The New Old World

by Perry Anderson

  In the US, on the other hand, regulation has been a central part of the political landscape for more than a century, ever since the Interstate Commerce Act of 1887 set up a federal commission to regulate the railroads. In due course, there followed regulative agencies in one industry after another, most created during the Progressive and New Deal eras. The result has been, in Majone’s words, that ‘as every student of the subject knows, in America regulation is a distinct type of policy-making that has spawned a distinct theoretical and empirical literature’.49 Majone’s undertaking has been to bring this body of thought back across the water, to dramatic intellectual effect.

  He begins by observing that nationalization was for long the functional equivalent of regulation in America. Wherein then lay the distinction between them? The answer is to be found in the ‘significant ideological and institutional differences between the American and European approach to the political control of market processes. The long tradition of regulation in the United States expresses a widely held belief that the market works well under normal circumstances, and should be interfered with only in specific cases of “market failure” such as monopoly power, negative externalities or inadequate information. In Europe, popular acceptance of the market ideology is a more recent phenomenon’.50 It would be wrong, however, to treat the contrast as simply a matter of collective beliefs. There is an objective difference, Majone goes on, between nationalization and regulation, that makes the latter inherently superior as a solution to market failures. Public ownership was supposed to serve multiple purposes: industrial development, full employment, social equity, national security. Such goals were not only often incompatible, their very diversity detracted from the pursuit of efficiency, eventually casting the idea of nationalization itself into discredit. Regulation, by contrast, has just one ‘normative justification’—efficiency—and so avoids the redistributive tensions, and confusions, generated by nationalization. Whereas redistribution is a zero-sum game in which one group must lose what the other obtains, ‘efficiency issues, on the other hand, may be thought of as positive-sum games where everybody can gain, provided the right solution is discovered. Hence, such issues could be settled, in principle, by unanimity’.51

  Since, however, ‘unanimity is practically impossible in a large polity’, the task of improving market efficiency is best entrusted to expert regulatory agencies. The key feature of these, as they gradually evolved in the United States, came to be delegation: that is, the abandonment by the state of any attempts to direct the work of the agencies it had created to regulate the market, leaving these to the discretion of those it appointed to them. This development was consummated with the reforms of the Reagan administration, which went still further by devolving most federal expenditures to third parties of various kinds in civil society. So conceived, the logic of regulation is an increasingly complete severance of expert authority from the popular will. Majone employs the idiom of a Californian school of conservative economics, property rights theory, to express this. Regulation represents a ‘partitioning of political property rights’,52 that transfers public powers from fickle legislatures, subject to partisan majorities that can change every half-decade, to independent authorities capable of making credible long-term commitments, without interference from voters.

  In Europe, realization of the advantages of this arrangement was long delayed. There, the first ‘nationalizations coincided with the first worldwide depression of the capitalist economy (1873–1896) which shattered popular and elite support of the market for almost one century’.53 By the 1980s, however, this had finally changed. It was Britain that led the way with the privatizations of the Thatcher years. The growth of regulation here, as subsequently on the continent, has in effect been the complement to the advance of privatization—that is, a set of agencies whose task is to ensure that firms do not abuse monopoly power as the state once did, or generate an excess of externalities. As this pattern spreads, the balance of functions performed by the modern state alters, shifting away from the provision of welfare or stabilization of the business-cycle towards a more indirectly regulative role. There is no reason to be shocked by this change, which accords with longstanding principles of the modern Rechtsstaat. ‘Within the nonmajoritarian model of democracy—which is just another name for constitutional democracy’, Majone writes, ‘reliance upon qualities such as expertise, credibility, fairness, or independence has always been considered more important than reliance upon direct political accountability’—if only ‘for some limited purposes’.54 The main task that regulatory agencies are called upon to fulfil is to rectify market failures. Their actions may have redistributive consequences, but they must not themselves pursue any redistributive ends, which require more directly political decisions by elected legislatures. The nation-state, although the balance of its activities may have altered, continues to provide for welfare, stability and defence, as well as regulation. It remains a multi-purpose creation.

  The essence of the European Union, however—this was Majone’s master-stroke—is to be just a regulative authority writ large: that is, a form of state stripped of redistributive and coercive functions, purified to maintenance tasks for the market. In practice, to be sure, ad hoc programmes of sectoral or regional redistribution—a lamentable Common Agricultural Policy and the like—have been tacked onto the EU. But these can be regarded as adventitious accretions that do not alter its overall character, which is unprecedented. It is a ‘regulatory polity’. This conclusion might seem to anticipate more or less exactly Moravcsik’s recent depictions of the EU, on which Majone’s influence—he started writing earlier, and more trenchantly—is fairly clear. But his own theory of the Union is quite distinct. The EU cannot be reduced to an inter-governmental regime, and Moravcsik’s attempt to model it as the outcome of least-common-denominator bargaining is little more than the crude application of a Ricardian theory of economic rent, incapable of explaining even episodes apparently most favourable to it, let alone more complex innovations like the Single European Act, where the role of the Commission as policy entrepreneur was critical.55

  For the reason why the EU distils in a unique concentrate a more general, diffuse transformation of the modern state is that, just because it possesses no independent powers of taxation, and must make do with a tiny fraction of the revenues at the disposal of its member-states—a budget of less than 1.3 per cent of Union GDP, where public expenditures can account for up to 50 per cent of national incomes—there has been a virtually inbuilt drive within the Commission to expand its authority by the alternative route of regulation.56 The rationale for the multiplication of technical directives from Brussels is in this sense overwhelming. For the beauty of regulation is that it requires minimal funding—just the salaries of a handful of experts—since the costs of regulation are borne, not by the regulatory authority, but by the firms or individuals subject to its rulings. Thus defenders of the EU as it exists today can point out, as they regularly do—Moravcsik is indefatigable on this point—that it employs a mere 18,000 functionaries, less than a provincial city, for a population of some 400 million. But this small cadre generates an immense web of regulations, far outnumbering laws passed by national legislatures themselves. As early as 1991, directives and regulations issued by Brussels already exceeded all pieces of legislation passed in Paris. Delors’s prediction that by the end of the century 80 per cent of all economic and social legislation in the Union would be of Community origin was ‘perhaps politically imprudent’, but it ‘did not lack solid empirical support’.57 The EU is no mere façade.

  But if the commanding function of the EU is regulatory, what then is its distinctive structure? Here Majone moves from an American to a European tool-box, drawing on an interest in the history of political thought and a gift of crisp conceptual clarity that are characteristically Italian, recalling something of Norberto Bobbio or Giovanni Sartori. Dilemmas of European Integration (2005) argues that the Union is not, and will not become,
a federation, because it lacks a demos capable of either creating or supporting one. But nor is it a mere inter-governmental regime. Rather, in a classical, insufficiently remembered, sense of the term, the EU is a confederation, as Montesquieu once conceived it. What does this mean? That the underlying form of the Union is a ‘mixed constitution’ of the pre-modern type, formulated in antiquity by Aristotle and Polybius, and realized in mediaeval and pre-absolutist realms as a polity composed ‘not of individual citizens but of corporate bodies balanced against each other and governed by mutual agreement rather than by a political sovereign’.58 The confederal character of the EU lies in its projection of this design to inter-state level. Displaying neither separation of powers—the Commission enjoys both executive and legislative rights—nor division between government and opposition, nor significant polarity between Left and Right, the ‘prime theme of the internal political process’ in the EU is rather a jockeying among autonomous institutions—the Commission, the Council, the Court, the Parliament—over their respective prerogatives. ‘Policy emerges as an epiphenomenon of this contest rather than from opposing ideological positions’.59

  In such a system, it makes no sense to speak of a popular sovereignty that can only operate at national level, which is where electorates want to keep it—so much so that, the more powers the European Parliament acquires, the fewer people bother to vote for it. ‘It follows that Europe’s “democratic deficit” is, paradoxically speaking, democratically justified’.60 What then are the benefits of the confederation? For Majone, though the Treaty of Rome showed some traces of dirigisme, unavoidable in that bygone era, its governing principle was the basic maxim of economic liberalism: the separation of dominium from imperium—property from rule, the market from the state. In upholding it, Majone can be nearly as radical as Gillingham, pressing for regulatory powers in the Union to be handed over to the wisdom of business and professional associations, rather than continuing to be held by a residually statist Commission—Reagan’s salutary reforms across the ocean setting the challenging example. America, inspiration from the outset for Majone’s regulatory theory of Europe, returns as admonition at the end. ‘It would be unwise’, he tells us, ‘to forget that international competition takes place not only among producers of goods and services but, increasingly, among regulatory regimes as well’.61

  The cool reduction of the EU to a modest confederal station serves a strong intellectual purpose. The elegance of Majone’s construction is to link a general thesis about politics in the West to an argument about the evolution of the modern state, based on a theoretical deconstruction of its functions, that can present the Union as if it were an effectual apex of universal transformations under way. The key to this construction is the notion of ‘non-majoritarian democracy’, which—Majone assures us—is not only the silent constitutional basis of the EU, but the preferred model of nearly all advanced countries, apart from a few wayward exceptions like Britain. There is thus no discrepancy, but rather a natural fit between emergent national, and community, institutions. It is this that underwrites the legitimacy of the principle of regulation—not redistribution—as the wave of the future at both levels, even if constitutional theory has not quite caught up with it. As over-attachment to the welfare state declines, ‘independent regulatory bodies and other specialized agencies would seem to be in a better position than government departments to satisfy the new demands of the electorate’.62 As a regulatory polity the EU, far from weakening democracy, actually enhances it by providing judicial and consumer protection for citizens against their own governments, in the form of rulings by the Court or directives from the Commission against which ministers cannot appeal.63

  But what does the magisterially evasive term ‘non-majoritarian’ actually mean? Majone explains that ‘non-majoritarian institutions’ are ‘public institutions which, by design, are not directly accountable either to voters or to elected officials’.64 How then, on this definition, could there possibly be a nonmajoritarian democracy? The notion would be a contradiction in terms. The work of the illicit elision, from agencies to a polity, is to lend persuasive force to the idea that regulation is ceasing to be a subsidiary or sectoral set of activities in a modern state, and instead is becoming its central function, symbolically resumptive of public life as a whole. When constrained to spell out what ‘non-majoritarian democracy’ means, Majone appeals to Madison: it is those forms of democracy whose overriding objective is to protect minorities from the ‘tyranny of the majority’ and offer a safeguard against ‘factionalism’. But where are the tyrannical majorities or internecine factions to be found today? Nothing in Majone’s description of political trends in Europe, where on the contrary voters are by and large content with the way things are going, and ideological divisions are at an all-time low, corresponds to them. Madison has been hi-jacked for purposes quite alien to him. The effect of the construction is to extrapolate ‘market failures’ as if they were a contemporary version of the menacing mob the Founders had in mind. The gap between their political fears and the ‘efficiency issues’ that dominate Majone’s agenda is glaring.

  Nor, of course, can questions of efficiency be separated from issues of redistribution, as allowing unanimous solutions mediated by experts. Aware of the difficulty, Majone seeks to turn it with the proviso that the two can be cleanly divided, as long as decisions regarding efficiency have no ‘wealth effects’—that is, include compensations to those who might otherwise suffer economically from them. He offers as an illustration the way in which the EU’s efficiency-promoting monetary union was accompanied by the creation of a redistributive ‘Cohesion Fund’. But the example undoes the distinction. Cohesion Funds had to be added onto monetary union at Maastricht precisely because the latter was not unanimously thought to be beneficial in equal measure to all—as Majone himself puts it, ‘the richer member states were particularly interested’ in further integration, and so had to make side-payments to poorer members that had reason to doubt they would do so well out of the arrangements.65 Nor was there much evidence of any real balance between the two, such that the net redistributive effect was likely to be neutral. In fact, Majone himself goes on to observe that the EU’s regional funds are not particularly effective in redistributing income between individuals in the poorer parts of the Union, without adding that the same could be said of their effect as between not a few regions: witness the Mezzogiorno. In significant political matters, the wish to cleave efficiency from redistribution as separate issues is an ideological dream. What it serves to do is essentially to insulate the status quo. The EU makes rules; it does not change the position of the players. That is what is best about it.

  Yet, although approving the general structure of the Union as he construes it, Majone shows little of Moravcsik’s complacency. The failure of the European Constitution was not a bagatelle, let alone a sign of success. The draft Treaty included at least one significant feature that would have crystallized the EU’s true character as a confederation, namely the right to secession; so too its provisions for common arrangements in defence and foreign policy, tasks appropriate to a confederation. The defenestration of the Constitution by voters expressed a growing popular distrust of the Union, which lacks the seal not of political legitimacy—there is no popular desire to democratize it—but of economic performance. Since, however, the central purpose of the EU is economic, its lacklustre showing in both employment and productivity growth, across an entire business cycle from 1995 to 2005, cannot but undermine its legitimacy.

  Nor are the results of the two major institutional changes to the Union in this period anything to boast of. Both the single currency and enlargement were pushed through with a combination of meticulous precision in their technical requirements and calculated vagueness about their general—economic and political—implications. In each case, the ‘uncertainties and ambiguities have been carefully concealed from the general public’, and the upshot has so far been unimpressive or counter-productive. T
he advent of the euro, by the admission of even such a staunch European as Mario Monti, the long-time commissioner first for the Internal Market and then for Competition, has yet to yield much by way of results. More gravely, the—often restrictive—decisions of the European Central Bank have an all too evident impact on the economic welfare of citizens. ‘For the first time, the outcomes of a European policy directly and visibly affect the general public rather than special interests or small groups of experts. Hence, much more than in the past, poor economic performance threatens the credibility of EU institutions, and erodes the narrow legitimacy basis on which the entire edifice of European integration rests’.66

  What of enlargement? The inclusion of countries as poor as Romania and Bulgaria has converted the EU into a zone with a higher Gini-coefficient of income inequality than the arch-capitalist USA itself. This is no mere statistical effect, but a political determinant of the fate of needed reform in the Union. For it is fear of social dumping from the East that has blocked completion of the single market in services, which would have been uncontroversial when the Union was confined to the fifteen states of the West. Since services now account for 70 per cent of Union GDP and over 50 per cent of employment, this is a crippling limitation, too little advertised, of the whole process of integration. Contrary to a widespread belief, the EU is still far from a truly common market. Here lies one of the reasons for the sluggishness of growth within it.