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  Legitimacy and Global Governance: Why Constitutonalizing the WTO is a Step Too Far

  Robert L. Howse and Kalypso Nicolaïdis

  Increasingly, scholars and even some politicians have articulated the challenge of global economic governance in constitutional terms. While the General Agreement on Tariffs and Trade (GATT) lent itself to being viewed as a structure to facilitate mutually self-interested bargains between sovereign states, its successor, the World Trade Organization (WTO), is often claimed to be performing constitutional functions or to be an incipient global economic constitution. Its legitimacy will be enhanced, it is surmised, by transforming the WTO treaty system into a federal construct. Descriptively, the proponents of a constitutional understanding of the WTO point to the new dispute settlement mechanism. This binding, juridically rigorous mechanism provides for virtually automatic authorization of countermeasures in the case of noncompliance. Proponents also point to the explicit role such tribunals play in balancing competing public values (economic efficiency versus health and safety goals, for instance) in the scrutiny of domestic regulation. Normatively, the proponents of a constitutional understanding of the WTO aspire to greater legal certainty for private economic rights against the risk of depredation of powerful domestic interest groups. There is, however, a minority position that sees the ultimate implication of WTO constitutionalism as the transformation of the WTO into a progressive economic regulator, bringing into the WTO social rights, environmental and developmental concerns, realizing distributive justice at the global level, so as to make the WTO a transnational economic constitution for all the people. The connection between constitutionalism and legitimacy is a complex one. In the short run, at least, the application of the language of constitutionalism to WTO is likely to exaggerate the hopes of globalization’s friends that economic liberalism can acquire the legitimacy of higher law—irreversible, irresistible, and comprehensive. At the same time, it is likely to exacerbate the fears of the “discontents” of globalization that the international institutions of economic governance have become a supranational Behemoth, not democratically accountable to anyone. The proposed adoption of a “constitutional” mode of thinking for the WTO system has important practical or policy implications. The first, and central implication is what is loosely called “direct effect”—constitutional norms are rights, and therefore the WTO system should evolve to a point where individuals rather than states can rely on directly enforceable WTO law. Moreover, appeal should be possible not only before WTO dispute settlement panels or appellate bodies, but also before domestic courts. Second, constitutional law is generally regarded as higher law, with a presumption against the change of basic structures. Constitutionalizing discourse tends to serve a “door closing” function against claims that the WTO has gone too far (in areas such as food safety and intellectual property rights, for example) and may need to be scaled back to give greater scope for democracy at the national level. Third, by characterizing the WTO treaty system as a constitution, one transforms its character from that of a complex, messy negotiated bargain of diverse rules, principles, and norms into a single structure. Individual elements become less easily contestable. The WTO becomes reified as something one is either for or against. We argue that the legitimacy of the multilateral trading order requires greater democratic contestability and a more inclusive view of those who are entitled to influence the shape of the system. “Constitutionalization” of the WTO will only exacerbate the legitimacy crisis or constrain appropriate responses to it. We discuss two different models or views of WTO constitutionalism. The first is the economic liberalism or (as some would say) libertarianism model. The WTO constitutional function is viewed in terms of a precommitment by which politicians tie their hands in such a manner as to resist the depredation of economic rights by domestic interest groups that demand rent-conferring interventionist and protectionist government. This model is articulated most explicitly by Ernst-Ulrich Petersmann. It is inspired by an economic liberal reading of European integration, according to which activist judicial review, on the basis of broad or expandable treaty commitments to economic mobility, drives European integration largely irrespective of political dynamics. Constitutionalism is viewed as the means of placing law, or the rule of law, above politics. WTO constitutionalism is a solution to the limits of domestic constitutionalism in achieving such a result with respect to economic rights—limits that are attributed to the “capture” of domestic politics by “special interests.” In short, a constitutionalized WTO attempts to place economic freedom above politics, but just the reverse is necessary to address the legitimacy crisis of the multilateral trading order. More politics is needed, not less.

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  The WTO Impact on Internal Regulations—A Case Study of the Canada-EC Asbestos Dispute

  Robert L. Howse and Elisabeth Tuerk

  The WTO is facing increasing criticism. This was highlighted during the third ministerial meeting in Seattle, where massive street protests disrupted the conduct of the conference. Apart from demonstrations, a series of groups used the Seattle ministerial meeting to articulate a range of views on the future of the trading system, in most cases far more subtle than a blanket or dogmatic rejection of globalisation or even the WTO. Non-governmental organisations and public policy-makers from all over the world met to analyse WTO policies and their potential impacts. Amongst the most common criticisms was the WTO’s alleged role in impeding national governments from granting adequate protection to the environment, or addressing consumer interests and national health and safety concerns. Different understandings concerning the extent to which WTO rules constrain domestic regulatory autonomy have manifested themselves in recent high profile trade controversies. In the famous Beef Hormones case, the USA successfully challenged the EC’s ban on beef injected with natural and synthetic growth hormones. The regulatory measure in question had been adopted in a response to European consumers’ concerns about potential health effects of such hormones being present in foodstuffs. Similarly, in the case of genetically modified organisms (GMOs), where European consumers’ reluctance towards genetically modified foods triggered the European institutions to adopt detailed regulations regarding risk assessment, release authorisation, subsequent monitoring and labelling of GMOs. The WTO consistency of this regulatory framework was repeatedly the subject of controversy in the TBT Committee. So far the European scheme has not been subject to dispute settlement at the WTO. While there have been few cases where domestic regulations on health, safety or the environment have been directly challenged and found in violation of WTO law, the WTO rules may already be having a chilling effect on the strengthening or development of such domestic regulatory schemes in other WTO members, thereby constraining or impeding democratic choices. If the WTO is to regain citizens’ confidence, it has to prove its ability to balance the freedom of governments to pursue legitimate domestic objectives with the need to secure the benefits of trade liberalisation. Given the economic experiences prior to the Second World War, the legal framework created by the founding fathers of the GATT 6 focused on the elimination of discriminatory practices, either explicit border measures such as tariffs and quotas or domestic regulations and policies that discriminate against imports. Thus, the fundamental constraint on domestic regulations in the original GATT was that such regulations must not discriminate either against imports or between different GATT member states (National Treatment and Most-Favoured Nation Treatment (MFN)). With the increasing success of the GATT in the elimination of discriminatory measures, attention eventually came to focus on non-facially discriminatory policies and regulations thought to have negative impacts on trade. Sometimes, the existence of different regulations in different countries might in itself increase the transaction costs of trade, requiring producers to adapt products to the regulatory environment in different national markets. Also, and perhaps more importantly, protective discrimination might be hidden or structurally embedded in regulatory schemes that themselves do not explicitly contain nationality-based distinctions. For example, domestic regulations might require a particular technology on safety grounds to which domestic producers had already adapted their production, while a variety of technological approaches might in principle be possible to satisfy the regulatory concern at issue. Because of the possibility that countries might simply shift protectionism from explicit facially discriminatory measures, to regulatory schemes that were covertly or structurally discriminatory, the GATT jurisprudence evolved so as to encompass protective discrimination not reflected in explicit facial classifications on the basis of national origin, and in particularly the test of “like products” in the National Treatment obligation of the GATT, came to be interpreted in such a manner as to provide some scrutiny of non-nationality based regulatory distinctions, to ensure that those distinctions were not merely surrogates for (obviously illegal) nationality-based ones. Deciding on a case-by-case basis which non-nationality-based regulatory classifications represent de facto or hidden discrimination and which represent an innocuous disparate impact on trade, unrelated to protection, is a delicate and complex exercise. Here, casting the net too broadly might transform the WTO dispute settlement organs into a routine reviewing court for ordinary domestic regulations, placing undue limits on non-protectionist regulatory processes. On the other hand, a failure to consider seriously the possibility of de facto discrimination could undermine the integrity of disciplines on discriminatory measures generally, providing a ready means of cheating with impunity on those explicit commitments.

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  Reconciling Five Competing Conceptual Structures of Indigenous Peoples' Claims in International and Comparative Law

  Benedict Kingsbury

  The right to self-determination has been a driving force in international law and politics through much of the post-World War II period. In the 1970s it was joined by a number of other human rights attributed to peoples rather than to individuals, including rights to development, peace, a clean environment, and humanitarian assistance. In this volume the current and future significance of these so-called third-generation solidarity rights are examined by leading experts.

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  Central Bank Independence in Ordinary and Extraordinary Times

  Rosa M. Lastra and Geoffrey P. Miller

  In the last decade (from 1989 to 1999) central banks around the world have grown more independent, i.e., less subordinate to the dictate of the political authorities. Central bank independence has become a kind of "graduation issue" for countries wishing to exhibit or consolidate their credentials in monetary stability and fiscal restraint. In Europe, the Maastricht Treaty on European Union has made legal central bank independence a conditio sine qua non to participate in European Monetary Union, in addition to the four criteria of economic convergence. In other parts of the world, particularly in emerging economies, governments have been compelled internally or externally (e.g., via a recommendation of the International Monetary Fund) to grant independence to their central banks. The movement towards enhanced independence for central banks has been supported by a nearly overwhelming consensus among scholars and policymakers that independent central banks are desirable from the standpoint of public policy. The argument for central bank independence is relatively straightforward. Inflation, in the view of most contemporary economists, has no long-range welfare benefits. But it does have significant costs. These costs include distortions in economic activity, the costs of repricing real assets according to a changing nominal price level, the costs of the effort people have to undertake to avoid losing the value of their financial claims, and, in cases of very high inflation, the subtle but pervasive effects of social demoralisation. Because inflation is unequivocally bad for a society, everyone would be better off if the political institutions maintained stable prices. However, experience has shown that political institutions often do not maintain stable prices. They have several powerful incentives to expand the money supply beyond the rate of real growth in the economy. The incumbent party may engage in inflationary policy in the period immediately before an election in order to increase economic activity, raise employment, and create a strong, if temporary, sense of euphoria among voters that translates into votes for the politicians then in office. A related motivation is that politicians may favour inflation as a means of (temporarily) increasing employment and output in an environment where wages are set above their market-clearing rate. Governments may also be tempted to inflate the currency out of a revenue motive: real wealth can be extracted from the public holding money balances if the value of those holdings can be eroded through issuance of additional money. Inflation may also be an effective means for reducing the cost to the government of paying back debt denominated in local currency. Inflation induced by devaluation can also reduce, temporarily, a nation's balance of payment deficit. While these may seem like real benefits to the government, in fact they rarely are beneficial. The reason is that if the government has not precommitted not to inflate the currency, the contracting parties will know in advance that the government is likely to do so. The parties will build into their contracts protections against future inflation, thus eroding the value of the currency. Even so, in the absence of a reliable pre-commitment not to inflate, the government will inflate the currency notwithstanding these contracts built on rational expectations. Once the contracts are in place, in fact, the government may be practically compelled to engage in inflation in order to mitigate the distortions that would otherwise be introduced by the contracts. It is against this background that the independent central bank finds its contemporary justification. By an "independent" central bank, we mean a particular kind of institution that is independent in some respects, but highly constrained in others. In particular, an independent central bank is relatively free of short-term political pressures: its officers serve for long periods and may not be removed from office for disagreements over policy with other government officials, and it does not take orders from any other institution. In this respect it enjoys a high degree of autonomy. At the same time, an independent central bank, as we use the term here, is not autonomous in its goals. Rather, a principal goal of an independent central bank is to achieve price stability, either absolute stability of prices, or prices that change within some range set in advance and publicly observable. A central bank that is politically autonomous but goal-constrained in this sense can devote itself to maintaining price stability, without being subject to the political pressures that might otherwise induce inflationary policies. The independent central bank can be seen as a form of pre-commitment by the political system to tie its hands, like Ulysses at the mast, to avoid taking destructive actions when the siren of inflationary temptation appears. If the central bank is truly independent of the political cycle, and is truly committed to the goal of maintaining price stability, it will not be subject to the pressures that tend to generate inflation when monetary policy is in the hands of political actors. There is some evidence that, in fact, this theory has practical merit: in the developed world, at least, independent central banks tend to have a somewhat better record of achieving price stability than their non-independent counterparts. The case for central bank independence is often presented as a virtual absolute. That is, the theory recognises no limits on central bank independence, so long as the bank itself is reliably precommitted to achieving price stability. Taken at face value, the theory would suggest that central banks should be completely insulated from politics. But this is not the case in the real world. Even highly independent central banks, such as the Federal Reserve Board or the European Central Bank, do not enjoy this kind of independence. Although they operate with a high degree of protection from political pressures, they are far from isolated from the political process. And while maintaining price stability is typically the primary goal of such institutions, it is rarely if ever the sole objective. The charters of these banks often also contain clauses that permit or require then to consider other objectives, such as maintaining the stability of the financial system, enhancing employment, facilitating economic growth, and so on. Moreover, even if the central bank charters purported to establish absolute independence, they are only pieces of paper. A legislative charter can always be revised by subsequent legislation: and even if the charter is embodied in a national constitution, the constitution can always be amended or ignored. It is obvious that there are limits to central bank independence in the real world, however much the economist's pure theory might question the rationale for such limits. Why do we observe, in fact, considerably less independence than would be suggested by orthodox economic theory?

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  Affirmative Action and Ethnic Niches: A Legal Afterword

  Deborah C. Malamud

  This volume paints a valuable empirical portrait of affirmative action that is revealing on a number of levels—how it emerged (chapter 1), how it is viewed and practiced in private-sector employment (chapter 4) and higher education (chapter 5), what we as a nation believe about it (chapters 8 and 9), and how it is practiced elsewhere in the world (chapters 10-12). Most important from an American legal standpoint are the insights the volume offers on how the environment in which American antidiscrimination law operates has become increasingly complex due to interethnic conflict and immigration (chapters 2, 3, 6, and 7). We lawyers and legal academics tend to view the world through the lens of litigation. Because not every social practice that can be challenged is challenged, however, litigation is hardly a reliable perspective. Just as there was a long hiatus in social science research on affirmative action there was a long period without strong legal—or, for that matter, political—challenges to affirmative action as practiced. Similarly, ethnic niches in employment have long been a standard feature of American life, but only recently have they begun to attract legal attention. Some of the social practices described in this volume may seem reasonable to Americans, but are patently illegal under current law. Some are of questionable legality. Some are plainly legal now, but may not be for long. My aim here is to describe the legal framework that would presently be brought to bear in judging them, and in so doing to reveal the gap that exists between the law and America's ethno-racial reality. In describing this gap, I do not mean to suggest that the right answer is for legal actors to change the law to accommodate newly pervasive social practices. I am, however, suggesting that actors within the legal system must learn to see the new realities of interethnic conflict and competition, and must develop a coherent response to them.

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  The Middle Classes in New Deal Hours Legislation

  Deborah C. Malamud

  The likely readers of this paper work for a living, or are studying with the hope that they will work for a living very soon. Unlike many other workers in this society, they do not (and will not) get paid time-and---a-half for overtime. In this paper, I tell the story of how upper-level white-collar workers—people like the intended readers of this paper—came to be exempt from the Fair Labor Standards Act's general overtime rules. My purpose in telling this story is not to participate in the debate on whether the so-called “white-collar exemptions” to the Fair Labor Standards Act make sense, although I will close by suggesting why that question is harder than it appears. Instead, my aim is to use the historical example of New Deal wage and hour legislation to shed light on how the law reflects and helps to shape the American concept of class. The legal academy has generated a rich literature on the ways in which law and social practice interact in the creation and maintenance of social categories and hierarchies. Race and gender have been the dominant subjects in this literature. Class has been all but ignored. This should come as no surprise. We Americans do not accept class as a core part of either our identities or our social structure. Most of us believe that we are “middle class,” and that individuals can so easily move upwards into and within the middle classes that it makes little sense to think of Americans as divided by class at all. Just as class tends to be invisible to the American social eye, the American legal eye does not see the law as actively involved in creating and maintaining class lines. When American lawyers look for the hand of the law in the construction of social categories, we tend to look in equal protection theory (the creation of suspect classifications) and in antidiscrimination law (the creation of protected groups). Class seems invisible to American law because neither equal protection doctrine nor antidiscrimination law has accorded it legal significance. While class has not been recognized as a category in American civil rights jurisprudence, class line-drawing has long been a pervasive activity of the American legal system. At least since the New Deal, Congress and administrative agencies operating in the fields of labor, welfare, and tax law have routinely selected categories of people for coverage on the basis of class-like criteria—by which I mean social or economic criteria (such as occupation) that are part of the complex of social and economic distinctions referred to in popular or academic discourse as “class.” By moving from civil rights legislation to economic legislation, and from courts to administrative agencies, we can begin to see the role the law has played in constructing and maintaining American conceptions of class. We are perhaps accustomed to thinking that the government defines “the poor” as a class in the course of enacting and implementing social welfare legislation. We are less accustomed to thinking that the law plays a role in the way we understand the middle classes—or, to address my readers more directly, the way we understand ourselves. There is, of course, a parallel here to the issue of the social and legal construction of race and gender. Traditionally, scholarship on race and gender and the law has focused on the law's involvement in giving shape to black race and female gender. To use the language of linguistics for a moment, it is as if law were seen as doing its work only on the categories “marked” as somehow different or problematic. Restricting critical analysis to the “marked” categories leaves the “unmarked” categories—those in which power resides—seemingly as facts of nature rather than as products of culture. Just as race scholarship has now moved in the direction of problematizing “whiteness,” I wish to problematize the American middle classes. For scholars interested in the subject of class and the law—particularly insofar as the middle classes are concerned- the New Deal is a pivotal period. The Depression had sweeping effects across the American class hierarchy, and the breadth of its effects was recognized by government administrators. In the words of Harry Hopkins, the director of the Federal Emergency Relief Administration (FERA), “the whole crowd is caught in this thing, the finest people in America.” “[D]octors [and] dentists;” “ministers,” "architects, engineers,” and “ever increasing numbers of people with clerical and professional training” found themselves unemployed and needing relief. Who were the “finest people”? Were all white-collar workers in this group, or only the fanciest among them? How was the line to be drawn? Were only white-collar workers in this group, or did the upper tier of skilled blue-collar workers qualify? Was their status as “the finest people in America” to be considered in determining whether and how to assist them? If so, the drawing of class lines—including class lines within the broad category of the American middle classes—would need to become a core part of the New Deal project. Would differential treatment always benefit the “finest people,” or would they sometimes be excluded from much-needed assistance on the grounds that their status as the “finest people" made assistance inappropriate? If that was the choice, would the “finest people” cling to their high status, or would they fight their classification as too “fine” to be helped?

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  The Political Question of the Concept of Law

  Liam B. Murphy

  This chapter examines the political and conceptual differences in Herbert Hart's theory of law and Ronald Dworkin's legal theory. It explains that Dworkin's legal theory is justificatory in that it aims to show law in its best light while Hart claims that his theory is not justificatory and morally neutral. However, it appears that Hart's decision not to show law in its best light is one partly made on explicitly political grounds. This chapter explains that the political disagreement between Hart and Dworkin relates to a question generated by people's disagreement about the role played by moral and political considerations in determining what the law is, as opposed to what it ought to be.

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  Pluralism and Coherence

  Thomas Nagel

  My discussion will approach the subject of pluralism through ethical theory rather than politics or history, but I will make some remarks about political theory at the end. In spite of the importance that we have seen throughout the conference so far of the connection in Isaiah Berlin's thought between values and history, he was not a historicist about value. He was, I would say, a moral realist. What makes his pluralism so unusual and philosophically interesting is, as Ronald Dworkin said, that it is a realistic pluralism, not a relativistic one. Berlin insisted on this: he believed that there were real, noncontingently conflicting values. Of course he believed these values were developed and discovered and understood through historical traditions, but they were not just the attitudes of particular groups or individuals. They were real values that provided real reasons for action, and the conflicts to which they gave rise were therefore extremely troubling. So value pluralism was not just a psychological matter for Berlin. Nor was it only because of limitations in resources or other practical difficulties that there were conflicts between values. He maintained that in many cases values can conflict noncontingently or essentially. One can distinguish two types of noncontingent conflict between values, both of which Berlin pointed out, and which I will call incompatibility and opposition. (Opposition might also be thought of as a kind of contradiction.) By “incompatibility” I mean the impossibility in principle of realizing one value while realizing the other, or without frustrating the other. Berlin likened this to the incompatibility between musical or artistic styles. In individual life there are many conflicts of value that are examples of incompatibility. One can't lead both a rural and an urban life, or a life of hard physical exertion and of intellectual contemplation. These incompatibilities do not, I think, present a profound problem for moral theory, though they may present us with difficult choices. There are many goods, and there is not enough space in any one life for more than a limited number of them. Exactly the same problem arises in the case of limited social space. There are alternative good societies that realize to different degrees the disparate values of order, respect for tradition, social mobility, individualism, public beauty, commercial variety, technological progress, preservation of nature and so forth. These values in many cases clash with one another noncontingently, not just because of the limitation of resources, but because their realizations are to some degree incompatible. The more difficult case is the case of a true opposition between values, which arises when each value actually condemns the other, rather than merely interfering with it. This is the nature of the specific example of value conflict that Berlin cites as having given him his original pluralistic insight: namely the conflict, pointed out by Machiavelli, between the virtues of Christian humility and the pagan virtues of assertion and power. Each of these is a genuine value, and each of them is not only incompatible in its realization with the other, but actually condemns the other as contrary to virtue and therefore to be avoided. There are other examples, many of them from among the virtues and values of individual life and conduct: hedonism versus asceticism, self-control versus spontaneity, worldliness versus spirituality, individualism versus communitarianism, outspokenness versus tact. Though they are opposed to one another, we can recognize most of these things as good and as defining forms of value that one might well pursue. But each of them to one degree or another essentially condemns its rival. All of these oppositions could, perhaps, be toned down to mere incompatibilities, so that they don't actually condemn each other: they could be turned into more tolerant values, so to speak. But I think that Berlin believed, rightly, that some of them were in direct and irresolvable opposition. I am not sure where the opposition between liberty and equality falls on Berlin's view. I suspect that it would count as an incompatibility rather than as a direct essential opposition. But in either case the conflict between them is certainly contrary to the view that Ronald Dworkin expressed, which attempts to transcend the opposition by an interpretation or reinterpretation of liberty and equality, which would make them fit together without conflict.

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  Democracy and Disorder

  Richard H. Pildes

  Some initial questions on constitutional cases involving democratic politics before the deluge of Bush v Gore: When judges see a “blanket” political primary, in which voters can pick and choose, office by office, which party’s primary they want to vote in—the Republican primary for governor, the Democratic primary for Secretary of State, the Libertarian primary for treasurer—do judges see a crazyquilt process that threatens to undermine the integrity of political parties and democracy itself? Or do judges view such novel political structures as stages in an ongoing trial-and-error process, a “progressive inclusion of the entire electorate in the process of selecting their public officials”—starting with the early twentieth-century requirement that party candidates be selected through democratic election in the first place—in an effort, whether sensible or not, to encourage voter participation and to make government more responsive? When judges confront “fusion candidacies”—in which major and minor parties are permitted jointly to endorse the same candidate—do judges see the specter of “the destabilizing effects of party splintering and excessive factionalism”? Or do judges see a vibrant, robustly competitive political sphere, akin to the economic sphere, in which third parties, like competing producers, exert healthy pressure on major parties to take neglected ideas and interests into account? When judges review the exclusion of ballot-qualified candidates from publicly sponsored campaign debates, do they immediately spy “the prospect of cacophony” and therefore easily defer to judgements of others as to which candidates should be included and excluded? Or instead of such potential disorder, do judges see sufficient value in more open debates as to demand clear, objective standards, specified in advance, before public authorities can make judgments about the inclusion and exclusion of potential candidates? All these are recent, defining moments in the current Supreme Court’s confrontation with issues of democratic politics. In each, the Supreme Court was also divided—twice by 6-3, once by 7-2. But in each case, the five justices who effectively ended Bush v Gore, the lawsuit, and hence Bush v Gore, the campaign, were in the majority. In each case, the Court overturned a federal court of appeals, including an en banc court of appeals, that had analyzed the issues differently. Among the dissenting voices, the one constant, perhaps surprisingly, was that Justice Stevens was the chief spokesman and Justice Ginsburg his constant companion. Bush v Gore is the most dramatic moment in a constitutionalization of the democratic process that has been afoot for nearly forty years, ever since Baker v Carr dramatically lowered the “political question” barrier to judicial oversight of politics. More recently, the constitutionalization has increased in pace, as issues like the status of political parties, the regulation of campaign finance, the role of race and partisanship in drawing election districts—and now, the counting of individual ballots—have been transformed into grist for the constitutional mill. As part of my own effort to explore this emerging constitutional law of democratic politics as a systematic whole, I wasn’t to assess Bush v Gore in this larger context And I want to do so less in terms of doctrinal analysis (there will be time enough for that) or partisan politics (was the decision an act of political will or of legal judgment?) and more as a matter of what we might call judicial culture. By judicial culture, I mean the empirical assumptions, historical interpretations, and normative ideals of democracy that seem to inform and influence the current constitutional law of democracy. Suffice it to say, when judges are as divided among themselves as in the cases I have described—within the Supreme Court as well as between that Court and the lower courts—it might be useful to assume that the formal sources of legal judgment are sufficiently open-textured as not to compel directly a uniquely determinate conclusion. At that point, the implicit understandings of democracy with which all judges necessarily work—whether American democracy is fragile or secure, whether it functioned better or worse at some (partially hypothesized) moment in the past, whether democracy means order and structure or chaos and tumult—have the greatest latitude to operate. Unlike Bush v Gore, the cases I describe have no obvious partisan consequences in terms of the fortunes of the Democratic or Republican Parties or their candidates. Yet it is of considerable moment, I believe, that certain justices consistently gravitate toward the same side of these cases—the five-member Bush majority that terminated the Florida recount on one side, Justices Stevens and Ginsburg on the other. Just as interesting is that Justice Souter, who occupied a sort of middle ground in Bush v Gore, is the justice sometimes in dissent, sometimes in the majority, in these signal cases. Whatever role analytical considerations and partisan politics might have played in Bush v Gore, there is another dimension—the culture one—potentially at work. By looking for larger patterns in the Court’s recent democracy cases, I want to explore that cultural terrain.

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  Federalism and Regulation: Some Generalizations

  Richard L. Revesz

  Since the early 1990s, the legal academic literature has paid a great deal of attention to how responsibility over environmental regulation in the United States should be allocated between the federal governments and the states. One purpose of this chapter, to which I turn in Part I, is to defend the approach for the analysis of this issue that I have developed in a series of prior articles. The second goal of the chapter is to suggest how the analysis of federalism and environmental regulation in the United States can cast light on other questions that are of central concern to the contributors to this volume. Part II deals with the allocations of responsibility over environmental regulation in other systems of economic integration, particularly the European Union. Part III discusses the treatment of environmental matters in international trade disputes. Finally, Part IV turns its attention to other areas of government intervention, such as corporate law, banking, and programmes of economic redistribution.

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  Innovation and Antitrust Enforcement

  Daniel L. Rubinfeld and John Hoven

  In evaluating markets with relatively homogeneous products and a fixed or slowly evolving technological base, the Antitrust Division of the Department of Justice (DoJ) often focuses on the price effects of potentially anticompetitive behavior. In dynamic industries, however, technological change and innovation receive particular attention. Innovation affects not only the prices that consumers pay for given products but, more important, the quality of products available in the marketplace. Moreover, the force of the innovation process can lead to dramatically higher-quality products being offered at lower prices to consumers in the future. An understanding of the particulars of competition in dynamic industries is, consequently, a vital part of a sound antitrust policy. Some observers have questioned whether the antitrust laws are adequate to handle the complexities associated with rapidly innovating industries. The antitrust laws, of course, were passed initially to confront issues in “smokestack” industries in which rates of innovation were slow. However, the statutory standard set by Congress is a flexible standard that can be and has been applied to dynamic industries. The specifics of how that standard is to be applied remain open for serious debate. We are of the view that in dynamic innovative industries antitrust enforcement should be forward-looking as much as possible and that accelerated antitrust enforcement must be given serious consideration before the path of innovative activity is set in stone. We believe that this view has been borne out by antitrust activity at the Antitrust Division in recent years. The number of matters under investigation at the Antitrust Division in which innovation has been a significant issue has been growing rapidly. The division has responded by delving deeply into innovation questions. This effort is especially appropriate in light of the fact that the losses in economic efficiency that can result from the reduced incentives of firms to innovate can easily dwarf the more traditional static efficiency losses often considered by the division.

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  Some Observations Concerning Multijurisdictional Tax Competition

  Daniel N. Shaviro

  Should (or when should) separate governments, including sub-units in a federal system, be encouraged to engage in tax competition rather than harmonizing their tax systems? This is a very different question than, say, whether air pollution policy should emerge through regulatory competition or be harmonized at the national or multinational level. The differences suggest a need for lesser generalization in evaluating tax competition as compared to much other regulatory competition. The choice between principles of regulatory harmonization and competition presents a standard fiscal federalism question concerning the optimal scale of provision for public goods. Harmonization effectively creates a larger-scale decision maker in the subject area that is being harmonized, whether it is imposed by separate sovereigns’ agreement or by a higher-level unit of government in a federal system. But taxation, unlike clean air, is not a public good that might in principle have a scale of optimal provision. It is a way of paying for public good with varying scales of optimal and actual provision. Or, if we rely on official classifications, taxes are a subset of government rules identified by form, not economic content. Government rules can be used to advance a vast and overlapping array of allocative and distributional aims, whether officially called taxes, government spending, or regulation, and no one scale is generally best for pursuing all of the aims. It should therefore be clear that no particular scale for prescribing tax rules is correct across the board or from all standpoints. Accordingly, given a particular set of jurisdictions that must decide how to coordinate their tax rules, neither tax competitions nor harmonization is likely to be preferable across the board. Therefore, an overview of the kind offered here must start by considering the general issues raised by regulatory competition. We can then, after a brief tax policy review, consider how these issues play out in different tax settings.

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  International Mergers & Acquisitions and Accounting Standards: Emerging New United States Standards

  Stanley Siegel

  Following a merger, the surviving company must report on its financial statements the assets and liabilities, as well as the net income, of the combined companies. During the last half of the 20th Century, there have been two competing methods to implement this reporting, the ‘pooling of interests’ (or ‘pooling’) method, and the ‘purchase’ method. The financial statement differences of these two methods are significant and controversial. Pooling, which is based on the notion that the merged companies are combined, with no basis for new accounting, fundamentally carries forward the values and accounting methods of the combining companies. Purchase, which is based on the view that one of the companies is acquired by the other, fundamentally treats the acquired company as though it has been purchased by the acquiring company. Purchase accounting therefore requires a new basis of accountability for the acquired company. In most mergers, the value of the consideration (whether stock, debt, cash or other consideration) given in exchange for the acquired corporation exceeds substantially the carrying value of its assets on its books. Herein lies the difference between purchase and pooling: pooling carries forward the historical values, whereas purchase results in a revaluation, usually with substantial increases in the carrying values of assets. The difference has implications on both the balance sheet and the income statement. Merger accounting has been the subject of intensive recent study in the accounting profession. The International Accounting Standards Board (‘IASC’) recently adopted a statement narrowing significantly the permissible use of pooling, and the Financial Accounting Standards Board (‘FASB’) in the United States has under consideration an Exposure Draft that proposes elimination of pooling altogether. These accounting principles have important implications on cross-border mergers and acquisitions.

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  Environmental Law and Liberty

  Richard B. Stewart

  “Natural Resources and the Environment: Individual Versus Community Interests,” implies a fundamental conflict between individual liberty and collective interests in environmental law. This misstates the fundamental issue. The most important conflicts that we face are those among different collective interests and values – most fundamentally, those associated with activity on the one hand and security on the other. In conceptualizing the issue as it does, the panel title echoes the rhetoric of the current property rights movement, which opposes most environmental regulation on the ground that it illegitimately curtails individual liberty. To the contrary, properly designed legal measures for protection of the environment can enhance liberty. Conceptualizing environmental issues in terms of conflicts between individual liberty and the community will lead us astray from the important task of advancing liberty by balancing activity and security through the adoption of appropriate laws and institutions. This essay first explains that liberty has two basic components: activity and security. The law must balance these twin elements of liberty at the collective, not the individual level. It then summarizes how the law, over the past 125 years, has come to give increased weight to environmental security and less to activity, explaining how this change has been accomplished by a shift from common-law litigation to administrative regulation. Next, the essay address the normative question of how we should strike the balance between activity and security. It examines a number of potential principles for doing so, concluding that the divergent collective interests and values at stake must ultimately be resolved through institutions of democratic governance consistent with the rule of law. The essay then summarizes how during the past thirty years we have created a national “command and control” environmental regulatory state that has achieved significant progress in environmental protection but has also had significant drawbacks. Our top-heavy system of environmental central planning has also eroded the rule of law, spawned a pernicious form of factional politics, created enormous economic waste, and hindered environmentally beneficial flexibility and innovation. This system has also been attacked by property rights advocates on the ground that it has been abused by environmental interests and their bureaucratic allies to confiscate private property values. Finally, the essay considers three types of proposed solutions to these failings. The first, championed by property rights advocates, is for the courts to apply the takings doctrine of the Constitution to require the government payment of compensation for the economic losses suffered by property owners as a result of environmental regulation, and to substitute private litigation for administrative regulation as the primary legal mechanism for addressing environmental problems. The second proposed solution is to enhance judicial review and control of agency regulatory decisions through administrative mechanisms to strengthen agency adherence to cost-benefit and risk analysis. The third solution is to develop new market-based regulatory instruments to achieve environmental objectives in place of command and control central administrative planning. The essay concludes that a combination of the second two mechanisms will appropriately enable us to promote environmental security while at the same time maximizing the benefits of activity.

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  The Legal and Institutional Framework for a Plurilateral Greenhouse Gas Emmissions Trading System

  Richard B. Stewart and Philippe Sands

  This paper discusses the legal and institutional issues presented by the development of a plurilateral greenhouse gas (GHG) emissions trading system in which participating countries that have adopted domestic trading systems mutually recognize emissions allowances or credits generated by each other’s domestic systems, providing the basis for the emergence of an international trading system. This plurilateral approach deserves serious consideration. The Kyoto process for reaching agreement on a single set of global arrangements for international GHG emissions trading is encountering difficulties. Denmark has already adopted a limited domestic CO2 emissions trading system and other countries, including the United Kingdom, Australia, Sweden, and Argentina are either in the process of adopting domestic CO2 or GHG emissions trading system or are seriously considering their adoption. The European Commission has endorsed a proposal to commence emissions trading within the European Union beginning in 2005 as a part of the European Climate Change Programme. While effective controls on GHG will eventually require comprehensive global arrangements, the plurilateral approach can represent an important step in building such arrangements. Part II of the paper summarizes the advantages of emissions trading systems at both the domestic and the international levels, including the advantages of their use to limit GHG emissions. Part III discusses the concept and potential evolution of a plurilateral GHG emissions trading system. Part IV reviews experience to with domestic emissions trading systems. Part V analyses the essential legal and institutional elements of a successful international emissions trading system. Part VI analyses how the designs of the domestic trading systems of countries participating in a plurilateral GHG emissions trading system might be coordinated or harmonized in order to support the successful development of such a system while allowing for appropriate variations to address national circumstances. Part VII briefly reviews issues of the compatibility of a plurilateral trading system with international law. A brief conclusion follows.

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  Normative (or Ethical) Positivism

  Jeremy Waldron

  This chapter examines the thesis that the separability of law and morality or legal judgement and moral judgement is a good thing or perhaps even indispensable from a moral, social, or political point of view. It adopts a so-called normative positivism position and suggests that the theories of Herbert Hart and Hans Kelsen qualify as versions of normative positivism even if they are not in themselves normative positions. It discusses the arguments of those who believe that positivism should be understood as a normative positive in modern jurisprudence.

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  Property, Honesty, and Normative Resilience

  Jeremy Waldron

  What is the relation between property and honesty? Fairly straightforward, one would think. In times past, “honesty” was used often as a general term for virtue or honor, encompassing chastity, generosity, and decorum. But according to the Oxford English Dictionary, its prevailing modern meaning is “[u]prightnes of disposition and conduct; integrity, truthfulness, straightforwardness: the quality opposed to lying, cheating, or stealing.” So, if stealing is one of the things to which the quality denoted by “honesty” is characteristically opposed, then to that extent “property” and “honesty” are correlative terms. To steal is to take somebody’s property—that is, an object that, under the rules of property, he has the right to possess—with the intention of permanently depriving him of it (what lawyers call the animus furandi). To be disposed not to steal means that one is disposed not to violate the rules of property in this way. To be honest – in this sense of honesty—is to respect the rules of property. But respect which rules of property? The existing rules in society, currently in force—however unjust or oppressive? Or the rules of property in so far as they are regarded as fair? “Honesty” also has the meaning of “fairness and straightforwardness of conduct.” Does it pull us in two directions here? Is the man who violates an unjust property right with the intention of permanently depriving an undeserving “proprietor” of some goods he “owns” dishonest? Is this even a marginal case for the concept of dishonesty? Or do “honest” and “dishonest” go unequivocally with the positive law of property (leaving it perhaps a further question whether dishonesty is always a vice or always wrong, all things considered)? If it is a marginal case, then what tends to make the difference at the margin? Is the taking less dishonest depending on its manner, depending on the motive, depending on the extent of the injustice, or depending on whether there is an appeal to some alternative set of existing property rights (say, from the past)? Some might say, for example, that there is necessarily something furtive or deceitful about dishonesty, so that an open taking of something when property rules are contested is to that extent less dishonest. Or they may say that even if the existing allocation of property is unfair, it matters whether or not the take is motivated by personal greed: although he took from the rich, Robin Hood was not dishonest inasmuch as he gave what he took to the poor. Or, if one “steals” for personal use, it may make a difference whether it is personal use to satisfy a mere want or person use to satisfy desperate need, particularly if a case can be made that the society’s neglect of such need is itself the ground of injustice. Finally, it may make a difference whether the taker is attaching existing property rights purely on the basis of his own utopian theory of justice, or whether he is attacking them in the name of some alternative set of property rights that was established and existed in the society in the recent past. In his famous study Whigs and Hunters, E. P. Thompson notes that a lot of what was condemned in eighteenth-century England as poaching, stealing, and trespass was regarded they the perpetrators as the vindication of traditional property: “What was often at issue was not property, supported by law, against no-property; it was alternative definitions of property-rights: for the landowner, enclosure—for the cottager, common rights; for the forest officialdom, ‘preserved grounds’ for the deer; for the foresters the right to take turf.” In this context, the defenders of traditional rights would not regard themselves as thieves nor their takings as dishonest, however much their opponents tried to stigmatize them in those terms.

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  European Democracy and the Principle of Tolerance: The Soul of Europe

  Joseph H. H. Weiler

  After moving for ten plus years towards an ever closer union, the European Union and its citizens now face the choice whether to establish a full-fledged common polity. This decision requires a Europe-wide debate that includes the candidate states. European citizens must discuss what (if any) common values, principles and basic policies they share. A European identity involves the Union's institutions becoming rooted in the “soul” of the citizens, whatever its relationship might be to the existing national and local identities. Only then will the EU possess democratic legitimacy and support. These two volumes are written by authors with a political and intellectual interest in the European process. They discuss the EU's unprecedented character as a peaceful and voluntary union of peoples, its understandable obstacles encountered along the way to further integration, and the Union's less acceptable shortcomings. The first volume is written for the general reader. It examines the essential components of a European political identity in relation to democracy, citizenship, social justice, war and peace, freedom and borders. It also explores the history of this identity. The second volume is a collection of scientific essays. These provide in-depth analysis of fundamental aspects of European cultural identity such as religion, art and economic culture, myth and civil society. The two volumes can be read independently. However, we hope readers of either one will feel stimulated to reach for the other.

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  Federalism Without Constitutionalism: Europe’s Sonderweg

  Joseph H. H. Weiler

  Focuses on the European Union, and looks at the promise and possibilities that emerge once the federal vision is liberated from ‘statist’ conceptions of political organization. The author views attempts to transform the European project into one of federal constitutionalism along statist lines as deeply misguided. The first section points out that the constitutional discipline of Europe is in most respects indistinguishable from that of advanced federal states, but with the huge difference that Europe chose not to presuppose the supreme authority and sovereignty of its federal demos. There is then a brief analysis of some of the premises on which the constitutional debate is typically based. The rest of the chapter explains why the unique brand of European federalism represents not only its most original political asset but also its deepest set of values, and offers a normative reading of the European constitutional architecture.

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  Tort Damages

  Jennifer H. Arlen

  The Encyclopedia of Law and Economics is a monumental reference work that surveys the entire literature on law and economics in over 3,000 pages. The entries consist of two elements: a review of the literature written by an authority in the field and a bibliography which covers most of the published material in the particular area. The reviews are written in an accessible style which will be suitable for non-specialists, such as lawyers, judges, politicians and students as well as scholars of law and economics. This authoritative Encyclopedia will rapidly become established as a leading bibliographic and reference source in law and economics.

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  Adverse Selection and Gains to Controllers in Corporate Freezeouts

  Lucian Arye Bebchuk and Marcel Kahan

  An important element in the governance scheme of a corporation is its ownership structure. Most publicly traded companies in the United States have a dispersed ownership structure: no single shareholder owns sufficient shares to control the company. A substantial minority of companies, however, have a controlling shareholder.’ A controlling shareholder exercises powers that are available neither to the dispersed shareholders in a company without a controlling shareholder nor to the minority shareholders in a company with a controlling shareholder. As the Delaware Supreme Court recently summarized, a controlling shareholder can “(a) elect directors; (b) cause a break-up of the corporation; (c) merge it with another company; (d) cash-out the public stockholders; (e) amend the certificate of incorporation; (f) sell all or substantially all of the corporate assets; or (g) otherwise alter materially the nature of the corporation and the public stockholders’ interests.” This paper focuses on one of these enumerated powers-the power to cash out, or “freeze out,” the minority shareholders. Such freezeouts are accomplished by a merger with a corporation wholly owned by the controlling shareholder. After the freezeout, the controlling shareholder emerges as the sole equityholder of the company. In most states, mergers require the approval of the company’s board of directors as well as of holders of a majority of outstanding shares. A shareholder who holds a majority of shares can effectively control both approval prongs and thus unilaterally set the price at which minority shareholders are frozen out (the “freezeout price”). The power to freeze out the minority shareholders on potentially unfavorable terms is one of several ways through which a controlling shareholder can derive benefits from control to the exclusion of, and at the expense of, the minority shareholder. While the power of the controlling shareholder to freeze out the minority shareholders and to set the freezeout price is unfettered, minority shareholders have some remedies if they feel that the freezeout price has been set too low. First, they can seek a judicial appraisal of their shares, in which case they will receive the value of their shares as assessed by the court (rather than the freezeout price). Second, in some circumstances, minority shareholders can seek judicial review of the freezeout merger under the “entire fairness” standard, in which case the court will award them damages if the value of the minority shares, as assessed by the court, exceeds the freezeout price.6 While these two types of proceedings differ in certain respects, they both rely on a judicial assessment of the value of minority shares. Both types of proceedings can, in principle—if the assessment is accurate—protect minority shareholders from being denied the “no-freezeout value”—the value that their shares would have in the absence of the considered freezeout. This paper identifies and analyzes a fundamental problem involved in the regulation of corporate freezeouts. When deciding whether to effect a freezeout, a controlling shareholder might take advantage of its private information. When freezeouts take place under conditions of asymmetric information, we demonstrate, allowing controlling shareholders to effect a freezeout at a price equal or close to the pretransaction price of minority shares would enable controlling shareholders to effect such transactions on favorable terms and to extract in this way substantial private benefits of control. As this paper shows, courts face some difficult, inherent problems in trying to reach an accurate assessment of the no-freezeout value. These problems arise from the fact that controllers, who decide whether to effect a freezeout, are also likely to have private information concerning the firm’s value. As a result, the prefreezeout market price of minority shares, which is often used by courts in the assessment of the minority shares’ no- freezeout value, is likely to underestimate the no-freezeout value. Our analysis is organized as follows. Section 8.1 contains a short discussion of the use of market prices to assess the value of minority shares in freezeouts and a numerical example illustrating the adverse selection effect that results from such use. Section 8.2 contains a game-theoretic model demonstrating that, if a controlling shareholder can freeze out the minority shareholders at the prefreezeout market price, that market price will reflect the per share value of the company assuming that the controlling shareholder has the worst possible private information about the value of the company. A right to freeze out the minority shareholders at such a market price would therefore confer substantial profits on the controlling shareholder. The model uses several simplifying assumptions, but our work in progress suggests that its main result—that the presence of private information enables a controlling shareholder to gain systematically at the expense of minority shareholders—holds in a more general setting. Section 8.3 provides a concluding discussion that reports on some of the findings of our work in progress and considers the implications of our model for the controlling shareholder’s incentive to pursue investment projects and to reveal information.

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  The Economics of Vouchers

  David F. Bradford and Daniel N. Shaviro

  This chapter provides a swift tour of the economic issues presented by vouchers, which have been defined as “grants earmarked for particular commodities, such as medical care or education, given to individuals.” Among its main conclusions are the following: A voucher is cash equivalent if the allocation between commodities that the recipient chooses at her budget line is identical to that which she would have chosen if she instead had been given cash in the amount of the voucher. In practice, vouchers may be cash equivalent more often than is commonly believed. The greater the recipient’s preference for the commodities the voucher can be used to purchase, and the smaller the amount of the voucher relative to her other resources, the greater likelihood of cash equivalence. Since non-cash-equivalent vouchers are inferior to cash from the standpoint of a recipient with stable and well-defined preferences, replacing them with cash would be a Pareto improvement in the absence of other considerations. That is, it would leave recipients better off and no one else worse off. Among the other considerations that may support using vouchers are paternalism, externalities (including preferences by those who pay for the vouchers to induce a particular commodity choice), and the distributional aim of measuring need when it cannot be observed directly. An example related to the latter is a wage tax—in some respects a negative voucher program that conditions negative grants on the commodity choice of market goods rather than leisure. Any voucher program can be said to have a marginal reimbursement rate (MRR) structure, describing the size of the grant per dollar of ear-marked expenditure as the amount of such expenditure by the consumer increases. The programs most likely to be characterized as involving “vouchers” are those that have an MRR structure of 100 percent-0 percent. For example, someone who has $10 worth of food stamps can use them to pay 100 percent of qualifying food purchases up to $10, and 0 percent thereafter. By contrast, a food subsidy program with a flat MRR structure would pay a fixed percentage of the cost of all the consumer’s qualifying food expenditures. Determining appropriate MRRs presents an optimal tax problem that can be compared to that of setting marginal tax rates, or MTRs. Where a voucher responds to paternalism or externalities, Pigovian taxes (such as a pollution tax that requires polluters to bear the costs they impose on others) provide a useful analytical tool for solving this optimal tax problem, since they similarly attempt to alter marginal incentives. Where a voucher program serves the distributional aim of measuring need that cannot be observed directly, the optimal income tax perspective with respect to wage taxes may provide a better analogy. 2 In some circumstances, either of these perspectives can suggest that the classic 100 percent-0 percent MRR structure of vouchers is inappropriate. That structure is perhaps most likely to be optimal in the Pigovian setting if at some point the extra utility from increasing recipients’ choice of earmarked commodities steeply declines. One rationale for vouchers’ typical MRR structure of 100 percent-0 percent that is not generally persuasive, however, is that of using the top rate of zero as a cap for “budget control” purposes. This rationale ignores the likely option of holding expenditure constant by increasing the top MRR while reducing lower-tier MRRs, and it treats a nominal accounting measure of dollars spent in a given program as normatively significant. If a terminal MRR of zero is desirable, this presumably is because an underlying rationale based on paternalism or externalities has ceased to apply. The incentive effects of voucher eligibility criteria, such as income or asset tests, can be important. Poor households often face effective MTRs on their earning or saving that approach or even exceed 100 percent, because of the combination of explicit income and other tax liability with multiple phaseouts of transfers under both voucher and nonvoucher programs. Such MTRs, which can produce “poverty traps,” may become likely (even if they look unappealing when considered directly) if policymakers fail to integrate their consideration of “poverty” with that of distribution generally or of specific income-conditioned transfer programs with the overall tax-transfer system. Vouchers do not have uniform allocation and price effects, given variations in how they affect demand and supply. To the extent that particular vouchers are cash equivalent, only income effects could lead them to increase demand for earmarked commodities. The direction and magnitude of the income effects of vouchers on demand are a function of the relative income and price elasticities of beneficiaries and others. In cases where a voucher increases demand, its price effects depend on supply elasticity, which tends to be greater in the long run than the short run. In markets such as housing that are thought to have fixed short-term supply, concern about a price increase if direct grants to consumers (such as vouchers) increase demand, resulting in transition gain to suppliers if demand is not fully anticipated, may motivate the use of public supply instead of direct grants. Yet any such transition gain can be reduced without regard to the choice between public and private supply. Moreover, short-term supply may be less fixed than is commonly thought (for example, because housing is a multidimensioned commodity), and the prospect of transition gain may have desirable incentive effects, inducing short-term supply to increase in anticipation of the adoption of direct grants. Thus the choice between public and private supply should depend in large part on how well each responds in a given setting to the underlying incentive and information problems posed by supply of the particular commodities at issue. Both the transitional and the long-term effects of increasing demand for a commodity are easier to analyze where the suppliers are for-profit firms than otherwise. Thus in primary education, where nonprofit firms dominate private supply, transition gain from an underanticipated demand increase (such as from newly provided school vouchers) would be locked into the industry by the lack of owners with a claim on residual profits. The use of the transition gain in the industry would likely depend on the consumption preferences of the managers or of those with whom they had dealings, with the prestige effects of alternative uses possibly playing an important role. In choosing a supply mode for a given commodity, the level of supplier competition can be important and is distinguishable from, although potentially affected by, the choice between public and private supply. Government supply through vouchers or other mechanisms is most likely to be successful (whether or not preferable on balance to private supply) in industries where nonprofit firms have proven to be competitive among private suppliers.

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  Differentiation Within the Core: The Case of the Internal Market

  Gráinne de Búrca

  The aim of this chapter is twofold. It seeks first to examine the nature and extent of certain kinds of legislative differentiation which have existed over the years between Member States of the European Community, focusing specifically on differentiating provisions within harmonisation directives in the internal market sphere. Secondly, it seeks in so doing to explore what kind of “core” commitment or set of commitments might be said to characterise European Community, now European Union, membership and effectively to limit the nature and extent of differentiation which ought to take place. The recent moves to institutionalise general provisions on differentiation and closer co-operation within the EU Treaties focus a number of questions about the aims and aspirations of the EU as a political entity. Over the years, the value of uniformity in the application of and adherence to Community law and policy has been institutionally asserted as one of the central tenets of the enterprise. At the heart of the original move towards the creation of the European Communities was a desire to pool some of the resources and capacities of nation states within Europe and to create a central supranational level of government responsible for enabling, in the first place, a market-place in common to exist between those states. The deeper reasons for the creation of this common market have always remained open to debate: whether, as a first step towards a European political union, to ensure greater peace and stability within Europe, to augment the capacities of the individual states to act on both domestic and international issues, or to create a united trading bloc capable of rivalling other world trading powers. But it is indisputable that what constituted the first major step in the process of shaping a European political entity, and what remains today as the central plank of the European Communities and Union, is the set of norms and policies making up what has variously been called the common, single or internal market.

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  Proportionality and Subsidiarity as General Principles of Law

  Gráinne de Búrca

  Reports from a conference in Malmö, 27-28, August 1999: organised by the Swedish Network for European Legal Studies and the Faculty of Law, University of Lund.

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  Introduction

  Gráinne de Búrca and Joanne Scott

  This collection of essays addresses the changing constitutional framework of the EU and some of the changing patterns of governance within this complex polity. It examines the apparent and gradual shift in the paradigm of European governance from one emphasising uniformity and harmonisation to one which embraces flexibility and differentiation. The chapters range from broad,theoretical reflections on the constitutional implications of flexibility for the European polity, to focused case studies which examine various forms of ‘variable geometry’ existing in specific policy areas. Some of the contributions challenge the extent to which there has actually been any significant change of paradigm, and others explore the many different meanings and instances of flexibility which have emerged. Overall, the collection brings into focus both the problems and the potential ways forward for Europe which these constitutional developments suggest.