The General Framework or Primacy of the Social Dimension (Principles)
The Lisbon Treaty, the Viking and Laval Judgments and the Financial Crisis: In Search of New Foundations for Europe’s ‘Social Market Economy’
The Shift From ‘Ordoliberal’ To ‘Neoclassical’ Conceptions Of The Market In EU Law
Ordoliberal Theory, the Rome Treaty and the Original ‘Social Market’ Economy
Viking/Laval and the Open Method of Coordination
Social policy has also moved on since the mid-1950s, but Viking and Laval are at odds with these more recent developments too. The most significant of them has been the application of the social policy of the regulatory techniques associated with open coordination methods. The open method of coordination (‘OMC’) is premised on the value of having, within the economic space of the internal market, a diverse range of regulatory approaches to policy issues. Within the parameters set by policy guidelines at the central level, Member States have leeway over the choice of mechanisms used to arrive at common goals.
The circulation of information between the Member States and the central organs, together with reflection on their different experiences, provide the basis for a learning process.24 This model of coordination, while associated initially with ‘soft law’ measures in such areas as the employment strategy, has wider validity as an account of the Union’s law-making method. The Spaak Report emphasised the value of regulatory diversity, and the OMC is perhaps best seen as a continuation and extension of that approach, rather than a radical departure from it.
Thus the OMC is compatible with certain ‘hard law’ developments in the social policy field since the 1970s. Because social policy Directives mostly use a floor of rights model, allowing the Member States to set more protective standards than those set out in harmonising measures, they create a space for learning based on diversity above the floor. The development of social dialogue since the early 1990s added a further dimension to this process, making it possible for a number of additional sources of regulation-beyond those of the legal systems of the Member States to be mobilised.
There is evidence that this approach has been successful in stimulating new responses at Member State level to long-standing social policy dilemmas in such areas as worker representation and work–life balance laws, and has helped push the labour laws of the Member States in the direction of a ‘race to the top’ at a time when political agreement at central level was becoming more difficult to achieve.25
Viking and Laval strike at the basis of the social policy OMC by seeking to impose on national labour law systems a common set of constraints, justified by the idea of creating an ‘undistorted’ economic space. They do this not simply by extending the notion of ‘restriction’ within free movement jurisprudence, but by a highly constraining approach to issues of proportionality and justification. In the context of the Posted Workers Directive, this meant giving the Directive a ‘pre-emptive’ interpretation, implying that it set both a floor and a ceiling of rights. The protections set out in Article 3(1) were defined in terms of the lowest minima set by national systems, and the Member States were given very little leeway to set additional mandatory rules of law governing the employment contract under Article 3(10). In these various respects, the Court marked a clear departure from the interpretive logic that had previously been applied to Directives with a social dimension. There was no recognition in these judgments that the laws and practices being challenged represented a solution to labour market coordination issues which was not only a valid response to particular national contexts but one which should be factored into the wider learning process of the OMC as it applied to social policy.
The sector-wide labour standards which were at issue in Laval play a role beyond that of protecting labour interests, narrowly conceived. Within the Nordic systems they are part of a wider set of norms and institutions which operate as ‘beneficial constraints’,26 requiring firms to compete on the basis, not of low pay, but by investing in productivity-enhancing techniques and organisational methods. They thereby operate in a complementary way to the active labour market policies and flexible employment protection laws which won the approval of the Commission in its Green Paper on the modernisation of labour law.27 This is a model which EU law does not seek to impose on the other Member States, but which, in the context of the OMC, provides an example of an approach to labour market regulation which has proved successful in certain national settings, and from which the other Member States might have something to learn. In those settings, the various institutional mechanisms of labour market regulation are mutually supporting; to remove one puts in doubt the effectiveness of the others.
Viking and Laval threaten to undermine a core component of one of the more obviously successful institutional responses to dilemmas and difficulties of labour market regulation within the EU.
The Neoclassical Economic Constitution
The logic of Viking and Laval runs contrary both to the ordoliberal origins of the EU and to the most recent adoption of open coordination methods as a way of encouraging regulatory learning. It is consistent, on the other hand, with what may be called a neoclassical interpretation of the EU’s economic constitution.28 Neoclassical models of the law–economy relationship see markets as essentially self-equilibrating. They share with ordoliberalism a distrust of direct state intervention in the economy, but they go further in denying that legal regulation is necessary to create the conditions for effective competition. While opposing extensive antitrust law interventions as unnecessary, neoclassical approaches nevertheless view labour law rules and collective bargaining practices as inherently inefficient. Thus, in the neoclassical approach, a principal role of the courts is to remove, through deregulation, legislative interventions which may have arisen in the past on the basis of what are seen as misguided notions of ‘social justice’, and to deploy the power of the legal system to break up collusive arrangements through which private actors seek to capture the surplus (‘rents’) generated by the productive process. According to this logic, few protective rules are required for labour markets to operate: rules against forced labour-by ruling out the institution of slavery and requiring ‘free’ contracting-provide one example.
This view of labour law regulation as inherently restrictive and potentially justifiable only within a very narrow range is what lies at the basis of the Court’s analysis in Viking and Laval. The rise of the ‘restriction’ test in free movement law, following the Säger decision, represents the growing displacement of the old, ordoliberal economic constitution by the more contemporary neoclassical one. Viking and Laval extended this approach to the social policy field. Strikingly, rules against forced labour are one of the very few measures which, in Luxembourg, the Court said Member States could adopt as mandatory rules of law under the residual provisions of Article 3(10) of the Posted Workers Directive (‘PWD’). The growing influence of neoclassical economic thought on the design of EU laws and institutions can be found at various points in the evolution of the Treaties from the Single European Act onwards. The Member States, with the UK in the lead, made the move away from Keynesian economic policies from the late 1970s onwards. The emerging neoliberal policy orthodoxy stressed the need for control of the money supply, wage restraint and fiscal stability as responses to the combination of high inflation and persistent unemployment which characterised economies at that time. The Single Act began the process of transferring these policies to EU level. They received their clearest expression in the mechanisms put in place, initially by the Maastricht Treaty, for the operation of the single currency. The convergence criteria and stability pact were intended to limit the discretion of Member States to run their own economic policies, and in particular to curb the use of fiscal deficits as a response to recessions. The ECB’s Constitution formally bars it from undertaking many of the functions traditionally performed by central banks at the national level in various countries, which include supporting industrial policy and promoting full employment through active monetary policy. The ECB’s overarching legal obligation is to maintain price stability.
The assumption underlying its institutional design is that once stable prices are ensured by control of the money supply, markets will operate in such a way as to generate full employment without the need for demand management. Any remaining unemployment in the system is the effect of ‘distortions’ induced, in large part, by labour laws and collective bargaining which artificially raise the price of labour and depress demand.29
Thus the view that labour laws are inherently restrictive of market relations is a central aspect of the ECB’s policy remit and modus operandi, even if it is rarely stated as such (references instead of being made to the importance of ‘structural’ reforms to accompany economic integration). In addition, currency union within a transnational trading area is intended to operate as a mechanism which renders national-level differences in regulatory regimes more visible and thereby increases the pressures for deregulation. In this perspective, a ‘race to the bottom’ in labour law is not just an incidental feature of economic integration, but one of its intended consequences, although empirical studies suggest that labour market deregulation did not occur on any significant scale in response to the introduction of the euro.30
The argument here is not that the ECB constitution or the stability pact directly influenced Viking or Laval, in the sense of providing a doctrinally recognisable legal source for the reasoning in those decisions. The argument, rather, is that developments in the constitutional architecture of the EU, of which the ECB is one of the most prominent examples, have helped to legitimise a way of thinking about the relationship between the legal system and the process of economic integration which, over time, has found expression in the case law of the Court, including in Viking and Laval and the cases which succeeded them.
The ECB is, of course, only one of a number of institutions charged with the promotion of economic integration, and not all Member States are part of the currency union, or even aiming to join it. One of the arguments this paper seeks to make is that the EU’s economic constitution is multifaceted and subject to a number of distinct influences. As part of the EU’s trajectory, there has been a ‘layering’ of ideas and institutions, with the result that as new mechanisms have emerged (such as currency union) they have been grafted on what came before, rather than completely replacing it. Thus many elements of the original ordoliberal foundation remain in place. They can be called in aid to question the legitimacy and validity, in a more technical, doctrinal sense, of the neoclassical version of the economic constitution. Critiques of Viking and Laval which invoke the cautious and nuanced approach to the market integration of the Spaak Report can be seen in this light. Similarly, the reference in the Lisbon Treaty to the EU’s ‘social market economy’ has echoes of the acceptance of a prominent role for labour-market regulation which was part of 1950s ordoliberal thought.
But in the face of the institutional and economic constraints that national labour law regimes are increasingly subject to, it is unlikely to be sufficient as a bulwark against further deregulation. Alternative conceptions of the law–market relationship must be considered, together with a basis for their operationalisation within the current framework of European labour law at both transnational and national level.
24 C Sabel and J Zeitlin, ‘Learning from Difference? The New Architecture of Experimentalist Governance in the EU’ (2008) 14 European Law Journal 271.
25 S Deakin, ‘Reflexive Harmonisation and European Company Law’ (2009) 15 European Law Journal 224.
26 W Streeck, ‘Beneficial Constraints: On the Economic Limits of Rational Voluntarism’
in R Hollingsworth and R Boyer (eds), Contemporary Capitalism: The Embeddedness of
Institutions (Cambridge: Cambridge University Press, 1997).
27 Green Paper, Modernising Labour Law to Meet the Challenges of the Twenty-First
Century COM (2006)708, 22.11.2006.
28 Salais, ‘Employment and the Social Dimension’ (n 6).
29 For an economic discussion and critique of the ECB’s constitution, see R Schettkat, ‘Will Only an Earthquake Shake Up Economics?’ (2010) 149 International Labour Review 185.
30 A Alesina, S Ardagna and V Galasso, ‘The Euro and Structural Reforms’ in A Alesina
and F Giavazzi (eds), Europe and the Euro (Cambridge, MA: National Bureau of Economic Research, 2010).