I. Introduction
I describe it as a clash between politics and markets, and of course both are important, but, at the end, markets win.
– Hank Paulson, US Secretary of the Treasury 2006–2009.Footnote 1
A decade of austerityFootnote 2 following the 2008 financial crisis has caused ‘drastic and lasting’ effects on socio-economic rights.Footnote 3 Meanwhile, neoliberalism is still alive, if not well,Footnote 4 as ‘social justice [was] necessarily trumped by the goal of returning to business-as-usual’.Footnote 5 Even though the idea that socio-economic rightsFootnote 6 are justiciable had gained support around the same time,Footnote 7 with few exceptions, courts and rights played only a minimal role in the aftermath of the crisis.Footnote 8 Instead courts explicitly adopted restraint expressed in terms of deference to other branches of government.Footnote 9
This article argues that a traditional understanding of courts as counter-majoritarian or unrepresentative institutions, and courts’ deference to other branches of government on socio-economic issues as a doctrinal manifestation of this understanding, should be reconsidered in our political-economic context where state finance has been marketised through public debt and political institutions must answer to bond markets as well as the electorate.
Until recently, while human rights lawyers have acknowledged that ‘effective human rights protection costs money’,Footnote 10 precisely how states acquire the money was much more rarely discussed.Footnote 11 Since the 2008 financial crisis, however, scholarsFootnote 12 and institutional actorsFootnote 13 have increasingly turned their eye to the important subject of public finance, debt and austerity. This recent work, unlike the current article, with some exceptions, emphasises policymaking (budgets, fiscal policy, etc.) over adjudication.Footnote 14
The article proceeds as follows: Section II briefly sets out the standard case for deference to legislatures, especially in socio-economic rights adjudication. Section III discusses post-2008 case law from several European jurisdictions (Ireland, Iceland, Germany, France, Latvia, Portugal, and the European Court of Human Rights) demonstrating the prevalence of deference, especially during economic downturns.
Section IV reconceptualises the role of courts by drawing on the work of German sociologist Wolfgang Streeck, who views the rise of public debt in the neoliberal era as one of the efforts to manage the serial crises that have characterised capitalism in the last several decades.Footnote 15 As states have transitioned from ‘tax states’ to ‘debt states’ they are best seen as serving two constituencies: the Staatsvolk (the people of the state) and the Marktvolk (the people of the market).Footnote 16 I argue that the implication is that courts might play a role in establishing a new equilibrium between the market and the social and explain how this would impact the approach to deference so as to emphasise democratic processes. In sum, (1) courts should review the democratic pedigree of legislation or policy and identify representation failures, especially when policy is not the product of democratic decision-making but imposed by external actors, including creditors; (2) in the face of such representation failures, the case for deference is weak; (3) the value of courts’ intervention is not to provide substantive solutions to complex economic issues but to destabilise the current equilibrium between the Staatsvolk and the Marktvolk, putting in place a process of realignment with increased emphasis on democratic legitimacy and, in this context, socio-economic rights.
In section V, I identify counteracting factors that may constrain courts from executing such a role and provide an assessment of the likely strength of these factors. Specifically, I address arguments to the effect that courts may be ideologically opposed to taking on the role or they may lack necessary institutional capacity and expertise. Additionally, structural factors – including the power of supranational institutions (including the EU), competing constitutional provisions (what I call neoliberal constitutionalism, and includes constitutionally mandated austerity and balanced budgets), and the global economy itself – may constrain courts. Section VI briefly concludes.
II. The standard case for deference to legislatures
The conceptual case for deference to legislatures is well known and includes the insight that ‘Courts are not representative bodies … not designed to be a good reflex of a democratic society’, while ‘[t]heir essential quality is detachment, founded on independence’.Footnote 17 The literature on the relationship between democracy, legislatures and courts, summarised under Alexander Bickel’s classic term ‘counter-majoritarian difficulty’, is vast.Footnote 18
Beyond this basic idea of deference, Aileen Kavanagh draws a distinction between minimal and substantive deference.Footnote 19 Minimal deference means that courts as a general matter give some presumptive weight to decisions of other branches, based largely on their different placement in the constitutional structure. Substantive deference, on the other hand, is ‘earned’ in specific situations based on procedures, institutional features and expertise and, when applied, has a stronger impact on judicial decisions.Footnote 20 Similarly, a distinction has been drawn between epistemic deference, where courts grant weight to individual decisions of other branches, and doctrinal deference, which involves allocating authority to make (near) binding decisions.Footnote 21 Finally, David Dyzenhaus distinguishes between deference as respect and deference as submission. Applying deference as respect, courts determine for themselves the answers to the relevant constitutional question, while giving respectful attention to the legislature’s answer to that question. As submission, however, deference leads courts to accept the legislature’s position as being correct, without further consideration.Footnote 22 These distinctions highlight the importance of the level of deference (or the level of scrutiny) and whether this depends on ‘earned’ deference in individual cases or structural/doctrinal deference across the board.
The standard case for deference is made particularly strongly in the context of socio-economic rights. Socio-economic rights are protected in international law, most prominently in the UDHRFootnote 23 and the ICESCR, along with group-specific treaties.Footnote 24 Regionally, the European Social Charter and its revised editionFootnote 25 address socio-economic rights in Europe directly, as does the Charter of Fundamental Rights of the European Union.Footnote 26 The European Court of Human Rights has also expanded its interpretation of certain of the rights protected in the European Convention on Human Rights to reach aspects of socio-economic rights.Footnote 27 As to national constitutions, a 2013 study found that of 195 constitutions reviewed more than 90 per cent contained at least one socio-economic right, with the right to education being the most commonly protected.Footnote 28 Jeff King notes that 82 per cent of constitutions include rights to work and education and 78 per cent include rights concerning physical needs.Footnote 29 The degree of justiciability of these rights varies. In addition to direct constitutional protection, aspects of socio-economic rights are often adjudicated under the heading of other constitutional rights, such as equality and non-discrimination, property, privacy, right to life, dignity, etc.Footnote 30
Socio-economic rights are often said to require trade-offs and financial decisions courts cannot or should not make.Footnote 31 Arguments for deference regarding socio-economic matters, similar to arguments against justiciability of socio-economic rights, rest primarily on (a) assumptions regarding the legitimacy and quality of representation by the political institutions,Footnote 32 (b) concerns for institutional capacity (including expertise).Footnote 33 Well-rehearsed but heavily critiqued arguments for non-justiciability thus remain relevant, even though the justiciability debate itself has largely been concluded, as arguments in favour of a higher level of doctrinal deference.Footnote 34 These concerns have been incorporated into socio-economic rights doctrine through an emphasis on judicial restraint.Footnote 35
The emergence of marketised state finance in the neoliberal era has undermined the assumption of quality of representation. This is the core of my argument explored below. I will say far less about institutional capacity concerns, but these will be addressed briefly in section V.
III. Doctrinal deference in European post-2008 austerity case law
Various courts in Europe were confronted with challenges to austerity policies after 2008. While it is important to note that the background, procedural stance and legal rules under consideration are diverse, the following discussion of cases draws out one central point: In the sphere of socio-economic policy, and austerity in particular, European courts tended to adopt an initial stance of deference to other branches of government.
Two Northern European island states hit particularly hard in the financial crisis provide clear examples: Iceland and Ireland. In 2017 the Icelandic Supreme Court upheld an austerity measure, imposed in 2009–2012, involving freezing of annual increases of pensions as consistent with constitutional socio-economic rights.Footnote 36 The Court emphasised the legislature’s margin of appreciation and that the measure was based on the reasonable consideration that wide-ranging measures to reduce state spending were necessary. The Court did not otherwise inquire into the government’s economic justification.
Ireland, although it has long-standing constitutional commitments to socio-economic rightsFootnote 37 and faced severe austerity measures post-2008,Footnote 38 provides no salient constitutional challenges to austerity. The Irish Supreme Court had previously indicated that it was not receptive to socio-economic rights based claims, offering a rigid understanding of separation of powers and viewing socio-economic rights as a matter of ‘distributive justice’Footnote 39 not appropriate for adjudication.Footnote 40 The most relevant case is a 2009 decision by the Irish High Court rejecting a property rights/equality challenge to a law reducing state fees to pharmacists.Footnote 41 The Court held that there was no property right involved, but even if there had been such a right, the dire economic situation entailed that the legislature was within its powers in restricting that right. When rejecting the plaintiff’s arguments based on the Irish Constitution’s equal rights provision, the Court emphasised that parliament was owed a presumption of constitutionality and that this ‘presumption applies with particular force to legislation dealing with controversial, social and economic matters’.Footnote 42
The 2010 and 2012 social welfare decisions of the German Bundesverfassungsgericht have received much warranted attention.Footnote 43 The Court’s protection of Existenzminimum (subsistence minimum) is notable and important, but one should not overlook the Court’s deferential starting point. In Hartz IV the Court referred to ‘the broad margin of appreciation of the legislature with regard to the question of the scope of benefits to secure one’s subsistence minimum’.Footnote 44 In the later Asylum Seeker Benefits case it stated that ‘[i]n light of the unavoidable value judgments needed to determine the amount of what guarantees the physical and social existence of a human being, the legislature enjoys a margin of appreciation’.Footnote 45 More recently, the German Court found that certain fiscal consolidation measures, i.e. cuts to salaries of civil servants in one of the Länder, entailed a constitutional violation. Yet, the Court took care to highlight the legislature’s ‘wide latitude of political discretion’ in this area and the Court’s correspondingly marginal role.Footnote 46
The details of the status of socio-economic rights enforcement in France are somewhat opaque.Footnote 47 Nonetheless, a 2010 decision regarding the right to work, unemployment, and pensions highlights that the Conseil Constitutionnel takes the view that the legislature has a positive commitment to legislate on these issues but ‘is, however, free to choose such concrete means of implementation as it shall see fit’.Footnote 48
What then about the European apex courts that delivered influential judgments, sometimes seen as ‘activist’,Footnote 49 striking down austerity measures post-2008? Consider Latvia and Portugal.Footnote 50 While deference to the legislature did not decide the outcome in these cases, we can easily observe the baseline of deference.
The Latvian Constitutional Court, when striking down austerity measures, including a 30 per cent cut to old-age pensions, based on constitutional provisions on socio-economic rights and property rights, stated that ‘wide freedom of action should be granted to the State in respect of property rights in the area of social rights’, that courts ‘should refrain from judging the political matters [inherent in the area], for it is primarily the area of authority of a democratically legitimated legislator’. Citing the ECtHR, the Court emphasised that in the context of restrictions to social programmes the legislature’s ‘broad freedom of action’ should be respected, except when this action ‘has no reasonable justification’.Footnote 51
While the Portuguese Constitutional Court has been perhaps the most active European court in striking down austerity, it too proceeds from a position of deference. A review of the 12 most important austerity cases from the Court concludes that ‘the Court has cleared a significant part of austerity legislation allegedly encroaching on fundamental rights; [and] the margin of discretion of the legislature has played a significant role on the Court’s reasoning by way of deferring to the legislature’s choices’.Footnote 52
On the regional level, the European Court of Human Rights (ECtHR) received numerous challenges to austerity measures post-2008. The Court has relied on previous case law in which elements of social welfare systems were protected under the ambit of the European Convention’s right to private property or other rights, thus triggering proportionality analysis when benefits were reduced.Footnote 53 In post-2008 austerity cases, the ECtHR has been extremely deferential to the states and has dismissed most of the cases.
In Koufaki Footnote 54 the Court held that cuts in pensions and wages had the legitimate aim of reacting to the ‘exceptional crisis’ facing the Greek economy by reducing public spending. It noted that the margin of appreciation in implementing social and economic policies is a wide one, and that the Court would only step in where the legislature’s judgment as to what is ‘in the public interest’ was ‘manifestly without reasonable foundation’.Footnote 55 It would not assess whether the legislature selected the best solution available.Footnote 56 The Court echoed this deferential approach in later cases involving austerity.Footnote 57 The Court did, however, find a violation in three cases decided against Hungary in 2011Footnote 58 involving an up to 98 per cent tax on severance payments to certain public employees. Nonetheless the judgments in these Hungarian cases are couched in very deferential terms and have since been cited by the Court for the proposition that ‘the adoption of policies to protect the public purse’ should be accorded a wide margin of appreciation.Footnote 59
On its face the Court’s approach is that although a wide margin of appreciation is granted, the Convention imposes certain conditions which austerity measures must meet. However, these conditions become largely irrelevant when the aims of the state are expressed at such a high level of generality as protecting the public purse, masking the precise goals, which may involve issues of deficits, public debt, retaining market confidence, and/or ideologyFootnote 60 and a wide margin of appreciation is granted. The deferential stance must, of course, be viewed in light of the Court’s status as an international body.Footnote 61 However, domestic courts, including for example the Lativan Constitutional CourtFootnote 62 and the UK Supreme CourtFootnote 63 have explicitly adopted the ECtHR’s deferential standard of review suggesting that the ECtHR should not be analysed in isolation.
These austerity cases, despite differences in terms of political-economic and legal context – for example, some of the cases were decided based on socio-economic rights, others based on equality or property rights – demonstrate ‘doctrinal deference’ as opposed to earned ‘epistemic deference’.Footnote 64 When cases explicitly enter the socio-economic realm the political branches immediately and automatically receive from courts broad discretion. The details of that discretion, e.g. the level of deference, varies, as does the respective weight of legitimacy concerns vs institutional capacity concerns. The overall picture, however, is clear and the question is whether in fact the pervasiveness of the language of deference is less an instance of ‘passive virtues’Footnote 65 and more an abdication of rights protection.
IV. The counter-majoritarian difficulty in a neoliberal world
To contextualise the implications of deference, I draw on the work of Wolfgang Streeck who has set out a historical narrative of capitalism in the neoliberal era as a series of crises and an illuminating model of how we might think about the constituencies of the state,Footnote 66 and emphasised that, a decade after the 2008 crisis, a resolution of modern capitalism’s instability and inherent tensions with democracy is not in sight.Footnote 67
Post-war capitalism as a series of crises
Since the 1970s capitalism in the rich OECD countries has been dominated by a series of crises. The solution to each has merely bought time until the next. The first crisis in the 1970s, often described as the crisis of Keynesianism, was in Streeck’s view caused, essentially, by the owners of capital revolting against the post-war class-compromise of embedded capitalism.Footnote 68 An important aspect of that compromise was a steeply progressive tax system but by the 1970s, such taxation had reached the limit of what the owners of capital would accept and ‘investment-strikes’ loomed.Footnote 69 Inflation was therefore the tool to seek to extend the compromise.Footnote 70 But it wore out quickly and became a crisis in itself. The ‘solution’ was a shift to public debt, which ballooned in the 1980s.
Even more than inflation, public debt borrows from the future in order to allow governments to calm social conflicts. As public debt became ill-sustainable in the mid-1990s, the emphasis was placed on fiscal consolidation and the means of finance expanded from public to private debt. In this ‘privatised Keynesianism’Footnote 71 households and businesses took on ever more debt. The 2008 crisis can be seen as the culmination of this era.
Alongside the series of crises, Streeck notes three long-term trends: declining growth, growing economic inequality and growing debt levels. These trends appear to be mutually reinforcing. They make recovery from crisis less and less viable and increasingly appear as a ‘vicious circle’ extremely difficult to break.Footnote 72 The post-2008 era has been characterised by the continuation of these trends, the exclusion of governments from active economic policymaking by austerity programmes and the leading role of central banks, who have bought time by quantitative easing and similar methods to inject money into the economy often through private financial firms.Footnote 73
The implication of Streeck’s crisis sequence for my discussion of socio-economic rights adjudication should be clear: To the extent deference is based on a discourse of financial crisis, as featured prominently in the post-2008 case-law,Footnote 74 this is problematic. The argument that legislatures are entitled increased leeway to cut socio-economic rights during economic crises is thus best viewed not as an extraordinary reaction to an extraordinary situation but as a part of a core dynamic, whereby social justice is trivialised.Footnote 75
Duelling constituencies of the neoliberal state – duelling concepts of justice
To shed light on the politics of class in this era, Streeck offers a ‘stylized model’ for thinking about the constituencies of the state.Footnote 76 In the period of the tax state, covering particularly the three decades following World War II, the Trente Glorieuses of embedded capitalism, the voting citizens were taxpayers and thus the source of funding for the state. Voters/citizens are similarly treated as the principal or only reference group in standard political theory.Footnote 77 In the subsequent debt state, where state budgets are increasingly financed on international markets, a new constituency emerged: the creditor. Streeck distinguishes between the Staatsvolk (the people of the state, the citizenry, voters) and the Marktvolk (the people of the market, creditors, investors, international bondholders).Footnote 78 Politicians now had to maintain the support of both constituencies competing for control of the democratic capitalist state. The Staatsvolk exercise political influence through politics and voting, the Marktvolk by financing (or not) the state itself by buying (or not) public debt and adjusting the interest on that debt.Footnote 79 The democratic debt state must steer a middle path to maintain the loyalty of its citizenry while not losing ‘investor confidence’.
As the debt state loses confidence of markets due to rising debt levels and what is seen as unsustainable public spending, the consolidation state emerges. Footnote 80 In the consolidation state, the emphasis is on fiscal consolidation and debt containment, mostly by cutting expenditure, rolling back or privatising public services, etc. Permanent austerity is intended to restore confidence of investors, making it clear that the state will service its debts. A full transition to the consolidation state settles the struggle between the two constituencies in favour of the Marktvolk by enshrining the primacy of the state’s contractual obligations on the market over its political commitments to citizens.Footnote 81
What do the dual and competing constituencies mean for the state? The crucial shift is the focus on market confidence.Footnote 82 The question of how ‘the market’ will react to policies becomes at least as important as how the public will react. Sovereignty is subjected directly to the ‘discipline of financial markets’Footnote 83 and according to the neoliberal world view, this is a good thing.Footnote 84 Fiscal consolidation becomes the focus of lenders who seek to ensure that ‘debt service gets priority over public services’,Footnote 85 especially when crises hit.
Streeck further distinguishes between market justice, distribution based on market criteria, and social justice, distribution based on cultural norms, status not contract, fairness, correctness and reciprocity, irrespective of productivity.Footnote 86 What is just according to market justice is decided by the market, but social justice is socially constructed and actively seeks to alter market outcomes.Footnote 87 Both conceptions of justice must be seen as normative, as market justice favours owners of capital while disguising itself as being purely technical.Footnote 88 This tendency to disguise distributive consequences of markets is well known to legal realists, who emphasise that markets are inevitably structured by legal rules that impact distributional outcomes but have no single natural content.Footnote 89
Eliminating the tension between the market and the social by making the market immune to social correctives could be achieved ‘either through the neoliberal re-education of citizens or through the elimination of democracy’ through force.Footnote 90 Streeck’s example of the latter is Chile in the 1970s, although neoliberalism, often backed by supranational institutions, has found more subtle ways to eliminate democracy, for example by seeking to constitutionalise, and thus remove from ordinary politics, neoliberal economic policy.Footnote 91 If, on the other hand, society internalises the neoliberal world view it may simply ‘accept market justice as social justice’.Footnote 92 Michel Foucault’s understanding of neoliberalism would add that neoliberalism indeed requires each member of society to understand herself and be understood as homo oeconomicus in all settings and to treat all activity as economic activity.Footnote 93 Within that mode of reasoning there can be no justice other than market justice.
Justiciability, deference and the dual constituencies
Observing the dual constituencies of the neoliberal state provides an insight into how we understand judicial restraint and deference to legislative choices. I am framing this issue in the context of socio-economic rights adjudication and post-2008 austerity specifically, as it is an area where the most relevant issues – crisis, public debt, market confidence, institutional competency – are on clear display but the implications may be broader.
The ‘standard democratic story’Footnote 94 assumes that the most appropriate institutions to advance social justice are those with the highest degree of democratic accountability. Identifying the Marktvolk as a political constituency allows us to explain why this may not be true in the neoliberal state.Footnote 95 Legislatures respond to the market not (necessarily) out of self-interest or ideology, but rather in response to neoliberal hegemony and real or perceived economic necessity, thus revealing a structural representation failure.
Meanwhile, courts’ independence provides (comparative) freedom from responding to market forces. Unlike the legislative and executive branches, courts are not directly exposed to the market and its ‘people’ when executing their task and courts’ non-representative nature becomes an asset rather than a weakness. Because of courts’ ‘detachment’Footnote 96 from the second constituency compared to legislators’ over-responsiveness to markets, we look to courts for disruption of the status quo: more democracy through a nominally counter-majoritarian institution.Footnote 97 The marketisation of public finance thus demands an Ely-esque argument for judicial scrutiny.Footnote 98 Much like Ely’s theory emphasised minorities’ lack of access to the democratic process, the reality of marketised public debt supports robust judicial review as we can identify three distinct (but partly overlapping) underrepresented groups: First, the voting citizenry whose influence over the state’s institutions have been diluted. Second, the beneficiaries of public services impacted by consolidation of state budgets due to debt burdens or demands of market confidence. Third, future generations of citizens, having to deal with the state’s efforts of ‘buying time’ when the next crisis hits.
The point of the argument is not so much to use courts to impose losses on bondholders instead of the public/taxpayers in individual situations. The effects of imposing such losses are highly dependent on the context, including specifically the identity of bondholders. For example, imposing haircuts where sovereign bonds are held by non-concentrated domestic entities, including pension funds, has a very different bottom line compared to cases where bonds are highly concentrated in the hands of non-domestic professional investors (e.g. private hedge funds).Footnote 99 Jerome Roos emphasises that in cases where debt holding is highly concentrated in international financial firms, creditors are able to coordinate as a cartel to discipline indebted governments by adjusting rates on credit linesFootnote 100 – the prime example of Marktvolk influence. Rather than necessarily shifting losses, the thrust of the argument presented here is to shift the ground of the decision-making, from a market justice frame (contractual obligations, property rights, investor confidence) to a social justice frame (socio-economic rights, democratic processes). Courts are, at least often, better positioned than legislators to enact this shift based on their expertise and emphasis on rights enforcement. In this context the rights being enforced are, at their core, social correctives of market outcomes, and in that sense ‘rights against the market’,Footnote 101 operating against the logic of market justice by, inter alia, de-commodifying certain aspects of life.
A clarification is in order regarding Streeck’s emphasis on the ‘international’ nature of the Marktvolk. It has been suggested that Streeck’s distinction, and his use of the term Volk, is nationalistic and even recalls strains of anti-Semitism.Footnote 102 I believe this characterisation is unfair, and emphasise that, at least in my version, the distinction is between roles and position towards the state, mobility, as well as economic power/class, regardless of nationality. Under neoliberal capitalism, owners of capital are international in the sense that capital flows across boarders while citizens can only exercise power within their countries. To the extent policy, e.g. austerity, is directed by international institutions (IMF, EU) the emphasis in my argument is on their non-democratic tendencies, rather than their international nature.
What might courts’ involvement in the politics of the Marktvolk look like? Famously, during Hungary’s shift to capitalism in the 1990s, the Hungarian Constitutional Court ring-fenced popular social welfare programmes against imposed austerity when the other branches of government felt compelled to comply with the IMF’s lending conditionalities.Footnote 103 Also in the 1990s, during a financial crisis and imposition of the Washington Consensus, the Colombian Constitutional Court struck down various austerity measures, intervening in structural adjustment.Footnote 104 In Kim Scheppele’s account, courts force a shift in the ‘realpolitik’, arming the national government with new tools to contest and renegotiate demands by external actors.Footnote 105 Claire Kilpatrick accepts that courts can empower governments in this way but finds that this was not a prominent feature in post-2008 Europe. Thus, even where courts found austerity measures unconstitutional this did not force ‘re-opening the global figure of cuts required’ but rather forced the national government to search for alternative methods to impose the degree of cuts required by the Troika.Footnote 106 Portugal is perhaps the most interesting example. When its Constitutional Court struck down austerity measures, market actors responded by hiking interest rates.Footnote 107 The Troika’s subsequent review of its loan programme then incorporated the potential of judicial review by stating that the Portuguese government would seek to mitigate ‘legal risks from future potential Constitutional Court rulings’.Footnote 108 Thus, while markets initially responded negatively, by the next round of loan negotiations, the Court had set a new baseline which the creditors felt forced to accept. Yet, Kilpatrick is right that this new baseline, even per the Court’s own reasoning,Footnote 109 only involved the specific distribution of austerity within the Staatsvolk, not as between the Staatsvolk and the Marktvolk. One might also imagine an undesirable situation where a court-made baseline would constitutionally mandate unsustainable expenditure levels, alienating the credit markets that appear as the sole source of funds in the short term.
Courts’ appropriate role is perhaps best conceptualised as an enforcer of socio-economic rights as ‘destabilisation rights’ that allow citizens to disrupt structures that are unresponsive to democratic challenge.Footnote 110 The value of courts’ involvement is not to solve complex substantive issues but to ‘put in motion processes of contestation’Footnote 111 and replace the current equilibrium of power between the Staatsvolk and the Marktvolk with disequilibrium, to be worked out after the court delivers its judgment. In Sabel and Simon’s work, the ‘prima facie case’ for destabilisation rests on two factors: (a) ‘political blockage’, in this context a determination of representation failure, and (b) ‘failure to meet standards’, here a determination that socio-economic rights are undermined without sufficient justification.Footnote 112 In the doctrinal context of deference, the two factors are related: a determination of political blockage should lead to reduced deference, meaning a higher degree of scrutiny of the government’s justifications for infringement of rights. Importantly, destabilisation rights enforcement requires designing remedies that emphasise ‘collaborative dialogue, provisionality, and transparency’,Footnote 113 i.e. dialogic structural remedies with ongoing monitoring.Footnote 114
Deference and democratic pedigreeFootnote 115
How, then, should courts adjust the degree of deference to legislative choices? Karl Klare, in advocating for active socio-economic rights adjudication, argues that judicial deference is but one of many ‘considerations’ that courts must take into account to when deciding such cases, and its weight depends on the context, including any ‘representation failures’.Footnote 116 Klare argues that the presumption that legislatures are more ‘representative of and responsive to the people’ than courts is ‘[i]n some cases a transparent fiction’ and our received wisdom of separation of powers ‘underweighs or entirely ignores the democratic shortcomings of shabby, dysfunctional, or corrupt legislative processes’.Footnote 117 Similarly, Duncan Kennedy, contemplating how deference fits within proportionality frameworks, argues that ‘the weaker the democratic pedigree of the statute, the weaker the case for deference’.Footnote 118 Matthias Klatt has proposed that courts adjudicating socio-economic rights should take a case-by-case view on deference, based on, inter alia, the quality of the legislative decision.Footnote 119 Rosalind Dixon and Jeff King emphasise legislative inattention to, and undervaluation of, socio-economic rights in their respective arguments for socio-economic rights adjudication.Footnote 120
The common theme of these authors is that deference should not be automatic. Courts can and should review the democratic pedigree of the relevant legislation or decision. This familiar idea should be applied to the representation problem expressed by the Staatsvolk-Marktvolk model. Courts should identify situations where policy is the result not of a democratic process but the preferences of financial markets or specific creditors and review such policies with heightened scrutiny. This does not, of course, eliminate deference from socio-economic rights adjudication. The legislature can ‘earn’ ‘epistemic deference’Footnote 121 by demonstrating strong democratic pedigree, achieved through robust procedures, transparency in negotiations with creditors, participation, human rights impact assessments,Footnote 122 etc.
Courts thus already have tools to design an approach to deference that better corresponds to the representation failures in the neoliberal state than the current automatic doctrinal deference regarding socio-economic matters. Nascent undertheorised examples of such a more dynamic approach can been teased out of the post-2008 case law: (1) While the ECtHR granted a high degree of deference to national governments on austerityFootnote 123 its judgments in other spheres provide examples of a ‘qualitative, democracy-enhancing’ approach, where the Court adjusts the degree of deference (the margin of appreciation) depending on the democratic qualities of the challenged decision, including the quality of the legislative process.Footnote 124 (2) The Latvian Constitutional Court, when striking down austerity legislation, emphasised the haste and lack of scrutiny with which the legislation was pushed through parliament upon demands from international creditors.Footnote 125 (3) The Italian Constitutional Court in 2015 held unconstitutional the freezing of annual increases of larger old-age pensions.Footnote 126 One of the main factors of the decision was criticism of the design of the measures, including that the legislation included only a ‘generic reference to the “contingent financial situation”’, not analysis on why the economic concerns should ‘necessarily prevail over the rights affected’. The Court focused on the legislative process, stating that the particular cuts were put in place without sufficient assessment of their necessity, proportionality and precise effects.Footnote 127 (4) The European Committee on Social Rights, overseeing the European Social Charter through a non-binding collective complaints mechanism, has found that Greece’s post-2008 austerity measures violated numerous provisions of the Charter.Footnote 128 One element of the Committee’s 2012 finding of a violation was that Greece had ‘not conducted the minimum level of research and analysis’ and not coordinated with civil society groups when implementing the relevant austerity measures.Footnote 129 (5) Although not in the post-2008 context, the Colombian Constitutional Court has struck down parts of legislation in situations where the Court finds that parliamentary debate or procedure has been insufficient, e.g. where important amendments are offered on the final stages of the legislative procedure.Footnote 130 Rather than adopting doctrinal deference courts should develop this approach based on recognition of structural representation failures to assess whether deference has been earned.
The issue is complicated by the fact that the precise mechanics of democratic institutions’ over-responsiveness to financial market concerns are diverse. Even within post-2008 Europe austerity has been imposed (a) through lending conditionalities of international financial institutions, (b) through supranational institutions, e.g. the EU’s balanced budget rule,Footnote 131 (c) by national governments responding to sovereign bond market pricing and/or managing debt levels by prioritising debt service, and (d) by domestic authorities not struggling with the yields on their bonds.Footnote 132 Relatedly, Jerome Roos argues that sovereign debt markets rely on ‘structural power of finance’, especially in crises, to enforce compliance through a threefold mechanism: (a) market discipline, whereby private creditors control the supply of short-term credit on which most or all domestic economies rely, (b) the conditional lending of supranational institutions (IMF, ECB, etc.), and (c) the ‘bridging role of domestic elites’, such as bankers and technocrats in governments, whose material interests and ideologies are in sync with those of the international creditors.Footnote 133 One might think about a spectrum: on one end, express imposition of specific policies and, on the other end, policies implemented by domestic elites hoping for a positive reaction by market actors. At this latter end of the spectrum, the range of actual choice available to policymakers is limited but a detailed policy cannot be said to have been imposed. The argument of this article requires that courts identify cases of representation failure. This determination becomes more difficult as the scenario moves further away from imposed conditionalities. However, even though policy is not directly imposed, over-responsiveness to market preferences should be considered a representation failure. Framed in terms of legitimacy, such policies lack ‘input’ legitimacy, which concerns the extent to which people are able to express their views though representative institutions, ‘throughput’ legitimacy, which concerns the efficacy, accountability, transparency, etc. of the relevant decision-making processes, and ‘output’ legitimacy, which concerns whether policies adopted reflect the values of the public.Footnote 134 Courts would need to identify such representation failures by, as detailed above, reviewing procedures, but also by reviewing government justifications for infringement of rights. Sometimes, such justifications are expressly market based: In the Canadian NAPE decision, the Newfoundland government successfully justified a cut to reparations for gender-based pay inequality on the basis that its ‘budgetary deficit had unexpectedly ballooned to the point where the provincial credit rating on international money markets was at risk’.Footnote 135 Even when government emphasis on market preferences is not this explicit, the requirement to give reasons, when adequately enforced by courts, may enable courts to determine representation failures.
The view of deference outlined here, which is largely process-based, amounts to a first step in an approach to assessing governments’ economic or market-based justifications for socio-economic rights infringements. The overall approach, the contours of which are outside the scope of the present analysis, is underexplored but would ideally combine this view of deference with, inter alia, structural, opposed to individualised, interpretations of socio-economic rights and dialogic remedies including ongoing monitoring. A complete view of courts’ potential in this context would necessarily depend on the strength of this approach in its entirety. The present article, however, is limited to providing a conceptual backdrop and the first step to overcome the current status quo of automatic doctrinal deference, as well as – and this is what we turn to next – identifying certain constraining factors that may render courts unwilling or unable to adopt the contemplated role.
V. Misplaced hope?
The ideological critique of courts
This article calls for a somewhat hopeful view of courts as potential defenders of social justice. Clearly, they do not always act in this way. An obvious example is the US Supreme Court’s ‘neoliberal constitutionalism’Footnote 136 in Citizens United,Footnote 137 treating democracy in pure economic termsFootnote 138 and more recent decisions ‘weaponizing the First Amendment’Footnote 139 to strike down progressive economic policies. From the socio-economic rights sphere, the Canadian Supreme Court’s decision in Chouilli,Footnote 140 possibly ‘worse than Lochner’,Footnote 141 established a right to health only for those that can pay for it.Footnote 142 Some argue that handing socio-economic rights to the judiciary may lead to the elimination of their progressive potential,Footnote 143 as judges will produce ‘market-friendly’ versions of socio-economic rightsFootnote 144 and litigation will, at best, favour the already well-off.Footnote 145 While this is not the place to scrutinise these claims, two of the factors leading to such outcomes are: (i) The poor do not have access to courts, a factor that can be managed to some extent through institutional design and supportive structures;Footnote 146 and (ii) The judiciary is made up of elites that are sympathetic to claims of member of their own class and/or tend to be ideologically conservative.Footnote 147
This ‘ideological critique’ of courts,Footnote 148 is important. It is far from my intention to argue that courts should be the sole or central focal point of social justice advocacy. First and foremost, now as in the past, political mobilisation through social movements and the reclaiming and reconstruction of democratic institutions is crucial.Footnote 149 However, ignoring or ceding the struggle over courts would be a mistake.Footnote 150 Neither the argument that social justice causes must not rely solely on courts, nor a recognition that courts have produced regressive outcomes in the past, change the fact that courts presently do have power and we should focus on how this power should be wielded.Footnote 151 As Tushnet has pointed out the involvement of courts and constitutional rights on the issue of economic inequality is ‘inevitable’.Footnote 152 The question is whether advocates of social justice should view this struggle as already lost, because of the ideological critique, or if they should engage, aware of the risks. A social justice role for courts, as one non-exclusionary plank among many in a larger programme for economic fairness in times of rampant economic inequality and neoliberal hegemony, requires rethinking of courts’ role, to which this article seeks to contribute, while recognising the limits of courts.
One reaction to the ideological critique is to discourage judicial action. To the extent this discouragement takes the doctrinal form of deferential review, this may in itself become the tool of reshaping rights to serve the ideal of market justice: Courts may use deference to (re)define rights in a neoliberal manner or adopt deference to signify ‘tacit approval of the impugned policies’.Footnote 153 The ideological critique is therefore a flawed argument for deference.
The argument in this article in part provides a constraint: It is specifically when courts find a representation failure and over-responsiveness to financial markets at the expense of protected rights that courts are empowered to intervene (through the doctrinal tool of reduced deference). When democratic processes function Courts have no authority under this argument to, for example, employ constitutional rights to restrict progressive economic policy choices. I will quickly acknowledge that these distinctions are indeterminate, but such is the nature of most of constitutional law.
The ideological critique, as argued by Luís Barroso, will not be applicable in all places at all times.Footnote 154 In the situation contemplated here the legislature must answer to bond markets and is pushed towards regressive outcomes. Meanwhile, constitutional socio-economic rights and strong versions of such rights in international or foreign lawFootnote 155 pull in the opposite direction and may counteract judicial ideology at least to create a threshold for regressive-minded judges to overcome in order to reach their own market-friendly interpretations.
The ideological critique lends itself to the ever-present question: courts compared to what? The institutional comparison that is at the heart of this article leads to the conclusion that in the neoliberal state we might turn to courts not exclusively or as a first choice but as a reaction to representation failures of legislatures.Footnote 156 If the institutional alternatives are severely flawed the ideological critique of courts loses some of its force.
Institutional capacity concerns and expertise
The analysis has hereto focused on democratic legitimacy concerns. One might accept my argument on representation failures in the modern debt state while maintaining that courts could not possibly help the situation because of institutional capacity (or expertise) concerns. I can only comment briefly on these concerns here.
First, some realism about expertise: On economic policy neoliberalism has brought with it an excessive belief in orthodox technocratic solutions, considered to be properly placed outside the realm of the political and the judicial. Helena Alviar describes, for example, how critics of the Colombian Constitutional Court’s socio-economic rights decisions framed these decisions as ‘wrongly interfering with the wisdom of the market’ and as ‘not “technical”’, thus treating market justice as neutral and non-ideological.Footnote 157 Such critique ignores the realist insight of markets as necessarily constructed by legal rules with distributive effects.Footnote 158
The argument advanced here challenges the mantra of TINA – ‘there is no alternative’Footnote 159 to neoliberal market justice – as overemphasising the neutrality and inevitability of technocratic orthodoxy. It posits instead that ‘there is no technocratic answer’ (‘TINTA’) and while a socio-economic rights approach does not purport to provide a clear policy blueprint, it emphasises decision-making processes, accountability, participation and transparency and is grounded in substantive, if vague, principles of social justice, expressed as rights.Footnote 160 This is, of course, not to say that institutional capacity concerns or economic expertise are irrelevant, but rather that there is cause to question the existence of a gold standard of neutral expertise.
The precise role of courts is hugely important to the institutional capacity concern. The present argument is not that courts should design and dictate economic policy, but destabilise non-democratic processes and facilitate dialogue, public debate and alternative-seeking.Footnote 161 Courts can ‘outsource’ substantive expertise, for example by appointing special masters.Footnote 162 Hearings can be expanded in scope and publicity. Remedies can be designed to facilitate an ongoing dialogue, involving and obtaining expertise, between the government and the court and/or parties rather than one-and-done coercive orders.Footnote 163 Once again Colombia is the best-known example of such experiments, appointing civil-society commissions, which included experts, to monitor implementation of judgments and holding large-scale public hearings on the progress.Footnote 164 These experiments may be tentative and flawed but the comparative institutional setting does not portray courts as less attractive in terms of legitimacy and capacity concerns compared to nominally democratic but unresponsive legislators that require external expertise as well.Footnote 165
Structural constraining factors
The ideological critique and capacity concerns discussed above are institutional factors that, at least potentially, constrain courts from performing socio-economic rights adjudication along the lines contemplated in this article. Several structural factors constraining courts can also be identified, prominently the role of supranational institutions (including specifically the EU), neoliberal constitutionalism, and the globalised economy itself, each of which may limit the de facto power of national institutions, including courts.
First, supranational institutions outside the jurisdiction of national courts often design the pro-market policies relevant here.Footnote 166 Obvious examples are lending conditionalities or structural adjustment and the Euro-crisis law, i.e. the post-2008 economic policy implemented in the Eurozone through EU secondary law and international instruments.Footnote 167 The role of the EU is particularly important as, in many states, EU law and constitutional law both claim supremacy.Footnote 168
While the replacement of domestic democratic procedures by externally imposed policies fits the argument of this article for less deferential judicial review, courts’ focus on the domestic procedures may be impractical, when the actual policymaking takes place on the supranational level, and insufficient to have an impact. If the balance between the market and the social (or the Marktvolk and the Staatsvolk) is struck at the supranational institutional level, these institutions, including supranational courts (here, the CJEU) become more important. An ideological critique of the CJEU, espoused by Streeck and many others,Footnote 169 presents the Court as an engine for de-democratisation and neoliberalisation of Europe, favouring the market over the social in the overall direction of the EU.Footnote 170 This matches a Hayekian theory of supranational institutions, emphasising that elevating the control of the economy to the supranational level and to expert bodies prevents democratic control and allows for implementation of neoliberal policies which would (at least potentially) be opposed by democratic, or even judicial, institutions at the national level.Footnote 171 Various authors argue that supranational institutions, including the EU and the CJEU, in light of their importance in a globalised economy, should be reformed, inter alia, through the application of human rights law,Footnote 172 and/or note efforts to rebalance the market and the social in the EU, including by the post-2008 European Pillar of Social Rights.Footnote 173 Relatedly, a recent large-N study claims that the ideological critique of the CJEU is somewhat overstated as, although the Court favours deeper integration than the Member States might prefer, it does not systematically favour either liberal or social varieties of market economies.Footnote 174
Supranational institutions may constrain national courts. However, that constraint is not absolute. Courts may find ways to avoid clashes with supranational institutions. Claire Kilpatrick explains that the European national courts that most prominently struck down austerity measures post-2008 did so within national constitutional law without addressing EU law, thus avoiding friction with the CJUE.Footnote 175 When clashes cannot be avoided, national courts sometimes push back against the supranational on constitutional grounds. In Europe, it is well known that the national–supranational balance of power is continuously contested by national courts.Footnote 176 National courts can impact the supranational order and that same logic would seem to apply, with all its related complications, to the dynamic of the social against the market.
The second type of structural constraint can be labelled neoliberal constitutionalism, or, in Helena Alviar García’s work, ‘neoliberalism as a form of authoritarian constitutionalism’, i.e. constitutionalising neoliberal policies and thus ‘excluding certain economic policies and choices from public deliberation’.Footnote 177 The phenomenon comes in degrees. Various elements of modern global constitutionalism involve a degree of tilt towards neoliberalism, for example the simple fact that property rights get stronger protection than socio-economic rights.Footnote 178 As noted above, Jedediah Purdy uses ‘neoliberal constitutionalism’ to describe the US Supreme Court’s specific interpretations of civil and political rights.Footnote 179 The EU’s ‘fundamental freedoms’– freedom of movement of goods, capital, services and labour – or at least certain interpretations thereof can also fit in this category.Footnote 180 Most directly, austerity has been constitutionalised. Since the 2012 Fiscal Compact, the EU Member States (excluding the UK) are required to constitutionalise a ‘golden rule’, i.e. a detailed obligation for balanced budgets.Footnote 181 A 2011 amendment to the Spanish Constitution grants loan payments ‘absolute priority’ in state budgets.Footnote 182 Outside of Europe, Brazil’s 2016 constitutional amendment froze public spending for 20 years, expressly in order to ‘recover[] business confidence’ and patch up Brazil’s credit rating, while being opposed by 60 per cent of the public.Footnote 183 Backlash to the Colombian Constitutional Court’s socio-economic rights adjudication resulted in a constitutional amendment on ‘fiscal sustainability’ seeking in part to rein in the court’s influence over budgetary matters.Footnote 184
Such constitutional mechanisms, often backed or required by supranational institutions and/or expressly enacted to build market confidence,Footnote 185 seek to remove aspects of economic policy from national ordinary politics. These mechanisms rely on courts, including supranational courts (the CJEU), to enforce austerity,Footnote 186 or, as in Colombia, when courts do not fall in line, parts of the executive branch. When successful on its own terms, neoliberal constitutionalism reduces courts’ ability to counter neoliberal policies through rights adjudication. Yet, courts are not always reliably constrained. The Portuguese Constitutional Court struck down austerity despite ‘golden rule’ provisionsFootnote 187 and the Colombian Constitutional Court watered down the fiscal sustainability amendment through interpretation.Footnote 188 Modern constitutional courts routinely encounter competing constitutional provisions. While neoliberal constitutionalism seeks to balance out socio-economic rights by expressly addressing the market-social dynamic at the level of constitutional text and doctrine, the final balance is struck by courts.
A separate issue is whether courts might potentially review, e.g. under a doctrine of unconstitutional constitutional amendments,Footnote 189 the validity of neoliberal constitutional mechanisms. A case for such review would presumably be stronger where, as in some EU countries, the relevant constitutional amendments were introduced through simplified procedures, not matching the aspirations of constitutions as deeply democratic and foundational documents.Footnote 190
The third structural constraint on courts is the globalised economy itself. Mark Tushnet has argued persuasively that the most important constraint on socio-economic rights adjudication involves neither concerns over the legitimacy and capacity of courts but the fact that if courts go too far against investors’ preferences, this may inhibit foreign investment and thus growth and therefore delay enjoyment of the very socio-economic rights that judges were seeking to protect.Footnote 191 The international nature of the Marktvolk, fuelled by the mobility of capital in a globalised economy, constrains national institutions, including courts, operating within a broadly neoliberal economic development programme, as investors have the option to exit by taking capital elsewhere. Additionally, investors may exit the national context by rejecting the jurisdiction of national courts in favour of international arbitration or foreign (usually US or UK) law and courts.Footnote 192 In other words, national courts are structurally constrained by the Marktvolk’s concerns in ways similar to other branches of the state.
A similar argument can be made in the context of financial crises: that national courts cannot, or should not, strike down economic policy even when its democratic pedigree is flawed if doing so would have disastrous economic consequences that courts are unable to control. Abandoning automatic deference may work when democratic deliberation is practically possible, but not during crises. This argument is in tension with Streeck’s observations that crises are not extraordinary events.Footnote 193 On a legal level, responses to the crisis-based argument can be framed as a choice between a ‘business as usual’ or an ‘accommodation’ approach.Footnote 194 Under the former, emergencies are treated under standard applicable rules, which in the socio-economic sphere tend to already include significant flexibility, but under the latter a new regime kicks in when the existence of an emergency is established. The view associated with Streeck would recommend a ‘business as usual approach’ while the argument that courts are constrained by the risks of crisis situations would call for an ‘accommodation’ approach. None of the courts discussed in section III applied a full accommodation approach, e.g. through derogation mechanisms, but often cited the economic crisis as a reason for increased discretion, effectively introducing accommodation into a ‘business as usual’ approach.Footnote 195
The argument of this article against doctrinal deference is not that courts should disregard the importance of financial markets or deny the immediacy of crisis situations.Footnote 196 Rather, socio-economic rights adjudication can push the envelope of what investors must accept, shifting the balance of powers between the Staatsvolk and the Marktvolk, changing the terms of what is and is not negotiable, and shifting the emphasis from the framework of market justice to social justice. In the terms of destabilisation rights, it involves recognising that there are many available equilibria between the market and the social and a normative judgment that disruption of the status quo is appropriate.Footnote 197
The difficulty with this idea of a new court/rights influenced equilibrium is the reasonable concern that it would either be too big of a shift, plunging the country into economic chaos, etc., or too small, merely ‘tinker[ing] around the edges of modest discretionary social welfare programs’.Footnote 198 Even worse, if too small in this sense, judicial review may legitimise the larger neoliberal programme, which has significant ability to adapt on the margins to certain societal demands without meaningfully changing the distribution of power.Footnote 199
Against this the idea of too big or too small is Roberto Unger’s vision of transformative thinking. Rejecting the dichotomy, Unger argues that transformation of societal structures will inevitably be made up of many steps.Footnote 200 Each may seem inconsequential in isolation but the impact depends on the larger context; if each step can be linked with other steps in a larger direction of societal reimagination, transformation can be achieved. Similarly, individual instances of socio-economic rights adjudication, viewed in isolation, may seem nearly meaningless. However, if linked to a larger context and a larger direction, litigation may form one step among many others towards socio-economic transformation.Footnote 201
VI. Conclusion
In the neoliberal era, the rise of markets has come at the expense of democracy; the ideals of market justice at the expense of social justice. The question raised here is whether we can view courts as an element of a strategy towards rebalancing this dynamic. We have seen how the issue surfaces in austerity litigation, where the state responds to financial markets’ demands by reducing their commitment to socio-economic rights programmes and courts respond by deferring to the political institutions and thereby to the market by proxy. The article has shown that courts have some tools to alter the dynamic between the public and financial markets. The state’s dependence on and deference to financial markets allows us to argue that such influence by courts is legitimate and democratic.
