Law’s Empire of Austerity

De-politicisation of Economic Decision Making in the Twilight of European Democracy
03 February 2015
Paper

The neoliberal free market has been 'constitutionalised' through law in Europe and elsewhere as a way to prevent challenges to financial and corporate power. The new technocracy put in place poses a serious danger to  democracy and freedom.

Abstract

Europe’s unique place in western political economy (previously defined by its commitment to social-democracy) has recently transformed through adherence to a model of development that sees the separation of politics from economics as integral to stability. This report attempts to trace the place of law in defining and distributing power in the era of economic crisis. It suggests that law is being used to restrict policy discretion having an integral part in keeping power vested in corporate elites. The report argues that the crisis can be seen as being the consequence of the dis-embedding of the political from the economic, and it is this distance that causes legal frameworks to operate in unsatisfactory ways. The report concludes that the manipulation of law reform to impose and maintain what the orthodoxy of austerity considers ‘rational’ solutions, undermines the legitimacy of democratic institutions across the Continent and ultimately endangers the European project.

Law’s Empire of Austerity

Plus ça change, plus c'est la même chose. While left-leaning academics are writing books about neoliberalism, the world is still dominated by financialised capitalism. For those who thought, for a second, that the financial crisis of 2008 offered a glimmer of hope for a rewriting of the rules of the game, 2014 has been another stark reminder of business as usual. Let us take one of many examples of capitalist excess, the pay-day loan industry. It would be interesting to see what the author of this passage in the Bible would make of modern personal unsecured loans: “If your brother becomes poor and cannot maintain himself with you, you shall support him as though he were a stranger and a sojourner, and he shall live with you … You shall not lend him your money at interest, nor give him your food for profit” (Leviticus 25: 35–7). The British government has maintained throughout the years of austerity that offering a loan service with a representative APR of 5853%, such as wonga.com did in late 2014, was fulfilling a need. It took years of academic research as to the damage this type of lending causes (to those least likely to afford it) and an Office of Fair Trading review of the £2 billion pay-day lending sector in the UK, for the financial regulator (the Financial Conduct Authority) to announce in November 2014 a consultation for setting maximum costs for unsecured personal loans. Should we celebrate this as a major success, or lament the failure of decades-long critique of capitalist excess to deliver anything but changes in the margins?

This report enquires into the role of law in supporting structures of capitalist domination. It suggests that the law in financialised capitalism acts as a barrier separating the popular will from economic decision making, and suggests ways to overcome this, by ‘re-politicising’ the role of law in market democracies. The following discussion offers an exposition of neoliberal orthodoxy, demonstrating how the separation of politics from economics is integral to what is understood as 'stability' by policy makers. An investigation is offered of the role of law in modern capitalism, which is defined as a pre-occupation with the ‘constitutionalisation’ of economic interests in an attempt to define and distribute power. It is claimed that the law is used to cement neoliberal politics, such as austerity, with regulatory responses to the crisis aimed at protecting private property rights and corporate expectations (separating politics from economics) with little regard for democratic disenfranchisement. This is evidenced in the lack of substantive change in the operation of financial markets, and crucially, as this report suggests, in efforts to use private dispute resolution processes to protect investor rights and corporate expectations from policies aimed at safeguarding the public interest. We will start this reflection by defining what is meant by neoliberal law and explaining the role of law in financialised capitalism. We proceed by explaining constitutionalisation, seeing examples of how law is used to push aside democratic consultation. We conclude by considering avenues to resistance and democratic re-empowerment.

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