Markets Constitutions and Inequality 9781032044033, 9781032064222, 9781003202257

Table of contents :
Cover
Half Title
Series Page
Title Page
Copyright Page
Table of Contents
Acknowledgements
Contributors
Introduction
Part 1 The Constitutional Embeddedness of Markets
Chapter 1 The Constitutional Disembeddedness of Markets?: A Discussion of Competing Accounts
1.1 The Constitutional Embeddedness of Markets: A Recap
1.2 From Law’s ‘Constitutive’ Role in the Market to the ‘Constitutional Embeddedness’ of Markets?
1.3 Constitutional Disembeddedness: Competing Accounts of the Problem
1.3.1 Dixon and Suk: Economic Inequality and the Limits of Liberal Constitutionalism
1.3.2 Alviar García: Constitutional Capture and the Economic Constitution
1.3.3 Constitutional Fragmentation: The Great Societal Constitutionalism Debate
1.4 Concluding Thoughts
Notes
Bibliography
Chapter 2 Law of Nature, Law of Man: Economic Theories of Constitutions and the Normative Question
2.1 Introduction
2.2 Literature Review
2.2.1 Buchanan
2.2.2 Commons
2.2.3 North
2.2.4 Posner
2.3 Discussion
2.4 Conclusions
References
Part 2 Markets, Constitutions, and Inequality: Legal Regimes
Chapter 3 The Law and Political Economy of Healthcare in the United States
3.1 Introduction
3.2 The Rise and Relevance of Law and Political Economy (LPE) Scholarship
3.3 The Legal and Political Codes of Healthcare Market Economies
3.4 Why LPE of U.S. Healthcare?
3.5 Why Is There a Growing Private Power in the Healthcare Sector and Why Is It a Problem?
3.5.1 Big Pharma
3.5.2 Hospital Consolidation
3.5.3 COVID-19 Vaccination12
3.6 Conclusion
Notes
Bibliography
Chapter 4 Fiscal Sustainability and Its Jurisprudential Evolution: The Fraught Dialogue between the Economy and the Law
4.1 Introduction
4.2 Theoretical and Conceptual Approach to Fiscal Sustainability and Fiscal Impact Incident: The Much-Needed Dialogue between Economy and Law
4.2.1 Fiscal Sustainability
4.2.2 The Fiscal Impact Incident
4.3 Some Specific Cases of the Application of Fiscal Sustainability and/or the Fiscal Impact Incident
4.3.1 Social Security: Health and Pension
4.3.2 Victims of the Armed Conflict
4.3.3 Community Mothers
4.3.4 Taxes
4.4 Conclusions and Recommendation
Notes
References
Chapter 5 The Paradoxes of a Progressive Constitution and Neoliberal Food Regime
5.1 Introduction
5.2 Some Norms of the Constitution and International Treaties
5.3 The Functioning of the Market
5.4 The Constitutions and the Land Market
5.5 Land Grabbing
5.5.1 The Case of Land and Indigenous Territories
5.6 Market, Poverty, and the Constitutional System in Paraguay
5.7 Conclusion
Notes
References
Chapter 6 Protecting Property: Crime Control, Constitutional Organization and Neoliberal Governance in Colombia
6.1 Introduction
6.2 The Constitutional Design of Private Property Protection in Colombia
6.3 Neoliberal Governance and Protection of Property
6.4 Constitutional Reform and Criminal Prosecution Market: The New Form of Protecting Private Property in Colombia
6.5 Conclusions
Notes
References
Chapter 7 Market Efficiency as a Directive Principle of E.U. Monetary Policy
7.1 Introduction: Markey Neutrality, Market Efficiency, and the Climate Emergency
7.2 Dissection of the Efficient Markets Principle
7.3 The Legal Nature of the Efficient Markets Principle
7.3.1 Directive Principles
7.3.2 The Efficient Markets Principle as a Directive Principle
7.4 Implications for the Eurosystem’s Monetary Policy
7.5 The Programmatic Role of Constitutions in Financial Systems
Notes
References
Chapter 8 Rethinking the Historic Models of the Role of Constitutions in Shaping Patterns of Inequality: Iberian Constitutionalism, Common Property, and Colonialism
8.1 Introduction
8.2 Historical Models of Inequality
8.3 Constitutions and Inequality: New Institutional Economics and the Ghost of Liberalism
8.3.1 The Constitutional Tradition and Inequality Trends in the Iberian World
8.3.2 Medieval Foundations
8.4 Constitutional Changes in the Early Modern Period
8.5 Constitutions and Inequality in the Spanish Empire
8.6 Conclusion
Notes
References
Chapter 9 The Three Globalizations of Law and the Constitutional Protection of Property Rights over Land in Colombia and China
9.1 Introduction
9.2 The First Globalization, the Civil Code, and the Roman Concept of Private Property
9.2.1 Colombia
9.2.2 China
9.3 The Second Globalization and the Backlash against Private Property
9.3.1 Colombia
9.3.2 China
9.4 The Third Globalization and the Fundamental Right to Private Property
9.4.1 Colombia
9.4.2 China
9.5 Conclusions
Notes
References
Chapter 10 Private Property, Popular Sovereignty, and the Constitutional Foundations of Economic Regulation in the Americas
10.1 Introduction
10.2 The Tension between the Constitutional Protection of Private Property and Popular Sovereignty
10.3 The Constitutional Protection of Private Property in the United States of America and the Origins of Antitrust Law (1770s–1830s)
10.4 The Constitutional Protection of Private Property and the Dawn of Competition Law Regimes in Latin America (1820s–1950s)
10.5 Conclusions
Note
References
Chapter 11 Multinationals, Inequality, and a Competition Law Response: Lessons from the East India Company
11.1 Introduction
11.2 The Economic Constitution
11.2.1 The Internal and External Dimensions of an Economic Constitution
11.2.2 The Constitutionality of Competition Law
11.2.3 Economic Constitutions of India and Pakistan
11.3 Multinationals, Economic Constitutions, and Inequality
11.3.1 The Unprecedented Power of the East India Company
11.3.2 The EIC and Modern AI-powered Multinationals – The Knowledge-Based Corporations
11.3.3 Enforcing Rights under Modern Economic Constitutions
11.4 Inequality and the Competition Law Response
11.4.1 The Underlying Ideology
11.4.2 Multinationals and Competition Regulation in India and Pakistan
11.4.3 Crafting a Competition Law Response
11.5 Conclusion
Notes
References
Chapter 12 Afterword: Markets, Constitutions, and Inequality in the Twenty-First Century
12.1 The Constitutions, Markets, and Inequality Nexus
12.2 Further Developments
Notes
References
Index

Citation preview

Markets, Constitutions, and Inequality

This interdisciplinary collection examines the significance of constitutions in setting the terms and conditions upon which market economies operate. With some important exceptions, most notably from the tradition of Latin American constitutionalism, scholarship on constitutional law has paid negligible attention to questions of how constitutions relate to economic phenomena. A considerable body of literature has debated the due limits of the exercise of executive and legislative power, and discussions about legitimacy, democracy, and the adjudication of rights (civil and political, and socioeconomic) abound, yet scant attention has been paid by constitutional lawyers to the ways in which constitutions may protect and empower economic actors, and to how constitutions might influence the regulation and governance of specific markets. The contributors to this collection mobilize insights from other disciplines – including economic theory, history, and sociology – and consider the relationship between constitutional frameworks and bodies of law – including property law, criminal law, tax law, financial regulation, and human rights law – to advance understanding of how constitutions relate to markets and to the political economy. This book’s analysis of the role constitutions play in shaping markets will appeal to scholars and students in law, economics, history, politics, and sociology. Anna Chadwick is Lecturer in International Law and Legal Theory at the University of Glasgow, UK. Eleonora Lozano-Rodríguez is the current Dean of the Law School at Universidad de los Andes in Bogotá, Colombia. Andrés Palacios-Lleras is Principal Professor of Law at the Faculty of Jurisprudence of the Universidad Del Rosario, Colombia. Javier Solana is Senior Lecturer in Commercial Law at the University of Glasgow, UK.

Part of The Critical Studies in Jurisprudence series

For more information about this series, please visit: https://www.routledge.com/ Critical-Studies-in-Jurisprudence/book-series/ASHSER1260

a GlassHouse book

Markets, Constitutions, and Inequality

Edited by Anna Chadwick, Eleonora Lozano-Rodríguez, Andrés Palacios-Lleras, and Javier Solana

First published 2023 by Routledge 4 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 605 Third Avenue, New York, NY 10158 a GlassHouse book Routledge is an imprint of the Taylor & Francis Group, an informa business © 2023 selection and editorial matter, Anna Chadwick, Eleonora LozanoRodríguez, Andrés Palacios-Lleras and Javier Solana; individual chapters, the contributors The right of Anna Chadwick, Eleonora Lozano-Rodríguez, Andrés PalaciosLleras and Javier Solana to be identified as the authors of the editorial material, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data A catalog record has been requested for this book ISBN: 978-1-032-04403-3 (hbk) ISBN: 978-1-032-06422-2 (pbk) ISBN: 978-1-003-20225-7 (ebk) DOI: 10.4324/9781003202257 Typeset in Bembo by Deanta Global Publishing Services, Chennai, India

Contents

Acknowledgements xi Contributors xii Introduction xv ANNA CHADWICK, ELEONORA LOZANO-RODRÍGUEZ, JAVIER SOLANA, AND ANDRÉS PALACIOS-LLERAS

PART 1

The Constitutional Embeddedness of Markets

1

1 The Constitutional Disembeddedness of Markets?: A Discussion of Competing Accounts

3

ANNA CHADWICK

1.1 The Constitutional Embeddedness of Markets: A Recap  5 1.2 From Law’s ‘Constitutive’ Role in the Market to the ‘Constitutional Embeddedness’ of Markets?  8 1.3 Constitutional Disembeddedness: Competing Accounts of the Problem 13 1.3.1 Dixon and Suk: Economic Inequality and the Limits of Liberal Constitutionalism 13 1.3.2 Alviar García: Constitutional Capture and the Economic Constitution 15 1.3.3 Constitutional Fragmentation: The Great Societal Constitutionalism Debate  17 1.4 Concluding Thoughts 20 Notes 22 Bibliography 23

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2 Law of Nature, Law of Man: Economic Theories of Constitutions and the Normative Question

26

BENIAMINO CALLEGARI

2.1 Introduction 26 2.2 Literature Review 27 2.2.1 Buchanan 27 2.2.2 Commons 31 2.2.3 North 34 2.2.4 Posner 37 2.3 Discussion 42 2.4 Conclusions 45 References 46 PART 2

Markets, Constitutions, and Inequality: Legal Regimes

49

3 The Law and Political Economy of Healthcare in the United States

51

XIMENA BENAVIDES

3.1 Introduction 51 3.2 The Rise and Relevance of Law and Political Economy (LPE) Scholarship 52 3.3 The Legal and Political Codes of Healthcare Market Economies  54 3.4 Why LPE of U.S. Healthcare?  57 3.5 Why Is There a Growing Private Power in the Healthcare Sector and Why Is It a Problem?  59 3.5.1 Big Pharma 59 3.5.2 Hospital Consolidation 61 3.5.3 COVID-19 Vaccination 62 3.6 Conclusion 63 Notes 64 Bibliography 65 4 Fiscal Sustainability and Its Jurisprudential Evolution: The Fraught Dialogue between the Economy and the Law ELEONORA LOZANO RODRÍGUEZ

4.1 Introduction 70 4.2 Theoretical and Conceptual Approach to Fiscal Sustainability and Fiscal Impact Incident: The Much-Needed Dialogue between Economy and Law  71 4.2.1 Fiscal Sustainability 71 4.2.2 The Fiscal Impact Incident  73

70

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4.3 Some Specific Cases of the Application of Fiscal Sustainability and/or the Fiscal Impact Incident  75 4.3.1 Social Security: Health and Pension  75 4.3.2 Victims of the Armed Conflict  77 4.3.3 Community Mothers 79 4.3.4 Taxes 80 4.4 Conclusions and Recommendation  82 Notes 82 References 83 5 The Paradoxes of a Progressive Constitution and Neoliberal Food Regime

86

RAMÓN FOGEL, RONI PAREDES, AND SINTYA VALDEZ

5.1 Introduction 86 5.2 Some Norms of the Constitution and International Treaties  86 5.3 The Functioning of the Market  88 5.4 The Constitutions and the Land Market  91 5.5 Land Grabbing 93 5.5.1 The Case of Land and Indigenous Territories  97 5.6 Market, Poverty, and the Constitutional System in Paraguay  98 5.7 Conclusion 99 Notes 100 References 100 6 Protecting Property: Crime Control, Constitutional Organization and Neoliberal Governance in Colombia

103

ESTEBAN ISAZA RAMIREZ, JULIO C. MONTAÑEZ, AND FERNANDO LEON TAMAYO ARBOLEDA

6.1 Introduction 103 6.2 The Constitutional Design of Private Property Protection in Colombia 105 6.3 Neoliberal Governance and Protection of Property  109 6.4 Constitutional Reform and Criminal Prosecution Market: The New Form of Protecting Private Property in Colombia  114 6.5 Conclusions 116 Notes 117 References 117 7 Market Efficiency as a Directive Principle of E.U. Monetary Policy 120 JAVIER SOLANA

7.1 Introduction: Markey Neutrality, Market Efficiency, and the Climate Emergency 120

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7.2 Dissection of the Efficient Markets Principle  122 7.3 The Legal Nature of the Efficient Markets Principle  126 7.3.1 Directive Principles 126 7.3.2 The Efficient Markets Principle as a Directive Principle  128 7.4 Implications for the Eurosystem’s Monetary Policy  132 7.5 The Programmatic Role of Constitutions in Financial Systems  135 Notes 136 References 138 8 Rethinking the Historic Models of the Role of Constitutions in Shaping Patterns of Inequality: Iberian Constitutionalism, Common Property, and Colonialism

142

JULIA MCCLURE

8.1 Introduction 142 8.2 Historical Models of Inequality  144 8.3 Constitutions and Inequality: New Institutional Economics and the Ghost of Liberalism  146 8.3.1 The Constitutional Tradition and Inequality Trends in the Iberian World  149 8.3.2 Medieval Foundations 150 8.4 Constitutional Changes in the Early Modern Period  153 8.5 Constitutions and Inequality in the Spanish Empire  155 8.6 Conclusion 157 Notes 157 References 158 9 The Three Globalizations of Law and the Constitutional Protection of Property Rights over Land in Colombia and China 161 JORGE ANDRÉS CONTRERAS CALDERÓN

9.1 Introduction 161 9.2 The First Globalization, the Civil Code, and the Roman Concept of Private Property  161 9.2.1 Colombia 162 9.2.2 China 163 9.3 The Second Globalization and the Backlash against Private Property 164 9.3.1 Colombia 165 9.3.2 China 167 9.4 The Third Globalization and the Fundamental Right to Private Property 168 9.4.1 Colombia 169 9.4.2 China 171

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9.5 Conclusions 172 Notes 174 References 174 10 Private Property, Popular Sovereignty, and the Constitutional Foundations of Economic Regulation in the Americas 178 ANDRÉS PALACIOS LLERAS

10.1 Introduction 178 10.2 The Tension between the Constitutional Protection of Private Property and Popular Sovereignty  180 10.3 The Constitutional Protection of Private Property in the United States of America and the Origins of Antitrust Law (1770s–1830s) 184 10.4 The Constitutional Protection of Private Property and the Dawn of Competition Law Regimes in Latin America (1820s–1950s)  188 10.5 Conclusions 192 Note 193 References 193 11 Multinationals, Inequality, and a Competition Law Response: Lessons from the East India Company AMBER DARR

11.1 Introduction 196 11.2 The Economic Constitution  197 11.2.1 The Internal and External Dimensions of an Economic Constitution 198 11.2.2 The Constitutionality of Competition Law  198 11.2.3 Economic Constitutions of India and Pakistan  199 11.3 Multinationals, Economic Constitutions, and Inequality  201 11.3.1 The Unprecedented Power of the East India Company  201 11.3.2 The EIC and Modern AI-powered Multinationals – The Knowledge-Based Corporations  202 11.3.3 Enforcing Rights under Modern Economic Constitutions 203 11.4 Inequality and the Competition Law Response  205 11.4.1 The Underlying Ideology  205 11.4.2 Multinationals and Competition Regulation in India and Pakistan 206 11.4.3 Crafting a Competition Law Response  207 11.5 Conclusion 209 Notes 210 References 212

196

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12 Afterword: Markets, Constitutions, and Inequality in the Twenty-First Century

216

ANDRÉS PALACIOS-LLERAS

12.1 The Constitutions, Markets, and Inequality Nexus  216 12.2 Further Developments 220 Notes 223 References 223 Index

225

Acknowledgements

This edited collection materialized through a number of great journeys: travels through space and time – including from Bogotá to Glasgow and back (in happy company with travellers from Italy, England, Paraguay, Brazil, and the U.S.); ploughing on through the various types of restrictions and the generalized anxiety of the COVID-19 global pandemic; and intellectual voyages though many literatures and debates to produce the essays contained in this book. As the editors of the collection, we would like to express our immense gratitude to the inspiring contributors who have produced such thought-provoking essays for this publication. We also want to thank those colleagues who generously participated in our discussions at the workshops held in Glasgow in March 2019, in Bogotá in July 2019, and online in May 2021, whose contributions provided inspiration for our work. We are very grateful for the financial support that we received for this project from the Scottish Funding Council and the Global Challenges Research Fund, as well as for the excellent institutional support provided by the University of Glasgow and the Universidad de los Andes. Particular thanks are owed to the Glasgow Legal Theory Group and to Dean Lozano-Rodriguez and her team at Los Andes for their most excellent hosting! We would also like to extend a big thank you to Juan José Mora for his assistance in copyediting this manuscript, as well as to Routledge and our series editor, Emilios Christodoulidis, for helping us to take the project forward. We are very fortunate to have found such a wonderful group of people with whom we could share ideas and explore the important issues in the collection during the last years. Sadly, during this time we also lost a colleague, and some of our contributors lost their friend: Julio César Montañez Ruiz. We would like to dedicate this collection to his memory.

Contributors

Anna Chadwick is Lecturer in International Law and Legal Theory at the University of Glasgow. Prior to her lectureship, Anna was Lord Kelvin Adam Smith Fellow at Glasgow, and a Max Weber Fellow at the European University Institute, Florence. She was awarded her doctorate by the London School of Economics and Political Science in 2015. Beniamino Callegari works as Associate Professor at Kristiania University College, Oslo, and as Adjunct Professor at the Oslo New University College, Oslo. His main research fields are Schumpeterian economic theory, monetary aspects of innovation economics, and heterodox economic theory. Ximena Benavides is a legal scholar and lecturer of interdisciplinary critical thinking at Yale University. Drawing from law, policy, and political economy frameworks, she focuses on inequities in access to health and integrity of healthcare systems in the U.S. and Latin America. She received her J.S.D. and LL.M. from Yale Law School and LL.B. and B.A. from Pontificia Universidad Católica del Peru. Eleonora Lozano-Rodriguez is the current Dean of the Law School at Universidad de los Andes in Bogotá. She is a lawyer and an economist with a master’s degree in economics from Universidad de los Andes and a PhD in law from the University of Salamanca, where she was awarded a cum laude distinction. Ramón Fogel PhD in Sociology. Member of the Honorary Scientific Committee of CONACYT (National Council of Science and Technology), Paraguay. Researcher at CONACYT, level III. Recognition of the National Congress for Innovation and Scientific Production. Recognition of the Consejo Latinoamericano de Ciencias Sociales CLACSO. Roni Paredes Degree in Social Science, Faculty of Law and Social Science, University National of Asunción Paraguay. Researcher at CONACYT (National Council of Science and Technology). President of the CERI (Center for Rural and Interdisciplinary Studies).

Contributors 

xiii

Sintya Valdez Degree in Sociology, University National of Asunción, Paraguay, MSc Social Sciences with emphasis on social development and research. Researcher at CONACYT (National Council of Science and Technology). Director of the CERI (Center for Rural and Interdisciplinary Studies). Professor at the Faculty of Social Sciences – FLACSO (Paraguay). Esteban Isaza Ramirez has a degree in law and a master’s degree in economics, both from Universidad EAFIT, Medellín, Colombia. He also has a master’s degree in law from Universidad de los Andes, Bogotá-Colombia, and is a PhD candidate from the same university. He conducts research in law and property law. Email: eisazar1​@gmail​.​com Julio César Montañez (1985–2021) was a criminal lawyer and a part-time professor at Universidad Santo Tomás, Bogotá, Colombia. He died on May 22, 2021 from Covid-19-related issues. He got his PhD in law in 2022 at the Universidad de los Andes (Bogotá, Colombia) as a recognition for his work. The paper published in this book is one of his last contributions and a way to keep his memory alive. Fernando León Tamayo Arboleda is a Sociology and Criminal Law Professor at the Universidad Autónoma Latinoamericana in Medellín, Colombia. He conducts research on legal geography, sociology, sociology of law, criminology, criminal law, and prison studies. Email: fernandoleontamayo​@hotmail​.​com ORCID: https://orcid​.org​/0000​-0003​-0960​ -0849. Javier Solana is Senior Lecturer in Commercial Law at the University of Glasgow. He holds a B.A. in Business Administration from Carlos III University of Madrid and law degrees from Carlos III University of Madrid (LLB, Mphil), Harvard Law School (LLM), and the University of Oxford (Dphil). Julia McClure is Lecturer in Late Medieval and Early Modern Global History at the University of Glasgow. McClure is a specialist of the global history of poverty and charity and has published widely on the history of rights, institutions, and the Spanish Empire. Her first monograph, The Franciscan Invention of the New World, was published by Palgrave in 2016, and she is working on a monograph tentatively titled Empire of Poverty: the moral economy of the Spanish Empire. She is the founder of the Poverty Research Network. Jorge Andrés Contreras Calderón is a lawyer and a Law Professor at Universidad Pontificia Bolivariana in Medellín (Colombia). He has a PhD in Law from Los Andes University of Bogotá, and an LL.M. in Chinese law from Renmin University of China. He currently researches the theory, history, and economic analysis of property, for the Law Research Group (GRID, by its Spanish acronym) at the Universidad Pontificia Bolivariana.

xiv Contributors

He is also a Taiwan Fellow at the Academia Sinica of Taiwan, where he studies the economic and political implications of the Yuan’s digitization. Andrés Palacios-Lleras is Principal Professor of Law at the Faculty of Jurisprudence of Universidad Del Rosario, in Colombia. He studied law at the Universidad de Los Andes, has an LL.M. from Harvard Law School and a PhD from University College London. Before joining academia full time, he was the Deputy Superintendent for Ports at the Superintendence of Transportation and practised law as a partner at Estudios Palacios Lleras S.A.S. Amber Darr is a Lecturer in Competition Law at the University of Manchester and a Senior Research Fellow at the UCL Centre for Law, Economics and Society. She holds a PhD in law from UCL and is also a barrister at Lincoln’s Inn and an Advocate of the Supreme Court of Pakistan.

Introduction Anna Chadwick, Eleonora Lozano-Rodríguez, Javier Solana, and Andrés Palacios-Lleras

0.1 The Goal of This Collection of Essays Markets, Constitutions, and Inequality is a collection of essays that explores the significance of constitutions for market economies from the perspective of a number of different disciplines, as well as from the vantage point of particular legal regimes and the operations of distinct markets. Constitutional mechanisms are popularly regarded as part of the solution to addressing social and economic inequalities. Recourse to constitutional amendment and the drafting of new constitutions continues to be a familiar occurrence when there is a need to signal a change in the political direction of a country, as recent events in Chile would demonstrate (Atria, 2020; Magnet, 2021). More broadly, the answer to a number of the challenges that confront contemporary societies – from addressing the destruction of the environment and violations of human rights to countering the fragmentation of international law – is seen to be more engaged with constitutionalism. It has been argued that entities that are being harmed by extractive and polluting forms of industry, such as rivers and forests, are to be recognized as the bearers of rights so that their interests can be considered in constitutional litigation (see e.g. Akchurin, 2015; Laastad, 2020). Advances in the protection of human rights are said to be propelled forward by judicializing social, economic, and cultural rights – which are, in many jurisdictions, less well established than civil and political rights – and by giving judges the power to review government legislation for rights-compatibility.1 Likewise, at the international level, it is thought that democratic deficits of influential economic institutions like the World Trade Organization (WTO) can be addressed by transposing constitutional thinking to these forums in order that the agenda of trade liberalization is more proportionately balanced against a broader spectrum of interests, notably the human rights of peoples impacted by trade policies.2 Yet the popular understanding that more constitutional engagement is a solution to social and economic inequalities does not appear to be corroborated by the empirical observations regarding these inequalities. Quite the opposite has happened. As Loughlin points out, the number of established constitutional democracies rose from 12 in the post-war era to 121 in 2003 (Loughlin, 2019,

xvi Introduction

p. 436), and by the end of the twentieth century, almost every State seeking to ‘legitimate its rule in the eyes of its citizens and the world’ had adopted a written constitution incorporating a separation of powers, a commitment to the rule of law, the protection of individual rights, and the holding of free and fair elections (p. 436). However, the spread of constitutional democracy has moved in step with increasingly divisive and xenophobic ‘populist’ politics and rising economic inequality instead of addressing inequalities. Picketty (2014) attributes steadily increasing economic inequality in many advanced economies in recent decades to a ‘law’ of capitalism, whereby the rate of return on capital exceeds the growth rate of the economy as a whole. Myriad other metrics – data on racial and gender pay gaps in high-income economies; reports on the experiences of migrant labourers or the conditions in sweatshops in countries in the Global South; or statistics on femicide around the world – speak to the persistence of complex social and economic inequalities in spite of the spread of the liberal constitutional proposition that all citizens are ‘equal before the law’. The gap between what the spread of constitutional democracy should achieve and the social conditions in many countries has led a number of scholars to posit that constitutional democracy is ‘in crisis’ (Graeber et al., 2018). Part of the explanation for this problem is seen to be that governments are adopting shallow constitutional reforms in response to domestic and international pressures but that these reforms are superficial accoutrements that disguise and further enable authoritarian governance practices (Alviar García and Frankenberg, 2019). Some authors suggest that there may be something in the form of constitutional democracy as a mode of government that conspires in the (re)production of social and economic inequalities. Loughlin hints at such a connection: ‘[T]he critical question is whether this development [rising economic inequality] has been caused by the erosion of constitutional democracy or by its evolution’ (Loughlin, 2019, p. 455; see also the contributions of Wilkinson in Alviar García and Frankenberg, 2019). Loughlin rejects the notion that it is possible to draw a connecting line between constitutional democracy as a framework for governance and rising economic inequality only by reference to the ongoing protection of private property under many constitutional systems. He points to Ecuador’s ‘progressive’ constitution, which also enshrines the protection of social and economic rights, as being a ‘far cry from a constitution designed to bolster the established order through the protection of life, liberty and property’ (Loughlin, 2019, p. 455). This observation suggests that the global diffusion of constitutional democracy, embodied in the individual constitutions of each nation, with their mix of progressive and traditional liberal institutions, did not bring about the positive social changes that were expected. In contrast, analyses by ‘Legal Institutionalists’ and ‘Law and Political Economy’ (LPE) scholars show in detail how private property creates and maintains dynamics of inequality. These scholars take up the debates posed by

Introduction 

xvii

the Legal Realists about the distributive functions of purportedly ‘private’ State laws that ‘constitute’ the market economy in order to ascribe responsibility to governments for the (often inequitable) outcomes of market exchange (Deakin et al., 2017; Pistor, 2019; Purdy et al., 2020). Another increasingly influential explanation for rising levels of inequality is that with the rise of neoliberalism in the 1970s, the constitutional foundations of the State have become progressively eroded, resulting in a situation in which governments are no longer able to enact laws that favour the common interests of the population at large. This is seen to be due to the ‘constitutionalization’ of a more expansive set of economic rights and governance paradigms (trade and capital liberalization, central bank independence, privatization of industries) that, in addition to the protection of private property, are being placed beyond democratic negotiation (e.g. Joerges, 2015; Schneiderman, 2000, 2018; Slobodian, 2018). These developments would suggest that the relationship between constitutional frameworks, directions in market governance, and resulting distributions of wealth and resources should command our attention. However, studying possible causal relationships between concepts and categories as nebulous as ‘markets’, ‘constitutions’, and ‘inequality’ is theoretically very challenging, not least because the meaning of each of these foundational concepts is so contested. Are markets to be analyzed as abstract arenas wherein the terms for the exchange of goods are to be directed by the price mechanism? Or are markets but one part of a complex political economy in which rights to exchange goods disguise social relationships of power over the means of production? Could a compromise between the ‘extremes’ of neoclassical and Marxist economics perhaps be reached by agreeing on the study of market ‘institutions’? But which institutions should be studied and at what level when market ‘forces’ are mediated through a complex web of social and legal institutions emanating from other States and from international organizations? As a number of contributors to the collection suggest, there are multiple ways in which the constitutional orders of different States may intersect with one another through legacies of colonialism (Darr and McClure), or through the influence of international institutions, or due to relations of trade and exchange. Equally tricky: ‘what is the constitution?’ As Christodoulidis underlines, this is a question that even scholars deeply engaged in constitutional study find ‘extraordinarily difficult to answer’ (Christodoulidis, 2021, p. 193). Unsurprisingly, the study of constitutions to date has been carried forward predominantly by scholars of constitutional and public law, as well as by political theorists. As a diverse group of scholars that is approaching the question of the possible channels of influence between constitutions, the operations of markets, and patterns of social and economic inequality predominantly from outside of the field of constitutional law theory, we do not claim to have the last word on constitutions and constitutional law. Nor do we aspire to such a goal. Quite the contrary, this collection is an invitation to shed light upon, as well as to question and potentially destabilize, assumptions about the nature of

xviii Introduction

constitutions and the roles that they may play in processes of economic and social ordering. This collection does so by approaching the significance of constitutions in the operations of a market economy. We hope that the perspectives that we present in this collection, as editors and writers, contribute to shake up the field and to address some of the limitations of traditional constitutional law scholarship. As William E. Forbath notes in a 2020 post for the Law and Political Economy Blog, [O]ne of the most startling things about constitutional theory – especially in the U.S. but in the comparativist world too – is that it is riveted on the distribution of power between the branches of national government; but it seems blithely uninterested in the distribution of power between labor and capital – uninterested, if you will, in constitutional political economy. (Forbath, 2020) The work of Forbath and others in the U.S., including scholars involved in the LPE Movement, has already started to advance the project of studying the relationship between constitutional frameworks, economic governance, and inequality (Purdy et al., 2019). Equally, scholars in the U.K. have taken a leading role in arguing for a revitalized understanding of the nature of constitutional ordering that encompasses more material dimensions (Goldoni and Wilkinson, 2018), as well as in pushing the frontiers of critical constitutional law theory and the debate about the relationship between constitutionalism and globalization (Christodoulidis, 2021). We intend this collection as a complement to these developments. Finally, we are also attentive to issues stemming from the many definitions of inequality, especially in the context of the relationship between constitutions and private property. As the work of several scholars has shown (Baradaran, 2017; Bhambra, 2021; Criado-Perez, 2020; Hickel, 2018), the questions of both how to measure economic inequality and other social inequalities, including those relating to race, gender, sexual orientation, nationality, and disability, and how to understand their interaction is highly contested. In this collection we do not try to advance a new definition of ‘inequality’ nor do we consider that there is one definition that connects the different contributions; instead, we leave it up to the contributing authors to advance their own interpretations of inequality where it is implicated in their analysis. Our aim in the remainder of the Introduction is to map and discuss a number of existing strands within the academic literature that have explored the relationship between markets and constitutions. These analyses are dispersed across academic disciplines and, in many cases, seem to exist in isolation. As a result, the exploration of the relationship between markets and constitutions is fragmented and patchy. In the next section, we define the contours of these literatures and seek to identify the threads that can bring them closer to each other. We use those threads to identify intersections between constitutions and

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markets. We aim to join the conversations about what we know, and what we can learn, from this conjunction. The essays that comprise the book do this by examining different aspects of the relationship between markets and constitutions, sometimes drawing from the literatures reviewed in this chapter, sometimes departing from them.

0.2 The Economic Significance of Constitutions In this collection we aim to bring to the foreground an important set of questions that have been hovering at the margins of a diverse set of disciplines and academic literatures. The two primary disciplines upon which we want to build are those of constitutional law3 and institutionalist economics, and an additional literature that we want to discuss as part of the context for this study is scholarship relating to the phenomenon of ‘economic constitutionalism’. Each of these three scholarly traditions is expansive and contains within it a plurality of perspectives. Nevertheless, there are distinctive preoccupations and modes of analysis that characterize each body of scholarship that, taken together with what these literatures neglect, can further illustrate how the chapters in the collection collectively address an important gap in legal and economic thought concerning the relationship between constitutions and markets. The following paragraphs offer a brief review of these literatures and seek to advance additional support for our case as to why it is worthwhile to open up a new line of enquiry in this area. 0.2.1 Constitutional Law

Discussions about the many complex ways in which constitutions relate to economic phenomena have traditionally had a limited role in European and North American constitutional law scholarship. In part this can be explained by the emphasis constitutions and constitutional doctrines place on the legitimacy of sovereign power. ‘Modern’ constitutions, such as the 1787 Constitution of the United States of America, purport to focus on creating a structure of government where political power, rather than economic power, is controlled. Consequently, constitutional law scholarship in both common law countries, such as the U.K., the U.S., and Canada, as well as in civil law countries in Europe, does not typically engage with the legal ordering of markets or with the type of political economy that a government presides over. Constitutional and public law textbooks in many of these jurisdictions tend to focus on a specific set of issues and debates that, broadly speaking, gravitate around questions of how power is administered by and between different organs of the State; at what level decisions on particular issues should be taken (federal/national, State/regional, municipal/local); where the appropriate boundaries of government control over the actions of citizens should lie; and how and in what circumstances those boundaries can be effectively policed by the courts taking

xx Introduction

into account principles such as the separation of powers and the rule of law, as well as the existence of fundamental rights.4 Many of the constitutional mandates we find in liberal democracies have economic significance, such as the protection of certain forms of private property and freedom of contract. Furthermore, some constitutions also establish independent bodies supposedly above and beyond day-to-day politics that govern economic matters, such as central banks.5 Even so, the economic significance of these institutions appears more like an afterthought resulting from their operation than a topic at the core of constitutions themselves.6 The heavy insistence of liberal constitutional theory on the distinction between private and public law may also explain the limited analyses in European and North American legal scholarship of the many complex ways in which constitutions relate to economic phenomena. Rights of economic significance are understood to be governed by private law, even though they may be formally established in constitutions. (Hence when a constitutional court issues a ruling in which rights and duties governed by private law are reassessed from a constitutional perspective, practitioners experience, and often criticize, the ‘constitutionalization of private law’). Relatedly, when disputes involving independent bodies created by constitutions arise, they are often cast in terms of their constitutional design to prevent or punish actions that unduly harm the rights of citizens. This topic is central in traditional constitutional law scholarship: the judicial review exercised by courts determines the constitutional scope of action of such bodies by assessing whether specific actions affect the rights of citizens (for example, by denying them their due process). Although purportedly independent from day-to-day politics, such bodies are still bound by the constitution and therefore they too have to act within the scope of their mandates and take into consideration the rights citizens have – a classic public law approach. Hence, the relevance of constitutional analyses and doctrines about economic issues tends to be downsized when they are classified either as issues of private law or of public law. This is so because classifying these analyses and doctrines as issues of private law or public law diminishes their perceived importance in terms of their operation, impact, and overall economic significance. Indeed, by focusing on judicial doctrines and courts, most constitutional law scholarship forecloses how significant aspects of constitutions work. In part this is because there are many issues of economic significance that are not addressed by courts because they fall outside the traditional categories of judicial review. Can courts review whether central banks issue bonds or raise interest rates? Are citizens able to challenge before a court a given monetary policy for not aiming at unemployment or at growth? In other cases involving State institutions that govern the economy, the study of their decisions is hardly considered of constitutional relevance. Should we give the same deference to the rulings of a competition authority of constitutional origin – for example, the Mexican competition authority COFECE – as to a ruling of the Mexican Supreme Court of Justice?

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Upon closer scrutiny, we find in constitutions today bodies that are supposedly above and beyond day-to-day politics and that have very important roles in terms of the governance of markets. The fact that the operations of such constitutional institutions pertain to much more than the protection of private property or freedom of contract shows that constitutions engage with questions of economic governance and market regulations in a variety of ways. Among these constitutional institutions, few are more prominent than central banks. While the independence, powers, and prerogatives of these institutions vary enormously, the fact that they are given such a prominent place in a given legal order reveals the importance given to such institutions and to monetary policy in general: the government of currency is considered today to be a constitutional affair. In some constitutions, notably many of the constitutions in South America, it is not just issuance of currency but other institutions that are central to markets that are considered to be constitutionally relevant. These include aspects pertaining to competition law, financial regulation, and public utilities, just to mention a few. Several essays in this collection explore these issues. There has been growing interest in the particular role of central banks as a ‘branch’ of government power in recent decades in jurisdictions that have typically eschewed discussion of the economic significance of constitutions, including the U.K., the U.S., and the European Union (E.U.). Since the global financial crisis and the subsequent sovereign debt crisis in Europe, the question of central bank independence and accountability for the making of monetary policy has become the subject of a lively debate, and the constitutionality of this separation is increasingly discussed. The constitutional significance of the assignation of the power to make monetary policy to the Bank of England by the Blair Government in 1997 has been analyzed by Robertson (1996) and Goodhart (2002), and similar studies have been made on the powers of the U.S. Federal Reserve (Judge, 2015) and the European Central Bank (Grundmann and Micklitz, 2019; Tuori, 2019) Beyond the specific question of central banking, other texts have begun to consider a wider range of government powers with respect to economic governance as constitutional matters. In the U.K., Prosser’s book, The Economic Constitution, published in 2014, offered the first comprehensive analysis of the U.K.’s ‘economic constitution’, presenting a detailed account of government powers to tax, spend, regulate financial services, and conduct monetary policy. White’s (2015) analysis of the ‘fiscal constitution of the U.S.’ and a study by Timberlake (2013) on the constitutional jurisprudence of the U.S. Supreme Court with regard to money have expanded the focus of constitutional law scholarship in the U.S. A recent book by Bateman (2020) adds to the debate and addresses the constitutional dimensions of public finance. Through a study of the evolution and practice of public finance law in the U.K. and Austria, Bateman finds that the ‘paradox of parliamentary constitutionalism is that parliaments do not control public finance’ in parliamentary constitutional systems.

xxii Introduction

One important area in which questions concerning the relationship between the empowerment and control over market actors by governments is seen to relate to constitutions is in the area of human rights, which is an increasingly influential sub-discipline of constitutional law. As the analysis above has highlighted, the question of the nature and extent of duties owed by governments with regard to realizing social, economic, and cultural rights (ESC rights), in particular, has brought questions of the governance and regulation of markets to the fore. In most, if not all, countries, access to the objects of such rights is obtained through market mechanisms, and ‘private’ corporations and businesses play significant roles in shaping the conditions in which people try to enjoy their social and economic rights. Hence, there is now considerable emphasis in the human rights practice of international institutions on human rights obligations of businesses and the obligations incumbent upon States to prevent violations of human rights by private non-State actors. What is more, a burgeoning body of human rights scholarship has begun to explore how markets may need to be governed differently if ESC rights commitments are to be ‘respected, protected, and fulfilled’. These developments underline that the nature of the State’s legal order and its approach to governing markets has constitutional implications. Again, there is a noticeable divide between many older constitutional democracies that have not enshrined the protection of ESC rights (the U.K. and the U.S.) as constitutional entitlements, and newer constitutional democracies, many of which have done so. Nevertheless, advances in rights protection have occurred on a case-by-case basis, and only limited progress has been made towards translating social and economic rights into effective legal claims that address social and economic inequalities. Critical scholarship on human rights has put forward the view that the structures of the global economy and the necessary operations of capitalist political economy are the ‘root causes’ of the under-realization of rights (Linarelli, Salomon, and Sornarajah, 2018; Marks, 2011). However, on the whole, critical work on human rights has not yet fed back into broader questions of how constitutions may in fact be shaping or influencing markets and the economy. 0.2.2 Institutional Economics

The narrow perspective through which traditional constitutional law scholarship approaches government power, and the potential danger of this conceptual narrowness, is illustrated by two of the other bodies of scholarship mentioned above: institutional economics (IE), considered in this section, and economic constitutionalism, the subject of the next. IE presents a theoretical counterpoint to the influential account of how markets work in neoclassical economic theory. As is well known, neoclassical economics relies on a highly idealized set of agential capacities and hypothesized causal dynamics to generate mathematicized models of how markets work. Neoclassical theory extrapolates from assumptions about how individual actors will act in markets to produce an account of

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how the ‘forces’ of supply and demand combine to create the price mechanism – a decentralized way of ordering production and distribution in a competitive market economy. There is often said to be ‘no room’ for institutions in neoclassical economics. IE is a broad church but one that is united by a shared focus on understanding the role of ‘institutions’ in creating markets and in enabling their operations. Institutions have been defined by Douglass North (1991) as ‘the humanly devised constraints that structure political, economic, and social interaction. They consist of both informal constraints (sanctions, taboos, customs, traditions, and codes of conduct), and formal rules (constitutions, laws, property rights)’ (p. 97). From the perspective of IE then, constitutions immediately take on a new significance: they should be understood not only to be enabling and constraining particular forms of political action by the State – they are also enabling and constraining the economic powers of the State, and, relatedly, the economic opportunities of a wider constituency of market actors. North (1991) is associated with the tradition of New Institutional Economics (NIE), which is a broad field but a field which is particularly concerned to understand how institutions can best be designed in order to get as close as possible to the realization of the price-mechanism-driven market model of neoclassical economics. NIE shares many of the same assumptions concerning how market actors behave in markets as neoclassical economics: namely, that people will act in order to maximize their opportunities in accordance with an exogenously formed set of preferences. However, in contrast with the near absence of institutions or legal structures in neoclassical writing, NIE scholars regard institutions as foundational to the existence and operations of both specific markets and the wider economy. In addition to studying how a wide range of different types of organizational structure, cultural norms, and informal practices impact on transactional behaviour, NIE has involved the study of the influence that different forms of property ownership, contract law, tort law, corporate governance, and financial regulation have in terms of facilitating or hindering the efficiency of the transactional process, as well as influencing trajectories of economic development (for an overview, see Mercuro and Medema, 2006). NIE scholarship that focuses on the transactional processes builds primarily on the work of Ronald Coase and Oliver Williamson; NIE scholarship that engages in historical analysis of institutions and economic development is most characteristic of the work of North, as well as work by Acemoglu and Robinson. New Institutional Economics is commonly differentiated from the earlier tradition of Old Institutional Economics (OIE) by virtue of its focus on the impact of institutions on the operations of the price mechanism and the assumptions it shares with neoclassical economics concerning the animus of market activity, which is still understood to be driven forward by self-utility maximizing individuals, albeit individuals whose rationality is ‘bounded’ and impacted by institutional constraints, as contrasted with the super-human capacities of cognition ascribed to human beings in neoclassical models.

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Thinkers belonging to OIE, by contrast, tend to discuss the economy as something greater than the sum of a collection of markets. Scholars including Veblen (1953) and Commons (2017) approached the economy as a socially and historically embedded phenomenon, and explored how different institutional formations can generate economic crises, and promote or inhibit innovation and the development of new technologies. Significantly, OIE scholarship does not regard the preferences of market actors as immutable or exogenously formed but considers them to be influenced by institutions and cultures. Veblen’s work on conspicuous consumption stands out in this regard. The shared insight of both OIE and NIE is that institutions, and legal ones in particular, are necessary for the existence and operations of markets, and the outcomes of market processes are, in many ways, dependent on how institutions structure the interactions and preferences of agents within markets. This at least raises the question as to whether the persistence and intensification of economic inequalities, which an array of indicators suggest is the outcome of the operations of contemporary market processes in many countries, may be being produced by norms, institutions, and legal frameworks that are embedded within a broader constitutional culture. As we discuss in more detail below, one way of approaching the interrelation between markets, constitutions, and inequality is through an examination of the possible ‘constitutional embeddedness of markets’. In recent years, a group of legal scholars has entered into conversation with IE and has sought to enrich the debate about the role that formal legal institutions, specifically, play in the context of a market economy. Institutionalist economists regularly deploy property rights and contractual exchange and firms in their analyses, but, so the ‘Legal Institutionalists’ say, these concepts are used in a way that does not correspond to what property law, contract law, and corporate law says about the meaning and content of these rights and institutions (Deakin et al., 2017). In reply to some of the scholarship in NIE in particular, Legal Institutionalists emphasize that the nature of law ‘necessarily involves both the State (broadly construed to refer to a realm of public ordering) and private or customary arrangements. Reduction of law to just one of these two aspects is mistaken’ (Deakin et al., 2017, p. 188). They further contend that ‘law – understood as an outcome of both State intervention and private ordering – accounts for many of the rules and structures of modern capitalist society’ (p. 189). As a consequence, they underline, ‘law is not simply an expression of power relations, but is also a constitutive part of the institutionalized power structure, and a major means through which power is exercised’ (p. 189). The Legal Institutionalists draw on insights from the earlier tradition of twentiethcentury American Legal Realism to emphasize that State power is being exercised through purportedly ‘private’ laws, such as property and contract law – a finding that radically contests the separation between ‘public’ and ‘private’ in liberal constitutional and political theory. Property rights and party autonomy in contract law, from this perspective, are – as Cohen (1927) and Hale (1923) discussed in the 1920s – in effect, delegations of the coercive powers of the

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sovereign to private actors. The Realist intervention stressed that markets are not accurately described as sites of free bargaining between private individuals – they are arenas in which some actors are able to call upon the power of the State to enforce their interests over the interests of others. Significantly, against the prescripts of economic and NIE perspectives that would cast a particular constellation of legal institutions as necessary to a national project of promoting economic growth, and, thereby, tackling poverty, scholars working in the tradition of Legal Institutionalism argue that the same legal regimes that are seen to be central to the process of growing the national economy also serve to privatize wealth, effectively operating to obstruct access to productive resources by social majorities and impeding efforts by the State to redistribute wealth to wider constituencies (Pistor, 2019). Collectively, IE scholarship implies that many of the same legal rights (property), conceptual distinctions (public/private), and values (liberty, autonomy) that animate liberal political and constitutional thought are also foundational to the operations of a market system that is designed to govern the actions of different market actors, ergo citizens, according to a specific set of logics: those of scarcity, competition, and profit. Are these logics not, then, also constitutional values in liberal constitutional democracies? If they are, should they not be analyzed and deliberated as such? In fact, as the next section will discuss, the argument that in order for democracy to work – and in order that political liberties and freedoms to be safeguarded – the State should empower private citizens to resist being ‘ordered’ by centralized government by granting legal protection to a set of economic rights and freedoms. This has been set out in an influential body of scholarship on ‘economic constitutionalism’. 0.2.3 Economic Constitutionalism

The concept of an ‘economic constitution’, which has only just begun to find its way into constitutional debates in some countries, notably the U.K. and the U.S., was central to an influential tradition of economic thought in Germany in the 1930s: The Freiburg School, or, as it is otherwise known, the tradition of German Ordoliberalism. Leading figures in the movement were the economist Walter Eucken, and two jurists, Franz Böhm and Hans GroßmannDoerth. This group of thinkers was united by the concern to identify and to analyze the framework of institutional rules in which economic transactions take place (Hien and Joerges, 2017) and to legally institutionalize and protect ‘the constitutional foundations of a free economy and society’ (Vanberg, 2004). In the first volume, and, in their jointly edited publication series Ordnung der Wirtschaft, the three editors co-authored an introduction in which they ‘stated as their guiding principle that the “treatment of all practical politico-legal and politico-economic questions must be keyed to the idea of the economic constitution”’ (Hien and Joerges, 2017, citing Böhm, F., Eucken, W., and Großmann-Doerth, H., 1989).

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The ordoliberals were reacting to the economic and political troubles of the Weimar Republic, and they regarded its problems ‘as a result of a capturing and overburdening of the welfare state by the “interest mob” who were enabled by parliamentarism and corporatism’ (Hien and Joerges, 2017, p. 6). They shared with classical economists and nineteenth-century laissez-faire liberals a conception of there being a ‘natural order’ to the market economy; however, the ordoliberals, in contrast to earlier discourses of ‘freeing’ markets from the State, saw the need for a strong State to guarantee the legal underpinnings needed to secure the market order. As Böhm insisted, ‘the state should, in matters of the economy, elevate “natural laws to the level of public law”’ (Nientiedt, 2019, p. 120 citing Böhm, F. (1933/2010)). Ordoliberal sociology, as Hien and Joerges underline, emphasises a twin strategy of the ‘legal curbing’ of such behaviour at the aggregate level (cartels and monopolies) and the moral formation of society that went all the way down to moral prescriptions and institutional incentives for behaviour at individual level. (2017) Eucken and Böhm actively set out a set of proposals for the rules of the competitive market order which sought to realize the goals of creating material wealth while also realizing the liberal principle of individual freedom. In Eucken’s book, Grundsätze der Wirtschaftspolitik (published posthumously), he proposed a set of ‘constitutive principles’ including ‘the functioning of the price mechanism, a stable currency, open markets, private property, freedom of contract, liability, and the constancy of economic policy’ that were needed in order to operationalize and safeguard the competitive market order, which were to be further supplemented by ‘regulative principles’, notably an active competition policy (Nientiedt, 2019, p. 118 citing Eucken, W. (1952/2004)). As Nientiedt underscores, the ideas of the Freiberg School were premised on the belief that societies face a choice between ‘two abstract or pure types of an economic system, namely between a competitive market economy on the one hand, and central economic planning on the other’ (2019, p. 118). The influence of ordoliberal thinking on the development of ‘neoliberalism’ – the label commonly used to describe the agenda of market ‘deregulation’, liberalization, and privatization that has been put into practice since the 1980s – has been explored in a significant body of critical scholarship (Joerges, 2015; Schneiderman, 2000, 2018; Slobodian, 2018). However, ‘economic constitutionalism’, as this field has been termed, is primarily concerned with how regimes of international economic law and governance structures at the international and regional levels, such as the European Single Market, may be said to have a constitutional role. Because this field addresses how regimes of economic governance at the supranational level entrench certain economic rights in an effort to create a ‘levelled playing field’ to the benefit of multinational

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actors, national constitutions are not often part of the narrative. The variegated and competing influences on neoliberal thought, including Austrian economics, neoclassical economics, ordoliberalism, and political liberalism, as well as the differences between different ‘neoliberal’ thinkers, are extensively examined in the work of Harvey (2007), Mirowski and Plehwe (2015), and Slobodian (2018), among others. Many of these works are in the tradition of intellectual history and focus on how different ideas gained influence over time. A group of legal scholars has sought recently to explore ‘neoliberal legality’ and to examine both the form that legality takes under neoliberalism and the particular legal reforms that have been needed to actualize the neoliberal political vision (Brabazon, 2018). Scholarship on international economic law and on neoliberalism explores the increased entrenchment of a set of rules to govern the global economy that operates in the interests of financial capital at the international level (Schneiderman, 2000, 2018). Another important line of critique of ordoliberalism and its influence on contemporary politics and society has been opened up by work on the ‘labour constitution’. Dukes (2014) explores the development of the constitutional norms and collectivist practices in the Weimar Republic against the ordoliberal scholars who were building their case for a liberal individualist ‘economic constitution’ and examines the scholarship of Hugo Sinzheimer and Otto Kahn-Freund in attempting to constitutionalize certain principles to protect the interests of labouring classes, to promote welfarism, and to constrain the power of the owners of capital. In sum, the enquiries with which are concerned in this collection relate to and bring together questions that have been explored in a range of academic literatures that have not yet been brought into conversation. Traditional constitutional law scholarship has not engaged significantly with the question of how constitutions relate to markets; institutionalist economics and legal institutionalism studies the relationship between the development of markets and legal institutions, but has not engaged with constitutional ordering; ordoliberal scholarship on the economic constitution sets out a clear vision concerning the public and private ordering that is needed to operationalize the ‘market order’, but actual constitutional texts, norms, and practices are only peripheral to their scholarship; critics of ordoliberalism have examined how particular economic rights and freedoms are being ‘constitutionalized’, but these studies have largely focused on the international and transnational planes. Hence, there is little work that actively examines how specific national constitutions relate to the ordering and governance of particular markets, or how constitutional frameworks make an impact on different areas of law that intersect with directions in market governance and the persistence of social and economic inequalities.

0.3 The Constitutional Embeddedness of Markets? The diverse writings offered in these pages combine insights from their respective disciplines to challenge the dominant ways that constitutions and

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the modes of ordering that they create are characterized in legal thought. While there is not a unique line of thought, this collection offers views of what can be called the ‘constitutional embeddedness of markets’, namely, the idea that markets, and the laws that create them and that regulate the behaviours of the actors that participate in them, are made possible because of the operation of several constitutional institutions. Markets seem to be ‘embedded’ in such constitutions, along with the ideas that justify and explain their operations and their limitations. A substantial body of academic literature has explored debates about the ‘embeddedness’ of markets in social relations, as well as in political and legal structures.7 The genealogy of the concept is often traced to the ‘various mid-century writings’ (Krippner, 2002, p. 778) of Karl Polanyi in The Great Transformation (2001 [1944]). A theory of the embeddedness of markets is also central to the more recent discipline of economic sociology and has been developed and, as Beckert (2007) argues, fundamentally transformed, in the work of Mark Granovetter (esp. 1985), whose work has engendered a vast literature analyzing the influence of social networks in shaping behaviour in markets. Granovetter intended his concept of the social embeddedness of markets as a corrective to what he saw as the ‘undersocialized’ neoclassical ideal of homo economicus acting upon his own endogenously formed preferences to maximize utility, and an ‘oversocialized’ member of a social class, whose behaviour in a market economy could be mechanistically reduced to his position in the social order with regard to control over the means of production (Beckert, 2007, p. 9). His ‘third way’ approach to the question of how people behave in markets presented individuals as being immersed in ‘ongoing systems of social relations’ (Granovetter 1985, p. 487) and inspired a new focus on social and network ‘structures’ as explanators of economic behaviour. Granovetter is not describing markets as being embedded in laws, legal regimes, or a constitutional order, he is discussing how the behaviour of market agents is shaped by the social networks in which they are immersed. Nevertheless, Granovetter was evaluating what, if anything, replaced ‘the social or kinship obligations’ that used to structure the relationships of people transacting in markets in pre-capitalist societies with ‘those trans-acting but by rational calculations of individual gain’ (p. 482). Granovetter’s key finding is that economic transactions continue to be mediated through modern social networks, and he emphasizes how relations of trust and reputation in specific business environments shape transacting behaviour. Granovetter does not wholly reject the idea that the development of society in broader ‘macro’ political and institutional terms impacts on market behaviour; the argument made in his most influential piece is that more meso- and micro-level social structural causes are being neglected: ‘whether small firms are indeed eclipsed by giant corporations is usually analyzed in broad and sweeping macropolitical or macroeconomic terms, with little appreciation of proximate social structural causes’ (p. 507).

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For other economic sociologists and political economists, Granovetter’s intervention resulted in a depoliticizing move away from both interrogating the form of the market and analyzing its social and political form. Beckert (2007) argues that the Granovetterian school puts the cart before the horse in terms of trying to identify the ways in which ‘structures’ influence ‘the market’, noting that Granovetter’s thinking ‘leaves us with an economic sociology that is unspecific with regard to the structural changes taking place in the organization of the economy with the development of modern capitalism’ (p. 19). Granovetter’s concept of embeddedness is juxtaposed to that of Polanyi, who was ‘interested in the effects of market organization on society and on political freedom’, and whose work requires us to ‘pay attention to the effects of the organization of the economic system on society at large’ (p. 17). Indeed, as both Beckert and Krippner both underscore, Granovetter’s conception of embeddedness departed from a fundamentally different understanding of what markets are to that of Polanyi. ‘For Polanyi, markets are not networks of structurally equivalent producers but rather fully social institutions, reflecting a complex alchemy of politics, culture, and ideology’ (Krippner, 2001, p. 782). Polanyi’s theorization of ideas of embeddedness and disembeddedness was, in fact, only loosely couched in these terms, and it was linked to his overall thesis on the ‘great transformation’ of society that was produced by the development of capitalism: namely, the transformation of relationships that were formerly managed through ties of family, religion, serfdom, and political relationships into socially alienated relationships that were governed by a market logic through the commodification of false commodities of land, labour, and money (Polanyi, 1944, p. 194). In one of his very few uses of the term ‘embedded’, Polanyi argued that ideologues, who were interested in advancing the political agenda of economic ‘laissez-faire’ and the ideal of a self-regulating market, engaged in violent and protracted processes of institutional and legal reform to shift society away from a social model in which exchange relations were based on redistribution and reciprocity, towards the ‘market society’ necessary to enable the operations of a ‘self-regulating’ market economy. Crucially, in this shift, social relations come to be ‘embedded within the economic system’ (Polanyi, 1944, p. 57) or, put differently, ‘instead of economic life being submerged in social relations, these relations become an epiphenomenon of the market’ (Granovetter, 1985, p. 482). To the extent that the way that a constitutional order generates or influences specific social dynamics or institutions that structure market behaviour, markets can be described in Granovetterian or Polanyian terms as being embedded in a constitutional order. Viewed in this light, the constitution is a kind of meta-network: it is simultaneously a manifestation of and shaper of ‘modern’ social relations. There are multiple senses in which constitutional forms can be seen to play an ‘embedding’ or ‘disembedding’ effect in the sense of promoting the greater or lesser marketization of social relations. At the most general level, constitutions may give political and legal life to cultural, cognitive, and political

xxx Introduction

forms that shape the behaviour of social agents in markets, such as by enshrining protections for private property that generate stable expectations for market exchange, reinforce the cultural importance of ownership, and orientate loyalties and trading relationships away from more localized relationships of reciprocity and trust towards the nation state, or the global economy. As Beckert further underlines, modern capitalist societies tend to ‘destroy the contexts of trust that support cooperation in exchange in traditional societies’, leading to a modern culture of increasing ‘time–space distantiation’ of economic exchange and the erasure of ‘traditional contexts of action’ (Beckert, 2007, p. 20). Liberal constitutions that purport to be founded on the ‘rule of law’ also represent and reinforce the phenomenon that Weber described in terms of importance of ‘rational’ law for the development of market economies (Weber, 1978 [1922])). Moreover, as Frerichs highlights, ‘Polanyi makes it clear that “the liberal state was itself a creation of the self-regulating market” by underlining that the premise of the liberal state is non-interference in the formation and functioning of markets and, namely, the price mechanism’ (Frerichs, 2017, p. 251, quoting Polanyi at p. 69). Polanyi insists that society must be shielded by means of deliberate political engagement from the danger of an ‘institutional separation of society into an economic and political sphere’ (Polanyi, 1957, p. 71). Yet, interpreting the liberal State and its constitutional order as a structure that embodies and reinforces the disembedding of markets from other social relations is also not very Polanyian. The appeal of Karl Polanyi for the new economic sociology, suggests Beckert, is that ‘his social theory does not imply a linear concept of development of the sort found in Marx, Weber, Durkheim and Parsons’ (Beckert, 2007). To say that markets are now ‘embedded’ not in social relationships but in the form of the liberal State, or its constitutional order, suggests that those social relationships have become crystallized into an overarching political form that exerts cultural, cognitive, and symbolic power, and would prevent other social values from conditioning market exchange. If the only kind of law-making that can be legitimately issued from this framework cannot question these underlying forms of commodification, then how can forms of social redress (the double movement) find purchase within the constitutional order? The crux of the debate, it would appear, turns on the question of whether social agencies can still struggle and try to enact a double movement in spite of apparent orientation of liberal constitutional frameworks towards the (further) commodification of social life to fit with market imperatives. A number of the contributions to this collection suggest that constitutional mechanisms and processes are the sites at which a struggle to re-embed the market is being realized, and others highlight the very diverse ways in which different constitutional orders influence directions in the regulation of markets. Because there is much more to the relationships between the economy and constitutions than creating and protecting private property, freedom of contract and other such elements, this collection stresses the notion that market

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economy is embedded in a network of constitutional institutions that vary across jurisdictions all over the globe – indeed, it might be more appropriate to discuss the ‘constitutional embeddedness of the economy’. Our interest, moreover, is not just to highlight that the constitutional embeddedness of markets is a phenomenon that invites dialogues across disciplines and fields. Rising levels of inequality in terms of income and the ownership of resources, and a marked shift towards political polarization and discourses of economic nationalism around the world invite new streams of research regarding questions of how domestic economies are governed and constituted, as well as to understand the pivotal role that individual constitutions play in this milieu. We take a cue from constitutional scholarship in Latin America, which has a long history of debates about the constitutional significance of economic institutions, including property rights, freedom of contract, and economic regulation. Assumptions that appear to animate constitutional thought in Europe and North America – notably the liberal conviction that economic and legal systems can be neatly differentiated – do not ring true in many countries in Latin America. The perspectives from the Global South on the relationship between the economy, law, and State power presented in this book offer an important counterpoint to the analyses brought forward by constitutional law and institutional economics that has largely been elaborated by in the Global North. Other contributions grapple with how different legal regimes, such as those of property law, competition law, tax law, financial regulation, and criminal law are shaped by, or elaborated on the basis of, constitutional norms. Several of the contributions explicitly explore the relationship of constitutional orders to distributions of resources, financial assets, and income. A cross-cutting theme of the collection – and one that the final part of the collection addresses itself directly – is the question of how constitutions may help or hinder political movements that are seeking to address economic inequality and effect social change. Together, these essays break new ground in terms of rethinking what constitutions are and their relevance to the existence and operation of markets.

0.4 The Structure of This Book In this edited collection, a group of scholars from different disciplines and legal traditions combine insights from their respective disciplines to start a conversation regarding how constitutions create and maintain markets in new directions that transcend how markets are conceptualized in contemporary constitutional law scholarship and neoclassical and institutional economics. The collection offers an innovative contribution to legal scholarship, one that will also be of particular relevance to those working in the fields of economic history, political economy, institutionalist economics, politics, sociology, and human rights. This collection will be formed of three parts, which are organized around the following topics.

xxxii Introduction

0.4.1 Part 1 – The Constitutional Embeddedness of Markets

In this part the authors engage with questions about the significance of constitutions in economic and social life, as understood from the perspectives of economic theory and legal theory. What is an ‘economic constitution’ for an economist, and how does this compare to conceptions of the economic constitution emerging in critical jurisprudence? What has existing literature contributed to this debate, and where are its blind spots? Chadwick engages in a review of recent writing on the relationship between constitutional form and market governance. Her contribution takes up and critically examines the concept of constitutional embeddedness outlined in this Introduction, and it examines three distinct lines of critique in the work of Dixon and Suk (2018), Alviar García (2019), Teubner (2012), and Christodoulidis (2021) that implicate constitutional form in the ‘disembedding’ of markets. While each of these authors regards the operations of markets as interfering with democratic processes, and while they are all sympathetic to the argument that the interests of a narrow group of economic actors are subverting the powers of sovereign States to regulate markets in opposition to governing ‘logics’ of efficiency, competition, and price, each author views both the problem differently because they are all arguing from diverging perspectives on both what constitutions are and how they relate to the laws and dynamics that sustain the operations of a capitalist market economy. Callegari examines the attempts by leading economists (Buchanan, Commons, North, and Posner) working broadly within the neoclassical tradition to reconcile their theories of the market with the role played by constitutions in market ordering. While not ideologically averse to neoclassical theory, he notes that in the process of theorizing constitutions, each of these authors ends up criticizing, wholly or partly, the neoclassical framework. The chapter illustrates how, despite significant epistemological, methodological, and ideological differences, all these authors struggle to reconcile neoclassical economics and the normative dimension of constitutions, which figures prominently throughout all four contributions. 0.4.2 Part 2 – Markets, Constitutions, and Inequality: Legal Regimes

In this part of the collection contributing authors engage with questions about the relationship between the legal regimes that are commonly understood to constitute and regulate markets and constitutional norms and processes. Do constitutional norms form the foundation of these legal regimes, or are these legal regimes elaborated from alternative normative foundations? To what extent do different legal regimes successfully embed particular markets within a constitutional framework? The focus of these essays on particular ‘markets’ or areas of economic activity illustrates some of the methodological challenges

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outlined in the essays in the first part of the collection, such as comparative analyses of constitutions holding markets constant, the idiosyncrasy of markets, and also problems of a different nature, such as the fit of constitutions in the broader social ordering (neither public nor private but somewhat superior/ foundational). Benavides examines how a failure to constitutionalize a right to health in the United States has facilitated the development of a market in healthcare in which economic incentives structure the provision of a vital public good. She explores the potential for a recalibration of powers within the healthcare system through the upstream (re)design, (re)empowerment of patients, and the (re)connection of market incentives to conceptions of the public good. Lozano-Rodríguez engages with the interrelationships between tax law and constitutional processes via an exploration of the concept of ‘fiscal sustainability’ and its treatment in constitutional jurisprudence in Colombia. Her account thereby explores a particular example of an attempt to constitutionally embed a key area of law and policy that should mediate between different constituencies concerning the regulation of markets and the distribution of income and resources. The account of Fogel, Paredes, and Valdez is based on their experiences working in the NGO sector in Paraguay. Their narrative is also one of the flip-side of a purportedly progressive constitution. Fogel, Paredes, and Valdez contrast the constitutional norms of Paraguay’s new constitution with the lived realities of entrenched and exacerbated inequalities in access to land and resources that have evolved in its wake. Their account delves into the discrepancies between the rights and protections that are afforded to people under progressive constitutional structures and the actual processes of legal ordering that structure the distribution of resources in Paraguay. Their work mobilizes a case study on agricultural corporations and control of the sector to highlight these tensions. Arboleda and Ramirez, who planned their chapter with the late Julio Montañez, offer an analysis of a commonly neglected constitutional dimension of property protection: criminal law. Criminal law is not typically made explicit in constitutional frameworks, however, as their analysis demonstrates, there are profound and significant intersections between criminalization and what it means to have a property right. Their chapter addresses a specific development of the neoliberal commitment of the 1991 Colombian Constitution regarding the effectiveness of criminal prosecution that puts greater emphasis on private mechanisms to advance criminal prosecutions. They argue that ‘the strengthening of private parties’ possibilities to directly exert criminal prosecution in offences against property entails serious risks for the rights of the less privileged classes in a country with high crime and inequality rates’. Solana explores how constitutions shape financial markets by examining the Corporate Sector Purchase Programme (CSPP), one of the latest iterations of the European Central Bank’s monetary policy. He examines the legal nature

xxxiv Introduction

of the principle of market neutrality within the economic constitution of the E.U., and he draws on the concept of ‘directive principles’ as studied by constitutional law scholars to explore the implications that the directive nature of this key principle has for the controversial CSPP, which is central to the E.U.’s agenda on addressing climate change. 0.4.3 Part 3 – Markets, Constitutions, and Inequality: The Long Durée

In this final part of the collection, contributing authors draw insights from the history of constitutional development to show how specific constitutional arrangements regarding markets (or the institutions that support them) have changed over time. They shed light on the dynamics between constitutions, markets, and inequality from different geographic and jurisdictional perspectives, and they discuss how processes of constitutional ordering in different contexts shape the distribution of resources and income. McClure engages with attempts by economic historians and institutionalist economists to map out the historical relationship between constitutionalization and economic growth. She underlines that economic phenomena look different when inequality, and not economic growth, is the focal point of the analysis. Her work re-examines the history of the long constitutional tradition of the Iberian Peninsula, focusing on the sixteenth century, and she reflects on the protection of common property institutions and its implications for patterns of inequality under these legal arrangements. By foregrounding the diversity of economic constitutions that have manifested in different periods in history, as well as in societies with governance structures that differ from those traditionally studied by NIE scholars, her contribution posits that the relationship between processes of constitutionalization, trajectories of economic development, and legacies of inequality is far more complex than NIE scholarship has suggested and remains poorly understood. Calderón engages with the centrality of property in debates about the interactions between markets and constitutions. He draws on Duncan Kennedy’s influential article, ‘Three Globalizations of Law and Legal Thought’ (2006) to develop a comparative analysis of how shifts in legal thought on the nature and function of property law between the years 1850 and 2000 in Colombia and China influenced constitutional developments and the protection of land ownership in both contexts. Palacios-Lleras draws from constitutional history to examine the interplay between property rights and market regulation in liberal constitutional theory. He argues that, at the level of constitutional law, however, the protection of private property and the enactment of regulation are fundamentally at odds with each other. The protection of private property should prevent the enactment of regulation that conditions the exercise of said property, while the enactment of regulation, as a manifestation of popular sovereignty, should not

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be limited by the rights of a particular group of citizens: property owners. Precisely because of this tension, he contends, ‘we find ourselves in need of a constitutional theory that accounts for the massive enactment of regulations and the endorsement of markets, mostly during the twentieth century’. In the final chapter of the collection, Darr engages with the issues of legal transplants and analyses the economic provisions of the Indian and Pakistani constitutions against the backdrop of the British-era Government of India Act 1935, which was taken as a constitutional model in both contexts. She considers the extent to which these two constitutions have been adapted, over time, to local contexts by highlighting differences in the distributions of revenue in the two regions and their relationship to constitutional structures. She explains how the constitutional framework of trade dependence between India and Pakistan, on the one hand, and economic centres, on the other, has enabled the ascendance of powerful private actors (transnational corporations) who now exert governance functions within these territories. She goes on to make the case that reducing inequality demands a return to theories of competition law (the New Brandeis School) that offer more adequate accounts of the impacts of monopoly in cementing economic control over law and policy-making by private constituencies.

0.5 Why Read This Book? This book offers an interdisciplinary, fresh look at legal, economic, and institutional issues. It contributes in important ways to constitutional law scholarship by highlighting the extent to which issues that remain underexplored from a traditional constitutional perspective – for example the role of central banks and how they ‘fit’ in democratic societies – are actually very relevant for understanding the constitutions themselves and how they create and regulate economic activities. It contributes to economic literature by highlighting the many roles constitutions have in creating and maintaining markets. Contrary to what is often assumed, markets are not all alike, nor do they bring about the same results (nor the same winners or losers); constitutional institutions play an important role not just in establishing how States intervene in markets but by enabling markets in the first place and by providing features that enable their stability. By highlighting these institutions, we aim to clarify the many economic dimensions of constitutional institutions and to support or refute some of the causal claims routinely offered about the relationships between law, economics, competitiveness, and growth. Finally, this book contributes to the literature about institutions in both law and economics, by highlighting the importance that material incentives and ideas – legal, economic, and otherwise – have in the development of markets and their regulation. Overall, the chapters that make this collection highlight the wealth and variety of ideas regarding constitutions and markets from different corners of the world. This book is meant to upset the tranquilities of academic convictions,

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and it does so by opening a dialogue with constitutional law scholarship and institutional economics to improve the understanding of the role constitutions have in creating and maintaining markets.

Notes 1 See the UN Special Rapporteur on extreme poverty and human rights, Philip Alston, at the end of his 2018 visit to the UK arguing that the UK has an opportunity to ‘reimagine what this country should represent and how it protects its people. The legislative recognition of social rights should be a central part of that reimagining’ (Alston, 2018). 2 See for example Petersmann (2008). For a critical account, see Cass (2005). 3 We employ the term constitutional law here, but our enquiry also concerns aspects of what is also termed public law or administrative law. 4 Recent representative texts include Webley and Samuels (2018), Thompson and Gordon (2017), and Young (2021). 5 For example, the Mexican constitutional tradition has a rich history regarding the protection of private property, freedom of contract, and independent bodies. Since 1917, the constitution establishes a ‘social function of property’ doctrine as well as restrictions to anticompetitive agreements. In more recent years (2015), this constitution was amended to include special bodies dedicated to the protection of competition and the enforcement of telecommunications regulation. 6 For example, the ratification process of the American Constitution of 1787 gave place to discussions about wealth and class under the new constitution. However, the discussions are mostly about the political representation of the different economic interests in the political bodies, and especially the Federal Congress, as devised by such a document. There are a few discussions about the operation of markets and how they would be affected by the constitutional structure discussed at the time. For example, see ‘To Thomas Jefferson from James Madison, New York, 24 October 1787’. 7 See in particular the work of Ruggie (1982) on embeddedness, regime change, and international economic governance, and Frerichs (2019) on the role of law in Polanyi’s conception of market embeddedness.

References Acemoglu, D. and Robinson, J. A. (2012). Why nations fail. New York: Crown Publishing. Alston, P. ‘Statement on visit to the United Kingdom. United Nations special rapporteur on extreme poverty and human rights’. London, 16 November 2018. Available at: https://www​.ohchr​.org​/SP​/NewsEvents​/Pages​/DisplayNews​.aspx​?NewsID​ =23881andLangID=E Alviar-García, H. and Frankenberg, G., eds. (2019). Authoritarian constitutionalism: comparative analysis and critique. London: Elgar. Akchurin, M. (2015). ‘Constructing the rights of nature: constitutional reform, mobilization, and environmental protection in Ecuador’. Law and Social Inquiry, 40(4), pp. 937–968. Atria, F. (2020). ‘Constituent moment, constituted powers in Chile’. Law and Critique, 31(1), pp. 51–58. Baradaran, M. (2017). The color of money Black banks and the racial wealth gap. Cambridge, MA: Harvard Belnap Press. Bateman, W. (2020). Public finance and parliamentary constitutionalism. Cambridge: Cambridge University Press.

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Beckert, J. (2007). ‘The great transformation of embeddedness: Karl Polanyi and the new economic sociology’. MPIfG Discussion Paper 07/1, Max Planck Institute for the Study of Societies Cologne. Bhambra, G. K. (2021). ‘Narrating inequality, eliding empire’. The British Journal of Sociology, 72(1), pp. 69–78. Birchall, D. (2019). ‘Human rights on the Altar of the market: the Blackstone letters and the financialisation of housing’. Transnational Legal Theory, 10, pp. 3–4. Böhm, F., Eucken, W., and Grossmann-Doerth, H. (1989). ‘The ordo manifesto of 1936’. In: A. Peacock and H. Willgerodt, eds., pp. 15–26 (Originally published in German as ‘Unsere Aufgabe’ in Böhm, F. 1937, VII–XXI). Brabazon, H., ed. (2018). Neoliberal legality: understanding the role of law in the neoliberal project. London: Routledge. Britton-Purdy, J., Grewal, D. S., Kapczynski, A., and Rahman, K. S. (2020). ‘Building a law-and-political-economy framework: beyond the twentieth-century synthesis’. The Yale Law Journal, 129, p. 1784; pp. 1–35. Byrne, B., Alexander, C., Khan, O., Nazroo, J., and Shankley, W. (2020). Ethnicity, race and inequality in the UK: state of the nation. Bristol: Policy Press. Cass, D. (2005). The constitutionalization of the world trade organization. Oxford: Oxford University Press. Chadwick, A. (2021). ‘Human rights, poverty, and capitalism’. In: S. Egan and A. Chadwick, eds. Poverty and human rights: multidisciplinary perspectives. London: Elgar, pp. 68–90. Christodoulidis, E. (2021). The redress of law: globalisation, constitutionalism, and market capture. Cambridge: CUP. Coase, R. H. (1960). ‘The problem of social cost’. In: C. Gopalakrishnan ed. Classic papers in natural resource economics. London: Palgrave Macmillan, pp. 87–137. Cohen, M. R. (1927). ‘Property and sovereignty’. Cornell LQ, 13, p. 8. Commons, J. R. (2017). ‘Legal foundations of capitalism’. In: With a new introduction by Jeffe. Biddle and Warren J. Samuels. London: Routledge. Criado-Perez, C. (2020). Invisible women: exposing data bias in a world designed for men. London: Vintage Publishing. Deakin, S., Gindis, D., Hodgson, G. M., Huang, K., Pistor, K. (2017). ‘Legal institutionalism: capitalism and the constitutive role of law’. Journal of Comparative Economics, 45(1), pp. 188–200. Dukes, R. (2014). The labour constitution: the enduring idea of labour law. Oxford: Oxford University Press. Eucken, W. (1952 [2004]). Grundsätze der Wirtschaftspolitik. Tübingen: Mohr Siebeck, pp. 252–230. Forbath, W. (2020). Available at: https://lpeblog​.org​/2020​/06​/22​/socialism​-past​-and​ -future​-part​-i​-of​-ii/ Frerichs, S. (2017). ‘The rule of the market: economic constitutionalism understood sociologically’. In: P. Blokker and C. Thornhill, eds. Sociological constitutionalism. Cambridge: Cambridge University Press, pp. 241–264. Frerichs, S. (2019). ‘Karl Polanyi and the law of market society’. Österreichische Zeitschrift für Soziologie, 44(2), pp.197–208. Goldoni, M. and Wilkinson, M. (2018). ‘The material constitution’. Modern Law Review, 81(4), pp. 567–597. Goodhart, C. (2002). ‘The constitutional position of an independent Central Bank’. Government and Opposition, 37(2), pp. 190–210. https://doi​.org​/10​.1111​/1477​-7053​.00094

xxxviii Introduction Graber, M., Levinson, S., and Tushnet, M., eds. (2018). Constitutional democracy in crisis? Oxford: Oxford University Press. Granovetter, M. (1985). ‘Economic action and social structure: the problem of embeddedness’. American Journal of Sociology, 91(3), pp. 481–510. Grundmann, S. and Micklitz, H. W. (2019). The European banking union and constitution: beacon for advanced integration or death-knell for democracy? Oxford: Hart Publishing. Hale, R. L. (1923). ‘Coercion and distribution in a supposedly non-coercive state’. Political Science Quarterly, 38(3), pp. 470–494. Harvey, D. (2007). A brief history of neoliberalism. Oxford: Oxford University Press. Hien, J. and Joerges, C. (2017). Ordoliberalism: Law and theRrule of Economics. Oxford: Hart Publishing. Hickel, J. (2018). The divide. London: Penguin Random House. Hodgson, G. M. (2014). ‘On fuzzy frontiers and fragmented foundations: some reflections on the original and new institutional economics’. Journal of Institutional Economics, 10(4), 591–611. Joerges, C. (2014). ‘Europe’s economic constitution in crisis and the emergence of a new constitutional constellation’. German Law Journal, 15(5), pp. 985–1027. Krippner, G. (2001). ‘The elusive market: embeddedness and the paradigm of economic sociology’. Theory and Society, 30(6), pp. 775–810. Laastad, S. G. (2020). ‘Nature as a subject of rights? National discourses on Ecuador’s constitutional rights of nature’. Forum for Development Studies, 47(3), pp. 401–425. Linarelli, J., Salomon, M., and Soranrajah, M. (2018). The misery of international law: confrontations with injustice in the global economy. Oxford: Oxford University Press. Loughlin, M. (2019). ‘The contemporary crisis of constitutional democracy’. Oxford Journal of Legal Studies, 39(2), pp. 435–454. Madison, J. (1787) ‘To Thomas Jefferson from James Madison, 24 October 1787’. In: Founders Online, National Archives. Available at: https://founders​.archives​.gov​/ documents​/Jefferson​/01​-12​-02​-0274 Magnet, O. ‘Chile begins ‘beautiful challenge’ of drafting new constitution’. Aljazeera, 4 July 2021, Available at: https://www​.aljazeera​.com​/news​/2021​/7​/4​/chile​-beautiful​ -challenge​-of​-drafting​-new​-constitution Marks, S. (2011). ‘Human rights and root causes’. Modern Law Review, 74(1), pp. 57–78. Mirowski, P. and Plehwe, D., eds. (2015). The road from Mont Pèlerin: the making of the neoliberal thought collective. Boston, MA: Harvard University Press. Nolan, A. (2018). ‘Privatization and economic and social rights’. Human Rights Quarterly, 40(4), pp. 815–858. North, D. C. (1991). ‘Institutions’. Journal of Economic Perspectives, 5(1), pp. 97–112. North, D. C. and Thomas, R. (1973). The rise of the western world: a new economic history. Cambridge: Cambridge University Press. Petersmann, E. U. (2008). ‘De-fragmentation of international economic law through constitutional interpretation and adjudication with due respect for reasonable disagreement’. Loyola University Chicago International Law Review, 6, p. 209. Piketty, T. (2014). Capital in the twenty first century. A. Goldhammer trans. Cambridge, MA: Belknap Press. Pistor, K. (2019). The code of capital: how the law creates wealth and inequality. Princeton, NJ: Princeton University Press. Polanyi, K. (1944 [2001]). The great transformation: the political and economic origins of our time. Boston, MA: Beacon Press.

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Prosser, T. (2014). The economic constitution. Oxford: Oxford University Press. Robertson, B. (1996). ‘The currency and the constitution: lessons from ‘a rather small place’’. Oxford Journal of Legal Studies, 16(1), pp. 1–29. Ruggie, J. G. (1982). ‘International regimes, transactions, and change: embedded liberalism in the postwar economic order’. International Organization, 36(2), pp. 379–415. Schneiderman, D. (2008). Constitutionalizing economic globalization: investment rules and democracy’s promise. Cambridge: Cambridge University Press. Slobodian, Q. (2018). Globalists: the end of empire and the birth of neoliberalism. Boston, MA: Harvard University Press. Thompson, B. and Gordon, M. (2017). Cases and materials on constitutional and administrative law. 12th ed. Oxford: Oxford University Press. Timberlake, R. H. (2013). Constitutional money: a review of the supreme court’s monetary decisions. Cambridge: Cambridge University Press. Tuori, K. (2019). ‘The ECB’s quantitative easing programme as a constitutional game changer’. Maastricht Journal of European and Comparative Law, 26(1), pp. 94–107. Vanberg, V. J. (2004). ‘The Freiburg school: Walter Eucken and ordoliberalism’. Freiburg Discussion Papers on Constitutional Economics 04/11. Veblen, T. (1953 [1899]). ‘The theory of the leisure class: an economic study of institutions, the mentor edition’. Introduction by C. Wright Mills. New York: The Macmillan Company. Webley, L. and Samuels, H. (2018). Complete public law text, cases, and materials. 4th ed. Oxford: Oxford University Press. Williamson, O. E. (1989). ‘Transaction cost economics’. Handbook of Industrial Organization, 1, pp. 135–182. White, B. (2015). ‘The evolution of America’s fiscal constitution’. In: M. Tushnet, M. A. Graber, and S. Levinson, eds. The Oxford handbook of the U.S. constitution. Oxford: Oxford University Press, pp. 321–339. Young, A. T. and Tomkin, A. (2021). British government and the constitution: text and materials. 8th ed. Cambridge: Cambridge University Press.

Part 1

The Constitutional Embeddedness of Markets



Chapter 1

The Constitutional Disembeddedness of Markets? A Discussion of Competing Accounts Anna Chadwick 1

The preponderance of contemporary constitutional law scholarship stops shy of advancing an enquiry into the interrelationship between the operations of markets, constitutional frameworks, and dynamics of wealth distribution. Economists working in various traditions, by contrast, have been active in developing both positive and normative accounts of how legal institutions and the organs of the state are influencing, and should influence, the operations of a market economy.2 Economic theories have had a demonstrable impact in shaping directions in market governance, as research on both the influence of neoclassical thinking on financial market governance (Turner, 2011; Black, 2013) and the impact of New Institutional Economics (NIE) in shaping the prescriptions for economic development issued by international institutions would attest (Rodrick, 2006). Albeit the perspectives of economists that have engaged with the role of law, legality, and, in some cases, constitutions in directing economic behaviour diverge in important respects, many of them discursively construct and, through uptake and implementation by legislatures, courts, and expert bodies, seek to materially influence the operations of law and government in and over the market in ways that legitimize existing patterns of resource distribution and that promote the further removal of barriers to processes of ‘efficient’ capital accumulation (Britton-Purdy et al., 2020). In recent years, critiques of the methodological and conceptual narrowness of traditional constitutional inquiry have advanced.3 In this chapter, I discuss three lines of critique found in the scholarship of Dixon and Suk (2018), Alviar García (2019), and scholars debating theories of ‘societal constitutionalism’4 (Teubner, 2012; Christodoulidis, 2021) that are iterated from the premise that both current constitutional structures and the way that they are understood to function in mainstream discourses are either inadequate to the task of addressing inequality or may actively contribute to the exacerbation of social and economic inequalities. Each of the authors whose writings I examine regards the operations of markets as interfering with democratic processes. They may all also be sympathetic to the argument that the interests of a narrow group of economic actors are preventing governments from enacting laws and policies that could advance the interests of social majorities and regulate markets in DOI: 10.4324/9781003202257-2

4  Anna Chadwick

opposition to governing ‘logics’ of efficiency, competition, and price. In this sense, all of the authors appear to take the view that (liberal) constitutional frameworks are implicated in what was discussed in the Introduction to this collection as the problem of the ‘disembedding’ of markets from control by public authorities. Yet, as the analysis will explore, all of these authors view the problem differently because they are all arguing from diverging perspectives on both what constitutions are and how they relate to the laws and dynamics that sustain the operations of a capitalist market economy. I begin in Section 1.1 of the chapter with a brief rehearsal of the discussion of the relationship between constitutions and market (dis)embeddedness that was first outlined in the Introduction to the collection. I underline that in Polanyian terms the debate largely centres on the extent to which constitutional frameworks enable or hinder moves by governments, or by social majorities, to enact laws and policies that could counter the logics of a ‘market society’. In Section 1.2 of the chapter, I move to discuss the recurring argument of successive generations of critical scholars that the public-private divide that animates liberal constitutional thought holds the key to understanding the relationship between constitutional form and distributions of income and resources, and I highlight some of the challenges in drawing causal inferences from this framing. Next, in Section 1.3 of the chapter, I engage in my survey of the work of scholars who are advancing the debate on how constitutional frameworks, or process of constitutionalization, may in some way obstruct, or hinder, efforts to make markets more responsive to the needs of social majorities. Dixon and Suk (2018), who are writing in the U.S. context, present the problem in terms of the underrepresentation of diverse constituencies in constitutional law-making and the disproportionate influence that wealthier and more powerful actors have in purportedly democratic law-making processes. Their analysis takes up the Rousseauian side of the debate on the question of the relationship between equality and constitutional democracy,5 and, working with a narrow conception of constitutional form, they examine the contradictions that emerge between liberal ideals and social outcomes when inequality is not addressed. Alviar García (2019, p. 56) describes processes in a number of South American countries whereby the domestic constitutional architecture is ‘captured’ by neoliberal idealogues who ‘tilt’ the direction of market regulation to favour the interests of private actors by including neoliberal policies in constitutional frameworks. Her work exhibits a broader understanding of constitutional order than that of Dixon and Suk, and she discusses a range of ways in which constitutional capture has taken hold, including the enshrinement of constitutional provisions, cloaking neoliberal policy as technical and apolitical, shifting the ideological configuration of the Constitutional Court, and through regulatory and institutional transformations in economic governance. The work of Teubner (2012) and Christodoulidis (2021) is concerned with the impact of globalization and the liberalization of capital in the erosion of state power and the transformation of constitutional democracy. In contrast to the critical

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insistence on the problem lying with the false dichotomy between ‘private’ and ‘public’ power that animates liberal political thought, Teubner casts the problem in terms of the untenable constitutional premise of the ‘public’. In his analysis, which draws on systems theory and the autopoiesis of social regulation through the development of communicative discourses, the idea that the state can govern a ‘functionally differentiated society’ effectively top-down, through state made law, is unrealistic. The solution for Teubner and others (see Wielsch, 2018) is to introduce forms of ‘constitutional reflexivity’ into specialized sectors of the economy and society – to have a multitude of ‘double movements’6 in different specialist areas of law and policy, so to speak – as opposed to trying to reinstall the state as the meta-governor of the market society. Christodoulidis (2013, 2021) resolutely opposes this suggestion. He shares with Teubner a systems theoretical understanding of the problem of constitutional fragmentation, but he opposes the move to institute reflexive mechanisms in constitutional ‘fragments’, arguing that Teubner’s rendering cements the ascendence of a Hayekian ideal of total market thinking that surrenders ‘constitutionalism, constitutively, to the logic of price’ (2013, p. 633). I conclude the chapter by underlining that the answer to the question of whether constitutions obstruct or enable social majorities from enacting laws and policies that can mitigate the socially destructive logic of ‘self-regulating’ markets, depends significantly on how the nature of constitutional form is understood. I point to recent work by Goldoni and Wilkinson (2018) on the ‘material constitution’ and their contention that there is a need for a wholesale transformation in understanding constitutional ordering as a material process as one way of moving forward.

1.1 The Constitutional Embeddedness of Markets: A Recap A common concern animating recent scholarship on the failure of constitutional democracy to address inequalities is the idea that markets have become ‘disembedded’ from control by public authorities. As discussed in the Introduction to this collection where competing conceptions of market embeddedness were first analyzed, the key issue for a Polanyian conception of market embeddedness is whether constitutional frameworks either enable or obstruct the ‘double movement’ from taking take place.7 From a Polanyian perspective, the key question animating the investigation into the relationship between markets, constitutions, and inequality in this collection should be to what extent constitutions, which are supposed to be the frameworks under which laws are democratically and legitimately issued, constrain or enable forms of democratic governance pursuant to which social majorities can seek the law’s protection to insulate them from the effects of a ‘market society’. Evidently, a great deal in this debate turns on the question of how the foundational categories of ‘constitution’ and ‘market’ are interpreted and framed in a given analysis. As I

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will explore in Section 1.3 of the chapter, public law scholars who are advancing debates into the interrelationships between markets, constitutions, and inequality reach very different conclusions on this key question of the nature of the constitutional form. Before moving on to this discussion, it is necessary to explore a number of tensions that accompany the extension of Polanyian ideas, regarding market embeddedness to constitutional orders. If, as both liberal constitutional theory and recent work by law and political economy (LPE) scholars might imply, markets can be understood to be embedded in liberal constitutions, in the sense of being governed by laws and institutions that emanate from processes of constitutional ordering (see Section 1.2 below), this creates a problem for Polanyian analysis. Liberal constitutions are, almost by definition, supposed to be structured around an institutional separation of society into an economic and political sphere. The protection of private property within many liberal constitutional orders would appear to indicate that they are predicated on the logic of a market society in which land, labour, and money are to be organized according to economic as opposed to political imperatives (and, consequently, as commodities in accordance with the logic of price). As Marks (2020) discusses in her recent exposition of interrelations between the development of capitalism and eighteenth-century discourses on the rights of man, critics in the eighteenth century were actively debating the role of liberal constitutional norms and frameworks in helping to cement the violent process of enclosing common lands and forcing populations into the labour market. Marks describes how William Walwyn, a Leveller, described the Magna Carta as ‘but a beggarly thing containing many marks of intolerable bondage’ and as a ‘mess of pottage’, meaning the trade of something of immeasurable value – real freedom – for an easy and cheap substitute (p. 78). Another critical reflection came from Mary Wollstonecraft who, in response to Edmund Burke’s characterization of the constitution, which he called ‘the decent drapery of life’, argued that it was better understood as ‘a graceful veil [thrown over] vices that degrade humanity’ (pp. 186–188). Here, it is implied that liberal constitutions may create forms of entrenchment that prevent social redress (the double movement) from finding purchase by propagating the false idea that freedom can be achieved by citizens through participation in a democratic order in which debates about the inequitable distribution of resources are effectively removed from democratic contestation. The suggestion that, through the protection of private property and the structuring concept of a public-private divide, liberal constitutions create path dependencies that might entrench the foundations of a market society reflects an understanding that constitutional ordering is top-down: rights embedded in the constitution are superior legal norms that must be respected. Understood in this sense, constitutions are supposed to create path dependencies and to enshrine rights and principles that guide law-making. If the liberal constitutional order is founded on a separation between the public

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and private realms, this could suggest that the only kind of law-making that can be legitimately issued from this framework is law-making that cannot question the commodification of land, labour, and money (Polanyi’s fictitious commodities). As the next section of the chapter will illustrate, however, the move to invoke the foundational separation between the public and private as an animating force for liberal constitutionalism does not straightforwardly establish the case that there are path dependencies between a particular liberal constitutional form and trajectories of market governance and trends in inequality. Other interpretations would understand constitutionality as a process. As one friendly interlocutor has posited, If constitutions, adjudication and so on are but social mechanisms that enable certain kinds of dialogues and discussions (and foreclose others), what becomes embedded are the constitutional practices (not the constitution itself) of establishing certain procedures for making rules and exercising oversight. And the legitimacy of the constitution itself derives from the practice of abiding by how it brings about people for discussing topics under certain circumstances and conditions.8 On this reading, constitutional frameworks and processes are a proxy for the social relations that embed the market in Polanyian analysis; a means through which processes of social embeddedness can be realized. After all, interpreting the liberal state and its constitutional order as a structure that has a determining effect on the development of markets – as a structure that embodies and reinforces the disembedding of markets from other social relations – is not very Polanyian, as, ‘for Polanyi social order is precarious’ (Beckert, 2007, p. 17). A third position on the role of constitutions in enabling or obstructing a double movement lands somewhere in the middle of these two perspectives. It requires a more elaborate conception of market ‘embeddedness’ to the one developed by Polanyi, who did not develop the concept of market embeddedness with much granularity. Although Granovetter (1985) is sometimes argued to have taken an apolitical approach to market embeddedness, his work has extended valuable insights into the behavioural and cognitive aspects of market embeddedness that were not examined in Polanyi’s original work. Under a Granovetterian concept of embeddedness, ‘markets’ are disaggregated into market behaviour, and market behaviour is understood to be conditioned by social networks. For economic sociologists who have built on Granovetter, to say that markets are now ‘embedded’ not in social relationships but in the form of the liberal state or its constitutional order suggests that those social relationships have become crystallized into an overarching political form that exerts cultural, cognitive, and symbolic power over citizens who are, of course, at the same time, market actors (Zukin & DiMaggio, 1990). The constitution in this reading becomes a kind of meta-social network or else constitutional processes become captured by

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particular social networks. The contributions of all of the authors discussed in Section 1.3 argue in this vein, albeit in different ways. If the analysis is taken in this direction, this casts the embeddedness-disembeddedness phenomenon differently. To the extent that the way that a given constitutional order generates or influences specific social dynamics or institutions that shape market behaviour, markets can be described in Granovetterian terms as being embedded in a constitutional order, which, depending on the nature of that order, could have a more marketizing (disembedding) or less marketizing (re-embedding) effect. To connect this conception of embeddedness to the broader debate about political economy and market embeddedness in Polanyi, the question then becomes whether the forms of cultural, cognitive, and symbolic power of constitutional ordering prevent other social values from conditioning market exchange. Frerichs (2017) and Lang (2013) are two scholars who explore how both law and economics as combinations of institutional practice and expert discourse may condition social rationalities and produce forms of ‘cognitive embeddedness’ that produce the market subject (homo economicus) of efficiency-oriented economic theories. On this view, the problem for the Polanyian faith in the double movement and, relatedly, the presentation of constitutional frameworks as an open forum is that it does not account for the possibility that the institutional practices, expert discourses, and legal forms that comprise liberal constitutional ordering reflect and further entrench market logics. An important possibility must be confronted: what happens if the (constitutional) process through which majorities are supposed to utilize to re-embed markets in ‘social relations’ are already captured by and shaped in accordance with market logics? Before moving on to consider whether recent scholarship from critical public law theorists offers any further insight into these debates, it is necessary to address the increased attention that is now being paid to law’s ‘constitutive’ role in the market for debates about constitutional embeddedness of markets.

1.2 From Law’s ‘Constitutive’ Role in the Market to the ‘Constitutional Embeddedness’ of Markets? While the operations of highly abstract markets may continue to be analyzed in terms of the interaction of the ‘forces’ of supply and demand in classroom economics, as well as for purposes of modelling and forecasting, scholars in the disciplines of both law and economics are increasingly attentive to the fundamental, even foundational, role that particular legal rights and regimes play in enabling economic exchange to take place. There are important differences between how legal scholars and institutionalist economists regard the nature of law and its role in markets.

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Two broad groupings of scholars – comprising law and economics (L&E), and new institutionalist economics (NIE) scholars on the one hand as contrasted with legal institutionalist and LPE scholars on the other – disagree over a number of key issues, including the degree to which the state should regulate to consciously direct the outcomes of processes of market exchange; the extent to which the (often private) laws that emanate from the state and enable market exchange have a normative or political character; whether or not pursuing an efficient allocation of resources to ensure growth should be the function of the laws that underpin market exchange; and whether private actors should be able to develop private ordering solutions that replace the function of the courts in adjudicating on disputes between private parties. Nevertheless, today, markets are increasingly discussed in legal-institutionalist terms (Mercuro & Medema, 2006; Deakin et al., 2017). To the extent that most legal scholars and economists would accept that the authority of the state and its ordering capacities are necessary fundaments for a market economy to operate, there would seem to be a shared understanding that markets are thereby ‘embedded’ in the constitutional order of the state in the sense of being ‘contained within’ or ‘issued from’ the state’s legal authority. This finding would correspond to the understanding of this dynamic that might, prima facie, emerge if it is approached from the perspective of liberal constitutional law theory. If markets are creatures of law, then they are creatures of the state’s legal authority, and there is supposed to be no higher law for the agents that comprise ‘the market’ (citizens) than the law of the sovereign. Constitutions are further said to ‘simultaneously create, empower, and limit the institutions that govern society’ (UCL, 2021). Markets are widely acknowledged to be institutions (or made up of institutions), and they play essential governance roles in society by enabling the production and exchange of goods and resources; hence, on this description, too, markets would seem to be ‘embedded’ in constitutions, which create them, empower actors within them, and should limit the ways in which they govern society. Proponents of liberal constitutionalism would likely oppose the conclusions that LPE scholars tend to derive from the aforementioned findings, which is to suggest that the shared legal root of private economic power and state power necessarily makes governments responsible for the actions or outcomes produced by private economic agents or, collectively, for the effects of market power in conditioning access to resources within a given society. For liberal constitutionalists, constitutions do not only give the state power or legitimate its power: they legitimate state power by constraining it. Indeed, a basic definition of a constitution is ‘a body of fundamental principles or established precedents according to which a state or other organization is acknowledged to be governed’ [emphasis added] (Lexico, 2021). Government, as central doctrine of liberal constitutional theory underlines, is subject to the ‘rule of law’: the principle that sovereign states are not only the issuers of laws, but they are also governed by law, and they are required to exercise power in accordance with

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constitutional laws and principles including rules of due process, the principle of the separation of powers, and respect for the fundamental rights of citizens and people residing within their territories. A long tradition of liberal thought would characterize the de facto separation of the private sphere from the public sphere as necessary for the legitimate, indeed, constitutional, functioning of the state. As Goldoni and Wilkinson (2018) underline, drawing on Wood (2011), ‘it is the relative autonomy of the political from the economic that sustains modern constitutional authority, distinguishing it from prior political forms, medieval as well as ancient’. Some scholars have dismissed the idea that there is a straightforward causal connection between the constitutional protection of private property rights and patterns of social and economic inequality (see Loughlin, 2019). However, other literatures do implicate the foundational separation between the ‘public’ and ‘private’ realms in liberal constitutional thought in patterns of distribution. Many Marxist scholars would not be deterred by the simultaneous recognition of social and economic rights and private property rights at the constitutional level (such as in Ecuador, see the discussion of Loughlin, 2019 in the Introduction) from arguing that state structures predominantly advance the interests of the ruling class. Marxist theories explain the existence of laws that ostensibly impede profitable accumulation – and the related ambivalence of constitutional texts that simultaneously protect private property and recognize and advance social rights – in terms of the ‘relative autonomy’ of law. On this view, while it is acknowledged that ‘the modern state including its legal system is notable for its considerable degree of independence from the control of the dominant class’ and that subordinate classes can ‘make real gains by securing beneficial legislation’, Marxists maintain that such gains are minor and only marginally detract from the background control over the state exercised by owners of capital (Collins, 1982, pp. 48–49).9 Other scholars, whose recent work has studied the relationship between the coding of private legal rights and the production of wealth and inequality but who are critical of what they see as Marxism’s ‘reductive’ account of law, also insist that ongoing private property ownership does have some explanatory power in current trajectories of inequality, albeit in ways that are not straightforward. The enabling role of particular regimes of law as a necessary fundament for market exchange has led successive generations of critical scholars to argue that the private laws and conceptions of entitlement that enable some persons within a society to command the actions of others are all extensions of the sovereign rights of the state, that property is sovereignty, as Cohen underlined in the 1920s (Cohen, 1927). From a legal realist (and an LPE) perspective,10 all rights ‘are policy’ (Zumbansen, 2007, p. 207), and property rights have an undeniably social function enabling some actors to coercively control others by excluding them from access to resources and requiring them to sell their labour power in order to command access to subsistence. In her 2019 book, The Code of Capital: How the Law Creates Wealth

T he Constitutional Disembeddedness of Markets?  11

and Inequality, Pistor argues that private lawyers code capital and protect private wealth through the development of core ‘modules’ of law, including property rights, contract law, and collateral and bankruptcy laws, and her argument explicitly links these practices with Picketty’s analysis of the economic ‘laws’ of inequality showing how lawyers are complicit in innovating to create the legal and institutional structures through which the returns to capital exceed the growth in wages, leading to economic inequality (Picketty, 2014). On this view, the public-private divide and the constitutional protection of private property would appear to at least be implicated in institutionalizing a form of market disembeddedness that obstructs attempts at egalitarian social reform. On the other hand, critical scholars of private law would have little trouble in making the case that there is too much that is indeterminate in the meaning of the bundle of rights that make up the legal form of ‘property’ to draw a neat line between formal constitutional protection and inequality. Moreover, in the U.S., defenders of economic liberalism claim that the U.S. government has failed to adequately protect constitutional rights to property by interpreting the requirement to pay compensation for expropriated property in the narrow sense of physical seizure and by ‘regulating nearly all value out of property’ through financial and environmental regulations, along with other measures that ‘escape the compensation requirement because the all-​but-​ empty title remains with the owner’ (Cato Institute, 2017). The fact that constitutional protections for private property in the U.K., Europe, and the U.S. have persisted throughout periods of greater and lesser privatization of public goods, such as social housing, would counteract an understanding that a formal constitutional structure can determine a particular social reality. Governments and courts acting under the auspices of liberal constitutional frameworks evidently do introduce regulations that counter the further marketization of social life. Many markets are legally regulated according to considerations that are decidedly social: dishonesty; fraud; consumer protection; minimum wages; illegality of certain markets (such as those for organs; people; drugs). What is more, many governments (try) to introduce taxes and policies to redistribute wealth and to advance the welfare of citizens and residents: free education, social care, unemployment benefits, etc. Nevertheless, there is a deep ambiguity as to the extent to which such social regulations are really protective in a context of a capitalist market economy. Do these regulations involve a re-embedding of the market in social relations, or are they part of the disembedding move in that they disincentivize dissent and, by keeping workers at the most basic level of survival and welfare, enable the operations of the market society and capitalist order to be perpetuated? Polanyi’s work is not conclusive on this critical issue. The foregoing discussion immediately underlines that the question of the relationship between a particular constitutional form, directions in market governance, and patterns of inequality cannot be answered by looking at the constitutional text alone. Overall, these initial reflections would suggest that

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there is no simplistic relationship between the protection of private property rights and particular modes of market governance: the constitutive role of law requires something else in order for private rights to extend into broader structures of governance, such as a hegemonic ideology or a ‘governing rationality’. Overall, these discussions would instead support an understanding that society is shaped through forces struggling to realize their interpretations in, through, and around constitutional forms and formalities – through a ‘material constitution’ (Goldoni & Wilkinson, 2018). On the other hand, a number of scholars who have critically examined the relationship between constitutional form and the exercise of political will do implicate constitutional form in obstructing a double movement. From the perspectives of Christodoulidis (2021), the juridification of liberal constitutional orders denies adequate representation of the will of the ‘constituent power’ as it purports to institute it. The underlying problem is that liberal constitutions are supposed to simultaneously be responsive to the democratic will and to ensure that power is exercised in accordance with the prescripts of a juridical framework for law-making that has a stifling effect on politics. Christodoulidis expresses this paradox as follows: Political power must present itself as conditioned and with it political power is sovereign only, so to speak, under conditions that it is not. Because to be authorized it must be imputed to the constitution that established the conditions under which the popular will can be expressed as sovereign. (p. 152) On these accounts, even without recourse to analysis of the effect that legal and constitutional mechanisms may exert on the consciousness of market actors, the very act of creating a constitution – a set of rules to govern future social relations – would seem to institute a mechanism that institutes path dependencies that shape the future of social and political relations. If the constitutional form that is created is one that is created in conditions that are less than democratic and in which some social constituencies exert greater power than others, it would follow that constitutional orders are likely to further advance the interests of the more powerful constituencies that participated in their design. As Frerichs (2017, p. 251, quoting Polanyi at p. 69) has underlined, Polanyi also acknowledged this situation: ‘Polanyi makes it clear that “the liberal state was itself a creation of the self-regulating market” by underlining that the premise of the liberal state is non-interference in the formation and functioning of markets and, namely, the price mechanism’. This would suggest that constitutional mechanisms are likely to obstruct social majorities from enacting legislation that prioritizes social needs over market values. I now turn to explore recent work by critical public law scholars who are studying the interrelationships between constitutions, patterns of inequality,

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and the governance of markets to see how their accounts might elaborate on the problem of the ‘constitutional disembeddedness of markets’.

1.3 Constitutional Disembeddedness: Competing Accounts of the Problem 1.3.1 Dixon and Suk: Economic Inequality and the Limits of Liberal Constitutionalism

Dixon and Suk (2018) are two scholars (see also Sitaraman, 2017) who assertively take up the Rousseauian side of the debate on the relationship between liberal constitutionalism and equality,11 arguing that economic inequality undermines the values that liberal constitutionalism purports to protect. Their work examines literature on the impediments to social mobility and posits that ‘[W]hen individuals who are born poor cannot become rich, and vice versa, liberal constitutions’ commitment to the freedom of individuals to determine their own fates is exposed as false’ (p. 373). Political legitimacy in a liberal constitutional order, they argue, ‘depends on there being, at a minimum, substantive equality of opportunity and substantively equal forms of political participation’ (p. 373). After offering a discussion of contemporary forms of inequality, Dixon and Suk then go on to critically assess the multiple ways in which constitutional mechanisms might be used or changed to reduce economic inequality, such as by streamlining constitutional reform processes, constitutionalizing social and economic rights, or addressing the influence of corporate lobbyists through reforms to constitutional laws on campaign financing. The nature or form of the liberal constitution is not addressed by the authors, though it is apparent that they are discussing the constitutional structures and features of the United States. The constitution is read in a positivist register and is understood as the text and set of institutions and case law that interpret that text with reference to doctrines such as proportionality and the separation of powers, as well as procedural and administrative rules. The constitution is what it is described to be in liberal constitutional law scholarship, and the approach of Dixon and Suk is to highlight some of the limitations of addressing inequality within this framing and in accordance with their Rousseauian interpretation of the prescripts of liberal theory. Equally, while a lot of facts on the wealth gap and other forms of inequality are presented in the analysis, no attempt is made by the authors to relate the prevalence of inequality and the persistence of wealth gaps to structural features in the market economy or to examine the relationship between constitutional form and market structure. Instead, the analysis moves quickly into the consideration of how inequality can be addressed, which is cast in terms of three broad policy responses: more inclusive forms of growth; policies that can prevent the overconcentration of wealth and income; and forms of economic redistribution that can mitigate the downsides of ongoing poverty and

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middle-class compression. In most liberal democracies, the authors state, ‘such policies are statutory and regulatory, and their adoption or success may not have an obvious constitutional dimension’ (p. 375). Dixon and Suk do discuss some of the ways in which liberal constitutional mechanisms might hinder or perhaps generate inequality, and some issues of constitutional structure are presented as obstacles to reducing inequality. It is suggested by the authors that ‘legislative quotas or reserved seats for individuals from different income groups, or other constitutional features designed to make the legislature more directly responsive to the poor or the median wage earner’ (p. 370) should be instituted; hence, the under-specification of representation and the constitution’s neutrality in terms of how population is represented through party politics in the U.S. context is seen to be part of the problem. They are further concerned with the influence of money on the political process: constitutions will have to ‘cabin the role of money in politics’ (p. 377), and they argue that there is a need for a ‘constitutional amendment to reverse Citizens United v Federal Election Commission and allow the regulation of super PACs’ (p. 377). In this sense, Dixon and Suk’s piece is discussing what could be read as a process of the ‘disembedding’ of markets from a set of (liberal constitutional) social values, as they argue that the ability of elites to influence the constitutional process undermines those values (p. 374). Moreover, the monetary power that is influencing the political processes can be likened to the Polanyian discourses concerning social (and political) relations becoming an epiphenomenon of underlying market relations. These scholars also appear to be trying to instigate a Polanyian move to try to re-embed markets within an apparatus of a more egalitarian liberal constitutional structure. The authors also recognize that legislatures in the United States may be hampered in the ability to respond to inequality due to the protection of economic rights under law. They argue that their analysis ‘cannot be divorced from broader legal-economic responses – including in the design of international trade and investment agreements’ (p. 388). However, they do not appear to regard these economic rights as part of the U.S. constitution. Indeed, when discussing the possibility that constitutional judges could realize economic and social rights, Dixon and Suk consider that this ‘requires levels of expertise and policy judgment that the judiciary may not have’ in areas such as the ‘regulation of zoning, transportation, infrastructure, environmental impacts, access to credit markets, and evaluating social services like education at an astonishingly micro level – including teacher retention policies and pedagogical philosophies in curricula’ (p. 397). Courts’ efforts ‘to intervene strongly in these policy problems risk perceptions of incompetence and illegitimacy’ (p. 397). Hence, it is clear that the activities of other courts that are making interventions into these areas of policy by adjudicating on private rights and civil law claims in many of these same contexts are not understood to form a part of the constitutional structure. The structural effects of current constellations of laws

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that permit private actors to build in certain areas, or to engage in development projects, or to access credit, or to pay for private education are not part of the debate. Dixon and Suk do not appear to question the public-private divide and how it relates to constitutional governance: they argue from within the liberal camp, not without it, though they clearly want to challenge its internal logic and ideology from within. 1.3.2 Alviar García: Constitutional Capture and the Economic Constitution

A different strategy for advancing beyond the narrowness of contemporary constitutional enquiry with regard to social and economic inequalities has been to examine processes whereby the economic rights of private actors appear to be being ‘constitutionalized’ – in the sense of being juridically reinforced and removed from the sphere of political contestation – through their incorporation into the texts of national constitutions and as a result of treaty commitments in the area of international economic law (Alviar García, 2019; see also Schneidermann, 2008). These scholars all explore the materialization of a neoliberal ‘economic constitution’ that is understood to have emerged due to the influence of particular political-economic theories on the boundaries of appropriate state intervention in the economy, and they seek to challenge the economic orthodoxy upon which this enabling legal apparatus has been built. Alviar García offers a provocative assessment of these processes in her analysis of the inclusion of constitutional provisions on monetary and currency policy, market regulation, and competition in the constitutions of several states in South America. Her study offers a theory as to how a particular constitution can have structuring effects on the underlying economy. ‘Excluding certain economic policies and choices from public deliberation is an authoritarian form of restricting freedom of expression and political participation’, she argues, and including neoliberal ideals in the constitution ‘tilts the balance in favor of a specific regulatory style: a single form of carrying out economic policy – fiscal austerity, free trade, export-led growth – as well as a marked preference for the market over the state’ (p. 41). She further relates her study in the Latin American context to a more general trend of the ‘fixing of neoliberal values in constitutions all over Europe’, which she argues is ‘[e]levating liberal technocracy to a constitutional mandate’ (p. 41) (see also Wilkinson, 2019 in Alviar García & Frankenburg (eds), 2019). Alviar García has a broader conception of constitution than Dixon and Suk, and she talks in terms of ‘constitutional design’. ‘By “constitutional design” I mean not only specific articles but also the way in which fundamental institutions have been developed by the law, regulated by executive agencies, and in some instances interpreted by judges’ (p. 43). Alviar García contests the public-private divide that predominates in Dixon and Suk’s reading of ‘constitution’, and her study is almost an inverse of their work in the sense that it

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is precisely concerned with elucidating how the kind of economic rights and judicial processes that Dixon and Suk disregard in their approach are part of a Polanyian process of market disembedding. She is describing what critical scholars identify as a later wave of accumulation by dispossession, or a ‘second enclosure’ (Boyle, 2003): the further transformation and commodification of social relations in line with a market logic. What neoliberal constitutional reforms are doing, she suggests, is extending the transformation of social relations beyond the initial move to create a self-regulating market in land, labour, and money to the ‘social’ institutions of the state and its capacity for social provision. ‘Authoritarian neoliberalism’ has involved ‘deregulating and privatizing the economy, liberalizing trade and industry, the protection of foreign investment, and fiscal austerity’ (p. 38). However, Alviar García also underlines that constitutional reforms in countries in South America have not been uni-directional: many of these constitutions have simultaneously adopted generous bills of social and economic rights, and broadened and strengthened the spaces as well as the tools for democratic participation (Alviar García, 2019, p. 38). Colombia is a country in which many of the reforms proposed by Dixon and Suk to combat inequality have been trialled, including the constitutional enshrinement of social and economic rights and direct forms of representation and political participation. Interestingly, while Dixon and Suk argue in favour of removing impediments for action by the legislature in order to enhance constitutional democracy, in Colombia additional administrative hurdles were a tool of protection for minority groups against neoliberal government economic policy. Alviar García acknowledges that this ‘participatory mechanism is far from an ideal method of political participation, as the framing of the question allows for a wide variety of manipulations’ (p. 52). Nevertheless, she continues, ‘it is an example of how a constitutional design to limit an elected government can work in the favour of minority groups’ (p. 53). In contrast to Dixon and Suk, for Alviar García the critical issue concerning the current direction of constitutional reform and trajectories of inequality is not a lack of political will to address inequality or institutional path dependencies that result from how constitutions can or cannot be reformed. The problem is the broader ideology and expert discourses through which the market-society nexus is understood. The problem is also one of cognitive embeddedness of constitutional and state agencies in a specific brand of economics (Frerichs, 2017). It is important to underline that Dixon and Suk, and Alviar García are writing in different jurisdictional contexts. The U.S. constitution has not been explicitly amended to incorporate provisions relating to economic governance in the same way that constitutions in countries in South America have, although, under a broader reading of constitutional transformation, the case of Citizens United is an example of such a market-logic oriented constitutional reform. Indeed, comparing the work of these authors highlights the significance of constitutional reform processes as a means of instituting path dependencies.

T he Constitutional Disembeddedness of Markets?  17

Alviar García’s work is an exemplary study of how constitutional reform can be a site for a Polanyian battle over the embedding and disembedding of markets, but the importance of the constitutional level for that battle is also a function of the particular form of the Colombian constitution. While many theorists search for deeper ‘structural’ and ideological explanations to account for how political economies develop, a great deal depends on the institutional ‘rules of the game’ (North, 1973), which include how easy it is to change the constitution and the extent to which constitutional reform filters down into wider processes of legal and institutional change; or, equally, how other institutions enable or constrain constitutional change (Goldoni & Wilkinson, 2018). A battle to insert social rights as legal trump cards (Dworkin, 1977) might not take place in the same way in the U.K., for example, where there is no formal process for amending the constitution but where informal change can be understood to manifest in any legislative reforms that alter the balance of powers between different organs of the state, or different levels of government, or between state power and the rights of people within the territory. The apparent sensitivity of liberal constitutions to the (neoliberal) politics of the day in Alviar García’s account lends itself to an understanding of constitutional orders as being dynamic, and it would seem to negate the overdetermining shape of constitutional form as something that plays a special role beyond economic ideologies and material powers in enabling or constraining social change. For political constitutionalists, including Loughlin, the solution to the contemporary constitutional malaise appears to lie in resisting the ‘persistent trend’ for legislatures to concede authority to governments, regulatory officials, and courts – concessions that ‘drastically erode the principle of representation, bolstering a conviction that the institutional apparatus of government is now a self-perpetuating system in no need of elected representatives’ (Loughlin, 2019, p. 443). Similarly, Alviar García and others consistently move to try to reclaim the ‘space for politics’ from the clutches of neoliberal economic technicians: the problem might be solved, it is suggested, by more adequate representation. For theorists of societal constitutionalism, by contrast, constitutional form is a special part of the problem, and, paradoxically, or so it would seem, representation is too. 1.3.3 Constitutional Fragmentation: The Great Societal Constitutionalism Debate

A further problematization of the notion that markets can be embedded within a constitutional order comes from the interrelated fields of social systems theory and transnational law. A number of scholars engaged in the ‘societal constitutionalism’ debate associate the liberalization of capital markets, the increased globalization of the economy, and the development of forms of transnational private law-making in which private actors create their own systems

18  Anna Chadwick

of governance, often through contract (Calliess & Zumbansen, 2010; Cutler & Diaz, 2017), with the ‘dramatic erosion of the political authority that in the Western tradition we have commonly associated with the state’ (Teubner, 2012, p. 29). Scholars writing in this tradition regard the phenomenon of transnational private law-making as an outcome of an increasingly ‘functionally differentiated’ society – a society without a political centre in which private orders ‘self-constitutionalise’. The debate centres around whether it is even possible, under conditions of globalized capitalism and the autopoietic development and constitutionalization of social sub-fields including ‘law’ and ‘the economy’, for a ‘constituent power’ to elect governing representatives that could counter the interests of (financial) capital. The subject matter of Teubner and other social systems theorists is not constitutional texts or institutional matrixes that belong in any particular jurisdiction: these scholars are engaged in the ‘analytics of constitutional ideal types’ (Frerichs, 2017, p. 7). The field takes considerable inspiration from the social systems analysis of Nicklas Luhmann (1993) and his theory of law, and it applies and extends it to constitutionalism. Luhmann was interested in processes of autopoiesis found in biology, and he used informatics and discourse analysis to extend this to social systems. In brief, the resulting analysis is that constitutions are understood primarily as discourses, or ‘systems’, and they emerge at the societal level: they are not first juridical or political creations. Rather, the formal constitution is one manifestation of ongoing processes within society that exhibit different logics and that become increasingly ‘functionally differentiated’. These systems start to talk about themselves, and they can only incorporate new information from other systems by means of translation into their own terms. On this view, the development of legal orders that are operating ‘beyond the state’ to further the interests of wealthier constituencies are attributed to problems of social differentiation and fragmentation that are cast in an almost organic resister, as opposed to being the result of a particular ideological influence. These legal theorists problematize the very notion of constitutional governance, which understands the function of the constitution as being ‘to manage the interdependencies of concepts, rules and values in a way that preserves coherence and organises the law as a system’ (Christodoulidis, 2021, p. 212). For scholars writing in this tradition, the problem with contemporary constitutional form is not the fictitious separation between a private and a public realm: instead, it is the fiction that the state can claim to govern a complex society. Under this lens, ‘the autonomy of social subsystems, which is rooted in self-referential relationships, makes them inaccessible to direct legislative intervention’ (Teubner, 1993, p. 77). Indeed, for Teubner, there is no single constitution but there are many ‘partial’ ones. Frerichs (2017, p. 7, building on Fischer-Lescano; Teubner, 2004) summarizes the problem very well: there is no single act of foundation, in which the constitutive power appears on stage, but a functionally differentiated process of constitutionalisation,

T he Constitutional Disembeddedness of Markets?  19

which seems to follow a logic of its own … Since the functional logic of ‘non-political polities’, such as ‘the economy, […] science, education, health, art or sports’ is not confined to national territories but ideally globalised. As Frerichs underlines, the law of these subsystems is globalised as well: ‘The national differentiation of law is now overlain by sectoral fragmentation’ […] . In the end, the ‘new’ polities constitutionalise themselves by establishing reflexive mechanisms of law-making specific to their own rationalities. For both Teubner and Christodoulidis, a critical limitation of constitutional democracy and political constitutionalism lies in the challenges of adequate representation of societal interests in democratic processes. The French Revolution brought in the figure of ‘we the people’, Christodoulidis underlines, but it also opened up a gap between the presence of the people and their representation in political institutions, as representative democracy is ‘always defective as compared with presence’ (p. 220). A consequence of this development is that social forces are effectively exiled from the constitutional order and become instead an object of management. Christodoulidis (2021) offers an explanation for the capture of the constitutional architecture by neoliberal technocrats; he locates the problem at the level of constitutional form and the challenges of moving beyond representation, arguing that market thinking has found a way to claim this representative function: ‘market constitutionalism proposes to circumnavigate these complexities through the signalling function of the price mechanism’ (p. 222). The work of Hayek and other neoliberal scholars insists that the price mechanism is the most direct form of representation of the social will; they see no problem with what a Polanyian lens would reveal as a defect in this mode of thinking, which is that the only way that interests can be represented within it is in line with a commodified logic. The market is entrusted to ‘send self-correcting messages and convey information’, and the constitution ‘enters the picture only to stabilise those selections, as an afterthought providing sanction for those distributions’ (p. 271). Teubner and Wielsch argue that the only way to address the problem of the increasing dominance of the economic system over other fields of governance is to try to build more reflexivity into the existing systems. Their solutions can be likened to trying to institute forms of the double movement in the different constitutional fragments of the economy. As Wielsch (2018) writes in his work on one of the most oft-cited examples of the development of a legal order beyond the state, the regulation of the global derivatives market by a private institution developing standard-form contracts (the ISDA Masters Agreement), contextual readings of contractual terms that are iterated by actors

20  Anna Chadwick

immersed in the particular institutional context should predominate. He argues that ‘the law must leave behind the conventional view that the nation state’s legal order will naturally provide background justice and guarantee execution of the contractual programme’ (p. 976). Instead, attempts must be made to find ways within different social-subsystems to make them more responsive to different social interests. Christodoulidis opposes the ‘[G]rand scheme of abandoning the normative foundations of political constitutionalism in the name of better knowledge and uncertainty’ (p. 364). Instead he advances a number of solutions to this challenge, one of which is to press on the antinomies of social rights within constitutional orders and insist on ‘militant formalisms’. ‘If social rights are beset by contradictions between capitalism and democracy we must explore their constitutional iteration’, he argues (p. 364). Social rights for Christodoulidis are ‘dogmatic resources’, as they recognized by the system, and, thus, holding on to the commitment to political and social unity through the constitution and refusing to relinquish the meaning of social rights to market-centric determinations is ‘a stubborn attempt to hold the line, and not forever slip into the partial rationalities of social sub-systems’ (p. 479). Critical thought must force appearance in the constitutional sites that it must navigate (p. 481). If I understand him correctly, Christodoulidis contends that there are resources within existing constitutional forms on the domestic level – constitutional forms understood in a broader register as processes, texts, rights, and discourses that are being navigated by different constituencies who are propelled by historical-materialist forces – that can be used to try to force change from a contingent opening in the legally structured, highly specialized, fragmented social interactions that comprise late capitalism.

1.4 Concluding Thoughts In this chapter, I first drew attention to some of the challenges involved in trying to understand the significance of constitutions for markets and vice versa. I built on and extended the discussion of the ‘constitutional embeddedness of markets’ that was first elaborated in the Introduction to this collection, and I examined the multiple senses in which markets can be described as being embedded, or disembedded, in constitutions. Following a Polanyian conception of embeddedness, I argued that the issue turns on the extent to which constitutions help or hinder the efforts of governments to institute laws and policies that advance the interests of social majorities and prevent market logics from dictating the terms of social life. I then moved to examine three different lines of critique iterated by scholars who are, in very different ways, implicating constitutions in the disembedding of markets, and in obstructing a Polanyian ‘double movement’. It has not been possible to do justice to these contributions in such a short chapter, nevertheless, it is evident that while each of these groups of scholars is

T he Constitutional Disembeddedness of Markets?  21

discussing a situation in which constitutions are implicated in the d­ isembedding of markets, they all argue from different perspectives on the nature of the problem because they all depart from significantly different conceptions of what a constitution is. For Dixon and Suk, the U.S. constitution encompasses a clearly demarcated area of state governance that corresponds to the prescripts of liberal constitutional theory: the text of the U.S. constitution, principles of the separation of powers and the Rule of Law, and constitutional adjudication. Their diagnosis of disembeddedness acknowledges the undue influence that certain constituencies are able to exert within the law-making apparatus of the state, and they suggest that the problem is that constitutional practices are in tension with the values of liberal constitutionalism. They insist on pressing on the antinomies in liberal constitutional theory with regard to its compatibility with persistent and rising inequality. For Alviar García, the constitution is understood as a broader network of institutions, laws, and practices. The form of embedding with which she is concerned is the cognitive embeddedness of political and legal actors in a particular ideological framework, but there is nothing inherent in liberal constitutional forms or structures that lend themselves to this kind of capture. She too challenges the coherence of liberal constitutional thought by exposing the authoritarian tendencies of liberal constitutional orders. Her account presents a broad conception of the constitution as being the site for a Polanyian battle to re-embed markets in legal frameworks that better advance social welfare. Theorists of societal constitutionalism argue that constitutionalization is a social process that is only secondarily legal. For both Teubner and Christodoulidis, the nature of evolving social systems as communicative discourses and the claim of the constitution to represent social interests leaves it vulnerable to capture by dominant market logics. On this conception, constitutional forms can create channels through which the only interests that can speak in particular social-subsystems are those that correspond to a commodified logic. The question of how to resist this development is the subject of their debate. Each of the authors that I have engaged with evinces a radically different account of the nature of constitutional form and its relationship to market (dis)embeddedness, yet they all identify and explore solutions to similar challenges: the question of adequate representation of social constituencies in constitutional frameworks and in law-making processes is paramount, as is the importance of challenging the foundational structuring concepts of liberal constitutional thought. All of these scholars seek to press on the discontinuities between how constitutional orders are described, how they self-describe, and how they manifest. Fundamental structuring categories of ‘equality’, ‘publicprivate’, ‘economic-political’, and ‘social’ are defined to particular ends and to particular effects, and implementing a double movement involves mobilization that refuses to allow these designations to remain alive and at work in ways that

22  Anna Chadwick

result in more and more areas of social life being ordered according to market logics. Perhaps what this chapter underlines most clearly is the need for a renewed debate about the nature of constitutional form and its relationship to market governance. Goldoni and Wilkinson (2018) have instigated a move against the stifling strictures of formal constitutionalism by offering a new paradigm for understanding the nature of constitutions that can account for how they can both act as ordering forces in society and be responsive to forces of material ordering. They argue that the ‘material constitution’ comprises a variety of forces, including ‘political unity; a set of institutions; social relations, and fundamental political objectives’ (p. 567). These forces ‘constitute the substance and dynamic of constitutional ordering, in internal relation with the formal constitution’ (p. 567). Constitutional change, for Wilkinson and Goldoni, cannot only be theorized in terms of what is happening with regard to formal amendments of constitutional texts or the rulings of constitutional courts: constitutional change is happening in the capillaries of society – in legal rulings at the civil level; and in the crystallization of institutions that enable or obstruct particular policies. Going forward, their work, and the work of the other authors surveyed here, underlines that a great deal more attention needs to be paid to the interaction between markets and constitutions by both legal scholars and economists today.

Notes 1 I would like to thank Diogo Coutinho for providing the inspiration for this chapter. I would further like to thank the attendees of the workshop that we held in Bogotá in July 2019 and the subsequent writers’ workshop for their valuable comments on earlier ideas that fed into this paper. In particular, I would like to thank Javier Solana, Andrés Palacios-Lleras, and Julia McClure for their important comments. 2 See Callegari’s contribution to this collection. 3 See the discussion in the Introduction for an analysis of some of the limitations of mainstream constitutional law theory with regard to questions of economic governance and the relationship between constitutions and markets. 4 For Teubner and other theorists of societal constitutionalism, constitutionalism is a social process first, and it is one that should be understood not as the development of legal orders but as the development of communicative discourses that create selfgoverning realms of social regulation. 5 Loughlin traces the stubborn ambivalence of constitutional theory on the question of achieving equality to the unresolved tension found within the rival liberal democratic theories of Locke and Rousseau: ‘The question, then, is whether constitutional democracy is designed to restrain government for the better protection of individual liberties’, the Lockean view, or whether it should enable the government to ‘transform society in order to realise equal liberty’, as a Rousseauian analysis might suggest (Loughlin, 2019, p. 442). 6 Polanyi’s conception of the double movement draws on anthropological studies to stress that, contrary to the arguments of classical political economists and laissez-faire liberals, human beings are not, in fact, inclined to spontaneous organization in pursuit of individualizing logics of profit-centred market exchange. The ‘self-regulating

T he Constitutional Disembeddedness of Markets?  23 market’ of liberal economic theory had to be forcibly created by means of coercive state interventions into the social fabric to make sectors of society that had previously been organized based on political allegiances, religious ties, and relations of reciprocity function as the ‘fictitious’ commodities of land, labour, and money that are integral to a capitalist market economy. So great were the hardships and forms of ecological and social destruction that resulted from the subjugation of these areas of social life to market logics, Polanyi argued, that people would spontaneously react to these coercive interventions, and they would seek the law’s protection to re-embed markets in forms of regulation that would shelter populations from their effects (Polanyi, 1944). 7 See Polanyi, 1944. 8 I owe this to an exchange with my co-editor, Andrés Palacios-Lleras. 9 In his discussion of Marxist theories of the relative autonomy of law, Collins underlines that legislative interventions into the market in the interests of the workers (such as the enactment of welfare provisions and social rights) can be read either as taking certain industries out of price mechanisms for reasons of social justice or as the subsidization of capitalist accumulation by the state, such as through the provision of cheap workforces through wage and housing subsidies, or through the provision of free energy and transport where these prices are regulated by the government (Collins, 1982). 10 See the LPE Project website for scholarship currently being iterated in this tradition: https://lpeproject​.org/. 11 See Note 10.

Bibliography Alviar Garcia, H. (2019). ‘Neoliberalism as a form of authoritarian constitutionalism’. In: H. Alviar-García and G. Frankenberg, eds. Authoritarian constitutionalism: comparative analysis and critique. London: Elgar, pp. 37–56. Alviar-García, H. and Frankenberg, G., eds. (2019). Authoritarian constitutionalism: comparative analysis and critique. London: Elgar. Beckert, J. (2007). ‘The great transformation of embeddedness: Karl Polanyi and the new economic sociology’. MPIfG Discussion Paper 07/1, Max Planck Institute for the Study of Societies Cologne. Black, J. (2013). ‘Seeing, knowing, and regulating financial markets: moving the cognitive framework from the economic to the social’. LSE Legal Studies Working Paper, No. 24/2013. Boyle, J. (2003). ‘The second enclosure movement and the construction of the public domain’. Law and Contemporary Problems, 66, pp. 33–74. Britton-Purdy, J., Grewal, D. S., Kapczynski, A., and Sabeel Rahman, K. (2020). ‘Building a law-and-political-economy framework: beyond the twentieth-century synthesis’. The Yale Law Journal, 129, p. 1784, pp. 1–35. Calliess, G. P. and Zumbansen, P. (2010). Rough consensus and running code: a theory of transnational private law. London: Bloomsbury Publishing. Cato Institute (Pilon, R.). (2017). ‘Property rights and the constitution’. Cato handbook for policymakers. Available at: https://www​.cato​.org​/cato​-handbook​-policymakers​/cato​ -handbook​-policy​-makers​-8th​-edition​-2017​/property​-rights​-constitution Christodoulidis, E. (2013). ‘On the politics of societal constitutionalism’. Indiana Journal of Global Legal Studies, 20(2), pp. 629–663. Christodoulidis, E. (2021). The redress of law: globalisation, constitutionalism, and market capture. Cambridge: CUP. Cohen, M. R. (1927). ‘Property and sovereignty’. Cornell LQ, 13, p. 8.

24  Anna Chadwick Collins, H. (1982). Marxism and law. Oxford: Oxford University Press. Cutler, A. C. and Dietz, T., eds. (2017). The politics of private transnational governance by contract. London: Taylor & Francis. Deakin, S., Gindis, D., Hodgson, G. M., Huang, K., and Pistor, K. (2017). ‘Legal institutionalism: capitalism and the constitutive role of law’. Journal of Comparative Economics, 45(1), pp. 188–200. Dixon, R. and Suk, J. (2018). ‘Liberal constitutionalism and economic inequality’. University of Chicago Law Review, 85, p. 369. Dworkin, R. (1977). Taking rights seriously. London: Duckworth. Fischer-Lescano, A. and Teubner, G. (2004). ‘Regime-collisions: the vain search for legal unity in the fragmentation of global law’. Michigan Journal of International Law, 29(4), pp. 999–1046. Frerichs, S. (2017). ‘The rule of the market: economic constitutionalism understood sociologically’. In: P. Blokker and C. Thornhill, eds. Sociological constitutionalism. Cambridge: Cambridge University Press, pp. 241–264. Goldoni, M. and Wilkinson, M. A. (2018). ‘The material constitution’. Modern Law Review, 81(4), pp. 567–597. Graber, M., Levinson, S., and Tushnet, M., eds. (2018). Constitutional democracy in crisis? Oxford: Oxford University Press. Granovetter, M. (1985). ‘Economic action and social structure: the problem of embeddedness’. American Journal of Sociology, 91(3), pp. 481–510. Hale, R. L. (1923). ‘Coercion and distribution in a supposedly non-coercive state’. Political Science Quarterly, 38(3), pp. 470–494. Lang, A. T. F. (2013). ‘The legal construction of economic rationalities?’ Journal of Law and Society, 40(1), pp. 155–171. ‘Lexico’. (2021). Available at: https://www​.lexico​.com​/about (Accessed November 29, 2021). Loughlin, M. (2019). ‘The contemporary crisis of constitutional democracy’. Oxford Journal of Legal Studies, 39(2), pp. 435–454. Luhmann, N. (1993 [2004]). Law as a social system (Translated by Ziegert K. A.). Oxford: Oxford University Press. Marks, S. (2020). A false tree of liberty. Human rights in radical thought. Oxford: Oxford University Press. Mercuro, N., and Medema, S. G. (2006). Economics and the law: from posner to postmodernism and beyond. Princeton, NJ: Princeton University Press. North, D. C. and Thomas, R. (1973). The rise of the western world: a new economic history. Cambridge: Cambridge University Press. Piketty, T. (2014). Capital in the twenty first century (Translated by Goldhammer A.). Cambridge, MA: Belknap Press. Pistor, K. (2019). The code of capital: how the law creates wealth and inequality. Princeton, NJ: PUP. Polanyi, K. (1944 [2001]). The great transformation: the political and economic origins of our time. Boston, MA: Beacon Press. Rodrik, D. (2006). ‘Goodbye Washington consensus, hello Washington confusion?’ Journal of Economic Literature, 44(4), pp. 973–987. Ruggie, J. G. (1982). ‘International regimes, transactions, and change: embedded liberalism in the postwar economic order’. International Organization, 36(2), pp. 379–415. Schneiderman, D. (2008). Constitutionalizing economic globalization: investment rules and democracy’s promise. Cambridge: Cambridge University Press.

T he Constitutional Disembeddedness of Markets?  25 Sitaraman, G. (2017). The crisis of the middle-class constitution: why economic inequality threatens our republic. New York: Vintage. Slobodian, Q. (2018). Globalists: the end of empire and the birth of neoliberalism. Cambridge, MA: Harvard University Press. Streeck, W. (2018). ‘Taking back control: the future of western democratic capitalism’. Available at: https://wolfgangstreeck​.files​.wordpress​.com​/2018​/10​/0918​_streeck​_efil​ _journal​.pdf (Accessed November 29, 2021). Teubner, G. (1993). Law as an autopoietic system. Oxford: Blackwell. Teubner, G. (2012). Constitutional fragments: societal constitutionalism and globalization. Oxford: Oxford University Press. Turner, A. (2011). ‘Reforming finance: are we being radical enough’. Clare distinguished lecture at the University of Cambridge. Cambridge 18 February. University College London (2021). ‘What are constitutions?’ Available at: https://www​.ucl​ .ac​.uk​/constitution​-unit​/what​-uk​-constitution​/what​-constitution Wielsch, D. (2018). ‘Contract interpretation regimes’. Modern Law Review, 81(6), pp. 958–988. Wilkinson, M. (2018). ‘Authoritarian liberalism as authoritarian constitutionalism’. LSE Legal Studies Working Paper, No. 18/2018, Available at SSRN: https://ssrn​.com​/ abstract​=3281320 or http://doi​.org​/10​.2139​/ssrn​.3281320 Wood, E. (2011). From lords to citizens: a social history of western political thought. London: Verso. Zukin, S. and DiMaggio, P. (1990). ‘Introduction’. In: P. DiMaggio and S. Zukin, eds. Structures of capital: the social organization of the economy. Cambridge: Cambridge University Press, pp. 1–36. Zumbansen, P. (2007). ‘The law of society: governance through contract’. Indiana Journal of Global Legal Studies, 14(2), pp. 191–233.

Chapter 2

Law of Nature, Law of Man Economic Theories of Constitutions and the Normative Question Beniamino Callegari

2.1 Introduction In recent decades, while jurists have explored the extensive legal infrastructure supporting the current economic system (e.g. Pistor, 2019), economists have applied their theoretical and methodological apparati to analyze the economic ratio, mechanisms, and consequences of our legal systems; constitutions have not been spared (e.g. Persson and Tabellini, 2005). The impressive results accrued so far have confirmed the fertility of the approach, suggesting the desirability of further integration across disciplinary borders. Also confirmed is a tendency for economic analysis of law to generate different schools of economic thought, leading to several concomitant debates, rather than unified disciplinary progress (Mercuro and Medema, 2006). The primary driver of this fragmentation is the lack of a single theoretical framework of reference. Despite its undeniable influence, neoclassical economics appears to be unable to provide a consensual basis for the economic analysis of constitutions (Hackney, 2003). This chapter aims to clarify some of the issues attending the economic theorization of constitutions through the analysis and comparison of four different influential contributions to the subject. The choice of contributions has been guided by the theoretical focus of the analysis, aiming to identify four entirely different approaches to the economic conceptualization of constitutions, providing neither a systematic nor an exhaustive review of decades of work in this area, which would exceed the practical limits of what can be achieved in this form, but rather a detailed description of the issues attending the field, a guide to some influential alternative solutions, and some considerations in regard to the connection between them. After a review of the contributions of Buchanan, the founder of Constitutional Economics, Commons, one of the protagonists of Old American Institutionalism, North, one of the founders of New Institutionalism, and Posner, a key figure of the Law and Economics movement, it is possible to conclude that, while variety exists in relation to the theoretical centrality assigned to constitutions within economics, all authors, despite a positive initial connection to neoclassical economics, would leverage their economic analysis DOI: 10.4324/9781003202257-3

L aw of Nature, Law of Man  27

of constitutions in a more or less broad criticism of the neoclassical ­framework, accompanied by different proposals for reform. The analysis underlines a potentially unsolvable conflict between the normative nature of constitutions, both as a phenomenon and an object of study, and the positive, amoral perspective characterizing neoclassical economics (Dixon and Wilson, 2011). The chapter is organized as follows. Following the present introduction, Section 2.2 reviews the contribution of the four scholars to the economic theorization of constitutions. Section 2.3 analyzes through comparison the main issues attending the specific process of theorization. Section 2.4 offers some conclusions by interpreting the various emerging issues as part of a more general problem.

2.2 Literature Review The scholars reviewed in this chapter have been selected through the application of the following four criteria. First, they have been key contributors to the creation of different theoretical approaches to the economic analysis of constitutions. Second, while maintaining a clear background in economics, they either have received formal training in, or have at least interacted with, other disciplines. Third, their analysis of constitutions has proceeded from different methodological, theoretical, and normative assumptions. Fourth, they did not begin their analysis from a perspective far removed from neoclassical economics. These criteria have been chosen to cover the widest possible epistemological, methodological, and ideological areas within a single chapter. The fourth and final criterion ensures that the analysis can shed light on the issues specific to a neoclassical analysis of the constitution. Each author’s work is analyzed separately, the results being presented in alphabetical order. 2.2.1 Buchanan

The defining characteristic of Buchanan’s approach to the economic theorization of constitutions is an uncompromising normative attitude; for Buchanan, positive economics is an exceedingly narrow, irrelevant endeavour, compared to the achievements of normative and political approaches to the discipline (Buchanan, 1959). This perspective created a rift between him and most mainstream economists, as he alluded to in his Nobel prize acceptance speech: ‘the economists of the 1980s are illiterate in basic principles of their own discipline (…) Their motivation is not normative; they seem to be ideological eunuchs’ (Buchanan, 1986, pp. 14–15). Consistently, he perceived his own work, which he later referred to as constitutional economics, a convention I will adhere to in this chapter, as heterodox: ‘Constitutional economics must be shown to be different from non-constitutional, orthodox or standard economics. At the same time, constitutional economics must be shown to be different from constitutional politics’ (Buchanan, 1990, p. 2, emphasis in the original).

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The normative/positive divide is not the only factor distinguishing constitutional economics from mainstream economics. Buchanan criticized mainstream economics for being founded on the relationship between man and nature, and the consequent problem of choice under conditions of scarcity (Brennan and Buchanan, 1985). While analyzing the Robinsonian setting had resulted in the development of a methodological apparatus that Buchanan approved in toto, it has also created the illusion that the same approach could be fruitful when the relationship between nature and homo economicus is expanded to include a plurality of individuals. According to Buchanan, instead, a social setting requires an economic analysis of the rules of behaviour enabling the constructive interaction of individuals: ‘the existence and behaviour of other persons, along with the institutions that constrain their behaviour, are much more important than the physical constraints of nature’ (Brennan and Buchanan, 1985, p. 1). While Buchanan acknowledged that institutions affect individual behaviour, in stark contrast with neoclassical analysis, he also argued that institutions are created by, and subordinated to, the purposeful action of individuals (Buchanan and Tullock, 1962). Consequently, economic analysis should include institutions as endogenous constraints on individual behaviour generated by a process of individual exchange motivated by personal gain, amenable to marginalist analysis. This perspective identifies the contractarian paradigm of political economy developed by Buchanan (1975a). Institutions are interpreted as self-imposed social constraints on individual behaviour, developed through a process of contractual exchange between all individuals belonging to the social system under analysis, on the sole base of self-interest (Buchanan, 1987). While the result of this process of exchange is a set of collective, social rules, they are unrelated to any concept of social values: ‘Values are widely acknowledged to be derived from individuals, and there are not absolutes. God has been dead for a century’ (Buchanan, 1975b, p. 170). The resulting perspective is neither descriptive nor explanatory, but rather normative: ‘We are not directly interested in what the State or a State actually is, but propose to define quite specifically, yet quite briefly, what we think a State ought to be’ (Buchanan and Tullock, 1962, p. 3). The distance between the picture painted by constitutional economics and actual constitutions identifies a space for criticism and reform (Brennan and Buchanan, 1985). Besides criticizing positive approaches to economics, Buchanan also criticizes normative approaches built on social mechanisms irreducible to the individual sphere. This includes all analytical frameworks based on a class perspective (Buchanan and Tullock, 1962). Furthermore, Buchanan focuses exclusively on cooperative social interactions, excluding by assumption all conflict, which, according to him, belongs to the discipline of political science instead (Buchanan, 1990). He also rejects approaches assigning normative status to specific aggregate macroeconomic outcome, to be pursued through governmental policy (Buchanan, 1990).

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Buchanan’s criticism is not offered as a premise for further debate and perhaps compromise (Buchanan, 1990, p. 17). To engage in constitutional economics requires an a priori exclusive ideological commitment to the contractarian paradigm of political economy. The theory is offered for academic debate but only among fellow believers in the ‘civic religion’ (Brennan and Buchanan, 1985) of constitutional economics. Buchanan admits that his theory excludes significant aspects of socio-economic life, and therefore offers only a partial representation of constitutions or, more generally, institutions (Buchanan and Tullock, 1962). However, as a believer in the individual as the only source of both normative value and justice, Buchanan interprets this not as an argument for pluralism but rather as a call to arms for expanding the individualist sphere as much as possible (Brennan and Buchanan, 1985). Having drawn the perimeter, it is now possible to delve within Buchanan’s theory proper. Its foundations are clear: methodological individualism, homo economicus, and politics-as-non-market-exchange (Buchanan, 1987). Methodological individualism makes the individual the only potential locus of valuation, reason, and agency. Individual reason is dedicated to the maximization of personal gain. A number of limitations are admitted, but, ultimately, homo economicus is described as offering ‘a better basic model for explaining human behaviour than any comparable alternative’ (Buchanan, 1986, p. 10). Finally, politics is understood as a non-market arena of exchange engaged by individuals for the purpose of maximizing personal gains by, on one level, bargaining for political control and use of resources and, on a second, higher level, determining the decision-making rules constraining political control and use of resources. This second level identifies constitutions: ‘A constitution is a set of rules which constrain the activities of persons and agents in the pursuits of their own ends and objectives’ (Buchanan, 1977, p. 292). These rules result from a process of collective action motivated by the individual desire to reduce ‘the external costs that are imposed on the individual by purely private or voluntary action’ (Buchanan and Tullock, 1962, p. 45). In a social context, even excluding conflicts entirely, individuals are subject to externality costs. These costs can be reduced by imposing universally binding rules, although rules themselves imply opportunity costs due to the resulting reduced freedom, leading to a natural economic exercise in cost-minimization. However, different people will differ in their evaluation of both externalities and opportunity costs. Should one position be favoured among others, and, if so, how? ‘There is no apparent means of discriminating among persons in the relevant community, and there would seem to be no logical reason to seek to establish such discrimination’ (Brennan and Buchanan, 1985, p. 21). The only constitutional agreement guaranteeing a Pareto-improvement is unanimity, leaving no one worse off: ‘“fairness” and “efficiency” merge and come to mean the same thing’ (Buchanan, 1967, p. 290). While the unanimity rule guarantees Pareto efficiency, it also restricts dramatically the area of potential agreement, thus resulting in opportunity costs.

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Therefore, it is rational for individuals to agree on less-than-unanimous voting rules, to, on one hand, minimize decision-making and opportunity costs and, on the other, maximize potential gains obtainable through collective action at the constitutional level (Buchanan and Tullock, 1962). Thus, a rational process of individual calculation and political exchange can be devised, resulting in the constitution of an optimal decision-making rule. Once agreed upon, this rule binds all participants. Buchanan rejects Becker’s transactive interpretation of fines and punishments as prices of criminal actions (Brennan and Buchanan, 1985, pp. 101–102). To the extent that a constitutional rule has been developed according to the contractarian blueprint, to follow its prescriptions is morally correct, no matter their content. Institutions based on constitutional agreements also enjoy a normative status: ‘rules are just if agreed-on meta-rules dictating their selection have been observed’ (Brennan and Buchanan, 1985, p. 105). Buchanan’s normative position is nonconsequentialist and deontological. To claim normative status for both constitutional rules and institutions based on such rules implies that the process of individual politics-as-exchange is able to generate outcomes that are at least not undesirable for any individual involved. This implies that no individual can wield more influence than others in the process and/or promote institutions favouring their interests over everyone else’s. Given the self-interest assumption of the homo economicus, this outcome can be secured only by assuming that, while differences in endowments exist across agents (Buchanan and Tullock, 1962), they are insufficient to create an excessive disparity of influence among participants, or to generate class interests, rejected by assumption. Essentially, participants must approach rule-making as equals: ‘The requisite “equality”, can be insured only if the existing differences in external characteristics among individuals are accepted without rancour and if there are no clearly predictable bases among these differences for the formation of permanent coalitions’ (Buchanan and Tullock, 1962, p. 80). Two additional assumptions are needed: objective and subjective quasiequality between all agents. The question of how much objective and subjective inequality could be tolerated for individualistic politics-as-exchange to work would never be truly addressed by Buchanan in a theoretical context (Buchanan, 1975b). Complete equality would solve the issue but also dramatically restrict the field of application of the theory. One condition can ease the severe constraints placed by distributive concerns: uncertainty. Buchanan argued that, even in conditions of significant inequality, which he recognized as both endemic and not, by themselves, deplorable (Buchanan and Tullock, 1962), individuals in a position of wealth, or want, may prefer to bargain for fair rules, if they were unsure about what the future will bring. Thus, by introducing the realistic assumption of systemically acknowledged, radical uncertainty, Buchanan could do away with the unduly restrictive and unrealistic assumption of general equality:

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Essential to the analysis is the presumption that the individual is uncertain as to what his own precise role will be in anyone of the whole chain of inter-collective choices that will actually have to be made. For this reason, he is considered not to have a particular and distinguishable interest separate and apart from his fellows. (Buchanan and Tullock, 1962, p. 78) If, on one hand, Buchanan is forced to introduce uncertainty to tackle the issue of inequality, then, on the other, individuals are required to be able to accurately predict both what kind of issues will be affected by constitutional rules and what would be the outcomes of these issues given that the most efficient decision rule is adopted, for the calculus of consent to apply (Buchanan and Tullock, 1962). Uncertainty, in Buchanan’s framework, is restricted to exogenous shocks, as rational individual agents are by assumption capable of predicting the future development of the economic system proper. An additional, implicit, assumption is therefore that exogenous shocks must be able to decisively affect the socio-economic status of every individual. In the long term, this assumption may not be exceedingly unrealistic; this further implies, however, that Buchanan’s individual agents assume a long-term perspective during the constitutional process of exchange. 2.2.2 Commons

Commons’ economic theory of constitutions is part of his ambitious attempt to develop institutional economics as ‘a theory of the part played by collective action on individual action’ (Commons, 1932a, p. 264). According to Commons, economics was not in need of a revolution but rather an expansion, enabling the discipline to maintain its relevance in an age characterized by the rise, on one side, of the large corporation, and, on the other, of the State as an interventionist economic actor, marginalizing the free exchange between single, equal individuals (Commons, 1936). Consistently, Commons’ criticism of neoclassical economic theory was limited to the individualist and utilitarian assumptions implicit in its foundations (Commons, 1934a). Despite his largely conciliatory intent, the significant changes in founding disciplinary assumptions required for the integration of collective action within economics proved a formidable challenge. Furthermore, Commons challenged the separation between economics and both law and ethics. In his words, these dimensions of social affairs were excluded from economics ‘because the relations on which the economic units were constructed were relations between “man and nature” and not between “man and man”’ (Commons, 1932b, p. 3). This approach was, for Commons, a consequence of the early focus of the discipline on efficiency, connecting the discipline to physical science, and a corresponding relative lack of interest for those dimensions grounding economics in the social sphere (Commons, 1925).

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Economic theory, in avoiding ethical notions of purpose, has usually assumed that it is the business of those working rules which we name ‘the law’, to eliminate the unethical attributes of transactions, such as fraud, violence, coercion, deception, and has then operated with the abstract notions of utility and exchange. (Commons, 1924, p. 387) Consequently, economics developed as a science of transactions interpreted as exchange of commodities for the maximization of individual utility. These simplifying assumptions enabled economic analysis to uncover how, beneath the experience of constant economic conflict, lies a dimension of mutual dependence and emergent systemic order, an achievement praised by Commons (1936). Commons (1925) also agreed that transactions provided the main object of study of economics. However, he argued that further development of economics as a discipline required the integration of an explicit dimension of conflict. This implied a change in the main unit of analysis: ‘The relation of man to man is one of interdependence as well as conflict. (…) Thus, the ultimate unit of activity which correlates law, economics and ethics must contain in itself the three principles of conflict, mutuality and order’ (Commons, 1932b, p. 4). Instead of assuming the presence of harmony as a necessary precondition for economic transactions, economists had to illustrate how a harmonious order, based on mutual interests, could emerge from transactions. To meet this demand, Commons sought to expand the concept of transaction to identify a role for the legal authorities, as they must acknowledge, register, and, when necessary, enforce the exchange. It may be argued that, while the legal dimension is a necessary component of modern transactions, this is a consequence of the growth of the modern State, rather than a necessary feature of economic exchange. Therefore, while relevant in practice, in a purely theoretical context such considerations may be superseded. Against this argument Commons developed his historical analysis of the legal foundations of capitalism (Commons, 1924). First, in any given socio-economic context, each transaction is the microeconomic counterpart of the systemic relationship between the sovereign and the people. Second, the mechanisms governing the systemic relationships of government are the same that dominate the microeconomic counterpart. Third, these mechanisms are necessarily legal in nature. Therefore, the legal dimension of the transaction is not accidental but rather constitutive; it follows that if transactions are the main object of study of economics, the legal dimension must be conceptualized within the theoretical core of the discipline. The simplifying assumption of harmony must be replaced by a theorization of the process through which this harmony of interests takes place. This is the specific contribution of institutional economics: describing how collective action shapes the continuous, historical process of creation and re-creation of economic order out of the twin facts of mutual dependence and conflict of interest.

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The main thrust of Commons’ argument can be reconstructed as follows. Consistent with his claim to be expanding rather than revolutionizing economic theory, Commons (1925, p. 381) argued that traditional economic results only hold under a specific requirement: that prices and conditions emerging in the transactions satisfy the threshold of ‘reasonableness’. Reasonableness, however, is not determined by the individuals involved in the transaction; reasonableness is a systemic, rather than individual, concept, linked to a specific socio-economic context at a specific time, identifying the economically relevant normative content of the ruling institutions within the frame of analysis. Reasonableness is a necessarily normative concept, identifying a specific subset of outcomes held as collectively desirable. Thus, for Commons, ethics are a necessary component of economic analysis, for economic order can only emerge within the confines of a collective social vision. The specific contents of this shared vision, the outcomes deemed reasonable, are dependent on the historical development of the specific society and are bound to differ across both space and time. When economic transactions result in socially unreasonable outcomes, transaction participants believing themselves to be at loss may resort to noneconomic avenues to address the situation. The conflictual dimension becomes dominant, disturbing economic processes and requiring arbitration. While conflict may take any form, its resolution must ultimately be legal in nature, thus making judicial authorities the ultimate custodians of reasonableness. Thus, describing the American context of his time, Commons argued that ‘Reasonable value (…) is not any individual’s opinion of what is reasonable. (…) Reasonable value is the [Supreme] Court’s decision of what is reasonable as between plaintiff and defendant. It is objective, measurable in money, and compulsory’ (Commons 1936, p. 244). The Supreme Court is the guardian of reasonable value as the ultimate judicial authority and the legitimate interpreters of the constitution. The constitution, material and immaterial, is the primary embodiment of reasonable value, identifying the shared foundational principles through which specific economic outcomes are evaluated in the inevitable conflicts brought by historical development. The resolution of these conflicts, brought by legal authorities, re-defines the confines of reasonableness and, consequently, the economic constitution. Collective bargaining in the field of labour-management relations was described by Commons as ‘constitutional government in industry’ (Commons 1934b, p. 72), the process through which the conflicts arising in new managerial transactions are progressively solved, expanding and modifying the material constitution in the process. Commons (1935) openly described his advocacy for collective democracy, as opposed to fascism, as oligopolistic capitalism and communism. However, his economic theorization of the constitution was positive in nature. Reasonable value is defined as what the Supreme Court decides; reasonableness is contextual, consistent with any specific set of outcomes, no matter how undesirable. The normative evaluation is not conducted by the analyst, but rather by the

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actual subjects involved in the transactions, according to their interpretation of the current idea of reasonableness. While the theory is developed on the basis of empirical analysis of the American context, its content is generalizable. Commons argued that, within any given society, there exists a shared social normative frame through which economic outcomes are evaluated. The frame is open to different interpretations from different groups and individuals, but for economic order to emerge, it is necessary that (1) a broad agreement exists in regard to the normative frame and (2) most economic outcomes are consistent with such frame. If these conditions are not respected, groups perceiving current economic outcomes as unreasonable will resort to non-economic action to address the issue, eventually resulting in judicial arbitration. By redefining the normative frame of reasonable value, successful judicial action can ensure that the two conditions are satisfied and ordered economic activities can resume. The constitutional dimension identifies the foundation of reasonable value and is therefore no less than the bedrock on which economic activity can develop. 2.2.3 North

The economic theorization of constitutions offered by North is part of his substantial contribution to the New Institutionalist school of thought, an intellectual journey that has seen its positions evolve significantly through decades. This section aims to reconstruct the development of North’s theoretical conceptualization of institutional law over time, and to identify the main analytical drivers prompting such evolution. The foundations can be traced to his initial work on economic history, which focused on providing an economic theory for the historical growth of the West (North and Thomas, 1970). The explanation could be summarized as follows: changes in relative prices brought by Malthusian pressures combined with an increase in the size of available markets to bring a series of institutional changes led to increasing incentives for productivity-enhancing investments. The driver of institutional change is profit; institutional changes are productivity-increasing when they realize economies of scale and/or lower transaction costs. The authors argue that, in the West, and particularly in England, long-term exogenous economic and political changes acted to simultaneously lower the costs of collective action directed towards institutional change and raised the profits associated with innovative economic initiatives, thus leading to superior economic outcomes. The constitutional dimension played a relatively small role in the general argument. The authors argued that ‘secondary’ institutional changes accumulate, eventually creating the conditions for changes in ‘the fundamental institutions that specify the basic “ground rules” such as the underlying “constitutional” basis of property rights and basic decision rules with respect to political decision-making’ (p. 10). Once constitutional change has taken place,

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endogenous forces of economic change can operate, resulting in increased economic efficiency, and consequently economic growth: ‘changes in organization and property rights increasingly brought the private rate of return accruing to individuals and groups nearer the social rate of return. Growing efficiency was the inevitable result’ (North and Thomas, 1970). Within this framework, neoclassical economic theory provides a normative dimension. Institutional arrangements in general, and constitutions in particular, which reduce transaction costs, information costs, and political redistribution are superior, at least in regard to the task of fostering economic growth. This implies that neoclassical economic theory is correct; behaviour inconsistent with its prescriptions can be labelled as ideological and counterproductive (North and Thomas, 1970, p. 122). North argues that even when buying information would be profitable, ideology may yet ensure the persistence of counterproductive activities. This purely negative characterization of ideology, however, does not play any role in the theoretical framework, which assumes agents to be perfectly rational. A few years later, however, ideology would come to play a key role in North’s work (North, 1978). In the new argument, the primary driver of institutional change is not objective, individual economic opportunity but rather ‘the comprehensive system of cognitive and moral beliefs called ideology’ (North, 1978, p. 973). While the struggle of poor Americans is still described as primarily ideological, redistributive justice is now deemed a reasonable demand. However, the normative role played by neoclassical equilibrium condition remained unaltered: ‘Successful economic performance (…) must be accompanied by institutions that limit economic intervention and allow private rights and markets to prevail in large segments of the economy’ (North and Weingast, 1989, p. 808). The role of constitutional rules was expanded as to provide appropriate incentives for political actors to support private rights and market expansion, while simultaneously repelling attempts to impose political redistribution (North and Weingast, 1989). By the 1990s, North’s framework had developed further (North, 1990). While the process of change is still driven by the entrepreneurial agent, which may stand for an individual, an organization, or a coalition of interests, it is the subjective entrepreneurial perspective that matters. Even when successful, institutional entrepreneurship is necessarily gradual in scope, only a subset of formal rules is amenable to political change: constitutional rules remain outside the scope of ordinary entrepreneurial activity while informal rules are subject only to long-term evolutionary processes of change outside control of single agents. While in 1978, North claimed that ‘to abandon neo-classical theory is to abandon economics as a science’ (p. 974). In 1994 he described neoclassical theory as ‘simply an inappropriate tool to analyze and prescribe policies that will induce development’ (North, 1994, p. 359). Neoclassical theory must be abandoned by economic historians because it assumes that institutions and

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time do not matter. North retains the neoclassical microeconomic apparatus but relinquishes the assumption of rationality. Now assuming radical uncertainty, North (1994, p. 363) reinterprets institutions not as constraints on economic outcomes but rather as a necessary support for the limitedly rational agent to act effectively in an uncertain world. These institutions contribute to form the mental models held by individuals, which are the main drivers of their activities. Individuals can learn from their environment and experiences, and partially emancipate themselves from the received mental models, innovating on existing practices. Supported by entrepreneurial agents, novelty can be integrated within the existing set of institutions, bringing change. This change, however, is necessarily limited and path-dependent, as it reflects a dialectical process between the individual and its society, rather than an entirely free process of either rational maximization or unconstrained ideation. While low transaction costs are still identified as desirable, North adds that their achievement requires a supporting institutional set, economic and political, formal and informal, of which little is known. North goes as far as stating that, in view of radical uncertainty and constantly changing external conditions, ‘it is adaptive rather than allocative efficiency which is the key to long-run growth’ (North, 1994, p. 367), an explicit rejection of his initial argument. If knowledge is necessarily limited and partially ideological, the models offered by neoclassical theory are similarly limited and ideological, and cannot perform a normative function anymore. Left without a complete theory of reference (North, 1996), North (2005) draws some sobering conclusions. Neoclassical economic theory cannot understand development, and no alternative suitable theory exists. Although neoclassical theory does illustrate some mechanisms that proved beneficial for economic development in the West, it cannot provide a prescriptive model of action. Furthermore, global experience shows that multiple models of development exist, supported by local belief systems and formal and informal rules (North, 2008). And yet, out of this apparently discouraging state of mind came nothing less ambitious than Violence and Social Order (North, Wallis, and Weingast, 2009). The book introduces a novel distinction between natural states and open access order, presented as two alternative solutions to the endemic problem of violence. Natural states suppress violence through the formation of a cooperating elite which refrains from using violence internally but employs coercion to extract a rent from the rest of society. The rent is shared internally to provide the means and the incentives to maintain order. Violence is monopolized and exercised according to the personal characteristics of the agents involved. Open access order, instead, monopolizes violence and subordinates it to impersonal rules, allowing every member of the society to freely participate in all areas of economic and political life. While rent-seeking still takes place, it is severely limited by the competition fostered by economic and political freedom. Open access order is further characterized by the following characteristics:

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1. A widely held set of beliefs about the inclusion of and equality for all citizens. 2. Entry into economic, political, religious, and educational activities without restraint. 3. Support for organizational forms in each activity that is open to all (for example, contract enforcement). 4. Rule of law enforced impartially for all citizens. 5. Impersonal exchange. (p. 114) All these characteristics require the support provided by constitutions. The replacement of the personal order of natural states with the impersonal order of open access states requires a stable legal foundation. Extending the right of participation in political conflict to all citizens requires the basic rules of the game to be protected from direct political entrepreneurship, thus identifying a constitutional dimension, superior to common law. From an economic perspective, open access order is preferable because it transforms rent-seeking from a necessary and central activity of government to a pathological deviation, thus freeing resources for productive activities. Furthermore, the extension of universal rights enables participation to economic life, although not from an equal position of influence, thus ensuring a better use of resources. While Violence and Social Order (North, Wallis, and Weingast, 2009) does not address the issues raised by North (2005), it does provide a comprehensive description of a normatively desirable development model removed from the tenets of neoclassical economics, yet consistent with those economic tenets that North held throughout the decades. 2.2.4 Posner

One of the most influential figures of the law and economics school (MacKaay, 2000), Posner’s contribution to the field is vast. His theorization of constitutions is a relatively minor area, an application of Posner’s economic analysis of law. Therefore, before delving into constitutional matters, it is necessary to summarize the foundations of Posner’s efficiency theory of the common law, one of his main contributions to law and economics (Posner, 1979c). The theory states that the common law is best (…) explained as a system for maximizing the wealth of society. Statutory or constitutional as distinct from common law fields are less likely to promote efficiency, yet even they as we shall see are permeated by economic concerns and illuminated by economic analysis. (Posner, 1986, p. 21) The statement requires some unpacking. The theory is limited to the analysis of the U.S. legal framework, although some of its underlying principles

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could be extended to different contexts. So defined, the efficiency theory is a positive, interpretative contribution, arguing that U.S. common law, and, to a lesser extent, the constitution, have the objective goal of maximizing aggregate wealth creation over time, irrespectively of the actual aims of its framers and interpreters. The positive theory is also accompanied by a normative argument, posing that wealth-maximization is a satisfactory instrument of normative evaluation of social outcomes: ‘the wealth-maximization principle accommodates, with elegant simplicity, the competing impulses of our moral nature’ (Posner, 1979a, p. 136). If the normative argument is accepted, it follows that the common law, and to a lesser extent the constitution, are not only an effective instrument of wealth creation, but also an instrument of justice. Note that the positive and normative parts of the theory are autonomous: one may reject the normative argument for wealth maximization while accepting the description of U.S. law as an effective instrument of wealth creation, and vice versa. This, however, greatly limits the usefulness of the theoretical framework: the purely positive version of the theory devolves into a contextspecific interpretative hypothesis of the U.S. legal framework. If the normative claim is accepted instead, the theory evolves into an instrument of judicial interpretation, as the judiciary can now evaluate the merit of contrasting legal views according to their respective contribution to wealth creation. It is not a coincidence that Posner, despite arguing repeatedly in favour of a positive rather than a normative approach to the economic analysis of law (e.g. Posner, 1979b; 1993) would continue to promote both components of the theory (e.g. Posner, 1979a; 1981; 1986). Consequently, both components are reviewed here, starting from the normative argument. The principle of wealth maximization is introduced by Posner as an advance over utilitarianism, offering three main advantages: First, (…) the pursuit of wealth is more consistent with our intuitions concerning ethical behavior than the pursuit of happiness. Second, the wealth principle can more easily be made to yield the formal elements of an ethical theory – (…) than utilitarianism can be made to do. A third and related point is that the wealth principle is more definite than the happiness principle. (Posner, 1979a, p. 122) By wealth, Posner means: ‘the value in dollars and dollar equivalents of everything in society (…) measured by what people are willing to pay for something’ (Posner, 1979a, p. 119). Both market and non-market exchanges are taken into account (Posner, 1979a, p. 120). Wealth is generated primarily through voluntary exchanges, leading Posner to describe wealth maximization as an ethical norm founded on consent (Posner, 1981). While the maximization of individual utility, or happiness, is criticized by Posner as leading to ‘moral monstrousness’, as happiness is blind to the

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distinction between depravity and virtue, the generation of wealth depends on the ability and willingness of the individual to offer a valuable service or product to the market. Therefore, ‘the wealth-maximization principle encourages and rewards the traditional virtues (“Calvinist” or “Protestant”) and capacities associated with economic progress’ (Posner, 1979a, p. 124). Although, the principle of wealth maximization does not support almost any form of redistribution because ‘the fact that A has a greater capacity for enjoying a given amount of money than B affords no basis for taking money away from B and giving it to A’ (Posner, 1979a, p. 131). Posner admits that redistributive measures may be justified, but not admitted because ‘considerations of the just distribution of wealth or other “justice” factors on which a social consensus is lacking would introduce an unacceptable degree of subjectivity and uncertainty into the judicial process’ (Posner, 1979b, p. 292). Wealth-maximization is just because it leads to desirable outcomes, characterized on one side by virtuous Calvinist citizens and, on the other, by economic growth. While limited in scope, the wealth maximization criterion affords, according to Posner, sufficient normative and practical grounds for consistent, beneficial, and just decision-making. Many of the potential issues inherent with the application of the wealthmaximization principle in both market and non-market mediated exchanges are avoided by Posner through the introduction of the ‘principle of consent’, or ex ante compensation: a person who buys a lottery ticket and then loses the lottery has ‘consented’ to the loss so long as there is no question of fraud or duress; at least he has waived any objection to the outcome, assuming there was no fraud in the lottery. (Posner, 1981, p. 94) While Posner (1981) initially relied on Pareto superiority as a criterion to establish the beneficial outcome of a market transaction, he later switched to the less strict Kaldor-Hicks efficiency test (Hicks, 1939; Kaldor, 1939). According to this test, resources reallocation is efficient if the winners can compensate for the losers and still be better off. Crucially, however, the compensation is only hypothetical. If a legal device promotes wealth-creation market and non-market transactions, while satisfying both the principle of consent and the Kaldor-Hicks efficiency test, it can be considered efficient (Posner, 1981). Posner describes a broad institutional picture arising from an uncompromising and consistent implementation of the wealth maximization principle: first, an initial distribution of individual rights (to life, liberty, and labor) to their natural owners; second, free markets to enable those rights to be reassigned from time to time to other uses; third, legal rules that simulate the operations of the market when the costs of market transactions are

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prohibitive; fourth, a system of legal remedies for deterring and redressing invasions of rights; and fifth, a system of personal morality (the ‘Protestant virtues’) that serves to reduce the costs of market transactions. (Posner, 1979a, p. 127) Missing from this picture are distributional considerations. In fact, ‘an initial distribution of rights that was consistent with a goal of wealth maximization might be extremely unequal’ (Posner, 1979a, p. 126). This is not surprising, considering that the substitution of the wealth-maximization principle for the more generally used welfare economics principle serves primarily the function of excluding from the discussion any distributional considerations (Veljanovski, 1981), avoiding the limitless case for government intervention on grounds of market failure implied by Greenwald and Stiglitz (1986), leading felicitously to a normative condemnation of almost any legal measure of redistribution, while still retaining the powerful instrument of economic analysis. Posner developed the wealth-maximization and consent principles as a basis to apply economic evaluation to the efficiency of legal doctrine. The process requires the assignation of a specific economic rationale to each legal element. He applied the same approach to common law and constitutional law. Posner (1998) clarifies that his interest is limited to the analysis of the U.S. Constitution. He analyzed the U.S. Constitution as a collection of principles and special characteristics, from ‘the principle of limited government, to the constitutive rules of government, to the most important rules – constitutive and otherwise – of government, and to legislation that cannot be revised by the ordinary legislative process’ (Posner, 1987b, p. 5). These legal elements are analyzed separately, without any specific systemic or organic perspective on the role played by the constitution as a whole. The overall judgment is mixed; although many elements are singled out as efficient, Posner concluded that not every provision of the constitution is efficiency enhancing (Posner, 1987b, p. 15). The first special characteristic of the constitution is the difficulty of changing it. From an economic efficiency perspective, this imposes a cost in terms of constraints imposed by a small clique on a large majority which neither participated in the decision-making process nor, for the most part, has the possibility to change such constraints according to present needs. However, there are also significant benefits. By protecting the crucial rules of government and essential individual rights, the constitution avoids the significant conflicts that would arise in regard to these matters, thus freeing resources for productive avenues: ‘By placing the basic governmental arrangements beyond the power of the normal political process, the Constitution (in its structural aspect) has freed the people’s energies for productive private activities’ (Posner, 1987b, p. 28). Although the analysis is not formalized, Posner presumes that the benefits exceed costs.

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The second constitutional element is the doctrine of the separation of p­ owers. Again, from an economic perspective, this implies costs and benefits: ‘the parceling out of legislative, executive, and judicial powers (…) increases the transaction costs of governing. (…) They are higher, moreover, for wealthenhancing programs as well as for redistributive or exploitive ones’ (Posner, 1987b, p. 11). Increasing the transaction costs of government also limits its ability to operate redistributive policies. Furthermore, ‘separation of powers can lower as well as raise the costs of government, not only by increasing deliberation (…) but also by enabling a more efficient exploitation of the division of labor’ (Posner, 1987b, p. 11). By dividing governmental tasks, it is possible for the different branches to dedicate themselves to the special issues attending executive, legislative and judicial matters, thus achieving greater efficiency. Furthermore, the separation of governmental powers is a formidable obstacle for any attempt to wield the State powers in a tyrannical manner (Posner 1986, p. 583). Therefore, despite increased transaction costs, the final evaluation of the economic efficiency of the separation of powers is quite optimistic: ‘a government strong enough to maintain law and order, but too weak to launch and implement ambitious schemes of economic regulation or to engage in extensive redistribution, is probably the optimal government for economic growth’ (Posner, 1987b, p. 28). The third constitutional doctrine analyzed by Posner is federalism, which also raises governmental transaction costs, while simultaneously ensuring more efficient government through specialization. Furthermore, since federalism creates separate but qualitatively similar entities, in the form of states and local governments, it also creates beneficial competition, as the various regional governmental structures are evaluated for their ability to provide services and to promote effective policies. Due to this beneficial competition-promoting mechanism, Posner’s evaluation of federalism’s efficiency is exceptionally positive; federalism is singled out as being ‘the most important contribution of American constitutionalism to economic growth’ (Posner, 1987b, p. 30). Finally, Posner turns his attention to the fourth and final constitutional legal doctrine: the protection of fundamental individual rights. Here, the judgment is more mixed. While ‘effective protection of basic economic rights promotes economic growth’ (Posner, 1987b, p. 28), the constitution is described as only contributing to protecting such rights, as, traditionally, they are already protected by state, rather than federal, law. Some constitutional rights are singled out as being economically efficient: Plausible examples are the religion clauses of the First Amendment, (…) the speech and press clauses of the First Amendment, which promote scientific and technical progress by protecting the marketplace in ideas; the takings clause, which protects property rights (…); and the due process clause. (Posner, 1987b, p. 29)

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Posner argues, however, that the protection of these rights does not specifically require constitutions. Their constitutional protection can therefore be interpreted as ‘a particularly durable form of legislative protection obtained by particularly effective interest groups’ (Posner 1986, p. 585). The constitutional form taken by these rights is not in itself desirable. However, ensuring that such rights cannot be easily or quickly stripped away due to constitutional inflexibility has the beneficial consequence of minimizing the resources that minorities spend to contrast potential efforts from the majority to impose wealth redistribution. By reducing the costs of political exchange faced by minorities, the uniquely rigid protection of crucial rights provided by the constitution can be defended as wealth-maximizing. Additionally, by dissuading majorities from expropriating minorities’ wealth through coercion, it ensures that their attention is turned towards constructive, economic activities instead, pursued with Calvinist virtue.

2.3 Discussion The four approaches reviewed above identify a large epistemological, methodological, and ideological domain, within which most approaches to the economic analysis of constitutions adjacent to neoclassical economics can find a position. The aim of this section is to explore the main issues that emerge from the analysis conducted above, namely: (1) the centrality of constitutions within the domain of economic theory; (2) the normative nature of constitutional analysis; and (3) the critical relationship between neoclassical economics and an economic theory of constitutions. Among the four reviewed here, Buchanan’s approach integrates the constitution within the very core of economics, identifying, according to him, an entirely new stream of economic thought, constitutional economics (Buchanan, 1990). The overall aim of Buchanan’s theoretical construction is to integrate a social dimension of action within the microeconomic core of economics in order to assign a purely individual explanation to socio-political phenomena. This not only extends the field of application of marginalist economic analysis but also eliminates any social argument for redistributive or generally coercive policies (Buchanan and Tullock, 1962). The centrality of Buchanan’s theorization is further underlined by the abstract nature of the economic conceptualization of constitutions he produced, quite removed from constitutional realities (Buchanan, 1994). Commons placed constitutions at the very centre of his historical analysis of capitalism evolution (Commons, 1924), illustrating how social transactions are based on the evolution of the political relationship, from the personal bond between subject and king to the impersonal contract between citizen and State. As the legal artefact formally defining this relationship, constitutions act as the legal foundations of social transactions and the foundations for capitalism. The argument has no direct bearing on economic analysis, as the historical

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explanation of the nature of current transactions does not necessarily exert any causal impact on their mechanisms and systemic interactions. Commons’ reply is the theory of reasonable value (Commons, 1934a), positing that the reach of the relative prices’ system, arising from the interaction of transactions based on individual interests, is constrained by a social set of relative prices whose ultimate determinant is the judicial authority and, in particular, constitutions and their legitimate interpreters. By contributing to the determination of reasonable value, constitutions contribute to the determination of the boundaries of application of pure economics. While relevant for empirical analysis, however, this theorization places constitutions adjacent to economic mechanisms, without affecting them directly. This is consistent with Commons’ aim to extend, rather than challenge, mainstream economic approaches (Commons, 1932a). North’s approach is more difficult to classify due to the significant evolution that his analysis underwent through the decades. In the beginning, North integrated constitutions within the trappings of economic growth theory (North and Thomas, 1970). Institutional change mediates the impact of long-term demographic and demand factors on the economic growth potential of a socioeconomic system. Constitutional institutions are both slower to change and more significant in their economic impact. This evaluation was predicated on the application of mainstream equilibrium modelling and its attending liberal normative grounds, identifying a specific model of development based on property rights’ development, the expansion of impersonal market exchange, and the reduction of coercive redistribution. Later, however, North (1996) abandoned the idea of a single development model, questioning the possibility of translating neoclassical economic theory into policy recommendations and highlighting the importance of contextual, formal, and informal institutional factors, which reduce the relevance of the constitutional dimension. However, in his latest work (North, Wallis, and Weingast, 2009), North recovered a key role for constitutions as the lynchpin of the open access socio-economic order. However, the contribution can be seen as a mix of historical and political analysis, adding little to North’s economic theorization of constitutions, which remains in need of further development. Among the four scholars, Posner exemplifies the peripheral approach to theorization of constitutions. First, Posner’s theorization is meant to produce an interpretative economic perspective limited to the U.S. Constitution (Posner, 1998). For its analysis, two elements are needed: a criterion of evaluation, which is provided by his wealth-maximization principle, complete with a consent clause (Posner, 1981), and a set of imputable economic consequences. Both these tasks are theoretical, although their purpose is to enable an empirical analysis, as theory may suggest an answer to the question of constitutional economic efficiency, but any definite response can only come from data. With these elements in place, the constitution can be broken down into its constitutive elements to be analyzed separately. While an economic conceptualization of the various elements composing the constitution is developed, constitutions

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remain an object of study for economics rather than an integral component of economic theory. The four approaches reviewed here, therefore, cover a methodological domain of theoretical development, going from the central, essentialist approach of Buchanan, for whom the inclusion of constitutions within economic theory suffices to identify a different economic school, to the peripheral approach of Posner, aiming to conceptualize the constitution in order to enable its analysis with existing economic instruments. Between these two poles, we can find North’s approach, assigning to constitutions an important role within the specific theory of economic growth, and Commons’ approach, introducing constitutions as part of a boundary identifying the limits of application of pure economics, affecting the meta-theoretical dimension of analysis, rather than any specific theoretical framework. Similarly, broad ground is covered from a normative perspective. Again, Buchanan provides one extreme, with his explicitly normative approach aimed at producing concrete recommendations for liberal political reform (Buchanan, 1975b). Interestingly, however, Buchanan assumes economic agents to be entirely motivated by personal gains: while the theory is normative, it postulates agents completely blind to any normative dimension. At the opposite corner stands Commons, who theorizes an ethical dimension framing all economic activities and determining its pattern of development through time, as cooperative exchange gives way to bouts of socio-economic conflict and judiciary resolution. The contents of the normative framework, however, are left to be determined by historical analysis. Despite his positive claims, the complete version of Posner’s theory includes a strongly normative component. Like Buchanan, Posner identifies a normative standard. Unlike Buchanan, this is a macroeconomic aggregate outcome, namely wealth-maximization. Despite significant differences in assumptions and approach, the common liberal ground between the two is revealed by their shared concern with delegitimization of redistributive policies and marginalization of distributive concerns. While Posner praises traditional Calvinist virtues, the economic agents of his model remain steadily amoral, their productive behaviour just a function of the incentives created by their surrounding legal framework. The normative dimension is perhaps weakest in North, whose concern is initially limited to the positive question of determining the role played by institutions as drivers of growth. The later inclusion of an explicit normative dimension animating his model’s agents eclipses the normative dimension implicitly associated with economic efficiency. The comparison reveals two main approaches to the economic theorization of constitutions: either a normative analysis of amoral agents or a positive analysis of moral agents. The former is predicated on economic theory, the latter on economic history. The difference is linked to the theory’s scope. Buchanan and Posner developed a practical instrument of present analysis and intervention, based on the analyst’s normative stance. North and Commons, instead,

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developed a general theory of economic development, encompassing different socio-economic settings, characterized by evolving normative considerations. Therefore, while their personal ideological positions play a role, their analytical constructs endogenize normative considerations, leaving the determination of their contents to historical analysis rather than the analyst’s preferences. In regard to the critical nature of economic theorization of constitutions, unanimity rules: none among the four scholars began their analysis from a position of hostility towards neoclassical economics, which provided all of them with a methodological and/or theoretical starting point. Despite this, all four scholars produced a critique of neoclassical economics, although of different magnitude and vehemence. Buchanan claimed independence from neoclassical economics, positioning constitutional economics as a different economic school and declaring academic debate between the two approaches sterile (Buchanan, 1990). After a long struggle, North declared neoclassical economics useless for the purpose of analyzing long-term economic growth, leaving himself deprived of a theoretical frame of reference (North, 1994). Posner criticized several branches of neoclassical economics (Posner, 1993), proposing a different maximand on which to base economic efficiency calculations (Posner, 1979a), ignoring most of the ensuing criticism (Williamson, 1993). Paradoxically, Commons may be the least critical among them, although his analysis would assign a very limited role to pure economic analysis, urging the discipline to develop towards the reintegration of both a legal and an ethical dimension (Commons, 1936).

2.4 Conclusions This review of four influential approaches to the economic theorization of constitutions provides evidence in support of the hypothesis that integrating a constitutional dimension within economic theory may require either significant changes within the neoclassical framework or the use of altogether different foundations, for two reasons. Firstly, the economic conceptualization of constitutions is ultimately normative. The constitutional dimension refers to, defines, or symbolizes something desirable for either the economic agent, the analyst, or both. The economic analysis of constitutions requires either the introduction of an explicit normative dimension of activity, which is inconsistent with the homo economicus and the individualist assumptions of neoclassical economics or, in the case of a purely instrumental evaluation of constitutions, the definition of a specific normative criterion of evaluation, which is inconsistent with the frame of neoclassical economics as a positive science. Secondly, neoclassical economics is, at its core, a study of free individual choice among naturally given options. The conceptualization of constitutions as an endogenous set of constraints over economic activities partially endogenizes the definition of available options, making them socially constructed. This transforms economics from an analysis of the law of nature to an analysis of

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the laws of men, a transformation that neoclassical economics cannot support without significant change. Such change may take place: despite significant criticism, orthodox economics has demonstrated a remarkable aptitude for change and the future may yet surprise us. Until that moment comes, however, orthodox economics will have to limit itself to empirical analyses of the economic consequences of constitutions, while the integration of a constitutional concept within the theoretical core of economics will remain the domain of critical approaches: ‘Let us rejoice or else lament the fact as much as everyone of us likes; but do not let us shut our eyes to it’ (Schumpeter, 1950, p. 450).

References Becker, G. S. (1968). ‘Crime and punishment: an economic approach’. Journal of Political Economy, 76(2), pp. 169–217. Brennan, H. G. and Buchanan, J. M. (1985). The reason of rules. Cambridge: Cambridge University Press. Buchanan, J. M. (1959). ‘Positive economics, welfare economics, and political economy’. The Journal of Law and Economics, 2, pp. 124–138. Buchanan, J. M. (1967). Public finance in democratic process. Chapel Hill, NC: University of North Carolina Press. Buchanan, J. M. (1975a). ‘A contractarian paradigm for applying economic theory’. The American Economic Review, 65(2), pp. 225–230. Buchanan, J. M. (1975b). The limits of liberty. Chicago, IL: University of Chicago Press. Buchanan, J. M. (1977). Freedom in constitutional contract. London: Texas A&M University Press. Buchanan, J. M. (1986). Liberty, market and state. Brighton: Wheatsheaf. Buchanan, J. M. (1987). ‘The constitution of economic policy’. The American Economic Review, 77(3), pp. 243–250. Buchanan, J. M. (1990). ‘The domain of constitutional economics’. Constitutional Political Economy, 1(1), pp. 1–18. Buchanan, J. M. (1994). ‘Notes on the liberal constitution’. Cato Journal, 14(1), pp. 1–24. Buchanan, J. M. and Tullock, G. (1962). The calculus of consent: logical foundations of constitutional democracy. Ann Arbor, MI: University of Michigan Press. Commons, J. R. (1924). Legal foundations of capitalism. New York: Macmillan. Commons, J. R. (1925). ‘Law and economics’. The Yale Law Journal, 34(4), pp. 371–382. Commons, J. R. (1932a). ‘Institutional economics: comment by professor commons’. The American Economic Review, 22(2), pp. 264–268. Commons, J. R. (1932b). ‘The problem of correlating law economics and ethics’. Wisconsin Law Review, 8, pp. 3–26. Commons, J. R. (1934a). Institutional economics: its place in political economy. New York: Macmillan. Commons, J. R. (1934b). Myself. New York: Macmillan. Commons, J. R. (1935). ‘Communism and collective democracy’. The American Economic Review, 25(2), pp. 212–223. Commons, J. R. (1936). ‘Institutional economics’. The American Economic Review, 26(1), pp. 237–249.

L aw of Nature, Law of Man  47 Dixon, W. and Wilson, D. (2011). A history of homo economicus: the nature of the moral in economic theory. London: Routledge. https://doi​.org​/10​.4324​/9780203142875 Greenwald, B. C. and Stiglitz, J. E. (1986). ‘Externalities in economies with imperfect information and incomplete markets’. The Quarterly Journal of Economics, 101(2), pp. 229–264. Hackney Jr, J. R. (2003). ‘Law and neoclassical economics theory: a critical history of the distribution/efficiency debate’. The Journal of Socio-Economics, 32(4), pp. 361–390. https://doi​.org​/10​.1016​/S1053​-5357(03)00047-7 Hicks, J. R. (1939). ‘The foundations of welfare economics’. The Economic Journal, 49(196), pp. 696–712. Kaldor, N. (1939). ‘Welfare propositions of economics and interpersonal comparisons of utility’. The Economic Journal, 49(195), pp. 549–552. MacKaay, E. (2000). ‘History of law and economics’. In: B. Boudewijn and G. De Geest, eds. Encyclopedia of law and economics, volume I. The history and methodology of law and economics. Cheltenham: Edward Elgar Publishing, pp. 65–117. Mercuro, N. and Medema, S. G. (2006). Economics and the law. Princeton, NJ: Princeton University Press. https://doi​.org​/10​.1515​/9780691216010 North, D. C. (1971). ‘Institutional change and economic growth’. The Journal of Economic History, 31(1), pp. 118–125. North, D. C. (1978). ‘Structure and performance: the task of economic history’. Journal of Economic Literature, 16(3), pp. 963–978. North, D. C. (1990). Institutions, institutional change and economic performance. Cambridge: Cambridge University Press. North, D. C. (1994). ‘Economic performance through time’. The American Economic Review, 84(3), pp. 359–368. North, D. C. (1996). Economic performance through time: the limits to knowledge. Mimeo, Washington: Washington University. North, D. C. (2005). Understanding the process of economic change. Princeton, NJ: Princeton University Press. North, D. C. (2008). ‘Institutions and the performance of economies over time’. In: C. Menard and M. M. Shirley, eds. Handbook of new institutional economics. Berlin: Springer, pp. 21–30. https://doi​.org​/10​.1007​/978​-3​-540​-69305​-5_2 North, D. C. and Thomas, R. P. (1970). ‘An economic theory of the growth of the western world’. The Economic History Review, 23(1), pp. 1–17. North, D. C., Wallis, J. J., and Weingast, B. R. (2009). Violence and social orders: a conceptual framework for interpreting recorded human history. Cambridge: Cambridge University Press. https://doi​.org​/10​.1017​/CBO9780511575839 North, D. C. and Weingast, B. R. (1989). ‘Constitutions and commitment: the evolution of institutions governing public choice in seventeenth-century England’. The Journal of Economic History, 49(4), pp. 803–832. Persson, T. and Tabellini, G. E. (2005). The economic effects of constitutions. Cambridge, MA: MIT Press. https://doi​.org​/10​.7551​/mitpress​/2591​.001​.0001 Pistor, K. (2019). The code of capital: how the law creates wealth and inequality. Princeton, NJ: Princeton University Press. https://doi​.org​/10​.1515​/ael​-2020​-0102 Posner, R. A. (1979a). ‘Utilitarianism, economics, and legal theory’. The Journal of Legal Studies, 8(1), pp. 103–140. Posner, R. A. (1979b). ‘Some uses and abuses of economics in law’. The University of Chicago Law Review, 46(2), pp. 281–306.

48  Beniamino Callegari Posner, R. A. (1979c). ‘The ethical and political basis of the efficiency norm in common law adjudication’. Hofstra Law Review, 8, pp. 487–508. Posner, R. A. (1981). The economics of justice. Cambridge: Harvard University Press. Posner, R. A. (1986). Economic analysis of law. New York: Wolters Kluwer. Posner, R. A. (1987a). ‘The law and economics movement’. The American Economic Review, 77(2), pp. 1–13. Posner, R. A. (1987b). ‘The constitution as an economic document’. George Washington Law Review, 56(1), pp. 4–38. Posner, R. A. (1993). ‘The new institutional economics meets law and economics’. Journal of Institutional and Theoretical Economics (JITE)/Zeitschrift für die gesamte Staatswissenschaft, 149(1), pp. 73–87. Posner, R. A. (1998). ‘Against constitutional theory’. New York University Law Review, 73(1), pp. 1–22. https://doi​.org​/10​.18574​/9780814785461​-011 Schumpeter, J. A. (1950). ‘The march into socialism’. The American Economic Review, 40(2), pp. 446–456. Veljanovski, C. G. (1981). ‘Wealth maximization, law and ethics—On the limits of economic efficiency’. International Review of Law and Economics, 1(1), pp. 5–28. Williamson, O. E. (1993). ‘Transaction cost economics meets posnerian law and economics’. Journal of Institutional and Theoretical Economics (JITE)/Zeitschrift für die gesamte Staatswissenschaft, 149(1), pp. 99–118.

Part 2

Markets, Constitutions, and Inequality: Legal Regimes



Chapter 3

The Law and Political Economy of Healthcare in the United States Ximena Benavides

3.1 Introduction The COVID-19 pandemic has underscored and reinforced health disparities in many countries worldwide. Overwhelmed and understaffed hospitals, uninsured populations, medical equipment shortages, disadvantaged frontline workers, massive vaccine manufacturer profits, and vaccine hoarding are only a few of the ways that unequal access to healthcare has manifested. However, the pandemic also presents a potential opportunity for law and policy makers to identify the deep, structural problems that account for massive health inequities. In this context, legal scholars demand ‘political judgements about the gravest questions: who should exercise power, of what sort, and over whom?’ (Britton-Purdy et al., 2020, p. 1827). These questions call us to examine the ways in which power speaks through law – for instance, how concealed power has been allocated under a state of formal constitutionally guaranteed equality by neoliberal laws and policies that have shaped our health outcomes and healthcare systems for decades. Put differently, they suggest that evaluating the conditions and factors that have led us to the current health crisis would be incomplete without taking a political examination of the health market economy into account. This health crisis reveals the tension between U.S. constitutional commitments to equality and the design of its healthcare sector. Examining power allocations within healthcare systems in the United States can help identify the factors that have led to a heavily industrialized healthcare sector focused more on unlimited profit and less about serving its users. Perfectly legal rules and policies favour a limited number of health actors over others and, as a result, are accountable for not procuring and securing affordable, quality healthcare for all. As a few healthcare sector actors with excessive market and political power dominate, health institutions are weakened by competing (and conflicting) economic interests that place greed above public duty and health outcomes. Market and political power, intertwined with a health market’s own power imbalances, define many of the foundational healthcare problems that DOI: 10.4324/9781003202257-5

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institutionalize solely profit-maximizing environments. The power imbalances between patients, physicians, hospitals, insurers, and other medical providers and suppliers stem from agency subordination and information asymmetry problems, which are natural to healthcare systems and further encouraged by the competition and consumerism ideals of a market-based healthcare model. Through a Law and Political Economy (LPE) framework, this chapter reviews the U.S. market approach to healthcare and the role of law in access to it.1 The chapter is structured as follows: Section 3.2 describes the emergence of the LPE scholarship and its relevance for the study of healthcare markets. Section 3.3 applies the LPE framework to the healthcare sector. By focusing on market-based healthcare models, this section describes the legal and policy frameworks that code health actors’ behaviours. Section 3.4 uses data analysis to explain why the healthcare sector’s coded behaviours are a subject of interest to the LPE scholarship. Fundamentally, the analysis will focus on the regulation of U.S. big pharmaceutical companies and healthcare delivery integration. Using three examples, Section 3.5 elaborates on how the unrestrained growth of the private sector, principled away from caring for end users, constitutes a threat to sustainable healthcare systems.2 Finally, the chapter concludes that the treatment of health dysfunctions as market failures or efficiency problems alone is a mistake. A health system analysis is incomplete without a political approach to health market economies; particularly one that takes into account the market power problem that feeds health inequities within an industrialized healthcare sector is a result of policy choices.

3.2 The Rise and Relevance of Law and Political Economy (LPE) Scholarship The period following the end of the Cold War was characterized by an ambitious agenda of freedom, democracy, and prosperity. In this context, neoliberalism symbolized the project of protecting capitalism on a global scale. Through an institutional framework concerned with the creation of a new, depolitized international economic order, neoliberals aimed to preserve the free operation of markets through strong central institutions and states (Slobodian, 2018). Influential critics have argued that the neoliberal advance was in fact abetted by the modern human rights movement (Klein, 2007; Marks, 2011). As Western governments embraced neoliberalism in the late 1970s, a new generation of international human rights NGOs and advocates produced a human rights discourse in response to the rights violations that privatization, deregulation, and other shifts that neoliberalism brought about in governance (Moyn, 2015; Klein, 2007). Such narratives addressed human rights violations as mistakes, instead of ‘tools that served clear political and economic ends’ (Klein, 2007, p. 147) and prevented people from observing the root causes of the violations (Marks, 2011, p. 59). According to Moyn, the human rights movement

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was a ‘powerless companion’ of neoliberalism that demanded only minimal protections (Moyn, 2018, p. 216). As the human rights movement and neoliberalism flourished together, many aspects of human life were economized in the longer trajectory of capitalism. The increased economization of human life represented a moral threat to human rights. The democratic political values of equality and justice were subordinated to economic rationality as political problems were pretended to be solved through the market (Brown, 2006, p. 692; Brown, 2015). As a result, neoliberalism exposed the limitations of the constitutional protections to the equality and justice ideals. The human rights vindication often proved more useful in protecting, for example, private property rights of those who dominate and legitimizing state interventions ‘to protect’ the rights of the dominated (Perugini and Gordon, 2015). The difference between both groups was who had the political power to create the market rules. As Grewal and Purdy explain, neoliberalism does not address questions such as ‘how much market’, or ‘how much [state] governance’, rather only which interests will enjoy protection (Grewal and Purdy, 2014, pp. 8–9). Like Whyte (2019) claims, the evolution of human rights by neoliberals demonstrated that morals and politics have acutely shaped the operations of contemporary ‘competitive markets’ and evidenced that neoliberalism had a moral and political dimension rather than one that is strictly economic. The neoliberal agenda has faced several challenges in the twenty-first century: the 2008 global financial crisis that jolted the international financial system; environmental catastrophes that precipitated the acceleration of climate collapse; a pandemic that crashed healthcare systems, disrupted trade, increased political and economic instability, killed millions of people, and enlarged – as it reinforced – social inequalities; and the rise and proliferation of authoritarianism and populism. All these recent events have tested the models of legal thought and scholarship that have prevailed until today, including constitutional models. LPE scholars argue that efficiency analyses have been purposefully reshaped by the Law and Economics movement to respond to an idealized state of market efficiency, amplified and becoming more dominant in many legal fields, ‘in both the descriptive framing and the normative assessment of law’ (BrittonPurdy et al., 2020, p. 1790). For example, contracts and property law seem to value efficiency over fundamental questions of justice and power. Justified as a ‘wealth maximization’ driver, efficiency has also served to prioritize certain interests over others (Liscow, 2018; Khan and Vaheesan, 2017), leaving little or no room for thinking systemically about the relationships between political and economic power, except when they interfere with efficiency. This legal thought is in contention with the very first preaching of neoliberalism of harmonization and integration. Moreover, it represents the neglected risk of creating a generation – or multiple generations – of legal thinkers and law makers that normalize market inequalities and shape legal frameworks

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with a misconception of the relationship between politics and the economy (Britton-Purdy, et al., 2020). Scholars across several disciplines have offered compelling critiques of the idea that the aim of social policy should be economic efficiency (Rice, 1998; Evans, 1997; Jost, 2007; Stone, 2007).3 In particular, Law and Political Economy (LPE) suggests a new approach to legal scholarship that locates themes of power, equality, and democracy at the centre of legal research and policy analysis. Essentially, LPE pays attention to at least three forms of power to re-envision the process of democratizing control over the economy (Britton-Purdy et al., 2020, pp. 1820–1822). First, the constitutive power of law to endow bargaining power, for example, how antitrust law has enhanced – instead of restricted – bargaining power for firms. Second, the market power that law enables, represented by the bargaining power of a dominant buyer or seller to dictate market price and terms, in the context of contractual negotiations. Finally, the political power that refers to the influence of wealth on legislation and how law structures channels of influence (Gilens, 2012). LPE suggests that all these forms of power take a central role in our approach to resolve legal problems: essentially, to respond how law creates, reproduces, and protects political and economic power, for whom, and with what results. These questions lead us to a set of foundational concerns: who has power, who should have power, and why. Under an LPE framing, moving from an economic to political economy approach means shifting our view to one fundamentally power-based that questions the presumption of equal and voluntary market transactions. Likewise, it also means shifting the analytical focus from an individual to a structural level in order to expose and problematize systemic forms of hierarchy and subordination.

3.3 The Legal and Political Codes of Healthcare Market Economies In a sound economy, the price mechanism reliably conveys the value of goods and services, all parties are well-informed, and rational decision-makers exist. As a result, sellers sell their goods and services to the highest bidders. In a perfect world of competitive markets, neoclassical economics says, an equilibrium price is always reached and it ensures an efficient outcome. Globally, healthcare is mostly delivered through either government-run or market-based economic models. According to neoliberal rhetoric, only market-based healthcare systems allow individual health choices and yield good and efficient results – at least theoretically (Hoffman, 2019). Although idealized as the way to achieve an optimal allocation of resources, healthcare markets are, particularly, far from ‘perfect markets’. When Kenneth Arrow (1963) brought healthcare into mainstream of modern economics in his 1963 seminal piece, he warned that healthcare lacks many of the conditions necessary for a competitive market. The most basic

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micro-economic market assumptions were belied in healthcare, including the foundational principle that people have the capacity to act independently and freely make their own health choices. As market policies became stronger in the health field by the late 1980s, an important group of economists acknowledged that competition in healthcare did not work successfully because the conditions necessary for a well-functioning market were lacking (Rice, 1998, p. 22). Today, contemporary scholars and policymakers have lost health economics scepticism and continue to rely on pro-market arguments despite the uncomfortable disparities in access to health and between health spending and outcomes, while some hold healthcare structurally inhospitable to marketbased policies (Hoffman, 2019, pp. 1932–1938). Healthcare is a highly regulated sector of essential goods of social value, complex networks as a result of a fragmented system with multiple actors, and inevitable harsh information economic dynamics. In economics parlance, healthcare is a credence good (Darby and Karin, 1973; Nelson, 1970). Information asymmetry is significantly higher in the medical care market than in any other, which favors imbalanced power dynamics that may be capitalized by some actors over others. In this setting, the market expects consumers to know what they need, but this is not often the case (Hoffman, 2019). For example, after accumulating ‘thousands’ of medical consumer experiences, users have credence in the advice and experience of health professionals, who indicate what medical service or product to purchase. People form preferences based on past experiences, whether beneficial or not, rather than what they want with an accurate sense of self-interest and against foregone alternatives (Rice, 1998, p. 400; Hoffman, 2019, pp. 1939–1940). Even if health decisions were not strongly influenced by medical providers, ample evidence indicates that users often procrastinate and prefer a passive role, leaving health choices to principal experts, like doctors, hospitals, or health insurers (Levinson et al., 2005). This passive decision-making – or avoiding decisions – fuels agency subordination; this is, heavily relying on principals for health decision-making, at the additional risk of decisions being influenced by principals’ conflicting profit motives. Even if information were available and accessible to the general public, given the complexity of medical diagnostics, treatment options, and medical care prices, chances are high that people might miss its full potential. Even if patients possessed and understood medical information, they would overlook basic aspects of care architecture, such as doctors’ referrals, ordering medical procedures, conflicting interests in hospital management, professional licensing, and medical institutional organization (Hoffman, 2019, pp. 1941–1942). Most critically, healthcare consumption often occurs when people are experiencing emotional vulnerability due to illness and likely show inconsistent timepreference choices and irrationality amidst a sense of emergency, all of which can be exacerbated under live-or-die circumstances. In addition, individuals’ medical services demands are irregular and unpredictable, and can be highly unstable across short time frames (Thaler, 1980; Epstein, 2017).4

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The information asymmetry problem, certainly, cannot be solved with more information available to users, particularly patients. There is a vast gap between an idealized informed user and the information a person possesses and understands in reality. Mainstream U.S. healthcare economist, Victor Fuchs, recounts that competition in healthcare markets is not very realistic because consumers of medical services are poorly informed (Fuchs, 2010: 1860). The sole idea that patients would be able to decide correctly about their care ‘gives too much credence to “free market ideology” over the complexity of healthcare’ (Fuchs, 2010: 1860). Theoretically, in a competitive market, if users knew that expert sellers had an irreconcilable knowledge advantage over them – and the opportunity to abuse it – the market itself would have eliminated such providers due to dishonesty (Dulleck and Kerschbamer, 2006). However, information asymmetry and agency subordination create notorious informational imbalances between users and providers and suppliers of medical care that seem impossible to restore by the market itself. In short, major barriers separate a competitive healthcare market between theory and practice, which explains why many market mechanisms do not work in medical care as predictably in others. Even when considering that economic competition theory offers a potential for competitive provider-level health market scenarios such as hospitals,5 an effective patient consumerism is mostly denied. Nonetheless, the United States’ healthcare market heavily relies on consumer choice and competition. Health systems’ morphology is determined by first-level policy choices – constitutions – that decide whether health and the provision of healthcare are regulated as a fundamental human right. Then, there is a wider macrolevel design that shapes the health sector (Costa-Font, et al., 2020, pp. 77–90). Because markets are created and maintained by laws and embedded in political institutions, policy choices like the procurement of medical care, health insurance, and access to medicine are instrumentalized by a complex architecture of rules that are ultimately manifestations of the exercise of political (and market) power (Harris et al., 2021). Health scholars using an LPE framing reject the idea of a ‘free’ market and contest the idea that markets can be the result of a spontaneously competitive order by focusing on markets’ politics. Even coming from an ostensibly very different theoretical generally pro-competitive market approach, Arrow demonstrated what the LPE scholars argue. In Arrow’s words (1963, p. 946), the economic consequence of uncertainty prone to the health sector is that ‘information or knowledge becomes a commodity (…) [that] has a cost of production and a cost of transmission, and so it is naturally not spread out over the entire population but concentrated among those who can profit most from it’. If the health sector were an iceberg, at the tip of it, we would observe its constitutional dimension: the promotion of equal access to health and healthcare; yet, many legal and policy frames beneath the water surface would be the allegedly ‘constituting’ structure that sets up access as a privilege and would favour economic and political control of the sector by only a few.

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We live in a highly power-imbalanced healthcare ecosystem where power differentials are not only unattended but exacerbated by the healthcare governance architecture. As referred to above, because healthcare is a credence good, power imbalances between health actors – particularly patients, insurance companies, and medical service providers – are hard to avoid. Nonetheless, some laws and policies, such as antitrust and intellectual property laws6 add an extra – yet preventable – layer of power to certain actors over others (e.g. big pharmaceutical companies). Instead of restoring some balance to the already unequal power dynamics of the sector, law creators and policy makers ‘code’ certain health actors and their interests over others (Pistor, 2019). In other words, markets, as products of laws and policy choices, in the name of efficient allocation, can magnify disadvantages between healthcare actors and subordinate some over others in systems of hierarchy (e.g. people who can afford a health insurance compared to uninsured populations). As a result, exchanges between relative equals to the law can be replaced by a highly uneven arrangement in which a number of health users are left with no purchasing power (Schneider and Hall, 2009). Disempowerment is not exclusive to end users, such as patients. Within drug manufacturer and hospital groups, for example, not all actors are equally empowered by the law. Therefore, rather than ‘free’ markets, asymmetrical arrangements translate into systems of hierarchy and, as hierarchy scales up, harmful dynamics are replicated systemically and organically across health systems globally (Pistor, 2021). Furthermore, when laws and policies governing our health systems allow excessive profiteering (for example, big pharmaceutical companies’ legal lobbying and its impact on drug prices and access to medicine), healthcare systems favour health disparities. The gravity of this structural problem is that, unlike other sectors, health choices relate to tragic life-or-death decisions.

3.4 Why LPE of U.S. Healthcare? Healthcare is a major sector of the global economy and, in the words of the World Health Organization, is a sector that ‘continues to expand faster than the economy’ (WHO, 2019) with a health spending trajectory rising even for middle- and low-income countries. Global spending on health reached $8.3 trillion or 10% of global GDP in 2018 (WHO, 2020). Still, high-income countries account for 80% of global health spending and, on average, spend more than 70 times what low-income countries spend (WHO, 2019). Compared to high-income, developed countries, the U.S. has the highest health expenditure per capita – over 50% more than France, Japan, or Canada, and just over 40% more than Switzerland, the country with the next highest health spending per person (Peterson-KFF, 2020). The U.S. healthcare system alone represents 11% of the national employment, 24% of government spending, and 19% of U.S. gross domestic product. According to the U.S. Center for Medicare and Medicaid Services (CMS), close to 20% of the national health

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expenditure goes to pharmaceuticals whereas a third to hospital care (CDC, 2019). Indeed, the hospital sector represents one of the largest sectors of the U.S. economy (Cooper and Gaynor, 2021). Healthcare is not only large but very profitable in the U.S. Whereas health economists such as Fuchs explain the exceptional health expenditure as a result of market distortions caused by government regulation and subsidies considered trouble deviations from an ideal free market (Fuchs, 2010, p. 1859), comparative health law scholars blame it on its nature as a profit-oriented healthcare market (Pasquale, 2014, p. 176). For instance, top healthcare executives and insurance company shareholders are compensated at extraordinary rates, and medical providers are rewarded for over-treatment through a fee-for-service payment structure. Two of the five most profitable industries in the country sell healthcare: the pharmaceutical industry and the medical device industry. They dominate the financial sector with margins of almost 20% and are more profitable than healthcare purchasers: health insurers (Klein, 2012). As a result of this strategic position, sellers of healthcare services in the U.S. have considerable power and can set high prices. For example, drugs, medical devices, hospital services, and doctors’ fees are more expensive in the United States than in most comparable countries in Europe (Anderson et al., 2003, p. 91). Medicines to treat Alzheimer’s and diabetes are the most expensive drugs in the country despite the fact that these medical conditions affect a significant percentage of the U.S. population (New York Times, 2021a). Studies also show that with a third of the population earning low salaries, a fourth of Americans consider it difficult to afford the cost of their prescription medicine (KFF, 2019). The market-based model has dominated the U.S. health sector more ‘than any other sector of social policy’ (Stone, 2007). Republican and Democratic partisan administrations alike have favoured market-based ideas of competition and consumer choice (Hoffman, 2019, pp. 1931–1935). For health scholars like Hoffman, these policies have produced exactly the opposite result: a myth of choice and conditions especially unconducive to consumerism and a market bureaucracy captured by powerful, vested interests. U.S. legal and political economy scholars claim that healthcare governance under neoliberalism not only has favoured this market-based model but contributed to deepening the fissure between the wealthy and most economically disadvantaged populations and commodifying access to healthcare (Pasquale, 2014; Kapczynski, 2019; Hoffman and Hall, 2019; Hoffman, 2020; Gonsalves and Kapczynski, 2020). The contemporary U.S. healthcare market provides examples of key concerns arising from the concentration of private power. About 80% of the United States’ hospital market is highly concentrated, way over what the Federal Trade Commission (FTC) and the Department of Justice (DOJ) would consider a healthy level of concentration (Cooper and Gaynor, 2021). The consolidation of hospitals has shown higher healthcare prices for patients and lower provider wages (Rosalsky, 2021). In turn, the monopoly power

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and regulatory exclusivity given to pharmaceutical companies has resulted in ­pricing and supply problems as well as wasteful and misdirected innovation (Pistor, 2021). Hospital consolidation and the pharmaceutical industry are two markers of the connection between healthcare and antimonopoly principles. Although organized under the regulatory ideal of competition and choice, the U.S. healthcare market falls short in dispersing economic power among health actors and serving health consumers well. Furthermore, with poor key health outcomes despite the highest health expenditure of all peer nations, and the absence of a constitutional, statutory, and judicial recognition of health as a fundamental right (Hoffman and Hall, 2019), the U.S. healthcare governance architecture is a case for the critical study of the constitutional and political economy of health.7 Understanding how healthcare governance can be designed more equitably and confront egalitarian environments is crucial when providing content on the right to health ideally universal to all individuals.

3.5 Why Is There a Growing Private Power in the Healthcare Sector and Why Is It a Problem? Ideally, healthcare would not be marketized and should not become a commodity accessible only to those who can afford it. Notwithstanding, we note that universalization of healthcare can depend on a country’s preferred economic system, political regime, and even more structural foundations. The United States remains the only high-income country in the world where healthcare is not guaranteed to every citizen despite constitutional formal equal protection. Although we do not argue in favour of the de-marketization of the healthcare sector per se, where governments provide ‘free access to healthcare’ to their populations, we do argue in favour of healthcare systems designed with a right-to-health approach.8 To this extent, we understand law and policymakers ought to recognize that healthcare markets, compared to others, provide life-saving goods and services, and, thus, the creation and proliferation of monopolies by private sector actors – in addition to the problems the marketization of healthcare represent itself, as discussed above – terribly harm, if not jeopardize, the healthcare sector’s ultimate mission of caring and saving peoples’ lives. This section will examine three examples that illustrates harmful concentrations of excessive, unrestrictive private power in the healthcare sector. 3.5.1 Big Pharma

Access to affordable quality medicine is critical in order to secure access to health and healthcare for all individuals and populations. Intellectual property laws and policies play a fundamental role in shaping drugs production and distribution, yet they have been accountable for overpriced medicine, globally.

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Governments give companies intellectual property rights so they can exclude others from producing ‘new and innovative’ products. In the healthcare sector, intellectual property rights are justified in the name of efficiency and the allocation of the right economic incentives to promote the research and development (R&D) of ‘sophisticated’ and ‘hard to make’ drugs. Yet, intellectual property rights are also legal tools that grant market power to pharmaceuticals to set drug prices. Drugs can be expensive not only because they are costly to produce, but because companies who benefit from these monopolies are allowed to set their prices. Intellectual property laws are essentially creating monopolies and avoiding competition, which become harmful silos of market power if we weigh the fact that medicines are live-or-die game changers. In other words, governments allow certain pharmaceutical companies monopolies to convert drugs that can save lives into a luxury for those who can afford to pay their prices. Together with patents, intellectual property laws are accountable for drugs price explosions. Patents are government-granted exclusive rights that allow an inventor to prevent anyone else from making, using, importing, or selling their invention for a significant period of time. Patents also provide trade secrets, which means, for instance, it is hard to know which drugs are being manufactured. With rare exceptions, the set of entitlements that patents and other intellectual property laws have created has grown steadily and dramatically since the eighteenth century (Fisher, 2005). The neoliberal policy framework has favoured the expansion of this system internationally, for example, with the TRIPS Agreement.9 The problem is that intellectual property law does not provide a system of price regulations, and antitrust laws do not police patents. In addition, the system is prone to a lot of manipulation by pharmaceutical companies, for instance, using old drugs that look like new to tick the intellectual property rights checkbox. The large discretionary market power of pharmaceutical companies allows them to selectively decide on drug production mostly based on their commercial interests and financial returns. However, a substantial portion of their R&D is funded by governments with tax payers’ contributions, who receive a marginal benefit from drug pricing. Pharmaceutical companies in the U.S. also have high political power as the pharmaceutical industry is the highest lobbyist in the country, spending an average of $233 million per year on lobbying the U.S. federal government, $414 million on campaign contributions to presidential and congressional electoral candidates, and $877 million on state candidates. These contributions are targeted to legislators in Congress involved in drafting healthcare laws and drug pricing regulations, which suggest the influence of the pharmaceutical industry on U.S. health policy (Wouters, 2020). In the ‘free’ healthcare market, intellectual property law is certainly not collaborating in keeping prescription drug prices down. Most importantly, while helping to create ‘one of the most important sources of capital in contemporary life’, intellectual property law conceals the fundamentally political nature of

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efficiency and, as a result, denies the values of equity and justice that should underpin this field beyond efficiency (Kapczynski, 2017). 3.5.2 Hospital Consolidation

The U.S. hospital sector is largely market-based. In a perfect healthcare market, even supposing it existed, which LPE scholars would contest, hospitals would compete to attract commercially insured patients and be included in insurers’ networks. However, since the 2000s, hospital mergers in the United States have substantially increased market concentration and diluted competition (Gaynor, 2020). Nearly 1,600 hospital mergers have occurred involving thousands of hospitals, many of which have taken place between close competitors (Cooper et al., 2019; Beaulieu et al., 2020). Currently, more than 80% of the U.S. hospital market is ‘highly concentrated’ (Cooper et al., 2019), with an HHI two times higher than the healthy concentration levels considered by the Federal Trade Commission and the Department of Justice.10 Hospital consolidation in the U.S. has raised medical prices, lowered provider wages (Rosalsky, 2021), and limited user choice (Cooper et al., 2019). Consistent research on hospital mergers has found price increases of 20 to 50% (Tenn 2011; Thompson 2011). Similarly, prices have increased as a result of cross-market mergers, where the hospitals involved are not geographically close to each other (Dafny et al., 2019; Lewis and Pflum, 2017). Additionally, dominant hospitals received fiscal benefits as non-profit organizations, a legal scheme that allows them to use the extra money for executive compensation or to ‘overinvest’ in technology (Gaynor, 2020).11 Fuchs (2010) uses the example of hospital care to illustrate how healthcare markets are not as competitive as other markets, and even if they were, it would not be clear whether people could always benefit from competition. According to the economist (p. 1860), if specialized medical services, like organ transplantation or heart surgery, were provided at a single hospital (as opposed to independent hospitals for each specialized service), quality of care would be higher and costs lower as a result of horizontal integration of medical services that can reduce treatment wait times and reduction of high fixed costs such as medical equipment. Notwithstanding, a significant number of studies suggest that patient health outcomes are significantly worse in more concentrated markets although mergers may be justified on cost savings and efficiency (Beaulieu et al., 2020). The greater the hospital consolidation is, the less probable the competition and incentives for hospitals to raise care quality will be. Healthcare markets that are insufficiently policed by antitrust laws harm more users and lead to situations of abuse and health disparities. Most concerning is that studies suggest a correlation between hospital concentration and higher death rates (Cooper et al., 2011). Likewise, integration between hospitals and physicians in the U.S. has shown a steady increase over the past two decades. Studies show that hospitals

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acquiring physician practices have the potential to decrease a theoretical patient’s choice, raise provider prices, and harm hospital and physician practice competition (Cooper et al., 2019), while vertical integration of hospitals and insurers may cause a reverse effect. Combining insurance with medical care delivery has ample precedent in U.S. healthcare. For example, when a hospital is responsible for managing people’s insurance costs, the literature suggests there is a higher probability that the hospital will have a financial incentive to keep patients out of inpatient medical services (Toussaint, 2017). Of course, lower costs do not necessarily translate into lower prices for end users. By preventing unnecessary hospital care, the total cost of care decreases and new higher profit margins may either force the hospital-insurer deal to increase insurance premiums for procuring an efficient system or decrease them, since better care, for example, lowers the risk of hospital readmissions. 3.5.3 COVID-19 Vaccination 12

The unrestrained power of private health actors also impacts the global health market. There are dramatic gaps in global access to life-saving COVID-19 vaccines. Global vaccine access is highly inequitable, ‘with coverage … depending largely on a country’s wealth’ (WHO, 2021). During the first three quarters of 2021, 77% of vaccinations occurred in high and upper-middle income countries, and only 0.5% in low-income countries (NYT, 2021b). This is a complex situation as a result of the convergence of several factors, many of which exemplify why the allocation of the market and political power is a decisive factor in securing access to health for all populations. Vaccine manufacturers enjoy a concentrated market and political power that favour them, hoarding the technology to produce vaccines and hampering equitable allocation. Intellectual property rights create monopoly control over critical public health technologies that prevent the global community from accessing a vaccine necessary to address a global emergency (Mazzucato et al., 2021). Similar to the HIV/AIDS medicine crisis, where patents and high prices limited access to drugs in the global South, the COVID-19 vaccination brings about disparities and creates moral, health, and economic catastrophes on a vastly greater scale (Kapczynski, 2021). In fact, patents were never designed for use during global emergencies, but rather aimed at promoting economic incentives for competition and protecting inventions from ‘unfair competition’ in market-based settings, neither of which is the case of a pandemic (Nature, 2021). Along with vaccine manufacturers’ market power, wealthy nations are exercising their political power in new forms of nationalism (Kapczynski, 2021). The biggest vaccination programme in history is considered a ‘Vaccine Apartheid’ (Mazzucato et al., 2021; Kashyap and Wurth, 2021; Byanyima, 2021) as vaccine distribution has been lopsided in favour of high-income economies, who received the highest vaccine coverage—yet account for only 11% of the world’s

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population (Randall, 2021)—and hoarded orders of the first authorized and most effective vaccines in quantities enough to vaccinate their population several times over in some cases (Brown et al., 2021). Economic contributions to fund pharmaceutical companies’ vaccine R&D (Agarwal and Gaule, 2021) have conferred a sort of ‘preemptive right’ over vaccine production to over-satisfy national demand and a low incentive to earmark more funds to pharma and ensure the global vaccine production demand is satisfied (Kapczynski, 2021). Manufacturers have enacted extraordinary profit strategies,13 that when coupled with a government commitment to specific vaccines are incredibly harmful. This commitment was exemplified by the early promotion of vaccine boosters without conclusive evidence during the second semester of 2021 (Berkley, 2021). This can explain why monopolist vaccine makers and their funding governments refuse to share technology and grow global vaccine production capacity (Mazzucato et al., 2021). In the long run, manufacturers will end up focusing on producing doses for richer countries and keeping the know-how a secret to control the vaccine market (Kapczynski, 2021). Laws and policies favouring such economic power allocations are contributing to the justified perception of producing profit vaccines instead of a ‘people’s vaccine’ (UNAIDS, 2020). Similarly, those advocating for a vaccine patent waiver or licensing proposals do not aim to eradicate profits but rather balance power allocations with the purpose of channelling public investment for public value. Thus, vaccine distribution mostly shaped by politics and wealth has been prioritized for some populations over others (Rizvi and Gostin, 2021; Rhodes, 2020). Instead of competition favouring massive vaccine production and democratizing the access to vaccines based on public health concerns, laws and policies governing COVID-19 vaccination create dangerous profit-maximization environments. These policies contribute to public distrust in science and public health initiatives, while people die unnecessarily and we all face a greater risk of new coronavirus variants (Mandavilli, 2021). The manner in which the COVID-19 vaccine has been distributed globally has resulted in the blurring of lines between political and economic gain and public health. This is not a problem exclusive to the COVID-19 vaccine but to vaccine programmes and access to medicine in general (Kapczynski, 2019). The COVID-19 vaccine apartheid intellectual property ‘antimonopoly’ that laws and policies are creating may be just the beginning of a global drugs apartheid for many critical diseases, including cancer (Langreth, 2021). The absence of policies democratizing vaccine production and distribution consolidates disparate access to global health.

3.6 Conclusion Health has been highly politicized and its access problems shall not be treated as ones just of ‘efficiency’ or ‘market failures’. Minimizing the excessively large politics in the health sector is ignoring the huge design gaps that exist between providing equitable access to health and reality.

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As Pistor (2019, p. 6) puts it, policy choices and legal allocations in the creation of wealth and inequality ‘may be invisible to the casual observer, but that does not make it less real’. Our health and healthcare systems have failed, not particularly as a matter of a formal or material constitutional recognition of healthcare rights, but because of the healthcare architecture shaped by legal and policy frameworks that allow systems to be governed by wealth and the abusive exercise of excessive power. LPE scholarship offers to bring questions of power and equality back into the legal analysis of markets and market relations. In times of disappointment in the law for its incapacity to resolve great disparities, the LPE framing applied to the health sector represents a call to action for law and policy makers to fix the laws and policies that allow and ossify imbalanced, overpowered dynamics among health actors. Addressing healthcare disparities without dismantling power concentrations and opportunities for abuse embedded in the health sector is a helpless approach that ignores the political dimension of the policy choices that have shaped the sector despite the state of formal constitutionally guaranteed equality.

Notes 1 The subject of study of this chapter is the medical care sector, not health. While the former refers to the complex network of providers, products, and services for the delivery of care, health includes a broad group of factors that affect people’s health conditions (such as housing, environment, employment, food systems, sanitation, etc.). 2 Unless differentiated in the text, the term ‘users’ includes patients, as well as providers and suppliers, of healthcare systems. 3 This chapter focuses on the neoliberal ideal of efficiency. More extensively, neoliberal political economy is premised on the concepts of neutrality and anti-politics of democracy. 4 Although this chapter focuses on economic neoclassical theory and not behavioural economics, it recognizes that many fundamental problems of healthcare consumerism – for instance, cognitive biases – have tried to be solved with behavioural economic interventions, yet they have fallen short. 5 Infra. Section 4. 6 Infra. Section 4. 7 In the 1990s and 2000s, there was an increasing trend toward ‘constitutionalizing’ health as the number of new written constitutions increased. By 2010, more than half of constitutions in the world have explicitly identified health as an enforceable right. 8 A right-to-health healthcare model is structured on the equality principle, which means that wealth and race cannot selectively determine access to health to some populations only. 9 TRIPS: Agreement on Trade-Related Aspects of Intellectual Property Rights, April 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, 1869 U.N.T.S. 299, 33 I.L.M. 1197 (1994). 10 DOJ and FTC 2010 Section 1.5 of the Horizontal Merger Guidelines by the U.S. Department of Justice and the Federal Trade Commission. The Herfindahl-Hirschman Index (HHI) is used to determine market competitiveness, where a high HHI means high concentrations.

P olitical Economy of U.S. Healthcare  65 11 The Federal Trade Commission (FTC) cannot take enforcement action over these practices as anticompetitive behaviours. 12 This chapter notes that COVID-19 vaccines-deployment strategies and outcomes will change over time. The chapter focuses on the first year of global rollout, until August 30, 2021. 13 For a financial examination per pharmaceutical company and beneficial shareholders, see www​.theguardian​.com​/business​/2021​/mar​/06​/from​-pfizer​-to​-moderna​-whos​ -making​-billions​-from​-covid​-vaccines (last accessed, November 20, 2021). Pfizer’s Chief Executive Officer expects vaccinations will become recurrent beyond the current pandemic (such as for influenza, whose composition changes every year), with higher COVID-19 vaccine prices and yearly boosters, from which drug companies can expect large financial returns for years to come. See www​.reuters​.com​/business​ /healthcare​-pharmaceuticals​/pfizer​-lifts​-annual​-sales​-forecast​-covid​-19​-vaccine​-2021​ -05​-04/; Fierce Pharma, March 17, 2021. www​.fiercepharma​.com​/pharma​/pfizer​ -sees​-need​-for​-annual​-revaccinations​-and​-rationale​-for​-higher​-prices​-after​-pandemic (last accessed, November 20, 2021).

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66  Ximena Benavides Cooper, Z. and Martin, G. (2021). ‘Addressing hospital concentration and rising consolidation in the United States’. One Percent Steps. Available at: https://onepercentsteps​.com​/ policy​-briefs​/addressing​-hospital​-concentration​-and​-rising​-consolidation​-in​-the​-united​ -states/ (Accessed November 29, 2021). Cooper, Z., Gibbons, S., and McGuire, A. (2011). ‘Does hospital competition save lives? Evidence from the English NHS patient choice reforms’. Economic Journal, London, England, 121(554). Available at: https://pubmed​.ncbi​.nlm​.nih​.gov​/25821239/ (Accessed November 29, 2021). Costa-Font, J., Turati, G., and Batinti, A. (2020). The political economy of health and healthcare. The rise of the patient citizen. Cambridge, United Kingdom: Cambridge University Press. Dafny, L., Ho, K., and Lee, R. S. (2019). ‘The price effects of cross-market mergers: theory and evidence from the hospital industry’. The RAND Journal of Economics, 50(2), pp. 286–325. Darby, M. and Karin, E. (1973). ‘Free competition and the optimal amount of fraud’. The Journal of Law and Economics, 16, pp. 67–88. Dulleck, U. and Kerschbamer, R. (2006). ‘On doctors, mechanics and computer specialists: the economics of credence goods’. Journal of Economic Literature, 44(1), 5–42. Epstein, W. (2017). ‘Nudging patient decision-making’. Washington Law Review, 92, p. 1255; pp. 1275–1277. Evans, R. G. (1997). ‘Going for the gold: the redistributive agenda behind market-based health care reform’. Journal of Health Politics, Policy and Law, 22(2), pp. 427–465. Fisher, W. (2005). ‘Geistiges Eigentum - ein ausufernder Rechtsbereich: Die Geschichte des Ideenschutzes in den Vereinigten Staaten’. In Eigentum im internationalen Vergleich (Vandenhoeck and Ruprecht, 1999), 265-91. English version: the growth of intellectual property: a history of the ownership of ideas in the United States. Available at: https:// cyber​.harvard​.edu​/people​/tfisher​/iphistory​.pdf Fox, D. (1979). ‘From reform to relativism: a history of economists and health care’. Milbank Quarterly, 57, p. 297. Friedman, M. and Friedman, R. D. (1998). ‘Appendix B, chapter 28 (free to choose): documents’. In: M. Friedman and R. D. Friedman, eds. Two lucky people: memoirs. Chicago, IL: University of Chicago Press. Fuchs, V. R. (2010). ‘Health care is different – That’s why expenditures matter’. JAMA, 303(18), pp. 1859–1860. Gaynor, M. (2020). ‘What to do about health-care markets? Policies to make health-care markets work’. Brookings Institution. Available at: https://www​.brookings​.edu​/wp​ -content​/uploads​/2020​/03​/Gaynor​_PP​_FINAL​.pdf (Accessed November 30, 2020). Gilens, M. (2012). Affluence and influence: economic inequality and political power in America. Vol. 1. Princeton, NJ: Princeton University Press. Gonsalves, G. and Kapczynski, A. (2020). ‘The new politics of care’. Boston Review. Available at: https://bostonreview​.net​/politics​/gregg​-gonsalves​-amy​-kapczynski​-new​ -politics​-care (Accessed November 29, 2021). Grewal, D. and Purdy, J. (2014). ‘Introduction: law and neoliberalism’. Law and Contemporary Problems, 77, pp. 1–23. Hacker, J., Hertel-Fernandez, A., Pierson, P., and Thelen, K. (2021). The American political economy: politics, markets, and power. Cambridge, United Kingdom: Cambridge University Press. Hacker, J. and Pierson, P. (2020). Let them eat tweets. How the right rules in an age of extreme inequality. New York, NY: Liveright Publishing Corporation.

P olitical Economy of U.S. Healthcare  67 Harris, A., Kapczynski, A., and Zatz, N. (2021). ‘Where is the political economy’. LPE Blog. Hayek, F. (1998). Law, legislation and liberty: a new statement of the principles of justice and political economy. Vol. II. The Mirage of Social Justice. London: Routledge. Hoffman, A. (2019). ‘Health care’s market bureaucracy’. UCLA Law Review, 66, p. 1926. Hoffman, A. K. (2020). ‘The ACA’s choice problem’. Journal of Health Politics, Policy and Law, 45(4), pp. 501–515. Hoffman, A. and Hall, M. (2020). ‘The American pathology of inequitable access to medical care’. In: D. Orentlicher and T. Hervey, eds. The Oxford Handbook of Comparative Health Law. U. of Penn Law School, Public Law Research Paper No. 20-33. Jost, T. (2007). Health care at risk: a critique of the consumer-driven movement. Durham, NC: Duke University Press Books. Kaiser Family Foundation. (2019). ‘KFF health tracking poll’. Prescription drugs. Available at: https://www​.kff​.org​/health​-costs​/poll​-finding​/kff​-health​-tracking​-poll​-february​-2019​ -prescription​-drugs/ (Accessed November 29, 2021). Kapczynski, A. (2019). ‘The right to medicines in an age of neoliberalism’. Humanity Journal, Spring. Available at: http://humanityjournal​.org​/issue10​-1​/the​-right​-to​-medicines​-in​ -an​-age​-of​-neoliberalism/ (Accessed November 29, 2021). Kapczynski, A. (2021). ‘How to vaccinate the world, Part 1’. LPE Blog. Available at: https://lpeproject​.org​/blog​/how​-to​-vaccinate​-the​-world​-part​-1/ (Accessed November 29, 2021). Kapczynski, A. (2017). ‘Intellectual property law’. LPE Blog. Available at: https://lpeproject​ .org​/blog​/why​-intellectual​-property​-law (Accessed November 29, 2021). Kapczynski, A. (2008). ‘The access to knowledge mobilization and the new politics of intellectual property’. Yale Law Journal, 117, pp. 734–991. Kashyap, A. and Wurth, M. (2021). ‘Rights key to tackle corruption, inequity in vaccine access’. Human Rights Watch. Available at: https://www​.hrw​.org​/news​/2021​/03​/11​ /rights​-key​-tackle​-corruption​-inequity​-vaccine​-access (Accessed November 29, 2021). Khan, L. and Vaheesan, S. (2017). ‘Market power and inequality: the antitrust counterrevolution and its discontents’. Harvard Law & Policy Review, 11, p. 235; pp. 236–237. Klein, E. (2012). ‘Why an MRI cost $1,080 in America and $280 in France’. Wash. Post. Available at: https://www​.washingtonpost​.com​/blogs​/ezra​-klein​/post​/why​-an​-mri​ -costs​-1080​-in​-america​-and​-280​-in​-france​/2011​/08​/25​/gIQAVHztoR​_blog​.html (Accessed March 3, 2012). Klein, N. (2007). The shock doctrine: the rise of disaster capitalism. New York: Picador. Langreth, R. (2021). ‘Moderna’s next act is using mRNA vs. Flu, Zika, HIV, and Cancer’. Bloomberg Business Week. Available at: https://www​.bloomberg​.com​/news​/features​ /2021​-07​-14​/moderna​-mrna​-targets​-hiv​-cancer​-flu​-zika​-after​-covid​-vaccine (Accessed July 14, 2021). Levinson, W., Kao, A., Kuby, A., and Thisted, R. (2005). ‘Not all patients want to participate in decision making: a national study of public preferences’. Journal of General Internal Medicine, 20, p. 531; p. 532. Lewis, M. S. and Pflum, K. E. (2017). ‘Hospital systems and bargaining power: evidence from out-of-market acquisitions’. The RAND Journal of Economics, 48(3), pp. 579–610. Liscow, Z. (2018). ‘‘Is efficiency biased?’ University of Chicago Law Review, 85, p. 1649. Mandavilli, A. (2021). ‘The U.S. is getting a crash course in scientific uncertainty’. The New York Times. Available at: https://www​.nytimes​.com​/2021​/08​/22​/health​/coronavirus​ -covid​-usa​.html (Accessed August 22, 2021).

68  Ximena Benavides Marks, S. (2011). ‘Human rights and root causes’. Modern Law Review, 74(1), pp. 57–78. Mazzucato, M., Gosh, J., and Torreele, E. (2021). ‘On waiving covid patents’. The economist, by invitation. Available at: https://www​.economist​.com​/by​-invitation​/2021​/04​/20​/ mariana​-mazzucato​-jayati​-ghosh​-and​-els​-torreele​-on​-waiving​-covid​-patents (Accessed April 20, 2021). Moyn, S. (2015). ‘A powerless companion: human rights in the age of neoliberalism’. Law and Contemporary Problems, 77(4), pp. 147–169. Moyn, S. (2018). Not enough. Human rights in an unequal world. Cambridge, MA: Harvard University Press. Nature Editorial. (2021) ‘It’s time to consider a patent reprieve for COVID vaccines’. Nature, 592, p. 7. Available at: https://www​.nature​.com​/articles​/d41586​-021​-00863-w (Accessed March 30, 2021). Nelson, P. (1970). ‘Information and consumer behavior’. Journal of Political Economy, 78, pp. 311–329. New York Times. (2021a). New drug could cost the government as much as it spends on NASA. Available at: https://www​.nytimes​.com​/2021​/06​/22​/upshot​/alzheimers​-aduhelm​ -medicare​-cost​.html (Accessed June 22, 2021). New York Times. (2021b). Tracking coronavirus vaccinations around the world. Available at: https://www​.nytimes​.com​/interactive​/2021​/world​/covid​-vaccinations​-tracker​.html (Accessed November 29, 2021). Pasquale, F. (2014). ‘The hidden costs of health care cost-cutting: toward a post-neoliberal health-reform agenda’. Law and Contemporary Problems, 77, pp. 171–193. Perugini, N. and Gordon, N. (2015). The human right to dominate, Oxford studies in culture and politics. Oxford and New York: Oxford University Press. Peterson, K. F. F. (2020). ‘How does health spending in the U.S. compare to other countries? On health system tracker’. Available at: https://www​.healthsystemtracker​ .org​/chart​-collection​/health​-spending​-u​-s​-compare​-countries/​#item​-start (Accessed November 29, 2021). Pistor, K. (2019). The code of capital: how the law creates wealth and inequality. Princeton, NJ: Princeton University Press. Pistor, K. (2021). ‘Joe Biden’s pro-market agenda’. Available at: https://www​.project​ -syndicate​.org​/commentary​/biden​-promoting​-competition​-in​-the​-american​-economy​ -by​-katharina​-pistor​-2021​-07 (Accessed July 20, 2021). Prasad, M. (2006). The politics of free markets. Chicago, IL: University of Chicago Press. Purdy, J. (2014). ‘Neoliberal consitutionalism: lochnerism for a new economy’. Law & Contemporary Problems, 77, p. 195. Randall, T. (2021). ‘The World’s wealthiest countries are getting vaccinated 25 times faster’. Bloomberg Equality. Available at: https://www​.bloomberg​.com​/news​/articles​ /2021​-04​-09​/when​-will​-world​-be​-fully​-vaccinated​-pace​-is​-2​-400​-faster​-in​-wealthy​ -countries (Accessed April 9, 2021). Rhodes, N. (2020). Covid vaccine distribution: more fertile ground for corruption, transparency international health initiative. UK: Transparency International. Available at: https:// ti-health.org/content/covid-vaccine-distribution-more-fertile-ground-for-corruption/ Rice, T. (1998). The economics of health reconsidered. Chicago, IL: Health Administration Press. Rosalsky, G. (2021). ‘The untamed rise of hospital monopolies’. NPR. Rizvi, Z. and Gostin, L. (2021). ‘Biden needs to mobilize the global community to produce the COVID-19 vaccine’. USA Today. Available at: https://www​.usatoday​.com​

P olitical Economy of U.S. Healthcare  69 /story​/opinion​/2021​/02​/16​/joe​-biden​-global​-response​-covid​-19​-vaccine​-column​ /4436315001/ (Accessed February 16, 2021). Schneider, C. and Hall, M. (2009). ‘The patient life: can consumers direct health care?’ American Journal of Law & Medicine, 35, pp. 7–65. Slobodian, Q. (2018). Globalists. The end of empire and the birth of neoliberalism. Cambridge, MA: Harvard University Press. Stone, D. (2007). ‘The false promise of consumer choice’. The Saint Louis University Law Journal, 51, p. 475, p. 477. Tenn, S. (2011). ‘The price effects of hospital mergers: a case study of the Sutter-Summit transaction’. International Journal of the Economics of Business, 18(1), pp. 65–82. Thaler, R. (1980). ‘Toward a positive theory of consumer choice’. Journal of Economic Behavior and Organization, 1(1), 39–60. The Telegraph. (2021). ‘Berkley, Seth, if we’re not careful, booster vaccines could end up giving the coronavirus a boost’. Available at: https://www​.telegraph​.co​.uk​/global​-health​/science​-and​ -disease​/not​-careful​-booster​-vaccines​-could​-end​-giving​-coronavirus​-boost/ (Accessed August 5, 2021). Thompson, A. (2011). ‘The effect of hospital mergers on inpatient prices: a case study of the New Hanover–Cape fear transaction’. International Journal of the Economics of Business, 18(1), pp. 91–101. Toussaint, J. (2017). ‘What the CVS-Aetna deal means for the delivery of U.S. Health care’. Harvard Business Review. Available at: https://hbr​.org​/2017​/12​/what​-the​-cvs​-aetna​-deal​ -means​-for​-the​-delivery​-of​-u​-s​-health​-care (Accessed November 29, 2021). UNAIDS Opinion. (2020). We must have A #PeoplesVaccine, not a profit vaccine. Available at: https://www​.unaids​.org​/en​/resources​/presscentre​/featurestories​/2020​/december​ /20201209​_we​-must​-have​-a​-peoples​-vaccine (Accessed November 29, 2021). Whyte, J. (2019). The morals of the market. Human rights and the rise of neoliberalism. London and New York: Verso. World Health Organization (WHO). (2021). Strategy to achieve global Covid-19 vaccination by Mid-2022. Washington, DC: WHO. World Health Organization (WHO). (2019). Health expenditure report. Washington, DC: WHO. World Health Organization (WHO). (2020). Global spending on health: weathering the storm report. Washington, DC: WHO. Wouters, O. J. (2020). ‘Lobbying expenditures and campaign contributions by the pharmaceutical and health product industry in the United States, 1999–2018’. JAMA Internal Medicine, 180(5), 688–697.

Chapter 4

Fiscal Sustainability and Its Jurisprudential Evolution The Fraught Dialogue between the Economy and the Law Eleonora Lozano Rodríguez 4.1 Introduction In Colombia, fiscal sustainability is the constitutional embodiment of a tense dialogue initiated in the 1990s between lawyers and economists. There were several academic scenarios where the tax impact was discussed not only in terms of regulations but also of judges’ rulings. Economists did not understand why judges ended up ‘legislating’ and ‘dictating public policy’ in their rulings, with very high costs for public finances. Lawyers argued that legal discipline should guarantee the protection of rights, without focusing the discussion on economic aspects. Thus, Legislative Act 3, in 2011 gave rise to the need to find a middle ground that would bring about a détente in the debate – in other words, the consecration of fiscal sustainability while guaranteeing the effective protection of rights. This discussion is relevant beyond the Colombian context. Other countries explored the need for fiscal sustainability and derived fiscal rules from it (e.g. Chile and Perú). This chapter will only explore fiscal sustainability and its jurisprudential evolution. It will not delve into the issue of fiscal rules. Nor will it conduct comparative law analyses that others have already carried out exhaustively (Plazas Vega, 2016; Rosas Vega, Plazas Vega, and Bernal Castro, 2013; Restrepo, 2012). This chapter will test how the constitutional consecration of the fiscal sustainability mandate and the fiscal impact incident, and its jurisprudential evolution in Colombia, have, despite the fact that there are still tensions to be resolved, improved the dialogue between lawyers and economists. It thus consists of two main sections. In Section 4.2, I provide a theoretical and conceptual approach to fiscal sustainability and the fiscal impact incident, and employ constitutional jurisprudence to specify their main characteristics. In Section 4.3, I explore the following four specific cases of the application of fiscal sustainability and/or fiscal impact incidents: (i) social security; (ii) victims of the armed conflict; (iii) community mothers; and (iv) taxes. In Section 4.4, I present my conclusions and recommendations.

DOI: 10.4324/9781003202257-6

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4.2 Theoretical and Conceptual Approach to Fiscal Sustainability and Fiscal Impact Incident: The Much-Needed Dialogue between Economy and Law 4.2.1 Fiscal Sustainability

In other papers, I have referred to the fact that the Colombian Constitution allows for a mixed economy system in which both the free market and active state intervention coexist (Lozano Rodríguez, 2016A).1 According to the Colombian Constitution, one of the economic principles that govern this system is the State’s control of the economy, by which the State is the great regulator, where it not only acts as the owner of the land and the non-renewable natural resources but also legally intervenes in the free play of supply and demand in certain constitutionally defined areas.2 The constitutional document also states that ‘improving the quality of life of the inhabitants; achieving equitable distribution of opportunities; obtaining development; preserving a healthy environment; achieving productivity and competitiveness; democratizing credit; and, finally, achieving the harmonious development of the regions’ are the main purposes of said intervention (article 334 of the Constitution). Other microeconomic principles contemplated in the Constitution are the freedom of economic activity and private initiative and the social function of the company (Lozano Rodríguez, 2016A). Accordingly, one of the main themes of economic constitutionalism in Colombia, i.e., state intervention in the economy, is framed – based on Legislative Act 3 of 2011 – within the ‘fiscal sustainability’ that serves as an instrument to progressively achieve the objectives of the Colombian State of Law.3 The Constitution also states that in said intervention ‘fiscal sustainability must guide the branches and organs of public power within a framework of harmonious collaboration’ (article 334, paragraph 3). Therefore, ‘fiscal sustainability’ not only permeates the principle of ‘state control of the economy’, but it also affects the different instruments of Colombian public finances, such as the budget, planning and the general system of participation, and the intervention of its actors (articles 236, paragraph 2, and 339 of the Constitution). The Constitutional Court has recognized this by establishing: the possibility for the authorities to formulate policies that can be maintained over time to benefit the population and government goals; hence the importance of incorporating the criterion of sustainability in the National Development Plan, in the budget plans, and in the appropriations law. (‘C-753’, 2013, emphasis added) To understand ‘fiscal sustainability’, we must analyze Ruling ‘C-288’ (2012), which revises the constitutionality of both Legislative Act 3 of 2011 and Law

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1473 of 2011, the latter of which establishes the ‘fiscal rule’ based on ‘fiscal sustainability’.4 The ruling shows that neither the legislative act nor the law in question replaces the Constitution, since they do not ‘subvert’, in their terms, the clause on the Colombian Social State of Law, the separation of powers, or the primacy of fundamental rights. In general, the ruling understands ‘fiscal sustainability’ as: there being a fiscal balance, that is, that the expenses foreseen or ordered for the payment of a ruling are foreseen or budgeted for. Another way of understanding it would be that, although such expenses are not foreseen or budgeted for, they can be settled in the future. It may also mean that, whether the resources exist or may exist, the instruction to use them does not mean that the way in which they were intended to be invested by the other organs of the State will be significantly altered. It also implies that judicial decisions do not prevent the execution of what was decided in the National Development Plan or in the approved budget. Likewise, an alternative government programme cannot be set up through rulings, nor are the powers of the executive and the Congress in matters of expenditure strengthened; i.e., there is no judicial co-government. (‘C-288’, 2012) Below are some important cross-cutting conclusions in the jurisprudence on fiscal sustainability: i. It is a ‘guiding’ mandate and not a fundamental principle of the social state under the rule of law. For the Court, this is a ‘guiding’ criterion for the actions of the government and the entities in power, with the aim of achieving the effective enjoyment of citizens’ rights. The Court argues that ‘fiscal sustainability is, by superior mandate, a guiding criterion that lacks the hierarchy of the fundamental principles of the social and democratic state under the rule of law, which have their own particular mandates that must be optimized, it cannot be predicated in specific cases that these principles can be limited or restricted in order to achieve fiscal discipline, since this would mean that a constitutional principle that confers identity on the Political Charter would be displaced by a framework or guide for state action, which is manifestly erroneous from the perspective of constitutional interpretation’ (‘C-288’, 2012, emphasis added). It is interesting to note the clarification in case law that fiscal sustainability is neither a principle nor a value nor a right (‘C-753’, 2013). ii. It is not an end in itself, but a means. It is therefore a criterion that is subordinate to the general framework of the social state based on the rule of law (‘C-288’, 2012 and ‘C-753’, 2013). iii. It is an inter-temporal budget constraint. Financial sustainability is related to the factors that describe the evolution of public debt and

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that discipline government spending. Thus, the Court establishes that ­sustainability is ‘a government’s need to obtain resources to cover the fiscal deficit; in other words, it is the fulfilment of the government’s intertemporal constraint, which requires that the present value of the expected flows of the primary outcome be equal to the present value of the current debt (…) Thereby, the debt in the long term will be equal to zero (…)’ (‘C-288’, 2012). For some instances of case law, ‘sustainability is a tool that allows for medium- or long-term expenditure to be maintained in order to finance the costs of issuing new debt and to reduce the fiscal deficit, making it possible to make macroeconomic projections and estimates, and to establish strategies as is the case with the medium-term fiscal framework’ (‘C-753’, 2013). iv. It is an auxiliary and guiding criterion. According to the Court, financial sustainability operates as an ‘auxiliary’ and ‘guiding criterion’ of the functions of the social state under the rule of law (‘C-288’, 2012). v. It is a ‘limited’ mandate. Financial sustainability cannot be used to deny protection or diminish the scope of fundamental rights. Thus, rights must be protected within an integral perspective and not only from their essential core. The Court even refers to the requirement to comply with a mandate of ‘inviolability’ of these constitutional guarantees (‘C-288’, 2012). vi. It should be interpreted in accordance with the principle of progressivity.5 Thus, the principle of progressivity cannot be used to indefinitely postpone the execution of constitutional rights (‘C-753’, 2013). 4.2.2 The Fiscal Impact Incident

In addition, and in response to the repeated concerns of Colombian economists regarding the possible effects that the rulings of the High Courts may have on public finances, Article 334 of the Constitution contemplates the ‘fiscal impact incident’, which comprises the following characteristics: (i) it can be initiated by the Attorney General of the Nation or one of the government ministers; (ii) once initiated, the procedure is obligatory; (iii) the High Court will hear the explanations of the proponents on the consequences of the public finances as well as the concrete plan for its fulfilment and will decide if it is appropriate to modulate, modify, or defer the effects of the ruling; and, (iv) in the interpretation of the article, the essential core of the fundamental rights cannot be affected, neither by denying their effective protection nor restricting their scope. So, in the tense dialogue between the two disciplines, both benefit: on the one hand, the economy, in its eagerness to safeguard public finances from the impact of judges’ rulings; and on the other, the law, by emphasizing that the essential core of fundamental rights, their scope, or effective protection can

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never be affected (art. 334, paragraph 4). For constitutional jurisprudence, the law seems to triumph by stating that: The malleability of the concept of fiscal sustainability, shows that the legislative act advocates the judicialization of the economy. Paradoxically, the intention was to place severe limits on the exercise of judicial powers, especially those of the Constitutional Court in the area of economic, social and cultural rights, and the result was that judges became the main arbiters of economic decisions. (‘C-132’, 2012, emphasis added) There are four important rulings regarding the fiscal impact incident. The one mentioned above, ‘C-288’ (2012); ‘C-1052’ (2012); ‘C-753’ (2013); and ‘C-870’ (2014). The first two study the constitutionality of Legislative Act 3 of 2011, in its aspects of substance (the Court considers that this procedure does not replace the separation of powers or judicial independence and autonomy) and form (the Court rules out procedural flaws in the inclusion of paragraph 3 which regulates the fiscal impact incident). The third, ‘C-753’ (2013), makes an interesting analysis of the incident on the occasion of the reparation of victims, which will be detailed later. Finally, it is fundamental for Ruling ‘C-870’ (2014) to be reviewed given the articles it studies: 1 to 6, 8, 9, 11 to 14 of Law 1695 of 2013, ‘by which article 334 of the Constitution is developed and other provisions are issued’, which regulate various aspects relating to the fiscal impact incident, declaring them to be in accordance with the Constitution, except for some expressions, paragraphs and one paragraph of certain rules relating to acción de tutela,6 as the Court considers that these should be regulated by statutory law.7 For the Court, the procedure has the following characteristics: i. The legitimacy to promote the incident is exclusive and nondelegable. Only Government Ministers and the Attorney General may promote fiscal impact incidents, and such power may not be delegated to other public officials (‘C-1052’, 2012).8 ii. It is a forum for dialogue that does not undermine the separation of powers. It therefore implies the harmonious collaboration of the public powers (mainly, the executive and judicial branches) and the Attorney General’s Office, where an additional argumentative burden is imposed on officials when presenting explanations and arguments to the High Courts regarding the effect of a judicial ruling on fiscal sustainability (‘C-288’, 2012). This argumentative burden cannot at any time be shifted to the judges, because ‘although fiscal sustainability is a guiding criterion to determine the effects of the rulings, the judicial authorities are not obliged to carry out a detailed study on the fiscal impact of their decisions, an analysis that corresponds to the Government Ministers or the Attorney General

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when they decide to promote the fiscal impact incident’ (‘C-1052’, 2012, emphasis added). iii. It does not usurp the judicial function. The debate in the courts is limited to the economic effects of the rulings of the High Courts and not to decisions that protect rights, since these are immutable and are covered by ‘res judicata’ (‘C-288’, 2012). Thus, the Court establishes that ‘fiscal sustainability is a criterion that the judge must take into consideration when measuring the impact of the remedies to protect the guarantees invoked and not to define the content of the rights. Thus, to understand it otherwise would imply disregard for the principle of judicial autonomy enshrined in article 228 Superior’, and also, ‘the matters submitted to the processing of the fiscal incident are restricted to the effects of the rulings, not to the content of the ruling itself considered; that is, the decision adopted by the judge is protected by the principle of res judicata’ (‘C-1052’, 2012, emphasis added). Thus, under no circumstances may the incident modify the resolutive part of the decisions (‘C-753’, 2013). iv. The High Courts are independent and autonomous in relation to the incident. It is the High Courts that retain the competence to decide whether or not to modify, modulate or defer the effects of the rulings (‘C288’, 2012). v. The decision of the High Court must be reasoned. Jurisprudence establishes that, since it is a judicial decision, as a procedural action, it must be reasoned, ‘especially if one chooses to modify, modulate or defer the effects of the ruling under analysis’ (‘C-1052’, 2012). vi. The possibility of modulating, modifying or postponing the effects of the ruling in time is potestative. The judge can uphold orders issued from the beginning (‘C-1052’, 2012).

4.3 Some Specific Cases of the Application of Fiscal Sustainability and/or the Fiscal Impact Incident 4.3.1 Social Security: Health and Pension

Of the selected sample, three are the rulings that have analyzed ‘fiscal sustainability’ in the field of social security: ‘C-258’ (2013), ‘C-066’ (2018), and ‘C-313’ (2014). The first, ‘C-258’ (2013), analyzes the constitutionality of Article 17 of Law 4 of 1992, which granted a special pension system to members of Congress, so that they would receive their pension allowance based on the last year of contributions but not less than 75% of the total income received monthly. This regulation also increased these salaries based on the minimum wage adjustment rate and did not recognize the general pension limit of the 25 current legal monthly minimum salaries.

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The ruling, in addition to analyzing the financial weaknesses of the pension system in Colombia, states that such measures impose an ‘excessive burden on the system that would put at risk the pension rights of the vast majority of those who contribute to it’. Moreover, this type of differential treatment threatens the ‘financial sustainability’ of the pension system in Colombia, the main concern of Legislative Act 1 of 2005, which restructures the pension system in Colombia. It also ignores, according to the Court, the right to equality in harmony with the constitutional principles of universality, solidarity, and efficiency that govern an equitable pension system. The ruling also makes an interesting historical account of the rules that have regulated the ‘fiscal sustainability’ in our country to reach the provisions of Legislative Act 3 of 2011, but also showing its limits by not being able to restrict or deny social security benefits to people belonging to vulnerable sectors. The ruling, therefore, concludes that the widespread imposition of reasonable limits on the amount a person can receive by way of a pension ‘is intended to enable the State to take steps to redistribute resources and increase the coverage of the pension system’. The ruling ends by mentioning that: the principle of fiscal sustainability is only relevant insofar as it justifies that the savings generated by this measure be used to extend the coverage of the pension system to the benefit of people with limited resources, as required by the principle of the social rule of law. (C-258, 2013, emphasis added) More recently, in Ruling ‘C-066’ (2018), the Constitutional Court found that the objections of unconstitutionality raised by the government in relation to House Bill 062 of 2015 – Senate Bill 170 of 2016 Senate, combined with House Bill 008 of 2015, which sought to reduce the rate paid by pensioners to the general pension system from 12% to 4%. The government, in addition to objecting to the lack of legislative competence to promote a project that involves a tax benefit without the endorsement of the executive, argues that the project did not analyze the ‘fiscal impact’ that the measure would generate on the finances of the general system. The above, in violation of both the ‘fiscal sustainability’ of article 334 of the Constitution and of ‘sustainability’ as a principle of the fundamental right to health, is incorporated in article 6 of Law 1751 of 2015 (statutory health law). It is precisely the constitutionality of the statutory health law that is analyzed in Ruling ‘C-313’ (2014), and in relation to ‘fiscal sustainability’ it states: (i) it is not an end in itself, but is intended, in this case, to guarantee the effective enjoyment of the right to health as a fundamental objective of the social and democratic state based on the rule of law; (ii) there should be no planning or structures that prevent the breakdown of the health service; (iii) ‘fiscal sustainability’ is orientative, meaning that it directs or channels rather than coerces

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the actions of the state authorities; and (iv) ‘fiscal sustainability’ is instrumental, which is why the authority cannot claim that access to health has been denied solely because of a lack of funding for the system. It is therefore interesting to note that ‘fiscal sustainability’ has constitutional roots but has also influenced the regulations governing both the pension and health systems in our country, incorporating at the legal level the principles of ‘financial sustainability’ and ‘sustainability as a principle of the fundamental right to health’, respectively. 4.3.2 Victims of the Armed Conflict

Rulings ‘C-581’ (2013), ‘C-753’ (2013) and ‘C-161’ (2016) analyze several provisions of Law 1448 of 2011 ‘by which measures are issued for attention, assistance and integral reparation to the victims of the internal armed conflict and other provisions’ in light of ‘fiscal sustainability’. Ruling ‘C-581’ (2013) declares the constitutionality of paragraph 5, among others, of Article 9 of Law 1448 by which within the framework of transitional justice, the competent judicial and administrative authorities must adjust their actions to the primary objective of achieving reconciliation and lasting and stable peace. To this end, fiscal sustainability, the magnitude of the consequences of the violations referred to in article 3 of this law, and the nature of these violations must be taken into account. highlighting the importance of fiscal sustainability and the non-infringement of higher precepts and the Constitutional Block. The plaintiffs argued that the fiscal restrictions of the norm were imposed without studies or evidence that determined that the State was in a financial situation that put fiscal sustainability at risk, nor that the provision of care to the victims could generate such a situation. Furthermore, legal intervention by the State should observe criteria of reasonableness and proportionality, which were ignored in the regulation. The Court concludes that ‘fiscal sustainability’ in this case: is an element that is currently part of constitutional law, and to such an extent is a relevant parameter for the analysis of the enforceability of legal provisions (…) [for] this reason its mere mention as a guiding criterion for the development and application of a statute such as the Victims’ Law, could not be considered as contrary to the governing text. (C-581, 2013) Likewise, Ruling ‘C-753’ (2013) declares that Article 19 of Law 1448 of 2011 and Article 77 of Decree Law 4634 of 2011 are enforceable because

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fiscal sustainability is not a restriction on the right to full compensation and in ­particular to administrative compensation. On one hand, the first provision regulates ‘sustainability’, mentioning in the defendant’s paragraph that (t)he development of the measures referred to in this law must be undertaken in such a way as to ensure sustainability in order to give them, as a whole, continuity and progressiveness, in order to guarantee their viability and effective compliance. On the other hand, Decree Law 4635 of 2011, whereby assistance, attention, integral reparation and land restitution measures are issued to victims belonging to Black, Afro-Colombian, Raizal, and Palenquera communities, establishes in article 77 that compensation to victims or individual gypsies shall be distributed following equity criteria ‘and shall establish the term in which it shall be distributed in terms of the limits imposed on the national budget for reasons of short and medium term fiscal stability’ (emphasis added). However, Article 80 of the aforementioned decree is constitutional for the Court ‘whenever the authorities are deemed responsible to guarantee the resources to adequately and proportionally compensate the victims’. This article refers to compensation to individual Black, Afro-Colombian, Palenquero, and Raizal victims, for which the estimation of the total amount available must be based on the need to reach an amount that is coherent, adequate, proportional and reasonable, both for the victims and in terms of the limits imposed on the national budget for reasons of short- and medium-term fiscal stability. (Decree Law 4635, 2011, emphasis added) This section of the ruling shows the State’s assistance and progressiveness in imposing on it the duty to guarantee ‘adequate and proportional’ resources for compensation. In this ruling, the analysis of ‘fiscal sustainability’ as an instrument to achieve the goals of the social state under the rule of law is interesting, as it imposes discipline on public finances in order to reduce the fiscal deficit by limiting the gap between national income and public expenditure. It also emphasizes the ruling that sustainability must be interpreted in accordance with the principle of progressivity and the indivisible and interdependent nature of rights, specifying that the principle of progressivity ‘consists of the State’s obligation to guarantee social rights, and in general all constitutional rights in their provisional facet, gradually and constantly increasing their coverage’. It stresses that these criteria and new instruments in no way displace public social spending. The ruling ends by stating that ‘administrative reparations programs must always have sufficient budgetary resources to guarantee the victims’ rights, ensuring the realization of all the components of reparation and in particular administrative compensation’ (emphasis added).

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For its part, Ruling ‘C-161’ (2016) analyzes the enforceability of the first paragraph of Article 3 of Law 1448, which states that (w)hen members of the security forces are victims under the terms of this article, their economic reparation shall correspond in every respect to which they are entitled under the special regime applicable to them. Similarly, they shall be entitled to the measures of satisfaction and guarantees of non-repetition set out in this Act. (Law 1448) For the plaintiffs with the rule, unequal treatment is given to the victims of the armed forces, since they receive a non-integral compensation by application of a special regime, unlike the common victims who receive an integral reparation. The Court carried out an intermediate equality test showing that the differentiation was justifiable because the risk to which the military were exposed was voluntary and took place within the framework of an existing employment relationship with the State. All of the above falls within a framework of ‘fiscal sustainability’ that should guide transitional justice because, according to the ruling, there are limited resources and the State must use them to meet its goals and guarantee the rights set out in the Constitution, including equality. 4.3.3 Community Mothers

In Ruling ‘C-110’ (2019), the Court recently found a series of government objections to Senate Bill 127 of 2015 and House Bill 277 of 2016 to be wellfounded and establishing guidelines for the work carried out by persons who provide services in the ICBF’s9 comprehensive early childhood care and comprehensive protection programmes for children and adolescents, their labour rights, establishing guarantees in the area of food security and laying down other provisions. (C-110, 2019) Article 5, which regulates the right to a permanent old-age subsidy for community mothers, mother substitutes, guardians, and those who have made the transition to the integral modalities that have provided their services to the ICBF, and article 6, which establishes the requirements for access to the permanent old-age subsidy, violate articles 48 and 344 of the Constitution in that they do not recognize financial or fiscal sustainability, respectively, due to non-compliance with the deliberative burdens regarding the fiscal impact noted in the course of the legislative process by the national government. The latter stated, according to the file, that ‘the expenses generated by this proposal

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are not contemplated either in the Medium-Term Fiscal Framework or in the Medium-Term Expenditure Framework of the sector, therefore affecting the stability of public finances, and macroeconomic and fiscal sustainability’. For the Court, in the deliberative process of the bill, the minimum conditions of deliberation of the previous articles were not met, so the procedural requirement that it is up to the legislature to study and analyze the government’s observations in order to admit or reject them was not recognized. For the Court, the above ‘constitutes a manifestation of the principle of harmonious collaboration and of the character, orientation, adjective and instrumentality of the criterion of fiscal sustainability’. Notwithstanding the foregoing, the Court considers that the procedural flaw can be remedied since it occurred when the main stages of the legislative Iter had been advanced, and therefore it refers it to the House of Representatives for correction within 30 days from the notification of the ruling. In this regard, it states that Congress must then study and discuss the concept of the MHCP and, based on this, encourage a public, private and explicit deliberation on the fiscal impact of the proposed reform, its consistency with the mediumterm fiscal framework and possible sources of funding. (C-110, 2019) Upon completion of this, Congress will have the remaining period of the legislature to exhaust the legislative term (June 20, 2019). On June 11, 2019, the House of Representatives approved the conciliation report on Bill 277 of 2016, which addressed the procedural flaw identified by the Court (Ámbito Jurídico, 2019). The vote was 92 virtual votes for YES, 4 manual votes for YES, and 1 vote for NO. Thus, among other benefits, mothers will be entitled to a permanent old-age subsidy, which will be increased annually by the same percentage of the current monthly minimum wage. According to press reports, the initiative would benefit nearly 60,000 community mothers. Ten thousand of them who are over 57 years of age and have worked for the ICBF for over 20 years would be able to access an old-age subsidy equivalent to 95% of the minimum wage. (Lozano Rodríguez, 2022) 4.3.4 Taxes

As I mentioned in the XII Conference of the Constitutional Jurisdictions held in the city of Pasto (Colombia) in 2017 (Lozano Rodríguez, 2022), the ‘effectiveness’ of the constitutional tax jurisprudence does not work out well with Ruling ‘C-492’ (2015) that extends, in order to guarantee the principle of tax

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equity, the 25% of income exempted from the IMAN and IMAS systems10 for the taxable periods following the ruling. This is how this tax measure is declared to be appropriate since 2016 in order not to affect, according to the Court, the principles of ‘planning, budgeting and fiscal sustainability’ of the State’s finances. In the ruling, the Court argues that this tax regulation affects the ‘vital minimum’ of taxpayers with average income and threatens their effective enjoyment. Likewise, the Court relates the problem of constitutionality with the principle of progressiveness of social rights associated with the vital minimum. However, by means of a fiscal impact incident, calculated at $335 billion pesos, the national government requests its postponement for the year 2017, to which the Court agrees, after several orders requesting the rectification of the incident, deferring the effects until December 31, 2016. This discussion was much debated, and the magistrates María Victoria Calle Correa, Jorge Iván Palacio, and Alberto Rojas Ríos saved the vote by conceptualizing that: the fiscal impact incident is a jurisdictional scenario that implies a decision in law on a conflict between constitutional principles. The relevant jurisprudence has pointed out that the conflict does not arise between fiscal sustainability, on the one hand, and the constitutional principles protected by the ruling and which are at the base of the res judicata, since fiscal sustainability is not a principle but an instrument at the service of the objectives of the Social State of Law. To that extent, it is only when it is shown that, as a result of serious alterations to fiscal sustainability, there is a certain, proven and relevant danger to the achievement of the social rule of law that it is appropriate to consider whether those principles carry more weight than those protected by the judicial decision which gave rise to the incident. This means that the fiscal impact incident cannot become an instrument to modify the effects of the Court’s rulings solely on the basis of strictly financial or fiscal data or arguments, even when these are naturally relevant in this context, but rather it must be shown that based on these data, it is reasonable to conclude that the constitutional project is objectively unworkable. (C-492, 2015, emphasis added) In this case, the economic cost for the State was nil, since Law 1819 of 2016 came into force in 2017, eliminating the IMAN and IMAS debugging systems, by including others based on the classification of income for tax purposes. Therefore, both the principle of equity and the vital minimum – constitutional foundations that were meant to be protected – are clearly affected. From a critical perspective, constitutional tax jurisprudence must be ‘timely’, foreseeing both medium- and long-term effects, as well as guaranteeing constitutional tax principles.

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4.4 Conclusions and Recommendation The chapter begins with the hypothesis that as of 2011, the Colombian Constitution incorporates fiscal sustainability and the fiscal impact incident as elements that relax the tense relationship between the law and the economy. It also concludes that it is the constitutional jurisprudence that defines the characteristics of the two previous tools, specifying that fiscal sustainability is neither a principle nor an end nor a right but a ‘guiding’, ‘authorizing’, ‘auxiliary’, and ‘limited’ criterion or mandate ‘of means’, which establishes an intertemporal budgetary restriction on the action of the branches of public authority and which must be interpreted in accordance with the principle of progressiveness. For its part, it establishes that, in the fiscal impact incident, the active legitimation cannot be delegated and corresponds to the ministers and the Attorney General, and that it is an instance of interlocution that does not detract from the separation of powers. That is to say, it concludes that the judges continue to be independent and that the possibility of modulating, modifying, or deferring the effects of their rulings over time is optional. It also highlights some procedural aspects of the incident, such as substantiated reasons. In the selected sample, case law has repeatedly interpreted and applied fiscal sustainability, whether in its constitutional or legal consecration, the latter in specific areas such as the general pension system, health, and reparation of victims. Sustainability has also been studied in jurisprudence on the basis of government objections to bills that generate medium or high fiscal impacts (e.g. the cases of community mothers and the reduction of pension contribution rates), requiring due deliberation of the objections, which as we have seen can be remedied. As for the interposition of fiscal impact incidents, this has been more limited but already used (e.g. income exempt under the IMAN and IMAS systems), demonstrating the necessary justification for its provenance. I conclude, therefore, that the dialogue between law and economics has improved but there are still legal nuances to be clarified, and economic advantages or disadvantages to be quantified. With the sample, it could be stated that sometimes it was the guarantee of rights that prevailed (e.g. compensation to Black, Afro-Colombian, Raizal, and Palenquero communities, and community mothers) and in others, the economic foundations (e.g. social security, reparation of victims in general, and taxes). In general, the country has benefited, since poor dialogue between these two disciplines, which are so important for social regulation, certainly does not lead to collective gains (Lozano Rodríguez, 2016B).

Notes 1 In the chapter ‘Constitución y Economía’ in AA.VV, Constitución y democracia en movimiento, Ediciones Uniandes, Bogotá (2016), citing Enrique Low Murtra and Jorge Gómez Ricardo, Teoría fiscal, 3rd ed., Bogotá, Universidad Externado de Colombia

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(1997), as well as Chapter 1, ‘La superioridad del sistema de economía mixto’ in Jorge Macón, Economía del sector público, McGraw-Hill, Bogotá (2002). 2 Among these are: (1) the exploitation of natural resources; (2) the use of land; (3) the production, distribution, use, and consumption of goods; (4) the provision of public and private services; (5) any activity related to the management, use, and investment of resources collected by the public (for example, financial, stock market, or insurance activities); and (6) in general, the economy to give full employment to human resources and access to basic goods and services especially for people with lower incomes (article 334 of the C.P.). 3 According to article 1 of the Constitution, Colombia is a Social State of Law. This implies that it must seek the guarantee of three types of rights: fundamental; social, economic, and cultural; and collective. 4 Rulings that determine the existence of res judicata with respect to some matters related to Legislative Act 3 of 2011: ‘C-419’ (2012) Constitutional Court of Colombia. 5 For Colombian constitutional purposes, it involves the allocation of resources in accordance with available resources. 6 ‘Acción de tutela’ is a Colombian constitutional guarantee that every person has to appeal to the judicial authorities in order to obtain immediate protection of their fundamental rights. 7 In the ruling, article 2, paragraph 2, and the expressions ‘unless it is an acción de tutela’ are declared unconstitutional, because they violate the statutory reserve of law. ‘In the events in which the incident occurs with respect to a tutela ruling, the plenary of the chamber of the respective Corporation will participate in the hearing. In the case of a tutela review ruling, the plenary of the Constitutional Court shall participate’ and ‘In the events in which the incident is presented in respect of a tutela review ruling, the decision shall be taken by a majority of the plenary of the Corporation’, provided for in subsections 3 of Article 9, 3 of Article 11 and 2 of Article 12 of Law 1695 of 2013. 8 In this ruling, ‘C-1052’, the Court declares the enforceability of Article 1(4) of Legislative Act 03 of 2011 introducing the fiscal impact incident, since the procedural flaws outlined by the plaintiffs are not called for. The plaintiffs argued at the time that a completely and materially new rule was incorporated, which only arose in the second period of the proceedings provided for in Article 375 of the C.P. However, the Court considered that the principle of flexible identity was not violated since it is not a substantial change to the draft legislative act. The ruling is mentioned in this brief because it is very relevant to understand the reasons for the introduction in Colombia of the fiscal impact incident. 9 Instituto Colombiano de Bienestar Familiar (Colombian Institute of Family Welfare). 10 Simplified systems for estimating personal income tax in Colombia.

References Doctrine Ámbito Jurídico. (2019). ‘Ajustan proyecto de madres comunitarias a decisión de la Corte Constitucional’. 12 June. Available at: https://www​.ambitojuridico​.com​/noticias​ /congreso ​ / laboral​ - y​ - seguridad​ - social​ / ajustan​ - proyecto ​ - de ​ - madres ​ - comunitarias​ -decision​-de​-la (Accessed November 8, 2021). Lozano Rodríguez, E. (2016a). ‘Constitución y Economía’. In: H. Alviar, J. Lemaitre, and B. Perafán, eds. Constitución y democracia en movimiento. Bogotá: Ediciones Uniandes, pp. 373–391.

84  Eleonora Lozano Rodríguez Lozano Rodríguez, E. (2016b). Teoría y puesta en práctica del análisis económico del derecho. Bogotá: Ediciones Uniandes. Lozano Rodríguez, E. (2022). ‘La eficacia y el impacto de las decisiones judiciales de la Corte Constitucional de Colombia. El caso de la Jurisprudencia Constitucional Tributaria’. In: Obra en homenaje a Eusebio González. Editorial Thomson Reuters, unpublished material. Low Murtra, E. and Gómez Ricardo, J. (1997). Teoría fiscal. 3rd ed. Bogotá: Universidad Externado de Colombia. Macón, J. (2002). Economía del sector público. Bogotá: McGraw-Hill. Plazas Vega, M. A. (2016). Derecho de la Hacienda Pública y Derecho Tributario. Vol. I. Bogotá: Editorial Temis. Restrepo, J. C. (2012). Hacienda Pública. Bogotá: Universidad Externado de Colombia. Rosas Vega, G., Plazas Vega, M. A., and Bernal Castro, S. (2013). Sostenibilidad fiscal y Regla fiscal: Aspectos Jurídicos y Económicos. Bogotá: Instituto Colombiano de Derecho Tributario.

Constitutional rulings ‘C-132’. (2012). Constitutional Court of Colombia, D-8616. Available at: https://www​ .corteconstitucional​.gov​.co​/RELATORIA​/2012​/C​-132​-12​.htm ‘C-288’. (2012). Constitutional Court of Colombia, D-8690. Available at: https://www​ .corteconstitucional​.gov​.co​/relatoria​/2012​/C​-288​-12​.htm ‘C-367’. (2012). Constitutional Court of Colombia, D-8770, D-8771, D-8772, D-8773, D-8774, D-8775, D-8781. Available at: https://www​.corteconstitucional​.gov​.co​/ RELATORIA​/2012​/C​-367​-12​.htm ‘C-419’. (2012). Constitutional Court of Colombia, D-8721, D-8722, D-8723, D-8724, D-8725, D-8726. Available at: https://www​.corteconstitucional​.gov​.co​/RELATORIA​ /2012​/C​-419​-12​.htm ‘C-420’. (2012). Constitutional Court of Colombia, D-8786M D-8791, D-8792. Available at: https://www​.corteconstitucional​.gov​.co​/RELATORIA​/2012​/C​-420​-12​.htm ‘C-1052’. (2012). Constitutional Court of Colombia, D-9127. Available at: https://www​ .corteconstitucional​.gov​.co​/RELATORIA​/2012​/C​-1052​-12​.htm ‘C-258’. (2013). Constitutional Court of Colombia, D-9173, D-9185. Available at: https:// www​.corteconstitucional​.gov​.co​/relatoria​/2013​/c​-258​-13​.htm ‘C-581’. (2013). Constitutional Court of Colombia, D-9484. Available at: https://www​ .corteconstitucional​.gov​.co​/relatoria​/2013​/C​-581​-13​.htm ‘C-753’. (2013). Constitutional Court of Colombia, D-9608. Available at: https://www​ .corteconstitucional​.gov​.co​/relatoria​/2013​/C​-753​-13​.htm ‘C-313’. (2014). Constitutional Court of Colombia, PE-040. Available at: https://www​ .corteconstitucional​.gov​.co​/relatoria​/2014​/C​-313​-14​.htm ‘C-584’. (2014). Constitutional Court of Colombia, D-10075. Available at: https://www​ .corteconstitucional​.gov​.co​/relatoria​/2014​/C​-584​-14​.htm ‘C-492’. (2015). Constitutional Court of Colombia, D-10559, D-10581. Available at: https://www​.corteconstitucional​.gov​.co​/RELATORIA​/2015​/C​-492​-15​.htm ‘C-870’. (2014). Constitutional Court of Colombia, D-10079, D-10093, D-10096. Available at: https://www​.corteconstitucional​.gov​.co​/relatoria​/2014​/C​-870​-14​.htm ‘A-531’. (2015). Constitutional Court of Colombia, D-10559, D-10581. Available at: https://www​.corteconstitucional​.gov​.co​/relatoria​/autos​/2015​/A531​-15​.htm

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‘C-161’. (2016). Constitutional Court of Colombia, D-10945. Available at: https://www​ .corteconstitucional​.gov​.co​/relatoria​/2016​/C​-161​-16​.htm ‘A-233’. (2016). Constitutional Court of Colombia, D-10559, D-10581. Available at: https://www​.corteconstitucional​.gov​.co​/relatoria​/autos​/2016​/A233​-16​.htm. ‘C-066’. (2018). Constitutional Court of Colombia, OG- 155. Available at: https://www​ .corteconstitucional​.gov​.co​/relatoria​/2018​/C​-066​-18​.htm ‘C-110’. (2019). Constitutional Court of Colombia, OG- 158. Available at: https://www​ .corteconstitucional​.gov​.co​/relatoria​/2019​/C​-110​-19​.htm

Chapter 5

The Paradoxes of a Progressive Constitution and Neoliberal Food Regime Ramón Fogel, Roni Paredes, and Sintya Valdez

5.1 Introduction This chapter analyses, in the case of Paraguay, the contradictory relationship between a constitution that establishes on one side the basic functions of a State with a view to enabling dynamic and progressive intervention in the field of economic development (Fukuyama, 2004), while on the other side, it also incorporates norms in line with a neoliberal orientation pursuant to which the legal system should function to substantially limit those state functions and confer supremacy to market imperatives. The system in question refers to the dynamics of the land market. On the one hand, it is assumed that constitutional provisions operate within a legal framework that is shaped by international law, in particular, international economic law (Chadwick, 2017, p. 4). Various actors and institutions are involved in the land market and particularly in land grabbing (Borras et al., 2019, pp. 189–210; FIAN, 2010). On the other hand, we emphasize here the importance of non-formal regulatory systems, as applied in land grabbing, as they function as a kind of unwritten constitution. A brief revision of the history of the relationship between constitutions and land markets finds that under the 1967 constitution and regulatory laws, land was considered a public good for those who work it, although a clientelistic state also assigned public lands to narco-farmers (Fogel, 1989).

5.2 Some Norms of the Constitution and International Treaties Paraguay’s independence occurred in the year 1811, and to date the country has had six constitutions. Its current constitution dates back to the year 1992 and was the result of a process of fundamental constitutional reform that followed almost immediately after the dictatorship of Alfredo Stroessner (1954–1989). The most recent constitution followed the trend of social constitutionalism and represents an extension of the two previous constitutions, those of the years 1940 and 1967 respectively (Mendonca, 2018). DOI: 10.4324/9781003202257-7

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Following Article 1 of the Constitution of 1992 protects vulnerable groups. Article 6 dictates that the State provides public services of social interest, protects health and education, and considers health and education as public goods in Articles 68–78, prescribes food quality control in Article 72, and sets a mandatory minimum wage in Article 92. This constitution also establishes the promotion of equality as a function of the State in Article 48, and the collection of taxes according to the contributory capacity of the inhabitants in Article 181. A special section of the constitution is dedicated to agrarian reform. Directly linked to fundamental constitutional economic rights, this reform seeks to promote the effective incorporation of the peasant population into development through equitable systems of land distribution, ownership, and tenure in Article 114.1 The need for measures that discourage unproductive large estates and guarantee the development of small property is also prescribed in Article 115, and the progressive elimination of unproductive large estates is established in Article 116. However, these provisions typical of a progressive constitution that regulate the land market are neutralized by others that severely constrain their applicability. Thus, in the section on economic rights, in Article 109, the constitution guarantees private property, attending to its economic and social function to make private property accessible to all. Expropriation by the State is permitted for public utility or social interest but only with payment of just compensation, except in the case of ‘unproductive large estates’ (latifundios). The compensation can be established conventionally by agreement by the parties, or by the court, which will set a price in line with the market but only after the approval of a specific law by the parliament for each case. Article 109 was proposed by the Rural Association of Paraguay (ARP), a union that at that time was the most important in agribusiness. The totality of the proposed text was accepted by the then constitutional convention, thus the ranching oligarchy rhetorically granted the prescriptions of progressive constitution but they shielded their large estates. The constitutional system was complemented with a regulatory law 1862/2002 that practically made it impossible for any of the land holdings owned by agribusiness to qualify as ‘unproductive large estates’. In addition, the prior payment of compensation with a conventionally established price or by court ruling implies subordination to the economic laws of the land market, which imports a bias towards landowners, since the judges must base their sentencing on market prices. Thus, with the regulatory law and the aforementioned provision of Art. 109, no farm could be expropriated except after payment of compensation according to the market price, as established by national law for each case; on the other hand, the aforementioned law prevents the ‘unproductive large estates’ label from being applied to latifundios, since the unused area of an estate is considered to serve an environmental purpose.

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Provisions of international treaties are added to constitutional rules that are integrated into domestic law, taking precedence over national laws. Among these treaties and conventions, the most important are the ‘No. 169 Convention’ established within the framework of the International Labor Organization (ILO, 1989), which is incorporated into domestic law under Law 1234/93, and the rules of the ‘American Convention for Human Rights’ established under the Organización de los Estados Americanos (OEA, 1969). Since the Paraguayan State signed various international conventions, the rights of access to land must be interpreted and applied considering the whole legal system, including domestic law (Garcia, 2002). The American convention, Article 4, concerning the right to life, has implications for land reform and the territorial rights of indigenous people, according to the obligation of the Paraguayan State to guarantee the right to life. This provision establishes that: Every person has the right to have his life respected. This right shall be protected by law and, in general, from the moment of conception. No one shall be arbitrarily deprived of his life. This fundamental human right is essential for the exercise of other human rights and it envisages not only the right of every human being not to be arbitrarily deprived of life, but it also implies the right not to be prevented from having access to the conditions that guarantee a dignified existence, as has been noted by the Inter-American Court in clarifying the scope of this right (Fogel, 2006). Thus, the right to life includes protective measures, so that vulnerable groups can enjoy the right to live with dignity. In the case of peasants and indigenous people who should obtain their livelihoods by working their own land, this provision is particularly relevant. In addition to these international treaties signed by the Paraguayan State, in December 2018, the United Nations General Assembly adopted the ‘Declaration on the Rights of Peasants and Other People Working in Rural Areas’ (UNDROP). This is the first instrument of human rights law that establishes the right to land for non-indigenous peoples, in the field of international law. This declaration recognizes a number of new human rights in favour of the peasant sector, such as access, land use and management, the protection of legitimate tenure, including peasant communities that do not have formally recognized property rights, and protection against arbitrary or illegal evictions (Pereira and Areco, 2019).

5.3 The Functioning of the Market In the debate on the relationship between the constitution and the economy, it is important to specify which market we are talking about. In the case of Paraguay, the constitution guarantees competition in the market in general

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and does not allow the formation of monopolies that distort prices and hinder free competition in Article 107. The constitution also establishes a regulatory system that defends private initiative with some intervention of the State to correct market failures, so as to enable all citizens to achieve a minimum quality of life, in line with the ordoliberal proposal, and in general with the ideas of liberalism. However, these constitutional ideals are fundamentally disconnected from reality because, at least in the case of Paraguay, the market is not a space of free competition with suppliers and buyers who participate on equal terms. As we will see, these norms are legally ineffective due to regulatory laws; the constitution itself contradictorily incorporates the operations of other legal regimes that subordinate the application of its own norms to those of the market, as is the case with land rights. In practice, the so-called tax justice as defended by the constitution actually results in a situation in which the main transnational corporations that control 64.4% of exports of primary products pay less than 1% of the total taxes collected in 2020 (Plus 2020 Magazine, 2020). Thus, the concept of a free market, as well as the ideas about who should regulate it, redistribute income and prescribe the payment of taxes, as pursuant to the 1992 Constitution, are empty formulas that do not correspond to reality. Even though the constitution mandates the institution of a fair tax system that allows for the redistribution of wealth to promote equality, what we have in reality today is a result of the tax laws that actually operate within the country. In our perspective, it is as if these tax laws were an unwritten constitution. Paraguay is the most unequal country in the world with the lowest tax rate in all of Latin America. Paraguay is a country of socioeconomic paradoxes. In recent years, it has had the highest economic growth in the region, but at the same time, it is the country with the greatest income inequality. Furthermore, it ranks the lowest in PISA testing in education among Latin American countries.2 This is consistent with the fact that the lowest tax pressure on the continent is in Paraguay, which has a quasi-offshore tax regime (Banco Mundial, 2018). This is a country that has approximately 7 million inhabitants and one of the most unequal land distributions in the world. According to CEPAL (2014), Paraguay is among the most prominent agricultural countries in the region, with the land being one of the most important sources of wealth production in the country, but it is concentrated in a few hands with a Gini index of 0,93.3 This indicator measures the degree of concentration of a variable; in this measurement 0 indicates equilibrium in the distribution and 1 indicates total concentration. These traits define the socioeconomic and political context that conditions the legal system to a large extent beyond the strictly constitutional framework; inequality adds to high levels of poverty, especially in rural areas. In place of a free market, there is one in fact dominated by oligopolies which are made up of large transnational corporations that dictate their own rules, many of them protected by international organizations (WTO, IMF,

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arbitration courts, etc.). These norms incorporated into international law are contrary to those established by the constitution. The increasing concentration of capital in a few gigantic agribusiness and food industry corporations also implies a parallel growth in their political power. So, in Paraguay, the top 10 agro-exporters, linked to large transnational corporations, control two-thirds of the total exports of primary products (see Table 5.1), and four of these corporations represent 70% of the world market for agricultural commodities and have a great influence on governments and global governance, without considering the collateral effects on society, health, and the environment. In Paraguay, and many similar countries of the Global South, the term ‘market’ can be read as a proxy for the neoliberal agri-food regime of which its main pillars are large biotechnology corporations, and a State that unconditionally serves the deregulated market. In the case of transgenic soy, corporations control food production, processing, marketing, distribution, and pricing (Wesz, 2021, pp. 1–24). We should keep in mind that soy occupies more than 80% of the cultivated area of ​​the country. These corporations control different phases of the production chain, from the bottom with the provision of inputs and technology, to the top with marketing and distribution. These giant companies also control oilseed processing. Of the ten largest corporations that operate in Paraguay, nine are from the Global North (five are American, four are European) and one is from China. Two large seed suppliers control 69% of the market. Regarding soybean exports, three corporations dominate 54% of the grain trade, and two export 56.5% of the soybean oil. Furthermore, the intensive, industrial model of agricultural production that Table 5.1 Main Exporters of Agribusiness in Paraguay, 2019 Main Primary Sector Exporters

Millions of US$ Share*

Cargill Agropecuaria SACI (U.S.A.) ADM Paraguay SRL (U.S.A.) BEEF Paraguay SA (Brazil) COFCO International Paraguay SA (China) Sodrugestvo Paraguay SA (Russia) Frigorífico Concepción (Paraguay/Brazil**) Frigomerc SA (Minerva, Brazil) Bunge Paraguay SA (U.S.A.) Compañía Paraguaya de Granos S. A. (Argentina) Agrofértil (Grupo Sarabia, Paraguay/Brazil/U.S.A./Germany ***) Total Main Exporters

573.5 540.3 302.1 251.6 246.8 239.9 226.1 214.6 199.2 166 2960

Sources: Dirección Nacional de Aduanas (DNA) and Ministerio de Hacienda. Ref.: *% of total exports from the primary sector (4593.5 million U.S.$) **Brazilian capital ***linked to Monsanto (U.S.A.)/Bayer (Germany)

12.5% 11.8% 6.60% 5.50% 5.40% 5.20% 4.90% 4.70% 4.30% 3.60% 64.4%

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these corporations promote is heavily dependent on pesticides, many of which have been shown to be harmful to human health and the environment. If we ask how international institutions and economic laws advance the rules of large transnational corporations, it is pertinent to bring up the intellectual property rights over plants and seeds, the rules that protect foreign investment, the defence of deregulated markets by financial organizations and free trade agreements, and so on. Direct production is carried out by Brazilian agribusiness entrepreneurs for the most part, who connect to global markets through large corporations, on which they depend. In this system, territorial control is exercised by the aforementioned Brazilian soybean farmers who, in conflicts with indigenous and peasant communities, are appropriating land. The national oligarchy, itself part of this dominant bloc, facilitates the captivity of the State that creates the conditions for reproducing the neoliberal agri-food regime. It is clear that, in Paraguay and similar countries of the Global South, the corporate agri-food regime in no sense operates in a free market as proponents of economic liberalism would want us to believe; rather, the functioning of the market is one dominated by oligopolies and akin to a form of mafia capitalism. The constitutional mandate that allows the functioning of the market under the neoliberal agri-food regime defines the distribution of resources, including land. In the next section, we will see in more detail the dynamics of this market.

5.4 The Constitutions and the Land Market Land grabbing is a central component of how the market economy functions in Paraguay and is a good example of the paradoxes of its progressive constitution. The right to land is guaranteed in some provisions of the constitution and allows for expropriation in certain cases. Nevertheless, the ability of courts to protect the right to land is subordinated to the market by another constitutional provision: one that requires the prior payment of compensation and requires a special law for each case – a new piece of legislation in every case of expropriation – and that further stipulates that the amount of compensation is to be established conventionally or by a court decision based on market prices. The notion of agrarian reform was incorporated for the first time into agrarian legislation in the 1930s with Decree-Law No. 1060 of Expropriation of large estates of more than 1200 hectares, enacted as a Law by Congress in 1936 during the government of Colonel Rafael Franco (1936–1937). The proposed agrarian reform was barely implemented due to the short duration of this government (Fogel, 2001; Morínigo, 2005, 4–12). In 1940, the first Agrarian Statute (Decree No. 120/1940) was promulgated under a liberal reformist government. A new conception of land ownership was incorporated, which established that it is subordinated to the fulfilment of an economic-social function; this implies that the Law guarantees ownership of the land under the condition that it must fulfil an economic function,

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being used for production in addition to generating employment. These legal bodies qualified the lands potentially available for colonization with significantly differentiated criteria; while the Law of 1936 affected the estates of large extractive corporations, the Law of 1940 allows the allocation of plots to peasants in areas close to markets and with access to basic social services, enabling the colonization of lands already controlled and occupied by local landowners (Fogel, 2001). A draft land reform law or Agricultural Statute was adopted in 1963 and it was adjusted in accordance with the recommendations of the ‘Alliance for Progress’ (Pastore, 2008).4 Law 852 created the Institute of Rural Welfare, and Law 854 established the Agrarian Statute, which replaced the previous one of 1940. The latter excluded the prohibition of land sales to foreigners in border areas, which was established in the agrarian statute of 1940 and cleared the way for the sale of the most fertile land in the country, in Alto Paraná, Canindeyú, and Itapúa, to Brazilian firms and transnational corporations, sometimes directly and sometimes through Paraguayan intermediaries linked to the state apparatus. The aforementioned reform began in 1963, and was carried out under the dictatorial Stroessner government (1954–1989). It has been regarded as a light reform of agriculture by some authors and a complete failure by others (Hetherington, 2015). This way of conceiving the functions of the State in relation to access to land was reinforced in the 1967 Constitution which eliminated obstacles to the sale of medium and large fractions to Brazilian farmers and colonizing firms that demanded land, even within national colonies (Fogel, 1989). The first precedents referred to above, the Decree-Law of Agrarian Reform (Decree-Law No. 1060/1936) and the first Agrarian Statute (Decree No. 120/1940), place Paraguay as one of the pioneering Latin American countries in the enactment of laws for agrarian reform. However, there is currently a legal issue in the total absence of jurisdictional mechanisms for the defence of the constitutional regime of agrarian property (Pereira, 2017). An objective parameter for the identification of large estates constitutes a major gap in the Agrarian Statute, which impedes effectively applying constitutional provisions related to agrarian reform (Pereira and Areco, 2019). As early as the 1990s, national politics remained dominated by populist factions of the old regime and the demands of different sectors (including the peasant sector) continued to be articulated in the political language established by the Agrarian Statute in the 1960s, which emphasized the idea that the land belongs to those who work it. The Agrarian Statute was not revised until 2002, when some details were amended, bringing it slightly closer to what had become a liberal standard of land law across the continent. Today, the country’s conceptions on land and property are still closely linked to the experience of that land reform.

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The relationship between the constitution and markets in general and the land market in particular refers to conceptions of State functions and capabilities. At this point there are contradictions in both domestic and international legal systems regarding the land market. This is evident among the provisions of the Paraguayan Constitution itself, which, on one side, assumes a material conception of equality, while the State has an active obligation to promote the realization of social and economic rights, while other provisions on the contrary protect the latifundios. In fact, as in other historical experiences, the world of law naturalizes inequality (Chadwick, 2017, p. 4). Neoliberal ideas at the base of the legal system are also projected in the unwritten constitution developed by the dominant actors – with a short-term view they only consider accumulation and move forward in privatizing public goods. The power of the main economic actors grows day by day, urging the need to establish regulations and norms that facilitate the control of large landowners and the gigantic oligopolies. As expected with this constitution, already democratically sanctioned, the concentration of land was further accentuated, and currently a law that regulates the possession of public lands by agribusiness agents is half-sanctioned. The aforementioned concentration of land is associated with foreign territorial control, basically from Brazilian businessmen producing soybeans, as discussed in the section that follows.

5.5 Land Grabbing It seems that historically land reform was only considered as long as efficiency and productivity was low. It was thought that peasants were not able to modernize agriculture. Land grabbing began in the country even before advances in genetic engineering, made by the so-called ‘Green Revolution’ and the potential of increasing productivity. The technological change that began with the production and use of hybrid seeds raised the productivity of crops and generated notable enthusiasm in producers. It was the beginning of the rush for land for its potential use in modern agriculture, which affected the demand for public lands, also among senior officials. The army and narco-farmers were part of the public land business in the 1970s. The State acted as both arbitrator and facilitator as well as a seller of large fractions of public lands (Fogel, 1989). The idea that agribusiness provides technology, foreign exchange, employment, and development in addition to food production is part of the discourse that legitimizes the land grabbing, but in reality, the expansion of the sector ends up determining what peasant farmers are able to grow on their own plots, as buyers in the market set terms and conditions on what should be grown and which fertilizers should be used. This discourse legitimizes the dispossession of indigenous and peasant lands.

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In recent years, land grabbing has been associated with the genetically modified (GMO) seed business, mostly soybeans. For Borras (2019, pp. 189–210), the global race for natural resources controls the agrarian conditions, the diversity of State responses, as well as the ways in which land-based accumulation is imposed, and the actors involved in this process do not take into consideration the people whose lives are affected by the race to control land. Agricultural land is now increasingly owned by Brazilian soy producers, ranchers, and speculators seeking to profit from the value of the land as a financial asset; these actors expel local communities. In the discussion on this question, it is pertinent to bring up the institutions, the practices, the discourses about territories, authority, and the actors involved. A range of actors, institutions, state and private rules and procedures (both informal and formal) that structure state-society relations legitimize land grabbing. In this greatly distorted market, the price of a hectare of land in the border region with Brazil, Alto Paraná, is $14.858, twice as much as the price of a hectare of land in Illinois, U.S.A. (Setrini et al., 2020). In the last decade, soybean producers linked to the Brazilian enclave have increasingly appropriated public land destined for beneficiaries of the agrarian reform, located in national colonies legally constituted for natural Paraguayan beneficiaries. The agrarian legislation that regulates Article 115 of the constitution is notably part of public law, differentiated from private law and governed basically by the civil code. This legislation defines the beneficiaries of agrarian reform, who due to their relative vulnerability shall receive protection from the State. Law 1863/02 establishes the conditions for being beneficiaries of public lands in national colonies. The conditions for receiving this beneficial treatment are that one must be of Paraguayan nationality, reside on the plot, have a single plot, and use the plot for agricultural production. This law also establishes that the beneficiaries to whom a parcel was awarded may transfer the plot only after ten years have elapsed since they obtained the title to their parcel. Various mechanisms have been used by non-beneficiary soybean producers to appropriate the parcels in question. The judicial system intervenes to give an appearance of legality and perverts public law by fraudulently applying civil law norms. At this point, it should be borne in mind that agrarian law is part of administrative law and public law and seeks to protect the rights of peasants and indigenous peoples. Civil law, on the other hand, regulates private law relationships established between reputedly equal citizens. The illegal appropriation of plots of national colonies through evictions following complaints of an invasion of private property. In the appropriation of large parcels of public lands, the judges should apply rules regarding possession, in what they deem to be in good faith. With the privatization of public law, public goods are privatized, granting validity to private contracts and procedures pertaining to the civil sphere; the commercialization of public lands thus replaces the rights granted to the beneficiaries of the agrarian reform.

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It should be taken into account that coercive elements often intervene in the transfer of possession rights, such as the irregular use of pesticides that damage crops, animals and the health of peasants, and the use of force by thugs and police. In the case of indigenous communities, intervening judges grant legality to alleged lease contracts or issue restraining orders interdicting land invasions as precautionary measures based on alleged property conflicts. In frequent cases, agribusiness entrepreneurs allege that a member of the community signed a lease for the communal land. If this contract exists, it is only valid in the civil sphere. On the other hand, in practice, expropriation under the constitution requires that for a large area of privately owned land to be designated as an ‘unproductive latifundio’ – a designation that could, in theory, require that the State take over the land and redistribute it – is rendered infeasible due to the requirement to pay compensation at market rates. This means that if the parliament decided to expropriate a farm in Alto Paraná, for example, in addition to a specific law needing to be passed to achieve this, the government would be obliged to pay compensation at twice the price of a hectare of land in Illinois, which makes it completely impracticable for the government to actually fulfil the peasant population’s right to land. In addition to the machinations of the rules that qualify Constitutional rights in the domestic context, foreign land control is further cemented by the practices of international institutions. The private-public partnership focused on foreign investment in natural resources is a mechanism that promotes land grabbing; this partnership is strengthened by the development of financial institutions that cooperate by means of financial instruments that allow relative control of large tracts of land and other natural resources involving large capital oriented to extractive production (FIAN Germany, 2010). At the level of collateral agencies that favour the Global North, the World Trade Organization (WTO) holds a leading role in institutionalizing inequality, prioritizing market imperatives; investment in foreign lands for exportable agricultural production is part of the corporate food regime guaranteed with bilateral agreements established within the framework of the WTO. This seeks to avoid intermediaries in a kind of ‘security mercantilism’ integrated into the corporate food regime (McMichael, 2013; Edelman, 2011, pp. 485–501). Here, the crisis of the WTO-centred corporate food regime, which has neoliberalized Southern agriculture while sustaining Northern agro-food subsidies, is manifest in a new form of mercantilism that has been commandeering offshore land for supplies of food, feed, and fuel. That is, while WTO rules have protected farm subsidies for Northern agroexporters, international financial institutions contribute their own in this area, so that official World Bank policies support land investments in its new agricultural development strategy, an important focus of its activities even if the peasants and indigenous communities are dispossessed of their lands and their means of living.5 At this point, a full quotation by an author (Zeffert, 2017) is called for:

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Recently the World Bank has taken on a new role in the land grabbing debate, emerging as a leader in the push to regulate large-scale land acquisition. Yet the link between international law, through the agency of the World Bank, and land grabbing continues to go unnoticed. In the next part of this paper I briefly examine the regulation and suggest that it promotes, rather than prevents, land grabbing, with devastating effects for home. The World Bank´s support for regulating land grabbing is another dimension of international law´s homemaking and home-unmaking work, here on a global scale. (Zeffert 2017, p 23) In this context, Saturnino Borras (2019) refers to cases of European financial institutions facilitating land grabbing in Paraguay, including the Special Drawing Rights (SDR) – International Monetary Fund, a private distribution of the German Development Bank (KFD), which invested 25 million euros in Paraguay Agricultural Corporation (PAYCO); the European-American Finance S.A. also participated in this operation (Deutscher Bundestag, 2019). The SDR does not provide information on this transaction, despite the laws in force in Germany; PAYCO controls at least 144 thousand hectares of land. These lands are used for growing extensive soybean crops and for raising and fattening livestock. Also tilting the balance in favour of these investors are the treaties which protect private investment in agriculture, the laws that strengthen intellectual property rights, and the liberalization of the access to land and natural resources. Borras and Franco (2018) notes that some of these lands controlled by PAYCO are claimed by peasant and indigenous communities of Paraguay, and the former are also responsible for intensive deforestation. FIAN Internacional y La Vía Campesina (2014) mentions plans to expand PAYCO’s lands. It is important to take into account investment policies within the European community. The existing international investment regime promoted by members of the European community supports foreign investment that is not always sympathetic to the rights of the affected communities. In fact, there are no similar international mechanisms for the protection of communities affected by land grabbing. The principle of Free, Prior and Informed Consent (FPIC) is considered only for indigenous people (and is very recent, as stated in Decree No. 1039/2018 which is a protocol that establishes a process for consultation and the free, prior and informed consent of the indigenous peoples that inhabit Paraguay). However, it should be recognized that the FPIC has a longer legacy in the international arena and they have been more helpful in other jurisdictions. Addressing the land grabbing in question often involves documented human rights violations and trying to pursue criminal action against those who use force to displace communities. When the rules that protect foreign investment collide with the rules protecting indigenous communities, such as the

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ones that establish the principle of Free, Prior and Informed consent, it is the former that prevail. The role of the State is crucial to the validity of these rules. As illegal property titles are curiously rampant in Paraguay, it is obvious for one to doubt the assertion that the legal system guarantees effective property rights. This refers to the configuration of a state held captive by the elites and the rules actually in force in their functioning at various levels and spheres. The elite draws up the laws, incorporates them into public policy, and applies them in contentious cases; the government fulfils a regulatory and administrative function. In the present historical conditions prevailing in Paraguay, the domination of the State by the elite involves control of the judiciary, the legislature, and the government itself. In these laws, food and land access are issues that must be resolved in the market, dominated by large corporations. These small elite groups have to, as a function, create all the necessary conditions to ensure the operation of large corporations. In the constitutional system of division and balance of powers, the interpretation of the law rests with the judiciary. In the case of land reform, it is completely dependent on corporate powers, which is explained by the high levels of corruption. Consequently, in a very high proportion of litigation involving peasants and entrepreneurs it is the latter who end up winning the lawsuits (Banco Mundial, 2018); judges often resort to civil law and undermine the protective agricultural legislation of peasant land plots. As a result of the legal and judicial system that perverts constitutional norms, Paraguay today has one of the highest levels of land concentration in the world. These developments suggest that the boundaries between state and corporations have been erased. Modern public authorities in capitalist societies have to permanently face conflicting functions. On the one hand, they must facilitate the accumulation of capital and on the other, maintain minimum levels of legitimacy – a situation which is increasingly in doubt in countries of the Southern Cone (as in the case of Colombia, Chile, Peru, and Ecuador) in which movements and social organizations are currently mobilizing against the harm caused by the implementation of neoliberal policies that prioritize the accumulation of capital over the basic needs and interests of the people. 5.5.1 The Case of Land and Indigenous Territories

With regard to the right of access to land of indigenous communities in Chapter V, Article 63 of the Paraguayan Constitution recognizes and guarantees the right of indigenous people to preserve and develop their ethnic identity in the respective habitat. Moreover, in Article 64 the indigenous people have the right to communal ownership of the land, to sufficient extent and quality for the conservation and development of their distinct ways of life. It further states that the State shall provide them with these lands unambiguously, free of charge, and they shall be indivisible, non-transferable, imprescriptible, neither

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susceptible nor capable of guaranteeing contractual obligations, or of being leased; they shall also be non-taxable. In reality lands and territories are illegally appropriated from indigenous communities, thus affecting the majority of communities that formally own land particularly in the eastern region of Paraguay. The large soybean producers appropriate indigenous lands with the active cooperation of the judges. Not being entitled to those lands, once they occupy the lands of indigenous communities, agribusiness entrepreneurs request temporary restraining orders from the judges to continue with the usurpation of those lands. In more than 100 lawsuits filed by soybean corporations against indigenous communities, the latter are left defenceless since the National Indigenous Institute declares itself without the required resources for offering legal support (Pereira and Areco, 2019). When the traditional lands of indigenous communities have been illegally occupied by land-grabbers, a new and specific law must be passed in each case to expropriate the lands, allowing the original inhabitants to return. This has never happened, as the oligarchic factions in power are vehemently opposed to such restitutory expropriations.

5.6 Market, Poverty, and the Constitutional System in Paraguay While access to land is an important topic in national and international debates about poverty and food security, there is an ongoing tendency to attribute hunger and poverty to environmental factors, and to focus on national policy failures, overlooking the active role played by food and land market manipulation in making food unaffordable. From this perspective, the emphasis on food scarcity and the impact on the poor omits the role of wealthier non-deprived actors whose market behaviour actively out-prices the poor in markets for land, as well as for food and other resources. In this sense, Chadwick (2017, p. 4) argues that the dominant view on the causes of the current food crisis obstructs efforts to improve the living conditions of excluded populations and must be altered. Effective responses demand more than the use of regulations to correct market failures. Research is required into the ways in which both private law regimes and international economic law have generated disproportionate market power and corporate influence over the price structure. It is the entire neoliberal agri-food regime that is entering crisis as it moves away from the right to food and food justice, from production to consumption, which includes the phases of transformation, distribution, and commercialization. The current coronavirus pandemic in countries such as Paraguay has made the most vulnerable members of society increasingly dependent on charity. Due to the economic crisis caused by Covid-19, the government transfers monetary resources to supermarkets to deliver non-perishable products to poor families, having as a collateral effect the reduction in the sale of peasant production. A

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new type of hoarding is also observed, that of supermarket chains with cold chains for cross-border transportation of perishable products that can face the problems derived from border closures and confinement. What is certain is that pandemic conditions have contributed to the increase of undernourishment and food insecurity, making this debate more relevant. In the alternative approach to hegemonic ideas about inequality, the case of Paraguay affirms that social and economic inequalities are a reflection of laws – these phenomena are produced by a legal system in which food and land are first and foremost commodities that are traded for profit. From this viewpoint, the legal institutions and regime, and its accompanying discourses, are productive of exclusionary territorial projects that reproduce extreme poverty and undermine food sovereignty. It is understood that legal institutions encompass the rules of conduct that govern a society. The market in itself, no matter how free, neither cares about nor guarantees food for all. The legal system serves more those with property than those without it. It protects the property of the ‘haves’ over the ‘have nots’. It does not ensure a minimum of property or food for all – not even locally, never mind globally. So, it should not be surprising that international law is a contributing cause to poverty. And rather than making new national law to fight poverty, it would be more to the point to identify and change the international laws that contribute to poverty, taking into account the dual quality of their relationships with power, as pointed out by Sundhya Pahuja (2011). This author affirms that, paradoxically, international law has two dimensions in opposition: the first has a counter-imperialist effect and the second, on the contrary, has a proimperialist one. Hence, the challenge is to decolonize international law.

5.7 Conclusion The Paraguayan Constitution enshrines rights for all inhabitants of the country and purports to provide benefits to vulnerable groups, including indigenous people and peasants. Constitutional rules guarantee the validity of rights to an adequate standard of living, linked to the right to food and to freedom from poverty and inequality (Fogel, 2006). Yet, by paying attention to how domestic laws configure the market economy in Paraguay, there is a notable paradox: the Constitution positions the country as a social democratic State governed by the rule of law that corresponds to the characteristics of a State that is active in promoting inclusive and sustainable development with dynamic intervention in development, while the laws that derive from the fundamental rules are more in accordance with a minimum state that prescribes the commoditization of food and natural resources. The typical division of powers of the democratic system results in the existence of a legislative power, which in a society with a highly polarized social structure comes to be monopolized by the dominant groups that, when legislating, act to further their own material interests and create forms of factual

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power that shape the social fabric. As noted in the constitutional system of division and balance of powers incorporated in the constitution, the interpretation of the law belongs to the judiciary, which in the case of land reform is completely dependent on corporate powers.

Notes 1 Article 115 lays the foundations for land reform that includes the programming of peasant settlements and the adjudication of parcels of land ‘to the beneficiaries of the land reform, providing for the infrastructure necessary for their settlement and rooted, with an emphasis on road, education and health’. In turn, Article 116 establishes: ‘In order to progressively eliminate unproductive large estates, the law shall address the natural aptitude of the lands, the needs of the population sector linked to agriculture and the advisable provisions for the balanced development of agricultural, agricultural, forestry and industrial activities, as well as the sustainable use of natural resources and the preservation of the ecological balance. The expropriation of unproductive large estates destined for agrarian reform shall be established in each case by law, and shall be paid in the manner and within the term that it determines’. 2 The report Education in Paraguay. Findings from the experience in PISA for the Development Executive Summary states: ‘Cognitive outcomes: educational trajectory and student performance, a learning crisis. The majority of 15-year-old students in Paraguay are below the minimum competency level in all areas evaluated in PISA-D’. 3 In this agrarian structure, two distinct sectors stand out: the agribusiness and the peasant sector. 94.25% of cultivated land is destined for the production of agricultural commodities and only 5.75% for the production of the peasant sector. 4 Alliance for Progress was a program of economic, political, and social aid from the United States to Latin America, promoted by John F. Kennedy from 1961 to counteract the influence of the Cuban revolution by supporting more reformist measures. One of the objectives was to promote comprehensive agrarian reform programmes. 5 Pahuja (2011) wrote about the decolonization of international law and nation states. At this time it should be considered that in spite of southern countries no longer being colonies, the north left them in the condition of nation states, governed by corruptible elites, elites which the north can deal with to achieve continued control over natural resources in the south. In fact, decolonization did not give power back to the people in the south, for example small farmers and indigenous communities. It just gave power to the governing elites.

References Banco Mundial. (2018). ‘Paraguay Notas de Política 2018’. Available at: https://documents1​ .worldbank​ . org​ / curated​ / es​ / 751071525763871071​ / pdf​ / 126021​ - WP​ - PUBLIC​ -SPANISH​-PYN​otas​dePo​ltic​afinal​.pdf (Accessed August 27, 2021). Borras Jr, S. M. and Franco, J. C. (2018). ‘The challenge of locating land-based climate change mitigation and adaptation politics within a social justice perspective: Towards an idea of agrarian climate justice’. Third World Quarterly, 39(7), pp. 1308–1325. Borras Jr, S. M., Mills, E. N., Seufert, P., Backes, S., Fyfe, D., Herre, R., and Michéle, L. (2019). ‘Transnational land investment web: land grabs, TNCs, and the challenge of global governance’. Globalizations, 17(4), 608–628. https://doi​.org​/10​.1080​/14747731​ .2019​.1669384. (Accessed August 27, 2021).

T he Paradoxes of a Progressive Constitution  101 CEPAL. (2014). ‘Estudios económicos de América Latina y el Caribe’. Available at: https:// www​.cepal​.org​/es​/publicaciones​/36970​-estudio​-economico​-america​-latina​-caribe​ -2014​-desafios​-la​-sostenibilidad (Accessed June 12, 2021). Chadwick, A. (2017). ‘‘World hunger, the ‘global’ food crisis and (international) law’. Manchester Journal of International Economic Law, 14(1), p. 4. Deutscher Bundestag. (2019). “Antwort der Bundesregierung: KfW-Auslandsgeschäfte im Agrarbereich”. Available at: http://dipbt​.bundestag​.de​/dip21​/btd​/19​/078/​%201907868​ .pdf Edelman, M. (2013). ‘Messy hectares: questions about the epistemology of land grabbing data’. Journal of Peasant Studies, 40(3), pp. 485–501. Edelman, M. and Carwil, J. (2011). ‘‘Peasants’ rights and the UN system: quixotic struggle? Or emancipatory idea whose time has come?’ Journal of Peasant Studies, 39(1), pp. 81–108. FIAN, Germany. (2010). “German investment funds involved in land grabbing”. Available at: http://www.fian​.or​g/fileadm​in/me​dia/p​ublic​ation​s/201​​0​_12_​​Germa​​nInve​​stmen​​ tFund​​s​_Lan​​dGrab​​​bing.​​pdf FIAN Internacional y La Vía Campesina. (2014). “Conflictos Agrarios y Criminalización de Campesinos y Campesinas en Paraguay: El Caso Marina Kue y la “Masacre de Curuguaty”. (Serie Tierra y Soberanía en las Américas, No. 6). Oakland, CA: Food First/Institute for Food and Development Policy y Transnational Institute. Fogel, R. (1989). “La Concentración de la Tierra en los Departamentos Fronterizos”. CIPAE, Serie Tierra No. 1. Asunción. Fogel, R. (2001). “Las luchas campesinas: tierra y condiciones de producción”. Asunción: CIPAE – CERI. Fogel, R. (2006). “La cuestión socioambiental en el Paraguay”. Asunción: CERI. Friggeri, F. P. (2021). ‘Primitive accumulation, mafia capitalism, and the campesino population in Paraguay’. Latin American Perspectives, 48(236), pp. 126–144. Fukuyama, F. (2004). “La construcción del estado. ‘Hacia un nuevo orden mundial en el siglo XXI”. Barcelona: Ediciones B, S.A. García, S. (2002). Los derechos humanos y la jurisdicción interamericana. México D. F.: Universidad Nacional Autónoma de México. Guereña, A. and Rojas, L. (2016). “Yvy Jára. Los dueños de la tierra en Paraguay”. Asunción: OXFAM. Hetherington, K. (2015). “Auditores campesinos. Transparencia, democracia y tierra en el Paraguay Neoliberal”. Asunción: CERI – SERVILIBRO. McMichael, P. D. (2013). ‘Land grabbing as security mercantilism in international relations’. Globalizations, 10(1), 47–64. Mendonca, D. (2018). “Apuntes constitucionales. Una guía para el ciudadano”. Segunda edición. Asunción: Intercontinental. Mendonca, D. (2019). “Las sombras de la democracia. Centro de Estudios Constitucionales”. Asunción: Intercontinental. Morínigo, J. (2005). “La matriz histórica del problema de la tierra en la sociedad paraguaya”. Revista de Estudios Políticos Contemporáneos NOVAPOLIS, Ed. N°10 – Agosto/Diciembre 2005, pp. 4–12. Organización de los Estados Americanos (OEA). (1969). “Convención Americana sobre derechos humanos – Pacto San José”. Available at: https://www​.oas​.org​/dil​/esp​/ tratados​_B32​_Convencion​_Americana​_sobre​_Derechos​_Humanos​.pdf (Accessed August 27, 2021).

102  Ramón Fogel, Roni Paredes, Sintya Valdez Organización Internacional del Trabajo. (1989). “Convenio N° 169 sobre pueblos indígenas y tribales”. Available at: https://www​.ilo​.org​/dyn​/normlex​/es​/f​?p​=normlexpub​:12100​:0:​ :no:​:p12100​_instrument​_id​:312314. (Accessed August 27, 2021). Pahuja, S. (2011). ‘Decolonizing international law: development, economic growth and the politics of universality’. Melbourne Law School. Cambridge University Press. https:// mail ​ . google ​ . com​ / mail​ / u​ / 0/​ ? tab​ = rm​ & ogbl#​​ i nbox​​ / FMfc​​ g zGkZ​​ Z kpSC​​ M cNWN​​ PlRBd​​vCTBD​​pTm​?p​​rojec​​tor​=1​​&messagePartId​=0.1 Pastore, C. (2008). “La lucha por la tierra en Paraguay”. Asunción: Intercontinental. Pereira, M. (2017). Derecho a la Reforma Agraria: ¿Quién ejerce su defensa jurídica? Asunción: CODEHUPY. Pereira, M. and Areco, A. (2019). “Reforma Agraria. La negación del derecho: cada vez más lejos del programa constitucional”. Asunción: CODEHUPY. Plus 2020 Magazine. (2020). “El ranking de las principales compañías exportadoras de Paraguay”. Available at: https://www​.revistaplus​.com​.py​/2021​/02​/16​/2020​-el​-ranking​ -de​-las​-principales​-companias​-exportadoras​-de​-paraguay/ (Accessed February16, 2021). Rolón, J. (2019). “Una Constitución asediada. El (mal) Estado Constitucional de Derecho en el Paraguay”. Asunción: Editorial Arandurã. Roman, H. and Michéle, L. (2019). ‘Transnational land investment web: land grabs, TNCs, and the challenge of global governance’. Available at: https://doi​.org​/10​.1080​ /14747731​.2019​.1669384 (Accessed August 27, 2021). Setrini, G., Borda, D., González, C., and Servín, B. (2020). Transición agraria en Paraguay. Evidencias empíricas y explicaciones teóricas. Asunción: Centro de Análisis y Difusión de la Economía Paraguaya, CADEP. Wesz, J. and Valdemar, J. (2021). ‘Soybean production in Paraguay: Agribusiness, economic change and agrarian transformations’. Journal of Agrarian Change, 2021, pp. 1–24. Wolford, W., Borras Jr, S. M., Hall, R., Scoones, I., and White, B. (2013). ‘Governing global land deals: the role of the state in the rush for land’. Development and Change, 44(2), pp. 189–210. https://doi​.org​/10​.1111​/dech​.12017 Zeffert, H. (2017). ‘The lake home: international law and the global land grab’. Asian Journal of International Law, 8(2), pp. 432–460. https://doi​.org​/10​.1017​/S204425131700011X

Chapter 6

Protecting Property Crime Control, Constitutional Organization and Neoliberal Governance in Colombia Esteban Isaza Ramirez, Julio C. Montañez, and Fernando Leon Tamayo Arboleda

6.1 Introduction Between October 25 and November 3, 1842, the Rheinische Zeitung published various opinion pieces by Karl Marx (1982 [1842]), in which he suggested a debate about the legal regulation on thefts of wood and its implication for daily life and State legitimacy. Issues such as the capital or the social classes appeared in these articles as an intuition of the young Marx’s interpretations rather than as an analytical effort to interpret a law that, according to him, punished harmless actions and left State criminal punishment in private hands. Instead, a purely liberal perspective of punishment was used to problematize said law. The focus of Marx’s approaches included two typical issues of liberalism: the harm principle and the State legitimacy to punish. Marx’s concern about the harm principle and the State entitlement to punish subtly reproduced the social contract model by arguing that freedom could not be limited in cases in which the appropriation of wood was not identified as a violation of private property rights, as well as by stating that the waiver of civil liberties in favour of the State did not authorize it to transfer to private parties its power to punish. This critique, based on a mere liberal view, already served to guess Marx’s concern for the forms in which the law could favour the interests of private parties. What turns out to be interesting about this critical vision of the legal regulation of punishment for crimes against property is how two issues interact with each other. On the one hand, political liberalism emerges as a basis for the criminal protection of property and as a reason to limit the ways in which the legal system can grant this protection. On the other hand, the law arises as a tool to shape reality and, particularly, respond to the mainly economic interests of the elites. These relationships between knowledge systems, juridical designs, elite’s interests, criminal protection of property, and market configuration have been analyzed by different authors. Based on a Marxian perspective, and perhaps as a continuation of Marx’s intuitions in his critique of the law on the theft of wood, Rusche and Kirchheimer (1984) analyze how the emergence of DOI: 10.4324/9781003202257-8

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capitalism conditioned the juridical and institutional design of criminal punishment. In their analysis, the authors show the centrality of the protection of private property for the consolidation of capitalism. Likewise, they reported that the offences against property were treated differently depending on the type of relation: owner/owner relation, where the criminal reaction was less severe, or owner/non-owner relation, where the use of the prison system was prioritized. With a different analytical framework, the same could be stated regarding the works by Melossi and Pavarini (2010) and Foucault (2014). Although the criminal protection of private property is almost absent from their analyses, these authors address the centrality of the criminal justice system to consolidate the capitalist mode of production. Furthermore, their works clearly demonstrate the relationships among the juridical and institutional design of the State, the epistemological discourses legitimizing the use of power and the application of criminal punishment as a mechanism to protect the elite’s economic interests. Wacquant’s (2003; 2008; 2009) studies on this subject gather the different issues mentioned so far. In his analysis on the emergence of the penal State, the French author outlines the connections between the economic production systems, the juridical and institutional designs of the State, the epistemological and political discourses of power legitimation, the protection of property, and the strengthening of the criminal justice apparatus. According to Wacquant (2009), the dismantling of the social assistance programmes typical of the welfare State increased inequality and, at the same time, widened the social distance between classes. In this context, the poor – traditional beneficiaries of the welfare policies and formerly subject to the welfare State supervision policies – were presented as a threat to the elites’ lifestyles of the late capitalism and were captured by the State punitive power. Supported by a political discourse that emphasized crime as an individual decision, the punitive apparatus focuses disproportionally on certain types of offences, including those intended to violate property rights. In summary, one of Wacquant’s main theses is that, at least to some extent, the growth in the use of criminal punishment over the last decades can be explained based on a neoliberal interest to protect private property. While Wacquant’s thesis has been heavily criticized (Iturralde, 2018; Sozzo, 2016; Sozzo, 2018; Valverde, 2010), the author points at an issue of our interest. Has neoliberalism conditioned the juridical design of criminal protection of property? We would like to address this issue by analyzing Colombia’s case. The purpose of this article is to show how neoliberalism has changed the criminal protection of property in Colombia and what the consequences of it are. For doing so, we would address the changes that the neoliberal reform introduced by the Legislative Act 06 of 2011 – which constitutionally allows private prosecution in misdemeanours – brought to the constitutional arrangement of 1991. Our thesis statement is that Legislative Act 06 of 2011 carried a constitutional redefinition of criminal protection of private property. This new form

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of protection was supported by a neoliberal governance rationality that simultaneously aimed at the reinforcement of protection of private property, protection and attraction of capital, the efficiency of the administration of justice, and the reduction in State responsibilities. Besides strengthening the privileged position of owners, this created a new market in the legal profession, which was put at the service of those with greater possibilities to activate – or influence – the justice system based on their economic and social capitals. To that end, in Section 6.2, we analyze the Colombian constitutional design until 1991 and how the constitutional discussions have moulded the legal idea of private property and its protection. We show how the juridical design of private property was transformed to respond to social and individual protection demands, which serves as grounds to present how criminal law did not address this process but focused on the rigid defence of individual rights. In Section 6.3, we explain how criminal punishment is conceived from a neoliberal rationality and its connection with the protection of property and with the economic system. In Section 6.4, we analyze how the constitutional change introduced by Legislative Act 06 of 2011 redesigned the criminal protection of property in the country. In this sense, we examine how through preserving the liberal idea of maximizing the protection of individual rights of owners a new private market was created, which favours the use of criminal prosecution as a pressure and negotiation tool, as well as how this favours those with more social and economic capital. Finally, we present some conclusions arguing that, although the constitutional design of neoliberal governance of property in Colombia still has not displayed the hyper-punitive features foretold by Wacquant, the strengthening of private parties’ possibilities to directly exert criminal prosecution in offences against property entails serious risks for the rights of the less privileged classes in a country with high crime and inequality rates.

6.2 The Constitutional Design of Private Property Protection in Colombia What do we mean when we talk about the right to private property and its protection in Colombia? To answer this question, we need to go back to the last constitutional regimes that were valid in the country and, thus, review the process of legal construction of the right to private property in Colombia. We consider this useful to highlight the fundamental implications of putting criminal prosecution at the service of private parties. Capitalist legal systems focus on the promotion of individual freedom through the recognition and protection of private property and contracts. Therefore, any intervention limiting or disregarding private parties’ freedom is perceived, to say the least, as suspicious, even if it does not necessarily mean restriction upon capitalism (Ripert, 2017, pp. 29–30). Property rights can be understood as spheres of autonomy (Kennedy, 2015, p. 28) that allow their holders to submit to their will the things that surround

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them and the people with whom they interact. The above serves to grasp the difference, according to the Romano-Germanic tradition, between real rights and personal rights and their particular usefulness in legal-proprietary relationships. The former can be seen as legal relationships between a legal person and a material thing in particular – the latter, as proprietary relationships between two subjects, mediated by an obligation to provide a certain service. In that way, private property comprises both the property right and the obligations derived from contracts. That way of understanding the world – as an interaction space made up of things susceptible to appropriation and legal subjects, who can be obliged and demand from providers the fulfilment of their services – promoted, from the legal system, the early relations of capitalist production. This view was adopted in the Civil Code of the French of 1804 (Ripert, 2017, pp. 27–28) and laid the foundations for most Latin American countries’ civil legislation that followed the Civil Code of the Republic of Chile of 1855 prepared by Andrés Bello (Mirrow, 2004, p. 137). Despite all these countries having their own understanding of what capitalism means and how it is institutionally organized, all agree that the protection of private property is necessary for a capitalist regime. The constitutional history of Colombia shows us that one of the structural elements of the different constitutions has been the rights and liberties that have been recognized for citizens. Among them, private property has been present since the first constitutional regulation in 1811 (Valencia, 2010, pp. 60–61). Subsequently, the Constitution of 1886 established a clear policy of protection and recognition of private property but did not provide a definition that determined its scope; therefore, it resorted to the civil legislation and its categorization of the subjective rights based on the descriptions of the personal and real rights (Bonilla, 2013, pp. 166–168). In this way, the protection of private property was limited to the estate, understood as the entitlement to real and personal rights. As a consequence, for instance, the legal description of appropriation crimes – such as theft – made reference to the domain aspects of property right, which was conceived in Article 669 of the Civil Code as ‘the real right in a corporal thing to enjoy and bequeath a thing arbitrarily, not being against the law or against other people’s right’. Criminal law focused then on protecting this set of prerogatives. A process of constitutional change began at the end of the nineteenth century and it continues today. It modified the way in which private property was understood and, thus, the scope of its protection. These transformations of the constitutional discussions were reflected in the legal sphere but had different effects on civil and criminal law. To get a sense of how the criminal protection of property managed to remain immune to the constitutional mutations, we will initially show the magnitude of the civil transformations. A good example to comprehend the changes in the constitutional enshrinement of private property in the country is the evolution of protection of possession and adverse possession. Possession can be defined as holding an asset

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with the aspiration to ownership. Adverse possession allows a person to become entitled to a real right through the exercise of possession for an extended period, which causes the termination of the owner’s right. Both institutions have been part of the Colombian Civil Code since 1873 and have been enforced with few legislative reforms. Therefore, analyzing them helps easily understand the constitutional transformations of the property concept. At the end of the nineteenth century and the beginning of the twentieth century, the protection of possession was justified as a simple reflection of the protection of entitlement to the property right (Anzola, 1918a, pp. 311–312). The material acts of the possessor’s exercise should be protected, not because of the use given to the objects but because the real exercise of actions on the same was an essential part of the legal relationship. Adverse possession was then conceived as an instrument for social harmony, so it was sufficient to recognize the possessor’s legal ownership of the object (Anzola, 1918b, p. 471). In 1936, the Constitution of 1886 was modified through Legislative Act 1. Article 31 of the constitution was replaced by Article 10, in which private property was no longer exclusively defined as a subjective right but also as a social function. The social function of property included in the constitution intended to boost Colombian economic development by establishing criteria to formalize the property of rural land and promoting its use for economic production. Moreover, it created rules that forced owners to exploit their property. Thus, the owner of any rural property not being exploited could be then deprived of it, which was precisely the goal of Law 200 of 1936 (Villegas del Castillo, 2012). This new constitutional vision started to define a concept of private property that led to the coexistence of capitalist ideals of protection of subjective rights and interventionist ideals of regulation and socialization of the use of resources. As a consequence of the above, the legal protection of possession started to revolve around the social function of property. According to Valencia Zea (1958, pp, 86–87), the protection of possession grounded on the social function gathered theories based on individual interest and social interest, causing a convergence between concern about the protection of individual rights as a guarantee for social harmony and the need of economic exploitation of property as a mechanism to satisfy collective interests. Thus, adverse possession would be the reward of those who had exercised real property rights for a long time1 and the punishment of negligent owners who disregarded the economic exploitation of capital. The scope of the social function acquired a new dimension when the Supreme Court of Justice put an end to the registration of the possession of real estate as a requirement for its existence.2 Prior to this judgment, the exercise of possession of real estate had to be registered in a public registry, which also served to alert the owner of the appropriation acts executed by the possessor. For the Court, possession is an act whose registration does not imply its existence or non-existence. That is, possession must be conceived as a material act

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on the objects susceptible to appropriation, and this relation is absolute. Either it exists to the extent that such acts occur, or it does not exist when such acts do not occur. These changes in the regulation of civil property relations, promoted since 1936 by Legislative Act 1, also reveal that the constitutional organization – and the legal institutions’ organization in general – privileges certain allocations of rights and obligations. Ultimately, they create regimes of distributive justice, which, when confronted with the issue of regulation of property, not only shape the legal field but also have an impact on the configuration of other social areas, in particular the economic field. With the dismantling of the constitutional regime of 1886 and the convention of the National Constituent Assembly of 1991, a new constitutional notion of property was introduced. First, the constitution organizes Colombia as a social State based on the rule of law, which gives rise to a social market economy. Second, different types of property coexist under the same constitutional idea: public property, which is entirely functional to the purposes of the State; collective property, which is a guarantee of the existence of ethnic communities; and private property, which is defined as a subjective right but also as a social and an ecological function. Third, proprietary rights, such as private property, free enterprise, etc., are understood as mediating rights, i.e. functional to other higher individual and collective interests. This new perspective explains why, although entitlement to property is protected and possession is seen as embodying the social function, there are different possible solutions to disputes between owners and possessors. For example, Law 986 of 2005, which protects victims of kidnapping, provides that adverse possession is interrupted during their captivity. This protection given for kidnapping cases was extended by the Colombian Constitutional Court to victims of enforced disappearance and hostage-taking.3 For its part, the land restitution regime of Law 1448 of 2011 protects victims of the armed conflict when they have had to abandon their land or have been dispossessed of it so that the protection of the owner and possessor became functional to the fundamental right of victims to integral reparation. This intense transformation of the constitutional concept of property was completely alien to criminal law. Whereas for civil law the debate on the concept of private property involved a struggle between different legal-constitutional visions that prioritized either the individual right or the social interests of capitalist production, or a mixture of both, criminal law focused solely on protecting a very simple idea of private property. In other words, criminal law, oblivious to constitutional debates, focused on protecting individual property rights above all other issues. This even occurred with the adoption of the Constitution of 1991. While civil law recognized that other fundamental rights could modify traditional property relations, criminal law remained in a position of purely liberal protection of property, which focused on preventing any arbitrary intervention

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in property rights. In this sense, criminal law dispensed absolute protection of individual property rights that were only relatively protected in the civil field. A fundamental part of the stagnation of the criminal protection of property vis-à-vis civil law was connected to the fact that, while civil justice was private, criminal justice was public. This implied that the extreme forms of protection of private property could only be used by the State exclusively in cases of arbitrary or fraudulent dispossession, included as offences in the criminal legislation. Private parties only had at their disposal the actions included in the civil legislation – which gives a relative protection to property – and, thus, the legal market of protection of property revolved around this form of justice. Furthermore, criminal justice operated in a monopolistic manner, where the State had the sole power to exercise criminal prosecution. This is exactly why the constitutional change included in Legislative Act 06 of 2011, which allows the transfer of criminal prosecution to private parties, is the only constitutional transformation of the criminal protection of property. This not only entailed the opening of a market for negotiating criminal prosecution as a tool for the protection of property but also transformed the very logic of the criminal protection of property. This also underlines that the diverse conceptions of private property assumed by civil and criminal law carry two different versions of capitalism. On the one hand, civil law tends to be more flexible in order to integrate the different changes in economic relations into the juridical system. On the other hand, criminal law tends to be more rigid by focusing on protecting owners’ privileges. The particularities of this transformation, its neoliberal roots, and its consequences are analyzed in the following two sections.

6.3 Neoliberal Governance and Protection of Property One of the main problems when addressing neoliberalism as an object of analysis, or as a concept for the construction of studies on other issues, is the indeterminacy of the term. On the one hand, a reductionist conception would mean understanding neoliberalism as a merely economic matter that radicalizes the classical concept of free market; however, this view is not common. On the other hand, most authors see neoliberalism as a complex political project that includes a variety of issues, such as the redesign of states, laws, and other institutions to protect the market (Slobodian, 2018, p. 6; Harcourt, 2011). Although the purely economistic vision has been abandoned, it is still assumed that individual rights are best guaranteed within the framework of market freedom. Citizens’ rights are not certainly thought of as a whole, but the liberties protected in the neoliberal ideology tend to favour the interests of owners of private property and financial capital (Harvey, 2005, p. 7). According to Harvey (2005) and Wacquant (2009), neoliberalism is a transnational political project that has several dimensions, but it mainly

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focuses on the protection of elites and the free market; the reduction of the State, both as a mechanism for the reduction of fiscal costs and as a result of the belief that State intervention is always undesirable and inefficient; the reorganization – and pauperization – of the labour market; and the dissemination of certain discourses to defend the neoliberal alternative as the best possible project. The breadth of the elements that appear when approaching the definition of neoliberalism makes the content of the concept tremendously diffuse. This being so, many types of governance techniques fit within the tools of neoliberalism: privatization (Müller, 2016), maximization of fiscal efficiency (González Guarda, 2018), centrality of the technical and scientific knowledge (Tamayo Arboleda, 2021), labour flexibilization (Wacquant, 2009), and strict protection of private property (Wacquant, 2009), among others. Following Sozzo (2018), we believe that, precisely because of this indeterminacy, neoliberalism is better understood as a governance rationality that is built in specific spatio-temporal contexts. In other words, we are convinced that neoliberalism does not exist as a monolithic concept but that it is shaped through the generation of certain discourses and practices and the participation of specific actors. The analytical challenge, therefore, is not to build a univocal concept but to properly grasp contextual manifestations of neoliberalism, in order to understand how it gives rise to forms of governance that are unique in space and time. The above implies a certain dynamicity of the concept. For this reason, we want to show how neoliberalism has been understood within analyses of criminal punishment. According to Wacquant, punishment in neoliberal contexts is characterized by its harshness. This is because the neoliberal project has dismantled the social state, which has led, on the one hand, to an increase in social insecurity and inequality and, on the other hand, to the absence of the State apparatus in the daily lives of citizens. Consequently, the State has restructured itself around punishment in order to protect life and property, provide a sense of security, and continue to present itself as existing in everyday life through the use of force (Wacquant, 2009). For Wacquant, the penal State has been deployed to respond to the disorders spawned by the deregulation of the economy, the flexibilization of labour, and the immiseration of the most depressed working class by increasing police intervention. He also states that this project, born in the United States, has been exported to Europe (Wacquant, 2008) and Latin America (Müller, 2012). The way in which ‘neoliberal penality’ has spread in Latin America has been widely discussed in the specialized literature (Sozzo, 2016; 2018; Iturralde, 2007; 2018; Ariza and Iturralde, 2018; Müller, 2016). According to Iturralde (2007), due to the joint adoption of neoliberal measures in the economic field and neoconservative measures in the political field, eminently punitive responses have been deployed, which have particularly affected the marginalized classes that have not been able to adapt to market conditions. This has led several Latin American countries, over the last three decades, to reinforce

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criminal justice systems to fight those forms of criminality that generate greater social anxiety (Ariza and Iturralde, 2018). For his part, Müller (2016), analyzing the Mexican case, shows how the desire to attract foreign capital, the commodification of security, the gentrification of urban space, and the rise of self-government strategies promoted by neoliberalism resulted in the construction of cities that favour punitive crime control techniques. This widens the social gap in terms of access to security and affects the less privileged classes, which become preferential customers of the punitive techniques implemented. A similar diagnosis is found in Wacquant’s analysis of the Brazilian case (Wacquant, 2003). Although the impact of neoliberalism on Latin American penality is widely known, there are also several matters that call for caution. Iturralde (2018) and Sozzo (2016; 2018) acknowledge that neoliberalism has played a fundamental role in shaping the crime control field in the region; however, they are sceptical about providing a monocausal explanation for the recent changes that Latin America has undergone. While it must be said that the strategies typical of neoliberal governance have managed to introduce important changes in the way in which punishment is exercised and crime is controlled, it cannot be denied that the particular history of each of the countries in the region, the colonial past, the social and epistemological traditions, the political power dynamics, or the political and economic subjugation have defined the configuration of the crime control field over the last few decades. In particular, they have determined the different ways in which neoliberal governance has operated in the region. As far as Colombia is concerned, the crime control field is the result of various factors that have an impact on different levels. Like other countries in the region, Colombia underwent a series of neoliberal economic reforms during the 1990s. In this country, the phenomena of inequality and immiseration of the most depressed social classes were not caused by neoliberalism, but the reforms ended up exacerbating inequality (Ariza and Iturralde, 2018). In consequence, the gap between social classes and the fear of outsiders grew, which, combined with conservative discourses and high crime rates, led to an increase in the use of punishment (Iturralde, 2010). In addition, neoliberal governance gained strength given that the State efficiency, and especially the administration of justice, was being strongly questioned (Restrepo, 2003), which motivated the implementation of strategies that reinforced State administration and implied the increase of institutional investment and the general growth of the State apparatus (Fonseca, 2017). Perhaps the most evident feature of this matter can be found in the criminal procedure reform implemented through Law 906 of 2004. Colombia has been considered one of the most successful cases in the region regarding the adoption of the adversarial model, as it is one of the closest countries to the United States in the region (Zorro, 2019, p. 8). The strong relationship between Colombia and the United States in terms of configuration of the

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crime control field dates back to the 1990s, when international cooperation in the fight against ­insurrection and drug trafficking led to a series of reforms that strengthened the military forces and the criminal justice apparatus. As Iturralde (2010) explains, ‘Plan Colombia’, signed while Andrés Pastrana was in office, and the ‘Democratic Security Policy’, implemented during the eight years of Álvaro Uribe’s term, which presumably focused on the fight against drugs and guerrilla terrorism, ended up being tools to protect economic growth and attract and preserve foreign investment and the wealth of national elites. The reception of the adversarial criminal justice system in Colombia began precisely with the investments made by the United States through Plan Colombia. In the text of this plan, Colombia committed itself, as part of its cooperation with the North American country, to strengthen the local judicial apparatus: Colombia is committed to respect the rule of law and will continue to strengthen all aspects of the judicial system, including fostering the continuing transition to an accusatory system (including oral trials and effective investigations), speeding the movement of cases through the judicial process, ensuring access to justice throughout the nation regardless of geographic location or income. The government of Colombia will provide leadership to make the judicial system more effective, transparent, fair and accessible. To make the judicial system more effective, the government of Colombia will seek to reduce impunity through improved prosecution, more effective investigations and speedier trials. (Plan Colombia, 1999) The above obligation was implemented in Colombia in a progressive manner. The first step was the introduction of the reform through Legislative Act 03 of 2002, which constitutionalized the adversarial system. Subsequently, Law 906 of 2004 introduced the new procedural system, which was gradually implemented in all regions of the country over the next five years. The key point of the procedural reform, aimed at improving the efficiency of the justice system, was the creation of a new method of negotiating criminal liability, which would contemplate summary proceedings for those events in which the defendant accepted the charged offences. These changes, introduced by Law 906 of 2004, quickly topped off the criminal justice system. By 2008, when Law 906 had been implemented nationwide, more than 90% of the 38,537 judgments of conviction issued in the country were the result of partial or total acceptance of charges and plea bargaining (see Figure 6.1). Additionally, the economic changes driven by neoliberalism in the cities led to the emergence of new punitive demands and an increased interest in the prosecution of property crimes (Tamayo Arboleda, 2021). Besides the national demographic transformation that resulted in 77.1% of the population living in urban areas (National Administrative Department of Statistics of Colombia,

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60,000 51563 50,000 40,000

47902

49539

44547 41,274

43,605

46,335

43,314

30,000

37,970

31,607

40026

33,033

20,000 10,000 3,273

4,297

5,228

6,225

6,363

6,993

0 2008

2009

2010

2011

2012

2013

Direct acussation (Oral trial) Acceptance of charges or plea bargaining Total judgments of conviction

Figure 6.1 Types of judgments of conviction in the Oral Adversarial Criminal Justice System. Source: compiled by the authors based on data from Corporación Excelencia en la Justicia (2015)

2005) and the alarming inequality in the country,4 Romero Novoa (2010) has shown that neoliberal reforms modified the economy in the cities to create a service economy centred on consumption. This reorganization of the urban economy was followed by claims about the need to strengthen property protection in order to promote and preserve consumption, as well as a transformation of the cities that gave way to an uneven distribution of crime control resources, which ended up favouring the new spaces of capital (Tamayo Arboleda, 2021). Consequently, mechanisms were implemented to improve the recording of attacks against private property, which made it easier to report crimes through online platforms and integrated the databases of different State entities in charge of measuring crime rates. This integration revealed that crimes against property were increasing; specifically, they went from 117,520 in 2002 (National Police of Colombia, 2003) to 496,693 in 2018 (Duarte Velásquez and Cadavid Carmona, 2019). This statistical growth served to justify the need to strengthen the punitive reaction mechanisms against this kind of offence. This, in turn, meant an increase in the population incarcerated for property-related crimes from 13,563 (Grupo de Prisiones, n.d.) to 26,639 (National Penitentiary and Prison Institute of Colombia, 2018) over the same

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period, making these offences the ones with the highest number of people imprisoned.

6.4 Constitutional Reform and Criminal Prosecution Market: The New Form of Protecting Private Property in Colombia In the context described in the previous section, in which protection of private property within the framework of the neoliberal market economy was strengthened thanks to the implementation of the punitive system, the Colombian Constitution was reformed through Legislative Act 06 of 2011. This legislative act meant that criminal prosecution, which had been the exclusive responsibility of the State, could be transferred to private parties. To understand the relevance of this matter, its relationship with the strategies typical of neoliberal governance, and the way in which it opens up a market that favours private parties with large economic and social capital, it is necessary to look back a few years. Since the adoption of the Constitution of 1991, several attempts had been made to transfer criminal prosecution from the State to private parties. The most recent attempt was Law 1153 of 2007. At this point, it is worth clarifying that, unlike Anglo-Saxon systems that have grading classifications of crimes (felonies and misdemeanours), the Colombian system has traditionally worked with a single concept: offence. However, Law 1153 introduced a classification similar to the Anglo-Saxon one, allowing private parties to directly prosecute less serious crimes – which included all attacks against property that did not involve physical violence. Law 1153 of 2007 had been created out of the need to make the Colombian justice system more efficient. According to the bill, the Colombian justice system, and particularly the Office of the Attorney General – the centralized body in charge of criminal investigation – was overwhelmed by petty crimes that were not properly processed and, moreover, did not allow the State to focus on the investigation and prosecution of more serious forms of crime.5 Several ideas typical of the neoliberal governance project were thus fundamental: first, private actors could do a better job, either because of their organization or because of the immediacy of their interest in their own causes – in other words, the importance of self-management was emphasized. Second, the situation of violence in the country demanded prioritizing the allocation of economic resources to investigate other crimes, and to strengthen prosecutorial bodies. The State then recognized that it could not prosecute all crimes and accepted to leave the prosecution of non-violent crimes in private hands. Third, private parties should have efficient mechanisms for the protection of their property, which could not be dispensed by the State. Law 1153 of 2007 was declared unconstitutional by the Constitutional Court through Case C-879 of 2008, among other things, on the grounds that criminal prosecution was a State power that could not be transferred to private

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parties. The relevance of the State as the administrator of criminal justice was, as in Marx’s critique of the law on thefts of wood, the consequence of a liberal vision of criminal prosecution, in which punishment is seen as a non-negotiable reaction to harm. Moreover, as a key point of the continental legal tradition, crime was both an offence against individual rights and an attack against State order. Thus, in the continental liberal State organization, the State, and only the State, can administer punishment. This resistance of the legal discourse to the introduction of neoliberal governance reforms determined that the modification of criminal prosecution in the country implied a constitutional reorganization, which was addressed through Legislative Act 06 of 2011. This legislative act took up the concern for the efficiency of justice and the constitution of effective mechanisms for the protection of individual rights, in order to overturn the liberal legal discourse of the criminal prosecution centrality in the hands of the State. This, in a context of growing social inequality and with a punitive system that had focused disproportionately on the protection of private property, maximized the possibilities of owners to protect their rights, as they had both State action and the possibility of directly exercising criminal prosecution. The above undoubtedly favours the possibilities of legally protecting the property of those individuals who, due to their great economic and social capital, can activate and influence the criminal justice system. As Garth (2021) suggests, the activation of the judicial system is the result of a set of market possibilities in which lawyers act as legal brokers, as they can speak the legal language and mobilize the judicial apparatus according to certain interests, and, in consequence, accessing this market depends on the economic and social capital of those who wish to activate it. In this sense, Legislative Act 06 of 2011 not only created a new market in which the services of criminal law professionals are valued for their ability to trigger criminal punishment, but also, due to the type of offences in which this type of prosecution is permitted (misdemeanours related to the protection of property rights), strengthened the mechanisms for the protection of individual property rights. However, the results of neoliberal governance have been paradoxical. Although it was expected that during the years that followed the beginning of operation of Law 1826 of 2017, which regulated the provisions of Legislative Act 06 of 2011, there would be a massive flow of conversion of criminal prosecution to private parties, the response to a petition that we filed with the Office of the Prosecutor General revealed the opposite. According to this response, by the end of 2019, only 82 cases had been requested for conversion, of which 44 were property crimes and the rest were reckless injuries. Conversion was approved in 51 cases only, of which 26 were property crimes. Therefore, the criminal justice system remained almost unchanged. In this sense, neoliberal governance was more about the symbolism of strengthening the criminal protection of property, rather than because this had actually been improved. The idea that private parties have the possibility of

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self-management in matters of criminal protection – even if it is not used in almost any situation – creates a space in which criminal prosecution is subject to negotiation. Private parties, even if they do not activate the judicial system, can always resort to their new rights to exert pressure within the civil business. The fact that very few cases are prosecuted by private parties suggests to a large extent that the market for prosecution continues underdeveloped. However, for the time being, due to the lack of data and the relative novelty of the system, these conclusions are hasty and require further investigation into the way in which this new legal market currently operates. Despite the lack of data, constitutional change represents an opportunity to redefine the contours of criminal justice and reduce the harmful consequences of the system, but also a huge threat to the fundamental rights of individuals who have traditionally been privileged customers of the criminal justice system. Indeed, having individuals who, because of their economic and social conditions, are in a favoured position to activate the criminal justice system against the poor can deepen the social exclusion generated by the punitive apparatus in the country.

6.5 Conclusions In Colombia, the criminal field has been little permeated by constitutional debates on private property, maintaining an idea close to the liberal ideal of entitlement to subjective rights, reaffirmed by neoliberal perspectives. While civil law has addressed private property as a relative right whose protection could change over time, criminal law has retained a stubbornly harsh protection of property. How could we understand the coexistence of these two arrangements? How could two different versions of capitalism exist in the juridical discourse? We believe that our analysis of the neoliberal changes in criminal law could help to shed light on this matter and to open new lines of research in the field. Despite this stability of criminal law, the reform introduced through Legislative Act 06 of 2011 managed to modify the traditional approach to the criminal protection of private property. It transformed the type of legal actions that could be taken for its protection. Even though private criminal prosecution continued to work with the classic conception of the protection of individual rights, it eroded the exclusivity of the use of punitive power by the State, which not only strengthened an ideology of protection centred on subjective rights – constitutionally relativized since Legislative Act 1 of 1936 – but also opened up a new market for the practice of the legal profession. However, the results of the privatization of criminal law have been, so far, unexpected. According to Wacquant (2003; 2009), neoliberal criminal reforms tend to strengthen punitive systems and encourage their use as a mechanism for solving social problems. In Colombia, Legislative Act 06 of 2011 – despite being the result of techniques typical of the neoliberal governance, aimed at

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improving the market position of owners and the protection of capital – has not had the hyper-punitive consequences predicted by the French author. Although private parties have been allowed to directly exercise criminal prosecution to protect their property rights, they have done so on very few occasions and, moreover, it has not impacted the criminal punishment system in the country. There may be good reasons to explain the fact that the aforementioned consequences are not perceptible in the criminal justice system. Private prosecution may be thought of as a bargaining chip in disputes over property rights or the novelty of the reform may have not allowed the legal market for private prosecution to take shape yet. In consequence, attention is focused, on the one hand, on the risks implied by the construction of a criminal prosecution market and the way in which this impacts the possibilities of action of private parties who, due to their privileged economic and social position, have greater opportunities to activate the system; and, on the other hand, on the risks implied for the permanent customers of the criminal justice systems in Colombia: the poor. This lack of detailed information on the functioning of the criminal prosecution market raises several questions about the relationship between constitutional law, the organization of the legal system, the institutional design of the State, the market, and the protection of private property. Many questions remain unanswered, among others, why are private parties not making use of the transfer of criminal prosecution? Why have the private corporations that promoted the project of transferring criminal prosecution (multinationals and local companies, mainly engaged in the sale of retail products) not made use of it, despite having legal offices within their institutional structure? How have law firms been integrated into this new space for the provision of legal services? Has the possibility of directly protecting private property played any role in the process of attracting private investment to the country? Has the new criminal action arrangement any influence on private investment in the country?

Notes 1 The Civil Code originally required possessions of up to 30 years to prescribe the ownership of an asset. However, Law 50 of 1936 reduced the time to 20 years, and Law 791 of 2002 did the same, establishing a ten year period. 2 Domitila Ulloa de Matiz vs Pablo Emilio López [1955] Supreme Court of Justice, [1955] 2153 Gaceta judicial 81. 3 Case C-394/07 [2007] Constitutional Court. 4 According to the GINI index, inequality indices in Colombia stood at 51.3% by 2019. 5 Case C-879/08 [2008] Constitutional Court.

References Anzola, L. (1918a). Lecciones elementales de Derecho Civil Colombiano. Curso Primero. Bogotá: Librería Colombiana Camacho Roldán y Tamayo.

118  Esteban Isaza Ramírez et al. Anzola, L. (1918b). Lecciones elementales de Derecho Civil Colombiano. Curso Tercero. Bogotá: Librería Colombiana Camacho Roldán y Tamayo. Ariza, L. J. and Iturralde, M. (2018). ‘Transformations of the crime control field in Colombia’. In: K. Carrington, H. Russell, J. Scott, and M. Sozzo, eds. The palgrave handbook of criminology and the global south. New York: Palgrave Mcmillan, pp. 687–708. Bonilla, D. (2013). ‘El liberalismo y la propiedad en Colombia’. In: D. Bonilla [coord.] La función social de la propiedad. Buenos Aires: Eudeba, pp. 153–192. Colombian Constitutional Court, Decision C-394, 23 May 2007. MP. Humberto Antonio Sierra Porto. Colombian Constitutional Court, Decision C-879, 10 September 2008. MP. Manuel José Cepeda Espinosa. Corporación Excelencia en la Justicia- U.S.A.I.D. (2015). Balance diez años de funcionamiento del Sistema Penal Acusatorio en Colombia (2004–2014). Bogotá: Usaid. Duarte Velásquez, Y. A. and Cadavid Carmona, J. A. (2019). ‘Análisis de umbral: técnica diferencial en la interpretación de los registros de criminalidad en Colombia (2019)’. Revista Criminalidad, 62(2), pp. 9–144. Fonseca, D. (2017). ‘Expansion, standardization, and densification of the criminal justice apparatus: recent developments in Brazil’. Punishment and Society, 20(3), pp. 1–22. Foucault, M. (2014). Vigilar y castigar (trad. del Camino A. G.). México D.F.: Siglo XXI Editores. Garth, B. G. (2021). ‘Capitalism and capital’. In: M. Valverde, K. Clarke, E. Darian-Smith, and P. Kostiwaran, eds. The Routledge handbook of law and society. London and New York: Routledge, pp. 81–85. González Guarda, C. (2018). Gestión, gerencialismo y sistema penal. Buenos Aires: B de F. Grupo de Prisiones. (n.d.). Resumen Población Interna por Delito. Bogotá: Universidad de los Andes. Available at: https://grupodeprisiones​.uniandes​.edu​.co​/images​/PDFs​/estadisticas​ _inpec​/poblacion​_por​_delito​/poblacion​.por​.delito​.dic2002​.pdf Harcourt, B. (2011). The illusion of free markets. Punishment and the myth of natural order. Cambridge, MA, and London: Harvard University Press. Harvey, D. (2005). A brief history of neoliberalism. New York: Oxford University Press. Iturralde, M. (2007). Crimen y Castigo en la Modernidad Tardía. Estudio Introductorio a la obra de David Garland. Bogotá: Siglo del Hombre Editores-Universidad de los Andes. Iturralde, M. (2010). Castigo, liberalismo autoritario y justicia penal de excepción. Bogotá: Siglo del Hombre Editores-Universidad de los Andes. Iturralde, M. (2018). ‘Neoliberalism and its impact on Latin American crime control fields’. Theoretical Criminology, 23(4), 471–490. Kennedy, D. (2015). Tres globalizaciones del derecho y del pensamiento jurídico, 1850–2000 (trad. Jácome J. G.). Bogota: Universidad Externado de Colombia. Marx, K. (1982 [1842]). Debates sobre la ley castigando los robos de leña, en Marx, escritos de juventud: Carlos Marx y Federico Engels. Obras fundamentales 1, Carlos Marx. México D.F.: Fondo de Cultura Económica. Melossi, D. and Pavarini, M. (2010). Cárcel y fábrica. Los orígenes del Sistema penitenciario. Buenos Aires: Siglo XXI Editores. Mirrow, M. (2004). Latin American law: a history of private law and institutions in Spanish America. Austin, TX: University of Texas Press. Müller, M. (2012). ‘The rise of the penal state in Latin America’. Contemporary Justice Review, 15(1), 57–76.

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Müller, M. (2016). The punitive city: privatized policing and protection in neoliberal Mexico. London: Zed Books. National Administrative Department of Statistics of Colombia. (2005). Estimaciones de población 1985–2005 y proyecciones de población 2005–2020. Bogotá: DANE. National Penitentiary and Prison Institute of Colombia. (2018). Informe estadístico diciembre. Bogotá: INPEC. National Police of Colombia. (2003). ‘Estadística delincuencial y contravencional’. Revista Criminalidad, 46(1), pp. 28–107. Plan Colombia. (1999). Available at: https://www​.govinfo​.gov​/content​/pkg​/CHRG​ -106shrg61871​/html​/CHRG​-106shrg61871​.htm Restrepo, E. M. (2003). Colombian criminal justice in crisis. New York: Palgrave McMillan. Ripert, G. (2017). Aspectos jurídicos del capitalismo moderno. Santiago de Chile: Ediciones Olejnik. Romero Novoa, J. A. (2010). ‘Transformación urbana de la ciudad de Bogotá, 1990–2010: efecto espacial de la liberalización del comercio’. Perspectiva Geográfica, 15(2010), pp. 85–112. Rusche, G. and Kirchheimer, O. (1984). Pena y estructura social. Bogotá: Temis. Slobodian, Q. (2018). Globalists: the end of empire and the birth of neoliberalism. Cambridge, MA: Harvard University Press. Sozzo, M. (2016). ‘Postneoliberalismo y penalidad en América del Sur. A modo de introducción’. In: M. Sozzo (comp.) Postneoliberalismo y penalidad en América del Sur. Buenos Aires: Consejo Latinoamericano de Ciencias Sociales, pp. 9–28. Sozzo, M. (2018). ‘Beyond the ‘neo-liberal penality thesis’? Punitive turn and political change in south America’. In: K. Carrington, R. Hogg, J. Scott, and M. Sozzo, eds. The Palgrave handbook of criminology and the global south. New York: Palgrave McMillan, pp. 659–685. Supreme Court of Justice of Colombia. (1955). Judgment of 27 April 1955, Gaceta judicial. Tomo LXXX, Nª 253, pp. 81–101. Tamayo Arboleda, F. (2021). Del Estado al parque: el gobierno del crimen en las ciudades contemporáneas. Bogotá: Siglo del Hombre-Universidad de los Andes. Valencia, A. (1958). Derecho Civil. Tomo II. Bogotá: Editorial Temis. Valencia, H. (2010). Cartas de Batalla. Una crítica del constitucionalismo colombiano. Bogotá: Panamericana Editorial. Valverde, M. (2010). ‘‘Comment on Loïc Wacquant’s ‘Theoretical Coda’ to Punishing the poor’. Theoretical Crimonology, 14(1), pp. 117–120. Villegas del Castillo, C. (2012). ‘¿Es la función social de la propiedad una cláusula de papel?: de la Reforma de 1936 a la Constitución de 1991’. In: H. Alviar and C. Villegas del Castillo, eds. La función social de la propiedad en las constituciones colombianas. Bogotá: Universidad de los Andes. Wacquant, L. (2003). ‘Toward a dictatorship over the poor? Notes on the penalization of poverty in Brazil’. Punishment & Society, 5(2), pp. 197–205. Wacquant, L. (2008). Las cárceles de la miseria. Buenos Aires: Editorial Manantial. Wacquant, L. (2009). Punishing the poor. The neoliberal government of social insecurity. Durham, NC and London: Duke University Press. Zorro, A. (2019). ‘Adversariality, plea bargaining, and prison population growth: evidence from a natural experiment’. SSRN. 4 November. Available at: https://ssrn​.com​/abstract​ =3686925 or http://doi​.org​/10​.2139​/ssrn​.3686925

Chapter 7

Market Efficiency as a Directive Principle of E.U. Monetary Policy Javier Solana 1

7.1 Introduction: Markey Neutrality, Market Efficiency, and the Climate Emergency On March 10, 2016, the Governing Council of the European Central Bank (ECB) announced that the Eurosystem, i.e. the central banking system of the euro area,2 would expand its asset purchase programme (‘APP’) by introducing a new Corporate Sector Purchase Programme (‘CSPP’) as part of the single monetary policy and in pursuit of its price stability objective (ECB, 2016). On June 1, 2016, the Governing Council published its Decision that set the basic framework for the CSPP (the ‘CSPP Decision’).3 The first purchases under the programme began a few days later. Like other programmes within the APP, the CSPP aimed to address problems of a prolonged period of low inflation.4 The effectiveness of the CSPP in raising inflation5 relies on the assumption that, by purchasing bonds issued by non-financial corporations, the programme would strengthen the financing conditions of the real economy, thereby leading to potential increases in investment and consumption that would drive prices up (ECB, 2017). On December 9, 2016, The Guardian reported on an analysis by Corporate Europe Observatory (2016), a non-profit research group, that revealed that the Eurosystem was purchasing bonds issued by corporations in the oil, gas and automotive industries as part of its CSPP (Neslen, 2016). The revelation stirred an intense political debate. Members of the European Parliament (MEPs) addressed Mr Mario Draghi, then-President of the ECB, questioning the Governing Council’s decision to purchase assets from companies whose activities aggravate the climate emergency and requesting that the Eurosystem aligned its monetary policy with the E.U.’s global environmental commitments. Campaigns and protests from civil society organizations soon followed. MEPs and civil society organizations were concerned that by purchasing assets issued by carbon-intensive companies, the Eurosystem was effectively facilitating these companies’ access to credit and, thereby, contributing to the aggravation of the climate emergency. In recent years, several studies have confirmed that the CSPP has indeed had a positive effect on the cost of capital of firms whose assets are eligible under the CSPP.6 DOI: 10.4324/9781003202257-9

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One of the arguments that Eurosystem officials have repeated more i­nsistently to defend the Eurosystem’s position is that taking environmental protection in general, and the climate emergency in particular, into account for the design and implementation of monetary policy would violate the ‘principle of market neutrality’ (e.g. Weidmann, 2019). Eurosystem officials use the term ‘market neutrality’ to describe the need for the Eurosystem to avoid distortions in markets that would impair their functioning as price discovery mechanisms (e.g. Coeuré, 2015). The prevailing view among Eurosystem officials is that, understood in this sense, market neutrality operationalizes the ‘principle of an open market economy with free competition’, laid down in article 127(1) of the Treaty on the Functioning of the European Union (TFEU) (e.g. Weidmann, 2019).7 The ‘principle of an open market economy with free competition’ appears in paragraphs (1) and (2) of article 119 TFEU, which opens Title VIII of the Treaty and frames the two subsequent chapters dedicated to economic and monetary policy, respectively. It also appears in articles 120 and 127(1) TFEU, which open each of the relevant chapters, albeit with an additional reference: ‘favouring an efficient allocation of resources’. For analytical purposes, I shall use the term ‘efficient markets principle’ to refer to this longer formulation of the principle. I shall only use the term ‘principle of an open market economy’ when used in the texts that I am citing and its meaning should be understood in the context of those works. The wording in these four provisions was introduced in the Treaties by the Treaty of Maastricht in 1992 and has remained unchanged ever since. It is useful to quote the whole wording of article 127(1) TFEU, which, of the four provisions, is the most directly relevant to the Eurosystem: The primary objective of the [ESCB] shall be to maintain price stability. Without prejudice to the objective of price stability, the ESCB shall support the general economic policies in the Union with a view to contributing to the achievement of the objectives of the Union as laid down in Article 3 of the Treaty on European Union. The ESCB shall act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources, and in compliance with the principles set out in Article 119. Evaluating the future of the CSPP and, indeed, the future of any measure of monetary policy in the euro area, requires an understanding of the legal nature of the market efficiency principle on which Eurosystem officials rely. In this chapter, I will argue that the principle has a directive nature, i.e. that it provides a programme for state action and that, as a result, it cannot trump the Eurosystem’s monetary policy objectives. I begin my analysis in Section 7.2 by examining the different elements that make up the efficient markets principle and exploring the relationships between them. In Section 7.3, I present

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the main argument of this chapter: that the principle has a directive nature. I begin this section by examining the concept of ‘directive principles’ as studied by constitutional law scholars, and then I use their frameworks to examine the nature of the efficient markets principle in the specific context of the Eurosystem’s monetary policy. In Section 7.4, I explore the implications that the directive nature of the principle has for the controversial CSPP, especially its limits to inform the design and implementation of the Eurosystem’s monetary policy. I conclude the chapter in Section 7.5 with a reflection on what the controversial CSPP might tell us about the role of constitutions in financial systems.

7.2 Dissection of the Efficient Markets Principle There is scant CJEU case law examining the binding effect of the ‘principle of an open market economy with free competition, favouring an efficient allocation of resources’ and, unfortunately, that case law does not examine the content of the principle, which remains open to interpretation. I would argue that the principle is made up of different elements and that each of them requires careful examination. The first element is a ‘market economy’. Neither the Treaty of Maastricht, which introduced the principle in the Treaties, nor the working documents that led to its adoption provide a definition of this term. An analysis of the working documents, however, suggests that the drafters of the Treaty of Maastricht used the term ‘market economy’ to describe the system through which society would allocate its resources (e.g. Delors, 1989, paras. 27–29).8 In his Opinion in Schindler, Advocate General Gulmann provides a very succinct definition of a ‘market economy’ that hinges on this allocative function: ‘In an open market economy it is market forces and not public regulation which should in principle determine what supply of certain goods or services there should be’.9 His reference to ‘public regulation’, however, can be slightly confusing. Public law and regulation do not stand in opposition to markets as alternative mechanisms to allocate resources – they play a constitutive role in markets, which are essentially hybrid (Deakin et al., 2017). Consequently, we may want to understand AG Gulmann’s reference to ‘public regulation’ as a reference to the State more broadly, and think about centrally planned economies as one alternative system of resource allocation (Tridimas, 2009, p. 271).10 So, if the drafters of the Treaties used the term ‘market economy’ to describe a system to allocate resources, for the purposes of this chapter I shall define a market economy as a system where resources are allocated through prices, which result from the interaction of different actors in markets, some seeking to buy goods or services and others looking to sell them. In its operational meaning, the so-called ‘principle of market neutrality’ translates this core element into terms that are relevant for monetary policy making: the ESCB must refrain from distorting the operation of market forces that lead

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to price discovery (Goldoni and Solana, 2021). In other words: ‘the ESCB is not beyond market forces but there to support them’ (Tridimas, 2009, p. 273). The second element in the principle is the ‘open’ nature of the market economy. Just as the Treaties do not provide a definition of a ‘market economy’, they do not provide a definition of its open nature either. Nevertheless, the working documents leading to the adoption of the Treaty of Maastricht suggest that, in this context, the word ‘open’ describes the conditions under which economic actors can access markets. The Delors Committee identified unimpeded access to markets as one of the main conditions for an economic and monetary union (Delors, 1989, p. 8). In its draft Treaty on Union, the European Council (1991) proposed a drafting of article 3A(1), the precedent of article 119(1) TFEU, that made reference to the ‘framework of a system of competitive markets that are open internally and externally’.11 Interestingly, the proposed drafting of article 102A, the precedent of article 120 TFEU, referred to ‘an economic system of free and competitive markets’ (emphasis added). In the end, however, the final version of the Treaty of Maastricht included the term ‘open’ in these and other provisions. An open market economy can therefore be understood as one that is easy to access for economic actors within the internal market and outside of it.12 Internally, an open market economy may be seen as the outcome of the four fundamental freedoms, especially the free movement of capital.13 Given the intention to create a customs union, however, an open market economy cannot aim at guaranteeing access on an equal footing to both internal and external actors. Instead, the external dimension of open markets can be understood as a declaration of intention to have the internal market connected to the global economy.14 ‘Free competition’ is the third element in the principle. Article 3(1)(g) of the Treaty Establishing the Economic Community (‘EC Treaty’) used to recognize ‘a system ensuring that competition in the internal market [was] not distorted’ among the activities through which the Community would aim to achieve the tasks identified in article 2 EC Treaty. The Treaty of Lisbon eliminated that reference. Nevertheless, Flynn (2018, p. 44) has argued that the principle of ‘free competition’ still lives in the wording of the efficient market’s principle, albeit, arguably this can be seen as a ‘downgrade’ vis-à-vis its previous position in the Treaties. Hierarchical considerations aside, this interpretation suggests that the reference to ‘free competition’ in the principle should be read as the avoidance of any distortion on competition by private or public economic actors. The report of the Delors Committee supports this view (Delors, 1989, p. 8). This is also how Tridimas (2009, p. 274), for example, understands the effect of the principle in the context of monetary policy. The fourth and last element is the formula ‘favouring an efficient allocation of resources’. There are two possible interpretations of this efficiency formula.

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First, that it requires the relevant public authorities to discharge their obligations by making as efficient a use of public resources as possible. Yet the express reference in the Treaties to operational efficiency makes this interpretation rather doubtful.15 And second, that it has an explanatory purpose: it identifies an efficient allocation of resources as the normal outcome of an open market economy. In my opinion, the structure of the sentence where the formula is introduced in the relevant Treaty provisions and the wording of the formula itself support the second interpretation. For example, both articles 120 and 127(1) TFEU introduce the formula in a sentence that aims to describe how the Member States and the Union (Article 120 TFEU) and the ESCB (article 127(1) TFEU) shall conduct their economic and monetary policies, respectively. They shall ‘act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources, and in compliance with the principles set out in Article 119’ (emphasis added). Both articles introduce the formula ‘favouring an efficient allocation of resources’ with a comma, right after enunciating the first principle that the relevant authorities must ‘act in accordance with’ (i.e. the ‘principle of an open market economy with free competition’) and before making reference to another set of principles that the relevant authorities must ‘act […] in compliance with’ (i.e. those set out in article 119). The provisions do not use commas to identify an additional principle or set of principles in the enumeration but to describe the first principle. Moreover, the verbs and their tenses used in both provisions further support this conclusion: both provisions use the same verb (‘to act’) in its infinitive form to introduce the principles that bind the economic and monetary policies of the relevant authorities: ‘the principle of an open market economy with free competition’, and the set of principles in article 119 TFEU. On the other hand, both provisions use a different verb (‘to favour’) to introduce the efficiency formula, and use the verb in its present participle form (‘favouring’) rather than its infinitive form. Taken together, these arguments support the conclusion that the efficiency formula plays an explanatory function in articles 120 and 127(1) TFEU: that the normal outcome of an open market economy is an efficient allocation of resources. If this view is correct, the Treaties are ‘tak[ing] a stance in a long-standing debate amongst economists’ (Hopman, 2018, p. 39). That the introduction of the efficiency formula serves an explanatory purpose rests on the assumption that the formula is a fourth element in the principle rather than a self-standing, independent principle. Two arguments support this assumption. First, the formula is not preceded by the words ‘principle of’, unlike the ‘principle of an open economy with free competition’ or ‘the principles set out in Article 119’. This argument provides further support to the claim that the formula in articles 120 and 127(1) TFEU has an explanatory function. And second, there are no further references to an efficient allocation of resources in the Treaties to support the view that the efficiency formula is

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a self-standing principle. Unequivocally, the efficiency formula is part of the principle of an open market economy. An analysis of the working documents leading to the adoption of the Treaty of Maastricht suggests that, in addition to playing an explanatory function, this fourth element also plays a normative function: an efficient allocation of resources is not just the normal outcome of an open market economy but also its goal, its raison d’être. The Delors Committee was particularly clear: ‘The use of government subsidies to assist particular industries should be strictly circumscribed because they distort competition and cause an inefficient use and allocation of scarce economic resources’ (Delors, 1989, p. 9, emphasis added). Moreover, in the draft revision treaty that it presented to the forthcoming Intergovernmental Conferences, the European Commission (1989, p. 3; 1990, p. 3) perceived an efficient allocation of scarce economic resources as one of the ‘considerable’ advantages of developing an economic and monetary union. By framing the case for support of the economic and monetary union in these terms, the Commission made efficiency a political goal: if the economic and monetary union was to succeed, economic resources needed to be allocated efficiently. It is interesting to note that, despite recognizing an increasing economic efficiency as a ‘considerable’ advantage of the economic and monetary union, the European Commission (1989, 1990)’s draft treaties did not make a reference to an efficient allocation of resources in their formulation of the principle. The reference was introduced by the European Council (1991) in its proposed drafting of article 102A EC Treaty, the precedent of article 120 TFEU, which governs economic policy. No such reference was included in the relevant provisions of monetary policy, however. These provisions did not even include a reference to the ‘principle of an open market economy’, which was only added, alongside the efficiency formula, in the final version of the text. Flynn (2018, p. 45) has proposed that one possible explanation for the inclusion of the efficiency formula in the proposed article 102A TEC could be the intention to clarify the potential for structural policies to address the failure of markets to achieve an efficient allocation of resources. The preoccupation of the Delors Committee with the need to ‘enhance market efficiency and offset market imperfections’ (Delors, 1989, p. 9) confirms this view. There is no reason to doubt that the drafters of the Treaties introduced the same efficiency formula in article 105 TEC, the precedent of article 127(1) TFEU, for the same reason.16 The normative function of the efficiency formula reveals important aspects about the internal logic of the principle. In particular, it reveals an internal hierarchy between the four elements that comprise the principle where the efficiency formula ranks above the other three elements, which only play a descriptive function. The first element (a market economy) identifies markets as the default mechanism to allocate resources. This is a political commitment by the drafters of the Treaties and represents the core of the principle. The

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second and third elements describe some of the features that markets should have: access to them should be open, both internally and externally, and their operation should ‘not be distorted by the behaviour of private or public economic agents’ (Delors, 1989, p. 8). These two features are very closely related: an open market is a necessary, yet insufficient, condition for free competition. Importantly, as the Delors Committee acknowledged, these features are necessary so that markets can lead to an efficient allocation of resources (Delors, 1989, p. 9).17 In other words, openness and free competition are only justified as long as they lead to an efficient allocation of resources. Whether the efficiency formula ranks ahead of the first element (a market economy) is less clear. The efficiency formula may enjoy a normative hierarchy among the different elements of the principle, but it remains contained within the contours of the principle. In other words: public authorities cannot intervene in markets to improve the efficiency of resource allocation to such an extent that they annul market forces: this would contravene the clear commitment to a market economy. This is consistent with Tridimas (2009, p. 273), who argues that, even if market conditions and the economic outlook require public authorities to intervene drastically in markets, one should interpret the principle as imposing, at least, ‘a prohibition of unjustified and particularly severe central planning’ (emphasis added). Therefore, while the efficiency formula may enjoy a normative hierarchy over the other three elements of the principle, and may sometimes override even the core of the principle, i.e. the allocation of resources through prices formed in markets, its normative superiority is not absolute: most evidently, it cannot override the core of the principle to a point where markets are annulled.

7.3 The Legal Nature of the Efficient Markets Principle 7.3.1 Directive Principles

In this section, I will argue that the efficient markets principle has a programmatic dimension. I use the term ‘programmatic’ to describe the role that certain provisions in constitutions play when providing a normative direction for the powers of the state.18 The term ‘programmatic’ derives from the word ‘programme’. Indeed, some constitutional law scholars have used the term ‘programmatic’ to describe how certain provisions in constitutions provide a programme for state action (e.g. Frankenberg, 2006). There are at least three different types of programmatic provisions in constitutions: values, principles, and objectives.19 They all serve the same purpose: to guide public policy, but they differ in their legal nature and, thus, they differ in the means through which they aim to achieve that purpose. Weis (2017, p. 920), for example, considers fundamental values to be merely declaratory and thus not legally binding on the state. For Khaitan

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(2019, pp. 613–617) it is the expressive salience of fundamental values rather than their obligatoriness (or lack thereof) that distinguishes them from other programmatic provisions. He also points to the tendency of fundamental values to be more general and abstract. In the European Union, article 2 of the Treaty on European Union (‘TEU’) enumerates a list of fundamental values, including, among others, respect for human dignity, freedom, democracy, equality, the rule of law, and respect for human rights. Fundamental objectives can be political, economic, or social in nature and they reflect the composition of dominant social, political and economic forces (Goldoni and Wilkinson, 2018, p. 590; Streit and Mussler, 1995, p. 10). Amongst the three types of programmatic provisions, fundamental objectives have the strongest binding power: they ultimately draw the boundaries of the material constitution and as such drive the formation and specification of other ordering forces such as political unity, institutions, and social relations (Goldoni and Wilkinson, 2018, pp. 589–590). Article 3 TEU includes several examples of fundamental objectives, including, among others, the objective to achieve balanced economic growth and price stability (article 3.3.1º TEU). In terms of binding power, principles stand between fundamental values and objectives. The programmatic nature of principles is reflected in the concepts that constitutional law scholars use to refer to these principles. For example, King (2013) and Weis (2017) refer to them as ‘directive principles’,20 and Khaitan (2019) refers to them as ‘constitutional directives’.21 In the remainder of this chapter, I shall use the term ‘directive principles’. In addition to being directive in a programmatic sense, these principles are directive in a second sense: ‘[they] determine the direction of travel for the state’s policy, although – depending on the level of abstraction in which the directive is specified – this can leave a future policy-maker with very broad or relatively little discretion‘. (Khaitan, 2019, p. 612). So, if objectives represent ideals towards which the nation will strive, principles indicate the paths leading to those objectives (Okere, 1983, p. 214). Which paths to take or how to tread them remains the choice of those tasked with making policy. Beyond their programmatic nature, constitutional law scholars have identified additional characteristics of these principles. Weis (2017, p. 920), for example, points to the binding nature of directive principles, which create state obligations, as a distinguishing feature. Khaitan (2019) sees this obligatoriness as a specific illustration of the directive nature of these principles, but he is not convinced that this obligatoriness is a distinctive feature of directive principles (Khaitan, 2019, pp. 610, 613). For him, it is how directive principles impose obligations that makes these principles special: they are necessarily telic, which gives them a temporal dimension, whereas fundamental values may be telic or deontic. Thus, for him, ‘[directive principles] are telic norms that identify (typically specific) moral objectives whose full realization is deferred to a future date’ (Khaitan, 2019, p. 610). His focus on the telic nature of directive principles leads him to argue that they impose two distinct duties: ‘(i) a duty

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to endeavour to realize the directed goal, which kicks in immediately, and (ii) a duty to fully realize that goal by some (specified or unspecified) future date’ (ibid.). In addition to their obligatoriness, constitutional law scholarship has also identified their contrajudicative character as a defining feature of directive principles, i.e. they are not designed to be given effect by direct judicial enforcement (Weis, 2017, pp. 920–923). Constitutional law scholars rely on this contrajudicative character to distinguish directive principles from rights, which do give rise to a cause of action in courts (e.g. Khaitan, 2019, p. 620).22 Some constitutional law scholars have also argued that this contrajudicative character leads to directive principles being implemented politically rather than judicially, e.g. through ‘directed legislation’ (Weis, 2017, p. 920) or through voters disciplining the government at the following general election if they fail to advance towards the realization of those directive principles (Khaitan, 2018, p. 396). Weis (2018, p. 846) has described this contrajudicative character as a matter of formal design: ‘courts are not permitted to define the scope and content of the fundamental value, to define the legal norms required to promote the value, and then to enforce those legal norms against the state’. The programmatic nature of these provisions is key: ‘Directive principles are formulated as obligations that provide direction to the state rather than judicially enforceable rights’. (Weis, 2018, p. 858) Khaitan (2019, p. 611, p. 620) takes a slightly different approach. He describes the contrajudicative character of directive principles as ‘weak’ since, despite not being directly enforceable by judges, directive principles can have significant legal effects. He identifies four such effects based on an analysis of these principles in the Indian Constitution: they can be used i) to construct the country’s constitutional identity, ii) to review the constitutionality of any ‘directed legislation’ (a term introduced by Weis (2017, p. 921) to refer to statutes enacted towards the implementation of a directive principle), iii) as significant interpretive aids in the construction of constitutional as well as statutory provisions, and iv) as moral guides by courts while exercising their law-making function (Khaitan, 2019, pp. 629–631). 7.3.2 The Efficient Markets Principle as a Directive Principle

Unlike article 119(3) TFEU, which expressly characterizes stable prices, sound public finances and monetary conditions, and a sustainable balance of payments as ‘guiding principles’, article 127(1) TFEU does not expressly define the legal nature of the efficient markets principle. Neither do articles 119(1) and (2), and 120 TFEU. Nevertheless, there are several arguments that support the view that the efficient markets principle is a directive principle: it is obligatory, programmatic, and contrajudicative, the three main characteristics that define directive principles according to constitutional law scholarship.

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First, the efficient markets principle imposes an obligation on the relevant economic and monetary policy authorities. In Échirolles, a reference for a preliminary ruling raised the question whether the provisions in the EC Treaty relating to the internal market precluded the fixing of book prices in France. In its ruling, the CJEU affirmed that several provisions, including those that contained the principle of an open market economy (articles 3a and 102a TEC), do not impose on the Member States clear and unconditional obligations which may be relied on by individuals before the national courts. What is involved is a general principle whose application calls for complex economic assessments which are a matter for the legislature or the national administration. (Case C-9/99 Échirolles Distribution SA v Association du Dauphiné and Others [2000] ECR I-8207)23 But this should not be interpreted as an absolute rejection of the obligatory nature of the principle. Indeed, general wording does not exclude binding force: the Court itself recognized that ‘the implementation of [economic policy] must comply with the principle of an open market economy with free competition’ (emphasis added).24 The efficient markets principle is also binding on the ECB and the Eurosystem. During their tenure, members of the Executive Board of the ECB also acknowledged the binding nature of the principle on the institution (Mersch, 2021, p. 9). In addition, the language of the Treaty is clearly obligatory. Article 127(1) TFEU introduces the principle of an open market economy with an imperative: ‘The ESCB shall’. Imperatives generally indicate the obligatory nature of the principle (Weis, 2018, p. 846; Weis, 2017, p. 920).25 Article 120 TFEU introduces the principle using similar language – ‘The Member States and the Union shall’ –, as does article 119(3) TFEU when introducing a set of ‘guiding principles’ – ‘These activities of the Member States and the Union [described in articles 119(1) and (2) TFEU] shall’. Neither article 127(1) TFEU nor the provisions where the principle is mentioned specify any future date by which the principles should be fully realized, but although directive principles often do specify such a date, it is not strictly necessary (Khaitan, 2019, p. 610). Lastly, some academic commentators have identified minimum legal obligations deriving from the principle, including for the ESCB and the Eurosystem. Tridimas (2009, p. 273), for example, has argued that the principle of an open market economy with free competition may be read in the context of monetary policy to impose a ‘concrete minimum legal obligation […], such as, for example, the prohibition of complete nationalization of the services industry’. Rather than a rejection of the obligatory nature of the principle, the decision of the Court in Échirolles should be interpreted as a clarification that the principle lacks direct effect: no right is vested in any person to have markets work efficiently, or to have policies designed to make markets work efficiently.

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Second, article 127(1) TFEU describes the content of the obligations that underpin the principle of an open market economy using verbs that suggest a programmatic dimension: ‘The ESCB shall act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources’ (emphasis added). Article 120 TFEU uses the same verbs, and articles 119(1) and (2) TFEU, which do not include the efficiency formula, also specify that the Member States and the Union shall act ‘in accordance with the principle of an open market economy with free competition’ (emphasis added). The verbs in italics have a directive meaning: they provide direction or guidance. Article 119(3) TFEU requires the activities of the Member States and the Union to ‘entail compliance with’ a set of guiding principles. Arguably, the words ‘in accordance with’ have an even stronger directive meaning than the words ‘compliance with’. But objectives, like principles, are also obligatory programmatic provisions,26 so determining the legal nature of the efficient markets principle will require further analysis. The Treaties’ use of the word ‘principle’ to characterize an open market economy seems to take a rather clear stance, but since the Treaties often use different terms to refer to the same concept,27 a literal interpretation should only be the starting point of our analysis. Objectives differ from principles in at least two respects: their binding power and the content of the obligations they impose. Objectives have stronger binding power and they normally impose obligations of result, whereas principles normally impose obligations of means or conduct. The directive meaning of the verbs that article 127(1) TFEU uses to introduce the efficient markets principle indicates that the obligation underpinning the principle is one of means or conduct, not one of result. A comparison between these verbs and those that article 127(1) TFEU uses to introduce the ESCB’s objectives supports this conclusion. For example, article 127(1) TFEU affirms that ‘The primary objective of the [ESCB] shall be to maintain price stability’. The wording dictates that the ESCB achieves a specific outcome: price stability. Although the Treaties do not clarify the meaning of price stability, the ECB’s Governing Council has clarified that ‘it aims to maintain inflation rates below, but close to, 2% over the medium term’ (ECB, 2021). The obligation underpinning the ESCB’s primary objective is therefore one of result: whether price stability has been maintained can be ascertained against a set of objective criteria (the evolution of inflation rates over the medium term). However, the principle of an open market economy does not dictate any specific outcomes (Tridimas, 2009, p. 272). Such a generic formulation makes it difficult to assess whether the ECB has acted ‘in compliance with’ an open market economy or whether it has ‘favour[ed] an efficient allocation of resources’. This, in turn, makes it difficult to construe the principle as an objective of the ESCB. The fact that the Treaties introduce the principle in the same paragraph that defines the objectives of the ESCB cannot challenge this conclusion. The

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working documents leading to the adoption of the Treaty of Maastricht provide strong evidence against the consideration of an open market economy or the efficiency formula as objectives of the ESCB. Several working documents included detailed lists of the tasks, functions and objectives of the ESCB and neither an open market economy nor an efficient allocation of resources was ever included in those lists (see e.g. Delors, 1989, p. 11; European Commission, 1990, p. 22; European Council, 1991, pp. 13–14). The drafters of the Treaties never regarded an open market economy or an efficient allocation of resources as objectives of the ESCB. Lastly, the efficient markets principle is contrajudicative. In Échirolles, the CJEU confirmed that the principle does not have a direct effect.28 Although the Court was interpreting articles 3a and 102a EC Treaty, which apply to economic policy, given that the principle was introduced with the same words in article 105 EC Treaty for monetary policy, there is no reason to doubt that the Court’s interpretation in Échirolles could be extended to monetary policy.29 Most academic commentators share this view.30 Some have gone even further than the Court to question the enforceability of the principle at all against the ECB. For example, Tridimas, who argued that the Treaties rules on competition law should be used to define the substantive content of the efficient markets principle (2009, p. 274), also argued that the ECB would not be subject to the Commission’s enforcement powers (2009, p. 306). More generally, Lastra and Alexander (2020, p. 12) have questioned the possibility of holding the ECB accountable for its performance in the pursuit of compliance with the principle. In addition to the Court’s confirmation of a lack of direct effect, the lack of case law interpretating the content and subject matter of the principle further supports its contrajudicative nature (Weis, 2017, p. 920). All of these arguments indicate that the efficient markets principle is directive in nature. Several voices share this conclusion. For example, in Compañía Española de Comercialización de Aceite, AG Kokott affirmed that ‘The open market economy must guide the economic policy of the Member States and the Community pursuant to Article 4(1) EC and Article 98 EC’ (emphasis added).31 Similarly, in Caja de Ahorros y Monte de Piedad de Madrid, AG Trstenjak affirmed that the principle of an open market economy is ‘in the nature of an economic governance programme’.32 In the academic literature, Tridimas (2009, p. 271) affirms that the principle has a ‘programmatic’ and ‘directional’ value. Eurosystem officials have also emphasized the directive nature of the principle when referring to market neutrality, which operationalizes the first element of the principle:33 ‘So far, the market neutrality principle has guided the implementation of our private sector asset purchase programmes’. (Schnabel, 2021b, emphasis added). In the next section, I will examine the implications of the directive nature of the efficient markets principle for the Eurosystem’s monetary policy, in particular, the relationship between the principle and the objectives of the Eurosystem’s monetary policy.

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7.4 Implications for the Eurosystem’s Monetary Policy The CSPP portfolio has a carbon bias. Members of the Governing Council of the ECB have defended the composition of the CSPP portfolio as an outcome of the Eurosystem’s adherence to the so-called market neutrality principle, which operationalizes the first element of the efficient markets principle: the Eurosystem must refrain from distorting the operation of market forces that lead to price discovery (Goldoni and Solana, 2021). The references of Eurosystem officials to the efficient markets principle as the legal basis of the CSPP have set the principle in direct conflict with several objectives of the Eurosystem. First, the carbon bias of the CSPP undermines the objective of the Eurosystem to promote environmental protection, which article 11 TFEU integrates into its mandate (Solana, 2019). Arguably, that carbon bias also threatens to undermine the Eurosystem’s primary objective of price stability in the medium to long-term as physical risks resulting from climate change might lead to inflationary pressures (Batten, Sowerbutts, and Tanaka, 2020). Moreover, climate change can have serious implications for the stability of the financial system (NGFS, 2019) so, arguably, the CSPP’s carbon bias also threatens to undermine the Eurosystem’s objective of ‘contribut[ing] to the smooth conduct of policies pursued by the competent authorities relating to the prudential supervision of credit institutions and the stability of the financial system’, laid down in article 127(5) TFEU. Based on the characterization of the efficient markets principle as a directive principle, which I developed in Section 7.3.2, I will argue that the principle cannot override the objectives of the Eurosystem, regardless of whether these objectives are expressly referenced in article 127(1) TFEU or integrated into the ECB’s mandate by other Treaty provisions. The wording and structure of article 127(1) TFEU confirm that the markets efficiency principle, as well as the guiding principles in article 119(3) TFEU, rank below the Eurosystem’s objectives in terms of normative hierarchy. Article 127(1) TFEU describes the ESCB’s primary objective (i.e. price stability) first, followed by a broader objective to ‘support the general economic policies in the Union’, which is expressly subordinated to the primary objective of price stability (‘without prejudice to’). The ESCB’s obligation to ‘act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources, and in compliance with the principles set out in Article 119’ comes last. One can reasonably interpret that the verb ‘to act’ in this last sentence to refer to the activities that the ESCB will carry out in pursuit of the objectives described in the two preceding sentences. Under this light, the last sentence of article 127(1) TFEU describes how the ESCB is to work towards the achievement of the objectives identified in the first two sentences rather than identifying an additional objective of the ESCB. This interpretation would lead us to

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conclude that an open market economy is instrumental to the achievement of the ESCB’s objectives. This, in turn, would suggest that the principle ranks below the ESCB’s objectives in terms of normative hierarchy: if a strict adherence to the principle undermines the ESCB’s ability to achieve its objectives, the principle must cede. The Eurosystem, as part of the ESCB, is bound by these provisions and their interpretation. Not all principles will rank below the Eurosystem’s objectives in the normative hierarchy, however. General principles such as the principle of proportionality (article 5 TEU) always bind the Eurosystem in the exercise of its tasks and the design and implementation of its policies. Although in Échirolles the Court characterized the efficient markets principle as a ‘general principle’, it also acknowledged that only measures of economic policy ‘must comply with the principle’.34 Indeed, as AG Alber noted in the Opinion, the position of the principle in the Treaties indicates that the Treaty of Maastricht ‘sees this principle more in the context of the Community’s economic and monetary policy than as a factor in defining the term “internal market”’.35 This interpretation would suggest that if the efficient markets principle is characterized as a ‘general principle’ it does not enjoy the same normative rank as other general principles such as the principle of proportionality.36 The view that the objectives of the Eurosystem rank higher in the normative hierarchy than the efficient markets principle leads to the conclusion that the attainment of the Eurosystem’s objectives could justify a deviation from that principle. In the context of the CSPP and the Eurosystem’s adherence to the so-called market neutrality principle, this interpretation would open the door to the Eurosystem deviating from a market neutral approach in order to pursue its objectives. This conclusion is also in line with the case law of the CJEU, which has recognized the broad discretion of the relevant authorities to develop economic policies ‘call[ing] for complex economic assessments’ that are in compliance with the efficient markets principle,37 a discretion that academic commentators have also extended to the Eurosystem and its monetary policy (e.g. Tridimas, 2009, pp. 273, 291).38 The case law of the CJEU has also recognized the broad discretion of the Eurosystem when ‘choices of a technical nature[,] forecasts and complex assessments’ are necessary to design monetary policy measures in pursuit of the Eurosystem’s objectives.39 Nevertheless, the exercise of the Eurosystem’s broad discretion is not unbounded. Following the Court’s analysis in Gauweiler, if the Eurosystem wanted to deviate from the efficient markets principle in the design and implementation of its monetary policy, it would need to ensure that the relevant measures are proportionate to the objectives being pursued, examine carefully and impartially all the relevant elements of the situation in question, and give an adequate statement of the reasons for its decisions.40 In light of the reasoning of the Court in Pringle, Gauweiler, and Weiss, a potential review by the Court of the proportionality of the measures that deviate from the efficient markets principle will focus on the choice of instruments and the design

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of the operational framework (Kaiser, 2018, pp. 33–34). Hopman (2018, pp. 38–39) has proposed a set of cumulative qualitative criteria that could guide the proportionality of a monetary policy measure in light of its impact on the efficient markets principle. One of them posits that prolonged interventions will be more problematic than short ones. This is in line with Tridimas (2009, p. 273)’s formulation of the minimal legal obligation arising from the efficient markets principle: the prohibition of unjustified and particularly severe central planning. In a series of recent speeches, Ms Isabel Schnabel (2020, 2021a, 2021b), a member of the Executive Board of the ECB, aware of the negative impact of the market neutrality approach on the current climate emergency, has advocated for the use of market efficiency as an alternative approach in the design and implementation of the Eurosystem’s private asset purchase programmes, including the CSPP. The analysis of the legal nature of the efficient markets principle developed in Section 7.3 casts doubt on the potential for market efficiency to provide a solid legal ground on which to revisit the design and implementation of these measures. First, if the Governing Council is going to rely on the efficiency formula in article 127(1) TFEU to address the carbon bias of its private asset purchases such a revision cannot, in principle, annul market functioning and the use of market prices as mechanisms to allocate resources: this is the basis of a market economy and lies at the core of the efficient markets principle where the efficiency formula is rooted.41 Market neutrality operationalizes this core of the principle (Goldoni and Solana, 2021). Relying on the efficiency formula to undermine the very core of the principle that sustains it, i.e. the use of market prices as mechanisms to allocate resources, would be contrary to the letter and the spirit of article 127(1) TFEU. Fabio Panetta (2021), another member of the Executive Board of the ECB, has recently argued that, at the moment, markets are not pricing climaterelated financial risks correctly. Yet even if extraordinary circumstances led to measures of monetary policy being revised in accordance with the efficiency formula, the efficiency formula alone would not provide the Governing Council with a sufficient justification to disregard the core of the principle: allocating resources efficiently is not an objective of the Eurosystem. Even if motivated by a desire to improve the efficiency of resource allocation, any deviation from the core of the principle would need to be grounded in one of the Eurosystem’s objectives as identified in article 127(1) TFEU or as integrated into the Eurosystem’s mandate by other provisions in the Treaties, such as article 11 TFEU (Solana, 2019). In any event, the relevant measures cannot undermine any of the Eurosystem’s objectives and, in particular, its primary objective of maintaining price stability. Any such measures would need to be proportionate with those objectives and comply with the procedural guarantees that draw the boundaries of the Eurosystem’s broad discretion in the pursuit of monetary policy. Adherence to the efficient markets principle alone cannot justify an erosion of the Eurosystem’s objectives.

M arket Efficiency in E.U. Monetary Policy  135

In conclusion, if the Eurosystem does not find the guidance of the efficient markets principle useful to design and implement its monetary policy it can ignore the principle but not at the expense of undermining the objectives that the Treaties set for it. If the Court extends its analysis of the principle in Échirolles to monetary policy, it will not admit any attempts to challenge the validity of the measures on the only grounds that they ignore the efficient markets principle because the principle lacks a direct effect. The constitutional law scholarship that has explored directive principles suggests that violations of the obligations that underpin these principles can be addressed through means of political accountability, but in the case of unelected officials, the contrajudicative nature of these principles may be problematic. Whether existing mechanisms to hold the Eurosystem and its decision-making bodies politically accountable, e.g. the Monetary Dialogues before the European Parliament, are sufficient to protect the efficient markets principle or they need to be strengthened is a complex question that I cannot explore within the limits of this chapter.

7.5 The Programmatic Role of Constitutions in Financial Systems Fundamental values, objectives, and principles, which are normally included in constitutions, play a programmatic role in the economy: they guide public authorities in the development of different state policies. Understanding the legal nature of these programmatic provisions and, in particular, their fit in the normative hierarchy of the legal system, is essential to understand the capacity of public authorities to shape the economy. The case of the Eurosystem’s CSPP that I have examined illustrates the relevance of this programmatic function for financial systems. The efficiency markets principle laid down in article 127(1) TFEU guides the Eurosystem’s design and implementation of monetary policy in the euro area. Against criticism that the CSPP portfolio has a carbon bias, Eurosystem officials have often counterargued that the efficient markets principle requires the Eurosystem to adopt a ‘market neutral’ approach that distorts the operation of market forces and the formation of prices that results from the interaction of those forces as little as possible. An analysis of the legal nature of the principle, however, indicates that, albeit binding on the Eurosystem, the principle’s binding force is relatively weak, especially compared to the binding force of other relevant provisions, such as those that define the objectives of the Eurosystem or those that lay down general principles that constrain the Eurosystem’s broad discretion in the design and implementation of monetary policy. Understanding that the relationship between different programmatic provisions in E.U. law is complex and that efficient markets should not be seen as the ultimate normative objective reveals an important dimension of the E.U.’s economic constitution.

136  Javier Solana

Understanding the legal nature of the efficient markets principle can also help us examine the feasibility of alternative approaches to monetary policy, such as the market efficiency approach recently proposed by Ms Isabel Schnabel: On its own, the market efficiency approach will not provide a solid legal justification for a review of existing monetary policy measures. Any revision of such measures will ultimately need to be grounded in stronger programmatic provisions: the Eurosystem’s objectives. The principle, however, does impose some limitations on the Eurosystem’s broad discretion to design and implement monetary policy measures. For example, while the Eurosystem may choose to deviate from the principle in order to achieve its objectives, such deviations will need to comply with the principle of proportionality. The more specific the measure is, e.g. targeting a narrow set of financial assets, the larger it is, e.g. leading the Eurosystem to purchase a large share of specific financial assets, and the longer it lasts, the greater the interference with the efficient markets principle will be and the less likely it is that the CJEU will find the measure to be proportionate to the Eurosystem’s objectives. The complex nature of the climate emergency generally requires policy makers to work with very long time horizons (e.g. carbon emission reduction targets by 2030 and 2050). If the Eurosystem were to revisit its monetary policy measures to take into account their impact on the climate emergency it would therefore be reasonable to expect that those measures would remain in place for a much longer period than any non-standard measure of monetary policy ever has. Given the expected length of those revised monetary policy measures, if the CJEU were to examine the validity of such revised measures through the evaluative criteria that I enumerated in the previous paragraph, it would probably conclude that the measures are not proportionate, but we must not forget that the CJEU developed those criteria in very specific factual contexts, e.g. the sovereign debt crisis. The climate crisis is fundamentally different: policies might need to be in place for years, if not decades, in order to be effective. If the nature of the problem were fundamentally different, we could not exclude the possibility of the CJEU revisiting those evaluative criteria. It is also important to note that the CJEU is yet to clarify the actual content of the efficient markets principle in the context of monetary policy. Until that happens, these conclusions remain speculative. Nevertheless, the types of tensions that the principle is currently giving rise to and the potential implications that these tensions can have on monetary policy and the financial system highlight the importance of understanding the legal nature of the principle.

Notes 1 Senior Lecturer in Commercial Law, University of Glasgow. I would like to thank Anna Chadwick, Marco Goldoni, Daniel Segoin, and Gyorgy Várhelyi for their useful

M arket Efficiency in E.U. Monetary Policy  137 comments and feedback on a draft version of this essay. All errors and omissions are my own. 2 The Eurosystem comprises the European Central Bank (‘ECB’) and the national central banks (‘NCBs’) of the Member States whose currency is the euro. The Eurosystem is responsible for E.U. monetary policy. The European System of Central Banks (‘ESCB’) comprises the ECB and the NCBs of all E.U. Member States whether they have adopted the euro or not. The decision-making bodies of the ECB, i.e. the Governing Council and the Executive Board, govern the ESCB. See articles 129(1) and 282(1) of the Treaty on the Functioning of the European Union (‘TFEU’). See also Art. 1.1° of the Statute of the ESCB and the ECB (the ‘Statute’). 3 Decision of the European Central Bank of June 1, 2016 on the implementation of the corporate sector purchase programme (ECB/2016/16) [2016] OJ L 157/28 (hereinafter, ‘CSPP Decision’). 4 See CSPP Decision, Recital 2. 5 Inflation is the rate at which the general level of prices of goods and services rises. 6 For a review of some of the early studies, see Solana (2019). 7 Mr Frank Eldersson, a member of the Executive Board of the ECB, has expressed the opposite view: ‘The principle of market neutrality is not part of the Treaty‘. See Committee on Economic and Monetary Affairs (2021). 8 The use of the terms ‘système de marchés’ and ‘système économique de marché’ in the proposed articles 3A(1) and 102A, respectively (the precedents of current articles 119(1) and 120 TFEU), by the European Council (1991) in its Draft Treaty on Union, also seems to support this view. 9 Case C-275/92 Her Majesty’s Customs and Excise v Gerhart Schindler and Jörg Schindler [1994] ERC I-1039, Opinion of AG Gulmann, para 41. 10 Indeed, Tridimas (2009, p. 271) sees the principle of an open market economy with free competition as ‘the ideological dividend resulting from the end of the cold war’. 11 The wording was probably taken from the proposal by the German delegation at the Intergovernmental Conference on EMU held on January 28, 1991 (European Commission, 1991, p. 16). 12 See e.g. Case C-275/92 Her Majesty’s Customs and Excise v Gerhart Schindler and Jörg Schindler [1994] ERC I-1039, Opinion of AG Gulmann, paras 117, 121. 13 See e.g. Case C-452/01 Margarethe Ospelt and Schlössle Weissenberg Familienstiftung [2003] ERC I-09743, Opinion of AG Geelhoed, para 34. 14 See e.g. Consolidated version of the Treaty on the Functioning of the European Union (TFEU) [2012] OJ C 326/47, art 206. 15 See e.g. TFEU, art 298 and Protocol (no 4) on the Statute of the European System of Central Banks and of the European Central Bank (‘Statute’) [2016] OJ C 202/230, art 27.2. 16 For a suggestion of the possible reasons for its final inclusion, see Tridimas (2009, p. 272). 17 Indeed, this reasoning resonates with one of the basic propositions of the First Welfare Theorem: that when markets are competitive and complete market equilibria will lead to an outcome that is Pareto efficient (Mas-Collel, Whinston, and Green, 1995). 18 This definition is consistent with the prevailing use of the term in constitutional law scholarship. The term ‘programmatic norms’ has been attributed to Italian jurist Vezio Crisafulli, who introduced the term in his analysis of the 1948 Italian Constitution (Bercovici, 2014; Delledonne and Martinico, 2009). 19 Regulatory provisions can also have a programmatic nature. In this chapter, however, I will only focus on programmatic provisions included in constitutions. 20 The term seems to be rooted in the ‘directive principles of state policy’ in the 1937 Irish Constitution, which is considered to be the first constitution to include this kind of

138  Javier Solana provision, although Khaitan (2019, p. 604) has suggested that the provisions in the Irish Constitution were inspired by provisions in the Republican Spanish and Weimar Constitutions. After the 1937 Irish Constitution, other constitutions have used similar wording to refer to these principles, most notably, the 1950 Indian Constitution (De Villiers, 1992). 21 Khaitan (2018), however, had also used the term ‘directive principles’. 22 This contrajudicative character is not an exclusive feature of directive principles. Other programmatic provisions, such as fundamental objectives, may also be contrajudicative, e.g. the fundamental objective of promoting peace laid down in article 3(1) TEU. 23 After Échirolles, the Court has confirmed this interpretation in other decisions. See e.g. Case C-484/08 Caja de Ahorros y Monte de Piedad de Madrid v Asociación de Usuarios de Servicios Bancarios (Ausbanc) [2010] ERC I-4785, para 46. 24 Échirolles, para 25. 25 Khaitan (2019, p. 612), however, opines that the use of words such as ‘shall’ is only indicative of whether the provision is permissive or obligatory, it does not determine the issue conclusively. 26 See Section 7.3.1. 27 For example, paragraph (2) in article 119 TFEU identifies the maintenance of price stability as a primary objective of the Union’s monetary policy, while paragraph (3) identifies stable prices as a ‘guiding principle’. 28 Case C-9/99 Échirolles, para. 25. 29 Case C-9/99 Échirolles Distribution SA v Association du Dauphiné and Others [2000] ECR I-8207, Opinion of AG Alber, para 47. 30 Kaiser (2018, p. 35), on the other hand, has argued that the principle is justiciable and that ‘non-compliance with the principle of an open market economy will lead to the measure taken being ruled invalid’. 31 Case C-505/07 Compañía Española de Comercialización de Aceite SA [2009] ERC I-8963, Opinion of AG Kokott, n 31. 32 Case C-484/08 Caja de Ahorros y Monte de Piedad de Madrid v Asociación de Usuarios de Servicios Bancarios (Ausbanc) [2010] ERC I-4785, Opinion of AG Trstenjak, para 91. 33 See Section 7.2. 34 Échirolles, para 25. 35 Case C-9/99 Échirolles Distribution SA v Association du Dauphiné and Others [2000] ECR I-8207, Opinion of AG Alber, para 47. 36 For an opposite view, see Kaiser (2018). 37 See Note 23. 38 See also Échirolles, Opinion of AG Alber, para 47. 39 Case C-62/14 Peter Gauweiler and Others v Deutscher Bundestag (ECJ, 16 June 2015), para 68. 40 See Gauweiler, paras 66 and 69. 41 Schnabel (2021b) acknowledges this point.

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140  Javier Solana Flynn, J. (2018). ‘The application of the principle of an open market economy in the area of economic policy: lessons to be learned for monetary policy’. In: ECB, ed. ESCB Legal Conference 2018. Frankfurt: ECB, pp. 44–58. Frankenberg, G. (2006). ‘Comparing constitutions: ideas, ideals, and ideology—Toward a layered narrative’. International Journal of Constitutional Law, 4(3), pp.439–459. https://doi​ .org​/10​.1093​/icon​/mol012 Goldoni, M. and Solana, J. (2021). The legal dimensions of market neutrality in the euro area’s monetary policy. Glasgow: University of Glasgow. Unpublished. Goldoni, M. and Wilkinson, M. A. (2018). ‘The material constitution’. The Modern Law Review, 81(4), pp. 567–597. https://doi​.org​/10​.1111​/1468​-2230​.12352 Hopman, C. (2018). ‘Monetary policy and the principle of an open market economy with free competition’. In: ECB, ed. ESCB Legal Conference 2018. Frankfurt: ECB, pp. 36–43. Kaiser, K. (2018). ‘The objective of price stability and the principle of an open market economy: what trumps?’ In: ECB, ed. ESCB Legal Conference 2018. Frankfurt: ECB, pp. 26–35. Khaitan, T. (2018). ‘Directive principles and the expressive accommodation of ideological dissenters’. International Journal of Constitutional Law, 16(2), pp. 389–420. https://doi​.org​ /10​.1093​/icon​/moy025 Khaitan, T. (2019). ‘Constitutional directives: morally-committed political constitutionalism’. The Modern Law Review, 82(4), pp. 603–632. https://doi​.org​/10​.1111​/1468​-2230​.12423 King, J. (2013). ‘Constitutions as mission statements’. In: D. J. Galligan and M. Versteeg, eds. Social and political foundations of constitutions. Cambridge: Cambridge University Press, pp. 73–102. Lastra, R. M. and Alexander, K. (2020). The ECB mandate: perspectives on sustainability and solidarity. Available at: https://www​.sipotra​.it​/wp​-content​/uploads​/2020​/06​/The​-ECB​ -Mandate​-Perspectives​-on​-Sustainability​-and​-Solidarity​.pdf (Accessed September 15, 2021). Mas-Colell, A., Whinston, M., and Green, J. (1995). Microeconomic theory. New York: Oxford University Press. Mersch, Y. (2021). ‘Legal aspects of the ECB’s response to the coronavirus (COVID-19) pandemic – an exclusive but narrow competence’. In: ECB, ed. ESCB Legal Conference 2020. Frankfurt: ECB, pp. 9–17. Neslen, A. (2016). ‘ECB’s quantitative easing programme investing billions in fossil fuels’. The Guardian, 9 December. Available at: https://www​.theguardian​.com​/environment​ /2016​/dec​/09​/ecbs​-quantitative​-easing​-programme​-investing​-billions​-in​-fossil​-fuels (Accessed September 15, 2021). NGFS. (2019). A call for action: climate change as a source of financial risk. Available at: https://www ​ . banque​ - france​ . fr​ / sites​ / default​ / files​ / media​ / 2019​ / 04​ / 17​ / ngfs​ _ first​ _ comprehensive​_report_-​_17042019​_0​.pdf (Accessed September 15, 2021). Okere, B. O. (1983). ‘Fundamental objectives and directive principles of state policy under the Nigerian Constitution’. International & Comparative Law Quarterly, 32(1), pp. 214–228. Panetta, F. (2021). Sustainable finance: transforming finance to finance the transformation. Available at: https://www​.ecb​.europa​.eu​/press​/key​/date​/2021​/html​/ecb​.sp210125​_1​ ~2d98c11cf8​.en​.html (Accessed September 15, 2021). Schnabel, I. (2020). When markets fail – the need for collective action in tackling climate change. Available at: https://www​.ecb​.europa​.eu​/press​/key​/date​/2020​/html​/ecb​.sp200928​_1​ ~268b0b672f​.en​.html (Accessed September 15, 2021).

M arket Efficiency in E.U. Monetary Policy  141 Schnabel, I. (2021a). From green neglect to green dominance? Available at: https://www​.ecb​ .europa​.eu​/press​/key​/date​/2021​/html​/ecb​.sp210303​_1​~f3df48854e​.en​.html (Accessed September 15, 2021). Schnabel, I. (2021b). From market neutrality to market efficiency. Available at: https://www​.ecb​ .europa​.eu​/press​/key​/date​/2021​/html​/ecb​.sp210614​~162bd7c253​.en​.html (Accessed September 15, 2021). Solana, J. (2019). ‘The power of the eurosystem to promote environmental protection’. European Business Law Review, 30(4), pp. 547–575. Streit, M. E. and Mussler, W. (1995). ‘The economic constitution of the European community: from ‘Rome’ to ‘Maastricht’’. European Law Journal, 1(1), pp. 5–30. https:// doi​.org​/10​.1111​/j​.1468​-0386​.1995​.tb00002.x Tridimas, T. (2009). ‘Community agencies, competition law, and ECSB initiatives on securities clearing and settlement’. Yearbook of European Law, 28(1), pp. 216–307. https:// doi​.org​/10​.1093​/yel​/28​.1​.216 Weidmann, J. (2019). ‘Climate change and central banks’. Available at: https://www​ .bundesbank​ . de​ / en​ / press​ / speeches​ / climate​ - change ​ - and ​ - central ​ - banks ​ - 812618 (Accessed September 15, 2021). Weis, L. K. (2017). ‘Constitutional directive principles’. Oxford Journal of Legal Studies, 37(4), pp. 916–945. https://doi​.org​/10​.1093​/ojls​/gqx015 Weis, L. K. (2018). ‘Environmental constitutionalism: aspiration or transformation?’ International Journal of Constitutional Law, 16(3), pp. 836–870. https://doi​.org​/10​.1093​/icon​/ moy063

Chapter 8

Rethinking the Historic Models of the Role of Constitutions in Shaping Patterns of Inequality Iberian Constitutionalism, Common Property, and Colonialism Julia McClure 8.1 Introduction There is a general consensus that human societies are unequal, but there is less consensus on what constitutes inequality. Analysis of inequality has often been dominated by economists and economic values. Economic metrics, especially those based upon aggregate data such as GDP, have sometimes flattened the gendered and racial social contours of inequality. Economics, with its focus on empirical data, is often presented as an objective and ideologically neutral methodology, yet its models and values are often informed by the liberal beliefs that emerged during the enlightenment and the birth of political economy when the discipline of economics was formed. In the last decades, economists and economic historians have used history to model the causes of global inequality. They have debated whether international inequality, the divergence of wealth between what becomes known as the Global North and the Global South, resulted from factors endogenous to Europe, such as class relations, or factors that were in some sense exogenous, such as imperialism (see Parthasarathi and Pomeranz, 2019), and begun to explore the relationship between such internal and external factors (Hoffman, 2015). The sub-field of New Institutional Economics (NIE) has focused upon the role of institutions and constitutions in shaping patterns of international inequality (see Engerman and Sokoloff, 2008). S. R. Epstein (2000, p.6) argued that NIE ‘offers a synthesis between Marx’s techno-institutional determinism and the neoclassical concern with the allocative functions of markets’, but the model has been seen by others as reductive, especially as it flattens the complexity of history and comes with its own ideological baggage. NIE sees the protection of private property as central to the emergence of formal markets, which enable economic growth. NIE’s exploration of constitutions has focused upon the liberal tradition, reinforcing normative assumptions about the importance of private property, and its protection from the excessive extraction of the State, in order to facilitate economic growth, which is seen as a driver of international inequality (North and Weingast, 1989).

DOI: 10.4324/9781003202257-10

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History matters to constitutions, but the relationship between history and constitutions has seldom been ideologically neutral. Written and unwritten constitutions, acts of constituting, and bodies of constitutional law are all attempts to codify beliefs about justice and order, to make them historical by extending beyond the lifespan of the writers to influence future generations. In the so-called ‘Age of Constitutions’ in the eighteenth and nineteenth centuries, the authors of constitutions deployed notions of historical authenticity as a source of authority to justify constitutional texts (Mirow, 2014). History has been used by constitution writers as a source of authority and legitimation. History, especially the history of institutions and constitutions, has been used by economists to make models of the long-term causes of inequality but these accounts have tended to focus upon a very particular slice of history. Yet there have been a broad range of constitutional projects both before and after the socalled ‘Age of Constitutions’, which primarily focuses on the lifespan of liberal constitutions. Models of the historical patterns of inequality look different depending upon the starting point of inquiry, the societies we study, the questions we ask, and the institutions, values, and people that are included in the analysis. This chapter examines historical patterns of inequality and the role of constitutions in shaping inequalities in two ways. Sections 8.2 and 8.3 reflect upon pre-existing models of historical patterns of inequality and the role of constitutions in this milieu that have been produced by economists and economic historians. Many of these models are based upon comparisons between the Anglo-Iberian worlds, yet the specificities of the Iberian world are often poorly understood. Section 8.4 of the chapter examines the history of the long constitutional tradition of the Iberian Peninsula, focusing on the sixteenth century, and considering its protection of common property institutions and its implications for patterns of inequality, and Section 8.5 considers how these Iberian traditions were extended and adapted in the New World. The chapter does not aim to make new empirical claims about the relationship between constitutions and inequality but rather to suggest that historical patterns of inequality may look different depending upon how the model is configured. What would landscapes of inequality look like if we focused not on the constitutionalization of private property but rather on common property? What would the history of patterns of inequality and the role of constitutions look like if we focused less on economic growth and the aggregate accumulation of resources between societies, but rather on the distribution of resources within societies? How have constitutionalized institutions of common property affected the distribution of resources within a society? History matters for understanding the patterns and pathways of inequality, but we need to reflect upon what values and institutions are selected for study, and to consider what demographics are included.

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8.2 Historical Models of Inequality Academic interest in inequality began to grow in the second half of the twentieth century and was developed first and foremost by economists. The field of economics has shaped our understanding of inequality, and today inequality is still conceptualized primarily as an economic relation in terms of wealth or income disparity. This new consciousness of inequality was crystallized in the second half of the twentieth century during a period of unprecedented economic growth, known in Anthropocene terms as ‘the great acceleration’. Much of the subsequent literature on historical patterns of inequality has focused upon economic growth and the resulting inequalities between nations. Long durée analysis of inequality has often focused upon economic growth spurts, but rather than seeing economic growth spurts as a driver of increased inequality, which would suggest there was something ‘bad’ about economic growth, understandings about the relationship between economic growth and inequality have been influenced by the particular models developed by economists. In 1955 Simon Kuznets developed a model of inequality, so-called Kuznets curves, illustrating that during a period of economic growth, inequality initially grows and then gradually declines. Kuznets curve model was based on analysis of trends in economic growth and inequality in the U.S.A. in the twentieth century, but the model has been used to understand the relationship between economic growth and inequality in other periods and places. In 1995 the Dutch economic historian Jan Luiten Van traced the beginning of the Kuznets curve to the early modern period, arguing that before the nineteenth century ‘economic development, urbanization, and capital accumulation in the early modern period went hand in hand with an increase in inequality’ (Van Zanden, 1995, p. 649). Recent analysis has shown that inequality in Europe tended to increase prior to the industrial revolution and did not follow the Kuznets curve of subsequent decline (Hoffman, et al., 2002). The Kuznets curve influenced a generation of economists, and the model has only begun to be overturned, most noticeably by Piketty who described its forecasts of falling inequality as a ‘fairy tale’ (Piketty, 2014, p. 13). The history of economic growth has been important to the ways economists and economic historians have measured growing inequalities between nations. While economists such as Kuznets focused upon the period of economic growth known as the great acceleration, economic historians traced this dynamic back to the period of economic growth that began with the Industrial Revolution. During both periods of the Great Acceleration and the Industrial Revolution, economic growth developed most rapidly in the Western world, in Europe and North America. The international disparity in the global distribution of wealth became known as the ‘Great Divergence’ (popularized by Pomeranz, 2000). The ‘Great Divergence’ model of global wealth inequality has generated decades of scholarly debate between those following the line of the ‘European Miracle’ laid out by Eric Jones in 1981, that sees economic

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growth as the result of factors endogenous to Europe, such as strong institutions, urbanization, and the ‘industriousness’ of certain peoples; and those following the model elaborated by Kenneth Pomeranz in 2000, who regards economic growth as the result of exogenous factors, especially the colonial appropriation of resources from the global south to fuel the industrialization processes of the global north. These debates on European economic growth followed the lines of earlier disputes between those adhering to more classical Marxists models such as the analysis of Robert Brenner (1976), who emphasized the importance of class struggles as the driver of the transition to capitalism and economic growth, and those such searching for new models that integrated more global dynamics, such as Braudel (1981 [1984]) and Wallerstein (1974 [1989]), who emphasized the trans-regional dynamics of capitalism and development of international trade. While the likes of Braudel and Wallerstein had already demonstrated the importance of extending the history of the transition of capitalism and European economic growth to the early modern period, early modern historians increasingly began to challenge the historical narrative of economic growth that had focused upon the nineteenth and twentieth centuries and to explain that the fitful economic growth of Europe began in the early modern period, in what Jan de Vries (1994) famously called ‘the revolt of the early modernists’. Many of these early modernists observed that while there was significant economic growth in early modern Europe this was not evenly distributed. They argued that a ‘Little Divergence’ of increased wealth inequality between nations in northern and southern Europe variously located between the fourteenth and eighteenth centuries preceded the ‘Great Divergence’ of increased wealth inequality between Europe, North America, and the rest of the world in the nineteenth and twentieth centuries (De Pleijt and Van Zanden, 2016). Economists and economic historians have analyzed the causes of the economic growth and resulting economic inequality of the so-called ‘Little Divergence’ in early modern Europe and this analysis has been used to make larger points about the historic pathways to today’s global inequality by explaining the historic causes of economic growth (for example Epstein, 2000). From the Little Divergence to the Great Divergence, economists and economic historians have predominated in the history of inequality, yet the way in which inequality has been conceptualized in economic terms has not been ideologically neutral. The scholarship has focused upon patterns of economic growth, which overshadows the patterns of inequality in societies not experiencing significant economic growth, as well as the political, social, and cultural drivers for changing patterns of inequality, and the non-economic axes of inequality. The macro-economic approaches favoured by these authors tend to focus on international rather than intra-national inequality. These economic models have often been underpinned by normative assumptions of values and value creation informed by the beliefs of classic liberal economics, especially

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that private property is the pre-condition for Smithian, market-driven growth which frees populations from Malthusian traps. According to the ‘Little Divergence model’, economic growth rates were relatively flat in the Middle Ages, with the wealthier economies centred around commerce in the south of Europe around the Mediterranean, until the postBlack Death period, when economic growth began and the wealthier economies centred around proto-industrialization in the north of Europe. Between the fourteenth and eighteenth centuries in England and Netherlands, prolonged economic growth was experienced, while in Italy, Portugal, and Spain it stagnated. Historians have debated the acuteness of the ‘Little Divergence’, which looks different depending on the metric used (Grafe, 2015). The patterns of inequality look different depending on the metric used and the values counted.

8.3 Constitutions and Inequality: New Institutional Economics and the Ghost of Liberalism In the 1980s, New Institutional Economists took up the question of what role have constitutions played in shaping long-term historical trends in inequality. NIE began with the role played by constitutions in the so-called ‘Little Divergence’, and the analysis has been extended to patterns of global inequality in the modern period. These studies have often rested upon comparisons between England and Spain and their imperial legacies. They have focused on patterns of international rather than intra-national inequality. Moreover, this scholarship has focused upon the liberal tradition of constitutions, rooted in the work of Enlightenment thinkers such as John Locke. The resulting normative assumptions are that constitutions protect the private property of citizens from over-extraction by rulers, and that this in turn facilitates greater or less economic growth which generates wealth disparities between nations. NIE theorists North and Weingast (1989) attribute the economic divergence of Northern Europe from Southern Europe to 1688, when the so-called Glorious Revolution took place in England and parliamentary sovereignty was established. They argue that when England established parliamentary sovereignty in 1688 it was able to restrain the excessive extractions of the monarch and to protect private property. North and Weingast (1989, p. 809) contrasted this with the ‘absolutist States which faced no such constraint, such as earlymodern Spain’, arguing that the unrestrained power of the monarchy in socalled absolutist Spain impeded its ability to achieve economic growth. The NIE model of constitutions and inequality rests upon the particular political tradition of liberalism that emerged during the Glorious Revolution. North and Weingast (1989, p. 831) see the emergence of the liberal political traditions as the outgrowth of the English constitutional tradition established by Magna Carta, which they see as defending property rights, common law, and responsible government.

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From the perspective of NIE, constitutions have been understood as liberal constitutions and they are seen to have been important in shaping international patterns of inequality primarily in their role in protecting private property. While the Glorious Revolution did not result in a written constitution, the theoretical premise of liberal constitutionalism was laid out in John Locke’s Two Treatises of Government (written c. 1688). The Magna Carta was joined in the seventeenth century by the Petition of Right (1628), Bill of Rights (1689) and the Habeas Corpus Act (1679) to make up the so-called unwritten constitutional tradition of England until the twentieth century when these documents were joined by the Parliamentary Acts 1911 and 1949. NIE stresses the importance of the liberal constitutional tradition for protecting private property which facilitates economic growth, and, in turn, drives wealth inequalities between nations. The model first proposed by North and Weingast was taken up in 2012 by Robinson and Acemoglu in their influential, Why Nations Fail: The Origins of Power, Prosperity and Poverty as they attribute global economic inequality to imperial legacies, contrasting rich countries that inherited the private-property protecting institutions of the parliamentary democracy of the British state, with the poor countries that inherited the weak institutions and arbitrary power of the formerly absolutist Spanish state. Robinson and Acemoglu’s global model rests on a diffusionist model of the role of institutions and constitutions; they see the rest of the world as inheriting the institutional and constitutional traditions of Europe. Global inequality is then understood as the result of the divergence of these two institutional and constitutional traditions. However, the global history of constitutions cannot be read in a diffusionist way, as the outgrowth of European intellectual and legal traditions that spread to the rest of the world. As Linda Colley (2016, p. 161) has contended, ‘the diffusion of constitutional knowledge and initiatives has almost always been the outcome of influences issuing from multiple sites’. Realizing that there have been plural sites of enunciation in the global history of constitutionalism is important for gaining an understanding of the plurality of possible effects of constitutions on landscapes of inequality. There is a problem with the way economists use history as an empirical source to make normative claims. For example, Robinson and Acemoglu (2012, pp. 13–14) use the damning account given by the Dominican friar Bartolomé de las Casas’s A Short Account of the Destruction of the Indies to explain how the Spanish colonial institutions of encomiendas were excessively extractive. The decontextualized use of this complex historical source is problematic. Las Casas was purposefully writing a vitriolic denunciation to gain the attention of the Spanish monarch and the Spanish public, carefully considering questions of audience. It fuelled the anti-Spanish and anti-Catholic stereotypes known as the ‘Black Legend’ for centuries (Keen, 1969). Las Casas can be useful for understanding colonial violence and the institutions of the Church in the Americas, but he is less useful for understanding the subtleties of the

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broader institutional and constitutional landscape of the Spanish Empire. Las Casas does not report, for example, on how the Spanish Crown recognized the property of rights of the Amerindians, and how much indigenous dispossession was carried out often less through the naked power of coerced extraction and more through unequal and coerced trade agreements (see Greer, 2017). Building from their sweeping comparative of early Spanish and English colonialism in the Americas, Robinson, and Acemoglu (2012, p. 28) summarized that ‘it should not be apparent that it is not a coincidence that the United States, and Mexico, adopted and enforced a constitution that espoused democratic principles, created limitations on the use of political power, and distributed that power in society’. They see the U.S. Constitution of 1787 as the logical development of the constitutional tradition established by the General Assembly in Jamestown in 1619 and contrast this with the constitutional crisis in Latin America generated by the rejection by elites of the liberal Spanish Constitution of Cádiz of 1812. Robinson and Acemoglu argue that South American elites rejected the liberal Constitution of Cádiz because the principle of equality before the law challenged their privileges and powers of extraction from the indigenous population. Historians have, unsurprisingly, painted a more complex portrait of the writing, reception, and rejection of the Constitution of Cádiz but have also cited the Latin American rejection of the liberal constitution produced in Spain as a turning point which explains the divergence between the constitutional entrenchment in North America and the politicization and mutability of constitutionalism in South America. However, how we read the implications of the nineteenth century divergence of constitutionalism between North and South America is by no means simple. As M. C. Mirow (2015, p. 4) observes, the Constitution of Cádiz was ‘as much a constitution of empire as it is a foundational text of liberalism’. The implications of the kind of liberalism that was enshrined in the Constitution of Cádiz, which for example codified racial classifications in the Americas, and the consequences of its rejection in Latin American are complex, and one cannot assume that the uptake or rejection of particular kinds of liberal constitutions lead to the ‘success’ or ‘failure’ of different nations. When post-independence Mexico produced its first written constitution in 1917 it took a more radical approach to social rights and rejected liberal notions of property and Article 27 protected institutions of common property, creating the communal arrangement of the ejido.1 In comparisons between early modern England and Spain, and the postcolonial legacies of their different imperial projects, the Hispanic world is often depicted as a failure. But this understanding of success and failure has been rooted in liberalist beliefs about private property and political economy. Critics argue that Spain failed to capitalize on its potential colonial subsidy efficiently to fund the development of a strong State in the early modern period, failed to protect private property which is seen as disincentivizing economic growth, and stagnating economically. Regina Grafe (2012, p. 12) has challenged the

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assumption that all States are orientated towards maximum extraction driven by military necessity, describing this as a convenient but unsubstantiated deus ex machina. She argues that the perceived failure of the Spanish crown to extract maximum revenue is ‘not a matter of administrative malfunction or rampant patrimonialism but a reflection of the composite monarchy’s very constitution’ (Grafe, 2012, p. 164). As the next section will show, this model of constitution differs from that which emerged in England and North America in the seventeenth and eighteenth centuries, and had different implications for landscapes of inequality. Historians have challenged NIEs historical models of economic growth and inequality in a number of ways. For example, Epstein (2000, p. 7) argues that ‘by applying an anachronistic model of the State, NIE misunderstands the main institutional causes of pre-modern economic performance’. Epstein’s work acknowledges the importance of deepening the understanding of medieval and constitutional traditions, and even the importance of looking at public rather than private institutions. Epstein argues that NIE fails to understand the nature of the State, but he still sees the State as important in economic divergence because of the way it facilitates market integration which enables economic growth. Yet, to date, these challenges have not re-oriented the focus away from the importance of economic growth as a driver for international inequality. The diversity of constitutional and institutional arrangements and their effects on different landscapes of inequality have yet to be fully recovered. 8.3.1 The Constitutional Tradition and Inequality Trends in the Iberian World

As has already been observed by specialists (Grafe and Irigoin, 2006), the NIE model makes a strawman of the political and economic history of Spain. Spain has been used by social scientists such as the New Institutional Economists as a paradigmatic example of an absolutist State, but this overlooks the complexity of Spain’s constitutional history and political objectives. Owens (2005, p. 1) argues that when the notion of absolute monarchy emerged in Spain, Castilians understood this as someone who would ‘provide the best means of obtaining good government, which they defined as the ability to provide for the commonwealth (res publica, república) justice, domestic tranquillity, and peace’. Even during the so-called ‘age of absolutism’ (from the mid seventeenth to the early nineteenth century), Spanish sovereignty was constrained both by a particular constitutional tradition that had developed during the Middle Ages and its institutional legacy, such as the Cortes (parliaments) of the towns, and customs of common property. Further, medieval and early modern Spanish theories of sovereignty, informed variously by Roman, Christian, and Aristotelian political concepts, were rooted in paternalistic notions of the ruler as a protector, obliged to deliver justice and welfare, which itself engendered a particular institutional landscape with wealth accumulating in charitable religious institutions.

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The particular constitutional tradition that developed in the Iberian Peninsula during the Middle Ages was by no means egalitarian, indeed the work of the sixteenth century Spanish constitutional theorist Juan de Mariana illustrated deep scepticism of the value of equality in a status orientated society, but it may nonetheless have helped to produce an institutional landscape, such as institutions of political representation and common property, which limited inequality. 8.3.2 Medieval Foundations

A particular constitutional tradition emerged in the Iberian Peninsula in the Middle Ages. In the Middle Ages the Iberian Peninsula was made up of a patchwork of different polities and the political and economic trade-offs that facilitated the conquest and consolidation of the Christian kingdoms engendered a particular constitutional arrangement. Christian monarchs issued concessions, variously known as fueros (law codes), cartas pueblos (municipal charters), and capítulos, to the towns of newly conquered territories and placed the surrounding countryside in the jurisdiction of the towns. These fueros and cartas pueblos and capítulos conceded a range of privileges (privilegios), exemptions (exenciónes or franquezas) and freedoms (libertades). The fueros were upheld by the Cortes (parliaments) and represented a constitutional arrangement. The medieval Iberian constitutional arrangement, underpinned by the fueros and cortes (parliaments) gave Spanish sovereignty a more contractual and negotiated nature than is typically recognized. As Antonio Dominguez Ortiz (1971, p. 8) argued, the notion of social contract existed before Rousseau, and medieval Scholastics had re-worked the idea that the people transferred sovereignty to ruler. This negotiated nature of sovereignty in the Iberian Peninsula in the Middle Ages was enforced by the institutional landscape of the cortes, with which the Crown had to consult if they wanted to levy new taxations. The impact of the constitutional arrangement of fueros on patterns of inequality is mixed. The fueros codified certain privileges, but the benefits were unevenly felt. In the next section we will consider the implications for social rights (welfare) and practices of justice, freedom, taxation, and common property arrangements. The monarch was in a reciprocal relationship with his subjects that obliged him to offer returns to his subjects. Firstly, the monarch was expected to uphold justice. Both rich and poor could appeal to the monarch to redress injustice, although in reality more affluent subjects could best mobilize this legal resource. Secondly, the monarch was expected to provide protection and welfare. This model of sovereignty was informed by a paternalistic concept that imagined the ruler as the protector of subjects. This conception of welfare was not orientated towards equality but a form of distributive justice that upheld equity, distributing goods proportionately according to status and perceived

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merit. It also established a paternalistic moral economy with expectations of sufficiency for certain groups of poor (such as widows and orphans). The fueros granted the cities a degree of autonomy and political freedom and male heads of households participated in local politics. There was a relatively high level of popular participation in governance, with many male heads of households expected to contribute to civic governance during their lifetimes. As Helen Nadar (1990, p. 8) observes, ‘This strong tradition of town democracy by a free people is generally believed to be a British trait, not Spanish, yet it shaped both the political and the economic life of most of Castile’s people’. The fueros afforded a degree of political equality, albeit to male property holders. This autonomy granted by the fueros included the freedom of self-taxation, but this tended to lead to a taxation regime which increased inequality. The cities and surrounding countryside were obligated to pay a direct tax (servicio) to the crown, but the towns, represented by the procuradores of the cortes, were able to negotiate the terms of this taxation. As many individuals, and sometimes whole towns, had been granted tax exemption, the tax burden often fell to those in the countryside who could least afford it. With obstructions to direct taxation by the cortes, the Spanish Crown also had to rely on indirect taxation, especially sales tax (alcabala) and customs duties (aduanas), which made a significant contribution to the ordinary revenue of the Crown in addition to goods confiscated during legal proceedings and historic taxes on wool and salt. This indirect taxation regime was regressive and therefore, according to the work of Alfani and Di Tullio (2019, p. 147), followed the early modern state pattern of post-taxation inequality being higher than pre-taxation inequality. The regressive tax burden increased in the sixteenth century when new forms of direct taxation, the millones tax on essential foodstuffs (1588) and the sisa excise tax (1596) were introduced. Overall, the constitutional arrangement of the Iberian Peninsula seems to have produced a system of privileges and exemptions and a tendency towards direct taxation which increased economic inequality, a situation that worsened in the early modern period. The medieval Iberian constitutional arrangement supported customs of communal property. This strengthened an older (possibly Roman) custom of public ownership in the Iberian Peninsula (Vassberg, 1984, p. 6). Lands that had not been specifically granted were theoretically the property of the crown. These ungranted crown lands were tierras realengas, and those that were not worked were known as the tierras baldías or baldíos. Baldíos were effectively owned by the Crown, but available for public use, such as grazing. The regional fueros also recognized presura, a right to use vacant lands for cultivation, grazing, or other resources. This land could be enclosed, but this did not engender exclusive use rights. The medieval fueros allowed Christian settlers in former Muslim territories usufruct rights over unclaimed lands, water and trees. There were other common property customs, such as the derrota de mieses, the public use of private property – usually for grazing, which resulted not from the fueros but from

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local agreements (Vassberg, 1984, p. 13). Communities also had proprios, land owned by the municipality and used to defray public costs such as tax burdens, which were a legacy of the Roman settlement and contributed to the communitarian landscape of the Iberian Peninsula (Vassberg, 1974, p. 389). The medieval constitutional tradition of the Iberian Peninsula strengthened common property customs, but the impact of this on patterns of inequality requires further research. The quality and type of baldío land varied and was used in different ways by communities. Some baldíos were woodland (monte) and provided firewood and game, but the majority was used for pasture (Vassberg, 1984, p. 9). Although the quality of baldíos was marginal, it could provide resources for the poor. Forested baldíos were a particularly important resource; John T. Wing (2011, p. 122) explains that ‘For meeting local needs, the forest communitarian system was a vital part of the fabric of society and was a system that even the upper classes within municipal governments defended’. Although a mixed picture, common property institutions were resources for the poor. Vassberg (1974, p. 401) reports that the Relaciones [surveys carried out by order of the Crown in the late sixteenth century] show that the Castilian villagers of that time found the different forms of community property to be highlight beneficial and of great importance to their economic welfare. Poverty and inequality tended to increase in the early modern period when common property began to be sold (Vassberg, 1975). In contradiction to Garret Hardin’s ‘The Tragedy of the Commons’ thesis, problems with the over-use of common property were rare. Despite the right to pasture one’s flock (herbazgo) and the power of the Mesta (the powerful association of transhumance flocks and herds), incidences where crops were destroyed by over-grazing were rare in the Middle Ages, and passing flocks were often valued for their manure (DuPlessis, 1997, p. 52). Communal lands and resources were protected from exploitation by regional parliaments. For example, the Ordenamiento de Alcalá, a collection of 125 laws promulgated by the cortes of Castile when they were called together by Alfonso XI in 1348, prohibited the sale of forests and communal lands and ordered punishments for damaging forests, including death for starting forest fires (Casado Soto, ‘Historia del Bosque’, p. 42, quoted in Wing, 2015, p. 60). Communal property institutions were embedded in the constitutional arrangements of the medieval Spanish kingdoms, and this did not result in the degradation of resources. While in practice there were often local inequalities of access to common resources, there were also laws to regulate against elite monopolies, such as the law of 1438 against elites grazing livestock on the dhesa boyal (common land enclosed for pasture for plough animals) (Vassberg, 1974, p. 392). Common property customs are often romanticized as egalitarian. Common property customs could be a resource for the poor, but local access to common

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property was also unequal and enforced local hierarchies. While baldíos were effectively owned by the Crown and available for public use, some had historically been treated as private property by local elites (Vassberg, 1984, p. 7). Like obligations for welfare provision, common property institutions did not necessarily promote equality (Curtis, 2016, p. 657), but they did place a limit on the pathways to inequality, limiting the private property of the rich and facilitating the sufficiency of poorer groups. The level of inclusivity and exclusivity of common property institutions varied by region (Curtis, 2016, p. 652). Medieval Spain was not unique in having a constitutional tradition which supported common property rights. In England, for example, the Charter of the Forest (1217) set out the ‘customs and liberties’ for ‘freemen’ living in the royal forests (which included access to birds, wood, and honey but not game). But in Spain common property customs were more extensive, as Allan Greer (2017, p. 16) argues, ‘Spain stood out in the European context as the kingdom par excellence of public lands, municipal commons and extensive grazing privileges’. The proportion of common property declined in the early modern period, accelerating in the nineteenth century, but overall the communitarian tradition endured for longer in Spain than Northern Europe (Vassberg, 1984, p. 89; Serrano Alvarez, 2014).

8.4 Constitutional Changes in the Early Modern Period This constitutional tradition that developed in the Iberian Peninsula in the Middle Ages informed the negotiated nature of Spanish sovereignty in the early modern period but was also subjected to many challenges. Some early modernists have argued that the decline of importance of parliaments in Spain between 1500–1800, at the moment when they became more important in the Netherlands and Britain, was a contributing factor for the ‘Little Divergence’ between southern and northern Europe (van Zanden, Buringh; Bosker, 2012). The constitutional crisis of the early sixteenth century sheds light on the values and institutions embedded in the constitutional tradition of the Iberian Peninsula, the resistance to change, and the negotiated and constrained nature of Spanish sovereignty. When Charles of Habsburg (1500–1558) inherited the joint crowns of Aragon and Castile upon the death of Ferdinand II, he misunderstood the nature of his sovereignty, especially the reciprocal obligations of the Crown, and this resulted in the constitutional crisis of the comunero revolt in 1520. In 1518, only months after his first arrival in Spain he asked the procuradores of the Cortes for money.2 The Cortes granted funds but made clear that the Crown had obligations in exchange for taxations. Charles V swore an oath to uphold law, and his spokesperson, Pedro Ruiz de la Mota, presented Charles as committed to protecting the liberties of the cities (Espinosa, 2008, pp. 53–54). The procuradores were clear in their petitions that they would grant taxation but the

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king had to uphold justice.3 The procuradores asked the Crown for reforms, especially in the process and distribution of justice. Among other things, the representatives of the Cortes wanted the Crown to help with assistance to the poor and give tax exemption for those struck by epidemics and famines.4 Charles did not take actions to implement the reforms requested by the Cortes in exchange for taxation in 1518, and when he tried to raise more revenue in 1520, he met with resistance, resulting in the comunero revolt. The comuneros were ultimately defeated in the battle that took place near Villalar in 1521, but it would be reductive to call it a Crown victory or an indicator of the growing absolutism of the Spanish monarchy. As Espinosa (2008, p. 11) summarizes, ‘After the comunero revolt, Castilians forged a constitutional commonwealth, an empire of autonomous cities and towns, and the post-comunero parliament provided a reform platform for a commonwealth of self-ruling republics’. In 1522, to restore order in the wake of the comunero revolt, the crown confirmed municipal autonomy, especially their power to tax themselves. In 1523 the Crown granted a significant merced for the cortes, the right to address petitions and grievances before discussing subsidy amounts. This concession was a reminder that the Crown’s sovereignty was contractual and dependent upon upholding the moral economy. The comuneros had taught Charles a lesson about the obligations of the sovereign and the constitutional arrangements of the medieval Iberian world continued to shape political history in the early modern period. The need to bargain for resources continued to shape the Spanish model of sovereignty (Grafe and Irigoin, 2008). At the end of the sixteenth century, the Jesuit priest, Scholastic thinker, and humanist Juan de Mariana (1536–1624) made an important contribution to constitutional theory in Spain in his De Rege et Regis Institutione, published in 1599. Mariana was affiliated with the monarchamachs, examining the limitations of monarchy and reviving the idea that tyrannicide could be legitimate, but he ultimately accepted that society needed to be ruled given the moral decline of humans after the Fall. Mariana emphasized the importance of maintaining status-based inequalities within an ideal political order. He was sceptical of democracy as something ‘contrary to good sense, since nature or a superior and irresistible force pretends to be equal to those made unequal’ (Mariana, 2018, p. 70). Mariana maintained the notion, well-established in Spain, that care for the poor was a central obligation of a good ruler: he does not exclude from his palace or even from his chamber the poor or the destitute, he listens attentively to the complaints of all, he does not consent that in any part of the empire they should be treated with cruelty or even with harshness. (Mariana, 2018, p. 72) In Mariana’s view it was the duty of the prince to ensure wealth was distributed to the poor:

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it is proper to piety and justice to alleviate the misery of the poor and the weak, to feed orphans, to help those who need help. This is the first and principal duty of the prince, the best and true objective of the rich, that we ought not to use for our own pleasure, but for the health of many, or for our own profit, but to comply with justice, that no one dies. (Mariana, 2018, p. 424) The sixteenth century began with the suppression of the comuneros, who had reminded the monarch of his obligations to his subjects to deliver justice and welfare, beliefs in the obligations of rulers to uphold justice and distribute welfare remained central to new articulations of constitutional theory as Spain entered the seventeenth century. In the mid seventeenth century, the parliaments (cortes) that had been important to constitutional tradition in the Iberian Peninsula since the Middle Ages, were disbanded (Thompson, 1984). This change to constitutional landscape did not represent a significant expansion of monarchical power as the king still had to negotiate new taxes directly with the cities. Further, in the sixteenth and seventeenth centuries, the Crown raised revenue by selling town rights that had originally been laid down in medieval fueros, to villages (Nader, 1990). The sale of towns increased devolution in the sixteenth and seventeenth centuries and increased difficulties in standardizing taxes. The constitutional crisis of the Habsburg dynasty at the start of the eighteenth century (the War of the Spanish Succession raged 1701–1714 following the death of Charles II without heirs) led to the succession of the Bourbon dynasty in Spain which lasted until the early nineteenth century. The Bourbon dynasty tried to centralize its authority and reform the tax system. By the 1770s its main attempt at tax reform, the Unica Contribución, was abandoned. The constitutional arrangement that required the monarch to negotiate with the cities to raise taxation revenue continued to be influential, despite multiple attempts at reform. Grafe and Irigoin (2008, p. 14) have argued that ‘What distinguished Spain from England was not if authority [of the sovereign] was negotiated or not, but that the channels of negotiation were less clearly defined and there were more of them’. Even in the so-called ‘age of absolutism’, Spanish practices of sovereignty were influenced by constitutional traditions that had developed in the Middle Ages. Traditional rights and customs limited the power of the Crown, including its ability to extract taxation.

8.5 Constitutions and Inequality in the Spanish Empire When the Spanish Empire expanded into the Americas from the sixteenth century, the monarch wanted to avoid replicating the entrenched privileges created by the fueros in the Iberian Peninsula. The global expansion of the Spanish Empire was organized via contracts (Asientos and capitulations) between the

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Crown and private individuals, the caudillos, or leading conquistadores. Many of these were issued retrospectively and were effectively rewards for those who had used their own economic capital and conquered territory on the Crown’s behalf, just as the fueros has been. The Crown tried to limit the terms of these contracts, but many conquistadores fought for the privileges conceded to be inherited by their heirs. This did entrench privilege in the Spanish Americas, for example the conquistador Hernán Cortés was empowered by the Crown to claim property for his estate, and his estate became one of the biggest in the New World, spanning territory in what is now the state of Morelos, and across the Isthmus of Tehuantepec. However, evidence from the eighteenth century suggests that colonial elites and corporations, whose privileges limited the extractive powers of the Spanish monarch, also channelled resources back into the local economy (Grafe and Irigoin, 2012). Protagonists of NIE argue that the economic inequality between North America and Central and South America results from the inheritance of two diverging institutional and constitutional traditions between England and Spain. This betrays the influence of a diffusionist model of global history, with institutions and constitutions flowing from Europe, rather than being negotiated in response to local conditions and with the input of indigenous intellectuals beyond Europe. It also mischaracterizes the constitutional tradition of the Iberian Peninsula and its key features such as the protection of common property institutions which could be a resource for the poor. As Spain colonized the Americas it recognized both the private and common property institutions of indigenous Americans. The recognition of indigenous property rights was elaborated in the work of the sixteenth century Scholastic thinker Francisco de Vitoria and became important to the legitimacy of Spanish claims to sovereignty in the Americas. As I have argued elsewhere, these property rights did not protect the Amerindians from dispossession (McClure, 2021), but they did contribute to the particular history of property in the Spanish Empire. Amerindians could still lose their land through unfair sales and more naked acts of appropriation, but they could also denounce these violations and petition the Crown for justice (Masters, 2018). Settlers also squatted on land they saw as unclaimed. In 1631 the Crown issued the composición de tierras decree, which forced the titling of land. This often legalized ownership that had developed through squatting, but indigenous communities also tried to title their land. Yanna Yannakakis (2021) argues that indigenous engagement with Spanish legal processes in the eighteenth century generated new forms of common property traditions amongst indigenous communities who collaborated to claim lands against settlers. In the Americas, indigenous communities were not passive receivers of institutional or constitutional traditions that developed in Spain. Indigenous people negotiated the constitutional arrangement which meant that the Crown needed to be responsive to his subjects as the source of justice. Imperial subjects petitioned the crown, including on issues relating to property claims, and in

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doing so they actively contributed to the legal and institutional landscapes of the Spanish Empire. The expansion of the Spanish Empire in the Americas acknowledged indigenous property and created new forms of common property. As W. B. Taylor has shown for Oaxaca, Mexico, the corporate religious institutions of confraternities tapped into the moral economy of charity to provide a mechanism for protecting the property of indigenous communities from imperial extraction, and when this practice was challenged during the anti-clerical politics of the Mexican independence in the nineteenth century, Mexican peasants were impoverished by the loss of these historic common property institutions. Given this history, it is unsurprising that the Mexican constitution of 1917 codified a new form of common property, the ejido, or that disputes about the violation and protection of common property institutions have dominated the history of modern Mexico.

8.6 Conclusion The impact of the particular constitutional traditions of Spain and the Spanish Empire on common property institutions and their role in shaping patterns of intra-national inequality is still poorly understood. This chapter began by setting out some of the problems with the way history has been deployed in existing economic models of the role of constitutions in shaping patterns of inequality. It has suggested that different conclusions could be drawn if one examines the different constitutional traditions emanating from different local contexts and if one focused not on institutions of private property and the way they facilitate economic growth but rather upon institutions of common property and the way they act as resources for the poor or other marginalized communities. The chapter has argued that the model of the relationships between constitutions and inequality looks different if one focuses upon intranational rather than international inequality, considering the resources available to the poor, their political bargaining power, and the impact of taxation. However, given that during the early modern and modern periods, up until the age of decolonization in the twentieth century, states and empires were co-constitutive (Bhambra and McClure, forthcoming), nations as they have often been conceived – as bounded political communities – may be unsuitable units of analysis for understanding the historical pathways to inequality which have had, since the sixteenth century, both local and global dimensions. The topic of new approaches to the relationship between constitutions and inequality raises questions that go beyond the scope of this chapter. More work is to be done on patterns of inequality that focus less upon institutions promoting economic growth and more upon redistributive institutions.

Notes 1 Government of Mexico, Political Constitution of the United States of Mexico, signed January 21, 1917, and Promulgated February 5, 1917, Revised and Amended to April

158  Julia McClure 1, 1926. Modern Records Centre, MSS.292/980.81/3/1, available online, https:// mrc​-catalogue​.warwick​.ac​.uk​/records​/TUC​/A​/12​/980​/15/1 [accessed November 1, 2020]. 2 AGS, Patronato Real, leg. 7, fol. 158, Feb 1518, cited in Espinosa, 2008, 46. 3 For example, Petition 28, Sandoval, Historia del emperador, p. 80 p. 130; CLC, 4, 1520 Cortes, cited in Espinosa, 2008, p. 54. 4 Sandoval, Historia del emperador, 80: c. pp. 120–130, 1520 Cortes cited in Espinosa, 2008, p. 55.

References Acemoglu, D. and Robinson, J. A. (2012). Why nations fail: the origins of power, prosperity and poverty. New York: Penguin. Alfani, G. and Di Tullio, M. (2019). The lion’s share, inequality and the rise of the fiscal state in preindustrial Europe. Cambridge: Cambridge University Press. Bhambra, G. K. and McClure, J. (Forthcoming). Imperial inequalities: the politics of economic governance across European empires. Manchester: Manchester University Press. Braudel, F. (1981 [1984]). Civilization and capitalism, 15th–18th century (Translated by Reynold Siân). Vol. 3. London: Collins. Brenner, R. (1976). ‘Agrarian class structure and economic development in pre-industrial Europe’. Past & Present, 70(1), pp. 30–75. Colley, L. (2016). ‘Writing constitutions and writing world history’. In: J. Bellich, J. Darwin, M. Frenz, and C. Wickham, eds. The prospect of global history. Oxford: Oxford University Press, pp. 160–177. Curtis, D. R. (2016). ‘Did the commons make rural societies more equal? A survey of evidence from across Western Europe, 1300–1800’. Journal of Agrarian Change, 16(4), pp. 646–664. De Pleijt, A. M. and Van Zanden, J. L. (2016). ‘Accounting for the “little divergence”: what drove economic growth in pre-industrial Europe,1300–1800?’ European Review of Economic History, 20(4), pp. 387–409. de Vries, J. (1994). ‘The industrial revolution and the industrious revolution’. Journal of Economic History, 54(2), pp.249–270. Domínguez Ortiz, A. (1971). The golden age of Spain, 1516–1659. London: Weidenfeld and Nicolson. DuPlessis, R. S. (1997). Transitions to capitalism in early modern Europe. Cambridge: Cambridge University Press. Engerman, S. L. and Sokoloff, K. L. (2008). ‘Institutional and non-institutional explanations of economic differences’. In: C. Ménard and M. M. Shirley, eds. Handbook of new institutional economics. Berlin: Springer Verlag, pp. 639–666. Epstein, S. R. (2000). Freedom and growth: the rise of states and markets in Europe, 1300–1750. Basingstoke: Routledge. Espinosa, A. (2006). ‘The Spanish reformation: institutional reform, taxation, and the secularization of ecclesiastical properties under Charles V’. The Sixteenth Century Journal, 37(1), pp. 3–24. Espinosa, A. (2008). The empire of the cities: emperor Charles V, the comunero revolt, and the transformation of the Spanish system. Leiden: Brill. Grafe, R. (2012). Distant tyrannies: markets, power and backwardness in Spain, 1650–1800. Princeton, NJ: Princeton University Press.

R ethinking Historic Constitution Models  159 Grafe, R. (2015). ‘Economic and social trends’. In: The Oxford handbook of early modern European history, 1350–1750, vol 1., people and place. Oxford: Oxford University Press. Grafe, R. and Irigoin, M. A. (2006). ‘The Spanish empire and its legacy: fiscal redistribution and political conflict in colonial and post-colonial Spanish America’. Journal of Global History, 1(2), pp. 241–267. Grafe, R. and Irigoin, M. A. (2008). ‘Bargaining for absolutism: a Spanish path to nationstate and empire building’. Hispanic American Historical Review, 88(2), pp. 173–209. Grafe, R. and Irigoin, M. A. (2012). ‘A stakeholder empire: the political economy of Spanish imperial rule in America’. Economic History Review, 65(2), pp. 609–651. Greer, A. (2017). Property and dispossession, natives, empires and land in early modern North America. Cambridge: Cambridge University Press. Hoffman, P. T. (2015). Why did Europe conquer the world? Princeton, NJ: Princeton University Press. Hoffman, P. T., Jacks, D. S., Levin, P. A., and Lindert, P. H. (2002). ‘Real equality in Europe since 1500’. The Journal of Economic History, 62(2), pp. 322–355. Keen, B. (1969). ‘The Black legend revisited: assumptions and realities’. The Hispanic American Review, 49(4), pp. 703–719. Mariana, J. (2018). Del Rey y de la Institución Real. Barcelona: Editorial Planeta, S. A. Masters, A. (2018). ‘A thousand invisible architects: vassals, the petition and response system, and the creation of Spanish imperial caste legislation’. Hispanic American Historical Review, 98(3), pp. 377–406. McClure, J. (2021). ‘The legal construction of poverty: the historic tension between property rights and subsistence rights’. In: A. Chadwick and S. Egan, eds. Poverty and human rights: multidisciplinary perspectives. Cheltenham: Elgar, pp. 54–67. Mirow, M. C. (2014). ‘The age of constitutions in the Americas’. Law and History Review, 32(2), pp. 229–235. Mirow, M. C. (2015). Latin American constitutions, the constitution of Cádiz and its legacy in Spanish America. Cambridge: Cambridge University Press. Nadar, H. (1990). Liberty in absolutist Spain: the Habsburg sale of towns, 1516–1700. Baltimore, MD: The Johns Hopkins University Press. North, D. C. and Weingast, B. R. (1989). ‘Constitutions and commitment: the evolution of institutions governing public choice in seventeenth-century England’. The Journal of Economic History, 49(4), pp. 803–832. Orford, A. (2011). International law and the politics of history. Cambridge: Cambridge University Press. Owens, J. B. (2005). “By my absolute royal authority”: justice and the Castilian commonwealth at the beginning of the first global age. Rochester, NY: University of Rochester Press; Woodbridge, Suffolk: Boydell & Brewer. Parthasarathi, P. and Pomeranz, K. (2019). ‘The great divergence debate’. In: G. Riello and T. Roy, eds. Global economic history. London: Bloomsbury, pp. 19–27. Piketty, T. (2014). Capital in the twenty-first century. Cambridge, MA: Harvard University Press. Pomeranz, K. (2000). The great divergence: China, Europe, and the making of the modern world economy. Princeton, NJ: Princeton University Press. Serrano Alvarez, J. A. (2014). ‘When the enemy is the state: common lands management in Northwest Spain (1850–1936)’. International Journal of the Commons, 8(1), pp. 107–133. Thompson, I. A. A. (1984). ‘The end of the cortes of Castile’. Parliaments and Representations, 4(2), pp. 125–133.

160  Julia McClure Van Zanden, J. L. (1995). ‘Tracing the beginning of the kuznet curve: Western Europe during the early modern period’. The Economic History Review, New Series, 48(4), pp. 643–666. Van Zanden, J. L., Buringh, E., and Bosker, M. (2012). ‘The rise and decline of European parliaments, 1188–1789’. Economic History Review, 65(3), pp. 835–861. Vassberg, D. (1974). ‘The Tierras Baldías: community property and public lands in 16th century Castile’. Agricultural History, 48(3), pp. 383–401. Vassberg, D. (1975). ‘The sale of tierras Baldías in sixteenth-century Castile’. The Journal of Modern History, 47(4), pp. 629–654. Vassberg, D. (1984). Land and society in golden age Castile. Cambridge: Cambridge University Press. Wallerstein, I. (1974 [1989]). The modern world-system. Vol. 3. Berkeley, CA: University of California Press. Wing, J. T. (2015). Roots of empire: forests and state power in early modern Spain, c. 1500–1750. Leiden: Brill. Wing, J. T. (2011). ‘Keeping Spain afloat: state forestry and imperial defence in the sixteenth century’. Environmental History, 17(1), pp. 116–145. Yannakakis, Y. (2021). ‘Making customary rights and communal lands in eighteenthcentury Mexico’. (IHR paper, 21.05.2021), part of her forthcoming book, Mexico’s Babel: Legal Culture in Oaxaca from Colony to Republic.

Chapter 9

The Three Globalizations of Law and the Constitutional Protection of Property Rights over Land in Colombia and China Jorge Andrés Contreras Calderón

9.1 Introduction In the Three Globalizations of Law and Legal Thought, Duncan Kennedy argues that the West’s legal consciousness has become globalized three times since 1850 A.D. Partially overlapping and competing for supremacy, three different types of consciousness spread from Germany, France, and the United States to the rest of the world, affecting the legal systems and practices of the countries of reception (Kennedy, 2006). ‘Classical Legal Thought’ spread globally between 1850 and 1914, while ‘Social Thought’ spread between 1900 and 1968. The third legal consciousness, to which we will refer as ‘Contemporary Legal Thought’, became global after the end of the Second World War. Here I lay out an explanation of how the three globalizations of legal consciousness shaped the definition and protection of private property in Colombia’s and China’s constitutional laws. These are as different as two countries can be from a cultural perspective, and yet their current regulations of property rights are almost identical. This chapter is meant to be a first step towards explaining this resemblance between such disparate countries. Along with Kennedy’s theoretical framework, of which Colombia and China are but mere examples, I also consider different ‘mandarin materials’ (Gordon, 1984): constitutional and legal norms along with their motivations, relevant sentences issued by Colombia’s High Courts, and some of the fiveyear plans approved by the Central Committee of the Chinese Communist Party. Nevertheless, I don’t consider decisions of the Supreme People’s Court of the People’s Republic of China, for they aren’t regarded as legal precedents in this country (Zhu, 2015).

9.2 The First Globalization, the Civil Code, and the Roman Concept of Private Property Classical Legal Thought (hereinafter CLT) became globalized between 1850 and 1914. It was centred on the idea of constitutional powers, absolute within their respective spheres, and supposedly defined by law in a coherent DOI: 10.4324/9781003202257-11

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and comprehensive manner. A legal corollary of eighteenth-century p­ olitical theories about sovereignty, CLT was initially aimed at solving conflicts between branches of the State. However, it was soon assimilated by private law through the Roman concept of private property to solve clashes between citizens and between citizens and the State. CLT was simultaneously worked out by German Pandectists and French exegetists during the first half of the eighteenth century, who believed that the legal system offered one – and only one – correct solution to every conflict between spheres of power. Thus, the role of tribunals could not be anything more than a mere formulation of syllogisms (Kennedy, 1975). 9.2.1 Colombia

The belief in a comprehensive and coherent legal system manifested in the movement of legal codification, always stronger in civil law countries than in those attached to the common law. The most prominent example was the French Civil Code of 1804, although in a rather paradoxical manner: its drafters didn’t consider the Code to be a perfect system of law,1 but its earliest interpreters, the French exegetists, saw in it an instantiation of the rational legislator, a myth created by Montesquieu in The Spirit of Laws (1748). Truth be told, this code wasn’t the consequence but, quite the contrary, the cause of the belief in a coherent legal system in France during the first half of the nineteenth century. In America, Spanish colonial law didn’t provide a definition of property, but this right was asserted indirectly, through the enforcement of criminal provisions against disturbances of possession. After the independence, French law was called to improve legal institutions and fill the void left by the rupture with Spanish ones. This was partly due to the ideological role played by the French revolution on the criollo independence wars and the important role of Andrés Bello (1781–1865) on the legislative processes of the new American republics. Between 1810 and 1821, Bello was appointed delegate for the revolutionary cause before England and France, which enabled him to study both countries’ legal systems. After independence, Chile’s government commissioned Bello to elaborate a draft civil code, a task he accomplished by closely following the content of the French one. The Chilean Civil Code was passed in 1855 and transplanted soon afterwards to several Latin American countries, including the United States of Colombia in 1873. This is how the Roman concept of property on article 544 of the French Civil Code2 ended up on article 669 of the Colombian Civil Code3 (Hinestrosa, 2009; Jaksic, 2001). The Roman concept of property has been labelled as ‘absolute’, for it is conceived as a ‘bunch’ of liberties whose only limitations are the same liberties on other individuals – that is, with absolute disregard of conflicting interests of society taken as a whole (Duguit, 1920) –, which is why Marxist scholars assert that the French definition of property was deliberately designed to protect social relations of production within industrialized capitalist economies

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(Gordon, 2012).4 Given the important role the bourgeois played in the French revolution, this is a very compelling explanation, but it also presents a major obstacle: the ‘absolute’ concept was already present in the slave economy of ancient Rome, while its definition, as stated in modern civil codifications, was taken by the French civil drafters from Bartolus de Saxoferratu (1313–1357), who thought of it at the apex of feudalism (Garnsey, 2007). 9.2.2 China

Confucianism was the prevailing ideology in China until the arrival of the republican government in 1912. It states that there are intrinsic differences among family members and among members of society outside the family, and that recognizing them allows the ruler to design a proper government. Being natural and immutable, these differences must lead to immutable social statuses – king-servant, father-son, husband-wife, etc., each of them encompassing its own bundle of equally immutable norms of behaviour called the ‘li’ (礼) (T’ung, 2011). Thus, under the rule of the numerous Chinese dynasties, social relations not concerning the empire – i.e. everything but criminal matters and the administration of the bureaucracy – were ruled by customary norms inspired by Confucius thinking, and there was never a comprehensive body of legislation outside of what one might call “public law”.5 This doesn’t mean that there wasn’t civil litigation during the empire but that civil courts based their decisions on cultural norms and local customs instead of statutory laws or legal precedents, and acted more like current mediators than judges (Allee, 1994). In 1902 the last rulers of the Qing dynasty6 (1644–1912) commissioned Shen Jiaben, a high-ranking official of the empire, with the task of modernizing the Chinese legal system by following the example of Japan. They did so to overcome the absence of a civil law tradition, to modernize the empire, and to deflate mounting social rebellion. Chinese royalty was captivated by the legal reforms pushed by emperor Meiji (1852–1912), mainly because they kept all the political power in his hands. In 1903, Shen Jiaben established the Bureau for the Compilation of Law and gathered a group of Japanese and Chinese legal scholars, educated in Germany and in Meiji’s Japan, so as to help him with this task. The results were The Outline of the Imperial Constitution of 1908 and the Draft of the Civil Law of Qing of 1911 (Shiping, 2013; Zhang, 2012; Zhu, 2009). The constitutional outline was meant to provide a basis for the future imperial constitution, though its implementation was foiled by the death of both Emperor Guanxu and Empress Dowager Cixi in November 1908. It comprised only 15 articles which, following the model of the Prussian and the Japanese constitutions, established the inviolability of private property as well as a faint distinction between the executive and the legislative power of the State. Notably, The Outline does not assert the People or the Nation as a sovereign power, but maintained it in the hands of the Emperor. Also, while it

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has a clause clearly stating that private property ought to be respected, at the same time it failed to establish compensation for takings. This absence limited the protection afforded to individuals when the State chose to deprive them of their property. The 1911 legislative drafts by Shen Jaiben did much to bring about the establishment and protection of private property in a fashion coherent with CLT; however, the revolution that took place in the following year prevented such drafts from becoming formal law. Even so, the third book of the draft, concerning property rights, was transplanted afterwards to the third book of the 1929 Civil Code of the Republic of China. Save for minor differences, everything therein was taken from the Japanese and the German codifications (see Table 9.1). Table 9.1 German, Japanese. and China’s Civil Code Comparison German Civil Code of 18967

Japanese Civil Code of 18968

Civil Code of the Republic of China of 19299

Article 903 Article 206 Article 765 The owner of a thing may, An owner has the rights to The owner of a thing has in so far as the law or freely use, obtain profit the right, within the limits the rights of third parties from, and dispose of the of the law or ordinances, admit, deal with the thing owned, subject to use it, to receive thing as he pleases and to the restrictions its benefits, and to exclude others from any prescribed by laws and dispose of it freely, and interference with it. regulations. to exclude others from interfering with it.

While the German definition of private property expressly mentioned other people’s rights as a restriction, this wasn’t the case for either the Japanese or the Chinese ones. The restriction was mentioned, however, in article 148 of the Chinese 1929 code, which stated that ‘A right cannot be exercised for the main purpose of causing injury to another person’. Just as in Colombia, during the first globalization of law, Chinese private property became ‘absolute’, that is, merely restricted by other people’s rights. This can ultimately be explained by the influence of Roman law in Germany, just as the concept of property in Colombia during the same period of time can ultimately be explained by the influence of Roman law in France. But while Chile was the mediator between France and Colombia, this role was provided to Germany and China by Japan.

9.3 The Second Globalization and the Backlash against Private Property The legal consciousness of the second globalization, referred to as ‘The Social’, took place between 1900 and 1968 and is characterized by two ideas. Firstly,

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the free will of individuals must subordinate to the interest of society, and secondly, legal systems always suffer from loopholes, obscurities, and contradictions, making it impossible to get correct solutions to legal problems. Therefore, social thinkers believe that judges should extend their reach upon other spheres of power, public and private, by means of a consequentialist analysis of their decisions aimed at protecting the social interest (Kennedy, 2006). ‘The Social’ began in Germany with Rudolph von Ihering (1818–1892) and in France with François Gény (1861–1959) during the second half of the nineteenth century. This was the time in which tensions between capital and labour had translated into a struggle between guilds and unions. The expression of collective interests by means of opposing social classes such as the bourgeois and the proletariat weakened the liberal duet of nation and citizen, and therefore between sovereignty and private property, pushing legal scholars to assert that every interest was public in one way or another. The Social also spread to the rest of the world through the same channels of the first globalization: academic experiences of local elites at the centres of production of knowledge or direct imposition by colonial authorities (Kennedy, 1975; 2006). 9.3.1 Colombia

In Colombia, social thinking began in the 1920s and brought important changes to the regulation of private property. Until the first decades of the twentieth century, rural land had been exploited under the model of aparcería – the Spanish word for sharecropping: large haciendas worked upon by farmers for whom the owner, in return, allowed a parcel to be put aside for personal use, or where the farmers received some type of payment in money or kind for their work in the hacienda while simultaneously taking a parcel on lease for their personal benefit. Conflicts for the possession of land rose along with the economic boom of the late 1920s resulting from international prices of coffee and the compensation paid by the United States to Colombia for the secession of Panama. These conflicts were decided by the courts and became an opportunity for showing that important parts of the haciendas were actually comprised of land belonging to the State. From then onwards, thousands of farmers around the country stopped working on the haciendas or paying rent for the parcels taken on lease, while at the same time many landowners began to violently evict the farmers from the parcels, offering a labour contract as the sole alternative. To appease the countryside, President Alfonso López Pumarejo decided to amend the regulation of property on the 1886 Constitution (Alviar, 2013; Bejarano, 1987; Colmenares, 1989; Rengifo, 2011; Tirado and Velásquez, 1982). The amendment states the following: Legislative act 1 of 1936. August 5. (…) Article 10. Private property as well as other vested rights of either natural or legal persons are guaranteed

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in accordance with civil laws, and cannot be ignored nor infringed by subsequent laws (…). Property is a social function that implies obligations. For reasons of public utility or social interest defined by the legislator, there may be expropriation, by judicial decision and previous compensation. However, the legislator, for reasons of equity, may determine the cases in which there is no need for compensation, through the favourable vote of the absolute majority of the members of both chambers. This article declares that private property is ‘a social function’, a concept taken from the theory of Léon Duguit (1859–1928). The theory was founded on Emile Durkheim’s ‘social solidarity’ and was especially designed by Duguit to solve monopolistic practices over land. Within societies, he argued, everyone must carry out certain functions or duties, and property is the owner’s duty to economically exploit an asset so as to satisfy both his and society’s needs. If the owner infringed this duty, the State should penalize him by expropriating the asset and assigning it to someone else (Duguit, 1920). As to the manner this theory was transplanted into Colombia’s constitution, Alviar offers the following account: Finally, there is the importance of academic networks developed at the time. From the mid 19th a few Colombian intellectuals travelled to France and brought back literature that was later translated and taught at Universidad Externado, a university intimately linked (then and now) to the liberal party. In addition, the interior secretary (who promoted the reform in Congress) had read the work of a constitutional law professor who had just published his lectures on the Colombian Constitution. In these he used Leon Duguit’s ideas extensively to critique the Constitution for being excessively individualistic. (2013, p. 315) The law professor referred to at the end of this quote was Tulio Tascón (1888– 1954), a historian and legal scholar whose famous Colombian Constitutional Law (1934) consisted on using Duguit’s analysis to criticize the Colombian 1886 constitution. The book deeply impressed Darío Echandía, the interior secretary of President Alfonso López Pumarejo and the person in charge of pushing the 1936 constitutional reform, which he introduced to the congress with the following words: As you can see, honorable Representatives, the project replaces the excessively individualistic conception of private rights that characterizes the current Constitution, as it additionally considers that this subjective right should be exercised as a social function and should be limited by public

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convenience. Private law as a social function, as opposed to absolute ­private law: this is the final reason of the Project that the Government submits for your consideration. (Darío Echandía, Annals of the House of Representatives, Series 1, No. 55, September 25, 1934. Quoted in Tirado and Velásquez, 1982, pp. 162–163). In addition to the new definition of property, now understood as a social function, article 10 of the constitutional reform allowed for the expropriation of land without any compensation whatsoever when the absolute majority of the members of the two chambers of congress agreed there were ‘reasons of equity’ to do so. These new powers of the legislative branch constitute a clear marker of the waning influence of the CLT and its replacement by ‘The Social’. The constitutional reform was followed by Law 200 of 1936, usually referred to as ‘La Ley de Tierras’ (The Land Law), the first agrarian reform in Colombia. Article 6 therein established the extinction of private property over rural land and its transfer to the State after ten years of idleness by the owner, a subtle form of expropriation latae sententiae, while article 12 consecrated an acquisitive prescription after just five years of informal possession. These articles embraced the theories of Duguit, for whom the inefficient exploitation of the means of production was ‘an act contrary to law, justifying the suppression of property or the payment of a compensation’ (Duguit, 1920). 9.3.2 China

By 1949, as the Chinese civil war confronting the CCP and the Kuomintang was ending, Mao Zedong (1893–1976) had become the most powerful man in mainland China. The Common Program of the Chinese People’s Political Consultative Conference (‘the Common Program’) of September 1949 established that the National People’s Congress should govern the country democratically and protect the private property of the Chinese citizens (Art. 5). Concerning the countryside, the ‘Common Program’ proclaimed the necessity of an agrarian reform by means of the redistribution of private property in favour of the poorest peasants (Art. 27) and the promotion of cooperatives (Arts. 29, 34), a public policy implemented through the Agrarian Reform Law of June, 1950. This law ordered the confiscation of the property of the landlord (Art. 2) and its redistribution to poor peasants (Arts. 11 and 30), while maintaining the protection of the private property of the rich (Art. 6) and the middle-class peasants (Art. 7).10 Mao Zedong and the CCP’s top leaders decided not to implement immediately the confiscation of private property, for the Communist Party wasn’t powerful enough to impose communism on the minority parties, which were only demanding a more equitable distribution of property. Yet, the Soviets’ influence over the CCP proved to be far more decisive in the long run: Stalin

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considered the multiparty system and the agrarian reform without total confiscation of property to be but a transitory solution until the communists had gained control over all of China’s bureaucracy. In a series of well documented meetings in Moscow between 1949 and 1952, he, along with Mao and other leaders of the CCP, conceived a plan for the National People’s Congress election of 1954. This plan allowed them to grasp control of the Congress and immediately pass the first socialist constitution in mainland China (Bianco, 2014; Hua, 2001, pp. 39–43; Mo, 2008, pp. 324–328; Zhang, 2012). The property rights structure regulated in the 1954 Constitution followed the letter of the Soviet Constitution of 1936 – also known as the Stalin Constitution (Hua, 2001; Mo, 2008; Bianco, 2014). Article 4 of both constitutions ‘abolished’ the exploitation ‘of man by man’ through the elimination of the capitalist private property and the establishment of socialism. Additionally, articles 6 and 7 of the Chinese Constitution, which corresponded to articles 5 and 6 of the Soviet one, established two forms of property: socialist property, belonging to the State and directly administered by the Communist Party, and cooperative property, controlled by the workers and regarded as a transitional stage from capitalism to socialism. Finally, articles 11 and 15 of the Soviet and the Chinese Constitution, respectively, prescribed the economy to be governed in accordance with a plan. Emboldened by the new Constitution, in September of 1956 the Eighth National Congress of the CCP adopted the Second Five-Year Plan for the Development of the National Economy in 1958–1962. Following the model of the Soviet Union’s first plan (1928–1932) and extolled by Mao as ‘The Great Leap Forward’, the second plan set out to completely finish the transition from capitalism to socialism. And, as in the Soviet Union 30 years before, all private property was suppressed and transferred to the central State, while the peasants were massively forced to work collectively. And, as in the Soviet Union 30 years before, the outcome was the ruin of the economy and the death of millions of people.

9.4 The Third Globalization and the Fundamental Right to Private Property The idea of a ‘system of law’ providing correct answers for every case arose once more with the third globalization, which has taken place since 1945. In addition, judges’ consequentialist reasoning, born as a tool of the second globalization’s concern for social issues, also extended during this period, although the relevance accorded to ‘society’s interests’ is now measured with much more nuance: when opposed to an individual’s interest, the final decision is usually the result of a ‘balancing of principles’, which sometimes sets the social aside in favour of the private. Kennedy points at these two elements of contemporary legal thought, neoformalism and consequentialist judicial reasoning, as the most distinguishing

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features of the third globalization, although he doesn’t offer a distinctive synthesis of the two (2006, p. 22, 63). However, there exists a very fashionable school of legal thought, usually referred to as New Constitutionalism or New Law, which considers that such a synthesis actually exists and could be expressed more or less like this: a correct solution to every legal case is possible through the balancing of conflicting legal principles (Bernal, 2009; García, 2006; Kennedy, 2006; Santos et al., 2013). In effect, many countries – including Colombia and China – have accepted that written constitutions have a ‘dogmatic part’11 mainly composed of a catalogue of cherished human rights, those which are fundamental because of their connection to the prevalent notion of human dignity and their special location within the constitution. Constitutional discussions are thus characterized as being about opposing principles whose enforcement in a specific case depends on the value or ‘weight’ attributed to each of them when assessed through a process of ‘balancing’ (Bernal, 2005; Ibid, 2009; Peces-Barba and Dorado, 2007). 9.4.1 Colombia

Article 58 of Colombia’s political constitution of 1991 expressly recognizes the protection of private property while maintaining its social function.12 Yet, the balancing of principles used by the Constitutional Court for its interpretation has brought about what appears to be a third and new concept, for now property is also regarded as a fundamental right ‘as long as it is linked to the maintenance of some material conditions of existence, whose violation affects the right to equality and a decent standard of living’ (Corte Constitucional, T-506 de 1992). In the quoted sentence, Colombia’s Constitutional Court recognized for the first time that private property was a fundamental right and, thus, defensible through the ‘tutela action’;13 and just a year later, the same Court sustained that this right had an essential core that no legal norm could violate, even if the violation purports to protect the social interest, because otherwise the norm in question would be unconstitutional: This unyielding core of power guaranteed by the Constitution refers to a minimum level which objectively permits the owner to extract an economic utility from the faculties of enjoyment and disposition over his goods. Undoubtedly, this would vanish if the social limitations and obligations legally imposed on the owner are unreasonable and encroach upon all effective possibility of personal utility. (Corte Constitucional, C-006 de 1993. Emphasis added) Just as the 1936 constitutional reform became the legal basis for the enactment of law 200 of 1936, the 1991 constitution enabled the implementation of a

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new agrarian reform through law 160 of 1994. Opposite to the rural legislation inspired by ‘The Social’, the new legislation was inspired by market efficiency. Rural development would no longer depend on the expropriation and redistribution of idle private land but rather on real estate markets: peasants were offered a government subsidy of 70% over the price of the land they were interested in acquiring and which they were to negotiate themselves with the assistance of the Colombian Institute for the Agrarian Reform (Alviar, 2012; Ibáñez et al., 2012). Finally, in 1999 the last paragraph of article 58 of the Constitution, allowing the Congress’ to declare the expropriation of private property without compensation, was suppressed in order to abide by the American Convention on Human Rights of 1969 – also known as the Pact of San José – and to appease foreign investors: The well-known fears that has generated in the international arena, and specifically in that of foreign investment, the provision contained in Article 58 of the Political Constitution explains the proposition for its amendment (…) because it restraints the confidence of foreign investors who see in this provision the real possibility to suffer a treatment completely alien to basic principles of justice, principles that are otherwise enshrined in international instruments signed by Colombia, as is the case of Article 21-2 of the Pact of San José, to which our country is a party, and which to this regard states: ‘No one may be deprived of his property, except by payment of fair compensation, for reasons of public utility or social interest, in cases and in accordance to the procedures established by law’ (Congress of the Republic, Congress Gazette, num. 189 of 1998, September 21, 1998, pp. 1–2; Quoted in: Alviar, 2012, pp. 142–143) The second globalization had brought to Colombia the idea that private property is a legal function or duty. Because of the third globalization, it can be affirmed, once again, that the concept of private property arising from the first globalization and contained in the civil code remains valid and can even be understood as a fundamental right or ‘unyielding core of power’. The Colombian Constitutional Court has in this manner pointed out the formula for solving the contradiction between the CLT concept of private property and the concept of property as a social function: the balancing of principles. The conflict doesn’t arrive, then, as an apparent contradiction between an abolished concept – the Roman – and another in force – the social function one. It is rather a result of the coexistence of those two different concepts recognized by two different principles stated in article 58 of the constitution: the principle of the fundamental right to private property and the principle of solidarity.

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9.4.2 China

The second globalization of legal thought arrived in China with Mao Zedong and remained unchallenged until his death in 1976. This event came along with quick and dramatic changes, namely, the 1979 joint venture law reopening the gates to foreign investment and the 1982 Constitution, still in force. Article 10 therein maintained the system of rural land distribution and exploitation existing in China since the constitution of 1954: land was public property under control of the State Council, or it belonged collectively to the villagers. But article 11 introduced a significant nuance: The individual economy of urban and rural working people, operated within the limits prescribed by law, is a complement to the socialist public economy. The state protects the lawful rights and interests of the individual economy. The state guides, helps and supervises the individual economy by exercising administrative control. (Chinese Constitution, 1982. Emphasis added) ‘The individual economy of (…) rural working people’ is a euphemism used here to designate the system of property-rights by which the villagers stop exploiting the land collectively; instead, now the ‘villagers’ committee’ leases those rights to the families integrating the village, which are then entitled to use their allotted parcels as they see fit, a policy known as the ‘the household contract responsibility system’. This system had already been tried between 1962 and 1963, after the collective system of land exploitation led the whole country, in the words of Liu Shaoqi – China’s president between 1959 and 1968– to ‘the verge of collapse’. Mao saw no other alternative than accepting the suggestions of reform from the ‘rightists’ within the Communist Party; he was referring to Liu and to Deng Xiaoping, whom he also used to refer to as China’s ‘number one and number two capitalist roaders’. Unfortunately, the system was abolished in 1963 and his promoters were banished from public life during the Cultural Revolution (1966–1976): in 1969 Liu died under torture after being put in jail, while Deng and his wife were sent to the province of Jianxi to work in a tractor factory. But the household contract responsibility system was unofficially re-established again, in 1977, one year after Mao’s death, when Deng took the nations’ political power away from Hua Guofeng, Mao’s personally designated successor (Bianco, 2014; Gewirtz, 2017; Ho, 2005; Teiwes, 2014; Zhang, 2012; Zweig, 2014). The system proved to be an immense success (Zweig, 2014), and with the support of the majority of the Chinese population and CCP members, Deng could transform it into an open official policy of the CCP. He did it with the Land Administration Law of 1986 and the constitutional amendment of 1988, which many regard as the most important legal changes in China since the socialist constitution of 1954.

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The modified version of article 10 of the Constitution declares that ‘the right to the use of land may be transferred according to law’. In this way, after the leasing agreement with the village committee, the peasants can not only exploit the land as they please but also acquire the constitutional right to sublease part of the parcel or sell their position in the contract to others. All these legal changes are of extreme importance, for they put an end to the socialist experiment in China and laid out the constitutional scaffolding of the country’s capitalist economy. Soon afterwards, the 1993 constitutional amendment eliminated every reference to the ‘people’s commune’ and had the clause of ‘socialist road with Chinese characteristics’ replaced with that of a ‘socialist market economy’ (Zhang, 2012). The CCP explained these reforms by maintaining that the Chinese economy was at ‘an early stage of socialism’, requiring therefore higher levels of capital and market forces before making the transition to further stages. But they actually originated in Mao successors’ realization that Marx, Lenin, and Mao himself were wrong about capitalism and that China required an urgent and deep economic reform (Gerwirtz, 2017; Zhang, 2012). Significant changes in this direction also include the development of strong ties between China and the U.S. Among these changes were the promotion of the reincorporation of China to the World Bank in 1980 and the Ford Foundation’s aid to restructure Chinese institutions, of which the 1985 Bashan academic conference, led in China by U.S. economists, is but one important example (Gerwirtz, 2017; Zhang, 2012). Finally, after China’s signature in 1998 of the International Covenant on Civil and Political Rights of 1966 and the ratification, in March 2001, of the International Covenant on Economic, Social and Cultural Rights of 1966, both of which were prior conditions for its acceptance into the World Trade Organization – occurring in December of 2001 – China carried out its last constitutional reform to property rights: the 2004 amendment to article 10 of the 1982 constitution, requiring compensation in case of land expropriation, and also to articles 13 and 33, which now contain the first explicit reference in Chinese law to ‘private property’ and ‘human rights’ since 1949 (Zhang, 2012).

9.5 Conclusions In this chapter we have shown, in rather general terms, how two very different countries – Colombia and China – came to have similar constitutional institutions regarding the protection of private property over land. We argued this can be explained by how the legal consciousness has travelled around the world since the second half of the nineteenth century. The first globalization of law (1850−1914) brought to Colombia the idea of constitutional powers – legislative, executive, judicial, and the one of private property – absolute within their respective spheres, and the belief that legal systems could be ordered coherently by means of codes providing correct solutions for every case. Sovereignty was regarded as the absolute power of the nation,

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and, by analogy, private property was constitutionally defined as the absolute power of the citizen. Concerning land, the most important consequence of this globalization was the adoption of the Civil Code as a modernizing and comprehensive set of rules for governing all private affairs. Even so, the idea of absolute powers within their proper spheres didn’t permeate China completely, for the Imperial Constitution Outline of 1908 maintained the submission of the parliament to the emperor and put no limits on the expropriation of property. Besides, the idea of a coherent legal system capable of providing correct solutions and contained in a comprehensive codification came to China from Germany and through Japan, for both the 1911 Chinese imperial draft of the civil code and the Chinese republican code of 1929 drew on the German civil code for regulating property. The German influence on the third chapter therein, concerning property rights, allows us to conclude that, as in Colombia, the globalization of CLT brought to China the concept of property as an absolute right over things, that is, a right solely restricted by other people’s property. The second globalization of law (1900−1968) followed the same paths as the first one. This was so for Colombia, where French law and legal theory had remained as influential as they were during the first globalization. And it was the globalization of the idea that social concerns should always prevail over individual interests that led many in Colombia to conclude that land property should no longer be understood as a legally protected liberty regarding the use of goods but rather as the duty to exploit them or face penalties in the name of social concerns. In China, ‘The Social’ arrived mainly because of the influence exerted by Stalin on the Communist Party. Therefore, in contrast to Colombia, the one affecting the Chinese legal system stemmed from the Soviet Union and was based on Marxist ideology, which finally led to the suppression of private property over all the means of production. The third globalization of law (1945–2010) arose in the United States and spread through Western constitutional courts, transnational tribunals, law firms, and NGOs. Indeed, the balancing of principles implemented by the Colombian Constitutional Court is a local adaptation of theories expressly taken from the European Court of Human Rights and the Supreme Court of the United States. When applied to solving tensions between the private and the public interests protected, respectively, by the CLT and the social concept of property, this method suggests that the prerogatives comprised by the CLT concept shall not always subordinate to the ‘social function of property’. In China, the third globalization arrived through the assistance provided by the Ford Foundation, the World Bank, and, later on, by means of the agreements surrounding the inclusion of the country, in 2001, into the World Trade Organization. It brought the idea that private property is an inviolable human right deserving constitutional and legal protection, and whose expropriation always demands previous compensation. In this manner, private property is considered now as an institution that deserves protection by the Chinese State.

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Notes 1 ‘We have saved ourselves from the dangerous ambition of wanting to regulate and purvey everything. Who would think that the same who considers the code too voluminous would dare demand imperiously from the legislator the terrible task that nothing be left abandoned to the decision of the judge? In any case, positive laws would never know how to completely replace natural reasoning in the everyday matters of life’. (Portalis, introductory discourse to the first project of the French Civil Code, 1801). 2 French Civil Code of 1804. Art. 544: property is the right to enjoy and dispose of things in the most absolute manner, provided it is not contrary to law. 3 Colombian Civil Code. Art. 669: dominion, also called property, is a real right to enjoy and dispose material things arbitrarily, provided it is not contrary to law or the property of others. 4 For a Marxist analysis of the regulation of property rights in the French civil code, see: Stoyanovitch, 1979. 5 The most important law in Imperial China was the Tang Code of 654 A.D., also known as the Ta-Tsing Lu-li, in force until the fall of the Qing dynasty in 1912. 6 The Emperor Guanxu (光绪) and the Empress Dowager, Cixi (慈禧太后), who died in 1908 without seeing the completed version of the civil code’s draft. The imperial bureaucracy that succeeded them collapsed completely in 1912. 7 Germany Civil Code, BGB, (1896). Available at: https://archive​.org​/stream​/ger​manc​ ivil​code​01ge​rmgoog​/ger​manc​ivil​code​01ge​rmgoog​_djvu​.txt. 8 Japanese Civil Code, (1896). Available at: www​.moj​.go​.jp​/content​/000056024​.pdf. 9 Civil Code of the Republic of China, (1929). Available at: https://archive​.org​/stream​ /civ​ilco​deof​repu​b00chin​/civ​ilco​deof​repu​b00chin​_djvu​.txt. 10 The distinction among these rural social classes was explained in the Decisions Concerning the Differentiation of Class Status in the Countryside of August, 1950 (Ibid., p. 19–26). 11 In contrast with the ‘organic part’. 12 Political Constitution of Colombia of 1991. Article 58. The protection of private property and all other vested rights acquired conforming to civil law will be protected, and cannot be encroach upon nor violated by subsequent laws (…) Property is a social function which implies obligations. As such, an environmental function is inherent. (…). For reasons of public utility or social interest defined by the legislator, there may be expropriation through a judicial ruling, previous compensation. This must be done consulting the interests of the community and the owner. In the cases established by the legislator, said expropriation may be carried out by administrative authorities, conforming to due process, including the respect of the real price. However, the legislator, for reasons of equity, may determine the cases in which there is no room for payment of compensation, through favorable vote of the absolute majority of the members of both chambers. The reasons of equity, as well as the reasons of public utility or social interest invoked by the legislator will not be judicially questioned (translation by the author). 13 A constitutionally designed legal process seeking the protection of constitutional fundamental rights.

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Chapter 10

Private Property, Popular Sovereignty, and the Constitutional Foundations of Economic Regulation in the Americas Andrés Palacios Lleras 10.1 Introduction This chapter is about the constitutional foundations of markets from a historical and comparative perspective. Drawing from the liberal tradition, Western constitutions contribute to the development of markets in many ways, including most notably by protecting private property. Such protection is meant to prevent expropriation by the State (‘takings’) and theft between citizens. Classic liberal authors such as John Locke viewed private property as a natural right, and the ‘social contract’ that constitutes sovereign power allows for the prosecution and punishment of theft. In this sense, ownership exists before the ‘social contract’, and a justification for the constitution of a sovereign power is precisely to protect the rights associated with ownership. At the same time, contemporary constitutions establish institutions that give structure to many expressions of popular sovereignty. We associate these institutions with democratic institutions, like elections and parliaments, that translate popular will into laws and their regulations. The motto ‘No taxation without representation’ suggests that these institutions are also deeply rooted in the liberal tradition of Western constitutions. The protection of private property and the enactment of regulation can be at odds with each other. This is particularly so when regulation places limits, either directly or indirectly, to rights stemming from ownership or from contracts. Competition Law Regimes (hereinafter CLRs) are an interesting example of regulations that curb rights stemming from both ownership and contracts in the name of protecting and fostering competition between market actors. Typically, these regimes prohibit certain kinds of agreements and behaviours, and require that certain transactions obtain government approval before their consummation. While few today would doubt the usefulness of robust CLRs in light of the high concentration of many markets, they are nonetheless a limitation imposed upon private property, and therefore their enactment can bring about a constitutional tension. In other words, in any given State where private property is constitutionally protected, the enactment of CLRs, or for that matter, any DOI: 10.4324/9781003202257-12

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other form of regulation that limits ownership and contractual rights, can be unconstitutional. At the same time, such a constitutional limitation would limit importantly the institutions that structure the expression of popular sovereignty, even to the point of rendering them useless. Moreover, the constitutional protection of private property typically benefits a few citizens – property owners – while the institutions that bring about regulations can benefit any number of citizens and groups. Precisely because of this tension, we find ourselves in need of a constitutional theory that accounts for the massive enactment of regulations and the endorsement of markets, mostly during the twentieth century. This chapter surveys how this tension between the constitutional protection of private property and regulation (understood to be manifestations of popular sovereignty) was solved in the Americas in different ways but mostly in favour of regulation, between the 1890s and the 1950s. During this period, most (North and South) American nations underwent profound economic transformations that prompted many regulatory regimes, precisely because in the constitutional changes that took place in this period, the ‘classic’ protection of private property was replaced with new approaches. The fact that CLRs were enacted during this period should tell us something about how the tension between the protection of private property and the transformation of democratic will into regulation unfolded. This chapter is organized as follows: Section 10.2 describes the classic liberal view of property rights and discusses why a strong protection to private property constitutes a limitation for the enactment of regulation. We argue that economic regulation affects the scope of actions associated with property rights and in particular their use and access to third parties. Moreover, regulations have a distributive dimension between the property holders and third parties that is foreclosed under classic liberal views of ownership. We use CLRs precisely to illustrate this tension between the classic liberal view of property rights and the malleable nature of private property, so to speak, emerging from the regulation enacted at the time. The next sections survey two very different instances in which the tension between the constitutional protection of private property and the transformation of democratic will into regulation was solved in favour of the latter. Section 10.3 discusses the case of the United States of America (hereinafter the U.S.). It shows how the Supreme Court assumed a decisive role in determining the scope and extent of the protection given to private property in the 1787 Constitution vis-à-vis state and federal legislatures between the 1870s and the 1930s. In turn, Section 10.4 describes how political processes in Mexico, Chile, and Colombia prompted constitutional conventions and sweeping legislative initiatives that displaced the ‘classic’ constitutional protection of private property on behalf of a more socially oriented and pragmatic approach roughly during the same time. Finally, Section 10.5 offers some concluding remarks as to what these changes tell us about the role constitutions have in the foundation of markets.

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10.2 The Tension between the Constitutional Protection of Private Property and Popular Sovereignty Our enquiry begins with classic liberal ideas about political power, property, and society that emerged during the eighteenth and nineteenth centuries in England and Europe. Articulating a rationale for the (legitimate) foundations of political power was a common endeavour among classic liberal thinkers, who early on had differences regarding key issues. However, and especially so by the late eighteenth century, events such as the independence of the U.S. and the French Revolution led to different positions regarding the legitimacy of political power and the constitutional protection of private property. For the sake of brevity, we discuss here the ideas that provide an intellectual background before describing two variants of ‘classic legal thought’ involving property rights in England and in France. A distinctively English variant of classic liberalism spoused a rationale for political power that was based on a natural law theory about the origins of private property and freedom of contract. A particularly important political event for the germination of John Locke’s idea was the Glorious Revolution of 1688–1689, which led to the Declaration of Rights and the consolidation of Parliament as a political body. Locke’s view of the origins of civil society and the legitimacy of sovereign political power places considerable emphasis on the origins and protection of private property. In his Second Essay Concerning the True Original, Extent and End of Civil Government, Locke (1689 [1764]) states that private property stems from the rational efforts of individuals to transform natural riches in their own private property to satisfy their necessities. The sovereign, in turn, is established to protect property from theft (along with other rights). However, if the sovereign himself incurs in theft, or murder, individuals retain the right to challenge and overcome it. As a result, the endowment of the sovereign with the power to punish wrongdoers, and the construction of civil society, have at their core the protection of private property (Locke, 1764). Given this intellectual background, it should not be a surprise that Sir William Blackstone, a towering figure in regarding classic legal thought, viewed private property as conferring absolute rights to title holders vis-à-vis third parties. In his Commentaries on the Laws of England, Blackstone (1753 [1893], p. 304) wrote There is nothing which so generally strikes the imagination, and engages the affections of mankind, as the right of property; or that sole and despotic dominion which one man claims and exercises over the external things of the world, in total exclusion of the right of any other individual in the universe. Just like Locke, Blackstone makes the case for a natural law theory about the origins of private property, arguing that property appeared when men seized

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a good for their own benefit. And, in a similar way, he makes the case that the institutions of government are necessary precisely for preserving private property. He writes ‘Necessity begat property; and, in order to ensure that property, recourse was had to civil society, which brought along with it a train of inseparable concomitants – states, government, laws, punishments, and the public exercise of religious duties’ (Blackstone, 1893, p. 307). Just as Locke and Blackstone reflected upon the events of their lifetimes, so did Edmund Burke; but while Locke made the case for the legitimacy of the Glorious Revolution, Burke made the case against sweeping revolutions altogether. Burke’s views are relevant for our purposes, because he makes the case against swift changes that go against history and experience in spite of resulting from popular will and the best intentions. In his Reflections on the Revolution in France, Burke (1790 [1999]) criticizes harshly the 1789 French Revolution. Firstly, Burke condemns the Revolution for dispensing with the institution of the monarchy and all its features. In doing so, the Revolution also dispensed with the establishment of a civil society founded on institutions that, although imperfect, were part of the constitutional makeup of France. In the place of these hereditary institutions, the Revolution was set to begin anew, as if the past never existed. The foolishness of this endeavour is due to the mistaken premise that abstract ideas, like the ones harboured in The Declaration of Human Rights, can be used to refashion civil society. In doing so, Burke argues, the Revolution is premised on the idea that the government established by the Revolution could render better decisions than those resulting from experience under the alternative in place. However, Burke does not reject the existence of rights entirely, but he asserts that ‘the real rights of men’ involve industriousness and freedom – ‘Whatever each man can separately do, without trespassing upon others, he has a right to do for himself’ (Burke, 1790 [1999] p. 150). Burke also discusses the importance that estate property is inherited, because by such a mechanism its proper administration is subject to the test of time; something that the French revolutionaries did not take into consideration (Burke, 1790 [1999] pp. 141–150). Burke’s views regarding the origins of property and the importance of popular will can be contrasted with those of Jean Jacques Rousseau. In The Social Contract or Principles of Political Right, Rousseau (1762 [1913]) does not offer any moral qualification of the acts of mankind during the state of nature, for he considered that judgement of acts depends upon social agreements about what is good. And, because it is impossible to pass judgement on such acts before a social agreement takes place, it is equally impossible to conceive individual rights, including those that stem from ownership, because the existence of rights presupposes an agreement about what is correct. The act of coming together and forming a civil society is an act that replaces the might of force with the right of common agreement; but the willingness to take part in civil society also entails the willingness to abide by the rules of society. Sovereignty, therefore, resides in the citizens as they act through the

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commonly agreed mechanisms that bring about political decisions that should be arranged towards the common good. Moreover, individuals acting against the general will of civil society expressed in laws can be legitimately punished because the law has a moral dimension that commands obedience (Rousseau, 1762 [1913]). In an earlier writing about the origins of inequality, Rousseau (1755 [1913]) follows this line of reasoning to conclude that aspects of social life, such as disparities in wealth, could not be attributed to the state of nature but were rather a function of the operation of the law of civil society. Somewhere in the middle between the views of Burke and Locke, on the one hand, and Rousseau, on the other, we find quite different positions within classic legal thought in France about private property and the social power it entails. The specific legal provision we consider here is article 544 of the 1804 Code Civil, which states ‘Property is the right of enjoying and disposing of things in the most absolute manner, provided they are not used in a way prohibited by laws or statutes’ (1804 [1827]). It is commonly argued that this view of property follows from an individualistic view of property, similar to that of Blackstone; the phrase ‘in the most absolute manner’ certainly conveys the idea of property as entailing absolute rights. However, Gordley (1994) suggests a more complex perspective. The drafters of the Code assert that they were mostly collecting institutions that were already in place, rather than inventing a legal order anew. In this sense, the Code is characterized more as a collection of ideas and institutions already in place than as a completely new and original creation (Gordley, 1994; see also Portalis, 1804 [2004]). The distinctive individualistic perspective considering private property came with mid-nineteenth century commentators who viewed property as the ‘subjection of a thing to the will of a proprietor’ (Gordley, 1994, p. 468). The view, as stated by commentators such as Charles Aubry and Frederic C. Rau, is that property is about fully exerting one’s will over an object. Jean Charles Florent Demolombe describes it in the following terms as ‘an absolute right, property confers upon the master a sovereign power, a complete despotism over the thing’ (cited in Gordley, 1994, p. 467). As the views of these authors became well regarded, so did the idea that private property is an absolute right, according to which an owner is free to use or dispose of the object under his control in any way. Interestingly, both the English and French versions of classic legal thought regarding private property converge on the notion of granting property owners complete control over the objects they own, even if they seem to disagree about the origins of the institution itself. In a way, the constitutional tension between protecting private property and legislation is moot if the latter acknowledges the importance of the institution (as suggested by Portalis). In this sense, private property is a form of regulation that exists because popular sovereignty thus expressed itself in that way. But when this is not the case, as Burke argued, regulation becomes a threat to the industriousness and freedom

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of individuals; experience suggests that protecting private property, either explicitly as a political choice or because of the gradual evolution of institutions, is congenial to a good government. In this light, the ‘radical’ political choice to fashion private property after the general will, as suggested by Rousseau, would be self-defeating because it would be a property regime that would not be based on experience and industriousness. By the early twentieth century, a quite different line of analysis regarding private property began taking shape. French legal realists, such as León Duguit, observed that private property, contracts, and torts were becoming increasingly affected by a ‘social function’. In contrast with the idea of property rights as absolute rights, property had become the site of public activities that served the public interest. In part this is due to the need to reconcile individual and collective interests (Duguit, 1920 [1912]). The thrust towards a more sociological approach towards private property led to very important developments across the Atlantic. American legal realists pushed forward this view by considering that property relations bring about vertical relations in which owners can set the terms of social life over all others. Morris Cohen (1927) argued that private property was not just about rights over thing, but rather a way in which the law enables property owners to control the actions of other individuals by conditioning their access to certain goods or services. ‘To the extent that these things are necessary to the life of my neighbor, the law thus confers on me a power, limited but real, to make him do what I want’ (Cohen, 1927). However, the effort to bring about such reconciliation is considerably more difficult than what can be considered at first glance. Absent the interference of the State, unequal power determines which interest prevails over the struggle for property. Robert Lee Hale (1943) noted that state actions support the exercise of property rights, thus rendering private property a prerogative supported by the state itself. Hale also extended this analysis to other forms of legal entitlements. In general terms, the law shapes the interactions between different social actors, including their relative strengths and weaknesses. So, for example, when factory workers bargain over their wages with their employer, they do so from the relative position of strength created by the law itself, more so when the law allows for labour unions. The relative bargaining power of each of the parties is affected if, for example, the workers have a right to strike or if the factory owner has a right to only hire workers that accept not to participate in labour strikes. It is important to consider that most of these academic perspectives were grounded on social, economic, political, and legal issues that were taking place at the time. Between the 1870s and the 1930s, European and American authors (including the ones mentioned above) challenged classic legal thought and especially the idea of private property as entailing absolute rights (Kennedy, 2006).

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During this period CLRs came to fruition. These regimes are quite i­nteresting for our purposes precisely because they are about establishing limits to the ways in which property owners can exercise their rights for the benefit of third parties. They do so in three ways. First, these regimes prohibit uses of property that can be construed as ‘monopolization’ or ‘abuse of dominance’ by an individual market actor that has market power. Second, they prohibit contracts (including those that involve transferring property) when they involve agreements about prices, quantities, or even markets and clients. Thirdly, they establish that certain transactions entailing the acquisition of assets must be subject to government approval to prevent the participating actors from facilitating in restrictions to competition in the foreseeable future. Because of these features, it should be at least apparent that CLRs are largely inconsistent with a classic view about property. This inconsistency is why we need to explain how constitutions that protect private property in terms of classic legal thought brought forth regulations that, like CLRs, limit it in important ways. The discussion presented in the preceding paragraphs hints at why ‘enshrining’ a classic, liberal view of private property in a constitution would be politically contested, especially if it were used to limit channelling popular will through democratic institutions. The criticism, to be clear, is that a constitution cannot do both; it cannot adhere to a classic liberal view of private property and at the same time foster collective decision-making that is channelled into regulation. Or, in other words, protecting a classic view of private property places considerable limits upon democracy as an expression of collective self-government. A constitution that ‘enshrines’ a classic, liberal view of private property would be unable to accommodate for all the different interests that converge over property. It would also remain mute regarding the distributive issues associated with its regulation. What this criticism suggests is that private property is an increasingly more complex phenomenon than what the perspective of classic liberalism suggests. In the next section, we address this complexity by looking at the historical conditions that favoured the enactment of regulations as the constitutional protection of private property became subject of important reforms.

10.3 The Constitutional Protection of Private Property in the United States of America and the Origins of Antitrust Law (1770s–1830s) Locke and Rousseau were well-read authors during the independence movements that began taking place during the second half of the eighteenth century. As expected, their reception in America was conditioned by the cultural backgrounds of the colonies. By the time Rousseau became more influential, just after the French Revolution, the former English colonies had already identified themselves with the political thought of John Locke. In fact, not only was Locke’s thought highly influential among the ‘Founding Fathers’, he also

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drafted the Constitution of the State of Carolina (Gowdy, 2019). The former Spanish colonies, in turn, revolted against Spanish institutions and adopted their French counterparts, thus embracing different ideas about government, including those that resonated with the ideas of Rousseau (Spells, 1935). The English tradition of considering private property as a limitation to lawful government appears early in American constitutionalism. To begin with, the 1776 Declaration of Independence states that all men are created equal and that they are endowed with inalienable rights; that to protect these rights men consent to create governments, and that any form of government that endangers these rights can be modified or abolished by their citizens. The Declaration states the following: We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. – That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, – That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government. This view about the role of government was also present in the discussions surrounding the draft and ratification of the constitution. After the Independence war, there was a growing awareness among the political leaders of the time that the Articles of the Confederation, also from 1776, were not adequate for governing interstate matters effectively. The political discussions that followed from the process of its amendment led to the 1887 Constitution of the United States (Ackerman and Katyal, 1995). The ratification process of the newly adopted constitution led to important discussions about the proper role of government vis-à-vis individual rights and freedoms. In The Federalist No. 10, for example, James Madison argued in favour of a limited government by ascertaining that ‘The diversity in the faculties of men, from which the rights of property originate, is not less an insuperable obstacle to a uniformity of interests. The protection of these faculties, is the first object of government’ (Madison, 1787, p. 48). The concern of having governments unduly limiting individual rights can be appreciated in the allocation of law-making authorities among the different branches of power established and in the Bill of Rights. Consider for example, regarding law-making powers, section 10 of Article 1 of the Constitution, which states that ‘No State shall (…) pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts’. Also, section 8 of article 1 of the Constitution limits the issues that the federal congress can regulate to issues that require interstate coordination (like determining a common currency). This mandate prevents the states from amending biding and valid contracts. As for the Bill of Rights, the 5th Amendment establishes that ‘No person

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shall (…) be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation’. In turn, the 10th amendment establishes that the states retain the prerogatives that the constitution does not endow to the federal government, and that are not explicitly prohibited (The Constitution of the United States of America, Article II section 8). Both the substantive provisions and the institutional architecture of the U.S. Constitution regarding the protection of property rights and freedom of contract were reinforced with the adoption of the 13th and 14th amendments after the Civil War. In particular, section 1 of the 14th amendment extended the prohibition of depriving citizens of their ‘life, liberty or property without due process of law’ established in the 5th amendment to the federal government, a mandate with considerable economic significance given that federal regulation could address issues involving property rights and freedom of contract (Hovenkamp, 1988, pp. 394–396). Here it is important to consider the role of the U.S. Supreme Court in interpreting these provisions. The U.S. Constitution enables the Supreme Court to review the scope of both federal and state-based regulation that limits property rights and freedom of contract. Notably, the tolerance extended by the Court has changed over time, lapsing between different views. By the 1870s, the Supreme Court began developing the substantive due process doctrine according to which states did not have the prerogative to change common law entitlements, because doing so would imply trespassing over the individual’s property rights and freedom of contract (Lochner v New York, 1906). A good example of this doctrine can be found in the 1906 decision Lochner v New York, in which the Supreme Court declared unconstitutional a New York State law that limited the maximum hours that bakers could work on the grounds that this law unduly deprived them of their freedom of contract (Lochner v New York, 1906). Lochner is an example of how the constitutional protection of private property stands as a barrier to regulation; however, the limitations imposed upon channelling the popular will into regulation are evident. Just as political and social conditions changed, so did the interpretation of the relevant provisions by the Supreme Court. The political environment of the New Deal brought about changes regarding the stance adopted by the Court on these issues. In 1937, the Supreme Court referred explicitly to this issue when it decided to uphold federal and State labour regulations. In NLRB v Jones & Laughlin Steel Corp. the Court argued that under the constitution the states may maintain their common law entitlements but in doing so they cannot affect commercial matters that transcend state limits; even this brings about consequences within the state. In a similar vein, in West Coast Hotel v Parish the court upheld a Washington State labour statute that imposed minimum wages for women and explicitly challenged relying upon common law entitlements for ascertaining the constitutionality of a law. Overall, the choice to uphold labour law statutes precisely because they resulted from a democratic process

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signals a departure from the previous decisions and suggests that the protection extended to property rights cannot become an obstacle to democratic activities. After this ‘change of heart’, the Supreme Court would uphold many state and federal laws until the 1990s. This summary account of the constitutional protection extended to property rights and the interpretation of the relevant constitutional provisions by the U.S. Supreme Court exemplifies the tension mentioned at the beginning of this chapter. It is also useful for understanding some notable features of antitrust law. Shortly after the enactment of the 13th and 14th amendments, social unrest regarding railroads and other large-scale business grew considerably and became politically salient. The ‘Granger Movement’, as it was referred to, led to the adoption of laws forbidding cartels and the constitution of monopolies at the state and federal levels (May, 1989). The congressional record of the 1890 Sherman Act evidences the tension between protecting the lawful exercise of private property rights and the need to punish those individuals and corporations that abused of their property (Congressional Record, p. 2560). However, the text of the Sherman Act accommodates both a classic legal perspective on private property and a more social approach to property. The ‘classic’ element is best evidenced in the wording of the activities that were being prohibited. Instead of referring to anticompetitive behaviour in a straightforward way, sections 1 and 3 of the Act use the expressions ‘in restraint of trade’. In doing so, these sections incorporate the language of a common law doctrine that dates back several centuries and which is about the validity of agreements that prevent parties from entering into a commercial activity and the prerogatives of the English Crown regarding certain activities (Congressional Record, p. 2456). This was not the original text submitted by Senator John Sherman and it was adopted much to his dismay; it was the wording chosen by the judicial committee of the Congress (Kolasky, 2009). The ‘social’ element can be best appreciated in the legal consequences established in the Act. Rather than being a merely commercial issue, agreements, combinations, or conspiracies ‘in restraint of trade’ and ‘monopolization’ or its attempts became criminal offences that could be tried before the federal courts by third parties affected by such conduct, and the awards for damages can be up to three times the actual damages caused. As expected, the first decisions by the Supreme Court wrestled precisely with making sense of the text of the Sherman Act. Some of these decisions, such as the 1904 decision Northern Securities, discuss whether the Sherman Act prohibits the acquisition of corporate shares that would bring a considerable part of a market under a single corporation in the name of competition. The 1911 decision in Standard Oil involved a challenge brought against the corporate organization of said company, owned by J. D. Rockefeller, for it controlled important elements of the production and transportation of oil to the detriment of suppliers and rivals. The Court established the ‘Rule of Reason’

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doctrine, according to which the Sherman Act only prohibits restraints of trade that are ‘unreasonable’. While the Court ruled against Standard Oil and ordered its fractioning, the grounds of the decision were heavily criticized; the debates were prominent in the presidential election of 1912 and eventually led to the enactment in 1914 of the Federal Trade Commission Act and the Clayton Act, both of which were meant to clarify the legislative mandate of the Sherman Act and strengthen the prohibitions against anticompetitive acts (Kolasky, 2011). Overall, the enactment of the antitrust statutes, but specially of those enacted in 1914, can be understood as a decisive push in favour of setting the limits to what property owners (with market power) can do, despite the constitutional protection of private property established in the 14th amendment. As the next section shows, the constitutional tension between protecting private property and channelling popular will into regulation was solved very differently in Latin America. Whereas in the U.S., the Supreme Court established the extent of the protection given to property owners by the 14th Amendment on a case-by-case basis and adopted different perspectives over time, in Latin America the changes occurred via the enactment of new constitutions altogether or the amendment of the constitutional texts established. Overall, the processes we detail below in Mexico, Chile, and Colombia suggest a different pattern based on collective constitutional decision-making.

10.4 The Constitutional Protection of Private Property and the Dawn of Competition Law Regimes in Latin America (1820s–1950s) The 1789 French Revolution was very influential in the Spanish colonies in Latin America, especially as it ascertained republican ideals of equality under the law and collective self-government (Spells, 1935; Borrego and Zea, 1993). Even so, they were not the only ideas in the intellectual landscape; they rivalled both conservative ideas about elitist institutions and with liberal fears about radical politics. The result was constitutions that blended arguments in favour of strong protection to property rights and popular sovereignty, bicameral parliaments and a strong executive branch, and a weak judiciary. By the end of the nineteenth century, Latin American constitutionalism was more conservative and liberal than egalitarian or ‘radical’ (Gargarella, 2013). The constitutions of Mexico, Colombia, and Chile adopted during the second half of the nineteenth century (except for Chile’s 1833 Constitution) established explicitly that property rights acquired according to the laws had to be respected and could not be affected by later laws. This type of provision is characteristic of Latin American constitutionalism. It gives special prominence to the local transplantations of the French 1804 Code Civil, considered a significant trait of French legal thought (Mirow, 2005), since these codes established the way in which property can be acquired, used, and disposed of. The effect of these provisions is like that of the common law in the

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constitutional law of the U.S., that is, as a baseline for assessing the extent to which regulation could be considered constitutional or not. Beginning with the Civil Code of Oaxaca (Mexico), promulgated between 1827 and 1829, Latin American governments of different political affiliations adopted civil codes of their own until the early twentieth century. Their adoption was convenient from different perspectives. Firstly, the French 1804 Code Civil regulates core issues of private law, and its transplantation seems more economical than the enactment of piecemeal legislation (Mirow, 2005). Secondly, local elites identified themselves closely with France and its institutions, and they understood the Code as being better suited for the conditions that the former colonies faced at the time (Mirow, 2005, p. 183). Overall, the transplantation of the Code Civil can be understood as a way through which local elites – law professors, judges, and government officials – aspired to ascribing to a distinctively European tradition, considered to be the pinnacle of Western legal thought. However, the economic and social processes taking place since the late nineteenth century brought about important challenges to the constitutional protection afforded to private property. Beginning with the Mexican revolution, new political movements based on improving the conditions of low skilled workers and rural peasants brought about new challenges to said protection. The Mexican Constitution of 1917, which was enacted after said revolution, places a strong emphasis on popular sovereignty and on the democratic design and control of the economy. In particular, the original text of article 27 of this constitution stated that the nation can impose upon property rights requirements that follow from ‘public interest’ and regulate the use of the privately held natural resources to distribute wealth fairly and ensure the preservation of natural resources.1 In the years that followed, this article was modified several times to justify massive land reform programmes and industrial expropriation processes (Creel, 1968). A somewhat similar process took place in Chile. In 1924, army officials revolted against the civil government of Arturo Alessandri because of its inability to carry out an ambitious social agenda in congress (including better conditions for the military). After terse negotiations between Alessandri and the armed forces, the former resigned on September 8, only to be assumed into office once more with the support mostly of liberal and radical political groups and lower rank members of the military just a couple of months after. This support contributed to the enactment of a new constitution in 1925 (Nunn, 1967). Section 10 of article 10 of this constitution establishes that no individual shall be deprived of their property without due process, unless it is required for a legally defined public purpose, for example in which compensation is owed to the owner. However, it also states that private property is subject to ‘public utility’ limitations required for maintaining social order, and therefore the law may impose restrictions ‘in favor of the interests of the State, the health of the citizens and the public well-being’ (Chilean Constitution, article 10).

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The political negotiations leading to the drafting of this section are exemplary of the political tensions underlying the constitutional protection of private property in Chile. During the constitutional assembly, led by President Alessandri, conservatives claimed protection of private property akin to the one stated in the 1833 Constitution, based on the idea of protecting private property and allowing only for expropriations after compensation. The first part of section 10 of article 10 meets such demands. But, at the same time, liberal and radical parties demanded a different view about private property more inclined towards the concerns of social welfare. The second part of said section appeased these groups; the idea of limiting them in the name of ‘public utility’ was also included as a way of showing that Chilean constitutionalism was keeping up with the social changes of the time. The notion of the ‘social function’ of property was used to justify wide ranging land reform and industrial development programmes throughout the twentieth century (Mirow, 2010). The amalgamation of a ‘classic’ constitutional protection of private property and the ‘social function’ view of said property also took place in Colombian constitutionalism. However, it was not preceded by a military coup as in Chile or a fully-fledged revolution as in Mexico but rather as a drastic swing in bipartisan politics. After three decades of conservative electoral victories (known as the ‘Hegemonía Conservadora’) the liberal party won the elections in 1930 and 1934. The government elected in 1934, led by President Alfonso López Pumarejo, embarked on an ambitious liberal reform which began with the amendment of the 1886 Constitution and its protection of private property. During the discussion of said amendment in 1935, President Pumarejo and his minister Dario Echandía emphasized the importance of protecting private property but that it should be understood in terms of the social function it should fulfil. The new text of the constitution included a provision that, just as in the case of Chile, combined the classic protection of private property and a clause stating its ‘social function’. This clause states that when individual private property rights and public interests collide, the social takes precedence, adding furthermore that ‘Property is a social function that brings about duties’ (República de Colombia, 1936). In 1936 the Colombian congress promulgated the proposed amendment, and it became the cornerstone of the land reform policies that President López began to implement (Bonilla, 2011). The 1945 and 1968 amendment further developed these ideas and established the framework for the enactment of regulation that reorganized economic activities (Palacios Lleras, 2016). It is important to consider here that underlying the political changes was a very important change in how private property was understood by the elites directing such changes (like Presidents Alessandri and López Pumarejo). This can be appreciated by the influence that León Duguit and other French authors had on private law theory in Latin America. Duguit presented his ideas about private property having a social function in a paper entitled ‘General Transformations of Private Law Since the Code Napoléon’ at a conference

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delivered in Argentina in 1911. However, the argument made by Duguit – that the social transformations he was evidencing described a ‘social function’ of private property – was quite different from the normative commands established in the Chilean or Colombian constitutions. While Duguit’s claims were mostly about the changes he was observing (Mirow, 2010, p. 208), the constitutional mandates involving the ‘social function’ approach were used as a normative foundation for the enactment of sweeping economic regulation. CLRs were among the regulatory regimes that were enacted as these constitutional changes were taking place, or after them. The case of Mexico is quite unique. Just as article 27 of the 1917 Constitution establishes several mandates about how property rights are exercised, article 28 is the first constitutional provision that addresses competition issues explicitly. The text of this article prohibits, with a few exceptions regarding public utilities and such, all monopolies and practices that restrict competition, especially those that affect the poorer classes (Constitution of Mexico, 1917). The intellectual influences regarding this article are unclear, however, we know the issue of economic exploitation was a concern of the drafters of said constitution, and especially of Venustiano Carranza (Carranza, 1916). The mandates established in article 28 of the Constitution were developed in several laws and decrees between 1926 and 1950 and were debated by the Supreme Court mostly in cases involving restrictions on economic activity (Palacios Lleras, 2016). The important argument to consider here is that article 28 of the 1917 Constitution followed precisely from a revolution and reflects a very different view of the protection of private property advanced in classic legal thought. In Colombia and Chile, the changes in the constitutional protection of private property contributed to the development of CLRs in less direct ways than how it happened in Mexico. The first CLRs date from 1955 and 1959 respectively. However, we contend that their enactment could not have taken place at least before the changes in the constitutional landscapes led by Presidents López Pumarejo in Colombia and Alessandri in Chile in 1925 and 1936, respectively. In both countries, the ‘social function’ clause in the respective constitutions was used to justify many policies that resulted in drastic interventions in the economy and, from a ‘classic’ perspective, the curtailment of property rights. Chile’s law 13.305 of 1959, which contains the first provisions addressing competition concerns, was devised to address inflation and to organize the fiscal prerogatives of the State. Moreover, the law empowers the president and his subordinates to carry out the mandates therein established, in clear line with Chile’s tradition of presidentialism (Vargas, 1989). In the case of Colombia, the first CLR was enacted in 1955 as a presidential decree during the government of general Rojas Pinilla; little is known about why it was enacted then (Palacios, 2016). A later law, from 1959, collects some of the mandates established in the 1955 decree and develops them further; this law, however, does make an explicit reference to the ‘social function’ clause of

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the 1936 amendment to the Colombian constitution to justify the intervention of the competition authority in the pricing policies of private firms. The 1959 law has a clear ‘developmentalist’ ethos, for it conceives competition law enforcement as a mechanism for achieving economic development rather for the sake of preserving market rivalry. Overall, both the Chilean and the Colombian laws from 1959 can be understood as ‘public law’ mandates that curtail the full exercise of private property and freedom of contract (Palacios, 2016). In contrast with the U.S., in Latin America – Chile, Colombia, and Mexico – the enactment of CLRs relied importantly on constitutional mandates that expressly allowed for the limitation of private property. It is quite difficult to conceive that the enactment of regulation in general and of CLRs in particular could have occurred differently. Against the light of these experiences, the enactment of the antitrust laws in the U.S., and in particular the role of the Supreme Court in interpreting both the constitution and the Sherman Act, are hard to explain from a democratic perspective. The changes that occurred via adjudication in the U.S. also took place but through revolution and constitutional amendment in Latin America.

10.5 Conclusions The constitutional tension between the constitutional protection of private property and channelling popular will through democratic processes and into regulation lies at the heart of contemporary constitutional law and practice. It is worth considering to what extent such protection becomes a limitation for the enactment regulation, just as it is worth considering the Burkean alternative, that is, to what extent giving free reign to the enactment of regulation curtails private property in ways that are detrimental to society. In any case, our analysis here suggests that the enactment of regulation in the Americas between the 1890s and the 1950s would have been quite difficult if it were not for the ‘softening’ of the constitutional protection of private property. The 1787 Constitution of the U.S. with its emphasis on limited government was conceived precisely to limit what the State could do vis-à-vis its citizens. As a result, it has in-built limitations on the power of representative organs, especially at the federal level. In contrast, the Mexican Constitution of 1917, the Chilean Constitution of 1925, and the 1936 amendment to the 1886 Colombian constitution balance things differently. They drew largely from socially oriented theories about property that view property rights as rights stemming from positive legal rules and amendable in the name of social purposes and policies. All these constitutions (and amendments) provide a limited protection to private property and, in turn, lay the foundations for the enactment of regulation, mostly through parliaments and administrative institutions. At their core, they amounted to breaking up with the constitutional order and redefining what constitutions do and how they do it. While the

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Burkean challenge remains, it has not determined the path followed by the democracies in the Americas. These analyses invite questions about the constitutional foundations of contemporary regulation. Most analyses of this issue resort to determining whether the regulation was enacted by the constitutionally appointed authority for such purposes. But to what extent can this constitutional tension be resolved only by resorting to the constitutional texts themselves? Who is to say that the constitutional protection of private property limits or is limited by the constitutional mandates allowing for the enactment of regulation? These important questions receive two different answers from the Americas. Is it clear that one is superior to the other? In either case, the tension between the protection of private property and the channelling of popular sovereignty through democratic institutions into regulation is an extremely useful tension to assess the legal underpinnings of economic processes.

Note 1 Article 14 also states that no individual may be deprived of his liberty, his possessions, or his property without a trial before tribunals previously established, in which the essential formalities of the procedures are met and following laws adopted before the facts tried.

References Ackerman, B. and Katyal, N. (1995). ‘Our unconventional founding’. University of Chicago Law Review, 62(2), pp. 475–573. Blackstone, W. (1773 [1893]). Commentaries on the Laws of England. In Four Books. Vol.1, Books I & II. Philadelphia: J.B Lippincott Company. Bonilla, D. (2011). ‘Liberalism and Property in Colombia: Property as a Right and Property as a Social Function’. Fordham Law Review, 80(3), pp. 1135–1170. Borrego, M. and Zea, L. (1993). América Latina ante la Revolución Francesa. Mexico: UNAM. Burke, E. (1790 [1999]). ‘Reflections on the revolution of France’. In: E. Payne, ed. Select works of Edmund Burke. A new imprint of the Payne edition. Vol. 2. Indianapolis, IN: Liberty Fund, pp. 85–367. Carranza, V. (1916). ‘Discurso de Venustiano Carranza, Primer jefe del Ejército Constitucionalista, al abrir el Congreso Constituyente en su sesión del 1º de Diciembre de 1916’. Available at: www​.constitucion1917​-2017​.pjf​.gob​.mx (Accessed October 21, 2021). Cohen, M. (1927). ‘Property and sovereignty’. Cornell Law Review, 13(1), pp. 8–30. Creel, L. (1968). ‘‘Mexicanization’: a case of creeping expropriation’. Southwestern Law Journal, 22(2), pp. 281–299. Duguit, L. (1912 [1920]). Les transformations générales du droit privé depuis le Code Napoléon. Paris: F. Alcan. Gargarella, R. (2013). Latin American constitutionalism,1810–2010: the engine room of the constitution. New York: Oxford University Press.

194  Andrés Palacios Lleras Gordley, J. (1994). ‘Myths of the French Civil Code’. The American Journal of Comparative Law, 42(3), pp. 459–505. Gowdy, J. D. (2019). Thomas Jefferson & James Madison’s guide to understanding and teaching the constitution. Charlottesville, VA: The Washington, Jefferson & Madison Institute. Hale, R. L. (1943). ‘Bargaining, duress, and economic liberty’. Columbia Law Review, 43(5), pp. 603–628. Hovenkamp, H. (1988). ‘The political economy of substantive due process’. Stanford Law Review, 40(2), pp. 379–447. Kennedy, D. (2006). ‘Three globalizations of law and legal thought: 1850–2000’. In: D. Trubek and A. Santos, eds. The new law and economic development: a critical appraisal. Cambridge: Cambridge University Press, pp. 19–74. Kolasky, W. (2009). ‘Senator John Sherman and the origin of antitrust’. Antitrust, 24(1), pp. 85–89. Kolasky, W. (2011). ‘The election of 1912: a pivotal moment in antitrust history’. Antitrust, 25(3), pp. 82–88. Locke, J. (1689 [1764]) ‘Second essay concerning the true original, extent and end of civil government’. In: T. Hollis, ed. Two treatises of government. London: A. Millar et al, pp. 193–384. Madison, J. (1787). ‘The federalist no. 10’. In: I. Shapiro, ed. The Federalist Papers. New Heaven, CT: Yale University Press. May, J. (1989). ‘Antitrust in the formative era: political and economic theory in constitutional and antitrust analysis, 1880–1918’. Ohio State Law Journal, 50(2), pp. 257–395. Mirow, M. C. (2005). ‘The code Napoleon: buried but ruling in Latin America’. Denver Journal of International Law & Policy, 33(2), pp. 179–194. Mirow, M. C. (2010). ‘The social-obligation norm of property: Duguit, Hayem, and others’. Florida Journal of International Law, 22, pp. 191–226. Nunn, F. M. (1967). ‘Military rule in Chile: the revolutions of September 5, 1924 and January 23, 1925’. Hispanic American Historical Review, 47(1), pp. 1–21. Palacios, A. (2016). ‘Competition law in Latin America: markets, politics, expertise’. UCL Ph.D dissertation. Available at: https://discovery​.ucl​.ac​.uk​/id​/eprint​/1529869​ /1​/Palacios​%20Lleras​_AP​_final​_draft​_corrections​-102016​.pdf (Accessed October 21, 2021). Portalis, J. (1801). ‘Discours préliminaire du premier projet de Code civil (1801)’. Available at: https://www​.justice​.gc​.ca​/eng​/rp​-pr​/csj​-sjc​/ilp​-pji​/code​/page05​.html​#note1 (Accessed October 21, 2021). Rousseau, J. J. (1755 [1913]) A discourse on a subject proposed by the academy of Dijon: what is the origin of inequality among men, and is it authorised by natural law? Available at: https:// aub​.edu​.lb​/fas​/cvsp​/Documents​/Dis​cour​seon​Ineq​uality​.pdf879500092​.pdf (Accessed October 21, 2021). Rousseau, J. J. (1762 [1913]). ‘The social contract or principles of political right’. Available at: https://socialpolicy​.ucc​.ie​/Rousseau​_contrat​-social​.pdf (Accessed October 12, 2021). Spell, J. R. (1935). ‘Rousseau in Spanish America’. Hispanic American History Review, 15(2), pp. 260–268. Vargas, F. S. (1989). ‘Diagnósticos equivocados’. Revista de Derecho Público, (45/46), pp. 79–93.

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Official Documents Chile República de Chile. (1925). Constitución Política De La República De Chile. Available at: https://obtienearchivo​.bcn​.cl​/obtienearchivo​?id​=documentos​/10221​.1​/17659​/1​/ Constituci​%C3​%B3n​%20pol​%C3​%ADtica​%20de​%20la​%20Rep​%C3​%BAblica​%20de​ %20Chile. ​ % 20promulgada ​ % 20el ​ % 2018 ​ % 20de ​ % 20septiembre​ % 20de​ % 201925​ . pdf (Accessed October 22, 2021).

Colombia República de Colombia. (1936). ‘Acto Legislativo 01 de 1936, Diario Oficial No. 23.263 de Agosto 5 de 1936’. Available at: https://www​.suin​-juriscol​.gov​.co​/viewDocument​ .asp​?id​=1824914 (Accessed October 21, 2021).

France The code Napoleon; or the French civil code. Translated from the original and official edition, published at Paris, in 1804. Available at: http://files​.libertyfund​.org​/files​/2353​/CivilCode​ _1566​_Bk​.pdf (Accessed October 22, 2021).

United States of America Adams, J., et al. (1776). Declaration of independence. United States of America. Judicial decisions (Supreme Court). Northern Securities Co. v United States. (1904). 193 U.S. 197. Lochner v New York. (1906). 198 U.S. 45. NLRB v Jones & Laughlin Steel Corp. (1937). 301 U.S. 1. Standard Oil Co. of New Jersey v United States. (1911). 221 U.S. 1. West Coast Hotel v Parish. (1937). 300 U.S. 379.

Chapter 11

Multinationals, Inequality, and a Competition Law Response Lessons from the East India Company Amber Darr

11.1 Introduction Although inequality in its various forms has existed throughout history (Fleischacker, 2004)1 protests against it have particularly gained momentum in modern times: not only do the United Nations Sustainable Development Goals 2030 recognize the importance of reducing ‘inequality within and among countries’ (UN Sustainable Development Goals 2030, ca 2015), but also the global health crisis following in the wake of Covid-19 has thrown into relief the way in which inequality prevents entire groups of individuals from accessing even the most fundamental amenities such as food and healthcare, and has thereby created greater awareness of the human cost of inequality. However, even as most people agree that the world is an unequal place and that it is important to do something about it, they disagree about almost everything else regarding inequality. For instance, there is little consensus as to the type of inequality that is of greatest concern (Suttle, 2018, p. 3), the causes of inequality, and the measures that may be adopted to address it (Sen, 1999, p. 84).2 Also, there is an ongoing debate as to whether inequality of income, outcome, or opportunity is more damaging (Atkinson, 2015, pp. 9–11), whether inequality within, rather than across countries be prioritized (William and Pickett, 2010, pp. 11–14; Rodrik, 2017), whether inequality is a consequence of behaviours inherent in communities and countries, or does it stem from national and global political and economic structures, and finally, whether inequality may be reduced through acts of charity or aid, or does it require a holistic re-evaluation of relevant national and global economic policies and institutions (Stiglitz, 2012, Ch. 9). In the context of this broader debate, this chapter focuses on factors contributing to the endemic inequality in South Asia, particularly in India and Pakistan,3 and argues that inequality between these countries and their Western counterparts exacerbates inequality within them. The chapter proceeds on the basis that multinationals are attracted to India and Pakistan, whether for trade or investment, due to the comparatively lower labour and input costs in these countries. India and Pakistan welcome economic relationships with multinationals DOI: 10.4324/9781003202257-13

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for their promise of growth and economic development and encourage them by ­providing them with necessary legislative and contractual protections and incentives. This chapter argues that notwithstanding the domestic economic growth they may deliver in the medium to long run, in exercising their superior bargaining power, these multinationals may also aggravate and embed pre-existing structural inequalities in these countries.4 Finally, the chapter proposes that competition law may be an appropriate instrument for restraining the potentially adverse impact of these multinationals and for creating conditions for a more equitable distribution of resources in host Indian and Pakistani economies, which may, in turn, bolster their relative position in the global economy. Although the discussion in this chapter focuses on India and Pakistan, the lessons extrapolated from it are equally relevant to other developing countries. To understand the impact of multinationals on inequality in their host economies, this chapter explores the operations of the British East India Company (EIC) in the Indian sub-continent particularly in the period between 1600 and 1857, in which the EIC was not only the largest buyer of certain raw materials in the Indian economy and collector of revenues on behalf of the Indian crown but also enjoyed a quasi-constitutional role as the adjudicator of disputes. The chapter draws a parallel between the EIC and modern, data-driven multinationals and argues that although these modern corporations lack the quasiconstitutional mandate that the EIC enjoyed in the Indian sub-continent, they are supported in their operations by rules that govern global economic relations and that have constitutional force for countries operating within the framework of the global economic order in present times. Analyzing the Indian and Pakistani situation in the context of this global economic order or the ‘economic constitution’, the chapter argues that an appropriately crafted competition regime may form an important bulwark against the structural inequality that is as likely to follow the operations of modern data-driven multinationals as it did of the EIC. This chapter develops this argument as follows: Section 11.2 examines the concept of an economic constitution and explores the economic constitutions of India and Pakistan; Section 11.3 traces the history and activities of the EIC in the Indian sub-continent and identifies their impact on the Indian economy. It also draws a parallel between the EIC and the modern, data-driven multinational; Section 11.4, the penultimate section, explores the reasons for which these countries need a ‘constitutional’ response to tackle inequality and why an appropriately designed competition regime may be the answer not only in India and Pakistan but also in all developing countries in similar economic relationships. Section 11.5, the final section, concludes.

11.2 The Economic Constitution Economic constitutions must be understood in the context of legal constitutions, defined by public law scholars as sets of rules and principles that may

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comprise various documents and laws that are differentiated from other rules and principles in two respects: they regulate matters fundamental to society and can only be amended by procedures more stringent than those prescribed for ordinary laws (Elster, 1995; SEP, 2001). 11.2.1 The Internal and External Dimensions of an Economic Constitution

The matter most fundamental to any society is the arrangement of its institutions. Constitutions, therefore, whether they are written or unwritten, or contained in one or more documents, are essentially ‘mapping documents’ in that they set out ‘the key state institutions, their interrelations, and their relationship with civil society’ (Prosser, 2014, pp. 7–8). However, constitutions are also ‘normative documents’ to the extent that they ‘set out the key principles of how we can expect government to conduct itself in its organization and relations with others (including its own agencies)’ (Prosser, 2014). But what do these interpretations of constitutions mean for the economy of a country? It may be argued that at one level constitutions establish the institutional infrastructure for the ‘management of the economy’ (Prosser, 2014). The term ‘management’ implies not only the exercise of discretion and decision-making but also that the power to exercise discretion or to make decisions is independent of the economy. It further has the effect of subordinating the economic to the political and legal which ‘manages’ the economy by exercising its discretionary and decision-making powers to make decisions not only directly about the economy but also about factors that though extrinsic to the economy, nevertheless impinge upon its operations (Prosser, 2014, p. 9), with the aim of striking a balance between economic efficiency and general well-being in the country (Elster, 1995). Another conception of the relationship between the constitution and the economy is attributed to F. V. Hayek (1960) and the neoliberal school generally, which views the legal constitution as providing an enabling framework for the operation of free markets. In this conception of the constitution, the economic realm is dominant and even the discretionary and decision-making powers vested in political and legal institutions are exercised for the benefit and protection of the economy in both its domestic and international dimensions rather than for other purposes, such as social welfare (Slobadian, 2018, pp. 12–13; Prosser, 2014, p. 8). In this conception, the constitution expands from the nation to the world: it is no longer only a set of domestic laws but also includes trade treaties ratified and agreements between and among countries (Slobadian, 2018, p. 184). 11.2.2 The Constitutionality of Competition Law

The nearly simultaneous end of World War II and the downfall of the British Empire gave birth to the inherently contradictory ideas of the ‘nation state’ and the ‘global economy’. Whilst a nation state represented legal and political sovereignty,

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usually codified in a national constitution, its core idea of absolute national sovereignty was diluted by the structure of the global economy which focused on economic interdependence and integration (Slobadian, 2018, p. 187) and on securing free trade and competitive markets first in terms of the GATT (signed in 1947), and later the WTO (established in 1995) (Slobadian, 2018, pp. 92–93). In practice, the competing demands of national sovereignty and the global economy have required countries to strike a balance between domestic constitutional commitments to ensure the well-being of all citizens and their obligations as members of the global economic order which prioritizes competition and consumer sovereignty (regardless of where these consumers are located) and is mistrustful of ‘the incipient power of democratically enabled masses’. In fact, it is this international emphasis on competition that has led to the proliferation of domestic competition regimes throughout the world (WTO, ca 2003; Wilks, 2018, p. 1). In its early iterations, competition policy, particularly in the E.U., was conceived simply as the freedom ‘to participate in the market and to trade fairly’ (Wilks, 2018, p. 3). However, from the 1990s onwards, it has increasingly become focused on allocative efficiency and consumer welfare, defined almost entirely in price terms (Wilks, 2018, p. 5; Khan and Vaheesan, 2017).5 Competition policy achieves these allocative objectives by creating a comprehensive system for the regulation of the commercial activities of companies (Wilks, 2018, p. 2); protecting the competitive process rather than the competitors; curbing private and public monopolies and cartels; and regulating state intervention and subsidies (Wilks, 2018). In checking private power through curbing the exploitative behaviour of monopolies and cartels, and controlling state power by preventing state monopolization (through nationalization), state-induced cartels, and state intervention and subsidies, competition policy also performs the important political function of policing the public-private boundary, which becomes ever more significant as the public sector becomes more dependent upon, and deferential to, the ever-expanding economic role of the private sector (Wilks, 2018, p. 5). In his seminal work on economic constitutionalism, Prosser recognizes a country’s competition policy as a core component of the economic constitution of a country in that it translates the country’s economic philosophy into law and defines the basic principles of economic conduct in the country (Prosser, 2014, pp. 8–9). However, even though commitment to competition and free trade is often recognized in national constitutions, the specific provisions for regulating competition in the economy are almost always detailed in ordinary legislation, which may be amended other than through the stringent procedures prescribed for amending constitutions. 11.2.3 Economic Constitutions of India and Pakistan

India and Pakistan share a common history and culture;6 are at comparable stages of economic development (World Bank, 2021); and have inherited the

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legal system that had been introduced by the British in the mid-seventeenth century (Great Britain. Indian Independence Act 1947). At the time of their creation, both India and Pakistan were governed by the Government of India Act (Great Britain, 1935). This Act established a federation and provinces; detailed the powers of their executives, legislatures, and judiciary (Government of India Act, Parts II, III, IX); prescribed the relationships between the federation and the provinces (Government of India Act, Part VI); and provided a formula for distribution of revenues amongst them (Government of India Act, sections 136–144). Interestingly, whilst the Act did not provide for the rights of citizens, it did give a ten-year income tax exemption to corporations established in the federation (Government of India Act, section 139). India and Pakistan adopted national constitutions in 1950 and 1956 respectively, with Pakistan adopting another constitution in 1962 until finally settling down with its 1973 constitution. Despite India’s claim to secular and Pakistan’s to Islamic ideology, their constitutions are remarkably similar: both confer a range of fundamental rights on their citizens (India. Constitution of India, 1949, Articles 12–35; Pakistan. Constitution of Pakistan 1973, Articles 8–28) which also echo the UN Declaration of Human Rights (United Nations, 1948). Both constitutions also affirm the countries’ commitment to free trade (Constitution of India, Art. 310; Constitution of Pakistan, Art. 18) and to private property (Constitution of India, Art. 300A, Constitution of Pakistan, Art 23–24) and in doing so, confirm their adherence to the core values of the global economy. In both India and Pakistan, these constitutional principles are intended to provide their citizens a basis for claiming their rights; inform legislations in these countries; and guide the operations of autonomous or semiautonomous institutions established to carry out the functions of the state. In addition to the obligations imposed on them by their national constitutions, India and Pakistan are also bound by international obligations on economic and other issues. Since 1995, both countries have been members of the WTO and have also entered Bilateral Investment Treaties (BITs) with several countries (UNCTAD, Investment Policy Hub, 2021a, 2021b). Whilst the BITs are activated only in case of an investment, the WTO facilitates trade negotiations between states and enforces negotiated multilateral trade rules; works with the IMF and the World Bank to achieve a coherent global economic policy; and provides training and technical assistance to help the countries achieve WTO objectives (WTO, 2021). The WTO has also been instrumental for both India and Pakistan adopting competition laws in 2002 and 2007 respectively.7 The Indian and Pakistani competition laws, much like their national constitutions, are based on foreign models.8 Both the Indian Competition Act 2002 and the Pakistani Competition Act 2010 claim jurisdiction over all undertakings that engage in commercial activities, regardless of whether they are incorporated or not, and whether they are domestic or foreign, provided their activities have an actual or potential adverse effect on competition in

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the countries. Competition laws in both countries prohibit anti-competitive agreements between, and abuse of dominance by, undertakings, and monitor mergers and acquisitions.9 Both laws also establish national competition authorities – the Competition Commission of India (CCI) and the Competition Commission of Pakistan (CCP) respectively – as the first-tier competition enforcement authorities in the countries. These internal and external dimensions of the Indian and Pakistani constitutions have a symbiotic rather than a hierarchical relationship. Whilst on the one hand the national constitutions and the global economic treaties and agreements support and mutually reinforce each other regarding the right to trade and to private property, there is potential for friction between the two. One point of friction arises from the fact that whilst the national constitutions confer a range of rights on natural as well as legal persons operating in their jurisdictions, the global institutions to which they are subject in the international arena recognize only economic rights, and these too only of state parties. This potential for friction is further aggravated by the fact that whilst disputes arising from violation of fundamental rights provided in national constitutions may be heard by national courts, those relating to international economic agreements or treaties may only be brought before the WTO or international arbitration tribunals and may be decided in accordance with the legal principles relevant to these institutions.

11.3 Multinationals, Economic Constitutions, and Inequality Multinationals existed long before the global economic order had been formally established and national constitutions became popular. Whilst their contribution to economic growth and efficiency is much talked about, the impact these multinationals may have on inequality in their host economies remains under-explored. To understand this impact, and whether it has changed since the establishment of the global economic order, this section compares the operations of the ‘pre-constitutional’ EIC with those of the ‘post-constitutional’ modern multinational. 11.3.1 The Unprecedented Power of the East India Company

The EIC was established by royal charter in 1600 and, in time, was given monopoly over trade between Britain and Asia (Robins, 2012, pp. 5, 31–32; Sen, 1998, p. 80). In 1717 EIC won a tax break from India’s Mughal rulers (Robins, 2012, p. 67; Sen, 1998, p. 17), and in 1757, after defeating the ruler of Bengal in a battle fought largely over his claim to tax proceeds, the EIC emerged as the most powerful monopolist trader in cotton, salt, and opium (Robins, 2012, p. 66), and soon drove out Asian, Dutch, and French merchants from the region (Robins, 2012, p. 3, p. 64). Such was the EIC’s economic

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prowess (Robins, 2012, p. 48),10 that by the 1770s, the Mughal emperor had granted the EIC the power to collect revenue for Bengal (Robins, 2012; Sen, 1998, p. 9, pp. 79–80). In time, the EIC further consolidated its position by establishing an army and acquiring territories (Robins, 2012, pp. 31–32) with the result that just before it was nationalized by the British government in 1858 (Great Britain. India Act 1858),11 it was no longer simply a corporate venture that earned dividends for its shareholders, but also an imperial agent that administrated its conquests in India on behalf of the British Crown (Robins, 2012, p. 6, p. 144; Pettigrew, 2016; Pettigrew and Van Cleve, 2014).12 Looked at through the lens of economic strategy alone, and admitting that this framing does not capture the complex dynamics of the colonial enterprise, the EIC’s unprecedented success in India may be attributed to three interrelated factors: the competition it faced globally, the commercial strategy it devised in response to this competition, and the manner in which it leveraged information to implement its strategy (Robins, 2012, p. 201).13 Despite its monopoly status, EIC faced competition both in India and abroad (Robins, 2012, p. 32).14 Therefore, in order to maximize its profits, whether from sales in England or through barter with other transnational corporations, it was imperative for it to bolster its comparative advantage (Robins, 2012, p. 30), either by paying lower prices to domestic Indian suppliers and to keep them locked in long-term contracts through the extension of credit (Robins, 2012, p. 3) or by balancing supply and demand on opposite sides of the planet by utilizing information obtained by it from its global networks for the appropriate selection of goods and for their efficient delivery (Robins, 2012, p. 30). Profitable as EIC’s strategy was for its shareholders, it had a threefold impact on inequality in the host Indian economy. First, it rerouted the flow of wealth westwards (Robins, 2012, p. 83; Sen, 1998, p. 119) thereby creating a wealth and power disparity between India and Britain. Second, it utilized its unrivalled purchasing power, to suppress the price paid to its Indian suppliers (Robins, 2012, p. 3, p.80) whilst enriching a small class of local intermediaries who acted on its behalf (Robins, 2012, p. 61). Finally and perhaps most significantly, it wrought a structural transformation in India, converting it from a manufacturing economy into an economy that exported raw produce (Robins, 2012, p. 181, p.184), reducing product diversity by focusing on the production of such raw materials as were desirable for its trade (Robins, 2012, p. 65; Sen, 1998, p. 20),15 and creating an economic dependency on itself by breaking up regional networks of artisanal production that, before the arrival of the EIC, had been connected with not only domestic but also international commerce (Robins, 2012, p. 1). 11.3.2 The EIC and Modern AI-powered Multinationals – The Knowledge-Based Corporations

The commonality between the modern multinational and the EIC is not limited to the ability to transcend national borders but extends to their capacity

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for managing and utilizing information for matching supply and demand along lengthy and complex supply chains. However, whilst the EIC managed this information through its countless writers and clerks (Robins, 2012, p. 201), the modern multinational increasingly does so by employing the power of artificial intelligence (AI) and mostly without exercise of personal discretion on the part of the managers (Ianisti and Lakhani, 2020, p. 3, p. 53). These AI algorithms (Ianisti and Lakhani, 2020, p. 62) or the digital system of which they are a part, can not only communicate with an infinite number of other algorithms or digital systems performing similar or complementary tasks at zero marginal cost but also learn from the data they process to continuously improve themselves (Ianisti and Lakhani, 2020, p. 94). In employing these algorithms, the modern multinational is able to achieve a scale and perform its tasks with a speed that would have been unimaginable for its historic ancestor. The modern AI-driven multinational’s capability of networking, achieving scale, enhancing scope, and aggregating data also gives it a significant edge over its more traditional contemporaries: it can sense and predict customer needs and deliver value in the form of higher quality products at lower prices (Ianisti and Lakhani, 2020, p. 95), match demand and supply along value chains, and generate value for its suppliers in the host countries (Alfaro-Urena, Manelici, and Jose, 2020, p. 2).16 In this way the modern multinational can help its domestic suppliers specialize and contribute to economic growth by improving productivity for both imports and exports and through access to new technology and knowledge spill-overs (OECD, 2014, p. 18; Cheng, 2020, pp. 64–69). However, the benefits of AI-driven multinationals also have a dark shadow. The scale and scope of multinationals creates problems for the environment, social system, and economy of the host country (Ianisti and Lakhani, 2020, Ch. 3) by increasing the downward pressure on price paid to suppliers; limiting their access to other buyers; marginalizing digitally disconnected suppliers; and generating technological dependencies. These multinationals can also aggravate inequality within and across countries. Inequality within the country stems from the increased employment and income offered only to a small coterie of digitally enabled suppliers and managerial staff who become better off at the expense of those excluded from the eco-system of the multinational, whilst the imbalance between developing and developed countries is aggravated by multinationals continuing to engage host economy suppliers primarily in providing primary resources, and in return sharing only peripheral know-how and technology with them and excluding them from core decision-making.17 11.3.3 Enforcing Rights under Modern Economic Constitutions

The EIC corporate structure was unusual in that it embodied both shareholder and imperial interests: it not only enjoyed corporate as well as constitutional

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rights but, in the unique landscape of pre-colonial India, also had the power to establish courts and adjudicate upon these rights (Robins, 2012, p. 5, pp. 31–32, 112; Pettigrew, 2016, p. 489; GK Today, 2016). Unlike the EIC, the modern multinational, whether AI driven or otherwise, is created by statute rather than by charter, and rather than embodying and exercising constitutional powers itself, is subject to constitutions, laws, and regulations. This means that the AI-driven multinational, at least in theory, is not only constrained in its ability to abuse and even to exercise its power but also that the states and even persons interacting with multinationals have rights that can be enforced before independent domestic or international forums. In practice, however, the institutional framework for dispute resolution established by the economic constitutions is likely to reinforce the superiority of the AI-driven multinational than to strike a balance between the multinationals and their small domestic suppliers. For instance, the national constitutions of India and Pakistan confer rights equally on natural and legal citizens of the countries. This means that in the case of a dispute between a domestic supplier and a multinational, either the citizen or the multinational incorporated in the country may approach the general courts. However, the expense of litigation, combined with the problem of endemic delay in the legal systems of these countries, means that only a party of substantial means may be able to institute, let alone pursue, a dispute with a multinational. An interesting example of this is the recent dispute between Pepsico and Indian farmers (Legal Button, 2020) in which Pepsico’s supplier farmers lacked the resources to effectively pursue their rights before the courts against the wealthy and powerful multinational which also had the force of contract on its side. These suppliers therefore had little choice but to resort to extrajudicial means to force Pepsico to arrive at an out of court settlement (The Hindu, 2019). Even this structurally imbalanced justice is not always available to domestic suppliers. In certain instances, operations of multinationals may also fall within the ambit of Bilateral Investment Treaties (BITs) entered into between their country of incorporation and the host country. In such cases, multinationals can circumvent national courts altogether and bring their grievances directly to international dispute resolution forums such as the World Bank’s International Centre for the Settlement of Investment Disputes (ICSID) which is most often nominated in BITs as the adjudicatory body for disputes arising with the host economy (Allee and Peinhardt, 2010, pp. 1–26).18 In situations where the multinational is not covered by a BIT, it is likely to opt out of the jurisdiction of domestic courts and designate alternative dispute resolution mechanisms in its contracts with local suppliers, nominate international commercial arbitral tribunals as the appropriate forums for hearing such disputes, and choose English law as the applicable law for their adjudication. These arrangements often place the domestic parties at a disadvantage as compared to the more resourceful and internationally networked and experienced multinational (Dhar, Joseph and James, 2012; Ranjan and Anand, 2017; Tribune, 2021).19

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11.4 Inequality and the Competition Law Response With its core aim of ensuring and enabling free competition rather than restricting it, competition regulation is in alignment not only with the free trade foundations of the global economic order but also with the trade and private property guarantees in the Indian and Pakistani national constitutions. This section examines the underlying ideology of competition law, the relevance of Indian and Pakistani competition laws for multinationals in their contexts, and whether these laws may be adapted to tackle the inequality generated by multinationals. 11.4.1 The Underlying Ideology

After several permutations (Jones, Sufrin, and Dunne, 2019, p. 14),20 U.S. antitrust policy since the 1970s has come to be defined by the Chicago School model of antitrust which is founded on neo-classical price theory and holds economic efficiency to be the exclusive goal of competition regulation (Hovemkamp, 1985). Economic efficiency for this purpose includes allocative and productive efficiency as reflected in reduced prices and increased output which together form the basis of ‘the consumer welfare standard’ (Orbach, 2011). Therefore, in championing efficiency, the Chicago School claims to operate for the benefit of the ‘consumer’ (which it defines as the private end user) and remains unconcerned with the identity of the winners and losers among competitors (Jones, Sufrin, and Dunne, 2019, p.15). The influence of the Chicago School is also evident in E.U. Competition law. In the early 2000s, in the culmination of nearly a decade long shift towards ‘a more economic approach’, E.U. competition policy fully embraced allocative efficiency and consumer welfare as its guiding principles (Continental Can v Commission, 1973, para 12).21 However, unlike U.S. antitrust law, E.U. competition law interprets the term ‘consumer’ to include indirect and direct users, as well as competitors of the supplier in downstream markets (Akman, 2010). Further unlike the U.S., E.U. competition law views price as a shorthand for output, choice, quality, and innovation in products and services offered to consumers, rather than treating it as the sole indicator of welfare (Official Journal of the EU, 2009). In recent years, the E.U. Commission has also emphasized the need of ensuring a ‘fair deal’ for consumers (EU Commission, 2018), albeit without abandoning the overarching consumer welfare standard or its focus on defending competition rather than competitors (EU Commission, 2016). Interestingly, the ascendance of the Chicago School and the consequent transformation of E.U. Competition Law has coincided with the proliferation of competition laws around the world based on the U.S. or E.U. models or a combination of the two. This means that jurisdictions that enacted competition laws after the 1980s based on the U.S. or E.U. models or a combination of the two were automatically committing to the consumer welfare standard. It

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is not clear, however, whether these countries were opting for the U.S. or the E.U. conception of consumer or consumer welfare or were developing definitions of their own in this regard. Certainly, in the case of India and Pakistan, whose Competition Acts22 are derived and adapted from foreign models, there is no indication of the countries having made a clear choice in this regard. Even a review of the orders of the CCI and the CCP suggests that these authorities draw upon decisions of the U.S. and E.U. authorities on a case-to-case basis rather than in adherence with their particular conception of competition principles. 11.4.2 Multinationals and Competition Regulation in India and Pakistan

In consonance with the models from which they are adapted, the Indian and Pakistani Competition Acts prohibit horizontal agreements (i.e. agreements between parties operating at the same level in a relevant market) and vertical agreements (i.e. agreements between parties operating at different levels and in different markets),23 and abuse of dominance.24 Both Acts also provide for the regulation of mergers and acquisitions (India: Competition Act 2002, sections 3–5; Pakistan: Competition Act 2010, sections 3–4, 11) if they have, or are likely to have, an actual or potential adverse effect on competition in their respective economies.25 Further, the Preambles of both the Indian and Pakistani Acts espouse the goals of economic efficiency and consumer welfare. Although neither Act defines the term ‘consumer welfare’, the Indian Act defines a ‘consumer’ to mean a person who avails of goods or services for consideration, albeit without distinguishing between end or intermediate consumer (India: Competition Act 2002, section 2).26 Both Acts apply to natural or legal persons, governmental bodies, or other entities in any way engaged, directly or indirectly, ‘in the production, supply, distribution of goods or provision or control of services in their respective countries’ (India: Competition Act 2002; section 2(h); Pakistan: Competition Act, 2010, section 2(1)(q)). Taken together these provisions suggest that multinationals operating in India or Pakistan may only be subject to competition regulation if they are engaged in the production, supply, or distribution of goods and if their operations or actions impact ‘consumers’. The Acts do not firmly establish whether these consumers include intermediate-producer consumers or only privateend-user consumers or whether the adverse impact to be observed is limited to a short-term impact on price and quantity (as in the U.S.) or extends to the longer-term impact on choice and quality (as in the E.U.) and therefore leave these issues to the interpretation of the CCI or the CCP. This suggests that in both Acts an exercise of buyer power, absent an impact on consumers, is not likely to be considered an infringement even if it has a debilitating impact on small suppliers of the multinational.27

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This further means that an action may lie against the multinational if the low prices it pays to its suppliers have a ‘waterbed’ effect as its supplier recoups the loss of income incurred by it in selling to the multinational by raising the price at which it sells to domestic retail or individual buyers that may fall within the meaning of consumer under the Indian and Pakistani Acts (Carstensen, 2017, pp. 81–82). An action may also lie if the downward pressure on prices paid by the multinational to the suppliers leads to a downgrading of the quality of the products that the multinational sells in the domestic market (Stucke and Ezrachi, 2020, pp. 43–47). Even in these instances, the multinational may only be sanctioned if the anti-competitive harm results from one of the recognized infringements of the Indian or Pakistani competition laws and if it is not considered too remote. Consequently, the AI-driven multinational, in an effort to circumvent rigorous consumer-facing competition enforcement in more developed jurisdictions where it operates as a net seller, can drive down prices paid to suppliers in India or in Pakistan and aggregate data from them with impunity. In doing so it may not only acquire raw materials at low prices but also thereby obtain valuable information about their supply patterns, which it may utilize to tighten the contractual terms on which it engages with these suppliers. The multinational thereby exposes these suppliers to short-term income inequality and long-term structural inequality as well as to the risk of eliminating competition in the upstream market. Whilst the domestic suppliers may approach their general courts against abuse of power by the multinationals, there is no opportunity for redress for structural inequalities created by the exercise of buyer power by the multinational or the harm it causes to the competitive process (Carstensen, 2017, p. 40, p. 50). It is therefore important to look beyond dispute resolution mechanisms and perhaps to harness the potential of a ‘constitutional’ competition response. 11.4.3 Crafting a Competition Law Response

The neoliberal world view, reflected in the protection afforded to the values of free trade and competition in the majority of liberal, post-colonial constitutions, including those of India and Pakistan, provides the legal basis on which these countries have adopted modern competition laws tolerates state intervention in the functioning of free markets only to the extent strictly necessary (Whyte, 2019, p. 102). This world view is at odds with the goal of reduction of inequality. It considers inequality to be an ‘unavoidable characteristic of capitalist society’ (Whyte, 2019, p. 160) and holds redistribution to be undesirable because it is tantamount to a restriction on free movement of goods and services (Slobadian, 2018, p. 101). It is not surprising, therefore, that competition law enforcement has generally side-stepped the issue of inequality that the exercise of buyer or monopsonist power28 may create. In recent years, however, competition scholars have increasingly argued for inequality to be included in both theorizing and enforcing competition law

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(Atkinson, 2015, pp. 126–132; Baker and Salop, 2015, Khan and Vaheesan, 2017). Lianos, in particular, cautions that ‘ignoring inequality could also be subject to criticism, as the various approaches followed in mainstream welfare economics also make implicit choices as to the distribution of resources’ (Lianos, 2020, p 46).29 He therefore calls for competition law to ‘be conceptualized from a social contract perspective, rather than compartmentalized in its sole economic efficiency function’ (Lianos, 2020, p. 10), and to this end explores ‘alternative traditions in economic thought that are more compatible with an egalitarian perspective’ (Lianos, 2020, p. 12). Others such as Baker and Salop (2015, p. 4, p. 6) warn that unless addressed, ‘inequality may undermine the legitimacy of our social order’ and ‘spark proposals to modify antitrust and competition policy’. Khan and Vaheesan, in exploring the role of monopolistic and oligopolistic power in the U.S. economy in the transfer of wealth from the many (among the working and middle classes) to the few (at the top of the income and wealth distribution spectrum), come closest to discussing the impact of multinationals on inequality. However, their analysis is located entirely in the seller market where the disposable income of end consumers is converted, through monopoly pricing, into capital gains, dividends, and executive compensation for the multinational and those associated with it (Khan and Vaheesan, 2017, pp. 235–236). More recently, however, in outlining the manifesto of the New Brandies School of antitrust, Khan notes that U.S. antitrust’s single-minded focus on the ‘supposed welfare of the consumer’ and ‘the fixation on efficiency’ should not be allowed to obfuscate the harms caused by undue market power, including on workers, suppliers, innovators, and independent entrepreneurs. Khan, however, clarifies that New Brandeisians do not propose that the goals of antitrust be redefined to include specific social or other outcomes (such as reduction of inequality) but simply require that antitrust be refocused on ‘structures and a broader set of measures to assess market power’ (Khan, 2018, pp. 131–132). The question then arises whether developing country competition regimes should recognize reduction of inequality and its attendant redistribution as a specific goal of competition law and utilize it as a tool for social regulation or whether they should simply refocus competition enforcement on re-evaluating market structures and measures of market power (Lianos, 2020; Khan, 2018; Lianos and Darr, 2022). The first approach requires competition enforcement authorities to take social factors into account and, therefore, to make ‘delicate and difficult hermeneutical choices’ with regard to the principles and values of justice as fairness that may be read into competition law and applied in competition enforcement (Lianos, 2021, p. 81). The second approach, however, proposes to return antitrust law to its original purpose of ‘ensuring that markets are structured in ways that promote openness and competition’ without focusing on particular outcomes (Khan, 2018, p. 132). The proposal that a single competition authority decide issues of competition and distribution has its attraction for developing countries characterized by

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weak institutions. It has the benefit of providing upstream suppliers recourse to a domestic, specialist, and efficient authority which can not only resolve competition complaints but also address the causes of distributive injustice ex ante rather than simply dealing with unequal outcomes post facto (Lianos, 2020, p. 10). However, it raises the question of competence of these national competition authorities, particularly in comparison with traditional distributive institutions. It is further important that a decision in this regard be informed by the competence of the general courts in these countries and the resources available to multinationals that allow them greater and easier access to the legal system (Komesar, 1997). The complexity of an analysis of comparative institutional competence is further compounded in case of AI-driven multinationals. Unlike their developed counterparts, India and Pakistan have still to establish specialized privacy regimes and although a challenge for breach of privacy may lie to the general courts, these courts are unlikely to have the competence to understand the connection between data aggregation and market power30 or the power to sanction misuse or abuse of this power. It is, therefore, reasonable to suggest that competition authorities consider privacy and data aggregation issues to the extent that these issues impact the market power of AI-driven multinationals. However, this places a further burden on the national competition authorities which they may not be able to easily or fully discharge (Indian Business Law Journal, 2021).31 Conversely, the New Brandeis School approach of a return to antitrust law’s original purposes does not pose the dilemma of difficult institutional choices. In this approach the antitrust authorities remain focused on their original purpose albeit with a new emphasis on market structures and diverse ways of assessing market power. In this way, even though antitrust authorities may not directly address the issue of inequality or engage in a delicate and difficult balancing exercise between the values of efficiency and distributive justice, they may still be able to contribute to the agenda of reduction of inequality by redressing power imbalances in the economy. Such an enforcement strategy is likely to be capable of being more easily emulated, adopted, and implemented in developing countries, such as India and Pakistan, while remaining in alignment with the free trade foundations of the global economic order.

11.5 Conclusion The enormity and persistence of inequality in developing as well as developed countries call for a fresh investigation not only of practices that lead to inequality in and between countries but also of new strategies for tackling it. This chapter examines the problem of inequality, both within and amongst countries from a constitutional perspective. It argues that constitutions are not only the documents formally adopted by nation states but also the rules that organize the global

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economic order and constrain the nation states in exercising their constitutional mandates for the well-being of their citizens. This chapter also recognizes competition as a dimension of the economic constitutions of nation states albeit without the safeguard from amendment that a generally constitution enjoys. Having established this context, the chapter examines the impact of large AI-driven multinationals on inequality within and amongst countries. To explore this impact this chapter goes back in time to examine the role of the EIC as the largest buyer of raw materials and finished products from India in generating inequality not only within India as it then was, but also between India and the Western world. The chapter then utilizes the insight from the review of the EIC to understand the operations of modern AI-driven multinationals whose buyer power may not only aggravate and entrench income and structural inequality in the host economies but also increase the disparity between the host economies and the rest of the world. The chapter argues that given the potential of multinationals to alter the structure of their host economies, it is important to consider a constitutional response rather than simply leaving it to the dispute resolution mechanisms to address the issues arising from their operations in developing economies. In keeping with the quasi-constitutional nature of competition law, this chapter proposes a competition law response as a constitutional solution for addressing the inequality that may be generated by multinationals. To this end the chapter argues that developing countries such as India and Pakistan may re-evaluate their competition legislation whilst still remaining within the global economic order and their constitutional mandates to ensure competition in their economies. The chapter considers two approaches for rethinking competition law enforcement so that it may address inequality: first, that competition law may adopt reduction of inequality and social regulation as an explicit goal, and second, that it may simply refocus its strategies for defining markets and assessing market power. It concludes that the latter New Brandeisian approach, with its focus on market structures and assessment of market power, is not only in alignment with competition law’s historic aims and the values of the global economic order but also may be more in consonance with the institutional capacity of these countries.

Notes 1 In tracing the historic roots of the discussion about inequality, Fleischacker cautions that although Aristotle wrote about ‘distributive justice’, Plato discussed how property should be allocated, and the Talmud and other ancient legal texts offered suggestions on how competing claims to property may be dealt with, it is only recently that people have seen the basic structure of resource allocation across their societies as a matter of justice. 2 Amartya Sen argues that it is important to distinguish between income as a unit in which to measure inequality and income as the vehicle of inequality reduction. He further states that even if inequality in capabilities is well measured in terms of equivalent incomes, it does not follow that transferring income would be the best way to counteract the observed inequality.

M ultinationals and Competition Law  211 3 According to standard monetary indicators, South Asia generally, and India and Pakistan particularly are only moderately unequal. However, wealth distribution data and non-monetary indicators reveal not only a high concentration of billionaire wealth in India and Pakistan but also adverse human development outcomes such as stunted growth and infant mortality rates in both countries. With its approximately 1.89 billion people, economic inequality in the region is a cause for concern for the global economy. 4 For the purposes of this chapter, economic inequality refers primarily to income inequality which serves is an indicator of the relative purchasing power of individuals and their ability to access social and economic goods. 5 Wilks argues that democracy and markets share a symbiotic relationship because competition helps curb concentrations of private and public market power, the growth of market inequalities, and the marketization of many aspects of public life, which if unchecked may blur the public/private boundary and become a threat to democracy. 6 India and Pakistan share an approximately 3,000 km long border and a common history that can be traced to antiquity. 7 Pakistan adopted its first Competition Ordinance in 2007 and later the Competition Act 2010. 8 India evaluated a range of foreign models before adopting a version of competition law that it considered most suitable for its context, whilst Pakistan relied on a World Bank team to recommend the most appropriate competition law and adopted a law closely modelled on the E.U. competition provisions. 9 In addition, the Pakistani Competition Act also examines deceptive marketing practices (section 10). 10 EIC generated demand for Indian cotton and earned bullion for the country. 11 Although EIC was nationalized by the British government in 1858, however, it finally only ceased to exist in 1874 when its shares were exchanged for government bonds. 12 In its early years, the EIC had the support of the British Crown in maintaining its commercial and imperial position because it was central to Britain’s global struggle with France. 13 The EIC’s success at matching supply and demand along lengthy supply chains, whether for textiles or tea, was an important aspect of its enduring commercial success. 14 For many years, EIC faced competition from Portuguese, Dutch, and French trading companies, from British interlopers who sought to break its exclusivity, and from informal bands of smugglers. 15 Prior to EIC’s phenomenal success, India boasted a highly diversified production base with Bengal alone producing over 150 different types of textiles. 16 Evaluation of data from Costa Rica revealed that four years after their first sale to an MNC buyer, firms have 33% higher sales, 26% more employees, 22% more net assets, and 23% higher total input costs. 17 Some of these ideas have been discussed in the context of international law and economic growth (See generally Pahuja, 2011), however, a more detailed discussion of the implications of international law on multinationals is beyond the scope of this chapter. 18 Although there is some variation across BITs, their precise terms depend on the bargaining power of the host economy and its dependency on the global economy. 19 Both India and Pakistan have lost cases and incurred considerable losses under BIT regimes. India has responded by exiting several BITs and by proposing a revised text for others. There is some suggestion that Pakistan too is now seeking to review its BIT regime. 20 Notable amongst these is the Harvard School which follows a structure, conduct, and performance paradigm.

212  Amber Darr 21 It is evident from early decisions of the E.U. Commission that in addition to protecting consumers the E.U. Commission also examined the long-term effects of impugned practices on market structure. 22 Indian Competition Act 2002 and the Pakistani Competition Act 2010. 23 Section 3(3) of the Indian Act presumes certain horizontal agreements to be anti-competitive whilst section 3(4) requires the anti-competitive effect of vertical agreements to be established. Section 4 of the Pakistani Act, however, does not make a distinction between horizontal or vertical agreements but the Competition Commission of Pakistan distinguishes between the two in its interpretation of the provisions. 24 An undertaking may be found to abuse its dominant position under section 4 of the Indian Act and section 3 of the Pakistani Act if it is able to operate independently of competitive forces in the relevant market and engages in a practice which is recognized as an abuse under the law. In the Pakistani Act there is a presumption of dominance if the market share of the undertaking exceeds 40%. 25 Section 3 of the Indian Act and section 4 of the Pakistani Act. In terms of section 32 of the Indian Act, the CCI has jurisdiction over all practices that have an effect inside India, even if these have taken place outside the country. The Pakistani Act does not contain a parallel provision. 26 The Pakistani Act does not contain a comparable provision. 27 Buyer power exists whenever a buyer has the ability to compel a seller to accept a lower price for its product than it would have received under ideal competitive conditions or compel a producer to accept some other burdensome limitation on its competitive discretion. Monopsony is an important but not the only example of such buyer power. (Carstensen, 2017, pp. 39). 28 See Note 26 above. 29 The fact that the distribution-ally agnostic view of competition law is flawed is evident even in both E.U. competition and U.S. antitrust law’s adherence to the Consumer rather than the Total Welfare Standard which purports to distribute value from the producer to the consumer welfare without recognizing that these categories may often be overlapping. 30 The Indian and Pakistani constitutions do not explicitly identify the right to privacy, however, it may be read into the right to life guaranteed by both constitutions. 31 In a market study on the telecommunication industry in early 2021, CCI acknowledged a relationship between data privacy and competition, however, it still did not state its position on competition enforcement in data privacy related issues.

References Legislation India. The Constitution of India 1949. India. Competition Act 2002. Pakistan. The Constitution of the Islamic Republic of Pakistan 1973. Pakistan. Competition Ordinance 2007. Pakistan. Competition Act 2010. United Kingdom. Government of India Act 1858. 21 & 22 Vict. c. 106. United Kingdom. Government of India Act 1935. 1935 c. 2. United Kingdom. Indian Independence Act 1947. 10 & 11 Geo. 6, c. 30.

Cases Case 6/72, Continental Can EU:C:1973:22.

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Books Atkinson, A. B. (2015). Inequality: what can be done? Cambridge, MA: Harvard University Press. Carstensen, P. C. (2017). Competition policy and the control of buyer power: a global issue. Cheltenham: Edward Elgar Publishing. Cheng, T. (2020). Competition law in developing countries. Oxford: Oxford University Press. Fleischacker, S. (2004). A short history of distributive justice. Cambridge, MA: Harvard University Press. Hayek, F. A. (1960). The constitution of liberty. London: Routledge and Kegan Paul. Ianisti, M. and Lakhani, K. R. (2020). Competing in the age of AI: strategy and leadership when algorithms and networks run the World. Cambridge: Harvard Business Review Press. Jones, A., Sufrin, B., and Dunne, N. (2019). Jones & Sufrin’s EU competition law: texts, cases and materials. 7th ed. Oxford: Oxford University Press. Pahuja, S. (2011). Decolonising international law: development, economic growth and the politics of universality. Cambridge: Cambridge University Press. Robins, N. (2012). The corporation that changed the world: how the East India Company shaped the modern multinational. London: Pluto Press. Sen, A. (1999). Development as freedom. Oxford: Oxford University Press. Sen, S. (1998). Empire of free trade: the East India Company and the making of the colonial marketplace. Philadelphia, PA: University of Pennsylvania Press. Slobodian, Q. (2018). Globalists: the end of empire and the birth of neoliberalism. Cambridge, MA: Harvard University Press. Stiglitz, J. E. (2012). The price of inequality. London: Penguin Random House. Stucke, M. E. and Ezrachi, A. (2020). Competition overdose: how free market mythology transformed us from citizen kings to market servants. New York: Harper Business. Suttle, O. (2018). Distributive justice and world trade law: a political theory of international trade regulation. Cambridge: Cambridge University Press. Whyte, J. (2019). The morals of the market: human rights and the rise of neoliberalism. London: Verso. Wilkinson, R. and Pickett, K. (2010). The spirit level: why equality is better for everyone. New York: Penguin Random House.

Articles Akman, P. (2010). ‘“Consumer” versus “customer”: the devil in the detail’. Journal of Law and Society, 37(2), pp. 315–344. Allee, T. and Peinhardt, C. (2010). ‘Delegating differences: bilateral investment treaties and bargaining over dispute resolution provisions’. International Studies Quarterly, 54(1), pp. 1–26. Alfaro-Urena, A., Manelici, I., and Jose, P. V. (2020). ‘The effects of joining multinational supply chains: new evidence from firm-to-firm linkages’ Available at SSRN: https://ssrn​ .com​/abstract​=3376129 (Accessed November 30, 2021). Baker, J. B. and Salop, S. C. (2015). ‘Antitrust, competition policy, and inequality’. Geo. L.J. Online, 104. Available at: http://ssrn​.com​/abstract​=2567767 (Accessed November 30, 2021). Dhar, B., Joseph, R. K., and James, T. C. (2012). ‘India’s bilateral investment agreements: time to review’. Economic and Political Weekly, 47(52), pp. 113–122.

214  Amber Darr Elster, J. (1995). ‘The impact of constitutions on economic performance’. Proceedings of the world bank annual conference on development economics 1994. The International Bank for Reconstruction and Development/The World Bank. Hovenkamp, H. (1985). ‘Antitrust policy after Chicago’. Michigan Law Review, 84(2), p. 213. Khan, L. (2018). ‘The new brandeis movement: America’s antimonopoly debate’. Journal of European Competition Law & Practice, 9(3), pp. 131–132. Khan, L. and Vaheesan, S. (2017). ‘Market power and inequality: the antitrust counterrevolution and its discontents’. Harvard Law & Policy Review, 11, p. 235. Komesar, N. K. (1997). ‘Exploring the darkness: law, economics, and institutional choice’. Wisconsin Law Review, 1997, p. 465. Lianos, I. (2020). ‘Competition law as a form of social regulation’. The Antitrust Bulletin, 65(1), pp. 3–86. Pettigrew, W. (2016). ‘Corporate constitutionalism and the dialogue between the global and local in seventeenth-century English history’. Itinerario, 39(3), pp. 487–501. Pettigrew, W. and Van Cleve, G. W. (2014). ‘Parting companies: the glorious revolution, company power, and imperial mercantilism’. The Historical Journal, 57(3), pp. 617–638. Orbach, B. Y. (2011). ‘The antitrust consumer welfare paradox’. Journal of Competition Law & Economics, 7(1), pp. 133–164. Ranjan, P. and Anand, P. (2017). ‘The 2016 model Indian bilateral investment treaty: a critical deconstruction’. Northwestern Journal of International Law & Business, 38(1), pp. 1–54.

Book Chapters Lianos, I. and Darr, A. (2022) ‘The hunger: connecting the right to food & competition law’. In: I. Lianos, A. Ivanov, and D. Davis, eds. Global food value chains and competition law. Cambridge: Cambridge University Press, pp. 420–477. Prosser, T. (2014). ‘Economic constitutions’. In: The economic constitution. Oxford: Oxford University Press, pp. 1–21. Wilks, S. (2018). ‘Competition policy’. In: C. David, G. Wyn, and W. Graham, eds. The Oxford handbook of business and government. Oxford: Oxford University Press.

Working Papers Rodrik, D. (2017). ‘Is global equality the enemy of national equality?’ HKS Working Paper No. RWP17-003. Available at: https://papers​.ssrn​.com​/sol3​/papers​.cfm​?abstract​_id​ =2910603 (Accessed August 30, 2021).

Websites EU Commission. (2016). Protecting consumers from exploitation. Available at: https:// wayback​.archive​-it​.org​/12090​/20191129221154​/https:/​/ec​.europa​.eu​/commission​ /commissioners ​ / 2014 ​ - 2019 ​ / vestager ​ / announcements​ / protecting​ - consumers​ -exploitation​_en (Accessed August 30, 2021). EU Commission. (2018). Fairness and competition. 30 August 2021. Available at: https:// wayback​.archive​-it​.org​/12090​/20191129212136​/https:/​/ec​.europa​.eu​/commission​ /commissioners​/2014​-2019​/vestager​/announcements​/fairness​-and​-competition​_en (Accessed November 30, 2021).

M ultinationals and Competition Law  215 Indian Business Law Journal. (2021) Competition watchdog breaks data privacy silence. Available at: https://law​.asia​/competition​-watchdog​-breaks​-data​-privacy​-silence/#:~​:text​ =Competition​%20watchdog​%20breaks​%20data​%20privacy​%20silence.​%20India’s%20a​ ntitr​ust,i​ts%20​posit​ion%2​0on%2​0enfo​rceme​nt%20​in%20​data%​20pri​vacy-​relat​ed%20​ matte​rs (Accessed November 30, 2021). Legal Button. (2020). Why PepsiCo sued Gujarat farmers - know the Farmer’s right. Available at: https://www​.legalbutton​.com​/2020​/08​/why​-pepsico​-sued​-gujarat​-farmers​-know​.html (Accessed November 30, 2021). OECD, WTO and World Bank Group. (2014). Global value chains: challenges, opportunities, and implications for policy. Available at: https://www​.oecd​.org​/g20​/topics​/trade​-and​ -investment​/gvc​_report​_g20​_july​_2014​.pdf (Accessed November 30, 2021). The Hindu. (2019). Farmers hold protest in front of PepsiCo plant in Guntur. Available at: https://www​.thehindu​.com​/news​/national​/andhra​-pradesh​/farmers​-hold​-protest​-in​ -front​-of​-pepsico​-plant​-in​-guntur​/article27017107​.ece (Accessed November 30, 2021). The Tribune. (2021). Pakistan to terminate 23 bilateral investment treaties. Available at: https:// tribune​.com​.pk​/story​/2313937​/pakistan​-to​-terminate​-23​-bilateral​-investment​-treaties (Accessed November 30, 2021). The World Bank. (2021). World Bank country and lending groups. Available at: https:// datahelpdesk​.worldbank​.org​/knowledgebase​/articles​/906519​-world​-bank​-country​-and​ -lending​-groups (Accessed November 30, 2021). World Trade Organisation. (2021). Understanding the WTO: the organisation/special policies. Available at: https://www​.wto​.org​/english​/thewto​_e​/whatis​_e​/tif​_e​/org5​_e​.htm (Accessed November 30, 2021). Official Journal of the European Union. (2009). Guidance on the commission’s enforcement priorities in applying article 82 of the EC treaty to abusive exclusionary conduct by dominant undertakings. Available at: https://eur​-lex​.europa​.eu​/legal​-content​/EN​/TXT​/PDF/​?uri​ =CELEX​:52009XC0224(01)&from=EN (Accessed November 30, 2021). Stanford Encyclopaedia of Philosophy. (2001). Constitutionalism. Available at: https://plato​ .stanford​.edu​/entries​/constitutionalism/ (Accessed November 30, 2021). United Nations. (1948). Universal declaration of human rights. 30 August 2021. Available at: https://www​.un​.org​/en​/about​-us​/universal​-declaration​-of​-human​-rights (Accessed November 30, 2021). United Nations. (2015). Sustainable development goals. Goal 10: reduce inequality within and among countries. Available at: https://www​.un​.org​/sus​tain​able​deve​lopment​/inequality/ (Accessed November 30, 2021). UNCTAD. (2021a). Investment policy hub: India. Available at: https://investmentpolicy​ .unctad​.org​/international​-investment​-agreements​/countries​/96​/india (Accessed November 30, 2021). UNCTAD. (2021b). Investment policy hub: Pakistan. Available at: https://investmentpolicy​ .unctad​.org​/international​-investment​-agreements​/countries​/160​/pakistan (Accessed November 30, 2021). World Trade Organisation. (2003). Cancun ministerial conference 2003: briefing notes. Available at: https://www​.wto​.org​/english​/thewto​_e​/minist​_e​/min03​_e​/brief​_e​/brief08​_e​.htm (Accessed November 30, 2021).

Chapter 12

Afterword Markets, Constitutions, and Inequality in the Twenty-First Century Andrés Palacios-Lleras

The introductory chapter of this collection offered an overview of some of the bodies of academic literature that have explored, in some way or another, the relationships between constitutions, markets, and inequality. The overview revealed a general awareness among scholars of the importance of constitutions for the establishment and development of markets (e.g. most evidently, the protection of private property and freedom of contract but also the role of constitutions in distributing not only political power but also economic power). However, the lack of a systematic approach to the study of the relationship between constitutions, markets, and inequality and the apparent lack of dialogue between the fields of academic literature that have explored this relationship result in a rather fragmented and patchy picture of what we believe is a very rich and complex relationship. Our goal with this collection was to further contribute to those academic literatures that explore the relationship between constitutions, markets, and patterns of inequality and, in so doing, to identify this relationship as a distinctive area of academic enquiry. In this afterword, we would like to briefly discuss some of the common issues among the contributions that make up this collection. Firstly, we address what the contributions tell us about the relationships between constitutions, markets, and inequality. We then identify some topics that are related to the topics discussed in this collection and should be a matter of further enquiry.

12.1 The Constitutions, Markets, and Inequality Nexus In the introduction to this collection, we argued that contemporary constitutions ‘embed’ markets by establishing certain institutions that foster their development. There are several examples of these institutions; consider, for example, the constitutional protection given to private property, or the specific rules regarding fiscal expenditure or monetary policy. In the sense considered here, ‘embeddedness’ gives place to specific institutions that support market and that because of their constitutional status are set above and beyond the ordinary political processes that are definitive of democracy. By embedding markets DOI: 10.4324/9781003202257-14

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unto constitutions, political actors prevent changes to markets originating from democratic processes and legitimize the outcomes produced by markets, including inequality. The contributions of this collection suggest that the relationship between constitutions, markets, and inequality may be more complex than initially considered. To begin with, there may be different relationships than the ones considered initially; for example, it is possible that certain constitutions could have been enacted to address the inequalities resulting from pre-existing market arrangements and not to continue them. It may also be the case that there is no consensus as to which market-related institutions can or should be ‘embedded’ in constitutions, or whether constitutions can actually ‘fix’ embedded institutions over time. While some contributions support the idea that embedding markets into constitutions can be a successful strategy, other contributions suggest otherwise. We briefly discuss below how the contributions to this collection support this conclusion. We address first those contributions that discuss the extent to which constitutions can graft specific market arrangements. We then address the contributions that identify specific attempts to embed specific market arrangements into constitutions. We then discuss the contributions that address these issues from a historical perspective about these relationships. Anna Chadwick and Beniamino Callegari address the diversity in perspectives regarding how lawyers and economists address the possibility of embedding specific market institutions at the constitutional level. Anna’s contribution discusses the extent to which market ‘embeddedness’ is possible in the terms described by Karl Polanyi (1944[2001]), but warns readers against the ‘simplistic relationship between the protection of private property rights and particular modes of market governance’. She also argues that there are a variety of perspectives regarding how constitutions shape and are shaped by social realities (including economic realities), thus inviting a renewal of the debate about constitutional form and market governance. Beniamino also discusses a variety of perspectives regarding the economic theorization of constitutions. He describes the efforts of Buchanan, Commons, North, and Posner as they attempt to bring together the amoral and positive framework of neoclassical economic theory and the normative nature of constitutions and constitutional analysis. Ultimately, such amalgamation is unlikely, because developing an economic theory of constitutions implies dropping or amending certain tenets of neoclassical economic theory; it would require replacing the tenet that individuals maximize preferences with an explicit normative perspective common to society and recognizing that the options individuals face are not exogenous but result instead from social interactions that constitutions enable. In their own way, Anna and Beniamino show the absence of a common theoretical reference from which to discuss in terms of both law and economics how the constitutional embeddedness of markets would come about.

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A second group of contributions discuss specific instances of attempts to embed markets in constitutional orders (or in supranational legal regimes). We note at once that not all the attempts have been successful. Ximena Benavides discusses the shortcomings of the healthcare system of the United States, pointing to law as the culprit. Drawing from research in health economics, she describes the health system of the United States as a highly unequal one, where basic features such as access to health services and the prices of medicines and medical facilities are skewed to the benefit of a handful of actors to the detriment of the population overall. In doing so, she makes the case for using a law and political economy approach precisely to identify how legal rules and policies deliberately set up a system that creates inequality. In turn, Eleonora Lozano-Rodríguez shows how the ‘fiscal impact’ rule established in a 2011 amendment to the Colombian Constitution results from a tense balance between conservative and progressive constitutional forces regarding public expenditure. As it was originally conceived, the ‘fiscal impact’ rule was meant to prevent judicial decisions that ordered the State to make large, unexpected payments to prevent fiscal imbalances. However, LozanoRodríguez shows how it was made more flexible by the Constitutional Court precisely to accommodate for decisions involving human rights. Overall, her contribution shows that even the most technical issues of fiscal policy involve complex distributive negotiations between actors. However, not all the efforts to ‘embed’ market arrangements in the constitution develop in the same ways. Ramón Fogel et al. discuss how constitutional rights may amount to very little if they do not have explicit political support. Using the example of Paraguay, they argue that the constitutional mandate to redistribute land to peasants and indigenous groups in Paraguay has been largely ineffective, among other reasons, because the powerful actors influence the policy process so that the laws enacted fall short of fulfilling the constitutional mandates. As a result, the progressive drive of the constitution is viewed as an unfulfilled promise. Esteban Isaza Ramirez and Fernando León Tamayo Arboleda, who planned their chapter with the late Julio C. Montañez, address a specific development of the neoliberal commitment of the 1991 Colombian Constitution regarding the effectiveness of criminal prosecution. They argue that in spite of the efforts to improve the prosecution of crimes against private property, the enforcement of criminal law continues to endorse a view of private property as nearlyabsolute; as a result, the criminal law enforcement of property-related crimes by the State is blunt. This situation would have been more problematic if the laws and policies that foster the private enforcement of property-related crimes were successful, which has not been the case. Finally, Javier Solana’s contribution discusses the ‘economic constitution’ of the European Union. In the context of the 2016 controversy involving the acquisition by the European Central Bank of bonds issued by firms in the oil, gas, and automotive industries as part of the Corporate Sector Purchase

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Programme, Javier discusses whether the principle of market neutrality trumps other principles of the European Union, notably those involving environmental commitments. In doing so, he describes the architecture of the principles of the European Union and shows why market neutrality should cede before other principles. Overall, all these contributions illustrate the problems involved in interpreting and applying constitutional institutions that embed market arrangements. The third group of contributions that make this collection, by Julia McClure, Jorge Andrés Contreras Calderón, Andrés Palacios Lleras, and Amber Darr, draw insights from the history of constitutions to show how specific constitutional arrangements regarding markets (or the institutions that support them) have changed over time. Julia’s contribution discusses the extent to which historical patterns of inequality result from and are continued over time by constitutional models. But, instead of focusing on economic growth, she invites us to consider how certain institutional processes contribute to inequality within States. Jorge Andrés Contreras Calderón and Andrés Palacios-Lleras address related issues regarding the changing landscapes of the constitutional protection of private property over time and space. Jorge shows how two very different countries – China and Colombia – have constitutions that offer a protection to private property because they are at the receiving end of a global network through which prestigious legal materials, such as French and German private law institutions, circulate. In turn, Andrés argues that since a strong constitutional protection of private property would prevent democratic institutions from enacting regulation that would limit private property, we need to understand better how our present-day regulatory States came to be. Using the example of competition law regimes, Andrés shows that their enactment coincides with the struggles to amend the constitutional protection of private property or takes place shortly after these struggles were defined – either because the interpretation of the constitution by the Courts changed, as was the case of the United States, or because new constitutional texts were adopted, as in Chile, Colombia, and Mexico. Both texts by Jorge and Andrés show that, in spite of the particularity of the changes themselves, there are commonalities; in China, Chile, Colombia, and Mexico specific changes regarding the constitutional protection of private property occurred through the adaptation of European legal ideas. Amber Darr discusses the relationship between the constitutional foundations of trade but reaches a somewhat different conclusion than the previous authors. Using India and Pakistan as examples, she shows that the current legal institutions enable large corporations to engage in exploitative practices as part of their engagement in international trade. Amber asserts that this situation is similar to how British colonial legal institutions enabled the East Indian Company to engage in exploitative practices of its own. Overall, these

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contributions show that patterns of legal change follow deep-rooted continuities, even if the legal rules resulting from specific changes are different. In general terms, the contributions in this collection do not support the idea that markets can be successfully embedded in constitutions, because the content of constitutions is not fixed over time, complying with their mandates requires political will, and the content of these mandates is often determined by the rivalries and collaborations between social actors. Perhaps the problem with the idea of embedding markets into constitutions is that it is based on a narrow view of both the institutions that markets require and what constitutions can actually do. There is hardly an a priori view of the specific ways in which constitutions could embed market institutions to bring about markets. This is so because the diagnosis of what market institutions should be embedded may differ depending on the relative strength of pro-market and anti-market actors in a given context (however such forces are characterized). In some contexts, establishing a constitutional mandate that explicitly protects private property rights could be insufficient; in other contexts, such a mandate could be unnecessary. It is just as well that constitutions are more dynamic than what their characterization as a blueprint of how political power ought to be exercised suggests. ‘Embedding’ market arrangements in constitutions prevents political forces from amending or disregarding them through ordinary democratic processes but does not guarantee that they will be forcefully (and faithfully) applied by courts or that they will continue in place after constitutional amendments take place. ‘Embedded markets’, so to say, are not foreign to constitutional politics. This preliminary conclusion merits some important considerations regarding inequality. We contend that inequality (in its many dimensions) is a byproduct of informal and formal institutions, including constitutions. That embedding markets into constitutions may be problematic does not amount to suggesting that it has not happened or that it has not been a successful political economy strategy in specific instances. It also does not mean that inequality has not followed from such a strategy. However, to the extent that in particular contexts such a strategy has been successful, amending the constitution could be a successful strategy for eliminating or reforming the legal institutions that produce and legitimate inequality. Moreover, amending a constitution may not be enough to bring about a desired social change, for the interpretation and application of constitutional mandates and the narrower institutions that result from these practices have to share the reformist ethos of the amendments for all of them to be successful.

12.2 Further Developments In this section we would like to point to some areas of research that could bring about new and important insights about the relationship between constitutions, markets, and inequality. We will briefly describe how field theory could

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approach this relationship, and then mention three specific topics – financialization, corporate citizenship, and migration – that are promising for the further study of the nexus between constitutions, markets, and inequality. Field theory (Bourdieu, 1977; also, Fligstein and McAdam, 2012) offers a promising perspective for our enquiries. Talking stock in the previous discussion about constitutional politics, field theory could contribute to understanding the constitution as a contested field in which different actors deploy strategies to determine the scope and content of constitutions. A constitution is not a document that is fixed but rather a social device that determines and is determined by the allocation of power in society; it thus reflects the balance of power among social actors, including both institutions that are congenial to the powerful incumbents as well as those institutions that are congenial to less powerful actors. Notably, control over the constitution is not exercised (only) through sheer power but also results from being able to control constitutional language and being able to use such a knowledge to advance or block the strategies of different actors. Mastery over constitutional parlance – what we may call, after Bourdieu, ‘constitutional capital’ – can give social actors a competitive advantage over rival social actors. A notable example is The Internationalization of Palace Wars Lawyers by Dezalay and Garth (2002). In this book, the authors show how the construction of the neoliberal ethos that characterized the Latin American States (especially Mexico, Argentina, and Brazil) resulted from a negotiation between actors involved in ‘statecraft’ in this region, notably, lawyers and economists with an eye on politics. In doing so, they provide a compelling narrative regarding why the legal institutions that resulted from the political turmoil of the 1980s drew largely from different and opposing perspectives originally from the Global North; a neoliberal approach to the governance of economic issues versus a human rights approach to the governance of social issues. Further experiences show how these two perspectives clash regarding precisely the issue of the constitutional governance of markets such as the right to healthcare, housing, or other social provisions. Typically, the conflicts are made visible by courts; by resorting to the experiences and arguments devised in other jurisdictions regarding social and economic rights, they make choices that evidence that control over constitutional discourse has important implications in terms of the allocation of resources and power in a society (e.g. Rodriguez Garavito, 2013). Just as field theory could be useful for understanding how and why specific constitutions ‘embed’ certain market arrangements, it is also useful to consider other substantive topics that look promising for the study of constitutions, markets, and inequality. One of these is the field of financialization – ‘the increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of the domestic and international economies’ (Epstein, 2005). Financialization has led to substantial changes in many aspects of modern-day life, from higher education, food chains, and household debt to the building of national infrastructure. Importantly, it is not just about

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the emergence of new business models or of new actors, or the displacement of traditional methods of conducting businesses by new and more advanced methods, it is also about how debt is used as a mechanism of social control and the allocation of risks in ways that may be harmful to the least prepared parties to face it. Following the perspectives offered in this collection, further enquiries could address how financialization has contributed to inequality and the role constitutions have in permitting it or the role they could have in curbing its excesses. In a similar way, corporate citizenship is a topic that merits further attention. Commonly (and loosely) defined in terms of ‘the activities and organizational processes adopted by businesses to meet their social responsibilities’ (Maignan, Ferrel, and Hult, 1999), corporate citizenship also involves a distinctively constitutional aspect, namely the ‘endowment’ of corporations with the same rights that citizens have. In most jurisdictions across the world, corporations can own property and celebrate contracts within and across jurisdictions. In the United States, corporations are persons for the purpose of protecting them from arbitrary activities by the State.1 Moreover, according to the Supreme Court, corporate donations to political campaigns are protected by the right to free speech established in the First Amendment of the Constitution.2 Endowing corporations with these rights can be suspicious from a political economy perspective, because it makes it increasingly more difficult to regulate corporate behaviour and gives corporate interest the possibility to influence politics in disproportionate ways. Rather than an effort to ‘embedding’ market structures (such as corporations) into constitutions, the ‘endowment’ of citizen rights to corporations seems more like a strategy that takes advantage of pre-established constitutional rules and doctrines for the benefit of economic elites. Finally, a third topic that could be further addressed from the perspective of constitutions, markets, and inequality is that of forced migration. The plight of refugees from armed conflicts, repressive political regimes, famines, and other natural disasters contrasts starkly with the easiness with which corporations can ‘travel’ around the world. Refugees find themselves dispossessed of their environments and their homes, clinging only to what they can carry as they travel, by any means necessary, to find safety and wellbeing. In the process of doing so, they are often at the mercy of unscrupulous individuals that take advantage of their situation (for example the coyote on the border between Mexico and the United States) and indolent governments that treat them as a problem rather than as a duty or an opportunity. International law plays a very important role in creating the precariousness of the refugee; on the one hand, it offers the language of rights, and on the other it asserts sovereignty via borders and immigration policies that label human beings differently – as ‘refugees’, ‘asylum seekers’, ‘guests’, or ‘irregular arrival’, to name a few (FitzGerald and Arar, 2018). And it is in the politically constructed grey areas of international law (concerning the framework of refugee protection, see Kennedy, 1984) that all of the actors converge, and migrants typically end with the worst lot.

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That some of the worst humanitarian crises of modern times (e.g. in Syria and in Venezuela) occur at a time when capital can move so easily across borders shows the extreme inequalities that characterize our world today. In conclusion, the study of constitutions, markets, and inequality could provide some insights into how and why these phenomena are happening at the same time. Could it be that they are related? Could it be that the lack of a strong constitutional protection of market-enhancing institutions fosters the conditions that we see today in Venezuela and Haiti? Or could it be that the deployment of economic forces challenges the protection of the human rights established in the constitution and brings about situations of dispossession and inequality that we see today in northern Colombia? Either way, while it is uncertain that there are clear-cut answers to these questions, there is still much to be researched about how constitutional structures that support or hinder markets can increase inequality or reduce it.

Notes 1 See United States Supreme Court, Santa Clara County v Southern Pacific Railroad Company (1886). 2 See United States Supreme Court, Citizens United v Federal Election Commission (2010).

References Bourdieu, P. (1986). ‘The force of law: toward a sociology of the juridical field’. Hastings Law Journal, 38, pp. 805–853. Dezalay, Y. and Garth, B. G. (2010). The internationalization of palace wars. Chicago, IL: University of Chicago Press. Epstein, G. (2005). ‘Introduction: financialization and the world economy’. In: G. Epstein, ed. Financialization and the world economy. Cheltenham: Edward Elgar. FitzGerald, D. S. and Arar, R. (2018). ‘The sociology of refugee migration’. Annual Review of Sociology, 44(1), pp. 387–406. Fligstein, N. and McAdam, D. (2012). A theory of fields. Oxford: Oxford University Press. Kennedy, D. (1986). ‘International refugee protection’. Human Rights Quarterly, 8(1), pp. 1–69. Maignan, I., Ferrell, O. C., and Hult, G. T. M. (1999). ‘Corporate citizenship: cultural antecedents and business benefits’. Journal of the Academy of Marketing Science, 27(4), pp. 455–469. Polanyi, K. (1944 [2001]). The great transformation: the political and economic origins of our time. Boston, MA: Beacon Press. Rodríguez Garavito, C. (2013). ‘El activismo dialógico y el impacto de los fallos sobre derechos sociales’. Revista Argentina de Teoría Jurídica, 14(2), pp. 1–27.

Index

Note: Page numbers in italics indicate figures, bold indicate tables in the text, and references following “n” refer notes. Acemoglu, D. 147, 148 agrarian reform: beneficiaries of 94; in China 167–168; in Colombia 167, 169–170; constitutional provisions related to 92; enactment of laws for 92; notion of 91; Paraguay constitution and 87; proposed 91 Agrarian Statute 91–92 Alessandri, A. 189–191 Alexander, K. 131 Alfani, G. 151 alternative dispute resolution 204 antitrust law 205–206, 208–209; origins of 184–188 armed conflict, victims of 77–79 Arrow, K. 54, 56 artificial intelligence (AI), multinationals 202–203, 207 asset purchase programme (APP) 120 Aubry, C. 182 baldíos 151–153 Bello, A. 162 Bilateral Investment Treaties (BITs) 200, 204 Bill of Rights (1689) 147, 185–186 Blackstone, W. 180–181 Borras, S. M. 94, 96 Braudel, F. 145 Brenner, R. 145 Buchanan, J. and his economic theory of constitutions 27–31, 42–45; characteristic of 27; foundations of 29; institutions and individual behaviour

in Buchanan’s theory 28; objective and subjective quasi-equality 30; positive approaches 28; restrictions of 31 Burke, E. 181, 182 capitalism: in China 168, 172; and democracy 20; different versions of 109; and discourses on rights of man 6; emergence of 103–104; historical analysis of legal foundations of 32, 42–43; human rights movement and neoliberalism 53; mafia and 91; oligopolistic 33; project of protecting 52; transition of 145 Center for Medicare and Medicaid Services (CMS) 57–58 Chadwick, A. 98 Charles of Habsburg 153 Chicago School, influence of 205 Chile: Civil Code 162; constitutions of 189–192 China: backlash against private property 167–168; Civil Code 163–164, 164; fundamental right to private property 171–172 Chinese Communist Party 167–168 Christodoulidis, E. 12, 19–21 Civil Code 161–162; Chilean 162; China 163–164, 164; Colombia 162–163; French 106, 162, 182, 188, 189; German 164; Japanese 164; Oaxaca 189 civil law 94, 97, 106, 108–109 civil society 180–182 Classical Legal Thought (CLT) 161–162 Clayton Act 188

226 Index climate emergency 53, 120–122, 132, 134, 136 cognitive embeddedness 8 Cohen, M. R. 10, 183 Colley, L. 147 Colombia 16, 189–192; adversarial criminal justice system in 112; backlash against private property 165–167; Civil Code 107, 162–163; Constitutional Court 169–170; constitutional reform and criminal prosecution market 114–116; fundamental right to private property 169–170; neoliberal governance 109– 114; property protection in 105–109; ‘social function’ clause 191–192 Colombian Institute for Agrarian Reform 170 colonialism 147–148, 156 common law 37–38, 40, 146, 187 Common Program 167 common property 143, 150; customs of 149, 151–153; institutions of 148, 156–157; new forms of 157; protection of 156 Commons, J. R. and his economic theory of constitutions 31–34, 42–45; advocacy for collective democracy 33–34; economic transactions 32–33; reasonableness 33 Competition Commission of India (CCI) 201, 206 Competition Commission of Pakistan (CCP) 201, 206 competition law response: constitutionality of 198–199; crafting 207–209; goal of 208; inequality and 205–209; multinationals and competition regulation in India and Pakistan 206– 207; underlying ideology of 205–206 confucianism 163 constitutional capture 15–17 constitutional design 15–16 constitutional fragmentation 17–20 constitutional protection of private property 188–192; origins of antitrust law 184– 188; and popular sovereignty 180–184; in United States of America 184–188 corporate citizenship, defined 222 Corporate Europe Observatory 120 Corporate Sector Purchase Programme (CSPP) 120–122, 132, 135 COVID-19 51; vaccination 62–63 criminal justice system 109–112; constitutional change and 116; State as

administrator of 115; types of judgments of conviction in 113 criminal law 106, 108–109 criminal prosecution market 114–116 Declaration of Independence (1776) 185 Declaration on the Rights of Peasants and Other People Working in Rural Areas (UNDROP) 88 de las Casas, B. 147–148 Delors Committee 123, 125–126 de Mariana, J. 150, 154–155 Democratic Security Policy 112 Demolombe, J. C. F. 182 Department of Justice (DOJ) 58, 61 de Vries, J. 145 Dezalay, Y. 221 diffusionist model 147, 156 directive principles 126–128, 137–138n20; as efficient markets principle 128–131 distributive justice 35, 150, 210n1; creating regimes of 108; values of efficiency and 209 Di Tullio, M. 151 Dixon, R. 13–16, 21 double movement 5–7, 19; constitutional form in obstructing 12; implementing 21–22; Polanyi’s conception of 8, 20, 22–23n6 Draghi, M. 120 Duguit, L. 166, 190–191 Durkheim, E. 166 East India Company (EIC) 197, 201–203 Echandía, D. 166–167, 190 economic constitution 15–17, 33, 135, 198–199; defined 197–198; of India and Pakistan 199–201; internal and external dimensions of 198; multinationals and competition law 201–203 economic theories of constitutions 26–27; Buchanan’s approach 27–31, 42; Commons’s approach 31–34, 42–43; North’s approach 34–37, 43; Posner’s approach 37–34 Epstein, S. R. 142, 149 European Central Bank (ECB) 120, 130 Eurosystem, monetary policy 120–122, 129, 131–136 Federal Trade Commission (FTC) 58, 61, 188 FIAN Internacional y La Vía Campesina 96

Index  field theory 220–221 financialization 221–222 financial systems, programmatic role of constitutions in 135–136 fiscal impact incident 73–81; specific cases of 75–81; theoretical and conceptual approach to 73–75 fiscal sustainability 70, 79–80; fiscal impact incident 73–81; and jurisprudential evolution 70–82; rulings 72–81; social security and 75–77; taxes 80–81; theoretical and conceptual approach to 71–73; victims of armed conflict 77–79 Flynn, J. 123, 125 Ford Foundation 172 Foucault, M. 104 Franco, J. C. 96 free market 57, 71, 89, 198; classical concept of 109; functioning of 207; ideal 58; ideology 56; protection of elites and 109–110 Free, Prior and Informed Consent (FPIC) 96 French Civil Code 106, 162, 182, 188, 189 French Revolution 19, 180, 181, 188 Frerichs, S. 8, 12, 18–19 Fuchs, V. R. 56, 58, 61 fueros (law codes) 150–151 García, Alviar 15–17, 166 Garth, B. G. 115, 221 Gény, F. 165 German Development Bank (KFD) 96 Germany: Civil Code 164 globalizations of law: first 161–164; second 164–168; third 168–172 Glorious Revolution (1688–1689) 146, 147, 180, 181 Goldoni, M. 10, 22 Grafe, R. 148–149, 155 Granger Movement 187 Granovetter, M. 7, 8 Great Acceleration 144 Great Divergence model 144, 145 Green Revolution 93 Greenwald, B. C. 40 Greer, A. 153 Grewal, D. 53 Habeas Corpus Act (1679) 147 Habsburg dynasty 155 Hale, R. L. 183 Hardin, G. 152

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Harvey, D. 109 Hayek, F. V. 19, 198 healthcare 55, 57–59, 75–77; credence good as 55; free access to 59–60; marketbased model 58; profit-oriented 58 health market economies 51; big pharma 59–61; COVID-19 vaccination 62–63; healthcare 57–59; hospital consolidation 61–62; legal and political codes of 54–57 Herfindahl-Hirschman Index (HHI) 61 homo economicus 45; Buchanan’s approach 28, 29; self-interest assumption of 30 Hopman, C. 134 hospital consolidation 59, 61–62 India: competition laws 200–201; economic constitutions of 199–201; member of WTO 200; multinationals and competition regulation in 206–207 Indian Competition Act (2002) 200, 206 Industrial Revolution 144 inequality 149–150, 196–197; analysis of 142; and competition law response 205–209; constitutions and 146–153, 216–220; historical models of 144–146; new institutional economics and ghost of liberalism 146–153; in Spanish empire 155–157; in twenty-first century 216–223; underlying ideology 205–206 information asymmetry 55, 56 Intellectual property laws 59–60, 62, 96 International Centre for the Settlement of Investment Disputes (ICSID) 204 International Covenant on Civil and Political Rights of 1966 172 International Covenant on Economic, Social and Cultural Rights of 1966 172 International Monetary Fund 96, 200 international treaties: norms of 86–88 Irigoin, M. A. 155 Iturralde, M. 110–112 Japanese Civil Code (1896) 164 Jones, E. 144–145 Kaldor-Hicks efficiency test 39 Kennedy, D. 161, 168–169 Khaitan, T. 126–128 Khan, L. 208 King, J. 127 Kirchheimer, O. 103–104 Kuznets, S. 144

228 Index Land Administration Law (1986) 171 Lang, A. T. F. 8 Lastra, R. M. 131 Law and Economics movement 53 law and political economy (LPE) 52; scholarship 6, 9, 52–54; of U.S. healthcare 57–59 Lianos, I. 208 liberal constitutionalism 6; animating force for 7; juridification of 12; limits of 13–15; proponents of 9 Little Divergence model 145–146 Locke, J. 147, 180–182, 184–185 Luhmann, N. 18 Madison, J. 185 Magna Carta 6, 146, 147 Mao Zedong 167, 171 market efficiency principle 120–122; contrajudicative 131; as directive principles 126–131; dissection of 122– 126; elements of 122–124; Eurosystem’s monetary policy 132–135; favouring efficient allocation of resources 123–124; free competition 123; fundamental objectives 127; fundamental values 126– 127; as general principle 133; guiding principles 128–130, 132; legal nature of 126–131; market economy 122–123; normative function of 125–126; open market economy 123; programmatic provisions, types of 126–127 market neutrality 120–122, 131; eurosystem 132, 133; negative impact of 134 markets embeddedness 5–8; Granovetterian concept of 7; law’s ‘constitutive’ role in market to 8–13; Polanyian conception of 5–8 Marks, S. 6 Marx, K. 103 Marxist theory 10, 23n9, 145 Medium-Term Expenditure Framework 80 Medium-Term Fiscal Framework 80 Melossi, D. 104 methodological individualism 29 Mexico: Civil Code of Oaxaca 189; constitutions of 188–192; revolution 189 millones tax 151 Moyn, S. 52–53 Müller, M. 111 Nadar, H. 151 neoclassical economic theory 31, 35, 36, 43, 217

neo-classical price theory 205 neoliberal food regime: constitutions and the land market 91–93; international treaties and 86–88; land grabbing 93–98; market, functioning of 88–91; poverty and 98–99 neoliberalism: authoritarian 16; constitutional reform and criminal prosecution market 114–116; defined 109–110; human rights movement 52– 53; protection of property and 109–114; punishment in 110 New Brandeis School of antitrust 208, 209 New Institutional Economics (NIE) model 3, 9, 142, 146–153 North, D. C. and his economic theory of constitutions 34–37, 43–45, 146, 147; institutional change 34–35; natural states and open access order 36–37 Novoa, R. 113 open access order 36–37 open market economy 121–124; principle of 129–131 Ortiz, A. D. 150 Owens, J. B. 149 Pahuja, S. 99 Pakistan: competition laws 200–201; economic constitutions of 199–201; member of WTO 200; multinationals and competition regulation in 206–207 Pakistani Competition Act (2010) 200, 206 Panetta, F. 134 Paraguay: constitutional system in 98–99; constitutions and land market 91–93; exporters of agribusiness in 90; land grabbing 93–98; market in 88–91, 98–99; norms of constitution and international treaties 86–88 Paraguay Agricultural Corporation (PAYCO) 96 Pavarini, M. 104 pensions 75–77 Petition of Right (1628) 147 pharmaceutical industry 57–61 Picketty, T. 11 Pistor, K. 10–11, 64 Plan Colombia 112 Polanyi, K. 5–8, 11, 12, 14, 16–17, 19, 217 Pomeranz, K. 145 Posner, R. A. and his economic theories of constitutions 34–37; characteristic of

Index  constitution 40–42; efficiency theory of the common law 37–38; federalism 41; principle of consent 39–40; protection of fundamental individual rights 41–42; separation of powers 41; wealth maximization principle 38–40 private property: backlash against 164–168; constitutional protection of 6, 11–12; crimes against 112–113; fundamental right to 168–172; institutions of indigenous Americans 156; Roman concept of 162–164 property protection 105–109; constitutional design of 105–109; neoliberal governance and 109–114; new form of 114–116; see also constitutional protection of private property; private property Prosser, T. 199 Pumarejo, A. L. 165, 166, 190 Purdy, J. 53 Qing dynasty 163 Rau, F. C. 182 reasonableness 33–34 Robinson, J. A. 147, 148 Roman concept of private property 161–164 Rousseau, J. J. 13, 181, 184–185 Rule of Reason doctrine 187–188 Rural Association of Paraguay (ARP) 87 Rusche, G. 103–104 Schnabel, I. 134, 136 self-taxation 151 separation of powers doctrine 41 Shen Jiaben 163–164 Sherman Act (1890) 187–188 sisa excise tax 151 societal constitutionalism 17–20 Sozzo, M. 110, 111 Spain 146, 148–149, 155–157; constitutional changes in 153–155; constitutional tradition and inequality trends in 149–150 Special Drawing Rights (SDR) 96 Standard Oil decision (1911) 187–188 Stiglitz, J. E. 40 Stroessner, A. 86 substantive due process doctrine 186 Suk, J. 13–16, 21 Supreme Court, U.S., role of 186–187

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Tascón, T. 166 Taylor, W. B. 157 Teubner, G. 18–19, 21 Treaty of Maastricht 121–123, 125, 131, 133 Treaty on the Functioning of the European Union (TFEU) 121, 123–125, 128–130, 134, 135 Tridimas, T. 123, 126, 129, 131, 134 TRIPS Agreement 60 United Nations Declaration of Human Rights 200 United Nations General Assembly 88 United Nations Sustainable Development Goals 2030 196 United States (US) 51–52; antitrust law 205–206, 208–209; constitution 16, 186; constitutional protection of private property in 11, 184–188; COVID19 vaccination 62–63; economy, monopolistic and oligopolistic power in 208; healthcare 57–59; health market economies, legal and political codes of 54–57; hospital consolidation 61–62; law and political economy scholarship 52–54, 57–59; legislatures in 14; pharmaceutical companies in 59–61; Supreme Court, role of 186–187 utilitarianism 38 vaccination, COVID-19 62–63 Vaheesan, S. 208 Van Zanden, J. L. 144 Vassberg, D. 152 victims of armed conflict 77–79 von Ihering, R. 165 Wacquant, L. 104, 105, 109–111, 116 Wallerstein, I. 145 Walwyn, W. 6 wealth maximization principle 38–40 Weingast, B. R. 146, 147 Weis, L. K. 126–128 Wielsch, D. 19 Wilkinson, M. A. 10, 22 Wing, John T. 152 Wollstonecraft, M. 6 Wood, E. 10 World Bank 95, 96, 172, 173, 200, 204 World Trade Organization (WTO) 95, 172; India and Pakistan as members of 200 Yannakakis, Y. 156