitment to a more egalitarian and democratic society.” Its slogan could therefore be: “Taking democracy and equality seriously!” This claim can probably be shared among many (Western) Law scholars. But it is unclear whether the analysis that LPE scholars have developed can be applied to other jurisdictions as well. My question, in other words, is: Can LPE be applied to the European context? Being a public lawyer trained in German and European Law I shall limit myself to European (EU) and German Law and discuss the question if LPEs critique resonates well within the German and the European constitutional context.
Law’s functions
One of the central functions of Law in modern societies is to ensure and safeguard the economic process. Property rights are assigned to persons and protected from third party intervention which may lead to overall welfare maximisation. Without Law, no such thing as a market would exist for a long time. While this is, of course, “not all there is” in the universe of Law and Law should not be reduced to its role as the guardian of transactions. It, however, is important to understand that markets and property rights are nothing “natural” – they are shaped or coded (Pistor) by Law that may be ultimately enforced by the state.
Like many other approaches by critical legal scholars, LPE does not advocate for “purely” doctrinal research but insists on the entanglement of Law with what may be called power structures or structural inequalities. It takes a theoretical stand on the (perceived) injustices of today’s (western) societies and tries to develop an analytical tool kit that may make law’s entanglements visible and therefore a point of critique. As with every critical legal theory the starting points (here: social inequality, “more” democracy) may be shared or they may be rejected – a broad consensus on these questions even within a single and fairly small society seems very unlikely. Still, LPE and other critical legal scholars disclose their starting points and therefore put them and their conclusions up to debate.
Given the fact that LPE is – first and foremost – “a coalescing movement“ (LPE manifesto) that has its home turf in the United States it comes as no surprise that it is influenced in large parts by the academic environment there. This embeddedness is inevitable and not a point of critique. It is only pointed out here to stress that any application of LPE to the European context – meaning: European Law, the Law of the Member States and legal scholarship in Europe – should take into account that the situation on both sides of the Atlantic may not be the same. In other words: Europe may be different.
German scholarship and jurisprudence are different
LPE draws its momentum in large part from a critique of the asserted hegemony of Law & Economics within the legal discourse in the United States. This point is already made in the 2017 manifesto where it was claimed that Law & Economics (at least) dominated private Law scholarship in the last decades and “downplayed considerations of distribution and elevated questions of efficiency“. It was further advanced in an Article in The Yale Law Journal by Britton-Purdy et al. in 2020 where the authors even accused Law & Economics of advocating for „market supremacy“ (quotation marks used there as well). These terms are questionable and polemic. It is also questionable if the criticism duly takes into account all reservations that, for instance, have to be met to make the Coase theorem work.
However, legal scholarship in both private and public Law – at least in Germany – is different. While Law & Economics certainly gathered momentum in legal scholarship it is far from being the dominant approach to law. On the contrary, doctrinal research still remains the common (or gold?) standard and also assures that legal scholars speak the same language as their peers in practice. In other words, doctrinal research enables legal scholars to be at par with courts, administrations, and lawyers and assures their influence within the field of Law. The focus on doctrinal research, however, systemically downplays or even neglects theoretical approaches to Law, including Law & Economics.
Turning to the national constitutional level, things in Germany are somewhat different as well. In the LPE manifesto it was argued that public-law scholarship “tended to make questions of economy foreign.” Its main central claim regarding US constitutional Law therefore was a certain degree of immunization from economic questions. In 2020 Britton-Purdy et al. criticised the jurisprudence in the US as being inspired by „a particularly thin version of key liberal values: freedom, equality, and state neutrality.“ They, inter alia, pointed to the extensive interpretation of the First Amendment to the US Constitution that, in the eyes of the majority at the US Supreme Court (Citizens United v. FEC, 558 U.S. 310 (2010)), even protects the funding of electoral campaigns.
On the other side of the Atlantic, the Federal Constitutional Court of Germany never seriously curtailed the legislators attempts to minimise the influence of pressure groups on parliamentarians or parties by funding. Also, the Federal Constitutional Court of Germany from early on insisted that the German constitution does not promote a certain kind of economic policy as long as the legislature observes the Basic Rights, most notably Art. 12 (Professional freedom) and Art. 14 (Property – Inheritance – Expropriation) of the Basic Law. On the contrary the Basic Law is, starting in 1954, interpreted as adhering to „economic neutrality“ („wirtschaftspolitische Neutralität“, BVerfGE 4, 7 [17 f.], my translation). Also, the legislature is, in general, given broad discretion when dealing with economic issues. Overall, it can be said that the jurisprudence of the court refrains from thin versions of liberty and keeps in mind the need to give the legislature ample room to adopt its economic policies. Things are different though, if one looks the supranational level, i.e. European Law.
Economic liberalisation: The Case of the Common market reconsidered
One of the key elements of European Law is the installation of the Common Market. This form of economic integration is not economically neutral but was a strong driver for the liberalisation of the markets of the Member States. It opened them for competition from other actors and gave economic actors the possibility to exit “their” market at lower costs than before. The Treaties, in a nutshell, have done so by installing the fundamental freedoms (i.e. the free movement of goods, the freedom of establishment, the freedom to provide services, the free movement of workers, the free movement of capital, and the freedom of payments), the prohibition of state aide, and anti-trust law rules. The ECJ has given these provisions impact by, inter alia, declaring them to be directly applicable and including subjective rights (fundamental freedoms), and by carefully assessing any infringements and deviations by Member States.
Economic liberalisation, however, does not equal deregulation. This even becomes clear at a superficial level. There is a myriad of norms that try to enhance the possibility of cross-border trade. Also, the fundamental freedoms (negative integration) do not curtail the EUs power to adopt strict(er) rules (positive integration), since these rules pave the way for a single level playing field. The EU may adopt policies that may be ruled as being inadmissible for the Member States. In the end, negative integration may even foster positive integration as Member States will be more willing to agree on common rules if their abilities to adopt these rules on the national level are curtailed in the transnational context. Also, secondary legislation on state aid has shifted and now also takes into account goals that are beyond purely economic reasoning. And this trend will most likely continue. Given the overall geopolitical climate, the rules on state aid will most likely give more weight to the question of supply chains resilience. More weight is also assigned to sustainable growth, an example being European accounting standards. So even if one asserts that economic integration tends to enhance competition on a market and between Member States even a very brief analysis of secondary Law makes it clear that while European Law enhances and safeguards competition in multiple ways it also becomes clear that European Law as a whole does not constitute an (ordo-)liberal utopia.
LPE-inspired approaches to European Law
If one adopts LPEs claim that economic questions cannot and should not be kept away from Law and legal scholarship and that these questions should not be reduced to efficiency paradigms, one can adopt different stands on economic integration. These strands can roughly be divided into two different groups: First, they can be “ideology-critical” by describing the web of ideas that shaped economic integration as it stands today. Second, they can focus on the jurisprudence of the ECJ and on the constitutional architecture by analysing the interplay of the European and the Law of the Member States.
Turning to theory first: (Legal) Historians lately dealt with economic integration in Europe by analysing the influence of the ordoliberal school on it. Slobodian (Globalists) and Küsters (The Making and Unmaking of Ordoliberal Language and here) (both, as far as I can see, not adhering to LPE) delivered different analysis on the influence of the (mostly German) ordoliberal school on European integration as such or in certain policy fields. While one should not assign the status quo of the vast body of European Law to one school of thought – that is, by the way, by no means a homogenic block and neither dominates the scholarly nor the political field – different strands of influence may be identified. When looking at persons that shaped European integration the most obvious case is Müller-Armack, a German Economist and high-ranking public servant in the early days of the Federal Republic who played a crucial role in the process of negotiating the rules on the European Economic Community that later became the European Union.
Given the ordoliberal schools pledge for free markets that is combined with a clear commitment for the state/supranational entity to preserve competition the institution of a supranational layer that curtails the national governments capacities and incentives to intervene into the market, seems very much in line with ordoliberal concepts. Unlike laissez-faire economists ordoliberals advocate for a strong state that can enforce the rules of the economic game (e.g. competition) while at the same time being supportive of the idea of multi-layered governance. A split of political power on multiple levels is (in general) favourable since it limits the power to intervene into the market itself to pursue goals that are beyond assuring competition. For lawyers this theoretical background can be very informative, and it can also be taken into account if one wants to assess court decisions and policies adopted on the European level.
Turning to doctrinal research second: Here, decisions adopted by the ECJ that take a broad view on negative integration or secondary law that aims at enhancing cross-border trade/services can be analysed. It may, for instance, by questioned if unions are bound by the fundamental freedoms since their central function is to express the common interests of their members (see the Viking case (2007)). Also, the ECJs pledge to a coherent framework of the Member States when pursuing the public interest by infringing the fundamental freedoms and/or the rights given by secondary law (see the case on the German Fee schedule for architects and engineers (2019)) may be seen critical as legislators will always be subject to different pressure groups. Also, coherence is a complex concept that is not easy to operationalise within the legal discourse. This analysis can be fit into an overall assessment of the interplay of negative and positive integration. Here it can, inter alia, be pointed out that the less Member States may regulate cases where cross-border economic activities are at stake, the more likely it is that secondary law measures will give them the power to do so or will set standards across all Member States, therefore shifting powers to the supranational level.
LPE: An academic umbrella?
New academic movements often contest established ideas. They raise questions in different ways and set the research focus differently, but they are – rightly – subject to critique themselves. LPE scholars have developed a rather bold criticism vis à vis neoclassical approaches to Law, most notably Law and Econmics. This criticism does not seem very nuanced and is. It is – at times – even contradictory when it is argued that structural inequalities should play a more important role on the constitutional level while advocating for more leeway on the side of the legislature regarding economic policy. Still, LPEs main claim that Law shapes the economy and that in a democracy it is (in general) up to the legislature to decide if a more or less liberal economic policy is adopted remains a (contested) starting point.
If one agrees on this starting point legal scholarship may use the term LPE as a point of reference for different analyses of those legal corpora that are inspired by the idea of safeguarding and enhancing competition in the economic sphere. As these studies can and have been conducted without referring to LPE it may not add much to these but serve as an “academic umbrella” that assembles scholars that share the believe that in a democracy, Law and economic policy should not be reduced to questions of efficiency or undistorted competition.